IN THE SUPREME COURT OF FLORIDA CASE NO. SC06-707 DISTRICT COURT CASE NO. 3D05-243 SUSAN FIXEL, INC., a Florida Corporation, Petitioner, v. ROSENTHAL & ROSENTHAL, INC., a New York Corporation, Respondent. RESPONDENT ROSENTHAL & ROSENTHAL, INC. S BRIEF ON JURISDICTION Alan K. Fertel H. Eugene Lindsey FERRELL LAW, P.A. Counsel for the Respondent 201 South Biscayne Blvd. 34th Floor, Miami Center Miami, Florida 33131 Telephone: (305) 371-8585 Facsimile: (305) 371-5732 May 2006
TABLE OF CONTENTS TABLE OF CITATIONS...ii LEGEND...iii STATEMENT OF THE CASE AND THE FACTS... 1 SUMMARY OF THE ARGUMENT... 5 ARGUMENT... 5 FIXEL, INC. FAILS TO SHOW THAT THE THIRD DISTRICT S OPINION CONFLICTS WITH ANY DECISION OF THIS COURT OR OF OTHER DISTRICT COURTS OF APPEAL... 5 CONCLUSION... 10 CERTIFICATE OF SERVICE... 11 CERTIFICATE OF COMPLIANCE... 12 i
TABLE OF CITATIONS Cases Pages Forest s Mens Shop & Ladies Den of Stuart v. Schmidt, 536 So. 2d 334 (Fla. 4th DCA 1988)... 3 H.K. Corp. v. Estate of Miller, 405 So. 2d 218 (Fla. 3d DCA 1981)... 7 Lopez v. State, 478 So. 2d 1110 (Fla. 3d DCA 1985)... 7 Montage Group, Ltd. v. Athle-Tech Computer Sys., Inc., 889 So. 2d 180 (Fla. 2d DCA 2004)...3, 6, 8 Mulkey v. Div. of Admin., 448 So. 2d 1062 (Fla. 2d DCA 1984)... 8 N. Dade Cmty. Dev. Corp. v. Dinner s Place, Inc., 827 So. 2d 352 (Fla. 3d DCA 2002) (per curiam)... 3, 6 Polyglycoat Corp. v. Hirsch Distribs., Inc., 442 So. 2d 958 (Fla. 4th DCA 1983)... 8 Rochelle v. State Road Dep t of Fla., 196 So. 2d 477 (Fla. 2d DCA 1967)... 4, 8 Sostchin v. Doll Enters., Inc., 847 So. 2d 1123 (Fla. 3d DCA), review denied, 860 So. 2d 977 (Fla. 2003)... 8 Weese v. Pinellas County, 668 So. 2d 221 (Fla. 2d DCA 1996)... 4, 9 ii
LEGEND For the Court s convenience, throughout this responsive jurisdictional brief citation to the opinion of the Third District Court of Appeal in this matter, dated February 1, 2006, shall be Third District Opinion at. Also, citation to the trial transcript will contain the pertinent page of the transcript, followed by volume of the record in which it appears, and shall be shown as Trial Tr. at (R: ). In addition, citation to the Jurisdictional Brief of Petitioner Susan Fixel, Inc. will appear as follows: Fixel Br. at. Finally, after the initial reference, Respondent Rosenthal & Rosenthal, Inc. will be referred to as Rosenthal and Petitioner Susan Fixel, Inc. will be referred to as Fixel, Inc. iii
STATEMENT OF THE CASE AND THE FACTS This case arises from a manufacturing agreement entered into in October 1998 between Petitioner, Susan Fixel, Inc., a start-up apparel company, and former defendant C&L Textiles Corp. At that time, Fixel, Inc. was in substantial debt to both C&L and Respondent, Rosenthal & Rosenthal, Inc., a garment factor and a non-party to the manufacturing agreement. As a result of the manufacturing agreement an agreement drafted exclusively by Fixel, Inc. the debt owed to C&L was erased and the debt owed to Rosenthal was either erased or assumed by C&L through a new entity owned by C&L and created by the manufacturing agreement. However, after C&L terminated that agreement in 1999 (pursuant to its express terms), Fixel, Inc. brought this action. In its complaint, Fixel, Inc. claimed that C&L breached the manufacturing agreement. Fixel, Inc. also claimed that Rosenthal breached fiduciary duties owed to it, made negligent misrepresentations, and fraudulently induced it to enter into the manufacturing agreement because, according to Fixel, Inc., Rosenthal orally stated that C&L had the financial wherewithal to perform under that agreement. C&L is no longer a party in this action, however, because Fixel, Inc. voluntarily dismissed its breach of contract claim against C&L on the eve of trial, leaving Rosenthal as the only defendant. 1
At trial, the circuit court, the Honorable Peter R. Lopez presiding, held that the testimony of Fixel, Inc. s damages expert, James Reto, was speculative and irrelevant. The court also held that Fixel, Inc. had not demonstrated any entitlement to punitive damages because it had failed to present sufficient evidence that Rosenthal s conduct rose to the level of outrageousness required for such damages. Accordingly, the court entered a directed verdict in Rosenthal s favor on Fixel, Inc. s claims for breach of fiduciary duty and negligent misrepresentation (the court having previously granted summary judgment in favor of Rosenthal on Fixel, Inc. s fraudulent inducement claim). On appeal, the Third District Court of Appeal affirmed, District Judge Rothenberg writing for the unanimous panel. The Third District held that the trial court did not abuse its discretion in excluding Mr. Reto s opinion because it was speculative: Mr. Reto based his damages calculation on future revenue and cash flow projections that had been prepared by Norman Fixel. Mr. Reto never verified these projections nor prepared his own projections. These projections could not be independently supported as they assumed that Fixel, Inc. would receive $3 million from investors, though no such funding was ever given; Fixel, Inc. was a start-up company that had never turned a profit and its costs only increased over time; and no comparable companies existed to assist in the valuation process. Thus we agree that Mr. Reto s damages calculations were too speculative, and conclude that the trial court did not abuse its discretion in excluding his testimony. 2
Third District Opinion at 4-5 (citing Montage Group, Ltd. v. Athle-Tech Computer Sys., Inc., 889 So. 2d 180 (Fla. 2d DCA 2004); N. Dade Cmty. Dev. Corp. v. Dinner s Place, Inc., 827 So. 2d 352 (Fla. 3d DCA 2002); Forest s Mens Shop v. Schmidt, 536 So. 2d 334 (Fla. 4th DCA 1988)). Addressing arguments raised by Fixel, Inc., the Third District further explained that, as with a lost profits analysis, a damages expert cannot base his opinion on purely speculative forecasts when using a market value approach: Id. at 5-6. Fixel, Inc. asserts that we should not rely on the above authorities, as they relate to lost profit damages while Fixel, Inc. is seeking damages based upon the market value of its business at the time of its destruction. We disagree. It is inappropriate to use purely speculative forecasts of future revenue to determine the market value of a business as it is to use speculative forecasts in determining lost future profits. See Montage Group, Ltd., 889 So. 2d at 199 (recognizing that the value of a business reflects its future profits). The Third District also held that the trial court did not abuse its discretion in excluding this expert testimony because Mr. Reto chose a valuation date over a year prior to the time that Fixel, Inc. ceased operations: Fixel, Inc. sought damages for the destruction of its business. If a business is completely destroyed, the proper total measure of damages is the market value of the business on the date of the loss. Montage Group, Ltd., 889 So. 2d at 193 (emphasis added) (citing Polyglycoat Corp. v. Hirsch Distribs., Inc., 442 So. 2d 958, 960 (Fla. 4th DCA 1983)). In the instant case, the trial court properly found that the date of Fixel, Inc. s alleged loss was the date that it ceased operations, which was in late 1999, not on October 11, 1998, the date relied upon by Mr. Reto. As the expert s opinion valuing the company was based 3
Id. at 6. upon an incorrect date of loss, it was not relevant; it would not have assisted the jury when assessing any possible damages; and it would only serve to confuse the jury in making that determination. Likewise, the Third District held that the trial court properly excluded the damages testimony of Norman Fixel, one of the principals of Fixel, Inc., because Mr. Fixel intended to testify using the same incorrect date of valuation and speculative information as Mr. Reto had relied on.... Id. at 8. Finally, the Third District observed that the decisions cited by Fixel, Inc. failed to support its arguments on appeal and it did not observe that there existed any conflict between those decisions and the court s opinion in this case. See id. at 7 (citing Weese v. Pinellas County, 668 So. 2d 221 (Fla. 2d DCA 1996), and stating that in Weese, the Second District did not reverse based upon a determination that the expert should have been allowed to present his evidence even if he used an incorrect date of valuation as Fixel, Inc. claims ); id. at 7-8 (citing Rochelle v. State Road Dept., 196 So. 2d 477 (Fla. 2d DCA 1967), and stating that in Rochelle, the Second District found that the appraiser used a new but valid and reliable formula whereas Mr. Reto s testimony went beyond a new method of evaluation. He relied upon speculative information and used a date of valuation completely unconnected to the date of loss. ). 4
Thereafter, the Third District denied Fixel, Inc. s motion to certify its decision to this Court. Fixel, Inc. now attempts to invoke the discretionary jurisdiction of this Court. SUMMARY OF THE ARGUMENT The Third District s opinion does not conflict with the decisions of this Court or of other district courts of appeal. Rather, this is a case where both the trial court and the Third District simply (and correctly) held that financial projections and assumptions relied upon by an expert witness in valuing a business were too speculative, his damages model was based on an irrelevant valuation date, and, therefore, his testimony was inadmissible. That holding is entirely consistent with the case law throughout this State. Indeed, there is nothing novel or new about excluding testimony on damages theories that are speculative and/or irrelevant. And, certainly, there is nothing remarkable about the opinion of the Third District or the issues in this case that would warrant discretionary review by this Court. ARGUMENT FIXEL, INC. FAILS TO SHOW THAT THE THIRD DISTRICT S OPINION CONFLICTS WITH ANY DECISION OF THIS COURT OR OF OTHER DISTRICT COURTS OF APPEAL Fixel, Inc. argues that this Court should exercise its discretionary jurisdiction because the Third District s opinion conflicts with decisions governing the recovery of damages to a destroyed business. Fixel Br. at 4, with cases which 5
limit the trial court s function, with respect to expert witnesses to a determination of whether the witness is competent and qualified to testify. id. at 7, and with cases allowing a company owner to testify regarding business damages. Id. at 10. Fixel, Inc. is flatly mistaken; there is no conflict here. For starters, Fixel, Inc. is mistaken that this Court should exercise its discretionary jurisdiction because the Third District s opinion applies lost profits case law to its expert s market value approach. No matter whether the plaintiff is proceeding under a lost profits analysis or a market value approach, its expert cannot rely upon speculation, as Fixel, Inc. s expert did in this case. Indeed, Fixel, Inc. fails to cite any case holding that it is improper to exclude the testimony of an expert who has relied upon speculative information or forecasts. To the contrary, as in the instant case, speculative expert opinions are properly excluded. See, e.g., N. Dade Cmty. Dev. Corp. v. Dinner s Place, Inc., 827 So. 2d 352, 353 (Fla. 3d DCA 2002) (per curiam) (holding that the plaintiff failed to provide competent evidence of damages because the only evidence supporting the award was his business prospectus, which was little more than an unsupported wish list of what the [plaintiff] hoped would occur in the coming years ); see also Montage Group, Ltd. v. Athle-Tech Computer Sys., Inc., 889 So. 2d 180, 195 (Fla. 2d DCA 2004) (holding that the trial court erred in denying the defendant s motion for a directed 6
verdict on a claim for business damages where the opinion of the plaintiff s expert was far too uncertain and speculative to support an award of lost profits ). Simply put, Fixel, Inc. relied upon speculation to support its claim for damages. As Fixel, Inc. s expert witness, Mr. Reto, conceded at trial, this start-up company never turned a profit; its costs only increased over time; it never received a desired $3 million capital infusion; no comparable companies existed from which to perform any valuation; the chosen valuation date measured the company s supposed worth a year before it ceased doing business; and the valuation methodology was premised on future revenue projections from Mr. Fixel projections that Mr. Reto could not independently support. See Third District Opinion at 4. Accordingly, the trial court properly excluded the testimony of Fixel, Inc. s expert because it was based on rank speculation, and the Third District properly affirmed. Similarly, none of the case law cited by Fixel, Inc. requires the court to permit an expert to testify on speculative or irrelevant matters merely because he is competent. Rather, in the cases relied upon by Fixel, Inc., experts were properly permitted to testify because they merely failed to consider all of the relevant facts in rendering their opinion, see, e.g., Lopez v. State, 478 So. 2d 1110, 1110 11 (Fla. 3d DCA 1985); H.K. Corp. v. Estate of Miller, 405 So. 2d 218, 219 (Fla. 3d DCA 1981) (per curiam); or because they merely used a new but valid and reliable 7
formula, see, e.g., Rochelle v. State Road Dep t of Fla., 196 So. 2d 477, 479 (Fla. 2d DCA 1967). In this case, however, Fixel, Inc. s expert witness, Mr. Reto, was properly excluded because his opinion was based upon projections of future profits that could not be independently verified and which amounted to nothing more than the plaintiff s wish list. Moreover, Mr. Reto s opinion was legally irrelevant. Under a market value approach, as even Fixel, Inc. acknowledges, damages are calculated on the date of loss. See Fixel Br. at 4 (citing, among other decisions, Montage Group, Ltd., 889 So. 2d at 193; Polyglycoat Corp. v. Hirsch Distribs., Inc., 442 So. 2d 958, 960 (Fla. 4th DCA 1983); Sostchin v. Doll Enters., Inc., 847 So. 2d 1123, 1128 n.6 (Fla. 3d DCA), review denied, 860 So. 2d 977 (Fla. 2003)). Here, the trial court properly found that the date of the alleged loss was the date that Fixel, Inc. ceased operations, which, according to Mr. Reto, was [l]ate 1999. Trial Tr. at 1117 (R:XIV). Yet, Mr. Reto said he calculated the market value of Fixel, Inc. on October 11, 1998 one year before Fixel, Inc. ceased operations. Id. at 1080 81, 1116 17. As Mr. Reto did not value Fixel, Inc. on the date of the purported loss, his opinion was properly excluded by the trial court as a matter of law. See Mulkey v. Div. of Admin., 448 So. 2d 1062, 1067 (Fla. 2d DCA 1984) (finding the admission of expert testimony on damages was prejudicial error where the expert based his valuations on a misconception of the law ). Quite 8
simply, an expert opinion valuing Fixel, Inc. on October 11, 1998 is not relevant in determining the value of that company on the date of its purported loss, that is, over one year later. Furthermore, the Second District s decision in Weese v. Pinellas County, 668 So. 2d 221(Fla. 2d DCA 1996), does not support Fixel, Inc. s claims of conflict. There, the court did not hold that an expert witness was improperly stricken for using the wrong date of value or because his opinion was speculative. Rather, the court held that the expert witness was improperly stricken because the expert did, in fact, use the proper date of value, thus suggesting that if the expert had chosen the wrong date his opinion would have been properly excluded. 668 So. 2d at 223 ( Salverson s opinion that the business suffered no damages for the first few years after the taking and that the damages actually began after completion of construction, does not, under these unusual facts, establish that he used the wrong date of value. He specifically connected his damages testimony to the date of condemnation. ). As such, the Third District s opinion in this case does not conflict with Weese, and it is, instead, fully consistent with that opinion. Finally, it presents no conflict for the trial court to exclude Mr. Fixel s damages testimony. He, like Mr. Reto, would have testified using the same speculative financial projections and improper valuation date. Third District Opinion at 8. Indeed, speculative and irrelevant testimony does not become 9
admissible simply because it is offered by a principal of the plaintiff, as opposed to the plaintiff s expert. CONCLUSION For all the foregoing reasons, Rosenthal & Rosenthal, Inc. respectfully submits that the Court should decline to exercise its discretionary jurisdiction in this case. Respectfully submitted, FERRELL LAW, P.A. 34th Floor, Miami Center 201 South Biscayne Blvd. Miami, FL 33131 Tel: (305) 371-8585 Fax: (305) 371-5732 By: Alan K. Fertel Fla. Bar No. 435066 H. Eugene Lindsey Fla. Bar No. 0130338 10
CERTIFICATE OF SERVICE I certify that a copy hereof has been furnished by U.S. Mail to Jan Douglas Atlas, Esq., Samantha Tesser Haimo, Esq., and Jeffrey A. Backman, Esq., Adorno & Yoss LLP, 350 East Las Olas Boulevard, Suite 1700, Fort Lauderdale, Florida 33301 this day of May, 2006. By: H. Eugene Lindsey 11
CERTIFICATE OF COMPLIANCE I certify, pursuant to Florida Rule of Appellate Procedure 9.210(a)(2), that the foregoing Brief complies with the font requirements of the rule; the lettering is Times New Roman 14-point with margins of no less than one inch. By: H. Eugene Lindsey 12