In re: IH 1 Inc. et al
MEMORANDUM OPINION regarding Motion to Preclude (D.I. 70 ), Motion to Exclude (D.I. 73 ), and Motion to Identify the Claims to be Tried to the Jury (D.I. 77 ). Signed by Judge Richard G. Andrews on 9/15/2016. (nms)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
GEORGE L. MILLER, Chapter 7 Trustee,
Civil Action No. 13-1996-RGA
SUN CAPITAL PARTNERS, INC., et al.,
Thaddeus J. Weaver, Esq., DILWORTH PAXSON LLP, Wilmington, DE; Maura Fay Mcilvain,
Esq. (argued), DILWORTH PAXSON LLP, Philadelphia, PA, attorneys for Plaintiff.
Elizabeth A. Sloan, Esq:, BALLARD SPAHR LLP, Wilmington, DE; Larry K. Elliott, Esq.,
David F. Russey, Esq., COHEN & GRIGSBY, P.C., Pittsburgh, PA, attorneys for Defendants
Stubbs, Lawlor, Krouse, Leder, Alger, Terry, Liff, McElwee, Kreilein, Skillen, Gillen, Finnigan,
Nelson, Talarico, Indalex Co-Investment, LLC, and HIG Sun Partners, Inc.
GregoryW. Werkheiser, Esq., MORRIS NICHOLS ARSHT & TUNNELL, LLP, Wilmington,
DE; John F. Hartmann, Esq., KIRKLAND & ELLIS LLP, Chicago, IL; Michael A. Duffy, Esq .
. (argued), BAKER & MCKENZIE LLP, Chicago, IL, attorneys for Defendants Sun Capital
Partners, Inc., Sun Indalex, LLC, Sun Indalex Finance, LLC, Sun Capital Partners III QP, LP,
Sun Capital Partners IV, LP, and Sun Capital Partners Management Ill, LP.
Presently before the Court are Plaintiff's Motion to Identify the Claims to Be Tried to the
Jury (D.I. 77) and Motion to Preclude Jorge Vazquez from Offering, at Trial, the Opinion Set
Forth in Paragraph 133(D) of His Expert Report and the Analysis Set Forth in Exhibit 27 of That
Report (D.I. 70) and Defendants' Motion to Exclude the Report and Testimony of Plaintiff's
ExpertYvetteR.AustinSmith(D.I. 73). Themotionshavebeenfullybriefed. (D.I. 71, 74, 78,
83, 86, 89, 95, 97, 98). The Court held a Daubert hearing and heard oral argument on the motion
to identify the claims on August 17, 2016 ("Tr."). Ms. Austin Smith testified at the hearing. For
the reasons stated below, the Court will deny Plaintiff's Motion to Preclude Jorge Vazquez from
Offering, at Trial, the Opinion Set Forth in Paragraph 133(D) of His Expert Report and the
Analysis Set Forth in Exhibit 27 of That Report (D.I. 70); grant Plaintiffs Motion to Identify the
Claims to Be Tried to the Jury (D.1. 77); and grant in part and deny in part Defendants' Motion
to Exclude the Report and Testimony of Plaintiffs Expert Yvette R. Austin Smith (D.1. 73). A
separate order consistent with this memorandum opinion follows.
Beginning in 2005, the Sun Capital Defendants explored acquiring Indalex, a company
that produced aluminum extrusion products in the United States and Canada. (D.1. 83 at 7). 1
Defendants maintain that the desirability of acquiring Indalex centered around the ownership of
an interest in Asia Aluminum Group ("AAG"), a Chinese aluminum extruder, by one of the
Indalex subsidiaries, lndalex Limited. (Id.; see D.I. 84-2 at 5-7; D.I. 84-3 at 3). The acquisition
was finalized on February 2, 2006, when Indalex Holding Corp. acquired all of the outstanding
Citations to the docket are to C.A. No. 13-1996-RGA unless otherwise noted.
stock oflndalex Inc. and Indalex Limited from Honeywell International Inc. (D.I. 78 at 5). The
structure of the relevant entities after the acquisition is set forth below: 2
.,l .... ····-~·······~~-~.
\, Co-lrlllllslors /
Indalex Holding Corp. financed the acquisition oflndalex Inc. and Indalex Limited
through three sources: (1) Sun Capital private equity funds, (2) money drawn on a revolving
credit facility (the "Revolver"), and (3) proceeds from Indalex Holding Corp.'s issuance of
11 Yz% second-priority secured notes (the "Notes"). (D.I. 78 at 5). The Revolver was governed
by a credit agreement (the "Credit Agreement") between a predecessor to Indalex Limited,
Indalex Holdings Finance, Inc., Indalex Holding Corp., and JP Morgan Chase Bank, N.A. (D.I.
84-7 at 2, 23; D.I. 2.:.1
112 & n.3). The Notes were governed by an indenture (the
"Indenture") that provided that Indalex was required.to use the first $50 million of the proceeds
This chart is taken from the report of Plaintiffs insolvency expert. (D.I. 75-1at11). The general structure
depicted in this organizational chart is not in dispute. (See D.I. 74 at 8).
:from any MG-related sale and 25% of any proceeds above $50 million to redeem the Notes.
(D.I. 84-6 at 2, 10). In conjunction with the acquisition, Indalex Holding Corp. also executed a
Management Services Agreement ("MSA") with Sun Capital Partners Management III, LP.
(D.I. 84-10 at 2-9). Pursuant to the MSA, Sun Capital Partners Management III, LP agreed to
provide management and consulting services to Indalex Holding Corp. and its affiliates in
exchange for an annual management fee, payable in quarterly installments, equal to the greater of
$1 million or 2% of the EBITDA oflndalex Holding Corp. and its affiliates. (Id. at 2, 3).
Indalex Limited sold its interest in AAG on May 15, 2007. (D.I. 84-14 at 2-3). Just
prior to completion of the sale, on May 14, 20017, Indalex Holdings Finance Inc. retained FTI
Capital Advisors, LLC to analyze whether Indalex would be rendered insolvent if it paid its
shareholders a "substantial" dividend :from the proceeds of the sale. (D.I. 84-22 at 2-9). Indalex
Holding Corp. and Indalex Holdings Finance, Inc. declared a dividend (the "Dividend") payable
June 1, 2007 in the aggregate amount of $76.71 million, or $76.71 per share. (D.I. 85-6 at 3; D.I.
85-7 at 3). Through 2007 and 2008, Indalex faced weakening demand and increasing liquidity
challenges; however, the parties disagree regarding the causes, timing, and extent of those
difficulties. (See D.I. 78 at 8-9; D.I. 83 at 10-14).
On March 20, 2009, Indalex Holdings Finance, Inc., Indalex Holding Corp., Indalex Inc.,
Dolton Aluminum Company, Inc., and Caradon Lebanon, Inc. filed for protection under Chapter
11 of the Bankruptcy Code. (Bankr. No. 09-10982 D.I. 1; Bankr. No. 09-10983 D.I. 1; Bankr.
No. 09-10984 D.I. 1; Bankr. No. 09-10985 D.I. 1; Bankr. No. 09-10986 D.I. 1). In October
2009, the bankruptcy proceedings were converted to Chapter 7 and Plaintiff was appointed
Trustee for the five debtors. (Bankr. No. 09-10982 D.I. 702, 739). In July 2010, Plaintiff
initiated the instant action in the bankruptcy court and, in December 2013, moved to withdraw
the reference so that the case could proceed to jury trial in this Court. (Bankr. No. 10-52279PJW D.I. 1; D.I. 1; D.I. 2-1). The Court granted Plaintiffs motion to withdraw the reference on
September 5, 2014. (D.I. 19). Plaintiffs complaint alleges eleven claims, including, among
others: (1) fraudulent transfer claims relating to the Dividend and to fees paid pursuant to the
MSA (Counts I and II); (2) preference claims related to fees paid pursuant to the MSA (Counts
III and IX); and (3) claims for breach of fiduciary duty and breach of the duty ofloyalty (Counts
VII and VIII). (D.I. 2-1 at 32-51). A central issue in the case is the solvency oflndalex as of the
date of the Dividend. (See D.I. 80 at 2; D.I. 81at1 n.1). Plaintiff seeks a jury trial on Counts I,
II, III, VII, VIII, and IX. (D.I. 78 at 5; D.I. 95 at 5).
II. LEGAL STANDARDS
A. Daubert Motions
Federal Rule of Evidence 702 sets out the requirements for expert witness testimony,
A witness who is qualified as an expert by knowledge, skill,
experience, training, or education may testify in the form of an
opinion or otherwise if: (a) the expert's scientific, technical, or other
specialized knowledge will help the trier of fact to understand the
evidence or to determine a fact in issue; (b) the testimony is based
on sufficient facts or data; (c) the testimony is the product of reliable
principles and methods; and (d) the expert has reliably applied the
principles and methods to the facts of the case.
Fed. R. Evid. 702. The Third Circuit has explained:
Rule 702 embodies a trilogy of restrictions on expert testimony:
qualification, reliability and fit.
Qualification refers to the
requirement that the witness possess specialized expertise. We have
interpreted this requirement liberally, holding that "a broad range of
knowledge, skills, and training qualify an expert." Secondly, the
testimony must be reliable; it "must be based on the 'methods and
procedures of science' rather than on 'subjective belief or
unsupported speculation'; the expert must have 'good grounds' for
his o[r] her belief. In sum, Daubert holds that an inquiry into the
reliability of scientific evidence under Rule 702 requires a
determination as to its scientific validity." Finally, Rule 702
requires that the expert testimony must fit the issues in the case. In
other words, the expert's testimony must be relevant for the
purposes of the case and must assist the trier of fact. The Supreme
Court explained in Daubert that "Rule 702's 'helpfulness' standard
requires a valid scientific connection to the pertinent inquiry as a
precondition to admissibility."
By means of a so-called "Daubert hearing," the district court acts as
a gatekeeper, preventing opinion testimony that does not meet the
requirements of qualification, reliability and fit from reaching the
jury. See Daubert ("Faced with a proffer of expert scientific
testimony, then, the trial judge must determine at the outset,
pursuant to Rule 104(a) [of the Federal Rules of Evidence] whether
the expert is proposing to testify to (1) scientific knowledge that (2)
will assist the trier of fact to understand or determine a fact in
Schneider ex rel. Estate ofSchneider v. Fried, 320 F.3d 396, 404-05 (3d Cir. 2003) (footnote
and internal citations omitted). 3 The proponent of expert testimony must "demonstrate by a
preponderance of evidence that the [expert's] opinions are reliable." In re Paoli R.R. Yard PCB
Litig., 35 F.3d 717, 744 (3d Cir. 1994).
B. Jury Trial Claims
The Seventh Amendment to the United States Constitution guarantees that "[i]n Suits at
common law, where the value in controversy shall exceed twenty dollars, the right of trial by
jury shall be preserved." U.S. CONST. amend. VIL The United States Supreme Court has
interpreted "Suits at common law" to refer to "suits in which legal rights were to be ascertained
and determined, in contradistinction to those where equitable rights alone were recognized, and
equitable remedies were administered." Gran.financiera, S.A. v. Nordberg, 492 U.S. 33, 41
(1989) (quoting Parsons v. Bedford, 3 Pet. 433, 477 (1830)) (internal quotation marks omitted).
The Court of Appeals wrote under an earlier version of Rule 702, but subsequent amendments to the rule were not
intended to make any substantive change.
Whether a specific claim triggers a right to a jury trial under the Seventh Amendment depends on
(1) the historical characterization of the cause of action and (2) the remedy sought. Id. at 42.
"The second stage of this analysis is more important than the first." Id. In a bankruptcy
proceeding, if the first two parts of the Granjinanciera test indicate that a party is entitled to a
jury trial on a claim under the Seventh Amendment, the court must then consider whether
Congress extinguished the jury trial right by assigning resolution of the claim to the bankruptcy
court and, if it did, whether Congress had the power to do so. See id.
A court must, whenever possible, preserve a party's Seventh Amendment right to a jury
trial. Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 510 (1959). As a result, attempts to
curtail a party's right to a jury trial must be "scrutinized with the utmost care," id. at 501
(internal quotation marks omitted), and should be rejected whenever legal rights and remedies
are implicated. Curtis v. Loether, 415 U.S. 189, 194 (1974). Where legal and equitable claims
are joined in one action, facts common to the claims must be adjudicated by a jury, even if the
legal claims are characterized as incidental to the equitable claims. Id. at 196 n.11; see also Lytle
v. Household Mfg., Inc., 494 U.S. 545, 550 (1990).
A. Motion to Identify Jury Trial Claims
1. Count I
Plaintiff argues that he is entitled to a jury trial on his Count I fraudulent transfer claim.
(D.I. 78 at 11; D.I. 95 at 6). Defendants do not dispute that Plaintiff's Count I fraudulent transfer
claim is legal in nature and that Plaintiff seeks a legal remedy. (See D.I. 83 at 14-15);
Granjinanciera, 492 U.S. at 48 (holding that claims for preferential transfers are legal rather than
equitable). Thus, Defendants do not dispute that Count I satisfies the first two parts of the
Granjinanciera test. (See id.). Defendants maintain, however, that Plaintiffs jury trial right
with respect to Count I has been extinguished either in its entirety or at least as to the five
creditor-Defendants that have filed proofs of claim in the bankruptcy. 4 (D .I. 83 at 14-15).
The third part of the Granfinanciera test requires the court to consider whether the jury
trial right has been extinguished by Congress's having assigned resolution of the claim to the
bankruptcy court. 492 U.S. at 42. Where a cause of action against a creditor who has filed a
proof of claim in bankruptcy "falls within the process of the allowance and disallowance of
claims," Congress has permissibly withdrawn jurisdiction over that action by courts of law and
the Seventh Amendment does not guarantee a right to jury trial. Billing v. Ravin, Greenberg &
Zacldn, P.A., 22 F.3d 1242, 1247 (3d Cir. 1994). The Seventh Amendment right is extinguished
where the cause of action falls within the allowance and disallowance of claims ''because [the]
claim has been converted from a legal one into an equitable dispute over a share of the estate."
Id. at 1253; see also Germain v. Conn. Nat'! Bank, 988 F.2d 1323, 1330 (2d Cir. 1993). A cause
of action falls within the claims allowance process where "the resolution of the dispute in which
ajurytrial is sought [would] affect the allowance of the creditor's claim." Germain, 988 F.2d at
1327. A cause of action that "would augment the estate but which [would] have no effect on the
allowance of a creditor's claim" is not part of the claims allowance process. Id. If there are
some factual or legal determinations regarding the trustee's claims that would not be disposed of
in passing on a creditor's proof of claim, the right to a jury trial is not lost by filing the proof of
claim. Stern v. Marshall, 131 S. Ct. 2594, 2617 (2011).
The Count I Defendants that have filed proofs of claim in the bankruptcy are: Sun Indalex, LLC, Krouse, Leder,
Alger, and Talarico. (Banlcr. No. 10-52279-PJW D.I. 169-2; Banlcr. No. 10-52279-PJW D.I. 169-3; Banlcr. No. 1052279-PJWD.I. 169-6; Banlcr. No. 10-52279-PJW D.I. 169-7; Banlcr. No. 10-52279-PJW D.I. 169-8; Banlcr. No.
Plaintiff is entitled to a jury trial on Count I with regard to all of the Count I Defendants.
Plaintiffs jury trial right has not been extinguished with respect to the Defendants that did not
file proofs of claim in the bankruptcy. See Katchen v. Landy, 382 U.S. 323, 327-28 (1966) ·
(stating that if a creditor who had received a preference did not file a claim in the bankruptcy .
proceeding, the creditor could demand a jury trial of a preference action brought by a trustee),
cited in Granjinanciera, 492 U.S. at 57-58. Plaintiffs jury trial right also has not been
extinguished with respect to the Defendants that have filed proofs of claim in bankruptcy.
Plaintiffs fraudulent transfer action is not "integral to the restructuring of [the] debtor-creditor
relations" implicated in Sun Indalex, LLC's two proofs of claim. Granfinanciera, 492 U.S. at
58. Sun Indalex LLC's first proof of claim as a Notes holder (Ban1cr. No. 10-52279, D.I. 169-2)
is the type of "hierarchically ordered claim" to a share of the bankruptcy res that the Supreme
Court held to be independent of Plaintiff's fraudulent transfer claim. See Granjinanciera, 492
U.S. at 56. Sun Indalex, LLC's second proof of claim (Ban1cr.· No. 10-52279, D.I. 169-3) would
likewise not resolve Plaintiffs claim regarding the pre-petition Dividend, because it is a claim
for post-petition administrative expenses. See In re Oakwood Homes Corp., 378 B.R. 59, 69-70
(Ban1cr. D. Del. 2007) (holding that fiduciary duty claims were not part of the bankruptcy claims
allowance process where the creditors' claims in bankruptcy arose from an engagement letter,
while the trustee's fiduciary duty claims arose from a period prior to the engagement letter). The
proofs of claim filed by Defendants Krouse, Leder, Alger, and Talarico claim rights to
"indemnification, contribution, reimbursement or other payments ... from the Debtors pursuant
to applicable law, contract or otherwise arising in respect of or by reason of claims ... that may
be brought ... against the Claimant by the Debtors .... " (Ban1cr. No. 10-52279-PJW D.I. 169-6
at 4-5; Ban1cr. No. 10-52279-PJW D.I. 169-7 at 4-5; Ban1cr. No. 10-52279-PJW D.I. 169-8 at 4-
5; Bankr. No. 10-52279-PJW D.I. 169-17 at 5-6). Resolution of the debtors' indemnification or
contribution obligations toward Defendants Krouse, Leder, Alger, and Talarico would not
resolve Trustee's claim for fraudulent transfers with respect to the Dividend because the·
indemnification and contribution obligations are contingent on the underlying liability
determination. (See Bankr. No. 10-52279-PJW D.I. 169-6 at 4 (claiming that "[t]he Debtors are
indebted and obligated to the Claimant in a contingent and unliquidated amount" for
indemnification or contribution); Bankr. No. 10-52279-PJW D.I. 169-7 at 4 (same); Bankr. No.
10-52279-PJW D.I. 169-8 at 4 (same); Bankr. No. 10-52279-PJW D.I. 169-17 at 5 (same)).
Thus, resolution of the claims in bankruptcy of Defendants Krouse, Leder, Alger, and Talarico
would not resolve Plaintiffs Count I.
For the reasons stated above, Plaintiff is entitled to a jury trial on Count I with regard to
all of the Count I Defendants.
2. Counts II. III, and IX
Plaintiff argues that he is entitled to ajury trial on Counts II, III, and IX. (D.I. 78 at 11;
D.I. 95 at 7-10). Defendants do not dispute that the causes of action alleged in Counts II, III,
and IX would ordinarily give rise to a jury trial right. (See D.I. 83 at 15-17). Defendants argue,
however, that Indal ex expressly waived its right to a jury trial on Counts II, III, and IX in the
Because "the right of jury trial is fundamental, courts indulge every reasonable
presumption against waiver." Aetna Ins. Co. v. Kennedy to Use o/Bogash, 301
(1937). Still, a litigant may waive the right to a jury trial in a civil case. To be enforceable, the
waiver must be knowing and voluntary. See Brookhart v. Janis, 384 U.S. 1, 4 (1966); Tracinda
Corp. v. DaimlerChrysler AG, 502 F.3d 212, 222 (3d Cir. 2007). A contractual waiver is
knowing and voluntary when the facts of the case show that "(1) there was no gross disparity in
bargaining power between the parties; (2) the parties are sophisticated business entities; (3) the
parties had an opportunity to negotiate the contract terms; and (4) the waiver provision was
conspicuous." First Union Nat'l Bankv. United States, 164 F. Supp. 2d 660, 663 (E.D. Pa.
2001), cited in Tracinda Corp., 502 F.3d at 222. "[T]he burden of proving that a waiver was
done both knowingly and intelligently falls upon the party seeking enforcement of a waiver of a
jury trial clause." Id.
"In general, a contractual waiver binds only the parties who sign the contract." Medical
Air Tech. Corp. v. Marwaninv. Inc., 303 F.3d 11, 18 (1st Cir. 2002); In re Oakwood Homes
Corp., 378 B.R. at 71. The MSA supports application of that general principle here because it
expressly states that the jury trial waiver applies "to each party hereto" and that "[a]ll covenants,
promises and agreements" in the MSA "shall be binding upon and shall inure to the benefit of
the parties hereto." (D.I. 84-10 at 6). The MSA was entered into by Sun Capital Partners
Management III, LP and Indalex Holding Corp. 5 (Id. at 8). Four of the five debtors, Indalex
Holdings Finance, Inc., Indalex Inc., Caradon Lebanon, Inc., and Dolton Aluminum Company,
Inc., are not parties to the MSA and therefore did not purport to waive their jury trial rights.
(D.1. 2-1 at i-f 12; D.I. 84-10 at 8-9). Additionally, with the exception of Sun Capital Partners
Management III, LP, Defendants are not parties to the MSA and therefore face additional hurdles
to claim rights under it. (D.I. 2-1 at 34, 35, 48); see Medical Air Tech. Corp., 303 F.3d at 19 ("In
cases such as this, where the jury waiver was part of a separate contract, signed only by certain
parties to the larger transaction, non-signatory parties seeking enforcement of the waiver may
Indal ex Limited was also a party to the MSA but is not a party to this litigation. (See D.I. 84-10 at 9).
have a more difficult task in showing that the waiver was voluntary and knowing."). There is no
basis to find a waiver of the right to jury trial as between the non-parties to the MSA.
With respect to Indalex Holding Corp., a party to the MSA, there is also no waiver of the
jury trial right. The waiver provision in the MSA is set off in a short paragraph in all capital
letters on the fifth page of a six-page agreement. (D.I. 84-10 at 6). The waiver provision is
therefore conspicuous. See First Union Nat'/ Bank, 164 F. Supp. 2d at 665 (finding a waiver
conspicuous where it "was written in its entirety in all capital letters under the underlined
heading 'Waiver of Jury Trial"'); cf Nat'/ Equip. Rental, Ltd. v. Hendrix, 565 F.2d 255, 258 (2d
Cir. 1977) (affirming grant of jury trial where "[t]he waiver clause was set deeply and
inconspicuously in the contract"). Additionally, there is no dispute that the parties are
sophisticated business entities. Nevertheless, I conclude that the waiver was not knowing and
voluntary for several reasons. First, Defendants did not meet their burden to prove that there was
no disparity in bargaining power that foreclosed the possibility of negotiation. See In re
Oakwood Homes Corp., 378 B.R. at 72. The MSA was a standard document that Sun Capital
Partners puts in_place in its acquisitions. (D.I. 96-2 at 3-4 ("We put in place a management
services agreement in every single platform acquisition that we do for Sun Capital Partners. It's
a part of the private equity business model.")); see Dreiling v. Peugeot Motors ofAm., Inc., 539
F. Supp. 402, 403 (D. Colo. 1982) (holding that plaintiffs did not waive jury trial right in part
because waiver clause was "on the twentieth page of a twenty-two page standardized form
contract"). The evidence suggests that the MSA was not subject to negotiation by Indalex. (D.I.
96-3 at 3 ("A: [T]he Management Services Agreement is part of the original setup oflndalex ...
. Q: And in your experience where the lawyers for the buyer present the document or prepare the
document as part of the closing, does the acquired company have any choice? ... A: In my
experience as a practical matter that's part of the-part of the arrangement going forward.")); see
Dreiling, 539 F. Supp. at 403 ("[T]he defendants have failed to show that the plaintiffs had any
choice other than to accept the contract as written."); First Union Nat'l Bank, 164 F. Supp. 2d at
665 (denying motion to strike jury trial request because the court could not "find any evidence
that there was not a gross disparity in bargaining power between [the parties] .... Indeed, given
[the party seeking ajury trial's] financial straits at the time the documents were executed, it is
highly likely that there was a severe disparity in bargaining power."). That Indalex Holding
Corp. did not achieve favorable terms in the MSA further suggests that the MSA was not the
subject of negotiation. (See D.I. 84-10 at 2-3 (providing that Sun Capital Partners Management
III, LP would provide management services to Indalex Holding Corp. at its option, while Indalex
Holding Corp. was obligated to pay management fees regardless of whether Sun Capital Partners
Management III, LP provided the services)). Second, even ifthe MSA had been subject to
negotiation by Indalex, the circumstances demonstrate that the waiver would not have been
knowing and voluntary because it was executed on Indalex Holding Corp.'s behalf by an
employee of Sun Capital. (D .I. 2-1 at irir 66-70; D .I. 84-10 at 8). The jury trial waiver as
between Indalex Holding Corp. and Sun Capital Partners Management III, LP is not enforceable
because it was not knowing and voluntary.
For the reasons stated above, Plaintiff is entitled to a jury trial on Counts II, III, and IX of
3. Counts VII and VIII
Counts VII and VIII of the Plaintiffs complaint are for breach of fiduciary duty and
breach of the duty ofloyalty, respectively. (D.I. 2-1 at 41, 45). The parties disagree regarding
whether Plaintiff is entitled to a jury trial on Counts VII and VIII under Gran.financiera. (D.l. 78
at 10-13; D.I. 83 at 19-21; D.I. 95 at 10-12). The first step of the Granfinanciera analysis
requires the Court to determine whether Plaintiff's claims in Counts VII and VIII would have
been considered legal or equitable claims in 18th century English courts. 492 U.S. at 42-43.
"Actions for breach of fiduciary duty, historically speaking, are almost uniformly actions 'in
equity'-carrying with them no right to trial by jury." In re Hechinger Inv. Co. ofDel., 327 B.R.
537, 544 (D. Del. 2005) (internal quotation marks omitted); see also In re Oakwood Homes
Corp., 378 B.R. at 66; Damage Recovery Sys., Inc. v. Tucker, 2005 WL 388597, at *2 (D. Del.
Feb. 2, 2005). The second step of the Granfinanciera analysis requires the Court to determine
whether the relief sought is legal or equitable. 492 U.S. at 42; In re Oakwood Homes Corp., 378
B.R. at 67. Where there are both legal and equitable claims, and the relief sought is
compensatory money damages, plaintiff is entitled to a jury trial. In re Oakwood Homes, 378
B.R. at 68. Where there are only equitable claims and both legal and equitable relief is sought,
there is no jury trial right. See Cantor v. Perelman, 2006 WL 318666, at *7-9 (D. Del. Feb. 10,
Here, four of the eleven counts of the Complaint (Counts I, II, III, IX) are undisputedly
legal in nature. (See D.I. 2-1 at 32, 34, 35, 48). Count I accounts for the bulk of the amount of
money in dispute in the case. (See D.I. 88 at 8-9). Counts VII and VIII, while equitable, seek a
legal rather than equitable remedy. Count VII summarizes the harm caused by the breach of
fiduciary duty as Indal ex' s loss of "the benefit of [certain] revenues" and that "Indalex' s business
has been destroyed, Indalex was driven insolvent and the creditors' interests have been
impaired." (D.I. 2-1 at ifif 250, 253). Count VIII summarizes the harm as, "Indalex's business
has been destroyed and the creditors' interests have been impaired." (Id. at if 261). Counts VII
and VIII seek compensation for those harms. Additionally, the fact that the named Defendants
with respect to Counts VII and VIII do not coincide with the entities that received the challenged
Dividend and management fees suggests that Plaintiff seeks compensatory money damages
rather than equitable restitution. (See id. at iii! 172, 178, 180; Id. at 41, 45).
"Ultimately, this Court must weigh the claims against the relief sought, with more weight
on the latter, and determine if Plaintiff has [aJright to a jury trial." In re Oakwood Homes Corp.,
378 B.R. at 68. Weighing the equitable nature of the claims in Counts VII and VIII against the
relief sought, which is legal, and bearing in mind the four other claims to which I have already
concluded there is a jury trial right, I conclude that the balance weighs in favor of Plaintiff's right
to a jury trial. 6
For the reasons stated above, Plaintiff is entitled to a jury trial on Counts VII and VIII.
B. Daubert Motions
1. Plaintiff's Motion to Preclude Certain Opinion and Analysis by Mr. Vazquez
Plaintiff moved to preclude Jorge Vazquez from offering at trial the opinion set forth in
Paragraph 133(D) of his expert report and the analysis set forth in Exhibit 27 of his expert report
on the ground that they contain certain errors that Mr. Vazquez has acknowledged. (D.I. 71 at 4,
9). At the hearing on these motions, the Court denied Plaintiffs motion (D.I. 70) on condition
that Defendants provided Plaintiff with a corrected version of Exhibit 27. (Tr. at 138).
2. Defendants' Motion to Exclude the Report and Testimony of Ms. Austin Smith
Defendants seek to exclude the report and testimony of Plaintiff's solvency expert, Ms.
Austin Smith, on the ground that her opinions suffer from several methodological flaws that
render them unreliable. (D.I. 74 at 6-7). Ms. Austin Smith analyzed the solvency of lndalex
using two methods: First, she analyzed the solvency oflndalex Holdings Finance, Inc. on a fully
Defendants have not argued that the proofs of claim filed by some Defendants extinguish Plaintiff's jury trial right
with respect to Counts VII and VIII under the third prong of Granjinanciera. (See D.I. 83 at 19-21 & n.90).
consolidated basis ("Indalex Consolidated"). (D.I. 75-1 at if 13). Second, she analyzed the
solvency of Indalex Holdings Finance, Inc. on a partially consolidated basis ("Indalex U.S.
Entities), that is, excluding the foreign subsidiaries, namely, Indalex Limited and its wholly
owned subsidiaries ("Indalex U.S. Entities"). (Id.). Defendants argue that methodological flaws
undermine Ms. Austin Smith's solvency opinions pursuant to both methods. (D.I. 74 at 6-7).
Regarding Ms. Austin Smith's opinions with respect to the solvency oflndalex
Consolidated, Defendants argue that Ms. Austin Smith improperly rejects management's
projections and that she fails to consider overwhelming market evidence that Indalex
Consolidated was solvent on the date of the Dividend. 7 (D.I. 74 at 17, 22). Although Ms. Austin
Smith did not consider each item of market evidence that Defendants point to (see D.I. 74 at 2223), she did consider contemporaneous market evidence in rendering her opinions. (See D.I. 75-1
at irir 26-34, 62-87; Tr. at 38-42, 103-17). She also explained her reasons for choosing not to
rely on some of the evidence to which Defendants point. (Tr. at 38-42, 103-17). Defendants'
argument that Ms. Austin Smith's opinions and testimony should be rejected because she
"ignored" overwhelming market evidence therefore fails. Cf In re Iridium Operating LLC, 373
B.R. 283, 350 (Bankr. S.D.N.Y. 2007) ("Expert opinion is unreliable and not based on sufficient
facts and data when the expert made no attempt to reconcile his view with a number of real
Defendants also briefly argue that Ms. Austin Smith's improper rejection of management's projections warrants
exclusion because: (1) Ms. Austin Smith is not qualified to create projections because, prior to this litigation, she
had never "created projections or a budget for an aluminum producer or extruder[,] analyzed the aluminum extrusion
market or its unique aspects[,] or even reviewed research reports on that specialized market" (D.I. 74 at 18), and (2)
Ms. Austin Smith's rejection of management's projections "ignores this Court's Order" (id.), which noted that
"Delaware law clearly prefers valuations based on contemporaneously prepared management projections." (D.I. 53
at 3). In light of her extensive experience performing valuation and credit analysis, including her experience
performing valuation and credit analyses of metal, manufacturing, and industrial companies, Ms. Austin Smith is
qualified to testify about solvency in the aluminum extrusion industry. (See D.I. 75-1 at 63-65, Tr. at 112-14). The
Court's order with regard to Mr. Schachter does not preclude Ms. Austin Smith's "downside scenario" analysis.
(See D.I. 53 at 7 n.2 ("[I]t strikes me that experts could opine on the assumptions and reasonableness of management
world events and fails to acknowledge and account for these events." (alteration and internal
quotation marks omitted)). Further, I think that Ms. Austin Smith's use of a "downside scenario"
to adjust management projections is methodologically sound and reliable. (See D.I. 75-1 at iii!
60-87). Ms. Austin Smith's revisions to the management projections rely on a discrete set of
explicit assumptions. (See D.I. 75-1 at if 85). Ms. Austin Smith explained the reasons for
adopting each assumption. (See D.I. 75-1 at iii! 60-85; Tr. at 114--17). She also testified that the
use of a downside scenario is an accepted method in her field. (Tr. at 30-31). Defendants'
challenges to Ms. Austin Smith's selection and use of downside projections in her solvency
analyses thus go to the weight, not the admissibility, of her opinions.
Defendants challenge Ms. Austin Smith's "guideline public company" and "precedent
transaction" valuations of the Indal ex U.S. Entities. (See Tr. at 83-93). Guideline public
company and precedent transactiop. valuations are two standard valuation methodologies used in
the balance sheet test of insolvency. (See D.I. 75-1 at iii! 91, 93-95, 97; Tr. at 35-38); In re
Nellson Nutraceutical, Inc., 356 B.R. 364, 370 (D. Del. 2006). Pursuant to both valuation
methodologies, the expert determines the enterprise value of a company by determining an
appropriate metric of value and applying a multiple to that metric. (D.I. 75-1 at ifif 93-95; Tr. at
35-38, 89-90). Ms. Austin Smith testified that the multiples she applied to value the Indalex
U.S. Entities were the result of applying her judgment to the facts, in particular, that the Indalex
U.S. Entities were "less profitable and w[ere] anticipated to grow at a slower rate than the comp
companies that [were] referenced [in her report]." (Tr. at 85).
In both her guideline public company and precedent transaction valuations, Ms. Austin
Smith selected valuation multiples for the Indalex U.S. Entities that were below the minimum
valuation multiples of the selected comparable companies. (See D.I. 75-1 at if 105, Exhibits 5,
7). Ms. Austin Smith testified that, although "another competent valuation professional may ...
reach a different judgment than [she] did," the multiple would "be below the mean or the median
for sure." (Tr. at 129; see also Tr. at 130 ("I don't think another valuation professional would
reasonably approach the mean or the median here.")). Ms. Austin Smith elaborated further that
"there's a reasonable possibility'' that another valuation analyst could "have used the minimum
instead of something below the minimum." (Tr. at 129). Ms. Austin Smith testified that she
would not be surprised ifher calculations would have yielded positive equity values under both
the guideline public company and precedent transaction valuations if the selected multiples for
the Indalex U.S. Entities were increased by 0.01. (Tr. at 84-91). 8 The charts below, which
recount selected information from Exhibits 5 and 7 of Ms. Austin Smith's report, demonstrate
that ifthe selected multiples for the Indalex U.S. Entities were increased by 0.01, the Indalex
U.S. Entities' multiples would remain "around the minimum" and would not approach the mean
or median multiples. (Tr. at 130).
EV/LTM Total Revenues
Guideline· Public Company
EV/LTM Total Revenues
Precedent Transaction Valuation
(See D.I. 75-1 at Exhibit 5, 7). Ms. Austin Smith thus has testified that reasonable valuation
professionals could have calculated equity values that would have led them to opine that the
Ms. Austin Smith's conclusion in her report was that the equity value oflndalex U.S. Entities was negative
$5,300,000. (D.I. 75-1atif106).
Indalex U.S. Entities were solvent on June 1, 2007 under the balance sheet test using guideline
public company and precedent transaction valuation methodologies. Ms. Austin Smith
acknowledges that her selection of a valuation multiple over other, admittedly reasonable,
multiples is based entirely on her own judgment. (See Tr. at 128). Ms. Austin Smith's solvency
opinion, by relying entirely on "point estimate" valuation multiples, therefore imports a level of
precision that she acknowledges cannot be achieved in this case by the methods she applies.
(See D.I. 75-1 at if 94 (stating that valuation multiples used in guideline public company and
precedent transaction methodologies can be "range[s] or point estimates"); cf Fahmy v. Jay Z,
2015 WL 5680299, *3-5 (C.D. Ca. Sept. 24, 2015) (the ''use of precise percentage ranges to
quantify the importance of factors [the expert] deems relevant does not appear to be supported by
any objective methods of reliable calculation.")). Ms. Austin Smith's use of the balance sheet
test to show that the Indalex U.S. Entities were just barely insolvent on June 1, 2007 is
unreliable, 9 and is therefore excluded under Rule 702 and Daubert.
Ms. Austin Smith's insolvency opinion under the adequacy of capital test for the Indalex
U.S. Entities incorporates the guideline public company and precedent transaction valuation
analyses. (See D.I. 75-1 at if 109). The reliability problems with Ms. Austin Smith's valuation
multiples thus potentially infect her insolvency opinion under the adequacy of capital test.
Explaining the effect that reasonable changes in the valuation multiples for the Indalex U.S.
Entities would have on her solvency opinion under the adequacy of capital test, Ms. Austin
Smith testified that:
assum[ing] that a higher multiple is used and the result is that lndalex U.S. passes
the balance sheet test[,] ... I would turn to the adequacy of capital test. And so I
Ms. Austin Smith notes, "The Discounted Cash Flow approach provides a direct measure of the intrinsic value of a
company." (D.I. 75-1 at '1J 105). For the Indalex U.S. Entities, she was not able to perform a discounted cash flow
analysis. (Id. at '1! 98). Thus, the entire basis for her opinion that Indalex U.S. Entities were insolvent was based on
the guideline public company and precedent transaction methodologies.
would do for Indalex U.S. [Entities] the same thing that I did for Indalex
Consolidated, which is answer the question, how would this company perform
under a reasonable downside case? And I suspect that a more reasonable downside
case would be back to a negative equity value or negative equity cushion, and so
under that hypothetical, the Indalex U.S. entities would have passed the balance
sheet test but failed the adequate capital test, and so I'm then back at a conclusion
(Tr. at 131). Speculation that the Indalex U.S. Entities would have been insolvent under the
adequacy of capital test even ifthe Indalex U.S. Entities were solvent under the balance sheet
test is insufficiently reliable to be admitted. See Daubert, 509 U.S. at 590. Thus, Ms. Austin
Smith's opinion that the Indalex U.S. Entities were insolvent on June 1, 2007 under the adequacy
of capital test is also excluded under Rule 702 and Daubert. (See D.I. 75-1 at if 109). 10
Defendants argue that the basis for Ms. Austin Smith's opinion regarding the solvency of
the partially consolidated Indalex U.S. Entities is an improper legal opinion. (D.I. 74 at 12, 14-15; D.I. 98 at 6-7). Defendants maintain, further, that even ifthe deconsolidation of the Indalex
U.S. Entities were not a legal issue for the Court to decide, Ms. Austin Smith's deconsolidation
"disregards overwhelming evidence that the company operated as a single consolidated
economic unit." (D.1. 74 at 12-14; D.I. 98 at 6-10). I do not need to address whether Ms.
Austin Smith's opinions that the Indalex U.S. Entities were insolvent depend on improper legal
opinions or whether her deconsolidation methodology was reliable under the circumstances.
Each of Ms. Austin Smith's opinions regarding the insolvency of the partially consolidated
Indalex U.S. Entities is inadmissible because it relies on valuation multiples that I conclude are
unreliable. (See supra pp.17-20; D.I. 75-1 at iii! 100, 101, 103-07, 109).
Plaintiff has met his burden to show that Ms. Austin Smith's use of"downside
projections" was sufficiently reliable to be admissible. Plaintiff has also demonstrated that Ms.
Because Defendants did not raise the issue, I have not considered the admissibility of Ms. Austin Smith's
guideline public company and precedent transaction valuations oflndalex Consolidated. (See Tr. at 83-93).
Austin Smith's opinions and testimony should not be excluded on the ground that she ignored
contemporaneous market evidence. Plaintiff has failed to meet his burden to prove, however,
that Ms. Austin Smith's opinions regarding the insolvency of the Indalex U.S. Entities are
reliable. Ms. Austin Smith is therefore precluded from offering testimony at trial regarding the
insolvency of the Indalex U.S~ Entities. Ms. Austin Smith is not precluded from testifying
regarding the other analyses and opinions disclosed in her report.
For the reasons set forth above, the Court will deny Plaintiffs Motion to Preclude Jorge
Vazquez from Offering, at Trial, the Opinion Set Forth in Paragraph 133(D) of His Expert
Report and the Analysis Set Forth in Exhibit 27 of That Report (D.I. 70); grant Plaintiffs Motion
to Identify the Claims to Be Tried to the Jury (D.I. 77); and grant in part and deny in part
Defendants' Motion to Exclude the Report and Testimony of Plaintiff's Expert Yvette R. Austin
Smith (D.I. 73). A separate order consistent with this memorandum opinion follows.
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