McDonald’s Corporation (“Plaintiff”) filed this breach of contract action against Vanderbilt Atlantic Holdings LLC (“Defendant”).
The primary issue to be tried in this case is whether Vanderbilt failed to cooperate in the process set forth in an addendum to a lease between McDonald’s and Vanderbilt (the “Lease”) to evaluate the fair market rental value (“FMV”)—the basis to calculate McDonald’s rent—for the subject property (the “Property”).
Vanderbilt’s appraiser, Tom Tener, estimated the FMV for the Property twice.
Defendant retained Michael P. Hedden as an expert witness to testify about “(1) his professional background, experience and qualifications; (2) his review of Thomas Tener’s appraisal prepared on July 30, 2019 including Tener’s appraisal methods and techniques; and (3) the purpose and role of a neutral third-party appraiser.”
Plaintiff filed a motion to exclude his testimony on the basis that his expert opinion “is not based on sufficient facts or methodology” and lacked “independent analysis” to support testimony on the “Property’s highest and best use.”
Valuation Expert Witness
Michael Hedden specializes in providing valuation, litigation support, and expert testimony services as a knowledgeable real estate professional in all aspects of market analysis and valuation of real property. He has experience in the appraisal of industrial, commercial, residential, and special purpose property including hospitality, hospital, and healthcare facilities.
Discussion by the Court
Hedden’s Report
Hedden was retained to conduct an appraisal review, as opposed to an independent appraisal. As the report noted, the scope of the work was to determine whether: (1) Tener’s report contained adequate and relevant data; (2) the appraisal methods and techniques used were appropriate given the language of the Lease; and (3) the analyses, opinions, and conclusions in the report were appropriate, credible, and reasonable for the intended use of the intended user within the context of the Lease.
Therefore, Hedden concluded that Tener’s “analysis, opinions and conclusions” were “appropriate, credible and reasonable.”
Uniform Standards of Professional Appraisal Practice (USPAP) Standard 3 requires an appraisal reviewer to “identify the problem to be solved, determine the scope of work necessary to solve the problem, and correctly complete research and analyses necessary to produce a credible appraisal review.” The Court held that just because Hedden “did no independent research” does not mean he did not comply with USPAP standards or conduct an acceptable appraisal review.
The Court held that Plaintiff’s other bases for exclusion similarly are unavailing. Plaintiff’s comparison of Hedden’s appraisal review with that of Plaintiff’s expert is insufficient to exclude Hedden’s testimony. After all, the scope of their respective work appears to have been different as Hedden conducted a quality appraisal review, whereas Aaron conducted a more quantitative review. Moreover, Hedden’s consideration of Tener’s competency and experience is not improper, and does not reflect a rubber stamp of Tener’s report. Indeed, such a consideration would seem to be relevant in an appraisal review.
Hedden’s Opinion on the “Highest and Best Use” of the Property
Plaintiff sought to preclude Hedden’s testimony that Tener “correctly concluded” that “the highest and best use required valuing the Property based on the construction of a new building consistent with the Property’s zoning which allowed for 39,000 square feet.” Plaintiff contended that this opinion is outside the scope of an appraisal review, and Hedden did not perform the analysis necessary to reach that opinion independently.
The Court held the scope of Hedden’s appraisal review included determining whether “the appraisal methods and techniques used in the Report are appropriate given the language in the lease” and “the analyses, opinions and conclusions in the Report are appropriate, credible, and reasonable.” In other words, his opinion that Tener “correctly concluded” how to consider the highest and best use was an opinion of the quality, not value, of Tener’s appraisal.
Hedden’s Expert Testimony About Neutral Third Party Appraisers
Plaintiff sought to preclude Hedden’s testimony about the purpose and role of a neutral third party appraiser because such information was not included in the expert report and the topic is a matter of contract interpretation.
As an initial matter, the Court doubts that this testimony would aid the Court in any finding of fact. Moreover, as the Court previously stated, “the role of the third appraiser . . . is a matter of contract interpretation.” Further, this topic was not within the scope of Hedden’s appraisal review and was not discussed in the report.
Held
The Plaintiff’s motion to exclude the testimony of Hedden is denied in part and granted in part.
Key Takeaway:
Hedden, for the most part, complied with the USPAP standards but his testimony about the purpose and role of a neutral third party appraiser was excluded because the Court previously stated that the role of the third appraiser is a matter of contract interpretation.
Case Details:
| Case Caption: | McDonald’s Corporation V. Vanderbilt Atlantic Holdings Llc |
| Docket Number: | 1:19cv6471 |
| Court: | United States District Court, New York Eastern |
| Order Date: | September 30, 2024 |
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