Business Valuation Expert Witness Testimony Allowed

Plaintiff filed suit against defendant related to a claim under the Employee Retirement Income Security Act.  Plaintiff hired a Business Valuation Expert Witness to provide testimony.  Defendant filed a motion to exclude this testimony.  The court denied the motion.

Facts: This case (Secretary of Labor, U.S. Department of Labor v. Wilmington Trust, N.A. et al – United States District Court – Northern District of Ohio – January 18th, 2019) involves a claim that the defendant violated the Employee Retirement Income Security Act.  The plaintiff argues that Wilmington caused the defendant to overpay for an employee stock ownership purchase of Graphite Sales, Inc.’s outstanding stock.  This lawsuit turns on the proper valuation of Graphie.  The plaintiff has hired Business Valuation Expert Witness  James A. Krillenberger to provide testimony.  The defendant has filed a motion to exclude this expert from testifying.

Discussion: The defendant argues that Krillenberger’s opinions are not tethered to accepted valuation methodology.  The defendant states that Krillenberger stated that he could not speak for the entire valuation industry on particular topics as evidence that his views are pure speculation.

The court opines that Krillenberger’s concession that other valuation experts may interpret the same facts differently does not mean that his own interpretation is made up.  The court also states that the defendant’s motion only quarrels with Krillinberger’s conclusions rather than showing that those conclusions are not scientific.  The court continues by stating that the defendant’s objections go to the weight of the evidence, not their admissibility.

First, the defendant takes issue with Krillenberger’s view that the defendant’s expert should have used multiples of revenue and EBITDA to value Graphite.  The defendant argues that this contradicts a cited treatise.  The cited treatise passage explicitly contemplates that Krillenberger’s approach might be used in circumstances other than start-ups and service companies.

In addition, Krillenberger also opines that Stout erred by using the “exit method” instead of the “Gordon Growth Method” under the Discounted Cash Flow valuation method.  The defendant argues that Krillenberger’s criticism is incorrect because several treatises permit either method.  The court opines that this argument goes to weight of the evidence, not the admissibility.

Also, the defendant argues that Krillenberger was wrong to consider stock warrants and stock appreciation rights in valuing Graphite.  The court opines that the defendants will have a chance to show that Krillenberger is wrong about this at trial as here they do not show that this view lacks sufficient facts or departs from accepted principles and methodologies.

Conclusion:  The motion to exclude the expert witness testimony of James A. Krillenberger is denied.