How Courts Determine What Lost Stock or Shares are Worth

In many business law and employment law cases, the measure of damages is the value of lost stock, or the diminishing of value of stock or shares. But unlike money that is due or unpaid on a contract, company stock can be a lot harder for a court to value. As anybody who owns stock knows, the value fluctuates, and valuing shares requires, to some extent, peering into the future.

The Time of the Breach

There are a few methods that courts use to value lost shares or stock, when they are a measure of damages in a business law or employment law case.

Courts can just take whatever the value of the stock is, at the time of whatever breach has caused the loss of the stock or the loss of value in the stock. Courts can ask what someone would pay for a share (or multiple shares) at the time that the breach occurred.

But while easy, this is just a single snapshot in time, and may not represent the true value of the stock.

Past Performance

One way is to look at the performance of the stock or the value of the stock, over a set amount of time in the past. How much has that stock been worth? What have shareholders traditionally received as dividends in the past?

Courts usually won’t use the highest value, but they won’t use the lowest either. Courts will take an average, and assume that past performance is a measure of future performance, and value the shares on that basis.

Future Profits

Litigants who have lost shares or value in shares, likely want to be compensated for the value of that stock many years into the future. But this can be very speculative (less so with publicly traded companies however, which are more stable, and where there is more of a prior history to look at).

Again, mathematically, a court can look at the rate of increase or decrease in value, and apply that in the future. Still, there must be a limit—there is no way to know when someone would have sold their shares, had they still had them.

Giving Stock Away

Because of the difficulty in these kinds of cases valuing an uncertain asset, many courts have just ordered that lost stock be given to aggrieved individuals where the loss of stock as a part of the damages.

This is helpful in cases where shares have been lost, or a litigant has been deprived of shares, but is not as helpful in cases where the aggrieved party still has the shares, but the damages are loss of value of shares (such as in a shareholder derivative lawsuit).

Note that shares have to be actually vested—stock options in the future are often seen as too speculative to be a measure of damages.

What are your damages in your business law case? Call our Fort Lauderdale business lawyers at Sweeney Law P.A. at 954-440-3993.

Sources:

rezlaw.com/wp-content/uploads/2021/06/Lee-Loisel_What-about-my-stock-Plaintiff-magazine.pdf

vensure.com/employment-law-updates/california/california-court-of-appeals-stock-options-are-not-wages/