JGR, Inc. v. Thomasville Furn Ind
Filing
323
Memorandum Opinion and Order with respect to 308 the Report and Recommendation and resolving 277 , 278 , 279 , 300 all outstanding motions (SEE ORDER FOR SPECIFIC RULINGS). Judge Sara Lioi on 12/15/2011. (P,J)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
JGR, INC.,
PLAINTIFF,
vs.
THOMASVILLE FURNITURE
INDUSTRIES, INC.,
DEFENDANT.
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CASE NO. 1:96 CV 1780
JUDGE SARA LIOI
MEMORANDUM OPINION
AND ORDER
Before the Court is the Report and Recommendation of Magistrate Judge
Kathleen B. Burke (Doc. No. 308) addressing (1) the admissibility of Plaintiff’s expert’s
testimony under Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 589 (1993); (2)
Defendant’s three motions in limine (Doc. Nos. 277,1 278,2 and 2793); and (3) Plaintiff’s motion
for reconsideration of a portion of the Court’s Memorandum Opinion and Order of November
11, 2011 (Doc. No. 300).4
Each party filed objections (Doc. Nos. 310 and 311) and responses to the
respective objections (Doc. No. 313 and 312). A transcript of the hearing conducted by the
1
Plaintiff filed a memorandum in opposition (Doc. No. 280), Defendant filed a reply (Doc. No. 292), and Plaintiff
filed a sur-reply (Doc. No. 295).
2
Plaintiff filed a memorandum in opposition (Doc. No. 281), Defendant filed a reply (Doc. No. 293), and Plaintiff
filed a sur-reply (Doc. No. 296). At the Magistrate Judge’s request following the Daubert hearing, each party filed a
supplemental brief. (Doc. Nos. 306 and 307.)
3
Plaintiff filed a memorandum in opposition (Doc. No. 282), Defendant filed a reply (Doc. No. 297-1), and Plaintiff
filed a sur-reply (Doc. No. 299).
4
Defendant filed a memorandum in opposition (Doc. No. 302).
1
Magistrate Judge has also been filed (Doc. No. 309) and the parties have jointly stipulated to the
exhibits that were used during the hearing (Doc. No. 314).
Pursuant to Fed. R. Civ. P. 72(b)(3), this Court now gives de novo consideration
to those parts of the R&R that have been properly objected to.
DISCUSSION
A.
Admissibility of Plaintiff’s Expert’s Testimony under Daubert
The R&R notes that the parties stipulated to the following:
1.
Robert M. Greenwald (“Greenwald”) is qualified by knowledge, skill, experience,
training, or education to provide expert testimony regarding damages in this case.
2.
Greenwald’s proposed expert testimony is relevant, meaning that it will assist the
trier of fact to understand the evidence or determine a fact in issue, in this case the
fact in issue being damages.
3.
Discounted cash flow methodology is an acceptable methodology for determining
loss of business value.
(R&R at 4.) Neither party has objected to this statement of their stipulations; therefore, they are
accepted.
The R&R stated that the only issue remaining is whether Greenwald’s proposed
expert testimony is reliable under Fed. R. Evid. 702 and concluded that, “[b]ecause Greenwald
adequately explained his reasons for using the income approach as well as how he factored in
and treated JGR’s assets and liabilities, Defendant’s argument that Greenwald’s testimony and
opinion are unreliable because JGR’s assets and liabilities were not explicitly factored in or
because he chose to use an income approach methodology rather than an asset approach
methodology is without merit.” (R&R at 5, footnote omitted.) The R&R concluded that the
testimony was reliable and the weight to be provided to Greenwald’s testimony was for the jury
to decide. Defendant objects to these conclusions. (See Doc. No. 311 at 2-11.)
2
Defendant asserts that, to determine the “business value” of JGR (i.e., “what a
willing buyer would pay a willing seller for the JGR business, prior to the breach of contract[,]”
[Id. at 3]), Greenwald “chose to estimate that amount by evaluating the net income stream that a
buyer could expect to earn from the business into perpetuity, discounted to ‘present value’ (the
date of the hypothetical sale, prior to the breach) by an appropriate discount rate.” (Id., citing
Transcript [“Tr.”] 9, 19.) Greenwald testified that assets and liabilities are taken into account in
the discounted cash flow methodology by applying a “standard” profit percentage (he used 3.8%)
to the projected sales of the business. This profit percentage assumes or takes into account an
average level of assets and liabilities.
Defendant asserts that Greenwald also testified that “[t]o the extent that the assets
or liabilities [of a business] are significantly askew from industry norms, adjustments may be
required.” (Tr. at 56.) Defendant argues that JGR’s liabilities were significantly askew from
industry norms, but Greenwald failed to make an appropriate adjustment. In fact, although JGR
had total liabilities of $784,692 against total assets of only $615,924, Greenwald adjusted JGR’s
liabilities at the time of the breach downward by $454,207 so that JGR’s assets and liabilities
would be in line with industry norms. (2009 Greenwald Report, Ex. XIV [Doc. No. 314-5 at
38].) Greenwald testified that he made this adjustment “based on [his] perception of the impact
of what [he] call[ed] the alleged inappropriate actions of Thomasville.” (Tr. at 57.)
While he had a tendency to obfuscate and not directly answer a question posed to
him on cross-examination, Greenwald testified (and included in his 2009 Report) that there are
several methods for valuing a business: market-based (which he rejected); asset-based (which he
also rejected), and income-based (which includes the capitalized income or cash flow methods,
which he rejected, as well as the discounted cash flow method he ultimately chose to use) (Doc.
3
No. 314-5 at 5- 9.) Some methods require “calculation based on revenue or profit, and then an
adjustment for certain assets and certain liabilities.” (Tr. at 55.) But “[i]n the discounted cash
flow method, the underlying theory is that the cash flow takes into account all assets, tangible
and intangible, and all liabilities, booked or otherwise, as part of the conclusion.” (Id.)5 In other
words, “the discounted cash flow method already takes into account all assets and liabilities of a
company.” (Id. at 56.)6 Defendant’s counsel, at the hearing, specifically asked why no
adjustments were made by Greenwald:
Q.
Mr. Greenwald, is it a fair statement that what you’re saying is you
believed that no adjustments were required to the cash flow analysis to
take into account the actual liabilities of JGR, because you didn’t believe
those actual liabilities were a reflection of what should have occurred to
JGR, but they were the function of these bad acts; and so, therefore, you
didn’t need to make any adjustments?
A.
No. In fact, I actually did make the adjustments, but those adjustments
don’t impact this [discounted cash flow] analysis.
Discounted cash flow assumes the assets and liabilities. The other
methods are the ones that needed it, and that’s why I did it for those
methods.”
(Id. at 59.) As Greenwald explained, since he ultimately decided to use the discounted cash flow
method for valuing the business,7 rather than other available methods, he did not need to make
adjustments.
5
In his 2009 Report, Greenwald noted that the income approach to valuing a business “may indicate the fair market
value of a company based on the value of the economic income that the business can reasonably expect to generate
in the future. The value of the business may be considered as the present value of the economic income expected to
be generated by the investment.” (Doc. No. 314-5 at 9.) “The discounted cash flow method utilizes the projected net
cash flow stream for a set number of periods in the future and discounts such results and the ‘terminal value’ to a
cumulative present value.” (Id.) Greenwald started his analysis with the December 31, 1992 balance sheet, since this
was the only available data close to the November 15, 1992 breach date. (Tr. at 57.)
6
At the hearing, the Magistrate Judge described it as follows: “assets and liabilities are sort of baked into the
discounted cash flow analysis,” (Tr. at 69) and Greenwald concurred.
7
He stated in his 2009 Report: “We attempted to normalize JGR’s income and cash flows to determine whether the
Company’s historical results are indicative of its future performance. Our review of JGR’s income and cash flows
since early 1991 indicated that they were unreliable as an indication of future performance as they were impaired
due to the interference of Thomasville (and its breach on November 15, 1992). Thus the capitalized income or cash
4
Defendant objects, asserting that “it belies common sense that a ‘willing buyer’
considering a value for JGR would totally ignore the actual liabilities of the business, or at least
ensure that the assets and liabilities of JGR were not different from those of an ‘ordinary’
furniture business.” (Doc. No. 311 at 10.) But Greenwald testified that when he valued JGR at
$970,000 as of November 15, 1992, he was not saying that a buyer would necessarily pay that.
Rather, he noted that these matters are negotiated. A buyer may or may not agree to assume
liabilities. (Tr. at 62.)
Defendant also objects that it “cannot be held ‘accountable’ because of ‘prebreach wrongful conduct’ for the fact that JGR was not an ‘ordinary’ furniture business.” (Doc.
No. 311 at 10, emphasis in original.) It asserts that “[t]o change the valuation of JGR by ignoring
the actual, excessive liabilities of the company would be to ascribe a damages consequence to
Thomasville’s pre-breach conduct.” (Id.) According to Defendant, because Greenwald failed to
adjust assets and liabilities that were out of line with industry norms, his application of the
discounted cash flow method for valuing JGR is flawed and his testimony should be barred.
Defendant argues: “To permit that approach is, in reality, allowing the jury to assess damages for
the non-actionable pre-breach conduct of Thomasville.” (Id. at 11.) This argument ignores the
fact that Greenwald testified that his analysis determines a fair market value, “which is the world
of possible buyers dealing with the world of possible sellers[.]” (Tr. at 62.) In other words, he
was trying to value the company as if no pre-breach conduct had occurred. He acknowledged
that an actual negotiation with a particular buyer “could result in something different.” (Id.)
flow method would be inappropriate to used [sic] in our value analysis without significant adjustments reversing
those effects. Therefore, to quantify the fair market value of the Company based on income analysis, we focused
primarily on the discounted cash flow method.” (Doc. No. 314-5 at 9.)
5
When questioned about Plaintiff’s Hearing Exhibit 17, which shows projected
sales for JGR’s first store for 1991, 1992, and 1993, Greenwald testified that he compared “the
financial information of JGR for the initial stages of operation up to the date of the alleged
disruptive acts” to “industry data and to JGR’s business plans[.]” (Tr. at 17.) He “determined that
its sales were well -- significantly higher than the initial business plan, as well as the average
business in that industry at $150 per square foot.” (Id.) He “tried to isolate the effect of the initial
opening and the effect of the initial sale, as well as seasonality, by comparing it to industry data.”
(Id.) Greenwald concluded “that this store should have been at least at the projected level that
JGR projected. And [he] utilized an industry standard of sales per square foot [$150] to
determine the baseline sales.” (Id.) Greenwald multiplied the 15,000 square feet of sales space at
JGR’s first store by $150 and determined that baseline sales in 1991 should have been
$2,250,000. He left 1992 stagnant and applied the industry growth standard for 1993. (Id. at 1718.) From there, he projected baseline sales from 1994 through 1998, applying industry sales
growth figures supplied by the U.S. Census Bureau data on sales in the furniture retail industry.
He further determined net earnings before taxes by applying a 3.8% rate based on data supplied
from two nearby Thomasville stores (Wayside and Countryside). (Id.; Plaintiff’s Hearing Ex.
18.)
When Greenwald was further questioned by the Magistrate Judge at the hearing as
to whether “the initial year of projected sales was the number [he] arrived at as the appropriate
number had not the alleged improper conduct occurred,” he clarified that he based his analysis
on JGR’s actual initial sales figures, plus its business plan. (Tr. at 76.) He isolated “industry
functions, demographic functions, buying trends and patterns, the economy of the environment
around it.” (Id. at 80.) After accounting for all these factors, he was left with “two possibilities,
6
gross mismanagement or an intervening event that caused the damages.” (Id.) When asked by the
Magistrate Judge what impact it would have on the valuation of the business if its downturn was
due to “gross mismanagement,” Greenwald responded that he was not sure because it would
depend on the negotiations. “[I]n the world of fair market value, [...] the typical buyer assumes
that they won’t repeat mistakes. So they would often look at the projection and say, ‘This is what
I can accomplish and that is what I am willing to pay.’” (Id. at 81.) In other words, a buyer might
be willing to pay a higher price because it might conclude that it could do better than JGR had
done.
The Court concludes, as does the R&R, that Greenwald has given adequate
explanations for why he conducted the analysis as he did. His testimony is, therefore, reliable
within the meaning of Fed. R. Evid. 702 and Daubert. It is for the jury to decide what weight, if
any, to afford his testimony. That said, for the reasons discussed in section B.3 of this
Memorandum Opinion and Order, Greenwald will be prohibited from characterizing
Thomasville’s conduct prior to the breach as “improper” or wrongful in any way.
Defendant’s objections with respect to this portion of the R&R are overruled.
B.
Defendant’s Motions in Limine and Plaintiff’s Motion to Reconsider
1.
Motion in Limine #1 to Exclude Certain Damages Testimony (Doc. No. 277)
a.
“Lost Profits” as to Store 2
In this motion, Defendant first argued that JGR should not be permitted to claim
“lost profits” for Store 2 and/or to submit as evidence Greenwald’s Schedules I-L. However,
Plaintiff has agreed that the issue at trial as to both Store 1 and Store 2 is only “loss of business
value.” At the Daubert hearing, Defendant agreed that Plaintiff’s current position on this issue
moots this first aspect of Motion in Limine #1.
7
Accordingly, as recommended by the R&R without any objections from either
party, the Court denies as moot that portion of Motion in Limine #1 attacking Plaintiff’s lost
profits analysis for Store 2.
b.
Obviating Rulings Regarding Stores 3 and 4 by Doubling the Size of
Stores 1 and 2.
Based on “new information” provided by JGR’s principal, Gerald Yosowitz, to
the effect “that if he had been unable, for any reason, to proceed with Stores #3 and #4 as
originally planned, he would have expanded the size of Store #1 and Store #2” (Defendant’s
Hearing Ex. 2 at 3), Greenwald supplied a supplemental report in October 2011. Defendant seeks
to exclude any evidence of Plaintiff’s proposed doubling of the size of Stores 1 and 2, arguing
that this would be an end-run around this Court’s ruling that no Store 3 or Store 4 can be factored
into the loss of business value because those stores were too speculative.
The R&R agreed that “it is the law of the case that there will be no evidence
relating to a third or fourth store.” (R&R at 9.) The basis for this ruling, that Stores 3 and 4 are
too speculative, “applies equally to Plaintiff’s attempt to seek damages based on a projected
expansion of Stores 1 and 2 that would have been contingent on the outcome of the speculative
plans for Stores 3 and 4.” (Id.)
Plaintiff objects to this conclusion. (See Doc. No. 310 at 17-21.) JGR argues that
this Court’s ruling precluding evidence regarding a third and fourth store does not preclude
potential expansion of Stores 1 and 2. However, this notion of expansion has never been raised
before.
Plaintiff’s citation to Heatransfer Corp. v. Volkswagenwerk, A.G., 553 F.2d 964,
968, n. 20 (5th Cir. 1988) is to no avail. There, the Fifth Circuit stated that it did “not believe that
8
a going concern, which is the victim of an anti-competitive practice, must forego damages for
sales it would have made as the result of the natural expansion of its business simply because it
was victimized early in its existence before its attempts to expand could ripen into evidence of
preparedness and intent to increase its output.” Id. at 988. However, in Heatransfer, the court
determined that plaintiff had “sufficiently demonstrated that it had a business or property interest
in a going concern that had the manufacturing capacity and the market for units for the entire
Volkswagen family of automobiles.” Id. (emphasis added.) In light of that fact, the court
concluded that “the likelihood for growth and expansion of a business such as that of Heatransfer
is evident.” Id. There is no similar evidence in the instant case. Similarly, in Board of County
Comm’rs of Hamilton County v. Flanco Realty Co., Nos. C-980781, C-980803, C-980822, 1999
WL 420156, at * 6 (Ohio App. 1 Dist. June 25, 1999), cited by Plaintiff, the court permitted
evidence of certain operational changes for purposes of calculating valuation because there was
evidence that those changes “could have been readily implemented” and “were in fact planned at
the time.” As Defendant correctly points out, “through 15 years of litigation, including two trials
and three appeals, there has not been a single document, business plan, or piece of testimony
claiming JGR would double the size of stores one and two.” (Doc. No. 313 at 14.)
Having given the issue de novo review, the Court overrules Plaintiff’s objection
and accepts the R&R’s conclusion that this portion of Motion in Limine #1 should be granted.
c.
Greenwald’s Discounted Cash
Unrecoverable “Lost Profits”
Flow
Damages
are
Simply
Defendant argues in this portion of Motion in Limine #1 that all of Greenwald’s
“business value” calculations simply discount future “net earnings” of JGR, which is, according
9
to Defendant, nothing more than a claim for “lost profits” thinly disguised as a discounted cash
flow analysis.
The Sixth Circuit has precluded recovery for “lost profits” due to Plaintiff’s
failure to appeal this issue; however, it remanded for a new trial on the loss of business value.
Even though the discounted cash flow method used by Greenwald contains, as part of its
calculations, a projection of future earnings, that does not make the testimony inadmissible with
regard to Store 1 for purposes of determining the value of the business as a whole. Where an
income-producing asset is lost, the fair market value may be based in whole or in part on a
buyer’s projections of what income the buyer might derive from the asset in the future. Schonfeld
v. Hilliard. 218 F.3d 164, 176 (2d Cir. 2000). Therefore, as recommended by the R&R, a
damages calculation relating to Store 1 which take into account lost future earnings is
admissible. Neither party has opposed this conclusion.
The R&R also concludes that, with respect to Store 2, because “lost profits” are
precluded, Plaintiff’s expert cannot use unearned “projected profits” from Store 1 for
“reinvestment” into opening Store 2. Rather, to be consistent with the law of the case, the R&R
concludes that, in reaching a business value for Store 2, the actual cost of opening a second store
must be utilized in the calculations, not a cost based on an assumed “reinvestment” of unearned
“projected profits.” (R&R at 10.) Plaintiff objects to this conclusion. (See Doc. No. 310 at 2223.) However, having given the arguments de novo review, the Court agrees with the R&R that
permitting the expert to opine that certain “projected profits” from Store 1 would have been
“reinvested” in Store 2 amounts to allowing “lost opportunity costs,” which have previously been
rejected by the Court as outside the scope of the remand, and would improperly reinsert an
10
amount of “lost profits” for Store 1, which a jury determined to be zero and which JGR did not
appeal. Plaintiff’s objection is overruled.
The Court accepts the R&R’s recommendation to grant in part and deny in part
this portion of Motion in Limine #1. As to Store 1, Greenwald’s testimony will not be limited or
excluded. However, as to Store 2, to the extent his testimony is based on “reinvestment” of
unearned “projected profits” rather than the actual cost of opening a second store, such testimony
is inadmissible.
d.
Profit Rate Used by Greenwald
The R&R recommends denying Motion in Limine #1 to the extent it seeks to
exclude the presentation of evidence which includes calculations using a 3.8% profit rate.
Neither party has objected to this conclusion. Accordingly, it is accepted.
e.
Ruling on Motion in Limine #1
Motion in Limine #1 (Doc. No. 277) is granted in part and denied in part for the
reasons set forth above.
2.
Motion in Limine #2 Relating to the 1999 Judgment and Interest Thereupon
(Doc. No. 278) and Plaintiff’s Motion to Reconsider (Doc. No. 300)
In Motion in Limine #2, Defendant seeks to preclude Plaintiff from introducing
any evidence relating to the 1999 unpaid judgment entered against JGR and the underlying debt
of $536,932. The R&R recommends denying Motion in Limine #2 because this issue was
previously raised before Magistrate Judge McHargh, who determined that the evidence was
relevant, although limited, and is not unfairly prejudicial. Neither party objected to this
recommendation. Therefore, the Court accepts the recommendation and Motion in Limine #2
(Doc. No. 278) is denied. That said, the Court can perceive no reason why the “underlying
11
liability”would need to be introduced to the jury except, possibly, as part of an expert’s valuation
of the business. However, since business value is judged with respect to the date of the breach
(i.e., November 15, 1992), there is no reason to ever mention the “1999 Judgment,” which did
not exist as of the date of the breach. The Court intends to be very vigilant with respect to this
distinction.
In its Motion for Reconsideration, Plaintiff requests reconsideration of this
Court’s November 11, 2011 ruling that it may not seek as consequential damages for
Thomasville’s breach of contract an amount equal to the pre- and post-judgment interest on the
1999 Judgment.8 The R&R concludes that this motion should be denied because allowing such
consequential damages would amount to an impermissible collateral attack on the 1999
Judgment and/or is barred by the principles of res judicata. Plaintiff objects to these conclusions,
raising several arguments. (See Doc. No. 310 at 6-17.)
Plaintiff first argues that the law of collateral attack has no appliction to this case
because none of the elements of a collateral attack set forth in Ohio Pyro, Inc. v. Ohio
Department of Commerce, 115 Ohio St.3d 375 (2007) is found here. Plaintiff argues that it is not
challenging the validity or effectiveness of the Thomasville Judgment nor is it trying to set it
aside in any way. Relying on Thayer v. Diver, No. L-07-1415, 2009 WL 1167888 (Ohio App. 6
Dist. May 1, 2009), Plaintiff asserts that the most it is trying to do is to deny Defendant some of
the “fruits” of the Judgment.9 However, as properly pointed out by the R&R, Thayer was not a
8
Plaintiff’s fundamental argument is that, had Defendant not breached the contract, JGR would have remained in
business and would have been able to pay the amount it owed Thomasville, without there being an actual judgment
with pre-judgment interest and accruing post-judgment interest. Plaintiff wants to be able to recover as an element of
its consequential damages the amount of interest it owes on the Thomasville Judgment.
9
In Thayer, the two parties were former principals in a defunct engineering firm, AVCA Corporation. Thayer had
executed a continuing guarantee in which he unconditionally guaranteed debts owed by AVCA to Key Bank.
Subsequently, Thayer and Diver executed an Employee Termination Agreement under which Thayer agreed to
12
collateral attack on a receiveship judgment because it involved a claim for damages against a
third party not the party to the earlier receivership proceeding. In the instant case, JGR and
Thomasville are both parties to the Thomasville Judgment.
Plaintiff next argues that the Magistrate Judge’s recommendation lacks any
supporting legal authorities and that “Thomasville has been unable to cite a single case10 that has
given ‘collateral attack’ the broad interpretation that the Magistrate Judge has now announced,
i.e., as extending to any action which seeks to deny to a holder of a judgment some of the ‘fruits’
of that judgment (such as post-judgment interest), even though no attempt has been made to
attack the integrity or validity of that judgment.” (Doc. No. 310 at 10.) Plaintiff’s “fruits of the
judgment” argument arises from its reliance on Thayer, which this Court has already rejected.
Plaintiff next argues that the Magistrate Judge’s broad statement with respect to
“undermining” and “defeating” a judgment is not supported by Ohio law, in particular, by the
terminate his employment with AVCA, resign all of his officer and board positions, and deliver to AVCA his shares
of company stock. He was to be paid a total of $1,191,250 for his stock, secured by two promissory notes, and, in
exchange for signing a non-compete agreement, he would receive an additional $850,000 to be paid in 60 monthly
installments. AVCA’s obligations to Thayer totaled $2,041,250, plus interest, to be made in monthly payments over
a period of five years. After nine months of timely payments, AVCA reduced and eventually eliminated payments to
Thayer. Over the next several years, a series of communications occurred between Thayer, Diver and Key Bank
wherein Thayer sought to retrieve his stock, help the AVCA out of its financial troubles, and obtain a release from
his guarantee. He was unsuccessful. AVCA eventually went into receivership and it was sold to SSOE, another
engineering firm. Thayer then sued Diver and Key Bank alleging various causes of action and seeking, inter alia, to
be released from his guarantee of the outstanding balance of Key Bank’s loan to AVCA, which totaled over $3
million. Key Bank counterclaimed to recover on the guarantee. The trial court at first denied motions for summary
judgment but, on reconsideration sought by Diver and Key Bank, concluded that Thayer’s claims were barred by res
judicata and that the guaranty was enforceable against Thayer. Thayer appealed on many issues, including the res
judicata bar. Diver argued in opposition, inter alia, that Thayer’s lawsuit amounted to a collateral attack on the
judgment in the receivership because, if Thayer prevailed, it would result in Thayer’s recovery of proceeds from the
sale of AVCA to SSOE. The court of appeals rejected this argument because Thayer was seeking damages not
against AVCA but against Diver for certain improper conduct that began years before the receivership. It stated:
“While a judgment in Thayer’s favor might have an incidental effect on Diver’s ability to retain the fruits of that
sale, it cannot possibly be construed as a collateral attack on the integrity of the judgment in the receivership case.”
2009 WL 1167888, at * 9.
10
Plaintiff attacks the three cases cited by Thomasville (In re Met-L-Wood Corp. v. Pipin, 861 F.2d 1012 (7th Cir.
1988); Kamilewicz v. Bank of Boston Corp., 92 F.3d 506 (7th Cir. 1996); Horovitz ex rel. Ohio Colprovia Co. v.
Shafer, 94 N.E.2d 201 (Ohio App. 2 Dist. 1950)) as bearing no relationship to the facts of the instant case. The Court
agrees that these are not the best citations; however, Thomasville has supplied better legal citations in Doc. No. 313.
13
Ohio case law cited by the R&R. Once again Plaintiff points to Thayer, supra, as authoritiy for
the proposition that it should be allowed to pursue for itself the “fruits” of Thomasville’s
Judgment. The Court has rejected that argument, finding Thayer distinguishable from the instant
case.
Plaintiff next argues that res judicata does not apply in this case because that
doctrine bars only a “subsequent action on the same claim or cause of action between parties[.]”
ABS Indus., Inc. v. Fifth Third Bank, 333 Fed. App’x 994, 998 (6th Cir. 2009) (citing Brown v.
City of Dayton, 89 Ohio St.3d 245 (2000)). Plaintiff argues that its claim to recover postjudgment interest related to the Thomasville Judgment could not possibly have been raised prior
to the entry of that judgment. However, the Thomasville Judgment was a stipulated judgment. If
Plaintiff knew at the time, as it argues below, that it had no ability to pay the judgment at the
time it was entered, it certainly would also have known that post-judgment interest would begin
to run. If it also believed that it should be able to recover any such interest as a form of its own
consequential damages, then it should have included words to that effect in the stipulated
judgment, thereby possibly preserving its right to pursue that course of action. Better yet, it
should have refused to stipulate to the judgment if it believed that Thomasville was not entitled
to collect its post-judgment interest. This argument is rejected.
Finally, Plaintiff argues that JGR had no assets in 1999 with which to pay the
Thomasville Judgment. Plaintiff makes this assertion in opposition to this Court’s mention that,
had it paid the judgment promptly after its issuance, JGR would not be in a position of owing so
much interest. The Court has no idea why this argument is even made; clearly, a judgment is a
judgment and the fact that JGR had no assets from which to pay the judgment does not mean that
14
it should now be permitted to collaterally attack, and recover on some sort of restitution theory,
the post-judgment interest that has been running on the judgment. This argument is rejected.
Plaintiff also raises in its objections what it calls a “relevant analogy,” a
hypothetical scenario allegedly analogous to the current situation:
Because of a breach of contract committed by defendant Bank, assume that
plaintiff Smith was unable to make the mortgage payments on the family home
(which had been in the Smith family for generations). Defendant Bank therefore
took judgment on the mortgage note and foreclosed on the property. At the
ensuing sheriff’s sale, the home was sold to a third party. Plaintiff Smith then sues
defendant Bank (for breach of contract) and asserts, as one element of his
damages, the loss of his family home. As a defense to that portion of plaintiff’s
claim, defendant Bank asserts that Smith is engaging in an impermissible
collateral attack on the judgment that defendant Bank took against him, since
Smith is arguing that, had the Bank not taken that judgment, Smith would not
have lost the family home.
Would that “collateral attack” argument have any merit? JGR submits that
it would not. Is there any other reason why plaintiff Smith should not be able to
proceed with his claim against defendant Bank? JGR submits that the answer to
that question is also “no.”
(Doc. No. 310 at 14-15.) Unfortunately for Plaintiff, this situation is not particularly
“hypothetical.” In fact, Defendant has pointed to case law in which the scenario is exactly as
Plaintiff argues above and where the courts have determined that this would be an impermissible
collateral attack. See A.B.C.G. Enterprises, Inc. v. First Bank Southeast, N.A., 515 N.W.2d 904
(Wisc. 1994);11 Del Turco v. Peoples Home Savings Assoc., 478 A.2d 456 (Pa. 1984).12
11
First Bank, as mortgagee, sued ABCG seeking foreclosure of ABCG’s interest in various properties pursuant to
certain mortgage assumption agreements. ABCG did not defend and default judgments of foreclosure were entered
against it in favor of First Bank. ABCG then sued First Bank for damages alleging that First Bank’s own actions in
breach of contract caused ABCG to default on the mortgage agreements and, by way of foreclosure, lose its interest
in the properties. Wisconsin has no compulsory counterclaim requirement and ABCG relied on that fact to argue
that it was not barred by res judicata from bringing its breach of contract claim against First Bank. However, the
Wisconsin Supreme Court, in reliance on Restatement (Second) of Judgments, § 22, Comment f, pointed to special
circumstances under which failure to interpose a counterclaim operates as a bar. Specifically, that comment noted
that a counterclaim must be brought in the original action if its successful prosecution in a subsequent action “would
nullify the judgment, for example, by allowing the defendant to enjoin enforcement of the judgment, or to recover
on a restitution theory the amount paid pursuant to the judgment.” 515 N.W.2d at 908 (emphasis added).
15
Having considered de novo Plaintiff’s objections, the Court is convinced that the
R&R is correct that allowing Plaintiff to attempt to recover dollar-for-dollar the amounts of preand/or post-judgment interest it owes on the $536,932 Thomasville Judgment would amount to
an impermissible collateral attack on that judgment. Accordingly, Plaintiff’s objections are
overruled and the R&R is accepted with respect to this issue.
3.
Motion in Limine #3 Relating to “Pre-Breach Conduct” (Doc. No. 279)
In Motion in Limine #3, Defendant seeks an order (1) prohibiting Plaintiff from
offering testimony about alleged pre-breach conduct or interference by Thomasville or any
reference to that conduct as “wrongful” or inappropriate; and (2) prohibiting Plaintiff from
recovering any damages on that alleged pre-breach conduct and, in particular, prohibiting
Plaintiff’s expert from using an altered balance sheet to inflate the value of Store 1 based on the
alleged pre-breach interference.
The R&R recommends granting the motion in part and denying it in part. The
R&R states that “Plaintiff should be permitted to offered limited testimony regarding
Thomasville’s conduct prior to November 15, 1992 to establish a foundation for its expert’s
report and in defense of any argument by Defendant that the value of JGR was zero. However,
Plaintiff should be precluded from offering testimony in this regard that includes the use of terms
such as ‘improper,’ ‘wrong,’ ‘misleading,’ ‘illegal,’ ‘interference,’ or other similar terms.” (R&R
at 20.) Further, “if Plaintiff’s expert’s report is to be admitted into evidence, any references to
12
Peoples Home instituted a foreclosure action against the Del Turcos because they defaulted on a mortgage note.
The Del Turcos failed to answer and a default judgment of foreclosure was entered. The subject real estate was sold
at a sheriff’s auction. The Del Turcos then sued Peoples Home for trespass and assumpsit, essentially “present[ing] a
restitutionary theory of recovery that, in essence, challenges the amount of debt paid Peoples Home pursuant to
judgment in the mortgage foreclosure action.” 478 A.2d at 463. Citing the Restatement (Second) of Judgments, § 22,
the Superior Court of Pennsylvania concluded that the litigation, if successful, “would operate to undermine the
initial judgment of Peoples Home.” Id. Therefore, the court applied the doctrine of res judicata to bar the action.
16
such terms that are contained in Plaintiff’s expert report should be stricken and replaced with
more neutral text.” (Id.) Finally, “the Court should caution Plaintiff and its counsel against
offering testimony or argument regarding Thomasville’s conduct prior to November 15, 1992 for
any reasons other than as provided herein.” (Id.) Neither party specifically opposed any of these
three recommendations and, therefore, the Court accepts them.
Defendant, however, objects to the R&R’s specific failure to consider its
challenge to Plaintiff’s expert’s use of a fabricated balance sheet “based on pro forma assets and
liabilities of a national average store and not based on JGR’s actual assets and liabilities” for
purposes of establishing a baseline value for Store 1. Defendant asks this Court to clarify that
Greenwald’s market approach estimates based on this balance sheet are inadmissible in any way,
including as additional support for his income approach estimates. (Doc. No. 311 at 11.)
To the extent this issue has already been discussed in the Daubert section of this
opinion, it need not be addressed in this section. While Greenwald has testified that, in his
opinion, the loss of business value will be determined based not on the market approach but on
the discounted cash flow approach, this does not mean that Greenwald will not be permitted to
testify how and why he chose that approach over the other acceptable approaches (provided, of
course, that the expert does not violate the Court’s directives regarding his characterization of
Thomasville’s pre-breach conduct). The Court also explicitly notes that Defendant is certainly
free at trial to vigorously challenge Plaintiff’s expert’s testimony and report in this regard. In
fact, Defendant’s objections make clear that its own expert, Richard Schmitt, will “ma[k]e his
lost business valuation assuming that JGR’s past performance is not indicative of its future
performance, and will instead project future performance based on other furniture stores in
northeast Ohio, as JGR’s expert has done.” (Doc. No. 311 at 12, footnote omitted; emphasis in
17
original.) “To be clear, Thomasville’s expert will rely on JGR’s actual assets and liabilities as of
the date of the breach in his valuation because the discounted cash flow methodology require[s]
that he so so.” (Id.) Although the Court has determined that Plaintiff’s expert’s application of the
discounted cash flow methodology (using industry norms, as opposed to actual figures) is
reliable, in view of Defendant’s expert’s method of using actual assets and liabilities, it will be
up to the jury to determine whose his valuation of Store 1, if any, should be given weight.
The R&R also recommends that the Court “encourage the parties to reach a
stipulated statement of facts regarding the parties’ conduct before the date of the breach,
November 15, 1992, and/or should provide a limiting instruction to the jury on this point.” (R&R
at 20.) Neither party has objected to either recommendation. However, Defendant has stated its
willingness “to stipulate that JGR’s past profitability (or lack thereof) is not indicative of future
profitability and that a willing buyer may choose to assume that JGR’s profits in the future would
be similar to other retailers in northeast Ohio.” (Doc. No. 311 at 12.) This, Defendant argues,
should “remove any need for JGR to present testimony regarding pre-breach interference as a
basis for Greenwald’s testimony as Thomasville is stipulating to the basis.” (Id. at 12-13.)
Plaintiff has responded to Defendant’s offer to stipulate by asserting that it is in
direct contravention of this Court’s Order of November 11, 2011, wherein the Court stated that
there were too many fact disputes to award summary judgment to either party and that “[a]ny
factual evidence that has been submitted to earlier juries must be resubmitted to a new jury.”13
(Doc. No. 298 at 15.) This is taken somewhat out of context; of course, facts to make a claim for
damages will need to be presented to the jury. However, that does not preclude the parties
13
The Court trusts that counsel understood this statement to mean any relevant and admissible evidence to the issues
in the case as the case now stands, and in accordance with the Court’s present rulings on the case.
18
entering into fact stipulations. In fact, the Court fully expected that the parties would do so
because there are many facts that are not honestly in dispute. Such stipulations were due by
December 5, 2011, but none were filed.14 Plaintiff asserts that no factual stipulations should be
made because “[o]nly through the oral testimony from the people who were actually there in
1991 and 1992 will the jury be fully able to understand (i) what happened to this business in
1991 and 1992, (ii) how Thomasville’s conduct in 1992 constituted a breach of contract, (iii)
why that contract was so critical to JGR, and (iv) how Thomasville’s breach of that contract
impacted JGR’s business.” (Doc. No. 312 at 12.)
Of course, the Court cannot force anyone to stipulate to facts, even those it knows
are not is dispute. That said, this Court will very carefully monitor the testimony that is
permitted. There will be no re-litigation of the already-established breach of contract; there will
be no suggestion that Defendant is somehow liable in tort for its “wrongful” pre-breach conduct.
Rather, any testimony about “pre-breach conduct” will be limited and admitted solely for
purposes of contextualizing Plaintiff’s expert’s report and valuation conclusions. The jury will be
instructed as to the purposes for which such testimony may be considered.
For the reasons set forth above, Motion in Limine #3 (Doc. No. 279) is granted in
part and denied in part.
IT IS SO ORDERED.
Dated: December 15, 2011
HONORABLE SARA LIOI
UNITED STATES DISTRICT JUDGE
14
On December 12, 2011, Defendant alone filed a Proposed Stipulation of Facts and Request for Judicial Notice,
seeking to eliminate any need for Plaintiff to offer testimony about pre-breach interference. (See Doc. No. 319.) By
Order dated December 13, 2011, the Court directed Plaintiff to address this proposed stipulation paragraph by
paragraph, indicating what, if anything, is objectionable to Plaintiff.
19
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