Trez Capital Corporation v. Noroton Heights & Company, LLC

Background

The case concerns a November 15, 2019 construction loan agreement between Trez Capital (Florida) Corporation and Noroton Heights & Company, LLC. Trez agreed to lend up to $45,421,114 to develop a shopping center in Darien, Connecticut. It made an initial $5.9 million disbursement but was not required to provide the remaining funds unless Noroton met specified conditions within 90 days. On March 9, 2020, Trez told Noroton that it had not met those conditions and that Trez would make no further disbursements. The parties disputed whether Noroton had satisfied the conditions and whether Trez was required to continue funding.

Trez initially sued for a declaration that it had not breached the loan agreement and did not owe Noroton damages. Noroton later asserted counterclaims. The opinion addressed Trez’s motion in limine, a request made before trial to exclude particular evidence, concerning the expert report and testimony of R. Bruce Gamble, whom Noroton retained to calculate its alleged economic losses.

Gamble’s damages analysis

Gamble used two cash-flow models. The “As Planned” Model estimated the project’s expected results if Trez had fully funded the loan, using pre-pandemic project materials including a Trez underwriting report and a Cushman & Wakefield appraisal. The “Alternative” Model assumed that the project would add a joint-venture partner who would receive at least 50 percent of the project’s benefits, along with adjusted costs for delays allegedly caused by Trez.

The alternative model relied on a term sheet in a third party’s letter of intent. The term sheet was never binding and the proposed joint venture was never completed. Gamble’s model also did not account for changed economic conditions caused by the COVID-19 pandemic or zoning requests by Noroton that appeared to change the project’s fundamental character. Gamble calculated the net present value of the difference between the two models and estimated Noroton’s damages at approximately $14.1 million.

Court’s analysis

The court applied Federal Rule of Evidence 702, which permits qualified expert testimony only when it will help the fact finder, is based on sufficient facts or data, uses reliable methods, and reliably applies those methods to the case. The court also considered New York’s standard for lost-profit damages: the losses must be caused by the breach and proven with reasonable certainty rather than being speculative or caused by other intervening factors.

The court found Gamble’s report unreliable because the alternative model depended on the hypothetical joint venture and its uncertain financial terms. In the court’s view, describing the terms as reasonable based on Gamble’s experience was not enough to support the model. The court also found a gap between Gamble’s analysis and his conclusion that the damages could be proven with reasonable certainty. The analysis did not explain how changes in the project might affect the hypothetical partnership, did not account for pandemic-related economic effects, and did not address the project’s zoning changes.

The court separately held that exclusion was required under Federal Rules of Civil Procedure 26 and 37. Rule 26 required Noroton to disclose its damages calculations and the supporting documents. Noroton’s initial and amended disclosures did not provide a calculation or supporting evidence. Noroton did not disclose the calculation method until it served Gamble’s report on June 21, 2022, after fact discovery had closed on May 10, 2022.

The court applied the factors used to decide whether late-disclosed evidence should be excluded. It found Noroton’s explanation for the delay unsatisfactory, because Noroton did not explain why it waited to engage Gamble or why it failed to produce relevant damages documents during fact discovery. Although the report was important to Noroton’s lost-profits theory, the court found that the report was too flawed to provide admissible support. The court found substantial prejudice to Trez because Trez could not use document requests and depositions during discovery to test Noroton’s damages claim. A continuance was also inappropriate because trial was only weeks away and the parties had already submitted their pretrial materials.

Disposition

Judge Denise Cote granted Trez’s motion to exclude R. Bruce Gamble’s expert report and testimony. The order excluded only that report and testimony. The court stated that it remained possible that other, non-speculative damages—such as costs associated with acquiring a bridge loan—could be proven with reasonable certainty and admitted at trial, and directed the parties to discuss those issues.