Expert Witness Profiler

Tag: Finance

  • Finance Expert Allowed to Opine on Damages and Disgorgement

    Finance Expert Allowed to Opine on Damages and Disgorgement

    Through various entities (hereinafter, the “Tarter Companies”), the Tarter family operates a large animal management and farm gate manufacturing business. Principally at issue in this case are the business transactions between Plaintiff C-Ville Fabricating, Inc. (doing business as Tarter Industries), and Defendant Hong Kong QMC Industry Company, LTD (“QMC”).

    Defendant Josh Tarter is a shareholder of Tarter Industries. Plaintiff contends that at all relevant times, Josh held himself out as a high-ranking executive of the Tarter Companies and oversaw their operation. Plaintiff also alleged that Josh’s right-hand man was fellow Defendant Thomas Lewis Gregory.

    Moreover, Plaintiff sued Josh Tarter, Thomas Gregory, and QMC because of their alleged undisclosed interest in QMC. The scheme allegedly resulted in the Tarter Companies wiring approximately $74,857,122.80 to QMC and its affiliates. Plaintiff asserted that during this period, Josh and Thomas hid their interests in QMC – despite a duty to reveal that information – and that Josh affirmatively lied about such interests on two occasions.

    The Court has noted that the “thrust” of the Plaintiff’s allegations is that Josh and Thomas “used their senior positions with the Tarter Companies to ensure that components and parts were sourced from QMC, while siphoning Tarter funds to themselves through inflated rates for the purchased components” from QMC. Plaintiff alleged that they were damaged because they overpaid QMC for the components.

    On June 5, 2019, the Court ordered the Clerk of Court to enter default against QMC. QMC has never participated in the litigation. Despite Josh and Thomas’ majority ownership interest in QMC, none of its financial records were disclosed during discovery.

    Because Plaintiff was unable to obtain any of QMC’s financial records, they retained Dr. Christopher Clifford.

    Motion to Exclude

    Clifford conducted a financial analysis of QMC’s profits. The expert report (“Clifford Report”) calculates the difference between the amount the Tarter Companies actually paid to QMC and price quotes of the same products from a Chinese business called LongLife.

    Clifford’s calculations were derived from an Excel spreadsheet detailing 7,094 purchases made by Tarter Industries from QMC between 2010 and 2017 and an Excel spreadsheet detailing 5,885 price quotes from LongLife on parts previously purchased by Tarter Industries from QMC. Clifford then estimated the economic damages by calculating QMC’s markup as the difference between the price charged by QMC and that quoted by LongLife. The average markup of the 5,885 price quotes was 27.45%. Clifford then assumed an average markup of 27.45% for the 1,210 purchases that did not have a direct quote from LongLife. Clifford aggregated the markups to determine the markup paid on an annual basis and compounded the result to present value at 7.05%. The Clifford Report concluded that the total damages suffered by the Plaintiff was approximately $24,162,158. The Defendants sought to exclude the Clifford Report on numerous grounds.

    Finance Expert Witness

    Dr. Christopher Clifford holds a Ph.D. in finance from Arizona State University. His research interests focuses on non-banking intermediaries such as financial advisors, mutual funds, and hedge funds. Clifford’s work has been mentioned in the Financial Times, The Economist, and the Wall Street Journal. His representative papers have been published at the Review of Financial Studies, Journal of Financial Economics, and the Journal of Financial and Quantitative Analysis.

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

    Discussion by the Court

    A. The Clifford Report Relies on a Valid Comparison

    Defendants argued that the Clifford Report should be excluded because it erroneously assumed that the QMC payments and the LongLife Quotes are comparable.

    Because the Plaintiff is unable to view QMC’s financial documents, some way of calculating its profits is necessary. Although Defendants assert that the payments were an apples-to-oranges comparison to the price quotes, the evidence shows otherwise. In fact, the comparisons, minus the obvious shipping costs discrepancy, are very similar. Most parts the Tarter Companies ordered from QMC had an exact comparison with LongLife.

    This is because LongLife is in the same industry as QMC, and, in fact, was QMC’s supplier. Contrary to Defendant’s argument that the comparison is “unhelpful and misleading,” it is a reliable way determine QMC’s profits since its records are unavailable. Allowing this report will not confuse the jury, and any discrepancy in the Clifford Report is properly dealt with by vigorous cross examination.

    Clifford has testified that his analysis is standard in the finance community and can be found in “every finance textbook, in any corporate finance or
    valuation-based textbook at the undergraduate or graduate level.”

    B. The Clifford Report has a Sufficient Basis for Determining the Plaintiff’s Economic Damages

    Next, Defendants take issue with the fact that the Clifford Report failed to allocate damages to Tarter Industries individually.

    Defendants argued that the Clifford Report aggregates damages amongst all four Tarter Companies, which is irrelevant and entirely unhelpful, since the only remaining Plaintiff is Tarter Industries.

    While parts of the Clifford Report reference economic damages suffered by the “Plaintiffs,” this is due to the fact that the report was created at the time when the other three Tarter Companies were still members to the lawsuit. However, the Clifford Report bases its calculations “solely” on the sales between Tarter Industries and QMC.

    The total damages figure is based off 7,094 orders, all of which were purchased by Tarter Industries. This makes sense given that Tarter Industries “is responsible for the manufacture and purchase of component parts . . .” The fact that the Clifford Report’s conclusion says “Plaintiffs” instead of “Plaintiff” is immaterial, because the remaining Plaintiff is the entity whose purchases the calculations were based off.

    C. The Clifford Report Satisfies Rules 26(a)(2)(B) and 37(c)(1)

    Defendants argued that the Clifford Report should be stricken because the Report did not include information about Clifford’s testimonial experience over the last four years and on his compensation.

    Each of those are required to be disclosed during discovery. The drastic sanction of striking the Clifford Report is not warranted because the nondisclosure was harmless. Plaintiff states that the Clifford Report did not mention Clifford’s testimonial experience over the past four years because he has none. Additionally, the Plaintiffs indicated that Clifford’s rate is $400 per hour. Because the error was harmless, the Court will not strike the Clifford Report on these grounds.

    D. Additional Arguments in Defendants’ Supplemental Briefing

    Defendants submitted five new arguments in their supplemental briefing. The Court will address each in turn.

    i. Damages and disgorgement

    Defendants argued that Clifford’s model of “economic damage” is not really a measure of damage to the Plaintiff, but rather a measure of the amount Defendants profited from marking up QMC prices.

    Plaintiff has given no indication that it seeks to recover QMC’s profits twice over, and any attempt to do so would not be permitted. Rather, the Clifford Report is merely a way to quantify the harm allegedly caused by Defendants. If Plaintiff was to prevail on the merits of its claims, it would be entitled to recover profits earned by QMC.

    Plaintiff’s damages are the Defendants’ profits, because the extra price paid to QMC would otherwise be money it saved.

    Even if this distinction mattered, the Plaintiff would still have to prove the amount of revenue the Defendants earned to be entitled to disgorgement. Because they do not have access to QMC’s financial records, the Clifford Report helps fill in the missing pieces.

    Further, for purposes of a motion to exclude, the Court’s gatekeeping function is limited to the considerations in Rule 702. The Court has already determined that Clifford’s report satisfies Rule 702 and that his testimony will help assist the jury. Defendants’ attempt to distinguish the remedies of damages and disgorgement did not alter the Court’s Rule 702 determination.

    ii. The Clifford Report is not an adoption of Plaintiff’s lay opinion, nor is it basic math

    Defendants contended that the Clifford Report is not an expert report at all, but rather Plaintiff’s own position clothed in expert garb. Defendants argued that Clifford “blindly accepted that the LongLife quotes were comparable to the QMC prices” and that he conducted basic math to arrive at his opinion. This, Defendants argued, amounts to a wholesale adoption of Plaintiff’s position.

    To determine QMC’s profits, Clifford necessarily had to reference the Plaintiff’s purchase records. Using such records to calculate QMC’s profits is not a wholesale adoption of Plaintiff’s position.

    Additionally, the Clifford Report is more than basic math. The Clifford Report analyzed 7,094 purchases over a seven-year span. It then aggregated QMC’s markups on an annual basis and compounded the result to present value at a rate of 7.05%.

    Additionally, Clifford based his calculations off specific data that is best understood by a specialist in the finance industry.

    iii. The Clifford Report based its calculation on gross profits

    Defendants argued that Plaintiff’s reliance on gross profits is improper; that the correct measure of damages should be net profits. Even if Defendants are correct, the Court can resolve this issue with specific jury instructions, avoiding the need to take the harsher path of excluding an expert. Additionally, Clifford’s figures will be subject to scrutiny on cross examination and defense counsel is free to question all aspects of his financial calculations. The Court will not exclude the Clifford Report on that basis alone.

    iv. Federal Rule of Evidence 403

    Defendants’ final argument is that the Clifford Report should be excluded because it will mislead the jury. To support this claim, Defendants repeat its argument about economic damages and disgorgement. The Court has already resolved that argument and will not address it further. Because the probative value of the Clifford Report is not substantially outweighed by its likelihood of misleading the jury, it will not be excluded.

    Held

    The Court denied the Defendants’ motion to exclude the testimony of Christopher Clifford.

    Key Takeaway

    The Clifford Report will help assist the jury in understanding the financial impact of the transactions between Plaintiff and QMC. Plaintiff has established that Clifford has specialized knowledge in the financial industry; based his Report on thousands of actual purchases over a seven year period; used principles taught in “every finance textbook, in any corporate finance or valuation-based textbook at the undergraduate or graduate level;” and applied present value calculations to all 7,094 purchases. Because Plaintiff has proven by a preponderance of evidence that the requirements of Fed. R. Evid. 702 have been met, the Clifford Report will not be excluded.

    Case Details:

    Case Caption:C-Ville Fabricating V. Tarter
    Docket Number:5:18cv379
    Court Name:United States District Court, Kentucky Eastern
    Order Date:July 20, 2026
  • Finance Expert Witness’ Art Market Analysis Admitted

    Finance Expert Witness’ Art Market Analysis Admitted

    Athena, a specialty lender engaged in the business of providing loans secured by high-value fine art, extended a loan to a borrower, using the 1982 painting by Jean-Michel Basquiat titled “Humidity” (the “Basquiat”) as collateral. Subsequently, on March 2, 2020, the New York County Supreme Court entered a judgment for Athena in the amount of $14,306,800.47 after the borrower defaulted on the loan. Based on this judgment and with the loan and security agreement terms in mind, Athena asserts its entitlement to sell the Basquiat without regard to outstanding claims from any third parties asserting ownership interests in the painting.

    On July 31, 2020, Interested Party and Intervenor-Plaintiff Satfinance intervened, filing a complaint against Athena based on its claimed interest in the Basquiat.

    In this in rem action to foreclose a lien and to obtain an order permitting the sale of a painting by Jean-Michel Basquiat, Athena Art Finance Corporation, acting as both Plaintiff and Intervenor-Defendant, submitted a motion to strike the expert opinions of Satfinance’s expert Michael Plummer, set forth in his February 23, 2023 report, pursuant to Federal Rule of Civil Procedure 26 and Federal Rule of Evidence 702.

    Satfinance engaged Plummer to provide insights into:  (1) the general nature and conditions of business and credit in the art market; (2) standards of reasonable business practice and due diligence in the art market relative to the operative loans made by Athena; and (3) specifics of the diligence conducted by Athena on such loans.

    Finance Expert Witness

    Michael Plummer is a leading authority on art finance. Plummer worked as an advisor in the art market for 13 years, providing guidance on a range of
    issues, including the general landscape of the art market, art-based lending, and best business practices. Plummer has advised on, articles in the New York Times, the Wall Street Journal, the Financial Times, and the Art Newspaper on the subjects of art market performance, trends, economic factors, investment practices and structures, and liquidity and valuation in an “opaque” market. Plummer also has lectured on panels for continuing education courses and graduatedegree programs on the same subjects discussed in the articles at the Wharton School, New York University, the Appraisers Association of America, Sotheby’s Institute and Christie’s Education.

    Discussion by the Court

    First, Athena argued that finance expert witness Plummer failed to disclose, under Federal Rule of Civil Procedure 26, a prior expert report that served as the “starting point” for his opinions in this case and also failed to disclose a prior client relationship he had with Athena. And second, Athena contended that Plummer was not qualified to serve as an expert “on secured finance and asset-backed lending” and had not followed an appropriate methodology to form his opinions.

    Plummer is qualified to serve as an expert in this case

    Athena objected to Plummer’s lack of formal training and education in secured lending, asserting that Plummer lacked the relevant licensing or credentials common in the field of secured lending and never received formal training in that field.

    Satfinance retained Plummer to opine on the adequacy of Athena’s due diligence when extending a loan secured by a piece of art, given the conditions, norms, and practices of the art market and the art finance industry. The Court found Plummer unquestionably qualified to testify as an
    expert in this case, with his extensive experience in the field of analyzing art
    market economics, valuations, art purchases and sales, and art lending practices.

    Plummer’s lack of formal education and professional licenses in the field of secured lending did not suffice to render him unqualified in this case.

    Satfinance was not attempting to have Plummer opine on subject matters unrelated to his area of expertise, such as general asset-backed lending. The opinions in the Plummer Report were limited to the art market, the art finance industry, and the best business practices therein.

    The Court deemed Plummer qualified to serve as an expert on art industry standards for underwriting asset-back loans secured by pieces of art.

    Plummer followed an appropriate methodology

    According to the Court, Plummer sufficiently explained how his experience led to the conclusions reached, why that experience was a sufficient basis for his opinion, and how that experience was reliably applied to the facts.

    Plummer described the art market in general and outlined the standards and conditions of the art market to provide context for evaluating the loans made by Athena. Plummer provided background on private art sales, art advising versus art dealing, and pricing in the art market, all based on his experience advising and working in that market.

    He also opined on the standards for Athena’s diligence on artwork collateral and the “macro business issues” impacting Athena’s due diligence. In concluding that Athena’s due diligence was inadequate, Plummer based his conclusion on his former experience working in Sotheby’s treasury department, where he approved dealer credit arrangements and managed Sotheby’s first long-term, asset-backed dealer loan.

    The Court held that Plummer’s testimony on these points provided relevant context of the market in which Athena made the operative transactions—a landscape which lay individuals may have possessed little or no knowledge about. Plummer’s testimony also outlined what he opined to be best practices in that market and what red flags should have been apparent when performing diligence on a transaction like the ones at issue here.

    Plummer failed to disclose a prior expert report

    Plummer served as an expert in another case, Overton v. Art Finance Partners LLC, Case No. 15-CV-3927, and issued a report in that case upon which he relied here.

    The Court noted Plummer’s reliance on the Overton Report to prepare his own report. A comparison of the two reports also revealed substantial similarities in the sections regarding the general nature and conditions of business in the art market, confirming Plummer’s reliance on specific information from the Overton Report in creating his Report here.

    The Court held that Athena, however, did not suffer any prejudice from the failure to disclose the Overton Report, such that exclusion of the Plummer Report was required. First, Athena knew about the Overton Report before Plummer’s deposition. Indeed, it questioned Plummer about that report at the deposition. Athena thus had an opportunity to question Plummer about the Overton report and to have its own expert challenge the conclusions reached by Plummer in that report. Rule 26’s disclosure obligation intends to prevent “surprise” or “trial by ambush,” but this was not the case here.

    Athena also contended that Plummer failed to disclose that he relied upon “personal interactions” he had with Athena personnel that formed the basis of his opinions in his Report. The Court held that though Plummer had to disclose any facts or data that informed the opinions he reached in his Report, Athena knew of these interactions and conversations before Plummer’s deposition and thus had a chance to question Plummer about the interactions, and in fact did so.

    Plummer failed to disclose a prior relationship with Athena

    Lastly, Athena cited Plummer’s prior relationship with Athena, that Athena claims did not end well. Athena asserted that it affected Plummer’s ability to be an impartial expert in this case.

    Plummer testified that he disagreed with Athena’s characterization of how the relationship ended, and he further testified that when the “disagreement” arose between him and Athena, Plummer “immediately turned the art fair matter over to another member of his team.” In short, the deposition testimony Athena relied on was too thin a basis from which to conclude that Plummer felt that his relationship with Athena ended so acrimoniously that it rendered Plummer biased.

    Held

    The Court denied Athena’s motion to strike the opinions of Finance Expert Witness Michael Plummer.

    The Court, subsequently, terminated the motion. It has not arrived on an outcome for this case since the remaining issues involved in this case still await resolution.

    Key Takeaways:

    1. Plummer’s Qualifications: Despite Athena’s objections regarding Plummer’s lack of formal training and education in secured lending, the Court found Plummer unquestionably qualified to testify as an expert in the case due to his extensive experience in analyzing art market economics, valuations, art purchases and sales, and art lending practices.
    2. Scope of Expert Opinion: Plummer’s expertise was limited to the art market and the art finance industry, and he was not expected to opine on subject matters unrelated to his area of expertise.
    3. Methodology: Plummer followed an appropriate methodology in forming his opinions, explaining how his experience led to his conclusions and how this experience was reliably applied to the facts. He provided relevant context and outlined best practices in the art market, based on his extensive experience.

    Case Details:

    Case Caption: Athena Art Finance Corp. V. Humidity
    Docket Number: 1:20cv4669
    Court: United States District Court, New York Southern
    Citation: 2024 U.S. Dist. LEXIS 45342
    Order Date: March 14, 2024