SL EC, LLC v. Ashley Energy, LLC

The matter at hand was a motion to exclude rebuttal testimony of Barton DeLacy regarding a sale transaction of a historic steam power plant in downtown St. Louis. For the reasons described below, the motion was denied.

Background

Plaintiffs/counterclaim defendants brought this lawsuit against counterclaim plaintiffs, including claims for breach of contract, fraudulent conveyance, and tortious interference. Counterclaim plaintiffs filed related counterclaims.

In support of their claim for damages, counterclaim plaintiffs retained Mark Hoffman, CPA. “Mr. Hoffman produced an expert report concluding that Counterclaim Plaintiffs suffered approximately $5 million to $7.9 million in transaction loss damages and $1.7 million in other damages.” Counterclaim defendants retained Barton DeLacy, a professional real estate appraiser, who produced a rebuttal report claiming that Mr. Hoffman’s report was “misleading” and failed to include potential revenue enhancements, among other criticisms. Counterclaim plaintiffs sought to exclude the testimony of Mr. DeLacy “because it fails to evaluate Mr. Hoffman’s methodologies or calculations and is unhelpful to the jury.”

Analysis

Counterclaim plaintiffs allege that counterclaim defendants inflated the value of the plant by misrepresentation of expenses. Counterclaim plaintiffs argued that Mr. DeLacy offered no useful expertise because he was not a CPA and did not criticize Mr. Hoffman’s application of the capitalization of earnings method. Mr. Hoffman consistently adopted counterclaim plaintiffs’ assessment of these understatements. 

The court observed that rebuttal expert DeLacy appeared well qualified to render an opinion in this matter. He was an expert in numerous valuation proceedings, among other qualifications. The fact that DeLacy did not have the same credentials as Mr. Hoffman did not preclude him from rendering a rebuttal of Mr. Hoffman. DeLacy’s report concluded that Mr. Hoffman “selectively uses the work of others to construct a damages scenario that stipulates to the pleadings of the adverse party” and “disingenuously accepts the difference in expense experience versus projections as an intended misrepresentation and capitalizes the sum into perpetuity.” Other courts have determined that rebuttal testimony such as this is admissible.

DeLacy also argued that Hoffman failed to consider potential revenue enhancements for the plant and a report from Darco Energy showing that the plant was worth far more than the counterclaim plaintiffs paid.

Counterclaim plaintiffs also argued that DeLacy’s report was contrary to Missouri law because courts have determined that the capitalization of earnings method is appropriate for determining damages caused by fraudulent misrepresentation. Counterclaim defendants argued that DeLacy’s report reasonably questioned Hoffman’s decisions to accept counterclaim plaintiffs’ allegations as accurate.

The court noted that excluding an expert opinion was proper when it did not assist the jury. The court here believed that DeLacy’s opinions were helpful to the jury. As such, the motion to exclude DeLacy’s testimony was denied