Neponset Landing Corp. v. Nw. Mutual Life Ins. Co.

902 F.Supp.2d 166

NEPONSET LANDING CORPORATION, Plaintiff/Defendant–in–Counterclaim,

v.The NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, Defendant/Plaintiff–in–Counterclaim,

v.Terence Conroy, Sr., Additional Defendant–in–Counterclaim.

Civil Action No. 10–11963–JGD.

United States District Court, D. Massachusetts.

Oct. 22, 2012.

James E. Gallagher, Thomas S. Fitzpatrick, Davis, Malm & D'Agostine, P.C., Boston, MA, for Plaintiff/Defendant–in–Counterclaim.

John P. Connelly, Robert T. Ferguson, Jr., Hinckley, Allen & Snyder LLP, Boston, MA, for Defendant/Plaintiff–in–Counterclaim.

MEMORANDUM OF DECISION AND ORDER ON PLAINTIFF'S MOTION TO STRIKE

DEIN, United States Magistrate Judge.

I. INTRODUCTION

This action arises out of a Real Estate Purchase Agreement (“Purchase Agreement”) pursuant to which the plaintiff, Neponset Landing Corporation (“Neponset”), sold property containing a residential apartment building (the “Property”) to the defendant, The Northwestern Mutual Life Insurance Company (“NML”). Under the terms of the Purchase Agreement, NML was required to comply with certain post-closing obligations. In particular, NML was obligated to pay Neponset an “Earnout Amount,” defined as “[a]n amount equal to fifty percent (50%) of the amount by which the Final Capitalized Value (net of imputed sales costs of 1%) exceeds the Purchase Price, but in no event shall the amount paid to Seller exceed $7,500,000.” It was also required to use good faith efforts to manage the Property in a commercially reasonable manner, consistent with the management of similar apartment properties in the area, so as to maximize the net operating income from the Property, and consequently, the Earnout Amount due to Neponset under the terms of the Purchase Agreement. By its claims in this action, Neponset is seeking damages for NML's alleged failure to comply with its post-closing obligations, including its alleged failure to pay Neponset an Earnout Amount of $1,123,920. NML, in turn, has brought counterclaims against Neponset for various pre-closing payments allegedly due under the Purchase Agreement, and against Terence Conroy, Sr., who allegedly guaranteed Neponset's pre-closing payment obligations.

The matter is presently before the court on NML's motion for summary judgment (Docket No. 46). In connection with its opposition to the summary judgment motion, Neponset has filed “Plaintiff's Motion to Strike Portions of the Affidavit of Robin G. Smith” (Docket No. 58). Ms. Smith is the Director of Asset Management for one of NML's subsidiaries, and is the person with primary responsibility for managing the Property on behalf of NML. She is also the person who performed the calculation of the Earnout Amount on behalf of NML, and determined that no Earnout was due to be paid to Neponset under the terms of the Purchase Agreement. By its motion to strike, Neponset is seeking an order striking certain paragraphs of Ms. Smith's Affidavit, as well as Exhibit 3 thereto, on the grounds that they contain expert opinion, and that NML failed to disclose Ms. Smith as an expert in accordance with the applicable scheduling deadlines. In addition, Neponset contends that Exhibit 3 constitutes inadmissible hearsay, and should be stricken on that basis as well. For all the reasons detailed below, Neponset's motion to strike is DENIED.

II. FACTUAL BACKGROUND

By its motion for summary judgment, NML is seeking to establish that Neponset cannot prevail on any of its claims against it because the plaintiff has not proved that it suffered any damages as a result of NML's alleged failure to comply with its post-closing obligations. Specifically, NML argues that Neponset's damages expert, Webster A. Collins, made a mistake in his calculation of the Earnout Amount that Neponset claims is due to it under the terms of the Purchase Agreement, and that when the calculation is corrected, it results in an Earnout payment of zero. ( See S.J. Motion (Docket No. 46)). Therefore, NML contends that even if it were assumed that the defendant failed to use good faith efforts to manage the Property in a commercially reasonable manner, NML is entitled to summary judgment because Neponset has not demonstrated that any Earnout Amount would have been due. ( Id.). NML is relying on the testimony contained in the Affidavit of Robin G. Smith (Docket No. 49) to establish the critical facts supporting its motion for summary judgment.

Ms. Smith has been employed by NML or one of its subsidiaries for twenty-seven years, and is currently the Director of Asset Management for Northwestern Mutual Real Estate Investments, LLC, a wholly-owned subsidiary of NML. (Affidavit of Robin G. Smith (“Smith Aff.”) ¶ 1). In her capacity as the Director of Asset Management, Ms. Smith has primary responsibility for managing the apartment building located on the Property. ( Id.). She is also the individual who calculated the Earnout Amount on NML's behalf, and concluded that no Earnout was due to Neponset under the terms of the parties' Purchase Agreement. ( Id. ¶ 4). In her Affidavit, Ms. Smith describes how she calculated the Earnout Amount. ( See id. ¶¶ 5–6 and Ex. 3 thereto). She also explains how, in her opinion, Mr. Collins erred in calculating the Earnout Amount, and why no Earnout Amount would be due under Mr. Collins' analysis if the error in his calculations were corrected. ( Id. ¶¶ 8–11).

Specifically, Ms. Smith testifies that she based her calculation of the Earnout Amount on a 2009 operating statement (the “2009 Operating Statement”) for the Property that was prepared by The Dolben Company, an independent property management firm that had been selected by Neponset to manage the Property. ( Id. ¶ 5). The 2009 Operating Statement, which is attached to Ms. Smith's Affidavit as Exhibit 2, lists in detail the income and expense figures for the Property during each month of 2009. ( Id. ¶ 6 and Ex. 2 thereto). Ms. Smith describes how she used those figures to create a spreadsheet (the “2009 Operating Statement Summary Report”) showing the bottom-line income and expense figures for the six-month period from June 2009 through November 2009 (the “Earnout Period”), the period which was to be used for calculating the Earnout Amount. ( Id. ¶ 6). The 2009 Operating Statement Summary Report is attached to Ms. Smith's Affidavit as Exhibit 3. It shows how Ms. Smith used the relevant income and expense figures from the 2009 Operating Statement to calculate the annualized Net Operating Income for the Property during the Earnout Period, and to determine the Final Capitalized Value in order to calculate the Earnout Amount. ( See id. ¶ 6 and Ex. 3 thereto).

Both the 2009 Operating Statement and the 2009 Operating Statement Summary Report contain an expense item labeled “Contingency Fund.” ( See id. ¶ 7, Ex. 2 at p. 3 and Ex. 3). As Ms. Smith states in her Affidavit, NML listed the Contingency Fund item as a credit of $83,558 in its calculations because credits of $237,904 for that item exceeded expenses of $196,125 during the Earnout Period, thereby yielding an overall net credit expense of $41,779 for the Earnout Period, and an annualized net credit expense of $83,558. ( Id. and Ex. 3 thereto). Therefore, although the Contingency Fund was included as an expense item, it resulted in an increase to the Net Operating Income during the relevant time period. ( Id. ¶ 7). Ms. Smith explains that because the Earnout Amount was based on the extent to which the Final Capitalized Value exceeded the Purchase Price, if at all, and a higher Net Operating Income would yield a higher Final Capitalized Value, the treatment of the Contingency Fund item as a credit was favorable to Neponset. ( Id.).

Ms. Smith also testifies that she reviewed Mr. Collins' calculations of the Earnout Amount, and determined that he made an error in his calculations. ( Id. ¶¶ 8–9). Specifically, Ms. Smith determined that Mr. Collins included the $83,558 annualized net credit from the Contingency Fund to reduce the amount of total maintenance expenses incurred during the relevant time period. ( Id. ¶ 8). However, he subsequently performed a “below the line” adjustment to NML's operating expenses by subtracting $196,125 in Contingency Fund expenses based on his assessment that such expenses were unreasonable. ( Id.). Ms. Smith opines that Mr. Collins generated the $196,125 figure by taking the sum of the Contingency Fund expenses for the four months of the Earnout Period in which there were expenses in the Contingency Fund, but did not include the two months when the Contingency Fund yielded credits. ( Id.). Thus, according to Ms. Smith, Mr. Collins improperly reduced operating expenses twice—first, when he included the net credit from the Contingency Fund item to reduce the expenses in his calculation, and again when he reduced operating expenses by an additional $196,125 without including the months in which there was a credit. ( See id.). She contends that “Mr. Collins' error yielded incorrect and artificially low operating expenses for the Earnout period, which, in turn, resulted in an illusory alleged Earnout due.” ( Id.). She further asserts that if Mr. Collins' analysis were adjusted to correct the error, his own analysis would show that no Earnout Amount would be due. ( Id. ¶¶ 10–11).

III. DISCUSSION

A. Neponset's Challenge to Ms. Smith's Opinion Testimony

Neponset has moved to strike paragraphs 8 through 11 of Ms. Smith's Affidavit, as well as the 2009 Operating Statement Summary Report attached as Exhibit 3, on the grounds that they contain expert opinion that was never disclosed to Neponset pursuant to Fed.R.Civ.P. 26(a)(2). As described above, Exhibit 3 consists of a spreadsheet summarizing certain of the income and expense figures that are contained in The Dolben Company's 2009 Operating Statement, and showing how Ms. Smith calculated the Final Capitalized Value of the Property for purposes of determining an Earnout Amount. Paragraphs...