Yador v. Mowatt

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

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DELA YADOR,

Plaintiff, MEMORANDUM & ORDER

19-CV-4128 (EK)(RML)

-against-

JASON MOWATT,

Defendant.

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ERIC KOMITEE, United States District Judge:

Plaintiff Dela Yador and defendant Jason Mowatt worked

together, for a time, on an entertainment business. The

operation sold tickets to parties at which patrons could listen

to music, eat and drink, and also rap or sing along with hit rap

and R&B songs. They called the business Trap Karaoke.

Ultimately, Mowatt and Yador separated. Yador sued,

alleging that he was an equity stakeholder in the venture, and

that Mowatt improperly froze him out. The facts underlying this

dispute are set forth in prior orders, and the court assumes

familiarity with them.1

1 Given the complexities of this case, in September 2021 the Court

requested the appointment of pro bono counsel for Yador. ECF No. 25, at 16

n. 2. Counsel from Davis Polk & Wardell LLP – including Tess Liegeois,

Kathryn Bi, Christina Costello, Alec Fisher, Amelia Starr, Danielle Mullery,

Dara Sheinfeld, Micayla Hardisty, Matthew Garry, and Michael Haney – have

appeared to brief and / or argue this case on behalf of the plaintiff.

Counsel have ably discharged their duties, and the Court thanks them for

their service. See generally Green v. Brennan, 578 U.S. 547, 552 (2016)

(expressing the Court’s thanks to appointed counsel).

Defendant has now moved for summary judgment on all

claims, and also to preclude testimony by the plaintiff’s

valuation expert. For the reasons that follow, those motions

are DENIED except as to the complaint’s fourth cause of action,

which is dismissed as duplicative.

Discussion

A. First Through Third Causes of Action

Defendant Mowatt seeks summary judgment on the

plaintiff’s first three causes of action — breach of the

partnership agreement, breach of the duty of loyalty, and breach

of fiduciary duty. Mowatt makes the same argument in opposing

each of these claims: that a partnership was never formed — or,

alternatively, that it was terminated prior to the events

constituting the alleged breach.2 The record, however, is

replete with “admissible evidence sufficient to raise a genuine

dispute of fact for trial” on the existence and alleged

termination of a partnership, and these issues are therefore not

2 Mowatt also requests summary judgment on the plaintiff’s sixth cause

of action — injunctive relief — on the same basis. Yador abandons that claim

in his opposition papers. Plaintiff’s Opposition Memorandum (“Pl.’s Opp.

Mem.”) at 12 n.4, ECF No. 81-15. The claim is therefore dismissed with

prejudice. See Jackson v. Fed. Exp., 766 F.3d 189, 196 (2d Cir. 2014)

(“[S]ummary judgment is a particularly appropriate time for a non-movant

party to decide whether to pursue or abandon some claims.”).

amenable to decision at this stage. Jaramillo v. Weyerhaeuser

Co., 536 F.3d 140, 145 (2d Cir. 2008).3

1. Genuine Disputes Exist with Respect to Partnership

Formation

Plaintiff claims that he and Mowatt entered into a

partnership, and that Mowatt violated the partnership agreement

by failing to share the profits of the enterprise. The parties

had no written agreement, but in New York, partnership

agreements can be written, oral, or implied-in-fact. The

factors going to the existence of an implied-in-fact partnership

are: “(1) the parties’ intent, whether express or implied; (2)

whether there was joint control and management of the business;

(3) whether the parties shared both profits and losses; and (4)

whether the parties combined their property, skill, or

knowledge.” Hammond v. Smith, 151 A.D.3d 1896, 1897 (4th Dep’t

2017). “No single factor is determinative; a court considers

the parties’ relationship as a whole.” Id.

The record on summary judgment contains more than

sufficient evidence on each factor to establish a genuine

dispute of fact. Among other things, the record reveals

indications that Mowatt regularly referred to Yador — privately

3 Unless otherwise noted, when quoting judicial decisions this order

accepts all alterations and omits all citations, footnotes, and internal

quotation marks.

and publicly — as his partner (speaking to intent)4; they

regularly conferred on budgeting and hiring (management and

control)5; and both contributed funds and industry knowledge to

the business (combined skills, property and knowledge).6

Mowatt trains most of his analytical fire on the

argument that the two did not agree to share profits and losses,

but the record contains sufficient evidence from which a jury

could reasonably disagree. Among other things, there is the

text chain in which Yador asked Mowatt, regarding profits from

events, “And do we split even?? I know you put out a lot so I’m

def cool with taking less.” Pl.’s Exh. 8 at 16, ECF No. 81-24.

Mowatt responded, “i’m down to split it even.” Id. A jury

might reasonably view this exchange as “a mutual promise or

undertaking of the parties to share in the profits of the

business.” Steinbeck v. Gerosa, 4 N.Y.2d 302, 317 (1958).

Mowatt also sent Yador a series of messages explaining

how “we can cut the costs going forward” — for example, by

cutting out the videographer and limiting expenses for some

other event workers. Pl.’s Exh. 8 at 16, ECF No. 81-24. This

4 E.g., Plaintiff’s Exhibits (“Pl.’s Exhs.”), ECF Nos. 81-16-48, Exh. 4

at 6; Exh. 16 at 3; Exh. 18 at 5.

5 See, e.g., id. at Exh. 8 at 12, 18-19.

6 E.g., Mowatt Deposition Transcript (“Mowatt Dep. Tr.”) at 115:8-116:8,

ECF No. 22 (Exh. 6) (describing Yador’s contributions to the business,

including that he made introductions to venues, acted as a “sounding board,”

and collaborated with Mowatt to create set lists).

conversation may be most naturally understood as a conversation

between equity partners — if Yador was only a contractor, he

would have had less reason to care about cutting costs (and the

costs would not be joint, in any event — there would be no

“we”). See Napoli v. 243 Glen Cove Avenue Grimaldi, Inc., 397

F. Supp. 3d 249, 269-70 (E.D.N.Y. 2019) (divining intent to form

joint venture from the parties having “demonstrated an

understanding that they would share in the losses as well” as

profits).

This exchange occurred after Mowatt had informed Yador

that he could make Yador whole on his $600 cash outlay for the

first event because the event had made $1,228 in online sales.

Id. Again, a jury might also reasonably view the suggestion

that Yador’s right to this distribution was contingent on the

event’s profitability as consistent with joint ownership. Cf.

Steinbeck, 4 N.Y.2d at 317 (declining to find joint ownership

because the plaintiff’s profits were not contingent upon the

overall profitability of the enterprise).7

7 It may have been only natural that the parties would be less explicit

about loss-sharing than profit-sharing, given that the business was

profitable within months of inception. See Pl.’s Exh. 14 at 2, ECF No. 84-4

(showing net income of $2,893.86 for 2015); Pl.’s Exh. 8 at 16 (Mowatt noting

Trap Karaoke’s first two events “should put us in the green”).

2. Genuine Disputes Persist with Respect to Whether, and

When, the Partnership Terminated

Mowatt argues that even if the two men formed a

partnership, it terminated upon the formation of Trap Karaoke,

LLC on December 24, 2015. Defendant’s Memorandum (“Def. Mem.”),

ECF No. 81-2, at 23. He invokes Weisman v. Awnair Corp. of Am.,

3 N.Y.2d 444, 449 (N.Y. 1957) and Nasso v. Seagal, 263 F. Supp.

2d 596, 618 (E.D.N.Y. 2003), for the proposition that the

formation of a corporation to carry out business formerly

carried out by a partnership necessarily terminates the

partnership. See Def. Mem. at 24-25.

But Weisman and Nasso are distinguishable: in both,

the parties mutually agreed to substitute the corporate form for

a preexisting joint venture. See Weisman, 3 N.Y.2d at 449

(“[W]hat is pleaded is an agreement between plaintiff Weisman

and the individual defendants to conduct a business enterprise

as joint venturers through the instrumentality of a

corporation.”) (emphasis added); Nasso, 263 F. Supp. 2d at 618

(holding that “when parties” — plural — “form a corporation to

carry out the business of the partnership, they cease to be

partners”). In that context, the courts said that the parties

cannot have it both ways — that they could not agree to be a

joint venture vis-à-vis one another, but “a corporation as to

the rest of the world.” Weisman, 3 N.Y.2d at 449.

Here, it is Mowatt’s own position that he and Yador

agreed to nothing with respect to the substitution of the LLC

for any preexisting partnership. Moreover, it is of course not

the case that the formation of any new LLC must effectuate the

termination of a preexisting partnership. See Sagamore Corp. v.

Diamond W. Energy Corp., 806 F.2d 373, 378 (2d Cir. 1986)

(holding that Weisman “has been limited by subsequent New York

decisions” and the corporate form does not “legally supplant[]

the venture . . . when the corporation is a mere adjunct of a

joint venture”). There are myriad ways in which entrepreneurs

can operate through multiple entities. The plaintiff’s position

is that the LLC, when it came into existence, was partnership

property, and New York law plainly permits single-member

ownership of an LLC by a partnership. See id.; see generally

Bartenwerfer v. Buckley, 598 U.S. 69, 82 (2023) (“Partnerships

and other businesses can also organize as limited-liability

entities.”). A jury might reasonably find as much on the

existing record.

Finally, New York law requires that the termination of

an at-will partnership occur via an “unequivocal” manifestation

of the election to terminate. Scholastic, Inc. v. Harris, 259

F.3d 73, 87 (2d Cir. 2001) (citing Cracco v. Cracco, 25 A.D.2d

660, 660 (2d Dep’t 1966)). And the record on summary judgment

reveals — among other things — that Mowatt referred to Yador as

his “partner” after the LLC’s formation. Pl.’s Exh. 4, at 6

(Mowatt sent a text in 2016 saying that “Dela [Yador] is my

business partner on trap karaoke”). Mowatt also texted the Trap

Karaoke tour manager as late as 2017 to ask her to “look into

how I can convert an LLC from a partnership into a sole

proprietorship,” suggesting that even then he considered the LLC

to be under his and Yador’s joint control. Id. at 3. Thus

this, too, is a question for a jury to resolve.

Mowatt’s arguments for dismissing the second and third

causes of action — breach of the duty of loyalty and breach of

fiduciary duty — depend on his argument that the parties never

formed, or otherwise terminated, the partnership. See Def. Mem.

at 16 n.2 (“The Second and Third Causes of Action allege breach

of fiduciary duties that arise out of and are owed under a

partnership.”). These arguments therefore fail as well.

B. Fourth Cause of Action: The Implied Covenant of Good Faith

and Fair Dealing

In Yador’s fourth cause of action, he alleges that

even if no provision of the partnership agreement prohibited

Mowatt’s conduct, the implied covenant of good faith and fair

dealing — implicit in every New York contract — did. Mowatt’s

argument that this claim should be dismissed due to the lack of

a partnership contract is unavailing for the reasons set forth

in the preceding section. But Mowatt also argues, in the

alternative, that the implied-covenant claim should be dismissed

because — as framed in the operative complaint — it is

duplicative of Yador’s breach of contract claim. New York law

“does not recognize a separate cause of action for breach of the

implied covenant of good faith and fair dealing when a breach of

contract claim, based upon the same facts, is also pled.”

Harris v. Provident Life and Acc. Ins. Co., 310 F.3d 75, 81 (2d

Cir. 2002).

Yador cites 360 N. Rodeo Drive LP v. Wells Fargo Bank,

N.A. for the proposition that his implied covenant claim “is not

duplicative when the claim depends on other facts in addition to

those that might support a breach of contract claim.” No. 22-

CV-767, 2023 WL 2574180, at *6 (S.D.N.Y. Mar. 20, 2023). In 360

N. Rodeo, which concerned recovery under a loan agreement, the

court found that the two claims were sufficiently distinct to

avoid dismissal. While the breach of contract claim turned on

“Defendants’ unjustified attempt to charge default interest when

there was no contractual justification for the same,” the

implied covenant claim turned instead “on Defendants’ duty to

provide accurate statements as to any charges or fees Defendants

sought to assess.” Id. at *7.

Here, Yador offers only the fact that “Defendant acted

deceptively” in the course of the breach of the partnership

agreement as the “other fact” supporting his implied covenant

claim. Pl.’s Opp. Mem. at 26. Specifically, Yador directs the

Court’s attention to the fact that Mowatt “sat for interviews

during the Parties’ partnership, describing himself as the sole

creator of Trap Karaoke, and then assured Plaintiff it was a

mistake and that he would get a correction, when he had no

intention of doing so.” Id. at 27. But Yador relies on those

same facts to prove his claim for breach of the partnership.

For example, Yador alleges that Mowatt breached the partnership

agreement by “deliberately engag[ing] in a scheme and course of

conduct to confuse the public as to Trap Karaoke’s true origin

and owners.” Second Amended Complaint (“SAC”) ¶ 64, ECF No. 52.

Additionally, as Mowatt points out, “New York’s

Partnership Law creates default provisions that fill gaps in

partnership agreements.” Congel v. Malfitano, 31 N.Y.3d 272,

279 (2018). Those default provisions include a duty — pursuant

to the partnership contract itself — for partners to “render on

demand true and full information of all things affecting the

partnership to any partner.” N.Y. P’ship Law § 42 (McKinney

2024). It also includes a fiduciary duty to the partnership.

Id. § 43. As Yador’s implied covenant claim is premised on

evidence that Mowatt lied to Yador about the nature of the LLC

and his rights over it, the claim is subsumed by Yador’s rights

under the partnership contract itself, and therefore

duplicative. Plaintiff’s fourth cause of action is thus

dismissed.

C. Fifth Cause of Action: Unjust Enrichment

New York law is clear that a plaintiff cannot pursue a

claim for unjust enrichment for conduct covered by a contract

term. Clark-Fitzpatrick, Inc. v. Long Island R. Co., 70 N.Y.2d

382, 388 (1987). But one can plead unjust enrichment in the

alternative, as Yador has done here. Auguston v. Spry, 282

A.D.2d 489, 491 (2d Dep’t 2001); see Grossman v. GEICO Casualty

Co., No. 21-2789, 2022 WL 1656593, at *3 (2d Cir. 2022)

(pleading unjust enrichment in the alternative is appropriate

“where there is a dispute over the existence, scope, or

enforceability of the putative contract”). And the record is,

once again, replete with evidence that Yador worked with Mowatt

to build the company; if he was not a partner or co-LLC member,

then a jury could reasonably conclude — based on this evidence —

that Mowatt was unjustly enriched by Yador’s efforts.8

Mowatt responds that Yador should not be allowed to

pursue this theory because the record reveals “no evidence” from

8 Mowatt argues that this theory — that he unjustly profited from

Yador’s contribution of time and effort — is unpled in the operative

complaint. See Defendant’s Reply Memorandum (“Def. Rep. Mem.”) at 15, ECF

No. 81-50. He reads the complaint to assert enrichment only for his use of

Yador’s idea for the business. See id. That is not, however, a fair

reading. In a section titled “Plaintiff’s Harm,” Yador alleges that he

“spent untold time and personal resources to bring the Partnership’s idea of

‘Trap Karaoke’ to life.” SAC ¶ 33. He goes on to allege that Mowatt was

“unjustly enriched by the[] usurping of the partnerships’ idea and profits.”

which a jury could calculate Yador’s damages (i.e., the value of

his services). Def. Mem. at 33-34. But Yador can overcome the

motion for summary judgment by showing evidence sufficient for a

jury to side with him on each element of his claims. See

Jaramillo, 536 F.3d at 145. And the elements of unjust

enrichment require Yador to show only that he was damaged — not

that he was damaged in a specific amount. See Beth Israel Med.

Ctr. v. Horizon Blue Cross and Blue Shield of N.J., Inc., 448

F.3d 573, 586 (2d Cir. 2006) (“To prevail on a claim for unjust

enrichment in New York, a plaintiff must establish (1) that the

defendant benefitted; (2) at the plaintiff’s expense; and (3)

that equity and good conscience require restitution.”).9

D. Seventh and Eighth Causes of Action: Fraud

Yador brings two claims for common-law fraud. In the

complaint’s seventh cause of action, he alleges that Mowatt

falsely assured him that he (Yador) would be a member of the new

LLC. SAC ¶ 99. His eighth cause of action alleges that Mowatt

Id. at ¶ 62 (emphasis added); see also id. at ¶¶ 48, 55, and 102-03 (all

referring to the uncompensated investment of Yador’s time).

9 At oral argument, Mowatt contended that Yador violated Rule 26 by

omitting to produce a computation of his unjust-enrichment damages in

discovery. This issue is not properly before the court at this stage, given

Mowatt’s omission to brief it beyond a passing reference in his reply brief.

Def. Rep. Mem. at 15 (not citing Rule 26, but arguing that Yador “fails to

put forth any evidence as to the value of his time, effort and uncompensated

labor”); see Clubside, Inc. v. Valentin, 468 F.3d 144, 159 n.5 (2d Cir. 2006)

(“[W]e generally do not consider arguments that are raised for the first time

in a reply brief.”), accord Patterson v. Balsamico, 440 F.3d 104, 113 n.5 (2d

Cir. 2006) (“The Court generally will not consider arguments raised for the

first time in a reply brief.”).

falsely stated that he would be a registered owner of the Trap

Karaoke trademark. Id. at ¶ 106.

Mowatt seeks summary judgment on both claims, on two

alternative bases. First, Mowatt argues that Yador has failed

to produce evidence of an out-of-pocket loss and therefore

cannot satisfy the damages element of a New York fraud claim.

And second, Mowatt argues that Yador cannot show reasonable

reliance on the alleged misrepresentations, because the true

facts concerning the LLC and the trademark registration were

publicly available.10 Neither argument suffices to merit summary

judgment.

1. Injury Due to Fraud

To recover for fraud in New York, a plaintiff must

prove “[1] a misrepresentation or a material omission of fact

which was false and known to be false by defendant, [2] made for

the purpose of inducing the other party to rely upon it, [3]

justifiable reliance of the other party on the misrepresentation

or material omission, and [4] injury.” Lama Holding Co. v.

Smith Barney Inc., 88 N.Y.2d 413, 421 (1996). Mowatt argues

10 Specifically, Mowatt argues that Yador could have obtained the LLC’s

articles of incorporation — which showed that Yador was not a member — from

the New York Department of State. Def. Mem. at 39-40; Def. Rep. Mem. at

18-19. And he argues that Yador could have obtained the trademark

registration — which showed that Yador was not a registered holder — with the

Patent and Trademark Office. Def. Mem. at 40; Def. Rep. Mem. at 18-19.

that Yador has adduced insufficient evidence of the last

element.

New York courts calculate damages for fraud based on

“the actual pecuniary loss sustained as the direct result of the

wrong,” rather than allowing “recovery of profits which would

have been realized in the absence of fraud.” Id. This is known

as the “out-of-pocket rule.” Id.

Mowatt argues that Yador has not produced any evidence

of recoverable damages under the out-of-pocket rule. But he

also acknowledges that Yador has produced evidence of

“unreimbursed travel expenses totaling $88.66,” which

constitutes an out-of-pocket loss. Def. Mem. at 38.11 Under New

York law, “fraud from which flows even nominal damage has been

held actionable.” Cooke v. Colman, 269 N.Y.S. 21, 23 (1st Dep’t

1934).12

As with his arguments on unjust enrichment, Mowatt’s

argument goes not to whether Yador has raised a genuine dispute

11 The parties also dispute whether the value of Yador’s in-kind

contributions — mainly his time and effort — can qualify as out-of-pocket

losses here. Given the evidence that Yador expended money out-of-pocket, we

need not resolve this issue at this stage.

12 Mowatt frames Yador’s reliance on the $88.66 as an attempt to “amend

his pleadings in a summary judgment opposition.” See Def. Rep. Mem. at 17.

This is not a fair reading of the record; Yador invoked his out-of-pocket

financial expenditures in the pleadings. See, e.g., SAC ¶ 103 (“Plaintiff

further invested money, time, and resources into Trap Karaoke that he would

not have invested but for Defendant’s fraud.”) (emphasis added); id. ¶ 102

(“Plaintiff would not have continued to . . . incur expenses for . . . Trap

Karaoke . . . had he known Defendant intended to exclude him from the LLC.”).

as to the element at issue — here, injury — but only to the

amount of damages available. As the Second Circuit has

explained, however, the purpose of the out-of-pocket rule is not

to require up-front calculations of damages. Instead, it is to

“regulate which types of injuries must be shown to constitute a

tort.” AHW Inv. P’ship, MFS, Inc. v. Citigroup Inc., 661 F.

App’x 2, 4-5 (2d Cir. 2016) (citing Starr Found. v. AIG, Inc.,

76 A.D.3d 25, 28 (1st Dep’t 2010)). Here, Yador has adduced

sufficient evidence of out-of-pocket injury at this stage.

2. Publicly Available Information

To recover for fraud based on a misrepresentation or

material omission, New York law requires that the plaintiff

“suffered injury as a result of justifiable reliance” upon the

misrepresentation or omission. Dallas Aerospace, Inc. v. CIS

Air Corp., 352 F.3d 775, 784 (2d Cir. 2003). That requirement —

also termed the “reasonable reliance element” — “is focused on

whether it was foolish or not for the plaintiff to believe the

defendant’s fraudulent statement.” Lugones v. Pete and Gerry’s

Organic, LLC, 440 F. Supp. 3d 226, 243 (S.D.N.Y. 2020) (citing

Banque Franco-Hellenique de Commerce Int’l et Mar., S.A. v.

Christophides, 106 F.3d 22, 26 (2d Cir. 1997)).

In a classic application of this rule, the Appellate

Division affirmed a grant of summary judgment in Alpha GmbH &

Co. Schiffsbesitz KG v. BIP Indus. Co., 25 A.D.3d 344, 345 (1st

Dep’t 2006). There, the parties were business entities on

opposite sides of an arm’s length transaction. Neither party

claimed a confidential or fiduciary relationship. And both

sides were represented by their own counsel. Summary judgment

was appropriate, in those circumstances, because the information

that was allegedly concealed related to matters of public record

that could have been discovered by the exercise of ordinary

diligence. Id.

But the rule is not absolute; as the Second Circuit

has observed, New York does not require that information “be

available only to the defendant and absolutely unknowable by the

plaintiff before reliance can be deemed justified.” Lazard

Freres & Co. v. Protective Life Ins. Co., 108 F.3d 1531, 1542

n.9 (2d Cir. 1997); see also Todd v. Pearl Woods, 20 A.D.2d 911,

911, (2d Dep’t 1964) (holding that where “the facts were

peculiarly within the knowledge of the defendants and were

willfully misrepresented, the failure of the plaintiffs to

ascertain the truth by inspecting the public records is not

fatal to their action”), aff’d, 15 N.Y.2d 817 (1965).

So, in assessing reasonable reliance, “New York takes

a contextual view, focusing on the level of sophistication of

the parties, the relationship between them, and the information

available at the time of the operative decision.” J.P. Morgan

Chase Bank v. Winnick, 350 F. Supp. 2d 393, 406 (S.D.N.Y. 2004).

In this assessment, “beneficiaries of [a] fiduciary

relationship” are “entitled to rely on [the fiduciary’s]

representations and his complete, undivided loyalty”; thus they

are not, generally speaking, “required to perform independent

inquiries.” Frame v. Maynard, 922 N.Y.S.2d 48, 51 (1st Dep’t

2011).

Mowatt maintains that his alleged misrepresentations

could have been discovered through ordinary diligence. Def.

Mem. at 40. For example, Mowatt argues that Yador could have

sought out the application he filed with the United States

Patent and Trademark Office, which lists Mowatt (and not Yador)

as an owner of the Trap Karaoke mark. Id.; see TRAP KARAOKE,

Registration No. 5,121,354, United States Patent and Trademark

Office.13 But given the New York standard, this is a question

for a jury on the instant record. Unlike the factors in play in

Alpha GmbH, for example, Yador is an individual rather than a

business entity; he was unrepresented in his dealings with

Mowatt; and he alleges a fiduciary relationship between the two.

He has also adduced sufficient evidence for a jury to conclude

that Mowatt made “willful” misrepresentations, per the Second

Department’s decision in Todd, supra.

13 “[T]he Court may take judicial notice of official records of the

United States Patent and Trademark Office.” Kaplan, Inc. v. Yun, 16 F. Supp.

3d 341, 345 (S.D.N.Y. 2014).

Lastly, the facts alleged to have been misrepresented

were within Mowatt’s purview and not Yador’s, as Mowatt filed

the paperwork to create the LLC and the application to trademark

the name Trap Karaoke. Pl.’s Exh. 3, ECF No. 81-19, at 22.

Thus, a genuine dispute persists as to whether Yador reasonably

relied on Mowatt’s statements. These remaining “[q]uestions of

the reasonableness of reliance raise issues of fact that must be

resolved at trial.” MTV Networks v. Curry, 867 F. Supp. 202,

207 (S.D.N.Y. 1994).

E. Defendant’s Daubert Motion

In addition to his motion for summary judgment, Mowatt

moves to preclude (in part) the testimony of Yador’s valuation

expert, Jeffrey Hart. Hart’s report estimates Yador’s potential

damages. Hart’s Expert Report (“Hart Report”) ¶ 22, ECF No. 84-

5. Hart used a discounted cash flow (DCF) model to forecast the

value of Yador’s share of the partnership as it would have been

assessed in 2017 and 2019. Hart Report, ¶¶ 27-28.14

A DCF analysis incorporates two key inputs: (1) a

“forecast[] of expected revenues” over a discrete period of time

(here, five years), and (2) the “value of the company beyond the

discrete period” — i.e., the “terminal value” — which is based

14 Yador sees 2017 and 2019 as the relevant valuation dates because those

are the years in which Yador alleges that the Trap Karaoke partnership was

breached (by Mowatt) and that he filed this suit. Pl.’s Opp. Mem. at 32.

on a longer-term cash-flow estimate. Id. ¶ 70. Mowatt’s

objections generally refer to the first input.

To forecast Trap Karaoke’s then-expected revenues over

five-year periods beginning in 2017 and 2019, Hart relied on (1)

Trap Karaoke’s historical financials leading up to those

periods, (2) Trap Karaoke’s management’s expectations for its

growth potential at the time, and (3) the growth and performance

of two more mature, but otherwise assertedly comparable,

companies: D’ussé Palooza and Grits & Biscuits. Id. ¶ 73. Hart

explains that he needed to use comparable company data, rather

than Trap Karaoke’s own revenue projections, because Trap

Karaoke made no projections of forward revenue. Id. ¶ 72.

Mowatt criticizes the process by which Hart selected the

“comparable” companies, as well as certain inferences Hart drew

from material provided by those companies’ founders.

Hart used estimates of historical data from the

comparable companies to project Trap Karaoke’s revenue growth at

comparable stages (e.g., the year-over-year increase in D’Ussé’s

third-year revenues would correlate with Trap Karaoke’s third

year). Id. ¶ 75. Combining those projections with actual data

for Trap Karaoke’s expenses and other liabilities, Hart arrived

at “an estimate of [Trap Karaoke’s] unlevered free cash flow,”

to which he applied a discount rate. Id. ¶ 71. These

calculations yielded two net present values — estimates of what

a buyer would have paid for the business at the two valuation

dates. Id. ¶ 106.

Mowatt does not question the reliability of the DCF

methodology. Instead, he objects to three aspects of Hart’s

process, all relating to his use of D’ussé Palooza and Grits &

Biscuit’s audience growth to estimate Trap Karaoke’s revenue

growth. First, he argues that Hart “cherrypicked” those

companies as comparators rather than employing a more objective

selection process. Second, he argues that Hart lacked a

sufficient basis for his assumption that estimates of the

companies’ ticket sales could be used to estimate their revenue

growth. And third, he argues that Hart had insufficient data

from which to estimate Grits & Biscuits’ actual audience growth.

Selection of Comparable Companies. In selecting

D’ussé Palooza and Grits & Biscuits as comparators, Hart relied

on his own research into those companies’ business models as

well as testimony from Mowatt himself. The two comparable

company founders provided data including their events’ average

ticket prices, the size of their shows, the relationship between

revenue and ticket sales, and how their margins changed over

time. See Hart Report ¶¶ 53-54; see also Benner Hall

Declaration, ECF No. 81-12; Erika Lewis Declaration, ECF No.

81-13.

Mowatt objects that Hart “cherrypicked” these

companies as comps rather than employing a “survey or some other

independent [selection] process.” Def. Mem. at 42; see

generally In re Rezulin Prods. Liab. Litig., 309 F. Supp. 2d

531, 563 (S.D.N.Y. 2004) (“[A]n expert may not pick and choose

from the scientific landscape and present the Court with what he

believes the final picture looks like.”). Cherry-picking

constitutes “a form of [r]esult-driven analysis, which

undermines principles of the scientific method.” Daniels-Feasel

v. Forest Pharms., Inc., 2021 WL 4037820, at *5 (S.D.N.Y. Sept.

3, 2021) (citing In re Lipitor (Atorvastatin Calcium) Mktg.,

Sales Practices & Prod. Liab. Litig. (No. II) MDL 2502, 892 F.3d

624, 634 (4th Cir. 2018) (affirming district court’s exclusion,

under Daubert, of testimony of epidemiologist who included

favorable test results in his report and excluded unfavorable

results)).

Hart testified about his selection process. He

explained that in the course of his market research, he asked

plaintiff’s counsel about the discovery in this case:

specifically, “whether anything existed in the record” —

including witness testimony — “that would point us to comparable

companies.” Hart Deposition (“Hart Dep.”), ECF No. 81-10, at

228:23-229:9. In this way, he learned of Mowatt’s own

assessment that these two companies were in the same space.15

Mowatt’s objection falls short because “any selection

of comparable companies is inherently the product of expert

judgment,” and the record does not indicate that Hart’s judgment

was biased or otherwise flawed. See Manbro Energy Corp. v.

Chatterjee Advisors, LLC, No. 20-CV-3773, 2022 WL 4225543, *9

(S.D.N.Y. Sept. 13, 2022). And there is nothing inherently

improper about Hart’s reliance on the parties and the record.

See, e.g., Lickteig v. Cerberus Capital Mgmt., L.P., 589 F.

Supp. 3d 302, 334 (S.D.N.Y. 2022). In the end, Mowatt does not

explain how the survey or other “independent process” he

envisions would have worked. His objection to Hart’s selection

of these particular companies — and any potential disanalogies

between them and Trap Karaoke — ultimately goes to the weight of

his testimony, not its admissibility.

Using Ticket Sales to Approximate Revenue Growth.

Mowatt also challenges Hart’s assumption that the comparator

companies’ ticket sales would correlate with revenue growth.

15 See Mowatt Dep. Tr. at 90:19-91:1. When asked “[w]hat businesses

were similar to Trap Karaoke in 2015,” Mowatt pointed to Grits & Biscuits and

Henry Palooza (D’ussé Palooza’s former name). Id. at 90:19-91:1. He

acknowledged that both companies were similar in that they tour “multiple

cities” and “probably have a similar audience,” but maintained that Grits &

Biscuits events take a different “format” (without explaining how) and that

D’ussé Palooza events were daytime events, unlike Trap Karaoke’s. Id. at

91:10-24.

But D’ussé Palooza’s founder supported this assumption

explicitly, attesting that his company’s “revenue increased in

proportion to ticket sales.” Hart Report ¶ 53. Certainly,

Hart’s assumption was not “so unrealistic and contradictory as

to suggest bad faith.” Restivo v. Hessemann, 846 F.3d 547, 577

(2d Cir. 2017). It is only logical to expect that a business’s

revenue would correlate with demand for its core product. Thus,

Mowatt’s “contentions that the assumptions are unfounded go the

weight, not the admissibility, of the testimony.” Id.; see also

Prob. Ct. of City of Warwick ex rel. Lawton v. Bank of Am.

Corp., No. 7-CV-239, 2010 WL 1508922, *5 (D.R.I. Apr. 4, 2010)

(explaining that “accepted valuation techniques obligate an

expert to make a variety of simplifications, assumptions, and

estimates based on reasoned judgment and professional

training”).

Grits & Biscuits’ Data. Finally, Mowatt argues that

Hart lacked sufficient audience data for Grits & Biscuits from

which to estimate revenue growth. Def. Mem. at 44-45 (arguing

that “Hart relies solely” on a declaration that the company

“hosted a few shows a year”).

“Most challenges to the facts or data relied upon by

an expert do not go to the admissibility of his testimony, but

only to the weight” thereof. Allen v. Dairy Farmers of Am.,

Inc., No. 09-cv-230, 2014 WL 266290, at *9 (D. Vt. Jan. 23,

2014) (quoting Aventis Envtl. Sci. USA LP v. Scotts Co., 383 F.

Supp. 2d 488, 514 (S.D.N.Y. 2005)). Here, Hart relied on

adequate data (for gatekeeping purposes). He had a sworn

declaration from Grits’ founder, Erika Lewis, who described

audience growth over the relevant time period. Lewis Decl.

¶¶ 5-9. Lewis averred that from “2010-2012, Grits & Biscuits

hosted a few shows a year at venues that held approximately 500

people.” Id. ¶ 5. The company “grew steadily,” and from

“2013-2016, Grits & Biscuits hosted approximately 8-15 shows per

year at venues with approximate capacities ranging from

900-1,500 people.” Id. ¶ 8. Then, from “2016-2019, Grits &

Biscuits hosted approximately 15-28 shows per year at venues

with approximate capacities ranging from 1,200-4,500 people.”

Id. ¶ 9.

Hart used these figures to estimate Grits & Biscuits’

annual growth. See Hart Report at 36 (Exh. 3b). This does not

warrant exclusion; “experts commonly extrapolate from existing

data.” General Elec. Co. v. Joiner, 522 U.S. 136, 146 (1997).

To be sure, another expert might reach a different estimate.

But “under Daubert, the possibility that a different conclusion

could be drawn from [] data does not undercut the reliability of

the conclusion that was drawn, as long as the expert has good

grounds for the chosen interpretation.” United States v.

Morgan, 53 F. Supp. 3d 732, 741 (S.D.N.Y. 2014).

Hart explained the basis for his conclusion in some

detail. And Mowatt does not argue that the analysis is actually

inconsistent with the data — only that the information from

Grits & Biscuits was too “vague” to support Hart’s gap-filling

extrapolation. Def. Mem. at 44. But experts facing imperfect

data sets regularly make “estimates based on reasoned judgment

and professional training.” Prob. Ct. of City of Warwick ex

rel. Lawton, 2010 WL 1508922, *5. Mowatt may attack those

estimates at trial, but they are not a basis on which to exclude

Hart’s testimony.

Conclusion

For these reasons, the defendant’s motions are denied,

except that count four of the complaint is hereby dismissed.

Before October 21, 2024, the parties are directed to file a

joint proposed pretrial order in accordance with the Court’s

Individual Civil Rules. A pretrial conference will be held on

November 21, 2024, at 10:00 A.M., in person in Courtroom 6G

North.

SO ORDERED.

/s/ Eric Komitee

ERIC KOMITEE

United State s District Judge

D ated: September 11, 2024

Brooklyn, New York