Corporate Law Expert Witness’ Opinions on Ordinary Corporate Behavior Excluded
Posted on April 12, 2024 by Expert Witness Profiler
Plaintiffs, ECB USA, Inc. and Atlantic Ventures Corp. accused Savencia and Zausner, together with other persons and entities, of commiting a series of tortious acts, including, but not limited to, looting the assets of Schratter Foods Incorporated (“Schratter”), then fraudulently inducing Plaintiffs into executing an agreement to purchase all of Schratter’s shares (the “Stock Purchase Agreement”).
Knowing that the ECB representatives had no experience with cheese and dairy products and were not eligible to work in the United States, Savencia and Zausner, along with other co-conspirators, induced the ECB Representatives to enter a fiduciary relationship with Voss, and then induced Plaintiffs to partner with Voss in the purchase of Schratter. The ECB Representatives, and ultimately Plaintiffs, put their trust and confidence in Voss, who, in turn, colluded with Zausner, Savencia and other co-conspirators in the commission of frauds and other tortious acts.
A key issue in the case is whether, prior to Schratter’s sale, Defendants secretly “stripped” Schratter’s Chief Executive Officer (“CEO”) Alain Voss (“Voss”) of certain of his powers and duties as CEO and then “lied” to Plaintiffs’ by holding “Voss out as Schratter’s trusted, knowledgeable, and effective chief, for the purpose of persuading [Plaintiffs’] representatives to accept Voss as a fiduciary and to partner with him to purchase Schratter.
Plaintiffs hired Jonathan Macey to provide “opinions on corporate governance and ordinary and customary corporate behavior.” Defendants filed a Daubert motion to exclude Macey’s opinions and testimony because his opinions were unreliable and did not “fit” the facts of the case.
Corporate Law Expert Witness
Jonathan R. Macey is Sam Harris Professor of Corporate Law, Corporate Finance, and Securities Law at Yale University and Professor in the Yale School of Management. Professor Macey earned his B.A. cum laude from Harvard in 1977, and his J.D. from Yale Law School in 1982, where he was Article and Book Review editor of The Yale Law Journal. In 1996, Professor Macey received a Ph.D. honoris causa from the Stockholm School of Economics.
Professor Macey has taught at major universities throughout the world, including Bocconi University (Milan), the University of Tokyo; the University of Toronto; the University of Turin, the University of Amsterdam Department of Finance, and the Stockholm School of Economics, Department of Law. He also has been Professor of Law at the University of Chicago (1990) and Visiting Professor of Law at Harvard Law School (1999). In 1998, he received the D.P. Jacobs prize for the most significant paper in volume 6 of the Journal of Financial Intermediation for his paper (co-authored with Maureen O’Hara), “The Law & Economics of Best Execution.”
Discussion by the Court
Macey provided two principal opinions in his report:
- Based on commonly understood conceptions on the role of the CEO in business organizations such as [Schratter], Alain Voss was not actually the CEO of Schratter during the period beginning June 30, 2014 and continuing through December 31, 2014, as the term ‘CEO’ is universally understood in business. During the foregoing period Voss was the CEO of Schratter in name only, without the usual responsibilities, authority, and duties associated with that position.”
- Analysis of the quality of management of the company being acquired (the target company) is a critical consideration in making a corporate acquisition where the acquisition is being done with management in place. An inevitable implication of this analysis is that the identity of a company’s CEO should be fully and accurately disclosed, including, but not limited to, in the governing documents of the target company. To the extent that a selling entity makes disclosures about the quality of management, such disclosures should be accurate.”
Plaintiffs alleged that: (1) prior to mid-2014, Voss was the CEO of Schratter and held certain duties commensurate with that role; (2) but in June 2014, Defendants secretly “stripp[ed]” Voss of those duties, and gave those duties to another executive at Schratter (J.M. Wild, or “Wild”), who became the “de facto” CEO, such that Voss was thereafter the CEO “in name only”; and (3) yet Defendants did not tell Plaintiffs this before the Schratter deal closed, and instead communicated that Voss was a trusted, effective CEO.
Macey’s opinions as to Voss’ role at Schratter did not meet the fit requirement
Corporate Law Expert Witness Macey explained his view as to why “based on commonly understood conceptions of the role of the CEO . . . [Voss] was not actually the CEO” as of Schratter’s sale. Here, although Macey acknowledged that “different CEOs focus on different issues and adjust their duties to address the specific needs of particular firms,” he opined that there were “features of the job of CEO that could be generalized across firms.” He discussed only some of those features and opined that at the time of the sale, Voss’ role did not include these particular features. As a result, Macey opined that Voss then “was the CEO of the company in name only” and “did not have the powers of the president and CEO and did not manage the business of Schratter.”
However, it is not relevant (and thus, the jury will not benefit from hearing testimony about) what CEOs at other companies “generally” do.
In order to assess these issues, the jury will need to answer related questions such as: (1) What duties did Voss have prior to early-to-mid 2014 in his role as CEO?; (2) Was he “stripped” of some or all of those duties thereafter, with the duties being given to Wild, such that Voss became the “CEO” in “name only”?; (3) What statements or disclosures did Defendants make to Plaintiffs about Voss’ role in the relevant time period, and did Defendants make any misrepresentations or omit important facts on these subjects?
These are factual questions regarding events that either did or did not occur in the past regarding Schratter’s sale, and which are not particularly technical or complex. The Court held that assessing whether these events occurred and how that relates to the instant claims did not necessitate reliance on expertise beyond the ken of a typical lay juror.
Macey will have nothing relevant or admissible to say about how “Voss was portrayed”
Macey opined that analysis of the quality of management of the company being acquired is a critical consideration in making a corporate acquisition” such that “the identity of a company’s CEO should be accurately reflected in the governing documents of the firm.” He cited published articles for the proposition that “CEO quality” is “often critical to the success of an acquisition.”
The relevant allegations are not about what “often” happens with regard to acquisitions involving other entities, such as those in the private equity realm. The allegations are that these particular Plaintiffs highly valued the fact that a successful, competent CEO was in place at Schratter (due to their lack of experience in the relevant field) and that this allegedly “created an opportunity for Defendants to fraudulently induce Plaintiffs” to follow through with the acquisition to their detriment.
The Court held that it was relevant to determine what impact the assertions allegedly made by Defendants had on Plaintiff, all of which relate to the actual transaction at issue in this case. Henceforth, Macey will have nothing relevant or admissible to say about how “Voss was portrayed” or whether it was “highly unlikely” that Plaintiffs would have bought Schratter had they known the “true facts” about Voss’ role.
Held
The Court granted Defendant’s motion to exclude the opinions and testimony of Plaintiff’s Corporate Law Expert Witness Jonathan Macey.
Key Takeaways:
- No Specialized Knowledge Needed For The Jury: The jury needed to answer factual questions regarding events that either did or did not occur in the past regarding Schratter’s sale, and which are not particularly technical or complex. Thus, assessing whether these events occurred and how that relates to the instant claims did not necessitate reliance on expertise beyond the ken of a typical lay juror which is why Jonathan Macey’s opinions as to Voss’ role at Schratter did not meet the fit requirement.
- Lack of Relevance: Macey could not shed light on the impact the assertions allegedly made by Defendants had on Plaintiff, all of which relate to the actual transaction at issue in this case.
Case Details:
| Case Caption: | Ecb Usa, Inc. Et Al V. Savencia, S.A. Et Al |
| Docket Number: | 1:19cv731 |
| Court: | United States District Court, Delaware |
| Order Date: | March 22, 2024 |
