Sieger v Zak

[*1] Sieger v Zak 2012 NY Slip Op 50927(U) Decided on April 11, 2012 Supreme Court, Nassau County Bucaria, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on April 11, 2012
Supreme Court, Nassau County

Stuart M. Sieger and David R. Spencer, Plaintiffs,

against

Louis Zak and Powersystems International, Inc., Defendants.



19978/05



Plaintiff's Attorney

Meyer Suozzi English & Klein, PC

990 Stewart Avenue, Suite 300

P.O. Box 9194

Garden City, NY 11530-9194

Defendant Louis Zak's Attorney

Morrison Cohen LLP

909 Third Avenue

New York, NY 10022-4784

Defendant Powersystems Int'l., Inc.'s Attorney

Kirkland & Ellis International LLP

601 Lexington Avenue

New York, NY 10022-4611

Stephen A. Bucaria, J.

Motion by defendants Louis Zak and PowerSystems International to preclude plaintiffs from offering evidence on the issue of damages is granted in part and denied in part.

This action by former minority shareholders of a close corporation arises from their sale of their stock ownership interests in the company. Plaintiffs Stuart Sieger and David Spencer each held a 1/6 interest in defendant PowerSystems International, Inc. Defendant Louis Zak held a 2/3 interest and was the principal manager of the company. In July 2004, Zak purchased plaintiffs' interest for $3.4 million and subsequently sold Powersystems to Hunter Defense Technologies, Inc for approximately $ 45 million.

Plaintiffs asserted a claim for breach of warranty based on a provision in the stock purchase agreement in which Zak represented that he had had no "substantive discussions" related to a possible sale of PowerSystems. Plaintiffs also asserted claims for fraud, constructive fraud, and breach of fiduciary duty, claiming that Zak concealed a report from an investment banker, and other material information, concerning the value of the company.

Although plaintiffs' constructive fraud claim was dismissed for legal insufficiency, the remainder of the claims were submitted to the jury on special interrogatories. The jury found that defendants Zak and Powersystems violated their representations and warranties that there had been no "substantive discussions" relating to a possible sale of the company. The jury found for the defendants with respect to plaintiffs' breach of fiduciary duty and fraud claims. Specifically, the jury found that Zak's breach of fiduciary duty was not a substantial factor in causing plaintiffs' damages. With respect to the fraud claim, the jury found that Zak did not know that his representation relating to plaintiffs' decision to sell was false.

By order dated February 6, 2012, the court denied the parties' cross motions for summary judgment on the issue of damages and denied defendants' alternative request that plaintiffs be precluded from offering damages evidence. Damages for breach of warranty are generally measured on an "out-of-pocket basis." Thus, plaintiffs' damages for Zak's breach of the warranty of no "substantive discussions" are equal to the value of plaintiffs' stock at the time of the agreement, i.e. in July 2004, less the consideration which plaintiffs received. Such damages may be said to have been proximately caused by Zak's breach of his warranty because plaintiffs would not have sold their stock for $3.4 [*2]million had they known that Zak had "substantive discussions" showing a greater value for the company.

Defendants move to preclude plaintiffs from offering expert testimony as to the value of Powersystems in July 2004 on the ground that plaintiffs' expert disclosure does not state in reasonable detail the subject matter of the expert's testimony as required by CPLR 3101(d). Additionally, defendants argue that the investment banker proposals which Zak received may not be considered valuations of Powersystems because they were based on unrealized assumptions, such as continued income growth and a competitive auction of the company.

Plaintiffs' expert witness is Martin Randisi, a certified public accountant who is accredited in business valuation. Plaintiffs' expert disclosure states that Mr. Randisi will testify as to the value of Powersystems at or about the time of plaintiffs' sale of their interest.

The disclosure states that Mr. Randisi will utilize an income approach, modeling anticipated future returns of Powersystems and discounting cash flows to present value. The disclosure indicates that the expert will also utilize a market approach, examining the trading prices and "benchmarks" of publicly traded companies. Although the disclosure states that the expert will also utilize a "cost approach," it does not give further explanation of which costs will be considered. Finally, the disclosure states that the expert will utilize a "SWOT analysis," considering strengths, weaknesses, opportunities, and threats to the company.

CPLR 3101(d) provides that upon request each party shall identify its experts and disclose in reasonable detail the subject matter on which the expert is expected to testify, the substance of the facts and opinions on which each expert is expected to testify, the qualifications of the expert, and a summary of the grounds for each expert's opinion. Further disclosure concerning the expected testimony of the expert may be obtained only by court order upon a showing of special circumstances and subject to restrictions as to scope and provisions concerning fees and expenses as the court may deem appropriate.

The expert disclosure requirements are intended to provide timely disclosure of expert witness information between parties for the purpose of adequate and thorough trial preparation (McColgan v Brewer, 84 AD3d 1573, 1576 [3d Dept 2011]). The trial courts are vested with broad discretion in addressing expert disclosure issues (Id). In commercial cases, more liberal expert disclosure is encouraged on a voluntary basis (See Expert Witness Disclosure, Pilot Program Statement and Rule of the Commercial Division of the Nassau County Supreme Court). [*3]

The court concludes that plaintiffs' expert witness disclosure does not disclose in sufficient detail the methodology used to evaluate Powersystems in order for defendants to engage in adequate and thorough trial preparation. Accordingly, defendants' motion to preclude expert testimony is granted only to the extent that plaintiffs shall produce Martin Randisi for examination at the office of plaintiffs' counsel at 10:00 am on April 25, 2012, or at such time and place as agreed to by counsel. The cost of the examination shall be borne by defendants.

Expert opinion is proper when it would help clarify an issue calling for professional or technical knowledge, possessed by the expert and beyond the ken of the typical juror, or other factfinder (People v Rivers, 18 NY3d 222, 228 [2011]). The investment banker proposals include quantitative analysis by financial professionals which is beyond the ken of a typical juror. The quantitative analysis will help clarify the issue of value, and indeed was originally intended to guide Zak in evaluating the company.

That the investment banker proposals were based upon various assumptions, which may or may not have been realized, does not detract from their qualification as expert opinion. Indeed, an expert is permitted to give an opinion in hypothetical form, and the data, or assumptions, upon which the opinion is based may be explored on cross examination (CPLR 4515). Defendants' motion to preclude plaintiffs from offering the investment banker proposals and related material into evidence is denied, subject to defendants' right to call the authors of the proposals for further examination.

So ordered.

DatedJ.S.C.