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Kilbride Investments Limited v. Cushman & Wakefield of Pennsylvania, Inc.

United States District Court, E.D. Pennsylvania

April 25, 2018



          DUBOIS, J.


         This is 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 Judgment.


         The 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”).

         In the 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.

         Prior 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.

         On June 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.

         During 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.

         On 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.

         In 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. Id.

         On 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.


         A. Applicable Law

         Federal 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.

         Under 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.

         Rule 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)).

         In this 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 Cir. 1998)).

         B. Discussion

         C&W moves to exclude the testimony of plaintiffs' experts Stephen Roach and Albert Hughes. The Court addresses these motions in turn.

         1. Testimony of Stephen Roach

         Stephen 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.

         For 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.

         In his 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.

         C&W 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 other arguments.

         2. Whether Compliance with USPAP is required

         Plaintiffs 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.

         Plaintiffs 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.

         3. Reliability

         a) Whether Roach impermissibly exceeded the scope of a Standard 3 Appraisal by providing his own value opinion

         C&W 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 Court disagrees.

         Under 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.

         C&W 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.

         The 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.

         b) Whether Roach Misrepresented Information in ...

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