Increased Cost of Credit - or Not?

TASA ID: 1989

Actual Case:  Plaintiff was a farming operation suing a supplier whose representatives allegedly incorrectly advised the farmer on application of a chemical that resulted in reduced crop production.  One of the causes of action was increased credit cost because his lender asked him to refinance due to his poor performance in the year of the loss.

Regarding the increased credit cost, a lending expert was engaged.  Documents were requested from Plaintiff, Plaintiff's accountant and his bank, depositions taken on Plaintiff, and Plaintiff's accountant and Bank representatives.  Several thousand pages of documents were produced, covering years going back to the beginning of Plaintiff's relationship with the bank, which was relatively short term.  The expert was commissioned to opine on the increased credit cost.

Expert noted early, while discovery was still in progress, that there were no budgets, which are almost universally required in financing Plaintiff's type of operation.  Budgets were requested, but not received until quite some time later.  Expert's analysis revealed Plaintiff had flat to declining income trends over the three years prior to the loss.  During the same timeframe, it appeared Plaintiff had financing at interest rates offered to industry peers that were performing in the upper quartile of the industry.  In his deposition, Bank's lending officer depicted his customer as a leader in his industry and a premier performer.  The lending officer's supervisor was slightly less positive about it.  Through his research, Expert determined Plaintiff was actually in the bottom quartile.

While reviewing documents, Expert noticed there were two private loans that were not disclosed to Bank, as required in the loan covenants.  Suspecting the loans may have been used to cover prior losses, the expert looked further.  He discovered Plaintiff's bank loans refinanced loans from his prior lender that were in their special asset (problem loan) department, something prime lenders avoid.

In the meantime, Plaintiff's crop budget for the year of the loss was produced.  It indicated the farming operation was expecting to lose money, even if there had not been any crop damage.

Midway through the litigation, the suit was converted to binding arbitration.  The expert was called to testify.  A short recess was taken as the expert's testimony was about to begin.  The parties came back after the recess and announced the matter was being dropped and the hearing was dismissed.

Not every case comes out like this.  The point is that early engagement of an expert can help refine discovery and get the valuable information.  Good preparation will help assure that depositions and courtroom testimony will present your side of the case in the best possible light.  If your opponent knows you are well prepared, it may even result in settlement prior to expensive depositions or courtroom testimony.

When selecting an expert, following are some traits to consider.  The expert should be:

• Well qualified in the topic
  • Direct, front line experience is most desirable
• Inquisitive
• Attentive to detail
• Articulate in written, verbal and visual communication
• Stable while under pressure

When it comes to winning or mitigating damage, a knowledgeable, well-prepared expert can pay high dividends.

This article discusses issues of general interest and does not give any specific legal or business advice pertaining to any specific circumstances.  Before acting upon any of its information, you should obtain appropriate advice from a lawyer or other qualified professional.

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