Litigation & Disputes Bulletin: Q2 2023

Hundreds of cases are settled by our courts every day and it can be hard to keep up with the latest rulings. In this quarter’s newsletter, KSM’s Litigation & Disputes team has pulled together some interesting case summaries that obtained a meaningful result in the context of economic damages. Read on to see what’s happened recently.

If you require the perspective of an expert in commercial damages, we’d love to discuss how KSM can help. Please contact a member of our team or complete this form.

In This Issue:

• Delaware Court Grants in Some Cases and Denies in Others Motions to Exclude Expert Witnesses and Certain Evidence to be Presented
• U.S. Appellate Court Rules Sufficient Evidence to Support Future Damages
• Arizona Appeals Court Affirms Trial Court’s Acceptance of a Calculation of Value

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Delaware Court Grants in Some Cases and Denies in Others Motions to Exclude Expert Witnesses and Certain Evidence to be Presented

LCT Capital, LLC v. NGL Energy Partners LP, 2022 Del. Super. LEXIS 1448 (Dec. 22, 2022)

This case dealt with motions related to an ongoing case in the court. The court offered both orders and opinions to resolve the issues at hand. The plaintiff had a Daubert motion to exclude the opinions of the defendant’s rebuttal expert, Lori Lancaster, and the defendant’s Daubert motion to exclude the opinions of the plaintiff’s expert, Kevin D. McQuilkin. “The parties have also collectively filed five motions in limine to exclude or admit various evidence, testimony, and argument at trial.”

Analysis. Delaware Rule 702 governed admissibility of evidence. A witness qualified by knowledge, skill, experience, or training and education may testify if: (1) it was based on sufficient facts or data; (2) it was the product of reliable principles and methods; and (3) the witness had applied the principles and methods reliably to the facts of the case. Additionally, the Delaware Supreme Court had adopted the Daubert (and progeny) doctrine, which requires the trial judge to decide the five Daubert factors.

The plaintiff’s Daubert motion to exclude the opinions of Lori Lancaster was denied. The plaintiff made three arguments in support of its motion to exclude Lancaster:

1. Lancaster exceeded her scope as a rebuttal expert by:
2. Rebutting the plaintiff’s rebuttal expert (Adler);
3. Rehabilitating the defendant’s affirmative expert; and
4. Presenting new opinions and data.
5. Lancaster’s opinion was unreliable because:
6. It ignored and rejected the NGL CEO’s letter and trial testimony, etc.; and
7. “Lancaster never discussed Krimbill’s [the CEO] views on Plaintiff’s services or compensation with Krimbill directly.”
8. Lancaster made a credibility determination on the CEO, which invaded the purview of the jury.

Lancaster did not impermissibly exceed the scope of a rebuttal expert. The court did not find that Lancaster rebutted Adler in any meaningful way. A review of McQuilkin’s and Adler’s testimony showed they did provide similar opinions on the issue of fee runs and investment banking fees. If would be hard for Lancaster to rebut McQuilkin without also rebutting Adler. The court did not find the Lancaster report or anticipated testimony as an impermissible sur-rebuttal.

The fact that Lancaster’s rebuttal happened to corroborate Keller’s affirmative opinions does not mandate its exclusion. The court did not find that the defendants are stacking duplicative experts by presenting one rebuttal and one affirmative expert who share some opinions. Finally, the court did not find that Lancaster was barred from analyzing new data in her role as a rebuttal expert. “If an affirmative expert claims that there is an absence of data, a rebuttal expert is permitted to attempt to rebut that claim by proving the existence and reliability of such data.”

Lancaster’s opinion was reliable. The plaintiff argued that Lancaster was “cherry-picking” evidence by ignoring the CEO’s letter and testimony. Plaintiff had not provided sufficient evidence that neglecting to do so made her opinion unreliable. Additionally, the assertion that she did not consider this information was demonstrably false. “Lancaster’s opinion is not unreliable for electing to not blindly adopt inaccuracies in the October 2014 Letter. To the contrary, Lancaster’s decision is illustrative of her thorough review of the record and additional documents salient to the transaction.” There is also no requirement that an expert conduct an interview with relevant witnesses. Lancaster sufficiently familiarized herself with the CEO’s position by reviewing his 500-page deposition. Finally, Quantum Meruit damages was the sole issue remaining. “A reasonable valuation [of Quantum Meruit damages] is ‘the amount for which such services could have been purchased from one in the plaintiff’s position at the time and place the services were rendered.’”

Lancaster did not make a credibility determination of Krimbill. Krimbill’s assessment of the plaintiff’s services was subjective, and Lancaster was at liberty to disagree. She was not making an accusation that he was untruthful. She arrived at a contrary conclusion. “The fact that Lancaster’s perspective does not support Plaintiff’s claim of damages is irrelevant to her qualifications under Rule 702 or the Daubert standard.” It also did not deprive the jury of its opportunity to weigh Krimbill’s testimony.

The defendants’ Daubert motion to exclude the opinions of Kevin D. McQuilkin was granted in part and the defendants’ motion in limine to exclude evidence of value creation was granted. The defendants argued that McQuilkin did not use reliable methodology because he used ipse dixit, his opinions violated the law of the case, and he relied on the rejected “value creation” theory of damages.

McQuilkin’s opinions that amount to ipse dixit are excluded. The court found that a portion of the McQuilkin report was unreliable as it was ipse dixit. The defendants provided five examples where the report was ipse dixit. “McQuilkin is not permitted to testify to damages based on Plaintiff’s expectation interests in the agreement it purports to have reached with Defendants.” He was allowed to testify to the general proposition that the nature and extent of services justified higher compensation. The court did not find the defendant’s fourth factor to be ipse dixit but did limit his ability to testify to value creation. “McQuilkin affirmed that, in his experience, clients were willing to pay higher fees based on speculative value creation.” The plaintiff had shown that McQuilkin was sufficiently qualified to testify about discussing value creation with clients, but testimony as to a relationship between value creation and investment banking fees was subject to cross-examination. McQuilkin also is not allowed to testify to alleged promised compensation in the October 2014 letter. Additionally, his mathematical computation of Quantum Meruit damages derived from a value creation theory of damages was excluded, as the court here had already ruled it will not allow such testimony since this methodology was contrary to the law of the case and relevant case law.

The plaintiff’s motion in limine to hold the defendants to judicial admissions and exclude evidence suggesting that the value of plaintiff’s services was less than $29 million was denied. The plaintiff asserted that Krimbill’s testimony was a judicial admission of damages of a minimum of $29 million and the defendants should not be permitted to submit evidence or solicit testimony to the contrary. However, the court decided that Krimbill’s statements were not judicial admission. “While it may be a fact that Krimbill believed the parties had reached such an agreement and that he believed the arrangement was fair, it does not necessarily follow that the parties did reach an agreement or that the alleged agreement is in fact fair.”

The plaintiff’s motion in limine to exclude evidence of a ‘typical’ investment banker fee as irrelevant to Quantum Meruit damages was denied. The court found that testimony on typical investment banker fees was relevant to determining the reasonable value of the services that the plaintiff provided in this case. The jury can assess the reliability of fee run evidence through the plaintiff’s cross-examination of the defendants’ experts. Case law did not require exclusion of this evidence. “Plaintiff’s motion to exclude evidence of a typical fee is hereby DENIED.”

The defendants’ motion in limine to preclude evidence or argument regarding any alleged agreement between the parties was granted. The Superior Court had already dismissed the plaintiff’s breach of contract claim. Quantum Meruit damages was the one issue remaining in this case. “Unlike in Pike Creek and Bellanca, in the present case there is no contract and thus no basis to submit evidence of compensation to which the parties allegedly agreed.” Thus, the court excluded any testimony using these terms:

• “an oral contract”;
• “verbal contract”;
• “agreement”;
• “verbal agreement”;
• “agreed to”
• “the [*34] fee agreement”;
• “our deal”;
• “the contract”; and
• “the amount promised.”

The parties may provide evidence as to any fee negotiations. The court believed the jury should weigh evidence of the parties’ discussions of the appropriate fee for the plaintiff’s services. “Defendants’ motion in limine to exclude evidence or argument on an alleged agreement is GRANTED.”

The defendants’ motion in limine to preclude evidence or argument regarding alleged fraud and/or fraudulent statements was granted. The Supreme Court had already stricken the jury’s fraud verdict and held that the plaintiff’s fraud claim failed. “There is no evidentiary basis to submit evidence of fraud, thus Defendants’ motion to exclude this evidence is granted.” The court provided a list of terms and phrases that are excluded as fraud evidence, noting that the list is not exhaustive.

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U.S. Appellate Court Rules Sufficient Evidence to Support Future Damages

WL All. LLC v. Precision Testing Grp. Inc., 2022 U.S. App. LEXIS 35298; 2022 WL 17830257 (Dec. 21, 2022)

This is a partnership dispute between the plaintiff, WL Alliance, and the defendants, Precision Testing Group Inc. and Glenn Stuckey. After a trial, the defendants were found liable for $3.3 million in damages. The defendants appealed, arguing that the damages include lost future profits that are not “reasonably certain” and the damages were not supported by evidence because there was no accounting.

The court concluded that the damage awards were in accordance with Florida law and are, therefore, affirmed.

Factual history summary. WL Alliance and the defendants partnered to provide specialized technicians to First Energy. The defendants contracted with First Energy and received payments from them. WL Alliance recruited the technicians and managed their payroll. Profits were to be split 50-50. After a disagreement on distributions, the partnership was terminated. Stuckey terminated the original contract with First Energy and entered into another one directly with JJL, an entity Stuckey owned. This cut WL Alliance out of the business.

WL Alliance sued for wrongful disassociation and breach of the partnership agreement. The defendants did not counterclaim for a reciprocal accounting. WL Alliance also requested an equitable accounting. Testimony indicated the business with First Energy would continue “for several more years.” The jury also heard testimony as to the value of the business. WL Alliance’s expert provided a PV calculation as to the partnership at the date of the disassociation. The defendants’ expert reviewed the calculation but did not offer his own opinion. Preverdict, the defendants moved for judgment as a matter of law, asserting there was insufficient evidence to support the future damages and noting that, since the contract with First Energy was terminable at will, future damages were too speculative. The district court denied the motion.

The jury found for WL Alliance and awarded $1.7 million in past damages and $1.6 million in future damages. Post-verdict, WL Alliance moved to enter judgment on the money counts and to moot Count 2’s request for an accounting, noting that, through discovery, WL Alliance had determined the amount of its damages. The defendants sought to amend their answer to add a reciprocal accounting counterclaim and stay judgment on the money issues until after a bench trial on the accounting. The district court denied the defendants’ motions. “The district court further held that the evidence was sufficient to support the award of future damages.”

Analysis. Judgment as a matter of law was only warranted where no reasonable jury could have reached a verdict for the nonmovant. Both parties agreed that Florida law applied.

Future damages. Florida law required that future damages be proved with “reasonable certainty.” (Nebula Glass Int’l Inc. v Reichhold, Inc.) Causation must be proved with reasonable certainty, but, once proven, the damages need only be provided within a reasonable “yardstick” to judge the amount of damages. The defendants argued that the damages cannot be “reasonably certain” because the contract with First Energy was terminable at will. Thus, any continuing damages would be speculative. The court believed that an at-will contract that cannot support future damages overstated the rule in Florida. In Nebula Glass, this court noted that “[the plaintiff’s] lost profit claim did not depend on any obligation by its customers, but rather on the common-sense notion that a large group of sophisticated commercial purchasers would not, without cause, collectively reject a product they had been using.” The rule was dependent on the facts and circumstances of the case. Here, it was clear from testimony that First Energy’s need for the technicians did not change and would be there in the future. Also, Stuckey testified that he believed the business would continue, and, through his other entity, JJL, he had executed a three-year extension with First Energy. Evidence was sufficient here to support future damages. “The jury rejected Precision Testing’s arguments that the business would not continue, and we will not disturb their finding merely because we are urged to disagree with it.”

Equitable accounting. As noted previously, this argument was waived because the defendants first presented it in a post-verdict motion. Further, the argument was unsupported by Florida law. Finally, the defendants’ argument that WL Alliance invited this error was meritless.

The court affirmed the jury’s damages verdict.

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Arizona Appeals Court Affirms Trial Court’s Acceptance of a Calculation of Value

Mikalacki v. Rubezic, 2022 Ariz. App. Unpub. LEXIS 836; 2022 WL 10219850 (Oct. 18, 2022)

This Arizona divorce appeal affirmed the trial court’s acceptance of a calculation of value the wife’s expert, Brendan Kennedy, offered at trial to determine the value of the couple’s law firm, awarded to the husband in the trial. The husband appealed other nonvaluation issues related to the divorce, which the trial court also affirmed. Those will not be covered in this digest.

Background. After six years of marriage, the wife (Gordana Mikalacki) petitioned for dissolution from the husband (Dragan John Rubezic). The wife and the husband were business partners and sole members of the Rubezic Law Group. The trial court held a two-day trial on contested issues.

Among other things in the decree, and specific to the appeal and to this digest, the trial court “awarded Husband the firm as his sole and separate property and ordered him to pay Wife one-half of the firm’s equity.” The husband appealed the division of the firm, the valuation thereof, and the trial court’s acceptance of a calculation of value in determining the value of the firm.

Division of the firm. The husband contested the trial court’s valuation of the firm, arguing that the trial court should not have accepted a calculation of value the wife’s expert, Brendan Kennedy, offered. The husband also argued that the trial court did not make sufficient findings as a predicate for its valuation. In determining fair market value, the trial court may rely on a testifying expert’s opinion and challenges to the expert went to the weight of the evidence not to the admissibility. Because the trial court was in the best position to assess and resolve conflicting evidence, “we accept its factual findings absent clear error.”

Kennedy testified that he used various approaches to value the firm. He used the information the wife provided and his independent analysis of comparable businesses, providing an opinion that the firm was worth $269,000. The husband’s counsel “thoroughly” cross-examined Kennedy, but the husband did not offer any competing expert value. “Husband opined that the firm had a value of only $161,000 because Wife left the firm after June 7, 2019, and took several clients with her.” The trial court found the husband’s testimony not credible and accepted the $269,000 value.

While accepting both Kennedy’s qualifications and admission to testify, the husband alleged deficiencies in Kennedy’s opinion and said the trial court should have discounted his value. First, the husband said Kennedy’s opinion was deficient because the trial court accepted a calculation of value report rather than “an opinion of value report.” The appeals court noted that, although a calculation of value was not the “gold standard,” it was not unacceptable (Larchick v. Pollack). In other words, the fact-finder need not discount an expert’s opinion just because he did not consider every process and procedure that would be included had he conducted a fuller valuation. Here, the husband’s counsel had ample opportunity to challenge methodologies and conclusions Kennedy arrived at. Deciding which conflicting methodology and valuation to rely on was within the trial court’s discretion. Accordingly, the trial court did not abuse its discretion by accepting the calculation of value.

The husband argued Kennedy’s valuation was deficient because he considered only information the wife provided. The appeals court noted that the husband refused to disclose financial information timely as the governing procedural rules require. “It is unavailing that he now complains that Wife’s expert did not consider information he refused to produce.”

The husband also argued that the valuation date Kennedy used of June 7, 2019, which was the date that the wife petitioned for a dissolution, was inappropriate. The appeals court noted that the trial court has broad discretion in choosing an appropriate valuation date. The trial court’s selected date occurred shortly before the wife’s departure from the firm and, thus, did not take that fact into account, including the reduction in value due to her leaving. However, the appeals court noted that Kennedy acknowledged that the goodwill of the firm was largely due to the name recognition and acceptance in the community of the husband’s last name. Thus, the appeals court rejected this objection as to the valuation date.

Finally, the husband argued that Kennedy failed to explain various adjustments in his report adequately. However, the appeals court again noted that the husband’s counsel had ample opportunity in cross-examination to challenge methodologies and adjustments in the report.

In conclusion, the appeals court found no abuse of discretion in the trial court’s ruling on valuation of the firm.

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