Real Estate Appraisal Expert Witness Not Allowed to Opine on Mitigating Lost Pre-Sale Rent

This federal diversity action arises out of a commercial lease agreement for a three-story building located at 2555 Park Boulevard in the City of Palo Alto, California ("City"). KJ-Park claimed that Match Group breached the lease agreement and a guaranty, and owes KJ-Park millions of dollars in damages. Match Group counterclaimed for breach of contract and money had and received, claiming that Defendants properly terminated the lease agreement following KJ-Park's own breach of the lease agreement.

For the first year and a half of litigation, the key disputed issue was whether Match Group properly terminated the lease agreement. The focus of the parties' dispute concerned a City retail ordinance. KJ-Park principally contended that it obtained a "vested legal right" to use the entire three-story building as office space well before the parties entered into the lease agreement, regardless of any position to the contrary asserted by the City, and that Match Group therefore had no right to terminate the lease agreement on the basis that KJ-Park failed to deliver premises that complied with the ordinance.

The parties each filed motions for summary judgment. The Court granted summary judgment for Match Group on KJ-Park's claims, denied partial summary judgment to KJ-Park, granted summary judgment for Match Group on its counterclaims, and awarded fees and costs to Match Group. The Court found it unnecessary to address the parties' respective motions to exclude the testimony and opinions of KJ-Park's damages expert, Craig A. Owyang, and Match Group's damages expert, Josh Fronen; the Court denied those motions as moot.

On appeal to the Ninth Circuit, KJ-Park argued for the first time that the retail ordinance in question was not "Applicable Law" under the "Landlord Work" provision of the parties' lease, and that the ordinance had no bearing on KJ-Park's contractual obligations. The Ninth Circuit agreed and, after construing the lease agreement, found that KJ-Park met its contractual obligations to provide "the base, shell, and core" of the subject building.

The Ninth Circuit reversed and remanded this Court's grant of summary judgment for Match Group on KJ-Park's breach of contract and breach of guaranty claims, as well as on Match Group's counterclaims for breach of contract and for money had and received, and vacated the Court's award of fees and costs. The Ninth Circuit also vacated this Court's denial as moot of the Daubert motions regarding damages experts Messrs. Owyang and Fronen.

Real Estate Appraisal Expert Witnesses

Craig Alva Owyang is a Certified General Real Estate Appraiser. He has been recognized as an expert in valuation in a number of courts as well as arbitration venues. He has acted on behalf of litigants as both a retained expert and as a third-party neutral. Craig has been extensively involved with the Appraisal Institute and most recently chaired its Comprehensive Examinations Panel.

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

Josh Fronen holds expertise in all property types throughout the Bay Area and has extensive experience with a range of appraisal services, from standard commercial valuations to complex litigation assignments. He has provided court testimony and is a qualified expert witness.

Want to know more about the challenges Josh Fronen has faced? Get the full details with our Challenge Study report.

Discussion by the Court

Craig Owyang

Owyang is an MAI-credentialed commercial real estate appraiser who conducted a valuation analysis of the subject property based on an assumption (among others) that Match Group breached the lease agreement. Owyang concluded that as a result of Match Group's breach, KJ-Park sustained damages in the amount of $10,537,583 as of March 31, 2024, and noted that his "opinion of value will be higher after March 31, 2024."

Match Group sought to exclude Owyang's testimony and opinions entirely, arguing that Owyang is not qualified to opine about contract damages, and that his opinions are not the product of reliable principles and methods and do not reflect a reliable application of such principles to the facts of the case. Specifically, Match Group took issue with the scope and wording of Owyang's retention letter, and argued that Owyang has no legal training and no expertise or experience in calculating damages in a lease dispute. Match Group further contended that Owyang's analysis relies on certain facts that are disputed and that Match Group maintains are inaccurate or incorrect. KJ-Park responded that Owyang considered three different approaches and ultimately used an income capitalization approach because it is the most suitable approach for calculating net damages in this case. KJ-Park further argued that as an appraiser, Owyang is experienced and qualified to analyze the income streams from various leases for properties that he appraises.

The Court is unpersuaded that KJ-Park's retention letter has any bearing on the relevance or reliability of Owyang's proffered testimony and opinions. As for the remaining issues Match Group raises, the Court agreed with KJ-Park that those matters go to the weight (not admissibility) of Owyang's testimony and opinions.

Josh Fronen

Fronen is an MAI-credentialed commercial real estate appraiser who conducted a valuation analysis of the subject property. As discussed at the hearing, in his report, Fronen appears to offer two opinions. The first opinion concerns Fronen's valuation of KJ Park's damages, which he calculates to be $3,244,934 as of October 2023.

With respect to the second opinion, which Fronen refers to as a "Net Windfall Analysis," Fronen purports to appraise the value of the subject property at the time of KJ-Park's October 2023 sale and opines that Match Group's termination of the lease resulted in no net damages to KJ-Park. Rather, Fronen concludes that KJ-Park obtained a "windfall" of $14,305,066.

KJ-Park did not take issue with Fronen's qualifications or his valuation methods. However, KJ-Park argued that in applying those methods, Fronen improperly used the sales price of the property to offset pre-sale damages caused by Match Group's alleged breach of the lease agreement. KJ-Park confirmed that it does not seek damages for any lost rent post-dating the sale of the property, or for diminution in value of the property, as a consequence of Match Group's alleged breach of the lease and guaranty. KJ-Park contended that as a matter of law, the sales price of the property is irrelevant to pre-sale damages for breach of a lease, and that Match Group cannot use the sales price to offset such damages. KJ-Park argued that Fronen's opinions and testimony are therefore irrelevant and should be excluded on that basis.

Noting that the operative amended complaint alleged that KJ-Park sold the subject property to "recoup its losses", in their written opposition, Defendants argued that they are entitled to demonstrate the amount of rental loss that KJ-Park reasonably could have avoided over the period KJ-Park claims that Match Group is liable for rent payments. Defendants further maintained that Fronen's analysis—including comparable rental properties, a market capitalization rate, and comparison to rental streams in Palo Alto—is legally relevant and appropriate to establish KJ-Park's mitigation of rental losses through the sale of the property.

To the extent Match Group sought to offer Fronen's testimony regarding his first opinion calculating KJ-Park's pre-sale damages as of October 2023, KJ-Park's motion to exclude such testimony and opinion is denied. The Court found Fronen's damages valuation analysis to be relevant and admissible under Rule 702. At the hearing, KJ-Park did not seriously dispute that Fronen's damages valuation is an appropriate subject of expert testimony; as noted above, KJ-Park does not challenge Fronen's qualification to offer such testimony and opinion. Any matters concerning Fronen's damages valuation are appropriately left to cross-examination and presentation of evidence at trial.

However, KJ-Park's motion to exclude Fronen's testimony and opinions is granted to the extent Match Group seeks to present Fronen's second opinion—i.e., his "windfall" analysis regarding mitigation of the loss of pre-sale rent. At the hearing, Match Group stated that it would not seek to offer Fronen's testimony and opinions regarding the sale of the property as an "offset" of KJ-Park's damages. Indeed, the law is clear that the sale of the subject property cannot mitigate the loss of pre-sale rent.

At the motion hearing, Match Group raised, for the first time, a new argument that Fronen's "windfall" analysis (or some portion of it) is relevant and admissible with respect to the "reasonableness" of KJ-Park's mitigation efforts as to any claimed pre-sale loss of rent. Based on the arguments presented at the hearing, the Court understood that Match Group sought to present Fronen's testimony and opinions in support of a theory that KJ-Park should have sold the property earlier and/or charged higher rent. The Court did not read Fronen's report as presenting any such theory or opinion. However, as issues concerning KJ-Park's damages and mitigation efforts are key questions, and for the reasons discussed at the hearing, the Court will permit further briefing on the question of what testimony or opinions in Fronen's existing expert report—beyond his damages valuation analysis—may properly be admitted regarding the reasonableness of KJ-Park's mitigation efforts in the pre-sale period. The parties shall file their supplemental briefing as follows:

1. By November 20, 2026, Match Group shall file a supplemental brief identifying what portions of Fronen's existing opening report defendants will rely on and for what purpose. To be clear, Match Group is not permitted to modify or supplement Fronen's existing report or to offer a new expert report. Match Group's brief shall not exceed 10 pages.

2. By December 3, 2026, KJ-Park shall file its response, which shall not exceed 10 pages.

3. There will be no reply. Upon submission of the papers, the Court will determine what further proceedings (if any) may be necessary, or if the matter may be determined on the papers without further argument.

Held

• The Court denied Match Group's motion to exclude Mr. Craig Owyang's testimony and opinions.

• The Court granted in part and denied in part KJ-Park's motion to exclude Mr. Josh Fronen's testimony and opinions. The Court reserves further rulings on what testimony and opinions (if any) Fronen may offer beyond his first opinion (the damages valuation analysis), pending submission of the parties' supplemental briefing.

Key Takeaway

Expert testimony is admissible under Rule 702 if it is both relevant and reliable. The determination of whether expert testimony is admissible is a matter within the Court's discretion, and entails a preliminary assessment of whether the reasoning or methodology underlying the testimony is scientifically valid and of whether that reasoning or methodology properly can be applied to the facts in issue.

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