Ehrenberg v. HALA Enterprises, LLC

Opinion

2 FILED & ENTERED

4 NOV 30 2022

CLERK U.S. BANKRUPTCY COURT 6 C Be Yn e t gr a o l n D z i as lt e r i c Dt E o Pf UC Ta Yli f Cor Ln Eia RK 7

8 UNITED STATES BANKRUPTCY COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 SAN FERNANDO VALLEY DIVISION 11

12 In re: CHAPTER 7

13 Victory Entertainment Inc Case No.: 1:18-bk-11342-VK Adv No: 1:20-ap-01056-GM

TENTATIVE RULING, AS ADOPTED BY 15 THE COURT AS ITS MEMORANDUM OF Debtor(s). 16 OPINION, ON PLAINTIFF’S MOTION IN LIMINE NO. 2 TO EXCLUDE THE EXPERT 17 TESTIMONY OF GREGORY EIDSON [dkt. 130] 18

19 D ate: November 29, 2022 Howard M Ehrenberg Time: 10:00 AM 20 Courtroom: 303 Plaintiff(s), 21 v. 22

23 HALA Enterprises, LLC

25 Defendant(s). 26 27 Mr. Eidson was hired to opine on "reasonable rental value" for the property. The 28 accepted method is to compare this property to comparable propert(ies) on anyearly 1 basis. In this case, one would start in 2008 and find comparables (or a comparable 2 index), then do the same for each succeeding year starting in 2009, 2010, etc. 3 However, he did not do this. The method that he chose to use was untired (even by 4 him), his own creation, and improper. Beyond that he underestimated the square 5 footage [estimating 9,110 square feet rather than using the actual square footage of 6 11,050]. He also failed to consider important data, including that the building was 7 renovated with $500,000 in improvements in 2008 and that it was rented to a new 8 tenant in 2018 for #30,000 per month. 9 The method that he created started with ascertaining the 2018 rental value 10 through choosing a market rate for that year and then using the CoStar market trend 11 data for the North Hollywood submarket to back up to 2008. Then he brought the 2008 12 value forward for each ensuing year by virtue of the Consumer Price Index, but not 13 exclusively for the North Hollywood submarket. 14 15 Opposition 16 Mr. Eidson is expressing an opinion on the ultimate issue of fact. Mr. Eidson 17 agrees that it would be best to use direct comparables, but the market does not always 18 provide perfect data. Markets follow patterns, well-located properties have higher rents, 19 older properties (depending on location, visibility, etc.) provide lower rents. Using the 20 current rent and moving backward is the same pattern as using the current rent and 21 using market trends to estimate future value. Mr. Eidson used market patterns as a basis of his appraisal and this is an appropriate method under the circumstances in this 22 case. 23 There is no strictly defined methodology to establish retrospective value. Mr. 24 Eidson, as an expert, can develop the most reliable method in which he has confidence. 25 Mr. Beck goes on to state the reasons for Mr. Eidson’s choice of method. 26 /// 27 /// 28 1 Reply 2 Mr. Eidson failed to use a legitimate method. He developed it solely for this case 3 and had never used it before. Daubert requires that the use of a method that has been 4 accepted in the field is a threshold criteria for admissibility of an expert opinion. This 5 does not meet that criteria. 6 Further, Mr. Eidson used only the information from a single real estate broker as 7 to the price that the property should rent at and he used that to search for "comps" that 8 were below a certain rental value. In using the opinion of the real estate broker, Mr. 9 Eidson is merely regurgitating what someone else told him and this is inadmissible. 10 Throughout, Mr. Eidson focuses on the favorable data to the Trustee’s position and 11 ignores the unfavorable data. And he fails to use the new rent immediately after the 12 Debtor vacated as a comparable – it is not part of his report and he felt that it was too 13 high and did not represent the market. 14 15 Proposed Ruling 16 FRE 702 states: 17 A witness who is qualified as an expert by knowledge, skill, experience, training, 18 or education may testify in the form of an opinion or otherwise if: 19 (a) the expert's scientific, technical, or other specialized knowledge will help the 20 trier of fact to understand the evidence or to determine a fact in issue; 21 (b) the testimony is based on sufficient facts or data; (c) the testimony is the product of reliable principles and methods; and 22 (d) the expert has reliably applied the principles and methods to the facts of the 23 case. 24

25 There is no dispute that Mr. Eidson meets the test of being qualified. The 26 question is whether his choice of data and method for analysis meet the other three 27 requirements. The determination of this is within the discretion of the trial judge. 28 1 || Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 (1993) concerns a claim against 2 pharmaceutical company which manufactured an antinausea drug that harmed the 3 || fetus of pregnant women who took it. In looking at FRE 702 in this context, the 4 || Supreme Court dealt with issues of whether scientific propositions were subject to peer 5 || review, what is the known or potential rate of error, and is there widespread acceptance 6 || of the method used. But it stated that these are flexible standards. 7 The case before this court does not deal with the complexity of the side-effects of 8 || a medication or any other newly discovered entity or scientific method. Rather, it is the || valuation of real property over a finite number of years. This is "every day stuff" in 410 bankruptcy cases. There may be one method that is the most popular and reliable and 41 || the parties and the court have a right to know why that was not used in this case. Ifa 42 || different method is chosen - be it new or seldom used — the court will weigh that against 43 || the standard method for reasonability and reliability. In the long run it may be given no 44 || weight or it may be found to meet the test of FRE 702. That will be determined at trial. 15 Mr. Eidson qualifies as an expert in the area to which he intends to testify. An 16 || expert is not limited to a single method, even if there is one that is generally used. He is 47 || Subject to cross-examination as to why he deviated from the more usual method, but 18 || this will go to the weight that the Court gives his testimony and opinion. There is no 49 || reason to exclude him from testifying. 20 DENY THE MOTION 24 || 22 23 a eee Date: November 30, 2022 Geraldine Mund st—<‘i‘iéSO*™*”# 20 United States Bankruptcy Judge 26 27 28