Free Reply to Response to Motion - District Court of Colorado - Colorado

Case 1:03-cv-01973-PSF-MJW

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 03-F-1973 (MJW) J.E.H. KNUTSON Plaintiff, v. WALKER GROUP, INC., Defendant.

PLAINTIFF' REPLY IN SUPPORT OF MOTION IN LIMINE TO EXCLUDE S DEFENDANT' EXPERT EVIDENCE S

Plaintiff, J.E.H. Knutson (" Knutson" by and through his attorneys, Fairfield and ), Woods, P.C., hereby submits his Reply in Support of Motion in Limine to Exclude Expert Evidence (" Motion" and states: ) INTRODUCTION Defendant Walker Group, Inc. (" Walker" states that its expert, Ronald D. Haas, ) Jr., has spent almost 100% of his time valuing revenue streams in the telecommunications industry in order to enhance revenue opportunities. See Memorandum of Law in Opposition to Plaintiff'Motion in Limine to Exclude Expert Evidence (" s Response" p. ), 5. That is exactly the point: having spent almost 100% of his time valuing revenue streams for purposes of enhancing revenue opportunities, he has spent approximately zero per cent of his time valuing the assets of a business, which is what he was hired to do here. See Expert Report of Ronald D. Haas, Jr., attached to the Motion as Exhibit A (" Haas Report" p. 2, § I. ),

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Walker'main argument seems to be that, in spite of the deficiencies in Mr. Haas' s experience cited by Knutson, which it does not deny, all Mr. Haas needs to offer an opinion here is to be able to value revenue streams because the method used by Knutson'expert, Lari Masten, involved analysis of revenue streams. See Response, p. 6. s However, Walker grossly oversimplifies Ms. Masten'method. In addition, what an s expert decides not to consider is as important as what he/she does consider. In fact, courts have held that a valuation expert must consider all three approaches to valuation (asset-based, market, and income) in order offer a valid opinion, even if they do not ultimately use all of the methods. See Sun Ins. Marketing Network, Inc. v. AIG Life Ins. Co., 254 F.Supp.2d 1239, 1245 (M.D.Fla., 2003). Because Mr. Haas is not experienced in valuation, he lacks the qualifications to do this. He simply is not qualified to offer an opinion as to the value of assets transferred from First Layer Communications, Inc. (" First Layer" to Walker. Further, his analysis is not based on reliable principles or ) reliably applied. ARGUMENT A. Mr. Haas is not qualified Mr. Haas' experience valuing revenue streams in the telecommunications industry to enhance revenue opportunities does not qualify him to offer an opinion as to the value of assets transferred from First Layer to Walker. See Haas Report, p. 2, § I. The " comparable company method," used by Ms. Masten, involves far more than simply comparing revenue streams. In brief, the comparable company method values a company by comparing it to other similarly-situated companies. See Exhibit A to Plaintiff'Response to Motion to Exclude Expert Evidence (" s Masten Report" p. 28-32. ),

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While it is true that this method involves application of a multiplier to the subject company'gross revenues, before the expert even gets to that calculation, he/she must s consider a myriad of other factors. For instance, Ms. Masten had to consider whether the companies used in the comparison were similarly-situated. See Masten Report, p. 31-33. She also had to determine the correct multiple to be applied. See Masten Report, p. 3031. Her analysis involved much more than valuing revenue streams. Although Ms. Masten ultimately chose to value the assets of First Layer that were transferred to Walker by using the comparable company method, she had to consider all three valuation approaches to properly select a valuation method. See Sun Insurance, at 1245. She did so. See Masten Report, pp. 21, 22-27. Mr. Haas did not. See Haas Report. Although he discussed the definition of fair market value, he does not consider it as a method and he does not even mention the other approaches. Under Sun Insurance, this alone renders his testimony inadmissible. Walker'reliance on Turck v. Baker Petrolite Corporation, 2001 WL 589470 s (10th Cir.)(unpublished)(attached as Exhibit B to Response), and Tuf Racing Products, Inc. v. American Suzuki Motor Corporation, 223 F.3d 585 (7th Cir. 2000), is misplaced. Turk is a garden variety damages expert case. In a brief, conclusory, and unpublished opinion, the appellate court upheld the trial court'admission of an s accountant'expert testimony on past and future lost wages. 2001 WL 589470, at **9. s Performing simple calculations regarding damages such as lost wages is a common task for accountants. This has nothing to do with Mr. Haas' valuation of the assets of a business or critique of Ms. Masten'testimony where he has never done so before and s

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has never received education or training in the area, aside from the standard battery of CPA courses. In Tuf Racing, the defendant argued for exclusion of the plaintiff'damages s expert, an accountant, simply because he did not have a degree in economics, statistics, mathematics, or " some other ` academic field' might bear on the calculation of that damages."223 F.3d at 591. Rejecting this, the court held that no " particular credentials" are necessary to qualify an expert. Id. This is not contrary to Knutson'position. Contrary to Walker'assertions, s s Knutson is not arguing that Mr. Haas' testimony is inadmissible simply because he is not a Certified Valuation Analyst. No particular qualifications are necessary, but sufficient qualifications are. See Tuff Racing, at 591 (holding an expert must have " relevant expertise enabling him to offer responsible opinion testimony helpful to judge or jury" ); First Savings Bank, F.S.B. v. U.S. Bancorp, 117 F.Supp.2d 1078 (D.Kan. 2000)(holding, " [expert] witness must have such skill, experience or knowledge in the particular field the as to make is appear that his opinion would rest on substantial foundation that would tend to aid the trier of fact in his search for truth" ). This is ably demonstrated by Virgortone AG Products, Inc. v. PM AG Products, 2004 WL 783075 (N.D.Ill. 2004)(unpublished)(copy attached as Exhibit A), which distinguished Tuf Racing. The court precluded an accountant from testifying as to commodity futures contracts and hedging, even though the accountant did have some experience in those areas. Id. at *3. The court observed, " Racing Products does not Tuf stand for the proposition that an accountant may testify as to any area in which he has

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passing familiarity."Id. At most, Mr. Haas' experience with analyzing revenues to enhance revenue opportunities gives him a " passing familiarity" with valuation. Id. Walker attempts to distinguish First Savings Bank, supra, by discussing the differences between Mr. Haas and the expert in that case. Knutson acknowledges there are some differences in the two experts. However, precedent would be useless if absolute parity of facts was required before a court could follow another court'rulings. Mr. s Haas' training and experience is deficient in many of the same ways as the expert in First Savings Bank including: Neither had ever before been asked to perform a valuation; Neither had testified by deposition or at trial; Neither was a partner in his CPA firm; and Neither had published books or articles on valuation. In addition to the deficiencies noted in First Savings Bank, Mr. Haas has no training or education in valuing the assets of a business, other than the standard courses in the CPA program, and is not a Certified Valuation Analyst. See Motion, p. 2-3. Like the expert in First Savings Bank, when viewed as a whole, Mr. Haas' relevant experience and training fail to demonstrate " the most basic prerequisites for admission of such testimony that have been met."Id. at 1083. Walker attempts to trivialize Sun Insurance, supra, but this case is far closer to the instant one that the cases it cites. There, the plaintiffs claimed as damages the entire value of their business and hired a forensic accountant to opine as to the value of the business. Id. at 1244. Excluding the expert, the court held, " expert] is a forensic [the accountant, not a business appraiser."Id. at 1245. Although, the expert had valued

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insurance companies before and performed other various accounting tasks for them, he had never done so with an insurance business like the plaintiff' Id. His experience was s. simply insufficient to qualify him to opine on the value of the plaintiff'business. s Here, although Mr. Haas is a CPA and has experience in valuing revenue streams in the telecommunications industry in order to enhance revenue opportunities, he has virtually no experience valuing the assets of a business, which is what he was hired to do. The accountant in Sun Insurance had done at least some valuation work. Mr. Haas has never valued the assets of a business. Thus, the case for exclusion is even stronger here than in Sun Insurance. Walker argues that if, as it suggests, " First Layer ceased to exist as a business, there was no ongoing business to value and certification as a ` Business Valuation Expert' is not only irrelevant but could cause confusion for a jury."Response, p. 4. However, Walker identified Mr. Haas as an expert in the fields of " public accountancy and business valuation analysis."Defendant'Expert Disclosures, attached hereto as Exhibit B s (emphasis added). Further, Mr. Haas was engaged " assist in analyzing the value of to assets allegedly received by [Walker] from First Layer Communications, Inc."See Haas Report, p. 2, § I. Thus, Walker'Disclosures and Mr. Haas' s report make it clear that Mr. Haas' qualifications in the field of valuation go the very heart of the matter. As discussed above, and in the Motion, Mr. Haas has little or no experience in valuing the assets of a business or valuation analysis. See Motion, p. 2-3. 1

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Knutson contends that First Layer was a going concern and there is ample evidence supporting his position. See Knutson'Response to Motion to Exclude Expert Testimony, p. 7-11. This issue will have to s be decided by the jury, not in connection with this motion in limine.

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B.

Mr. Haas' methodology is neither reliable, nor reliably applied Walker tries to avoid Knutson'argument that Mr. Haas is repeating the estimates s

of two witnesses in valuing First Layer'hard assets at $10,000 by asserting that Mr. s Haas is simply stating undisputed facts, upon which his expert analysis is based. This is not so. He was asked in the portions of his deposition quoted in the Motion to explain how he arrived at his conclusion, and he responded by citing the deposition testimony of these witnesses. See Motion, p. 5-8. Repeating the statements of these witnesses is his method. This is not " product of reliable principles and methods... applied ... reliably the to the facts of the case."Rule 702. Nor will it " assist the tier of fact."Id. Further, if, as Walker asserts, the value of First Layer'hard assets is undisputed, s there is no need for expert testimony. An expert repeating undisputed testimony of other witnesses will not assist the jury and will simply waste time and confuse the issues. With regard to Mr. Haas' alternative analysis of the revenues generated from the AT& T Wireless Services (" ATT" and Qwest Master Service Agreements (" ) MSAs" ), Mr. Haas admits the revenues could have been projected into the future, but cannot explain why he failed to do so. Walker states that the term of the ATT MSA expired on January 25, 2002 and the Qwest MSA expired on December 31, 2002.2 If this is so, why didn'Mr. Haas end his calculation at those dates, instead of the date of the report? This t approach would not account for such factors as possible renewal of the MSAs and projects which began prior to these dates, but which continued to generate revenues. Indeed, Mr. Haas admits that ATT and Qwest projects did generate revenues following the purported dates of expiration. See Haas Report, p. 10, Table, note (2). Mr. Haas

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These dates do not appear to be consistent with the language of MSAs.

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simply had to end it somewhere, so he picked a date. There is no scientific of methodological reason for this. CONCLUSION Mr. Haas is not simply valuing revenue streams; he is valuing the assets transferred from First Layer to Walker. His report and Walker' Expert Disclosure make this clear. Even if Ms. Masten valued First Layer by comparing revenue streams, Mr. Haas needs to consider other methods to have a meaningful opinion. Having virtually no training or experience valuing the assets of a business, he does not have the expertise to do this. There are also numerous flaws in his methodology and application. His testimony is not admissible under Rule 702. Alternatively, his testimony is not admissible under Rule 403 because it is more likely to confuse or mislead the jury than to assist it. Respectfully submitted this 28th day of June, 2005. FAIRFIELD AND WOODS, P.C.

/s/ Colin A. Walker Michael R. McCurdy Colin A. Walker 1700 Lincoln Street, Suite 2400 Denver, CO 80203 (303) 830-2400 Email: [email protected] ATTORNEYS FOR PLAINTIFF

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CERTIFICATE OF SERVICE I hereby certify that on this 28th day of June, 2005, I electronically filed the foregoing with the Clerk of the Court using the CM/ECF system, which will send notification of such filing to the following and by placing a copy in the United States Mail, postage prepaid as follows: Joshua Maximon, Esq. Stuart D. Mann, Esq. 12202 Airport Way, Suite 170 Broomfield, CO 80021 Facsimile: 303-991-1895 Richard S. Gottlieb, Esq. Kilpatrick Stockton LLP 1001 West Fourth Street Winston Salem, NC 27101-2400 Facsimile: 336-734-2643

/s/ Tammy Sanders

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