Taylor Precision Products, Inc. v. Larimer Group, Inc.

Background

The court’s opinion addressed the parties’ submissions about the amount of damages owed to Taylor Precision Products, Inc. The court relied on its earlier trial findings, in which it found Defendant Metrokane, Inc. liable for breach of contract and found Metrokane, Joel Grossman, and Riki Kane liable for willful misconduct and gross negligence. It also found that Grossman and Kane were unjustly enriched, but ruled that Taylor’s unjust-enrichment claim was duplicative.

The court had previously determined that Taylor proved the existence of damages caused by the defendants’ failure to disclose material changes in Metrokane’s relationships with Walmart and Target. Those nondisclosures caused Taylor to pay an inflated price for Metrokane. The remaining question was how much that price was inflated. Under New York law, contract damages generally place the injured party in the position it would have occupied if the contract had been performed as promised.

The parties’ damages positions

Taylor’s damages calculation at trial was $16.7 million. In its post-trial submission, Taylor requested at least $8.07 million. Its proposed calculation had two components.

First, Taylor calculated the value associated with product stock-keeping units that Walmart and Target dropped from their 2014 awards. Taylor’s expert calculated $593,670 in trailing-twelve-month adjusted earnings before interest, taxes, depreciation, and amortization attributable to those products. Taylor multiplied that amount by the 7.55 purchase-price multiple used in the transaction, producing $4,482,208.50.

Second, Taylor sought additional damages for reduced overall business growth resulting from the contracting Walmart and Target relationships. Taylor’s expert proposed reducing the transaction’s implied earnings multiple based on a possible reduction in expected annual growth. Taylor suggested growth reductions ranging from 0.5% to 2%, producing additional damages ranging from approximately $3.6 million to $12.3 million. Taylor used the 0.5% reduction in its $8.07 million request.

The defendants argued that Taylor had not provided an acceptable, stable, or rational method for calculating damages. They contended that Taylor’s method did not value Metrokane as of the closing date and was instead an improper lost-profits calculation. They also argued that the court had effectively found that Taylor paid the same amount that Metrokane was worth at closing.

Court’s analysis

The court held that Taylor had already proved the fact of damage and declined to reconsider that finding. The court explained that the issue was the amount of the inflated price, not whether an inflated price existed.

New York law requires a plaintiff to provide a reasonable basis for estimating general damages. Mathematical precision is not required, but the calculation must rest on a stable foundation and known reliable factors rather than speculation. The court found that Taylor used a discounted-income approach to value the business. That approach relies on projected cash flows and assumptions about growth, liquidity, and the cost of capital.

The court accepted the first component. Taylor had isolated the effect of the undisclosed information by calculating the adjusted earnings attributable to the lost products and applying the 7.55 purchase-price multiple derived from the original $69.5 million purchase price. The court found that this calculation was directly connected to the concealed information and addressed the value of the business at closing.

The court rejected the second component as speculative. Although it was reasonably certain that Taylor would have lowered its growth expectations if it had known about the lost products, Taylor did not provide a stable basis for determining whether the appropriate growth reduction was 0.5%, 1%, or 2%. The court therefore did not include that component in the award.

Disposition

The court awarded Taylor Precision Products, Inc. $4,482,208.50 in damages. It directed the Clerk of Court to enter judgment for Taylor against the defendants and terminate the case.