Alan L. Frank Law Associates, P.C. v. OOO RM Invest

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

ALAN L. FRANK LAW ASSOCIATES, P.C.,

Plaintiff, MEMORANDUM & ORDER

17-CV-1338 (NGG) (ARL)

-against-

OOO RM INVEST, VARWOOD HOLDINGS,

LTD., TCAHAI HAIRULLAEVICH KATCAEV,

SASHA SCHMDT and SERGEY PIROZHNIKOV,

Defendants.

OOO RM INVEST, VARWOOD HOLDINGS,

LTD. and TCAHAI HAIRULLAEVICH KATCAEV,

Counter-Plaintiffs,

-against-

ALAN L. FRANK LAW ASSOCIATES, P.C.,

ALAN L. FRANK and EUGENE A. KHAVINSON,

Counter-Defendants.

NICHOLAS G. GARAUFIS, United States District Judge.

Plaintiff and Counter-Defendant Alan L. Frank Law Associates,

P.C. (“Frank Firm”) commenced this interpleader action on Feb-

ruary 22, 2016 against Defendants and Counter-Plaintiffs OOO

RM Invest (“RM”), Varwood Holdings, Ltd. (“Varwood”), and

Tcahai Hairullaevich Katcaev (collectively, the “Settling Parties”)

and Defendants Sasha Schmdt and Sergey Pirozhnikov. (Compl.

(Dkt. 1) ¶¶ 1-6.) The action arises from a $2.9 million settlement

agreement between the Settling Parties and several nonparties.

(Settling Parties’ Rule 56.1 Stmt. (“Settling Parties’ 56.1”) (Dkt.

277-1) ¶ 15.) The Settling Parties subsequently asserted counter-

claims against Frank Firm and its principal, Alan L. Frank

(collectively, the “Frank Parties”), and Eugene A. Khavinson, al-

leging, inter alia, legal malpractice and breach of fiduciary duty.

(Settling Parties’ Answer, Crossclaim, and Counterclaim (“Coun-

terclaim”) (Dkt. 169) at 9-19.)

In support of the damages element of their counterclaim, the Set-

tling Parties retained Boris Yatsenko, a Moscow-based economist

with Ernst & Young, as an expert. Pending before the court is the

Frank Parties’ Motion to Preclude the admission of Mr. Yatsenko’s

testimony. (See Mot. to Preclude (Dkt. 321); Mem. of Law in

Opp. to Mot. to Preclude (“Mot. to Preclude Opp.”) (Dkt. 323);

Reply in Support of Mot. to Preclude (“Mot. to Preclude Reply”)

(Dkt. 320).) Also pending is the Frank Parties’ Motion to Strike a

declaration by Mr. Yatsenko that the Settling Parties addended

to their opposition memorandum in response to the Frank Par-

ties’ Motion to Preclude. (See Mot. to Strike Decl. of Boris

Yatsenko (“Mot. to Strike”) (Dkt. 318); Mem. of Law in Opp. to

Mot. to Strike (“Mot. to Strike Opp.”) (Dkt. 333); Reply Mem. in

Support of Mot. to Strike (“Mot. to Strike Reply”) (Dkt. 334).)

For the reasons explained below, the Frank Parties’ (Dkt. 321)

Motion to Preclude is DENIED and their (Dkt. 318) Motion to

Strike is DENIED.

I. BACKGROUND

The court assumes familiarity with the factual and procedural

history of this case, and it provides a summary of that history

only insofar as it is necessary to the resolution of the pending

motions.1 Except as otherwise indicated, the facts in this section

are not in dispute.

1 The facts are set forth in greater detail in Magistrate Judge Arlene Lind-

say’s Reports and Recommendations (“R&Rs”), and in the court’s

Memorandum and Order adopting those R&Rs. (See Feb. 24, 2020 R&R

(Dkt. 302); Mar. 2, 2020 R&R (Dkt. 303); Mem. & Order Adopting R&Rs

(Dkt. 335).)

A. Factual Background

RM is a Russian limited liability company with its principal place

of business in Russia. (Settling Parties’ 56.1 ¶ 1.) At the time this

lawsuit was filed, Defendants Katcaev, Schmdt, and Pirozhnikov

were the three “participants” who held equity in RM. (Id. ¶¶ 2-

5.) RM has effectively ceased operations, and its only material

assets are its share of the settlement proceeds discussed below.

(Schmdt & Pirozhnikov Rule 56.1 Stmt. (“Schmdt & Pirozhnikov

56.1”) (Dkt. 280 at ECF pp. 13-19) ¶ 34.) In or around 2013,

Katcaev negotiated a deal with Net Element, Inc. (“Net Ele-

ment”), subject to which RM would transfer its principal assets

to Net Element in exchange for 30% of Net Element’s stock.

(Decl. of Sasha Schmdt (“Schmdt Decl.”) (Dkt. 280 at ECF pp. 2-

6) ¶ 7.) The deal fell apart, and the Defendants retained Frank

Firm to represent them in actions against Net Element, with

Khavinson as co-counsel. (Id. ¶ 9; Settling Parties’ 56.1 ¶ 17;

Counterclaim ¶ 13.) Frank Firm filed a lawsuit against Net Ele-

ment and other defendants in the Southern District of Florida, on

behalf of RM, Varwood, and Katcaev. (Settling Parties’ 56.1 ¶¶

10-12.) The parties to this underlying lawsuit eventually reached

a settlement agreement, subject to which the Settling Parties

would receive $2.9 million and 1,000,000 shares of Net Element

stock. (Id. ¶¶ 14-16.) After the deduction of attorney’s fees and

costs, the remaining value of the settlement fund was just over

$2.3 million. (Settling Parties’ 56.1 ¶ 24.)

The Settlement Agreement provided for the settlement funds to

be released to Frank Firm and did not specify how those funds

would be apportioned. (Id. ¶¶ 15, 20.) The Frank Parties, as well

as Schmidt and Pirorzhnikov, suggest that Schmdt, Katcaev, and

Pirozhnikov had agreed to split the proceeds from the settlement

equally between the three of them, and Schmdt and Pirozhnikov

asked Frank to distribute the funds accordingly. (Schmdt & Pi-

rozhnikov 56.1 ¶ 36.) Katcaev opposed that plan and demanded,

through new counsel, that Frank transfer most of the proceeds to

him. (Id. ¶ 37.) Frank subsequently brought this interpleader ac-

tion to resolve the parties’ dispute over the distribution of the

settlement proceeds.

B. Procedural Background

Frank Firm commenced this interpleader action in this court on

February 22, 2016. (Compl. at 1.) The Settling Parties filed cross-

claims in which they asserted their right to the settlement funds

and brought counterclaims for legal malpractice, breach of fidu-

ciary duty, and a declaratory judgment against the Frank Parties

and Khavinson. (See Counterclaim.) On February 25, 2019, the

court set September 16, 2019 as the deadline for discovery on

the Settling Parties’ counterclaims. (See Feb. 25, 2019 ECF Or-

der.) The court later granted a short extension in order to

accommodate the availability of the Settling Parties’ damages ex-

pert, Boris Yatsenko of Ernst & Young’s Moscow office. (See Aug.

21, 2019 ECF Order.) On June 17, 2019, the Settling Parties

served their expert witness disclosures, which included a report

by Yatsenko purporting to set forth an “independent estimation

of losses” incurred by the RM as a result of the Frank Parties’ fail-

ure to promptly direct the settlement funds to Katcaev. (See June

17, 2019 Report by Boris Yatsenko (“Yatsenko Report”) (Dkt.

321-1 at ECF pp. 35-92) at ECF pp. 35, 37.) On September 24,

2019, the Frank Parties deposed Yatsenko. (See Tr. of Boris

Yatsenko Deposition (“Yatsenko Tr.”) (Dkt. 321-1 at ECF pp. 2-

33).)

On February 24, 2020, the Frank Parties served a motion to pre-

clude the admission of Yatsenko’s opinions. The Settling Parties

addended to their opposition motion a three-page declaration by

Yatsenko, which sets forth some of the assumptions he made in

reaching his loss estimate. (Decl. of Boris Yatsenko (“Yatsenko

Decl.”) (Dkt. 323-1).) On April 6, 2020, the Frank Parties served

a motion to strike Yatsenko’s Declaration from the Settling Par-

ties’ Opposition Memo, arguing that it was an untimely

supplemental expert report submitted after the close of discov-

ery. (Mot. to Strike at 2.) The fully briefed motions to preclude

and strike were filed with the court on April 6 and 7, 2020.

On November 30, 2020, the court adopted two R&Rs by Magis-

trate Judge Arlene Lindsay, denied the Settling Parties’ motion

for summary judgment, and partially granted and partially de-

nied the Frank Parties’ and Khavinson’s motions to dismiss the

Settling Parties’ counterclaims. (See Mem. & Order Adopting

R&Rs (Dkt. 335).)

II. LEGAL STANDARD

A. Motion to Preclude Expert Testimony

Federal Rule of Evidence 702, which governs the admissibility of

expert testimony, permits “[a] witness who is qualified as an ex-

pert by knowledge, skill, experience, training, or education” to

testify if “(a) the expert’s scientific, technical, or other specialized

knowledge will help the trier of fact to understand the evidence

or to determine a fact in issue; (b) the testimony is based on suf-

ficient facts or data; (c) the testimony is the product of reliable

principles and methods; and (d) the expert has reliably applied

the principles and methods to the facts of the case.” Fed. R. Evid.

702.

“The proponent of the expert testimony has the burden to estab-

lish these admissibility requirements, with the district court

acting as a ‘gatekeeper’ to ensure that the ‘expert’s testimony both

rests on a reliable foundation and is relevant to the task at hand.’”

In re Pfizer Inc. Sec. Litig., 819 F.3d 642, 658 (2d Cir. 2016) (quot-

ing Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 597

(1993)).

B. Motion to Strike Supplemental Declaration

Federal Rule of Civil Procedure 26(a)(2)(B) requires that expert

testimony be accompanied by a written report that includes, inter

alia, “a complete statement of all opinions the witness will ex-

press and the basis and reasons for them;” “the facts or data

considered by the witness in forming them;” and “the witness’s

qualifications.” “A party who has made a disclosure under Rule

26(a) . . . must supplement or correct its disclosure or response

. . . in a timely manner if the party learns that in some material

respect the disclosure or response is incomplete or incorrect” or

if the court so orders. Fed. R. Civ. P. 26(e). A party may not use

information that it “fails to provide . . . as required by Rule 26(a)

or (e) . . . unless the failure was substantially justified or is harm-

less.” Fed. R. Civ. P. 37(c)(1).

“In assessing whether exclusion is appropriate, courts must con-

sider four factors: (1) the explanation for the delay in providing

the evidence; (2) the importance of the new evidence; (3) the

potential prejudice to the opposing party; and (4) whether a con-

tinuance is more appropriate.” Phoenix Light SF Ltd. v. Bank of

New York Mellon, No. 14-cv-10104 (VEC), 2019 WL 5957221, at

*1 (S.D.N.Y. Nov. 13, 2019).

III. DISCUSSION

The Frank Parties contend that Yatsenko’s testimony should be

precluded because Yatsenko is not qualified to give an expert

opinion, because his opinions are unreliable and based on as-

sumptions provided by the Settling Parties, and because his

opinions will not assist the trier of fact. They further argue that

Yatsenko’s supplemental declaration, which the Settling Parties

addended to their memorandum opposing the Frank Parties’ mo-

tion to preclude, is an impermissible effort to bolster Yatsenko’s

testimony. The question of whether to strike the supplemental

declaration, while chronologically subsequent to the issues raised

in the Daubert motion, is logically prior, since the resolution of

that question will determine whether the court may consider that

declaration in evaluating the admissibility of Yatsenko’s other

testimony. Accordingly, the court considers the issue regarding

the supplemental declaration first.

A. Admissibility of Supplemental Expert Declaration

The Frank Parties ask the court to strike the eight-paragraph dec-

laration by Yatsenko addended to the Settling Parties’ opposition

memorandum, on the theory that it constitutes an untimely effort

to rebut the Frank Parties’ Daubert motion. In the declaration,

Yatsenko makes a handful of substantive assertions regarding the

bases for his opinions. These include:

e that he calculated lost profits based on RM’s profit and

loss data from 2012, the year preceding the disputed

transaction with Net Element, and also relied on RM’s fi-

nancial statements;

e that valuation and financial modeling experts routinely

use data from financial statements in forming opinions;

e that his report rests on the assumption that if the Frank

Firm had promptly disbursed the settlement funds to the

Settling Parties, “RM would have been able to renew its

contracts and resume operations” in January 2016, be-

cause he is “not aware of any signs or evidence”

suggesting that a prompt resumption of operations would

not have been possible if the settlement funds had been

available;

e that the monthly revenue figures used in his loss estimate

were comparable with RM’s 2012 business activity and

achievable within 1-2 years, given RM’s 2011-2012 per-

formance; and

e that the maximum monthly revenue of 2012, when ad-

justed for inflation for the years 2013-2015, exceeds the

maximum monthly revenue projected for the years 2016-

2019.

(Yatsenko Decl. 4 3-8.)

In determining whether supplemental evidence submitted after

discovery deadlines should be excluded, courts follow a set of

guiding principles. On one hand, courts “must exclude” “expert

declarations filed in response to a Daubert motion” when they

“expound[] a wholly new and complex approach designed to fill

a significant and logical gap in the first report.” Phoenix Light,

2019 WL 5957221, at *2. On the other hand, “courts may con-

sider evidentiary details that a declaration provides in support of

opinions already expressed in the expert’s report” when such de-

tails “merely amplify and provide more support for’ the

previously expressed opinions. Id. When a Daubert motion in-

vokes concerns about the reliability and application of the

expert’s methodology, declarations that are responsive to such

concerns are generally seen as supplying a permissible form of

support. See id.; Advanced Analytics, Inc. v. Citigroup Global Mkts.,

Inc., 301 F.R.D. 31, 43 (S.D.N.Y. 2014). “The key issue is whether

the expert declaration is sufficiently within the scope of the initial

expert report, so that an opposing party is not sandbagged with

new evidence.” Phoenix Light, 2019 WL 5957221, at *2.

Yatsenko’s supplemental declaration contains no new substan-

tive evidence, analytical approaches, or opinions. Rather, it

makes a handful of general assertions that are seemingly in-

tended to clarify certain assumptions that inform Yatsenko’s

expert report, and which are challenged by the Frank Parties’

Daubert motion. Insofar as the supplemental declaration supplies

underlying rationales for those assumptions that were not ex-

pressly set forth in the expert report, it does so not by supplying

new evidence, but rather through vague assertions that

Yatsenko’s methods are typical of financial modeling or that no

data existed to disprove his assumptions. Thus, the supplemental

declaration merely amplifies and clarifies opinions raised in

Yatsenko’s expert report and is well within that report’s scope. It

is devoid of any new evidence that would “sandbag” the Frank

Parties after the close of discovery.

For these reasons, the court finds that the supplemental declara-

tion is not prejudicial to the Frank Parties, the evidence contained

in the declaration is unimportant, and the arguments raised in

the Frank Parties’ Daubert motion suggest a clear explanation for

why the Settling Parties seek to introduce this declaration after

the close of discovery. The court therefore concludes that, to the

extent the supplemental declaration constitutes evidence that the

Settling Parties failed to timely provide as required by Rule

26(a), such a failure was effectively harmless. It therefore de-

clines to exclude the declaration pursuant to Federal Rule of

Procedure 37(c).

B. Qualification of Yatsenko as Expert

Turning to the first issue raised in the Frank Parties’ Daubert mo-

tion, the court considers whether Yatsenko is qualified to give

expert testimony regarding RM’s lost profits. Federal Rule of Ev-

idence 702 requires that expert witnesses be “qualified as an

expert by knowledge, skill, experience, training, or education.”

Fed. R. Evid. 702. That requirement “must be read in light of the

liberalizing purpose of the Rule.” United States v. Brown, 776 F.2d

397, 400 (2d Cir. 1985). “Accordingly, even if a proposed expert

lacks formal training in a given area, he may still have ‘practical

experience’ or ‘specialized knowledge’ that qualifies him to give

opinion testimony.” LVL XIII Brands v. Louis Vuitton Malletier S.A.,

209 F. Supp. 3d 612, 636 (S.D.N.Y. 2016) (citing McCullock v.

H.B. Fuller Co., 61 F.3d 1038, 1043 (2d Cir. 1995)).

“To determine whether a witness qualifies as an expert, courts

compare the area in which the witness has superior knowledge,

education, experience, or skill with the subject matter of the prof-

fered testimony.” United States v. Tin Yat Chin, 371 F.3d 31, 40

(2d Cir. 2004). “[I]t is worth emphasizing that, because a witness

qualifies as an expert with respect to certain matters or areas of

knowledge, it by no means follows that he or she is qualified to

express expert opinions as to other fields.” Nimely v. City of New

York, 414 F.3d 381, 399 n.13 (2d Cir. 2005). Nonetheless, “[a]n

expert need not be precluded from testifying merely because he

or she does not possess experience tailored to the precise product

or process that is the subject matter of the dispute.” Hilaire v.

DeWalt Indus. Tool Co., 54 F. Supp. 3d 223, 235-36 (E.D.N.Y.

2014). Indeed, “where . . . well-trained people with somewhat

more general qualifications are available, it is error to exclude”

their testimony simply because their qualifications are “insuffi-

ciently tailored to the facts of this case.” Stagl v. Delta Air Lines,

Inc., 117 F.3d 76, 82 (2d Cir. 1997).

In Stagl, the Second Circuit found that the district court had erred

in concluding that a mechanical engineer with experience in “hu-

man-machine interactions” was not qualified to give expert

testimony regarding the design of an airport baggage claim be-

cause she lacked specific expertise regarding “airline terminal or

baggage claim area design.” Id. Reasoning along similar lines,

district courts in this circuit have, for example, permitted a math-

ematician with no specific expertise in optics to testify regarding

mirror design, where the party introducing the testimony sought

to rely merely on his “general knowledge of mathematics.” Rosco

v. Mirror Lite Co., 506 F. Supp. 2d 137, 145 (E.D.N.Y. 2007).

They have also determined that an engineer was qualified to give

expert testimony about the validity of an electrical consumption

test, even though his training was not specifically in electrical en-

gineering. See Jensen v. Cablevision Sys. Corp., 372 F. Supp. 3d

95, 113-14 (E.D.N.Y. 2019).

On the other hand, “district courts in this circuit have” sometimes

“found experts unqualified when they did not have direct expe-

rience with the particular product or field pertinent to the

litigation.” Id. at 113; see, e.g., Delehanty v. KLI, Inc., 663 F. Supp.

2d 127, 132 (E.D.N.Y. 2009) (precluding testimony by “self-pro-

claimed engineering consultant” on the subject of ladder design,

where putative expert had no experience “specific to ladder de-

sign or accidents”).

Here, the Settling Parties seek to offer Yatsenko’s opinion as ex-

pert testimony on the subject of business valuation and lost profit

projections for RM, a telecommunications company. Yatsenko’s

educational training was in physics and economics, and he holds

doctorate degrees in both of those disciplines. (Yatsenko Tr. at

12:7-12, 13:10-14:2.) In connection with his position at Ernst &

Young, he has also received specialized training in economic ap-

praisal. (Id. at 12:16-13:9.) Prior to joining Ernst & Young,

Yatsenko worked as an auditor in the oil industry. (See id. at

14:10-18, 15:12-17; Yatsenko Curriculum Vitae (Dkt. 321-1 at

ECF p. 71).) At Ernst & Young, Yatsenko’s responsibilities have

included business appraisals and financial modeling in a variety

of industries. (Yatsenko Tr. at 16:3-17:13.) In his current role as

Partner, he works with a team that appraises businesses in a va-

riety of industries, including oil, mining, telecommunications,

and retail. (Id. at 17:14-18:2.) He estimates that his team works

on between 50 and 120 appraisal projects each year, “at least

four or five” of which relate to the telecommunications industry.

(Id. at 18:3-22.)

While the industry with which Yatsenko is most familiar may be

the oil industry, Yatsenko’s expertise in financial appraisal ap-

pears to extend to a variety of industries, including the

telecommunications industry. Yatsenko’s general expertise in

business valuation, coupled with what appears to be at least a

passing familiarity with businesses in RM’s industry, qualifies him

to provide expert testimony on RM’s valuation and lost profits.

Given Yatsenko’s general qualification to perform appraisals of

businesses, the court will not exclude his testimony merely be-

cause his experience is not more closely “tailored to the precise”

type of business “that is the subject matter of the dispute.” See

Hilaire, 54 F. Supp. 3d at 236.

The Frank Parties also suggest that Yatsenko is unqualified be-

cause he has never previously testified in connection with United

States-based litigation. (Mot. to Preclude at 8; Yatsenko Tr. at

21:20-23:7.) This argument takes a factor – a purported expert’s

prior experience testifying on related matters in similar litiga-

tions – that may, when present, support a finding that the expert

is qualified, and attempts to construe the absence of that factor

as probative of the purported expert’s lack of qualification. The

Frank Parties cite no case law that supports the proposition that

a purported expert’s lack of prior testimonial experience in U.S.

courts suggests he or she is unqualified. Indeed, the Second Cir-

cuit referred to a similar argument, that a New York state court

should exclude an expert’s testimony because he had not previ-

ously testified in New York, as “flimsy” and “illogical,” and noted

that it would “preclude any new expert from testifying in New

York,” regardless of the expert’s qualifications and the relevance

of the proffered testimony. Washington v. Schriver, 240 F.3d 101,

111-12 (2d Cir. 2000).

Accordingly, the court finds that Yatsenko is qualified to give ex-

pert testimony concerning RM’s valuation and lost profits.

C. Reliability of Yatsenko’s Opinion

The Frank Parties contend that the court should exclude

Yatsenko’s opinions as unreliable because they are based on spec-

ulation, conjecture, and assumptions provided to Yatsenko by the

Settling Parties, and because they are rife with “analytical gaps.”

(See Mot. to Preclude at 8-16.) In particular, they argue that

Yatsenko’s testimony is unreliable because he based his analysis

only on RM’s financial data from 2011-2012. (Id. at 8-10.) They

also argue that Yatsenko’s testimony rested on several unfounded

assumptions supplied to him by the Settling Parties: that RM

would have been able to resume operations in January 2016 if

not for the Frank Parties’ refusal to disburse the settlement funds;

that all of the contracts RM lost due to the failed transaction with

Net Element would have otherwise been viable into 2016; that

RM would have experienced growth at a rate of 10% upon re-

suming operations; that RM had no assets and no debt as of

December 31, 2015; and that RM would not have borne financial

costs in fulfilling its obligations under a lost contract with a soft-

ware application developer. (Id. at 10-16.)

Federal Rule of Evidence 702 requires that expert testimony be,

inter alia, “based on sufficient facts or data” and “the product of

reliable principles and methods” that the expert “reliably applied

. . . to the facts of the case.” Fed. R. Evid. 702 (b), (c), (d). “To

decide whether a step in an expert’s analysis is unreliable, the

district court should undertake a rigorous examination of the

facts on which the expert relies, the method by which the expert

draws an opinion from those facts, and how the expert applies

the facts and methods to the case at hand.” Electra v. 59 Murray

Enters., Inc., 987 F.3d 233, 254 (2d Cir. 2021).

“Although expert testimony should be excluded if it is speculative

or conjectural, or if it is based on assumptions that are so unreal-

istic and contradictory as to suggest bad faith or to be in essence

an apples and oranges comparison, other contentions that the

assumptions are unfounded go to the weight, not the admissibil-

ity, of the testimony.” Boucher v. U.S. Suzuki Motor Corp., 73 F.3d

18, 21 (2d Cir. 1996). “A minor flaw in an expert’s reasoning or

a slight modification of an otherwise reliable method” will not

necessarily render an opinion inadmissible; rather, the court

should admit the evidence unless “the flaw is large enough that

the expert lacks good grounds for his or her conclusions.” Amor-

gianos v. Nat’l R.R. Passenger Corp., 303 F.3d 256, 267 (2d Cir.

2002). This approach “accords with the liberal admissibility

standards of the federal rules and recognizes that our adversary

system provides the necessary tools for challenging reliable, al-

beit debatable, expert testimony.” Id. The Second Circuit has

drawn a distinction between expert analyses that “include[] less

than all the relevant variables” and analyses that “omit[] the ma-

jor variables,” suggesting that while analyses in the former

category are likely admissible, those in the latter category may

not be. Bickerstaff v. Vassar College, 196 F.3d 435, 449 (2d Cir.

1999).

As explained below, and in light of the liberal approach to admis-

sibility established by the Federal Rules of Evidence and

precedential case law, the court finds that the purported analyti-

cal flaws identified by the Frank Parties do not rise to the level of

establishing that Yatsenko lacked good grounds for his conclu-

sions. Accordingly, while the flaws identified by the Frank Parties

may ultimately counsel against ascribing substantial weight to

Yatsenko’s opinion, the court finds that the opinion is sufficiently

reliable to be admitted into evidence.

1. Scope of Relevant RM Financial History

The Frank Parties’ primary argument against the reliability of

Yatsenko’s testimony is that Yatsenko based his projection of

RM’s lost profits at the end of 2015 and expenses for the period

spanning 2016-2019 solely on RM’s financial records from 2011

and 2012, and not on its financial history from 2013-2015. (See

Mot. to Preclude at 8-10.) In his deposition, Yatsenko testified

that the Settling Parties provided him only with financial data

from 2011-2012, and he explained that his analysis relied en-

tirely on that information and that he “didn’t do due diligence.”

(Yatsenko Tr. at 30:20-31:19.) On the basis of this testimony, the

Frank Parties argue that “Yatsenko was only provided with the

financial data for the years[] deemed relevant by the Settling Par-

ties,” and suggest that he therefore failed to make an

independent judgment about the relevance of the financial data

from the missing years. (Mot. to Preclude at 9.)

In his deposition, Yatsenko made clear that while he only re-

viewed the financial records provided to him by the Settling

Parties, he requested that information based on his own judg-

ment that those records were the ones most relevant to his

analysis:

Q. Did you review the balance

sheets for 2012, 2013, 2014, and

2015?

A. If this information – well, if this

information was necessary to do our

analysis, then we would request this

information. We didn’t do due dili-

gence of RM Invest for seven years.

We only looked at the issues needed

for the report. And then we re-

quested the needed information

and we used that information.

(Yatsenko Tr. at 32:22-33:5.) Yatsenko went on to explain that

he viewed 2012 as a “model year” for RM, for financial modeling

purposes, because it was the final “year when the company still

conducted independent business before” entering a joint venture

in 2013, and that the existence of the joint venture in 2013-2015

made it “incorrect to forecast [based on] the money flow in those

years.” (Id. at 34:5-21; 36:5-18.)

Yatsenko’s testimony makes clear that he had a reasoned basis

for considering RM’s financial data from 2011-2012 only: he as-

sumed that financial records from the years that coincided with

RM’s joint venture were not relevant to a projection of RM’s per-

formance as an independent business. In other words, he

regarded RM’s most recent financial history as non-predictive

and, effectively, irrelevant because it reflected RM’s financial per-

formance while it operated in a structurally different, non-

independent manner. The court takes no view, at present, as to

the wisdom or accuracy of that assumption. The Frank Parties

are free to argue at trial that Yatsenko’s assumption regarding

the relevance of RM’s 2013-2015 financial history was flawed,

and that his opinions which rest on that assumption should be

accorded little or no weight. But the assumption is not “so unre-

alistic and contradictory as to suggest bad faith,” Boucher, 73

F.3d at 21, nor is it flawed in a manner so fundamental and glar-

ing as to establish that Yatsenko “lacks good grounds for his . . .

conclusions,” Amorgianos, 303 F.3d at 267. Accordingly, the

court declines to exclude Yatsenko’s testimony as unreliable on

this basis.

2. Lost Contracts & Resumption of Operations

The Frank Parties argue that Yatsenko’s testimony is also unreli-

able because his lost profit analysis is premised on the unfounded

assumptions that, if not for the Frank Parties’ alleged breaches,

RM would have resumed full-scale operations in January 2016

and would have been able to retain or renew more than fifty con-

tracts that it ultimately lost.

According to Yatsenko’s testimony, the Settling Parties asked him

to calculate the profits that RM lost, “arising from [its] inability

to resume its full-scale operating activity” as of December 31,

2015, and provided him with a list of more than fifty “lost con-

tracts” to take into consideration. (Yatsenko Tr. at 70:2-5; see also

List of Lost Contracts (Dkt. 321-1 at ECF pp. 72-73).) Yatsenko

did not review the contracts themselves, and he assumed that

any contracts which expired prior to December 31, 2015 would

have been “easy to renew,” if RM had sufficient “financial re-

sources” from the prompt disbursement of the Net Element

settlement funds. (Yatsenko Tr. at 70:5-71:17.) Yatsenko ex-

plained that he “worked on the assumption of the client that if

he had enough financing, it would have been easier for him to

renew those contracts” and noted that this was a “completely re-

alistic situation” in Russia that he has observed from time to time.

(Id. at 72:12-20.)

In his declaration that accompanies the Settling Parties’ response

to the Frank Parties’ Motion to Preclude, Yatsenko reiterates that

his report “assumes that, given the Frank Firm’s timely disburse-

ment of $2,300,00.00 to the Settling Parties, RM would have

been able to renew its contracts and resume operations starting

January 2016,” and explains that he is “not aware of any signs or

evidence why the business operations could not be resumed sub-

ject to availability of necessary financing and technical

possibility.” (Yatsenko Decl. ¶ 6.)

Yatsenko’s deposition testimony and declaration indicate that he

presumed that RM’s lost contracts were easily renewable and that

its business operations were immediately resumable, absent evi-

dence to the contrary. His suggested justifications for these

presumptions are admittedly vague and conclusory, but the pre-

sumptions are not necessarily unfounded. Moreover, contrary to

Frank Parties’ suggestion, Yatsenko asserts that these were his

own assumptions, informed by his independent judgment and

expertise. Accordingly, the court finds that the conclusory nature

of these assumptions is, at most, a “minor flaw in [Yatsenko’s]

reasoning” that does not compel the exclusion of his opinion.

Amorgianos, 303 F.3d at 267. The Frank Parties’ arguments may

be properly directed to the issue of weight.

3. Contract with OOO Arian

The Frank Parties also argue that Yatsenko failed to verify

whether RM received an advance payment from OOO Arian (“Ar-

ian”), a company with which RM contracted for the development

of a software application, and that he failed to consider the costs

RM would have incurred in performing its obligations under that

contract. (Mot. to Preclude at 15-16.)

The contract between RM and Arian, dated November 2015,

called for an advance payment to RM of 19.92 million rubles, to

be paid one month after the contract was signed. (Yatsenko Tr.

at 107:17-108:13.) Yatsenko testified that he did not “have th[e]

information” regarding whether or not Arian made its initial pay-

ment and that he was “never provided the confirmation of this

advance payment.” (Id. at 108:14-18.) He further testified that

Arian’s “final payment also was not provided” and that “the con-

tract didn’t go forward because RM Invest didn’t receive” the $2.3

million from the Net Element settlement that it had expected. (Id.

at 108:19-109:9.) The Settling Parties argue that the contract

was never consummated because RM lacked the funds to fulfill

its obligations, and they suggest that it is therefore “nonsensical”

for the Frank Parties to expect Yatsenko to have verified whether

Arian made its initial payment on a contract that was merely con-

templated. (Mot. to Preclude Opp. at 12.) The Frank Parties

respond that because both parties signed the contract in Novem-

ber 2015, a reliable expert would have inquired into whether an

initial payment was made the following month in accordance

with its terms. (Mot. to Preclude Reply at 7.)

The Frank Parties also contend that Yatsenko’s analysis “failed to

consider the roughly 40 million rubles it would cost to perform

the contract” with Arian. (Mot. to Preclude at 15.) When asked

at his deposition why his calculations omitted “any of the costs in

order to perform this contract,” Yatsenko replied that “the client

. . . expressed an opinion that if [RM] would have operated in

the normal course of business, it would [have been] able to go

forward with this contract and fulfill this contract . . . using its

own manpower.” (Yatsenko Tr. at 109:16-110:1.) The Settling

Parties emphasize that, under the contract, $40 million rubles

was the amount to be paid to RM by Arian, and not a cost to RM

for which Yatsenko failed to account. (Mot. to Preclude Opp. at

12-13.) They also argue that the Frank Parties have failed to re-

but Yatsenko’s reasonable presumption that RM’s costs of

performing the contract, which consisted of software developers’

salaries, were already covered by the regular operating expenses

that Yatsenko considered. (Id. at 13.)

The court is not convinced that Yatsenko’s analysis of the RM-

Arian contract was so drastically deficient as to render Yatsenko’s

opinion unreliable. The Frank Parties challenge two of Yatsenko’s

assumptions as unfounded: first, that no payments were deliv-

ered under a contract which the parties executed but never

performed, and second, that RM could have fulfilled its obliga-

tions under the contract without incurring expenses beyond its

normal business costs. While neither assumption is irrefutable or

self-evident, neither are they so unrealistic as to suggest bad

faith. See Boucher, 73 F.3d at 21. Accordingly, the court declines

to exclude Yatsenko’s opinion based on his analysis of the RM-

Arian contract.

4. Additional Arguments

The Frank Parties argue that two additional flaws in Yatsenko’s

analysis render his opinion unreliable. First, they contend that

Yatsenko arbitrarily assumed a monthly growth rate of 10% in

estimating RM’s lost profits. (Mot. to Preclude at 13-14.)

Yatsenko explained in his deposition testimony that he “based

[his] projections of the profits on the assumptions of the client”

and assumed that “the profits will grow from 240 million rubles

a month to 500 million rubles a month. After that, it will be flat.”

(Yatsenko Tr. at 60:23-61:3.) In his supplemental declaration, he

clarified that rather than merely adopting the figures given by

the Settling Parties automatically, he used them because he “saw

no signs or evidence why the monthly revenue of RUB 500 mln

could not be achieved in 1-2 years,” based on “RM’s market po-

sition in 2011-2012 and RM’s revenue . . . for 2012.” (Yatsenko

Decl. ¶ 7.)

Second, the Frank Parties argue that Yatsenko unreasonably as-

sumed, without any market analysis, that RM had no assets in

the bank and no prior debt as of December 31, 2015. (Mot. to

Preclude at 14-15.) In his deposition testimony, Yatsenko ex-

plained that he had assumed for the purposes of his analysis that

RM had “either zero amount . . . or an insignificant amount in

the bank account.” (Yatsenko Tr. at 58:7-14.) He also explained

that he had assumed RM had no prior debt, based on his deter-

mination that any actual debt was “negligible and could [be]

disregarded” in calculating lost profits. (Id. at 58:15-18; 59:4-

16.)

Here, too, while Yatsenko’s analysis appears to rest on conven-

ient or self-serving assumptions, the assumptions are not wholly

unrealistic and the purported flaws are relatively minor. To the

extent these aspects of Yatsenko’s methodology are flawed, such

flaws are more relevant to the question of weight than to admis-

sibility. The court therefore declines to preclude Yatsenko’s

opinion on these grounds.

D. Ability to Help the Trier of Fact

Lastly, the Frank Parties ask the court to preclude Yatsenko’s

opinion because it is “arithmetic[] rather than analysis” and will

therefore not assist the trier of fact. (Mot. to Preclude at 16-19.)

Rule 702 of the Federal Rules of Evidence provides that a district

court may admit expert testimony if, inter alia, “the expert’s sci-

entific, technical, or other specialized knowledge will help the

trier of fact to understand the evidence or to determine a fact in

issue.” Fed. R. Evid. 702(a). “If the testimony is instead directed

solely to lay matters which a jury is capable of understanding and

deciding without the expert’s help, the testimony is properly ex-

cludable.” United States v. Castillo, 924 F.2d 1227, 1232 (2d Cir.

1991). “Testimony is properly characterized as ‘expert’ only if it

concerns matters that the average juror is not capable of under-

standing on his or her own.” United States v. Mejia, 545 F.3d 179,

194 (2d Cir. 2008).

Courts in this circuit have occasionally excluded expert testimony

that consists only of “basic calculations” on the grounds that it is

unhelpful. See FPP, LLC v. Xaxis US, LLC, No. 14-cv-6172 (LTS),

2017 WL 11456572, at *1 (S.D.N.Y. Feb. 13, 2017) (excluding

expert opinion on damages that “uses three different figures pro-

vided to her by [counsel] and conducts simple arithmetic to

calculate the resulting damages amount”); Schwartz v. Fortune

Magazine, 193 F.R.D. 144, 147 (S.D.N.Y. 2000) (excluding ex-

pert opinion on damages that “merely consisted of calculating

the commissions plaintiff would have earned had he continued

to work for” defendant). On the other hand, courts have admit-

ted expert testimony that takes the ultimate form of basic

arithmetic when the expert used specialized knowledge, either to

identify the appropriate inputs for the relevant computation or to

determine what kind of calculation was necessary. See Int’l Bus.

Machines Corp. v. BGC Partners, Inc., No. 10-cv-128 (PAC), 2013

WL 1775437, at *7 (S.D.N.Y. Apr. 25, 2013) (finding that expert

“did not mechanically perform rote calculations, but rather based

his analysis on . . . qualitative determinations” that relied on spe-

cialized knowledge); Hamza v. Saks Fifth Ave., Inc., 07-cv-5974

(FPS), 2011 WL 6187078, at *2 (S.D.N.Y. Dec. 5, 2011) (finding

that expert “employed his specialized knowledge as a forensic

economist to organize and utilize each piece of this earnings ‘puz-

zle’ into a final calculation at which fact-finders would not be able

to arrive themselves if each piece of information were presented

to them individually”).

The Frank Parties suggest that Yatsenko’s so-called expert analy-

sis was nothing more than the performance of basic calculations,

using inputs and assumptions provided by the Settling Parties.

But regardless of whether or not the inputs that are used in

Yatsenko’s opinion are the product of his independent judgment,

his opinion plainly consists of economic analyses that require spe-

cialized knowledge and could not be replicated by a layperson.

For example, in arriving at his conclusion regarding RM’s lost

profits, Yatsenko projected revenue, projected costs, and ana-

lyzed funding requirements. (See Yatsenko Report at ECF pp. 45-

51.) Each aspect of this calculation entailed judgments that

rested on specialized knowledge. Accordingly, the court finds

that Yatsenko’s opinion comports with the Federal Rules’ require-

ment that expert testimony help the trier of fact to understand

the evidence or determine a fact at issue.

IV. CONCLUSION

For the reasons explained above, the Frank Parties’ (Dkt. 321)

Motion to Preclude Yatsenko’s testimony and (Dkt. 318) Motion

to Strike Yatsenko’s supplemental declaration are both DENIED.

SO ORDERED.

Dated: Brooklyn, New York

May 12, 2021

_/s/ Nicholas G. Garaufis_

NICHOLAS G. GARAUFIS

United States District Judge