Mergers & Acquisitions Expert Witness’ Testimony About Due Diligence Deemed Irrelevant
Posted on July 1, 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”).
One of the key issues in this 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.”
Defendants hired Alan Lee to analyze the due diligence conducted by Plaintiffs in connection with Plaintiffs’ purchase of Schratter Foods Inc.(“Schratter”)—and to provide opinions related to that due diligence process.
Plaintiffs filed a Daubert motion to exclude Lee’s opinions and testimony because they are not relevant to the action.
In his report, Lee provided three main opinions:
- “Due Diligence is a tailored process that varies in scope based on the facts and circumstances of a specific transaction and is designed to identify and mitigate relevant risks to a prudent acquirer.”
- “The Plaintiffs’ due diligence of the Schratter acquisition, supported by multiple experienced, independent financial and legal advisors was appropriate and adequate for the circumstances.”
- “The Plaintiffs completed the acquisition of Schratter after thoroughly evaluating the financial, business, and commercial risks identified during due diligence and either mitigated or accepted these risks when acquiring Schratter.”
Mergers & Acquisitions Expert Witness
Alan Lee has been advising private-business owners as well as public-corporation senior management for more than 30 years in the areas of M&A, corporate finance, succession planning, monetization of ownership interests. Previously, he was an audit partner and regional managing partner at PwC.
He is a certified public accountant and a member of the Illinois Society of CPAs and the ESOP Association.
Discussion by the Court
The Court held that Defendants did very little to explain exactly how are Lee’s opinions said to be relevant to Defendants’ defenses in this regard. Lee’s proffered opinions did not really address that subject matter. Lee’s report did not mention breach of contract claims, nor did it specifically address Defendants’ disclosure (or lack thereof) of the details of Voss’ role or of the June 30 Stock Purchase Agreement.
Instead, the meat of Lee’s opinions are about how the due diligence Plaintiffs conducted “was appropriate and adequate for the circumstances.”
So far as the Court can tell, only one paragraph in Lee’s opinion—paragraph 68—explicitly touches on the subject of the data room in any detail. But even in that paragraph, Lee simply discusses—at a very high level—how Defendants put certain financial statements and Schratter Board documents in the data room, and how the parties’ “[letter of intent regarding the sale] was not a guarantee that every document requested would necessarily be provided within the compressed due diligence window (nor does that usually happen).”
The Court held that Lee’s opinions do not speak to any of the particular documents or facts at issue regarding the breach of contract theory. Nor do they seem intended to be used to do so.
The Court held that Defendants never clearly pointed to certain fraud allegations in the case and then explained why aspects of Lee’s testimony actually speak to one or more elements of those claims (or would otherwise help the jury assess the claims). In other words, Defendants failed to cogently explain how any of this type of due diligence work, or Plaintiffs’ identification of any particular “red flags,” relate to any of the elements of a fraud claim in Florida, or to any particular live allegations of fraud.
Held
The Court granted Plaintiffs’ motion to exclude Lee’s opinions and testimony.
Key Takeaway:
The meat of Lee’s opinions are about how the due diligence Plaintiffs conducted “was appropriate and adequate for the circumstances.” The Court held that Lee’s report did not mention breach of contract claims, nor did it specifically address Defendants’ disclosure (or lack thereof) of the details of Voss’ role or of the June 30 Stock Purchase Agreement.
Please refer to the blog previously published about this article: Corporate Law Expert Witness’ Opinions on Ordinary Corporate Behavior Excluded
Case Details:
| Case Caption: | Ecb Usa, Inc. Et Al V. Savencia, S.A. Et Al |
| Docket Number: | 1:19cv731 |
| Court: | United States District Court for the District of Delaware |
| Order Date: | January 10, 2024 |
