Opinion ID: 2708942
Heading Depth: 2
Heading Rank: 3

Heading: The damages calculation

Text: Judgment secured, the plaintiffs proposed a three‐step method for calculating their damages, and offered expert testimony in favor of their theory. The expert first measured the portion of KBP ownership lost as a result of the defend‐ ants’ diluting the plaintiffs’ stake in the company. She termed this amount the plaintiffs’ “adjusted KBP ownership percentage”—i.e., what share of the company they would have owned absent the defendants’ misdeeds. The expert then multiplied this figure by the price a real‐estate firm called Orco had offered to purchase all of KBP’s shares to yield the plaintiffs’ gross damages. Finally, the expert sub‐ tracted the actual value of the plaintiffs’ KBP shares to calcu‐ late their net damages. 20 No. 13‐2435 Fixing KBP’s present value (from which the plaintiffs’ share value was derived) was tricky, because the defendants did not turn over some of the relevant company documents. Thus, the plaintiffs’ expert relied on the 2009 offer of another business—Apollo‐Rida Poland sp. z o.o.—to buy all of KBP’s shares. Finally, because the default judgment had estab‐ lished liability under RICO, the damages were trebled, for a total of just over $413,000,000. The defendants raised no objection to the plaintiffs’ use of “adjusted ownership percentages” as a baseline to meas‐ ure their damages, and did not question the qualifications of the plaintiffs’ expert. Instead, the defendants objected to the use of the Apollo offer to fix KBP’s present value and to the certainty of their claimed losses from the Orco deal. The de‐ fendants did not offer a damages expert or theory of their own. They moved for an evidentiary hearing to establish damages, but their motion was denied. The district judge acknowledged that the plaintiffs’ theory was perhaps specu‐ lative, but adopted it anyway, both because the defendants’ had put forth no alternative and because she found it was their obstructionist behavior that made business records hard to come by. We review for an abuse of discretion both the district court’s damages award and its decision about the damages hearing. See BCS Servs., Inc. v. Heartwood 88, LLC, 637 F.3d 750, 759 (7th Cir. 2011) (noting that plaintiffs have a relaxed burden of proof and broad latitude in quantifying damages); Lewis v. City of Chicago Police Dep’t, 590 F.3d 427, 440 (7th Cir. 2009) (review of evidentiary matters is for abuse of discre‐ tion only). We do not disturb a damages award accompany‐ ing a default judgment unless it is plainly excessive. Wehrs v. No. 13‐2435 21 Wells, 688 F.3d 886, 892 (7th Cir. 2012). That said, while a de‐ fault judgment conclusively establishes liability, the victor must still prove up damages. Any allegations in the com‐ plaint relating to liability are considered true, but allegations going to damages are not. Id. But our decisions allow “broad latitude” in quantifying damages, “especially when the de‐ fendant’s own conduct impedes quantification … [—e]ven speculation has its place in estimating damages.” BCS Servs., 637 F.3d at 759. As in any damages calculation, the amount sought must “naturally flow from the injuries pleaded.” Wehrs, 688 F.3d at 893. The defendants raise a multitude of arguments attacking the damages award. However, their claims really boil down to this: the damages were not sufficiently certain for the dis‐ trict court to calculate them without holding a hearing. The defendants challenge the certainty of the “adjusted owner‐ ship percentages,” the accuracy and certainty of the Orco of‐ fer used to calculate the gross loss amount, and the reliabil‐ ity of using the Apollo offer to calculate KBP’s present value. Because the defendants did not challenge the plaintiffs’ adjusted ownership computations in the district court, they have forfeited their right to do so here. See, e.g., Hicks v. Avery Drei, LLC, 654 F.3d 739, 744 (7th Cir. 2011). We there‐ fore review only for plain error, but the defendants could not prevail under an abuse‐of‐discretion standard, either. Once the defendants were found liable for diluting the stock, the adjusted ownership percentage could be calculated with simple arithmetic. The defendants did raise complaints about the Orco offer below, but there is nothing to suggest that the district court erred on this front. The defendants contend that Orco’s offer 22 No. 13‐2435 was too high because it did not take into account KBP’s con‐ siderable debt. But an Orco official, who was deposed in this case, made it clear that Orco was to assume KBP’s debts in the deal, meaning that KBP’s debt obligations were built into the proposed purchase price. The defendants also claim that because the Orco deal was not final, it was insufficiently def‐ inite to support the damages award; Orco could have backed out, leaving the plaintiffs unharmed by the defendants’ con‐ duct. But this contention again ignores the testimony of the Orco official, who avowed that the deal would have gone forward as planned if the defendants had not scuttled it. The defendants’ blocking the deal was what gave rise to their li‐ ability—in other words, through the default judgment, the plaintiffs conclusively established that the deal would have gone off without a hitch but for the defendants. Thus, the plaintiffs have properly proven their gross losses from the Orco deal. As for the Apollo offer, the plaintiffs admit that it was not the best way to value the company. The offer was four years old, nonbinding, and subject to a slew of conditions. And the plaintiffs’ expert acknowledged that a discounted cash‐flow analysis would have been the best way to ascer‐ tain then‐present value. But the documents needed to per‐ form the preferred analysis were unavailable—thanks to the defendants—and the expert thought that the Apollo offer was a sensible alternative. The district judge reasonably found this methodology permissible, especially because the defendants had withheld documents that might have aided in a more accurate valuation. There was no abuse of discre‐ tion in adopting any of the inputs in the plaintiffs’ damages formula. No. 13‐2435 23 Nor did the district court abuse its discretion in denying the defendants a damages hearing. The defendants argue that a hearing was necessary to permit them to question the author of the Apollo offer. They also complain about the of‐ fer being four years old. But what the defendants don’t dis‐ pute—that the Apollo offer was genuine—is key. The Apollo offer was a reasonable way to value the company in the cir‐ cumstances, and it was a definite figure. The defendants did not submit a damages expert or put forth an alternative damages theory of their own, though they presumably pos‐ sessed sufficient information to construct one. See BCS Servs., 637 F.3d at 759. The district court had figures in hand. In these circumstances it was no abuse of discretion to decline to hold a damages hearing. See Dundee, 722 F.2d at 1323 (not‐ ing that a damages hearing is unnecessary when “the amount claimed is liquidated or capable of ascertainment from definite figures contained in the documentary evidence or in detailed affidavits”).