Finance Expert Was Allowed to Opine on the Value of a Company

This case arises out of the dissolution of Fusion Modeling Agency LLC ("Fusion")—a company previously run by Plaintiff Kevin Pollack and Defendant Jodie Gordon together. Following a breakdown in their relationship, Fusion was dissolved by judicial decree on May 3, 2021. On March 28, 2023, Pollack filed this action against Gordon and Fusion Models BK LLC ("Fusion BK") (collectively, "Defendants") alleging that Gordon wrongfully diverted Fusion's assets to her new company—Fusion BK—and asserting claims for breach of contract, tortious interference with contract, breach of fiduciary duty, inducement of breach of fiduciary duty, violation of New York Limited Liability Company Law ("NYLLCL")§ 1102(b) and Fusion's Operating Agreement, and for an equitable accounting.

To demonstrate the value of Fusion's intangible assets, Pollack relies in part on his valuation expert, Quan Vu. Defendants made several arguments to exclude Vu's testimony.

Finance Expert Witness

Quan A. Vu has worked in valuation and finance for over twenty years, serving as Chief Financial Officer, Chief Business Officer, and Managing Director for several companies across the pharmaceutical, healthcare, and technology sectors.

He has extensive experience in corporate transactions and has previously performed valuations like the one he performed here.

Get the full story on challenges to Quan Vu’s expert opinions and testimony with an in-depth Challenge Study.

Discussion by the Court

To assess Fusion's value, Vu used the Discounted Cash Flow ("DCF") method. DCF is a financial valuation method used to estimate the value of a company based on expected future cash flows. Vu used DCF to value Fusion because there were "no publicly available precedent transactions and limited public traded comps." His valuation was based on Fusion's profit and loss statements from 2013-2020, tax filings, balance sheets, bank statements, and credit card statements, as well as publicly available data—including annual reports and quarterly reports—for a publicly traded comparable company, Wilhelmina International Inc. Ultimately, Vu estimated Fusion's value to be between $ 3.4 million and $ 5.4 million.

Defendants made several arguments to exclude Vu's testimony, all of which are meritless. To start, Defendants contended that Vu is not qualified because he is not accredited by any professional valuation body, and because he has not previously testified as an expert. But these are not requirements to provide an expert opinion—and the authority is to the contrary. Vu has sufficient professional experience in valuation to opine on the matters in his report—he has extensive industry experience and has previously conducted similar valuations.

Separately, Defendants contended that Vu's testimony is unreliable because he used the "wrong standard." Defendants argued that "DCF is appropriate only when historical operations are not indicative of future performance," and because Fusion "operated continuously from 2007 until its dissolution in 2021," "its historical operations are indicative of its future earning potential."

But Defendants cite not a single case suggesting that DCF is not a reliable valuation method, or requiring the use of Defendants' preferred capitalized economic income method. Indeed, while quibbling with Vu's use of the term "intrinsic value," Defendants cite authority supporting the use of the DCF method—"many authorities recognize that the most reliable method for determining the value of a business is the discounted cash flow . . . method." And Pollack sets forth a number of cases supporting the use of DCF for valuation.

Lastly, Defendants raised various other arguments—including that Vu's assumptions regarding expense reductions were unjustified; that Vu improperly applied EBITDA multiples from Wilhelmina Models, a publicly traded company with revenues much higher than Fusion's, and applied a growth rate far above industry norms; and that Vu failed to interview Gordon when conducting his valuation. But these go to the weight of the evidence, not its admissibility.

The Court held that Vu is qualified, his testimony is based on a valuation method widely accepted as reliable, and it would be helpful to the jury in assessing the value of Fusion's intangible assets.

Held

The Court denied Defendants' motion to exclude Quan Vu's testimony.

Key Takeaway

The notion that Daubert requires particular credentials for an expert witness is radically unsound. The Federal Rules of Evidence, which Daubert interprets rather than overrides, do not require that expert witnesses be academics or PhDs. . . . Anyone with relevant expertise enabling them to offer responsible opinion testimony helpful to judge or jury may qualify as an expert witness.

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