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Juridica NAV dives on loss of case

For the first half of 2015 Juridica reports that its net asset value decreased from US$1.66 (107 pence per share) as at 31 December 2014 to US$1.35 (86 pence per share) at 30 June 2015. This decrease in NAV per ordinary share was primarily attributable to the total comprehensive loss of US$34.2m generated during the six-month period ending 30 June 2015.

The loss is almost entirely attributable to one case – one they call 8008-L – which they wrote off, impacting the NAV by $29.7m. We’ll let them tell you all about it.

During the six-month period ending 30 June 2015, case 8008-L lost a damages appeal in front of the Court of Appeals and then was denied an opportunity for further review by the US Supreme Court. Case 8008-L had already delivered gross returns of US$89.7 million on a direct investment of US$26.0 million. Had the case survived the challenges it faced, we believed the case would have generated cash proceeds to the Company far in excess of its US$29.7 million contribution to the Company’s year-end 2014 NAV.  If the case had actually gone to trial and prevailed, damages could have exceeded US$500 million and would have automatically been trebled. These very unexpected adverse rulings eliminated the prospects of any future receipts from this case and although we recognised the enhanced risk profile of case 8008-L in its valuation at 31 December 2014, these adverse rulings, and the removal of the risk weighted proceeds estimated for the case at 31 December 2014, had a significant impact on the Company’s NAV at 30 June 2015.”

Our accounting fair value is not intended to express our prediction about the ultimate outcome of any investment. It must be emphasised again that any of our litigation assets that carry a value at a particular measurement date could become worthless, even a short period of time after our measurement date, if the case fails to overcome a particular set of hurdles.  In some instances, and particularly for case 8008-L, incorporating a heightened risk of loss may be muted by the potential of the case to overcome its set of legal hurdles.  For case 8008-L, the quantum of potential proceeds had the case overcome its hurdles were very large and thus retained value in the case, even with the heightened risk of loss. 

As noted above, the valuation process is quite complex and considers all elements related to the case and its jurisdiction.  Actions taken by the lawyers are done to best position the case to not only overcome any legal hurdles but also to maximise its potential return.  To illustrate this point, we provide some key elements relative to case 8008-L.  Each of these elements, and the related impact on expected proceeds and potential risk of loss were considered at each valuation date.

   —      Pre-2014 events:

  • Selection of the case was based on its merits and the fact that eight defendants had pled guilty to violating the Sherman Act (specifically price fixing) and more than 20 executives from the defendant companies pled guilty or were indicted and later convicted.  Additionally, under the Sherman Act, there is joint and several liability meaning that each defendant is potentially liable for the full amount of damages.
  • Damages were divided into two groups specific to how the products were purchased (i.e. either purchased directly by the US companies or purchased by a foreign subsidiary of a US company).
  • In pre-trial briefs, the trial judge ruled in favour of the plaintiffs regarding the scope of damages.
  • Settlements occurred for all but the plaintiff with the largest claim. 
  • After completion of discovery and pre-trial motions, the sole remaining plaintiff elected to return to its home jurisdiction for trial.

   —      2014 events:

  • Case was set for trial in March 2014 but just prior to trial, the defendants tried for a third time to limit the scope of damages.  This was seen as a last ditch attempt given that the defendants had lost the issue on two prior occasions in the case.
  • In a highly unusual procedural move, the trial judge reversed the previous judge’s ruling and limited the scope of damages which put the remaining plaintiff’s claim in jeopardy.
  • Plaintiff immediately appealed trial court’s ruling which was viewed by experts as an incorrect ruling.  The appellate court, in a very unusual action affirmed the trial court ruling without briefing or hearing. 
  • The US Department of Justice sought leave to intervene on the basis that the appellate court’s ruling was wrong; did not follow the court’s own procedural rules; and threatened to undermine criminal enforcement of US antitrust laws and the convictions of the defendants in this very case.
  • A series of complex procedural motions and letters were filed which ultimately resulted in the appellate court vacating its own ruling and the matter was put over for full merits briefing and argument in Q4 of 2014. 
  • Of concern was that the appellate panel, which is supposed to be randomly assigned, was the same panel that originally ruled against the plaintiff.  This same panel again ruled against the plaintiff. 
  • Given the procedural violations, the plaintiff requested an “en-banc review” which is a review by the entire panel of judges from the Court of Appeals.  This motion was pending at year-end.

   —      2015 events:

  • The request for an en-banc rehearing was denied in Q1 2015.  This decision was in direct conflict with an appellate ruling in one of the criminal cases on the same issues in the same case, but in a different federal circuit. 
  • Notwithstanding the traditional high hurdle for US Supreme Court review, all parties felt this case had distinguishing factors that made review much more likely than the norm.  This belief was based on: (i) the direct conflict in the appellate courts involving the very same issue in the same cartel case; (ii) procedural violations had occurred during the appellate review and its appeal; (iii) the potential impact the decision would have on US trade policy and criminal enforcement of antitrust laws; (iv) broad support from corporate, political and legal authorities for the case to be heard; and (v) one of the top US Supreme Court practitioners was hired for the appeal. 
  • Shortly prior to 30 June 2015, the US Supreme Court denied the plaintiffs request to review the case. 

While our valuation process considers all risks, including the relevant risk of loss, if a particularly large case, even one which had previously generated significant cash returns, no longer possesses the ability to generate future expected cash returns, the impact on the Company’s NAV can be significant.  This is evidenced by the current period impact of case 8008-L on the Company’s NAV. ”

JIL : Juridica NAV dives on loss of case

 

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