Everyone knows that high-stakes civil litigation often boils down to a battle of experts. Each side hires a pro, and whichever pro can convince or charm the jury or judge wins.
Here’s a case in which an expert economist allegedly tried to play on both sides of an issue, in a way that his client says cost it a $30-million payday. As a result, he’s being sued by the client for that lost judgment, plus $5.5 million in interest.
The client says the expert, W. Bradford Cornell of UCLA and Caltech, only took its case to wreak revenge on a colleague who was representing the other side. But in doing so he left a paper trail showing that he really thought his own client’s position was lousy, which the other side exploited in court.
It is very difficult to win an appraisal case in this way.
As Matt Levine of Bloomberg put it when he noticed this lawsuit, it’s one thing to view the battle of experts as “an entirely cynical process in which each side hires an expert who doesn’t believe anything, but who says whatever they want for a fee.” It’s quite another when the battle involves a grudge held by one expert against the other, which is allegedly what happened here.
You may need a scorecard to help keep the players straight, so here it is.
The plaintiffs are two Cayman Island hedge funds that operate out of Greenwich, Conn., under the name Verition. The defendants are Cornell, a respected emeritus professor at UCLA and visiting professor at Caltech, and his consulting firm.
Verition was a sizable owner of AOL stock in 2015, when that online company was acquired by Verizon for $4.4 billion, or $50 per share. As often happens in such cases, Verition questioned the price in Delaware Chancery Court, arguing that AOL had sold itself too cheaply and thus had deprived shareholders like itself of a bigger payoff.
No one should be surprised that the experts’ valuations met their clients’ expectations neatly. Verizon’s expert, Daniel Fischel, a former University of Chicago economist and head of the consulting firm Compass Lexecon, came up with $44.85 per share. Cornell, Verition’s expert, proposed $68.98 per share.
Delaware Vice Chancellor Sam Glasscock III, the judge refereeing the dispute, settled last year on an intermediate value of $48.70, which he later reduced to $47.08. This was a blow to Verition, which calculated its loss at $25.2 million, which it says is the difference between Cornell’s estimate and Glasscock’s conclusion.
But as it turned out, the matter wasn’t so clean. In his ruling, Glasscock stated mysteriously that “for reasons not necessary to detail,” Verizon “questioned Dr. Cornell’s impartiality,” and Cornell’s estimate was effectively tossed out.
Those “reasons,” as it turned out, are at the core of Verition’s lawsuit against its own expert. And they’re a pip.
Verition says it didn’t know that before the trial, Cornell had pitched his expert opinion to Verizon. In doing so he had ridiculed Verition’s position. Verition says that in emails it has in its possession, Cornell said he thought Verizon “had the better side of the case” and described Verition’s position in terms generally frowned upon in family newspapers but often used to describe fecal matter.
The emails, Verition says, demonstrate that Cornell was motivated to become its expert by spite. He was irked that Verizon had rebuffed his offer and chosen Fischel as its expert.
As it happens, Cornell was himself affiliated with Fischel’s Compass Lexecon at the time. After Verizon hired Fischel, Verizon says, Cornell jumped to Coherent Economics, a competing firm. He sent Fischel an email in which he wrote: “Like you I tend to bear grudges. … When Verizon/Wachtell chose you without even talking to me further that leads to a grudge against them. Consequently, I have had some conversations with plaintiffs [i.e., Verition].”
Verition says it had no inkling of Cornell’s overtures to Verizon when it was recruiting him as its own expert or after he’d been hired, at an hourly rate of $1,050 plus expenses. Instead, Verizon detonated this time bomb by “springing these communications on [Verition’s] unsuspecting counsel” after Cornell had issued his valuation report.
Coherent says it doesn’t comment on pending litigation. Cornell said via his attorneys that he “vehemently” denies all of Verition’s allegations of wrongdoing. “Many of the material allegations are inaccurate or untrue,” according to his statement. The statement added that he “provided exemplary expert witness services that met and surpassed the applicable standard of care,” and called the result a “successful outcome” for Verition, given “a Delaware legal environment that has become increasingly tougher on plaintiffs in appraisal cases.”
Verition asserts that the disclosure of Cornell’s talks with Verizon and Fischel wrecked the hedge funds’ case, since Verizon was able to make the point that Cornell’s “unvarnished” opinion, expressed in his emails, was “more revealing than anything Cornell wrote in his expert reports.”
In the event, Glasscock used the calculations of Verizon’s expert, Fischel, as the starting point for his own calculations. As the hedge funds asserted in their lawsuit against their own expert, “It is very difficult to win an appraisal case in this way.”
Throughout early 2017, Verition dickered with Coherent over the Cornell bill. Coherent pointed out that its bill was never supposed to be “contingent on the opinions offered by the expert [or] the results of the litigation.” Nevertheless, perhaps sensing that it wasn’t on very firm ground, it offered to discount its bill from $1.35 million to $750,000 “as a gesture of goodwill and to settle any and all issues outstanding between our firms.”
Verition wasn’t having any of that. In a letter last December ultimately replicated almost word for word in its lawsuit, the hedge fund firm says it was “fraudulently induced” to enter into the contract with Coherent and demanded the full $35.7 million it says it lost (including interest). That’s where things stand just now.
Bloomberg’s Levine suggests that there are no broad lessons to be learned from this case, except for one, which we agree: If you’re an expert witness and really don’t believe in your client’s case, that’s all right — just don’t say so in an email.