Business Valuation and Construction Expert Witness Allowed; Finance Expert Witness Excluded

Plaintiff sued defendant for not securing a loan with the HUD.  Plaintiff hired three experts to provide testimony.  Defendant filed motions to exclude for all three experts.  The court granted one motion and denied two.

Facts:  This case (River House Partners, LLC v. Grandbridge Real Estate Capital LLC – United States District Court – Middle District of Louisiana – September 26th, 2017) involves an alleged failure by the defendant (Grandbridge) to secure a loan insured by the Department of Housing and Urban Development (HUD) for the financing and construction of commercial and residential development.   Grandbridge was allegedly late in submitting materials to HUD, who ultimately terminated a Conditional Commitment on the loan.  The Plaintiff (River House) sued Grandbridge of their failure to act on securing the loan.  To support its claim, River House hired three experts to provide testimony: Dr. Joseph R. Mason (finance expert witness), Mr. J. Lester Alexander III (business valuation expert witness), and Mr. John Minor (construction expert witness).  Grandbridge filed a motion to exclude the testimony of these witnesses.

Discussion:  Dr. Mason was hired to testify on the value of a non-recourse provision in HUD financing.  In order to calculate the value of the non-recourse provision, he utilized the Black-Scholes valuation model.  The court ruled that, even if his methodology was reliable, his testimony should be excluded because it would not assist the trier of fact.  The court opined that he estimated the value of the non-recourse provision to the principals of River House, but the principals of that entity are not a party to this lawsuit.  Since that is the case, any loss that the principals have suffered cannot be attributed to River House.  Thus, the motion to exclude the testimony of Dr. Mason was granted.

Mr. Alexander intends to offer an opinion on the financial loss of the HUD financing and the delay in the development of River House. He used the discounted flow method to perform his calculations.  Grandbridge looks to exclude Mr. Alexander’s motion on numerous grounds including 1) that he used incomplete facts and incorrect data, 2) he used different methodologies to inflate the damages, 3) His opinion is based partly on Dr. Mason’s opinion, and 4) he doesn’t explain certain inputs into his calculation.  The court opined that Mr. Alexander’s expert testimony should be allowed due to his qualifications and experience in the area of business calculation as well as the accepted use of his methodologies.

Last, Mr. Minor was to testify on the increase of construction costs to the River House project.  He conducted a supplemental analysis to come to his conclusions.  Grandbridge argued that since it did not cause the construction delays, this testimony was irrelevant.  In addition, they argue that Mr. Minor’s opinion and methodology is speculative and unreliable.  The court opined that it will allows Mr. Minor’s testimony due to his extensive experience in construction cost estimating and that any arguments against his methods can be discussed at cross-examination.

Conclusion:  The motion to exclude the expert witness testimony of Dr. Mason was granted.  The motions to exclude the testimony of Mr. Alexander and Mr. Minor were denied.