Girozentrale v. Tilton

• Decision Date: 10 June 2022
• Docket Number: MOTION SEQ. No. 028,Index No. 651695/2015
• Citation: 2022 NY Slip Op 31854 (U)
• Parties: NORDDEUTSCHE LANDESBANK GIROZENTRALE, HANNOVER FUNDING COMPANY LLC, Plaintiffs, v. LYNN TILTON, PATRIARCH PARTNERS, LLC, PATRIARCH PARTNERS XIV, LLC, PATRIARCH PARTNERS XV, LLC, Defendants.
• Court: New York Supreme Court

2022 NY Slip Op 31854(U)

NORDDEUTSCHE LANDESBANK GIROZENTRALE, HANNOVER FUNDING COMPANY LLC, Plaintiffs, v. LYNN TILTON, PATRIARCH PARTNERS, LLC, PATRIARCH PARTNERS XIV, LLC, PATRIARCH PARTNERS XV, LLC, Defendants.

Index No. 651695/2015, MOTION SEQ. No. 028

Supreme Court, New York County

June 10, 2022

Unpublished Opinion

DECISION + ORDER ON MOTION

HON JOEL M. COHEN, Judge.

The following e-filed documents, listed by NYSCEF document number (Motion 028) 1033, 1034, 1035, 1036, 1037, 1038, 1039, 1040 1041, 1042, 1043, 1044, 1045, 1046, 1047, 1048, 1049, 1050 1051, 1052,1053, 1061, 1121, 1122, 1123, 1124, 1125, 1126 1127, 1169 were read on this motion to PRECLUDE

In this motion Defendants Lynn Tilton, Patriarch Partners, LLC, Patriarch Partners XIV, LLC, and Patriarch Partners XV, LLC ("Defendants") seek to preclude Plaintiffs Norddeutsche Landesbank Girozentrale and Hannover Funding Company LLC ("Plaintiffs") from introducing the expert testimony of Professor Ethan Yale ("Yale" or "Professor Yale"). For the reasons described below, the motion is granted in part.

"The admission of an expert opinion is a matter within the sound discretion of the court" (Oboler v City of New York, 31 A.D.3d 308, 308 [1^st Dep't 2006] [citation omitted]). "The guiding principle is that the expert opinion is proper when it would help to clarify an issue calling for professional or technical knowledge, possessed by the expert and beyond the ken of the typical juror" (De Long v Cnty. of Erie, 60 N.Y.2d 296, 307 [1983]). "For a witness to be qualified as an expert, the witness must possess the requisite skill, training, education, knowledge or experience from which it can be assumed that the opinion rendered is reliable" (Schechter v 3320 Holding LLC, 64 A.D.3d 446, 449 [1^st Dep't 2009] [citation omitted]).

Ethan Yale is a Professor of Law at University of Virginia School of Law with a "research and teaching focus on federal income taxation with an emphasis on the taxation of business entities, tax shelters, and tax policy" (NYSCEF 1037, at 1). Yale teaches "classes focusing on the tax, securities, and corporate law governing private fund investments. [He] also teach[es] and ha[s] studied and written about, the tax treatment of distressed debt" (Id.). Additionally, Yale has experience consulting "with taxpayers regarding the tax consequences of business and personal transactions" (Id.).

In his report, Yale offers three opinions: (1) "[c]ertain Patriarch entities maintained tax databases on behalf of the Zohar funds. The tax databases were used to determine, record, and report the tax characterization of cash received by the funds with respect to loans held by the funds;" (2) "[t]he tax characterization claimed by the owners of the Zohar funds - ultimately Lynn Tilton - depended on the assumption that repayment of many loans held by the funds was doubtful. In other words, Tilton, the taxpayer to whom the funds' taxable income flowed, took the position on her tax returns that the likelihood of repayment of the loans was low;" and (3) "[l]oan credit quality, reported to be low for tax purposes, was reported as high in the funds' financial statements and monthly investor reports. Thus, the Patriarch entities were making inconsistent claims regarding loan credit quality depending on the audience" (Id.).

As an initial matter, the Court rejects Defendants' position that tax-related evidence is irrelevant and should be precluded from this action. The Court also notes that Yale possesses the "requisite skill, training, education, knowledge or experience from which it can be assumed [his] opinion rendered is reliable" (Schechter, 64 A.D.3d at 449). Professor Yale's significant training, education and experience are sufficient to qualify him as an expert in tax law. In fact, in a previous ruling on an earlier motion to preclude Yale's testimony, this Court noted "synthesizing these databases is not something that's within the ken of a normal juror" and that "having somebody synthesize and explain what's in there [would be] helpful" (NYSCEF 889, at 21:8-14). The Court also held "that it's helpful for the trier of fact to understand when a taxpayer takes a position, that that is effectively a factual representation" and that it "necessarily means you're representing to the government that the loan is in some state of disrepair" (Id., at 21:16-22).

Defendants argue that Professor Yale "has no experience structuring or managing CLOs," and that he "has never served as a CDO or CLO collateral manager, collateral administrator, or trustee, nor has he ever advised anyone that has served in any such capacity" (NYSCEF 1053, at 9). However Professor Yale's opinions do not require expertise in the structure or management of CDOs or CLOs (NYSCEF 1061, at 13). Yale's first two opinions concern the nature and purpose of the Tax Databases maintained by Defendants and the corresponding tax characterizations made (NYSCEF 1037, at 11-14). Professor Yale is sufficiently qualified as an expert in tax law...