Opinion ID: 6103948
Heading Depth: 2
Heading Rank: 3

Heading: Damages for the Company’s Lost Book Value

Text: The jury was instructed to measure the “[d]amages to Signature’s company value.” 9 It awarded over $56 million. The court of appeals concluded that $12.4 million of that amount was supported by legally sufficient evidence. 628 S.W.3d at 579. The $12.4 million upheld by the court of appeals was derived from the calculations of SIS’s expert, who testified that SIS’s “book value” declined by $12.4 million as a result of the breach. While book value serves a purpose in accounting, we conclude that a drop in book value, without more, cannot support an award of consequential damages for breach of contract. Again, consequential another matter. And whether bars other than foreseeability would foreclose such damages is a question we do not address. 9 The jury charge did not define “company value.” To the extent “company value” is understood to mean market value, we have already explained why a decline in SIS’s market value was unforeseeable and therefore unrecoverable. To the extent “company value” could refer also to “book value,” we will separately address the court of appeals’ allowance of $12.4 million in “book value” damages. 18 damages must be “proved with reasonable certainty.” Phillips, 475 S.W.3d at 278. SIS’s use of book value as a damages measure fails to satisfy this requirement. The jury was asked to rely on SIS’s bottom-line book value without analysis of specific items on the balance sheet. SIS’s expert testified that before the breach, in December of 2013, the company had a book value of $3,322,442. After the breach, in March of 2016, that value was underwater by $9,109,059. The difference between those two numbers is the $12.4 million upheld by the court of appeals. We cannot agree that SIS proved losses of $12.4 million with the requisite reasonable certainty. To begin with, SIS seems to have used book value as a proxy for the value of the company as an asset, i.e., its market value. But “[b]ook value and market value are not the same.” Pike v. Tex. EMC Mgmt., LLC, 610 S.W.3d 763, 785 (Tex. 2020). In Pike, the plaintiff tried to demonstrate the value of an interest in a partnership by showing the book value of its cement plant. Id. We rejected the evidence as insufficient to show the actual loss in value suffered because the book value of the asset is not its fair market value. Id. at 784. Instead, book value is “simply the value of [a company’s] total assets . . . less the value of its total liabilities”—that is, “the amount of the company’s assets that would be left after the company’s creditors are paid off in full.” HAAS, CORPORATE FINANCE 74. It is an accounting concept, the decline of which does not necessarily reflect actual losses to the company. Merely demonstrating a decline in book value, as did SIS’s expert, does not prove any actual losses—with reasonable certainty or otherwise. For this reason, Texas courts have long rejected the use of 19 book value as a measure of damages. “Book value is entitled to little, if any, weight in determining the value of corporate stock, and many other factors must be taken into consideration.” Bendalin v. Delgado, 406 S.W.2d 897, 900–01 (Tex. 1966). Several court of appeals decisions similarly criticize attempts to use book value as a proxy for the value of a company to its owners. 10 We see no reason to depart from these precedents. As an accounting measure, book value has its uses. But the aggregate number itself offers only a limited, big-picture view of the company’s financial situation. It tells the jury nothing about the underlying losses actually suffered by the company that contributed to the drop in book value, and it tells the jury nothing about the overall decline in the market value of the company as an asset. The $12.4 million in book-value damages upheld by the court of appeals must be reversed.