Larry Junior Case

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The case of Larry Hillblom, founder of the multi-million dollar DHL Company started in 1994 when he died after his small seaplane crashed near his home island of Saipan. His body never was recovered.

This paper is done by: Younes Aitouazdi, and 4 other froup members on QDM class on UHD

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Larry Junior Case

  1. 1. Table of ContentsTable of Contents ............................................................................................................................... 1Overview of Facts: ............................................................................................................................. 3Simple decision tree ........................................................................................................................... 5Simple decision tree ........................................................................................................................... 5Statement of the Model ...................................................................................................................... 6Results of Modeling ......................................................................................................................... 11Conclusions/Recommendations ....................................................................................................... 12 1
  2. 2. Executive SummaryThe case of Larry Hillblom, founder of the multi-million dollar DHL Company started in 1994 when he died after his small seaplane crashed near hishome island of Saipan. His body never was recovered. He left a fortune worth an estimated $750 million before taxes in a Trust. The primarybeneficiaries were the medical schools of the University of California. He had never married and had no legitimate children. His will did not includea clause disinheriting any illegitimate children. The problem started when a one alleged illegitimate child, Junior Larry Hillblom, born in 1984 filed alawsuit claiming a share of the estate. With $750 million at stake, Junior Larry aged 12 years old at that time, faced some intimidating obstacles toget a piece of the pie. First Larry Junior must await for the outcome of a proposed law called the Hillblom Law pending in the local legislature thatwould, in effect disinherit him because he is illegitimate child. Second Larry junior need to prove that he is the son of the deceased using DNAmatching, however Larry Hillblom body was never found and there was no physical trace in his house or anywhere else. The only way to get hisDNA is through a mole that was removed from his face in a previous surgery, to make the circumstance worst the mole is in the possession of theprimary beneficiary which was the medical schools of the University of California. If Larry Junior’s lawyer is able to challenge the law and getaccess to the DNA and prove than Larry Junior is Hillblom’s son, then in one hand they will face a decision to either accept a settlement or to go tocourt. On the other hand using the worst case scenario they could lose the case. The question is should Larry Junior settle or go to court?As the advisor of Larry Junior and his lawyers, based on a Simple Decision Tree analysis, we advice them to reject the settlement and go to court,this resolution would yield the best outcome possible from this case as we will show in figure1. 2
  3. 3. Overview of Facts:The case of Larry Junior is complicated and substantial. His case is full of challenges and irregularities. While vehemently denying that Larry juniorwas Mr. Hillblom’s son in early 1996 and before the outcome of the Hillblom law, the trustees of the Hillblom estate offered Larry Junior asettlement worth approximately $12 million if he would abandon his entire claim to the estate. Larry Junior and his legal team should weight theirchances if they go to court against accepting the settlement.If the reject the settlement and decide to go to court, first his legal team needs to await the outcome of the proposed Hillblom law, which was writtenunder a serious financial pressure from attorneys for the Hillblom estate. On one hand if the law fails to pass, it would be a positive outcome forthem, and then they could move to the next challenge. The chances that this would happen are 40%. On the other hand if the law is passed, theirremedy is challenge its constitutionality, their chances to win the challenge are 30% against losing with a 70%.If the law fail to pass or if they success to challenge it, their next step is to find a DNA source to use it to prove that Larry Junior is the son of thedeceased. Their chance to get a DNA source is 80% against 20% not to get it. If they get the DNA source, the come to the most important and mostcrucial step in the case, which is showing that the DNA is a match, which prove that Larry Junior is the son of the deceased; Their chance to provethat the DNA match is 70%.So far there are many probabilities where Larry Junior would lose his case: The Hillblom Law pass and they fail to challenge its constitutionality. 3
  4. 4. They fail to get a DNA source. They fail to prove that the DNA is a match.If the DNA matches, Larry Junior attorneys believe the Hillblom estate will offer a settlement of approximately $40 million to avoid going to court.If they reject the settlement they face an unsure outcome in court. They believe there is 20% chance that they would lose their case, 4% chance thatthey would win and receive $338 million, 16% chance they would win and receive $68 million, 40% chance they would win and receive $34 million,and a 20% chance they would win and receive $17 million.Larry Junior and his attorneys face a very difficult decision. Should they accept the settlement or hope that the Hillblom law does not pass, theywould find a DNA source, and they establish Larry Junior’s rightful claim to the Hillblom estate?Our first step is to draw a simple decision tree representation of the uncertainties and decisions Junior Larry faced. As we describe and fill in this tree,we will provide details of background information describe the alternatives and explain the thinking behind our estimates. 4
  5. 5. Simple decision tree 5
  6. 6. Statement of the Model The initial decision in this case is whether or not to accept the estate’s settlement. In order for this decision to be made, Larry Junior must alsoconsider the effects of the Hillblom Law if he rejects the offer. This tree is referred to as a multistage decision tree. The decision tree shows that thefirst decision that Larry Junior faces is whether or not to accept the offer. If the offer is accepted, we know that he will receive 12 million dollars, andif the offer is rejected, we have to consider the Hillblom Law possible effects. When considering the effects of the Hillblom Law, we know that there is a .60 possibility that the law will be passed, which means there is a.40 possibility that it will not be passed. If the proposed law is passed, Larry will receive $0 and his attorneys would then have to consider theconstitutionality of the law. If the law fails, Larry would then have to try to obtain the DNA sample. 6
  7. 7. We show this on the branches because it illustrates the risk profile. A risk profile is the part of the tree that shows the chances associated withthe possible outcomes. They are used in business when giving proposals because the numbers are easily read and readers can quickly identify therisk. There is an estimated 80% probability of Larry’s attorneys being able to obtain the DNA. This means that there is a 20% chance that Larrywill receive $0 if the DNA is not available. 7
  8. 8. If the DNA is available, we have to consider whether or not the DNA will be a match. There is a 70% chance that the DNA does match andLarry is the son, which means that there is a 30% chance that it doesn’t. If the DNA doesn’t match, Larry will receive $0. If the DNA does match, it is believed that there will be a 2nd settlement offered in the amount of $40 million. Larry is then faced with anotherdecision, whether to accept the 2nd settlement offer or to continue to go to court. 8
  9. 9. If Larry decides to go to court however, there is a 20% chance that he will lose his case in court resulting in $0. But that does leave him withan 80% probability of winning. We divided the possible amounts he could win into 4 wins. We illustrated them in the last branches on the tree. 9
  10. 10. On the other hand, there is a .70 possibility that the challenge will succeed; therefore there is only a .30 possibility that it will not. If the law isdeemed constitutional, Larry will receive $0. If the law is deemed unconstitutional then the DNA issue will arise again. This part of the tree is thesame sub-tree as above. 10
  11. 11. Results of ModelingBoth sides of the decision tree could result the same depending on outcomes of the unknown events. There is a .04 probability that he will receive$338 million, a .16 probability that he will receive $68 million, a .40 probability that he will receive $34 million and a .20 that he will receive $17million 11
  12. 12. Conclusions/RecommendationsJunior Larry faces an immediate decision to either settle for $12 million, or continue his suit. QDM Pros recommends that Larry Junior rejects thesettlement and go to file a law suit in court. The reason behind our decision is a follow: assuming the Hillblom law does not pass or it is challenged tobe unconstitutional, he is able to get the DNA and prove he is the son of the deceased, if we look at the outcome of the tree there are five results,there is a 20% probability that his claim could be dismissed by the court, in which case Larry would receive nothing at all. However if he issuccessful in court he would receive payments following the probabilities outcome as follow, 4% chance to get $338 million, 16% chance to get $68million, 40% to get $34 million, and 20% chance to get $17 million. If we calculate the expected result we get the following: Optimal Choice Probability Amount Benefit Decision 1 Lose 20% $0.00 $0.00 Decision 2 Win 4% $338,000,000.00 $13,520,000.00 Decision 3 Win 16% $68,000,000.00 $10,880,000.00 Decision 4 Win 40% $34,000,000.00 $13,600,000.00 Decision 5 Win 20% $17,000,000.00 $3,400,000.00 $41,400,000.00The EMV of the whole case as showed in the Simple decision tree is $19,010,880.00 which a higher value than the initial settlement offered by theHillblom estates which is $12 million, but less than the second settlement, which is $40 million, so based on the analysis of the tree, the best decisionfor Larry Junior is to accept the second settlement of $40 million. Larry Junior should not accept a settlement less than $ 19 million, which is theEMV of the case; however there are other issues that Larry Junior needs to consider in making his decision, such as time, present value of the 12
  13. 13. settlement, discount rates, and the inflation or level consumption. All these concerns have enormous effects on decision making when it comes toaccepting or rejecting a settlement. 13

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