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Unfortunately we live in a litigious society.
I have experienced this firsthand after successfully defending myself against a $4 Million frivolous lawsuit initiated by my ex-wife.
Despite winning, my pocketbook still took a massive hit.
My legal defense totaled $125k.
Plus having to take off time and pay someone to cover me added another $25k to the pot.
I am not sure what the arrangement was between my ex-wife and her lawyers, but she potentially could have walked away without losing a cent if the lawyers agreed to take the case under contingency.
I am hoping this was not the case and she had to suffer a financial hit as well but I will never know if that was indeed the case.
It definitely does not seem fair that you can initiate a frivolous lawsuit and then not be responsible for the defendant’s legal bills that were incurred.
Without some sort of punitive ramification placed on this type of plaintiff, there really is nothing to stop this practice from going on in perpetuity.
My $4M civil lawsuit was not the inspiration for this post however.
Nope, the inspiration for this post took millions of years in the making.
Let me explain.
I happen to be a big fan of the Discovery Channel.
I previously got hooked on Gold Rush and always keep an eye out for new offerings.
One show, Dino Hunters, caught my interest and I passed the time during lockdown watching the entire first season.
The premise of the show was following landowners out in the Midwest that were struggling to maintain their farms who then began to pivot to other sources of revenue, mainly digging up and selling dinosaur fossils present on their land.
There was a mention of one fossil in particular, a near complete Tyrannosaurus Rex skeleton, that was the true source of inspiration of this post.
This Tyrannosaurus Rex skeleton was unearthed on a farm in South Dakota.
Near complete Tyrannosaurus Rex skeletons are quite rare, estimated at around 50 worldwide.
The most famous of the Tyrannosaurus Rex skeletons was from a dinosaur nicknamed “Sue,” which was sold at an auction in 1997 to the Field Museum in Chicago for $8.3M.
This particular Tyrannosaurus skeleton was not nearly as complete as Sue but it was quite valuable nonetheless.
The Legal Issue.
There had been prior arrangements made between the Dinosaur hunter who discovered the remains and the landowners about how the profits would be split on any find.
One particular clause became the point of contention for the case that has drug out for years.
If the Tyrannosaurus Rex skeleton was sold essentially as is, the landowners would be entitled to 60% of the proceeds and the dinosaur hunter would get 40%.
If, however, the Tyrannosaurus Rex skeleton was professionally prepared (i.e. ready to be displayed in a museum), the landowners share would go down and both the landowners and the dinosaur hunter would split the proceeds 50-50 (which would presumably be based on a higher value of sale for the extra preparation work).
This particular Tyrannosaurus Rex skeleton ended up being sold at auction for an undisclosed sum.
The landowners felt that the final product was not significantly different from the skeleton extracted from the site and claimed that because of this they felt it did not qualify for a reduction in their share, wanting the full 60%
The dinosaur excavation company argued that they spent countless hours preparing the bones prior to sale and that this qualifies as a prepared specimen, allowing them to claim 50% of the proceeds.
The ramifications of the lawsuit.
At the end of season 1 of Dino Hunters (2020), the legal battle was still ongoing (the lawsuit was initially filed in 2017 after the skeleton was purchased in February 2017).
Part of the purchase agreement required the parties to contribute $450k from the sale proceeds into an escrow to finance the legal teams involved.
I tried to search the internet if the case happened to have a resolution and at the time of this writing. I could not find any.
This means that this case has been ongoing for at least 4 years.
So what exactly are the financial ramifications of this lawsuit and can there be a winner?
As mentioned previously, the sale of this dinosaur skeleton in 2017 was for an undisclosed amount.
Also mentioned previously was that the most complete Tyrannosaurus Rex skeleton (“Sue”) was purchased for $8.3M in 1997.
Let us just assume that this Dino Hunter skeleton would fetch at maximum a similar amount (factor in 20 years of possible cost appreciation and penalize this skeleton for being not as complete).
That would make the total amount of money being fought over come in at $830k (the entire lawsuit is based on 10% of the sale and where that 10% should be allocated).
Of course you have to factor in legal fees and having gone through a highly contentious divorce, I can almost guarantee you that the amount of money in the escrow has considerably dwindled away.
So now the amount in play is likely around $400k that the participants are battling over.
According to the dinosaur hunter on the show, throughout the process he has not received any proceeds from the sale whatsoever (and I assume the same goes for the landowner with the entire amount tied up in the legal proceedings).
The Dino Hunter went on to say how, after investing so much time and money into the Tyrannosaurus Rex dig, not having anything to show for it was financially devastating and taking his company to the very brink.
Why this lawsuit makes no financial sense for both parties.
I am going to propose 3 possible scenarios that could have played out without having to drag out a legal case in courts.
The landowner never sued and accepted that the skeleton was prepared.
Both parties would get 50% of the proceeds.
Let us assume the sale price was the same as the Sue Dinosaur and after selling fees/commissions, the total proceeds would be $8M.
Each party would receive $4M and after taxes (top tax bracket was 39.6% in 2017) the net proceeds would be $2.416M.
To hit the amount $400k fought over, each party only needs to have invested the money to get a 4.1% return from 2017-2021.
The dinosaur hunter accepted that the skeleton did not qualify as being prepared.
The landowner would get 60% of the proceeds: $4.8M pre-tax and $2.899 post-tax.
The dinosaur hunter would get 40% of the proceeds: $3.2M pre-tax and $1.93M post tax.
To hit the amount $400k fought over, the landowner only needs to have invested the money to get a 3.4% return from 2017-2021.
To hit the amount $400k fought over, the dinosaur hunter only needs to have invested the money to get a 5.2% return from 2017-2021.
Both parties decide to split the difference.
The landowner would get 55% of the proceeds: $4.4M pre-tax and $2.657 post-tax.
The dinosaur hunter would get 45% of the proceeds: $3.6M pre-tax and $2.174M post tax.
To hit the amount $400k fought over, the landowner only needs to have invested the money to get a 3.8% return from 2017-2021.
To hit the amount $400k fought over, the dinosaur hunter only needs to have invested the money to get a 4.6% return from 2017-2021.
In the above scenarios, even the worst case scenario for a particular party (the dinosaur hunter) only requires a 5.2% return on initial after tax proceeds to have a breakeven with the true amount of money currently being argued about in court (just investing in the S&P could have more than accomplished that over that time frame)
And the above breakeven calculations assume that the court proceedings were to end this month (which in all likelihood it will not).
As the court case continues to drag on, the pendulum dramatically swings towards any of the above scenarios making the best financial sense.
The real winners.
The only real winners that benefit from a long contentious legal battle are the lawyers.
If lawyers truly had fiduciary duties to their clients (I know I know, I laughed as I typed that out), they would have advised from the get go to settle things out of court.
Instead I am sure both parties found legal teams that encouraged them to play this out in front of the courts which I feel truly was the worst financial move for either party.
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