HMH Enters. v. TAG Enters

The plaintiffs contended the trial court erred in granting two of the defendant’s motions to exclude evidence of the plaintiff’s damages. The appellate court affirmed.

The lawsuit concerned the contemplated sale of a laundromat business. The defendant, TAG (Landlord), owns the Cudahy Shopping Center. Minwasa, a tenant of TAG’s, sought to sell his laundromat business. The plaintiffs were interested buyers.

The attempted sale of the laundromat.

In March 2017, the laundromat’s 24-hour operations began attracting homeless people, gang members, and loiterers to the property in the evening hours, causing safety and health concerns for tenants, vendors, and visitors. TAG informed tenant Min about the complaints and demanded he either hire security services or reduces his overnight hours. Min refused and decided to sell the business. “Under the lease, any assignment required TAG’s approval, but TAG could not unreasonably withhold consent.” Min entered into a contract with the plaintiffs to sell the business for $2.2 million. TAG told the plaintiffs the same conditions as they told Min. Min refused to reduce the purchase price for the cost of security, and the plaintiffs walked away from the deal.

Plaintiffs’ lawsuit.

In February 2018, the plaintiffs filed a complaint against TAG for intentional interference with the contract and sought damages for the interference. The plaintiffs retained Samuel Biggs, CPA, to prove compensatory damages. He expressed the opinion that the plaintiffs had lost $6,966,517 in projected profits for the business they could not purchase. “To support his damages calculations, Biggs intended to rely upon trial primarily on what was marked as Exhibit 10—a document authored by tenant Minand titled ‘the Cudahy Breakdown.” This purported to show the average monthly profit for the laundromat. Biggs prepared a different document projecting profits over 21 years.

TAG’s motions.

TAG filed three motions. The trial court granted two motions, granting the exclusion of Biggs’ testimony and excluding the Cudahy document. TAG argued Biggs’ testimony was unreliable because he relied on unverified and inaccurate data. Biggs determined his damages by accepting the numbers the plaintiff provided to him without doing any testing or verification. Min had admitted that the information was inaccurate. TAG pointed out that the profit was significantly higher than Min’s recent tax returns. TAG pointed out several deficiencies in Biggs’ calculations and that Biggs had failed to deduct the $550,000 down payment that the plaintiffs would have made. “In Motion in Limine No. 2, TAG asserted that the Cudahy Breakdown was hearsay, not within any exception, was an impermissible summary of voluminous documents that were never produced, and was unreliable and untrustworthy.”

The plaintiffs’ oppositions to the motions.

The plaintiffs contend that Biggs relied on verifying the Min numbers by the plaintiffs and Eastern Funding, the plaintiffs’ lender. The plaintiffs also argued that the Cudahy Breakdownwas admissible as a business record. “Plaintiffs argued that ‘an expert may testify to otherwise inadmissible hearsay used as the basis in their opinion.”

The Section 402 hearing.

In September 2019, the trial court held an evidentiary hearing on the two motions. Biggs testified as to how he determined his damages using the Cudahy Breakdown. He testified that he did not know who had prepared the numbers when composing his projections. Biggs testified that he could rely on the Cudahy Breakdown because the plaintiffs had told him it was accurate, and he relied on the nine to 12 days of coin counting the plaintiffs conducted during the escrow period. He had never seen documentation of the coin counts. Biggs made several unsubstantiated assumptions (e.g., an extended lease of 21 years) in arriving at his damages.

The trial court’s ruling.

On Sept.24, 2019, the trial court granted TAG’s motions. The trial court ruled that Biggs’ testimony was inadmissible because it was not based on matters “of a type that reasonably may be relied upon by an expert in forming an opinion.” The trial court also ruled that the Cudahy Breakdown, the only document Biggs relied on, cannot be relied on.

Entry of judgment.

After the trial court ruled on the motions, the parties submitted a proposed order on consent to judgment that the report was signed. This stated that, due to the trial court’s rulings on motions, the plaintiffs could not present any evidence of damages and were unable to prove their claim of contract interference. “The order acknowledged that the parties consented to the judgment in TAG’s favor, but that plaintiffs intended to appeal the court’s orders.”

Standard of review.

The trial court ruled on the admissibility of specific evidence, here, expert testimony and a particular document. Accordingly, the appellate court reviewed the exclusion of that evidence under the abuse of discretion standard.

The court did not abuse its discretion in excluding the Cudahy Breakdown.

The plaintiffs asserted that the Cudahy Breakdown was admissible as a business record or as a general compilation of documents.

Business record exception.

The hearsay rule did not make a record written in the regular course of business inadmissible. The “regular course of business” meant it is a record the business involved customarily kept. The exception was only applicable if such evidence were trustworthy. This is a factual determination on a case-by-case basis. The trial court was given broad discretion to determine whether there was a sufficient foundation. The appellate court ruled that the trial court did not abuse its discretion in not admitting the Cudahy Breakdown. Min essentially debunked that the Cudahy Breakdown was a business record in his deposition. “The trial court could reasonably have interpreted Min’s testimony to mean that Min inflated the income in preparing the accounting for plaintiffs and could have found that the numbers in the Cudahy Breakdown were untrustworthy.” There was also no evidence that Eastern Funding had any part in preparing the Cudahy Breakdown.

The court did not abuse its discretion in excluding Biggs’ testimony.

Biggs’ entire testimony was based on what the trial court correctly determined was inadmissible hearsay—the Cudahy Breakdown. Thus, the trial court did not abuse its discretion in excluding the testimony of Biggs. That document exclusion eliminated the evidentiary support for Biggs’profit and loss projections. Biggs offered no other foundation for the numbers he used in making such projections.

Thus, the judgment of the trial court was affirmed.