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PROCEDURE-EXPERTS-EXPERT REPORTS

Williams v. Bitler, PA No. 18-01063 (C.P. Lycoming June 29, 2022) (Linhardt, J.) The court mostly granted Lycoming Supply’s motion to exclude plaintiff’s expert testimony, and ultimately for summary judgment.  The court found that plaintiff’s expert dealing with book value was not supported by the evidence and irrelevant to the claims of breach of fiduciary duty. The Court concludes that many portions of the Crumling Report fail to satisfy the Pennsylvania Rules of Evidence regarding expert testimony, and the remainder of the report is not relevant to any surviving issues before the Court. Therefore, the Court precludes the Crumling Report. The first portion of the Crum ling Report, the discussion of “the fairness and reasonableness of book value” generally on pages 5 through 7, is definitive, supported, and within Crumling’s expertise. This portion of the Crumling Report addresses general principles of accounting and bookkeeping and frames the issues presented here in these terms, but does not reach any conclusions about the issuesn this case. Therefore, this section of the report would be admissible but only to the extent it supports relevant, admissible opinions regarding the issues in this case.  Crumling’s discussion of the ways in which LSl’s book value is suspect, contained in numbered paragraphs 1 through 3 on pages 7 through 10 of the report, notes general principles but does not suggest how they apply to LSI specifically. Even a generous reading of this portion of the Report fails to yield any statement offered with the requisite level of professional certainty concerning a valuation of LSl’s assets or any portion thereof (which is, of course, understandable, as Crumling was not retained to provide such an opinion). Crumling asserts that book value may “tend[] to over or under state the value” of LSI and that “[i]t is possible” LSI collected additional revenues it had previously deemed uncollectable, but does not conclude that either of these things actually happened (nor does it cite to any evidence of such). The discussion in Paragraph 1 is speculative as it relates to whether and to what extent LSl’s book value differs from its actual value. The methodology of the estimate of the deviation between the market price of LSl’s assets and the reported book value of those assets is not rigorous. Crucially, Crumling admitted that the difference may be “higher or lower.” For these reasons, this section of the Crumling Report, as well as the preceding section, do not offer any support for the argument that “book value” undervalues – rather than overvalues or accurately values – LSI, because the Report does not state as much with any professional certainty. Next, Crumling admitted that it could not determine with any degree of certainty if revenues were diverted from LSI to LCS. Regarding Kamatoma, the only conclusion Crumling stated with the requisite level of professional certainty is that under generally accepted accounting practices the value of Kamatoma would have been included in LSl’s book value. Crumling does not explain, however, how this accounting principle would impose a legal duty on LSI, Kamatoma, or their officers, as opposed to merely constituting best practices. Crumling opined that LSl’s book value “is understated by Kamatoma’s book value of equity,” but they were also unable to state with any certainty what that value is, as their estimate of Kamatoma’s value was not rigorous and explicitly not intended to be a valuation opinion. Because the Court does not have a reliable valuation of Kamatoma, it cannot conclude whether Kamatoma’s book value is positive, negative, or zero, and therefore whether the failure to include it in LSl’s value results in an increase or diminution in LSl’s value. The only opinion in the Crumling Report stated with the requisite level of professional certainty and directly applicable to an issue in this case is the analysis of the “dilution of each Plaintiff’s beneficial interest [in LSI]” that resulted from Leo Jr.’s 2009 purchase of 299 treasury shares at the 1998 Agreement price rather than present book value. However, for reasons discussed later in this Opinion, the Court will grant summary judgment to Defendants on this claim, as it is barred by the relevant statute of limitations. For the foregoing reasons, the Court grants Lycoming Supply, lnc.’s Motion to Exclude Plaintiffs’ Expert Testimony, as well as the Motion of Gordon C. Bitler to Exclude Expert Testimony, the Motion to Exclude Plaintiffs’ Expert Testimony of Defendants Kamatoma East, Ltd. and Lycoming Construction Services, LLC and the Motion to Exclude Plaintiffs’ Expert Testimony of Defendant Leo M. Williams, Jr., each of which join LSl’s Motion. The court analyzed on summary judgment valuation of shares; the proper way to value shares; and basically looked at expert reports.  The court found no breach of fiduciary duty, civil conspiracy, or any of the other claims had basis.  In particular, the court said that plaintiffs could not establish a breach of fiduciary duty. The Court concludes that Plaintiffs cannot establish a breach of fiduciary duty without presenting admissible expert testimony regarding 1) the valuation of LSI and 2) whether the above actions breached Bitler’s fiduciary duty. Plaintiffs’ failure to do so necessitates a grant of summary judgment on these claims. With regard to the first of these, the valuation of a company is a matter of sufficient complexity that expert testimony is required. As discussed above, the Crumling Report does not contain any admissible opinion that the decision to use book value resulted in an undervaluation, rather than overvaluation or accurate valuation, of LSI. Plaintiffs argue that it is facially obvious that book value omits certain of LSl’s assets, but they provide the Court with no evidence upon which to conclude that book value does not also omit liabilities of LSI , or the relative effects of those competing components on company value. In the absence of valuation testimony, Plaintiffs cannot establish that Bitler’s actions caused them any financial harm. The record simply does not contain sufficient evidence to allow the factfinder to do anything other than speculate in this regard. The court also said there was no right to amend the complaint, and relied upon a couple medical malpractice cases.  The court said that the attempt to amend after the fact does not amplify allegations of the original complaint, but constitutes a new theory raised for the first time after the expiration of the relevant statute of limitations.