United States District Court, D. Arizona
A. Teilborg Senior United States District Judge.
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.
The Credit Agreement and Subsequent Transfers
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).
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 ¶
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).
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).
The Co-Operation Agreement Between Airbus and
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).
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.).
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
Motion to Exclude Expert Witness
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.
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
(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).
Qualifications of Mr. Gay
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.
Relevance of Mr. Gay's Opinion
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.
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
Reliability of Mr. Gay's Opinion
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.
Defendants' Objections and Airbus's Motion to
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.