United States District Court, E.D. Pennsylvania
KILBRIDE INVESTMENTS LIMITED, BUSYSTORE LIMITED IN LIQUIDATION, and BERGFELD CO. LIMITED, Plaintiffs,
CUSHMAN & WAKEFIELD OF PENNSYLVANIA, INC., BLANK ROME LLP, and COZEN O'CONNOR, P.C., Defendants, and CUSHMAN & WAKEFIELD OF PENNSYLVANIA, INC., Third Party Plaintiff,
CHAIM ZEV LEIFER, HASKEL KISH and JFK BLVD. ACQUISITION G.P., LLC, Third Party Defendants.
a fraud case in which Kilbride Investments Ltd., Busystore
Limited in Liquidiation, and Bergfeld Co. Ltd. (collectively,
“plaintiffs”), allege that defendants, Cushman
& Wakefield of Pennsylvania, Inc.
(“C&W”), Blank Rome LLP (“Blank
Rome”), and Cozen O'Conner, P.C.
(“Cozen”), induced them into investing at least
$27 million in a real-estate development project called the
River City Property (sometimes referred to as “River
City” or the “Property”), in Philadelphia,
Pennsylvania, by fraudulently misrepresenting the nature of
that project. Plaintiffs' Amended Complaint alleges one
count against defendant C&W - a count for fraudulent
misrepresentation. Presently before the Court are
C&W's Motion to Exclude the Testimony of Stephen D.
Roach, C&W's Motion to Exclude the Testimony of
Albert R. Hughes III, and C&W's Motion for Summary
River City Property is an 8.2 acre stretch of land along JFK
Boulevard divided into five parcels. Pls.' Resp. to Def.
C&W's Statement of Undisputed, Material Facts ¶2
(“Pls.' Resp. SOF”) (Document No. 158, filed
May 24, 2017); C&W's Statement of Undisputed,
Material Facts ¶2 (“C&W SOF”).
spring of 2006, non-parties Ravinder Chawla and Richard
Zeghibe developed a plan to purchase and flip the Property.
Pls.' Resp. SOF ¶¶ 3, 44; C&W SOF
¶¶ 3, 44. Chawla and Zeghibe retained Charles
Naselsky, an attorney at Cozen, and later at Blank Rome, in
connection with the acquisition of River City from its owner
at the time, R&F Penn Center Associates, L.P.
(“R&F Penn”). Pls.' Resp. SOF ¶4;
C&W SOF ¶¶14. Through JFK Blvd.-a single
purpose entity established to purchase River City-Chawla and
Zeghibe contracted to purchase River City from R&F Penn
for $32.5 million. C&W SOF ¶ 5. JFK Blvd. retained
architect James Rappoport to develop a mixed-use design plan
(the “Rappoport Plan”) for the Property featuring
ten high-rise towers and twelve million square feet of
available space for the purpose of marketing River City to
potential investors. C&W SOF ¶ 8; Pls.' Resp.
SOF ¶ 8.
to contracting for the purchase of River City from R&F
Penn, Naselsky retained C&W to appraise the Property.
Pls.' Resp. SOF ¶ 14; C&W SOF ¶14. On May
18, 2006, C&W's Managing Director, Gerald McNamara
sent Naselsky a draft engagement letter, which listed C&W
and Cozen as the “Parties to this Agreement” and
listed the “Intended User” as Cozen. C&W SOF,
Ex. P 61, “May 18, 2006, Email from McNamara to
Naselsky with Draft Engagement Letter.” Naselsky
revised the Draft Engagement Letter to change the
“Parties to This Agreement” to JFK Acquisition,
G.P., LLC, and “The Intended User” from Cozen to
read “client, together with its professionals,
investors, potential lenders may consider the appraisal
without further permission.” C&W SOF, Ex. P-120,
“Revisions to draft engagement letter.” Naselsky
also changed the date of value to “First Date of
Inspection.” PCSF ¶ 127. C&W accepted the
proposed changes. C&W SOF ¶ 23; PCSF ¶ 130.
McNamara assigned the task of appraising the Property to
Daniel McNeil, an appraiser at C&W. PCSF ¶ 135.
23, 2006, C&W submitted a draft appraisal (“June
2006 Draft Appraisal”) to Naselsky which valued the
Property at $57 million. C&W SOF, Ex. P-71, Cushman &
Wakefield Appraisal for JFK Properties - Date of Inspection
6-9-06; PCSF ¶ 138. After reviewing the June 2006 Draft
Appraisal, Naselsky sent McNamara an email in which he stated
that he was “concerned with several provisions findings
and assumptions, ” and wished to meet with McNamara to
discuss the appraisal. PCSF ¶ 170; C&W SOF ¶
38. McNeil met with Naselsky on July 10, 2006, to discuss the
June 2006 Draft Appraisal. PCSF ¶ 175; C&W SOF
¶ 39. On July 20, 2006, McNeil emailed Naselsky a
revised appraisal (“July 2006 Draft Appraisal”),
although the date of the appraisal stated that it was issued
on June 23, 2006. PCSF ¶¶190, 194.
the spring of 2006, the Philadelphia City Council began to
consider a proposed height ordinance that is at the heart of
this lawsuit. On April 20, 2006, Philadelphia City Councilman
Darrell Clarke introduced an ordinance which imposed a height
limit of 125 feet on buildings near the Benjamin Franklin
Parkway. PCSF ¶ 241; C&W SOF ¶¶147, 148.
On May 25, 2006, City Council amended the ordinance to
expressly include two of the five parcels constituting River
City. PCSF ¶ 241, 244; C&W SOF ¶¶149-51.
City Council passed the amended ordinance on June 8, 2006,
but it was not signed by the mayor. C&W SOF, Ex. C-54,
“Legislative History Summary of Bill No. 060292.”
The amended ordinance was reintroduced in City Council on
September 14, 2006, and on November 8, 2006, City Council
issued notice of a public hearing to be held on November 28,
2006, regarding the amended ordinance. PCSF ¶ 326;
C&W SOF, Ex. CW-59. Following the November 28, 2006,
public hearing, the amended ordinance was voted favorably out
of committee. C&W SOF ¶ 153. City Council passed the
amended ordinance on December 14, 2006, and on January 23,
2007, the mayor signed it. PCSF ¶¶ 378, 380.
November 16, 2006, C&W issued its final appraisal report
for the Property (the 2006 Final Appraisal Report), valuing
the Property at $77 million. PCSF ¶330, Ex P-78.
Although the appraisal was issued on November 16, 2006, the
2006 Final Appraisal Report continued to bear the date of
June 23, 2006, as the date of the appraisal. Id. The
2006 Final Appraisal Report stated that there was no height
limitation in the zoning for the Property and made no mention
of the amended height ordinance. Id.
September 2006, Zeghibe and Chawla contracted with Eli
Weinstein, a New Jersey based real estate investor who was a
member of the Orthodox Jewish community, for the purchase of
River City for $62.5 million. C&W SOF ¶¶ 51,
56; PCSF ¶ 296. Weinstein, along with Chawla and others,
solicited Berish Berger and his various corporate
entities-including plaintiffs-as investors in the Property.
Am. Compl. ¶ 28. Plaintiffs allege that, as a result of
fraudulent misrepresentations regarding the height
limitation, the feasibility of the proposal, and the
appraisal of the real estate, they invested at least $27
million in River City between December 2006 and January 2007.
December 18, 2012, plaintiffs filed suit in the United States
District Court for the Southern District of New York.
Defendants filed a Motion to Change Venue on January 31,
2013. On February 25, 2013, plaintiffs filed an Amended
Complaint. On August 28, 2013, Judge Paul Oetken granted the
Motion to Change Venue and transferred the case to the
Eastern District of Pennsylvania. On April 17, 2017, C&W
filed the pending Motion for Summary Judgment, Motion to
Exclude the Expert Testimony of Stephen D. Roach, and Motion
to Exclude the Expert Testimony of Albert R. Hughes. The
Court first addresses the Daubert Motions, relevant
to the Motion for Summary Judgment, before turning to
C&W's Motion for Summary Judgment.
Rule of Evidence 702 provides that:
If scientific, technical, or other specialized knowledge will
assist the trier of fact to understand the evidence or to
determine a fact in issue, a witness qualified as an expert
by knowledge, skill, experience, training, or education, may
testify thereto in the form of an opinion or otherwise, if
(1) the testimony is based upon sufficient facts or data, (2)
the testimony is the product of reliable principles and
methods, and (3) the witness has applied the principles and
methods reliably to the facts of the case.
Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137,
141 (1999), this gatekeeping function extends beyond
scientific testimony to testimony based on
“technical” and “other specialized”
knowledge. Using the Kumho analysis, a court must
determine whether an expert “employs in the courtroom
the same level of intellection rigor that characterizes the
practice of an expert in the relevant field.”
Id. at 152.
702 has “a liberal policy of admissibility.”
Pineda v. Ford Motor Co., 520 F.3d 237, 243 (3d Cir.
2008) (quoting Kannankeril v. Terminix Int'l,
Inc., 128 F.3d 802, 806 (3d Cir. 1997)). As such, the
“rejection of expert testimony is the exception and not
the rule.” Fed.R.Evid. 702, advisory committee's
note. “Rule 702 embodies three distinct substantive
restrictions on the admission of expert testimony:
qualifications, reliability, and fit.” Elcock v.
Kmart Corp., 233 F.3d 734, 741 (3d Cir. 2000) (citing
In re Paoli R.R. Yard PCB Litig., 35 F.3d 717, 741
(3d Cir. 1994)).
case, defendant challenges only the reliability of
plaintiffs' experts. The reliability requirement of
Daubert “means that . . . the expert must have
‘good grounds' for his or her belief.” In
re Paoli II, 35 F.3d at 742 (quoting Daubert v.
Merrell Dow Pharm., 509 U.S. 579, 590 (1993)). The test
of reliability is “flexible” and “the law
grants a district court the same broad latitude when it
decides how to determine reliability as it enjoys in respect
to its ultimate reliability determination.” Kumho
Tire, 526 U.S. at 141-42 (emphasis omitted). In
determining whether the reliability requirement is met,
courts examine the following factors where appropriate:
(1) whether a method consists of a testable hypothesis; (2)
whether the method has been subject to peer review; (3) the
known or potential rate of error; (4) the existence and
maintenance of standards controlling the technique's
operation; (5) whether the method is generally accepted; (6)
the relationship of the technique to methods which have been
established to be reliable; (7) the qualifications of the
expert witness testifying based on the methodology; and (8)
the non-judicial uses to which the method has been put.
United States v. Mitchell, 365 F.3d 215, 235 (3d
Cir. 2004) (citing In re Paoli II, 35 F.3d at 742 n.
8). This list is not exhaustive and all the factors are not
applicable in every case. Kannankeril, 128 F.3d at
806-07. Under the Daubert reliability prong, the
party proffering the expert “do[es] not have to
demonstrate to the judge by a preponderance of the evidence
that the assessments of their experts are correct, they only
have to demonstrate by a preponderance of evidence that their
opinions are reliable.” In re Paoli II, 35
F.3d at 744 (emphasis omitted). “As long as an
expert's scientific testimony rests upon ‘good
grounds, based on what is known, ' it should be tested by
the adversary process-competing expert testimony and active
cross- examination-rather than excluded from jurors'
scrutiny for fear that they will not grasp its complexities
or satisfactorily weigh its inadequacies.”
Mitchell, 365 F.3d at 244 (quoting Ruiz- Troche
v. Pepsi Cola of P.R. Bottling Co., 161 F.3d 77, 85 (1st
moves to exclude the testimony of plaintiffs' experts
Stephen Roach and Albert Hughes. The Court addresses these
motions in turn.
Testimony of Stephen Roach
Roach is a certified member of the Appraisal Institute and a
Principal at Jones, Roach & Caringella, Inc., an
appraisal firm. Resp. Opp. Mot. Exclude Roach Expert
Testimony, Document No. 152, May 24, 2017, Ex. 1, Roach
Expert Report (“Roach Report”), 59. Roach has
worked in the appraisal field since 1979 and has testified as
an expert witness before several courts. Id.
this litigation, Roach prepared an appraisal report in which
he reviewed C&W's 2006 Final Appraisal Report.
Appraisals and appraisal reviews are governed by the Uniform
Standards of Professional Appraisal Practice
(“USPAP”), which establishes mandatory standards
and methodology for performing appraisal work. See
49 PA. CODE §36.51 (2010). USPAP defines an appraisal as
“the act or process of developing an opinion of
value.” C&W Mot. to Exclude Roach Exp. Testimony,
Ex. D-95, 2016 - 2017 USPAP, at 1:8 (“Mot. Exclude
Roach”). Standard 1 of USPAP establishes the
requirements for the development of an appraisal. Standard 3
of USPAP governs the requirements for an appraisal review.
The purpose of a Standard 3 report is to “develop a
credible opinion of the quality of another appraiser's
work that was performed as part of an appraisal or appraisal
review assignment.” Mot. Exclude Roach, Ex. D-95, 2016
- 2017 USPAP, at 29:877-78. Roach prepared a Standard 3
appraisal review in which he examined C&W's 2006
Final Appraisal Report.
report, Roach concluded that the C&W appraisal analysis
“relied upon unsupported and illogical assumptions,
” which led to a value conclusion that was not credible
and misleading appraisal report. Roach Report at 1. Roach
further concluded that the C&W appraisal was
“performed recklessly and was so full of errors and
omissions that it is essentially impossible to conclude that
the Cushman & Wakefield signatories actually believed in
the conclusions.” Id. As part of the appraisal
review process, Roach examined multiple drafts of the 2006
Appraisal and the 2006 Final Appraisal Report. Id.
at 2. He personally inspected the Property and materials
relied upon by the C&W appraisers, including the land
sale data used by the C&W appraisers. Id. Roach
also compared the 2006 Final Appraisal to the 2004 Appraisal
of the Property conducted by C&W. Id. at 4.
moves to exclude Roach's testimony as unreliable on the
ground that Roach's report fails to comply with industry
standards as outlined by USPAP. Plaintiffs argue in response
that compliance with USPAP is not required under
Daubert and is relevant only to the weight, not
admissibility, of Roach's testimony. The Court first
addresses whether compliance with USPAP is required for
admissibility under Rule 702 before turning to C&W's
Whether Compliance with USPAP is required
assert that noncompliance with USPAP is irrelevant for
purposes of admissibility and instead is relevant only to the
weight of the expert's testimony. The Court disagrees.
rely primarily on Whitehouse Hotel Ltd Partnership v.
C.I.R., in which the Fifth Circuit concluded that USPAP
compliance was not the sole determining factor as to
whether an expert report was reliable and instead went to the
weight of expert's report, not admissibility. 615 F.3d
321, 332 (5th Cir. 2010) (emphasis added)). The Third Circuit
has concluded, however, that compliance with industry
standards is one factor a court may consider to determine
reliability under Daubert. See e.g. Murray v.
Marina Dist. Development Co., 311 Fed. App'x 521,
524 (expert testimony inadmissible where deviation from
industry standards corresponded with failure to demonstrate
methodology and would not withstand peer review).
Accordingly, while noncompliance with USPAP is not
dispositive, it is one factor that the Court will consider in
determining whether Roach's testimony is reliable.
Whether Roach impermissibly exceeded the scope of a Standard
3 Appraisal by providing his own value opinion
asserts that Roach's testimony must be excluded because
his Report exceeds the scope of a Standard 3 appraisal by
rendering “opinions that affect the value of the
property.” A reviewer who provides a value opinion must
comply with USPAP Standard 1. Mot. Exclude Roach at 8. The
USPAP, when an appraisal reviewer is asked to develop his or
her own opinion of value, the reviewer must comply with
Standard 1. Mot. Exclude Roach, Ex. D-95, 2016-2017 USPAP at
32: 990-995. USPAP cautions appraisal reviewers who do not
conduct a Standard 1 appraisal to avoid language which would
lead a reader to believe that the reviewer conducted an
appraisal: “If the language of such rejection is based
on errors or inconsistencies in the original work and does
not include any qualifiers that would relate to a direction
in value, it does not imply an appraisal by the
reviewer.” Id. at 138: 216-18.
provides several examples of statements in the Roach Report
which it believes render value opinions and are unsupported
by evidence as required by Standard 1. For example, C&W
argues that the Roach Report's statement that,
“there is not adequate demand in the market to support
the subject project” constitutes a value opinion that
lacks evidentiary support. Mot. Exclude Roach at 17. The
Court disagrees and concludes that Roach's conclusion is
based on perceived errors or inconsistencies in the original
appraisal, in compliance with USPAP Standard 3. In addition
to examining the market analysis in the 2006 Final Appraisal,
Roach reviewed condominium sales in Philadelphia in the four
years preceding the 2006 Final Appraisal and concluded that
the Property would have had to sell condominiums at a price
which exceeded the average for new condominium sales for the
preceding year by 43%. Roach Report at 11-12. Roach also
compared the volume of condominium sales in the vicinity of
the Property in the four years leading up to the 2006 Final
Appraisal and determined that the proposed development
project would have provided twenty-six times the number of
units sold in downtown Philadelphia in the previous four
years. Id. at 12. Roach thus determined that the
2006 Final Appraisal lacked credibility because of “the
high prices concluded to be required by the appraisers for
the project to be financially feasible, [and] the
extraordinary inventory of the project against historic sales
volumes . . . .” Id.
Court declines to review each Roach statement which C&W
asserts implies a value opinion. C&W's arguments with
respect to these statements are not a basis for excluding
Roach's testimony. To the contrary, Roach does not render
a value opinion, but instead complies with the requirement of
USPAP Standard 3 that an appraisal reviewer “develop an
opinion as to the completeness, accuracy, adequacy,
relevance, and reasonableness of the analysis in the work
under review . . .” Ex. D-95, 2016-2017 USPAP, 32:
979-82. As a consequence, the Court concludes that the fact
that Roach did not conduct his own Standard 1 appraisal of
the Property is not a basis for excluding his testimony.
Whether Roach Misrepresented Information in ...