Authors: Stephen Greenleaf
Litigation Economists
555 Van Ness Avenue
San Francisco, CA 94103
January 18, 1988
Keith A. Tollison, Esq.
450 Main Street
Altoona, California 95555
Re: Disabilily of John C. (“Jack”) Donahue
Dear Mr. Tollison:
Enclosed please find our Economic Loss Analysis for the disability suffered by Jack Donahue In the SurfAir crash of March 23, 1987, along with the supporting Background Report, and Business Market and Industry Profile. We have used the market-share approach for valuing lost future profits. This method yields results which appear to us to be reasonable for Mr. Donahue's real estate sales and development enterprises.
We will be pleased to discuss our findings in greater depth should you so desire.
Very truly yours,
William T. Daters, Financial Analyst
Arthur W. Ely, President
SUMMARY
This report assesses the economic loss to the Donahue family resulting from Mr. Donahue's total physical disability. Analysis is based on federal tax returns, financial statements from Mr. Donahue's former business, market research obtained from banks and from the County Board of Realtors, and interviews with Mr. Donahue's business associates and spouse. For additional background information, the reader should refer to our accompanying report: “Business Market and Industry Profile.”
We find the present cash value of the net economic loss to be in a range from $210,000 to $1,055,000. The lower figure results from a detailed analysis of the case using conservative assumptions. The higher figure results from a more simplified approach, which relaxes our more stringent assumptions.
Our model is a market-share approach. Damages are measured by the share of total market sales Mr. Donahue could have been expected to have attained had he not become disabled. The basic equation of this model is: Average Value of New Single-Family Residence in Altoona County multiplied by Average Market Share equals Predicted Sales. Predicted Sales is then multiplied by Mr. Donahue's Average Return to Sales Ratio. Return is defined as salaries plus cash distributions plus share of changes in equity. All figures have been adjusted to constant 1986 dollars.
Exhibit 3 calculates the Average Value of New Single-Family Residence in Altoona County for the years 1975 through 1986. This period includes several market cycles.
Exhibit 4 calculates the aggregate market share of the real estate development business operated by Mr. Donahue.
Exhibit 5 Calculates Mr. Donahue's average adjusted return to average adjusted sales ratio.
Exhibit 6 calculates Mr. Donahue's yearly earnings lost as a result of disability. We have assumed that Mr. Donahue's market share will increase over a period of five years and remain constant thereafter. This is based upon our judgment of Mr. Donahue's likely prospects for the future.
Exhibit 7 discounts Mr. Donahue's lost earnings to a present value.
Exhibit 8 breaks out Mr. Donahue's lost earnings into an executive salary and a return from entrepreneurial activity. The executive salary is Mr. Donahue's fair-market salary and is discounted at a rate of 3 percent, which is consistent with wrongful-death cases of an employed decedent. The entrepreneurial return is discounted at a higher rate of 25 percent in order to take into account its greater riskiness.
Exhibit 9 calculates the present cash value of Mr. Donahue's lost earnings from his proposed resort complexâNirvana West. Because this project was not yet in start-up mode, we have predicted this amount based on assessments of similar projects in the state and on interviews with informed parties.
Simplified Alternative
: After considerable research and analysis, we have concluded that Mr. Donahue would have an earning capacity of between $25,000 and $125,000 per year, depending upon assumptions.
In addition to the normal discount rate of 3 percent, because real estate is a risky business we would add another 10 percent. Assuming a remaining 18.375-year work life, the calculation yields a present cash value of between $210,000 and $1,055,000âonce again, depending on the assumptions utilized.
It should be pointed out that Mr. Donahue's business experienced rather dramatic fluctuations in profitability over the past few years, making projections of his future income more problematical than those for more stable businesses. This report makes no judgment as to the preferred basis for evaluating Mr. Donahue's circumstances. However, we do note that in the period in question, virtually everyone who entered the real estate market as a broker in this section of Northern California made a significant income from that business.
TEN
As Martha guides the Rolls to the curb, Alec Hawthorne opens the door and steps out. “Put it in the garage, then wait for me in the courtroom,” he instructs through the open window.
Martha raises a brow in an unasked question. When he remains silent as to his purpose, she wrests the burgundy chariot back into the stream of traffic, leaving him to complete his scheme.
Hawthorne glances up and down the block, then inspects the entrance to the Federal Building. Seeing no one who might recognize him, he crosses Turk Street and, after a veronica with a streaking cab, pushes through the door to the restaurant on the opposite corner and descends to the dining room in the basement. The dark and mysterious establishment is perfect for what he has in mind.
He waves away the approach of Ernst, the unctuous maître d', who bears a menu the size of a tabloid, and takes a seat at the bar. Using the mirror that runs the length of the room, Hawthorne confirms that his quarry is where he is supposed to be, which is where he is every noon from Monday through Thursday, lunching with his wife.
Raising a hand, Hawthorne hides the side of his face visible to the couple in the rear, the ones flirting with each other as unashamedly as if this were their first date instead of their fifth decade of marriage. After confirming that his presence is unremarked, he orders a brandy, glances at his watch, takes a healthy gulp, glances at his watch again, then eyes the reflection of the man he is waiting for a chance to approach in private.
Five minutes later the target busses his wife on the cheek, stands, tosses two bills on the table, helps his wife to her feet, hands her a coal-black cane, and guides her toward the exit. Along the way he waves to various diners and red-jacketed attendants, nods briskly to the bartender, pats Ernst on the shoulder as he leaves the dining area. At the checkroom in the foyer he helps his wife on with her wrap, then strolls toward the men's room. As the lacquered door swings open, Hawthorne downs his brandy, tosses a bill on the bar, and hurries to join his quarry. As Hawthorne has anticipated, the two of them are alone, and must share adjoining urinals.
“Good afternoon Judge,” Hawthorne says as he begins his business.
Judge Powell dares a sidelong glance. When he recognizes his coreliever, he smiles. “Alec. Good afternoon. How are you?”
“Fine.”
“Ticker back on track again?”
“Right as rain.”
“I suppose you're down for the SurfAir business.”
“Yep.”
The judge hesitates, confirms that they remain alone, then opts for candor. “I was sorry to hear you weren't made lead counsel, Alec. Mr. Scallini is a ⦠hindrance, I'm afraid. Off the record, of course.”
“Of course. I'm sorry I wasn't able to help you out on this one, Your Honor.”
“Well, I miss you, I don't mind saying. I don't have any official word on how things are going, but rumor has it the case has bogged down in discovery.”
“I'm afraid that may be true.”
“Apparently, Mr. Scallini has some outlandish theory of liability that will take years to establish, if one of the more bizarre stories floating around my chambers proves true.”
“I've heard something like that as well, I'm afraid,” Hawthorne admits, zipping his pants and stepping back, allowing the judge a final shake in private.
When the old man completes one of the many processes that with age becomes unwieldy, he moves to the washbasin. As he wipes his hands on a roll of paper toweling, Hawthorne begins his pitch.
“I've never backdoored you on a case before, Your Honor, but I'm afraid I didn't meet you here by accident.”
The judge finds him in the mirror. “No?”
“I wanted to let you know ahead of time that even though I'm not on the plaintiffs' committee, I'm going to make a motion this afternoon.”
Powell's brows soar like matching gulls. “You're not withdrawing from the case entirely, are you?” The old man's expression betrays a real concern.
Hawthorne shakes his head. “You may think it odd when you hear it. Out of order, perhaps.”
“Oh?” For the first time, the old man's eyes take on a protective slant, as though he suspects something untoward may be occurring.
Hawthorne hastens to disabuse him. “I've never asked a special favor in all the years I've practiced in your court.”
The judge nods. “I don't remember any, certainly.”
“And I'm not asking for special privilege now. All I'm asking is that you give my motion more careful consideration than you might originally be inclined to.”
“Well, I ⦔ The judge trails into an uncomfortable silence.
Hawthorne looks away, at the crack in the window that exposes rusting reinforcing wires, at the mildew on the ceiling, at anything but the judge he admires more than any other on the bench. “SurfAir is my last case, Judge Powell.”
The old man stops wiping his hands, as though the towel has sprung to life. “What do you mean âlast,' Alec?”
“I mean, after this one I'm retiring.”
The judge joins his fingers in a steeple that would pass for prayer. “Surely not. You have
years
ahead of you ⦠oh.” He colors with embarrassment. “Is it because of your coronary?”
“That. Other things as well. I've just decided I've done enough. And had enough done to me.”
The judge nods. “Aviation practice is exhausting, I'm certainly aware of that. And I know that much of your exhaustion has come in helping me get several of my cases processed faster than they probably should have been. Don't think I haven't appreciated it, Alec, because I have. So of course I'll give your motion every possible consideration.”
Hawthorne finally meets the old man's kindly eyes. “Thank you, sir. If this conversation is improper in any way, I apologize for it. It was just something I felt I had to do.”
Judge Powell pats him on the back and strides briskly toward the door. “What conversation? I'm just here to take a piss. Can I help it if these days it takes me twenty minutes?”
Hawthorne allows time for the judge to leave both the restroom and the restaurant, then does so himself. Without another stop, he returns to the Federal Building, passes the AIDS vigil and the Vietnam veterans and the street people seeking sun, squeezes through the metal detector, and takes the elevator to the eleventh floor.
The hearing is in the largest room in the Federal Building, which is still not large enough to seat all the people interested in the proceedings. These include the regular courtroom denizensâthe retired and unemployed who find more drama in these chambers than in those on TV or in the moviesâas well as several of the plaintiffs themselves, who need not be in attendance but who want to see what's going on and why things are taking so damn long. And the lawyers, of course, many of the more than one hundred of them already of record in SurfAir, as well as their regular retinue in the form of younger associates and, more commonly these days, paralegal assistants.
Hawthorne surveys the scene from the doorway. He sees Vic Scallini ensconced at the table reserved for the plaintiffs' committee and defense counsel; sees Keith Tollison looking bemused and out of place and vulnerable to the surprise that Hawthorne has in store for him; sees Martha conversing with Dan Griffin in the row of seats behind the counsel table; and sees Ed Haroldson just as Ed sees him. They exchange affable waves, and Hawthorne moves to a seat near the front of the room. His goal is to be close enough to be heard by Judge Powell when the time comes to make his motion, and to avoid conversation until that moment.
The cacophony that surrounds him is particularly shrill this afternoon, because a plane has just crashed near Paso Robles, evidently the consequence of a defect not in the aircraft but in the security system. Vengeance in the skies; fourscore victims. Six lawsuits have already been filed.
Hawthorne closes his eyes. He waits for the noise to blot out both his reservations and his better judgment, but the din is not that potent. He is about to risk his clients' welfare more drastically than ever, is about to put his own needs before theirs for the first time in his career. Although he has persuaded himself that he is doing it for a cause that has beneficiaries far in excess of the dozen he represents in the case, he is uneasy with the rationaleâwhen he has indulged in similar justifications in the past, he has invariably regretted it.
Five minutes later, Judge Powell strides onto the stage, accompanied by two law clerks and the clerk of the court. As the four take their seats, the clamor subsides and the crowd scrambles for its places. Because of its size, five minutes later it is still scrambling.
Judge Powell bangs his gavel. Silence slowly finds the room. “This hearing has been denominated a status and settlement conference,” he begins. “Let me take up the last matter first. Have any of these cases been settled. Any at all?”
Scallini and Chambers rise simultaneously. “They have not, Your Honor,” Scallini booms, “except for those instances where the defendants' tactics of threat and intimidation have persuaded a few misguided individuals to believe they would enjoy fair treatment without engaging an attorney to represent them. Five unfortunate families of crash victims haveâwithout benefit of counselâexecuted releases, abandoning their right to fair and full compensation in return for the most minuscule of sums. Efforts are under way to set those settlements aside, but the labor may well be unavailing.