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Airbus DS Optronics GmbH v. Nivisys LLC

United States District Court, D. Arizona

March 31, 2017

Airbus DS Optronics GmbH, a foreign company, Plaintiff,
Nivisys LLC, WWWT Enterprises LLC, Nivisys Industries LLC, and First Texas Holdings Corporation, Defendants. AND RELATED COUNTERCLAIM


          James A. Teilborg Senior United States District Judge.

         Pending before the Court are several motions from each party, including: WWWT's motion for summary judgment (Doc. 221); First Texas Holding's motion for summary judgment (Doc. 228); Nivisys, LLC's motion for summary judgment (Doc. 230); Airbus DS's motion for summary judgment as to alter ego (Doc. 232); Airbus DS's motion for summary judgment as to defendants Nivisys, LLC and WWWT Enterprises (Doc. 233); Defendants' motion to exclude Airbus DS's expert (Doc. 268); and Airbus DS's motion to strike Defendants' objections to evidence (Doc. 272). The Court now rules on each motion in turn.

         I. Background

         A. The Credit Agreement and Subsequent Transfers

         Nivisys Industries, LLC (“Industries”) was an Arizona limited liability company that manufactured and sold defense and surveillance technology products. (Doc. 231 ¶ 1). In March 2008, Industries' members sold the entirety of their interest in the company to private equity firm Relativity Holding, LLC and its subsidiary, Nivisys Holdings, LLC (collectively “Holdings”). (Doc. 222 at ¶ 9). The purchase was financed by a loan (“the Credit Agreement”) from CapitalSource Finance, LLC (“CapSource”). (Doc. 222 at ¶ 10, Doc. 231 at ¶ 5). The Credit Agreement included a $13 million term loan and a $10 million revolving line of credit, and granted CapSource a security interest in all of Industries' and Holdings' assets. (Doc. 222 at ¶ 15; Doc. 229 at ¶ 4).

         Between 2008 and 2011, CapSource advanced funds to Industries and Holdings in accordance with the Credit Agreement. But Industries and Holdings were unable to meet their payment obligations, which prompted a total of nine amendments to the Credit Agreement. (Doc. 222 at 27; Doc. 229 at ¶ 5). Despite the amendments, Industries and Holdings were still unable to cure the defaults. As a result, CapSource and First Texas Holdings Corporation (“First Texas”) began communicating about the possibility of First Texas purchasing an interest in Industries' debt under the Credit Agreement. (Doc. 222 at ¶ 36; Doc. 229 at ¶ 9).[1]

         On November 16, 2011, First Texas signed a Loan Purchase and Sale Agreement under which it acquired the option to purchase the Credit Agreement from CapSource. (Doc. 222 at ¶ 44; Doc. 231 at ¶ 20). In February 2012, First Texas exercised its purchase option and acquired Industries' and Holdings' debt under the Credit Agreement. First Texas immediately assigned its interest in the Credit Agreement to Nivisys, LLC (“Nivisys”), a wholly-owned subsidiary of First Texas. (Doc. 222 at ¶ 68; Doc. 231 at ¶ 28; Doc. 250 at 68). Nivisys then sent a default letter to Industries and Holdings, demanding that they pay the full amount owed under the Credit Agreement. (Doc. 222 at ¶ 73, Doc. 250 at ¶ 73). Industries and Holdings were unable to cure the defaults, and on February 29, 2012, Nivisys filed a receivership suit to enforce its rights under the Credit Agreement. (Doc. 222 at ¶ 76; Doc. 250 at ¶ 76). On March 29, 2012, Nivisys assigned its interest in the Credit Agreement to WWWT Enterprises, LLC (“WWWT”), a wholly-owned subsidiary of First Texas. (Doc. 222 at ¶ 80; Doc. 250 at ¶ 80; see also Doc. 234 at ¶ 6).

         The parties agreed to settle the receivership suit in an agreement dated March 14, 2012 (the “Settlement Agreement”). In that agreement, Holdings agreed to surrender the entirety of its membership interest in Industries to WWWT. (Doc. 222-4 at p. 134). Later, on August 1, 2012, WWWT foreclosed on the Credit Agreement. It then entered into an agreement with Industries in which Industries surrendered the collateral secured by the Credit Agreement to WWWT in exchange for partial satisfaction of Industries' debt (the “Surrender Agreement”). (Doc. 233 at 3; Doc. 234 at Exhibit T; Doc. 234 at Exhibit A, Deposition at 46:14-48:12; 50:15-17; 51:16-62:5). That same day, Industries and Nivisys entered into a contract in which Nivisys agreed to perform certain of Industries' outstanding manufacturing obligations, in light of the fact that Industries no longer had control of the assets it needed to fulfill them (the “Subcontract Agreement”). (Doc. 234, Exhibit U). After its sales contract obligations had been met, Industries was liquidated and ceased operations. (Doc. 222 at ¶ 120; Doc. 250 at ¶ 120).

         B. The Co-Operation Agreement Between Airbus and Industries

         Against the backdrop of the facts described above, Industries entered into a contract with Plaintiff, Airbus DS Optronics GmbH, a German corporation (“Airbus”). Under that contract (“the Co-Operation Agreement”), Industries agreed to purchase, and Airbus agreed to supply, certain components of an Industries product. (Doc. 234, Exhibit WW). The Co-Operation agreement was initially effective for a two-year period beginning in September 2008, and thereafter automatically renewed each year for four additional years. (Doc. 234, Exhibit WW at 7).

         Industries breached the Co-Operation agreement in October 2011. (Doc. 234, Exhibit O). Pursuant to the breach, a German court entered judgment against Industries and awarded it attorneys' fees and costs for a total amount of $1, 269, 290.05, plus interest at a rate of 10 percent per annum until paid. (Id.). That judgment was domesticated and entered against Industries in Maricopa County Superior Court on April 16, 2014. (Id.).

         Airbus now claims that First Texas, WWWT, and Nivisys are liable for the judgment entered against Industries, arguing, inter alia, that the transfers of debt and assets through the Credit Agreement, Settlement Agreement, and Surrender Agreement were fraudulent. Plaintiff Airbus and defendants First Texas, WWWT, and Nivisys (collectively “Defendants”) have each filed separate motions for summary judgment, in addition to several non-dispositive motions.

         II. Non-Dispositive Motions

         A. Motion to Exclude Expert Witness

         The Court first addresses Defendants' joint motion seeking to exclude the testimony of Airbus's expert witness, Timothy Gay. (Doc. 268). In that motion, Defendants argue Gay's testimony is not admissible under any of the requirements for expert testimony, including qualifications of the witness, knowledge, helpfulness of the testimony, and the reliability of the foundational data.

         Federal Rule of Evidence (“Rule”) 702 governs the admissibility of expert opinion 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(a)-(d). In Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 589 (1993), the Supreme Court explained that Rule 702 imposes a gatekeeping obligation upon the trial court, requiring it to make a preliminary assessment of the admissibility of expert testimony. To fulfill that obligation, “the trial judge must ensure that any and all [expert] testimony or evidence admitted is not only relevant, but reliable.” Id. at 589; see also Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137 (1999) (applying Daubert gatekeeping obligation to all expert testimony, not just scientific). Under Rule 702, the Court must make separate determinations as to whether the expert is appropriately qualified, whether his testimony is relevant, and whether his testimony is reliable. See Daubert, 509 U.S. at 591; see also Mukhtar v. Cal. State Univ., 299 F.3d 1053, 1066 (9th Cir. 2002) (indicating that reliability of an expert's testimony is a distinct inquiry from whether an expert is qualified).

         1. Qualifications of Mr. Gay

         Timothy Gay is a licensed Certified Public Accountant with a Bachelor's degree in accounting. (Doc. 282-2 at 33:24-334:3). He has had 45 years of accounting experience, with emphases on business valuation and mergers and acquisitions. (Doc. 282-1 at Exhibit D). Although the Court agrees with Defendants' statement that Gay is not qualified to testify as a legal expert (Doc. 268 at 3), it is satisfied that Gay has sufficient “knowledge, skill, experience, training, [and] education” to serve as a financial expert in this case.

         2. Relevance of Mr. Gay's Opinion

         As to whether his testimony is relevant, Defendants argue that Gay's expert report veers away from the facts and improperly opines as to the proper application of the law governing successor liability and alter ego. (Doc. 268). Upon review of the report, this Court agrees. Mr. Gay's expert report contains numerous examples of legal conclusions, couched as Mr. Gay's “opinions” as to ultimate issues of law. (See, e.g., Doc. 268-19 at 1-8; Doc. 268-20 at 1-20). Such expert testimony is inappropriate; an expert may not undertake to “tell the jury what result to reach.” United States v. Duncan, 42 F.3d 97, 101 (2d. Cir. 1994). To the extent that Gay's report seeks to offer legal opinions or conclusions, those opinions are not admissible at trial.

         Portions, however, of Gay's expert report, in addition to his deposition testimony and rebuttal report, contain relevant and helpful opinions regarding the valuation of assets. (See, e.g., Doc. 268-19 at 8-9). Contrary to Defendants' argument, these opinions are capable of offering “appreciable help” to the jury. See United States v.Gwaltney, 790 F.2d 1378, 1381 (9th Cir. 1986). As a result, the Court declines to exclude Gay as a witness entirely. At trial, the parties may assert which portions of his opinion testimony they seek to admit. Based on the purpose for which the opinions will be offered, the Court will determine at that time whether the opinion is relevant.

         3. Reliability of Mr. Gay's Opinion

         As to Defendants' argument that Gay's opinion is so unreliable as to be inadmissible at trial, the Court declines to make such a ruling at the summary judgment stage. Gay's opinions are not entirely without foundation. His report cites to a lengthy list of sources upon which he relied, including disclosure statements, tax returns, deposition transcripts, third-party appraisals, and codified accounting standards. (Doc. 268-21 at 1- 11). These sources are sufficiently reliable to allow Gay to form a valid opinion. To the extent that Defendants argue otherwise, they are free to cross-examine Gay as to his sources and the basis for his opinions at trial. Similarly, Defendants also argue at great length that Gay's opinions are based on improper methodology. At trial, Defendants may cross-examine Gay in an attempt to discredit his opinions and prove to the jury that his methods were lacking, but the Court will not make such a determination at this stage.

         B. Defendants' Objections and Airbus's Motion to Strike

         Defendants also filed objections to several of Airbus' exhibits (Doc. 270), which Airbus included in its controverting statement of facts to WWWT's motion for summary judgment (Doc. 250). The Court overrules Defendants' relevance objections, and notes that to the extent the documents may be irrelevant, the Court will not rely on them in making its decision on summary judgment. See Quanta Indem. Co. v. Amberwood Dev. Inc., No. CV-11-01807-PHX-JAT, 2014 WL 1246144, at *3 (D. Ariz. Mar. 26, 2014) (discussing relevance objections at the summary judgment stage). For purposes of this Order only, the Court also overrules Defendants' objections as to improperly authenticated documents. See Id . at *2-*3 (discussing admissibility objections at the summary judgment stage). Finally, to the extent that Defendants object to Timothy Gay's rebuttal expert report (Doc. 250-26, Exhibit Z), the objection is overruled for the reasons stated in section A above. All objections are overruled without prejudice to a party reasserting the objection, as appropriate, at trial. Because the Court overrules Defendants' objections, Plaintiff's motion (Doc. 272) is denied as moot.

         III. Summary ...

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