Motion_in_limine_1toexcludeanyevidenceorclaimofdamageMotionCal. Super. - 2nd Dist.May 29, 2015Electronically FILED by Superior Court of California, County of Los Angeles on 07/01/2020 02:29 PM Sherri R. Carter, Executive Officer/Clerk of Court, by K. Hung,Deputy Clerk 1 | ALLEN MATKINS LECK GAMBLE MALLORY & NATSIS LLP 2 | ROBERT R. MOORE (BAR NO. 113818) MICHAEL J. BETZ (BAR NO. 196228) 3 | GRAYSON (TREY) MARSHALL III (BAR NO. 280409) Three Embarcadero Center, 12th Floor 4 | San Francisco, CA 94111-4074 Phone: (415) 837-1515 5 | Fax: (415) 837-1516 E-Mail: rmoore@allenmatkins.com 6 mbetz@allenmatkins.com tmarshall@allenmatkins.com 7 Attorneys for Defendants, Cross-Complainants, and 8 || Cross-Defendants MEDLEY CAPITAL CORPORATION; MEDLEY 9 | OPPORTUNITY FUND II LP; MCC ADVISORS LLC; RICHARD CRAYBAS; JAMES FEELEY; CONGRUENT 10 || CREDIT OPPORTUNITIES FUND II, LP; CONGRUENT INVESTMENT PARTNERS, LLC; PRESTON MASSEY; 11 || MAIN STREET CAPITAL CORPORATION 12 SUPERIOR COURT OF THE STATE OF CALIFORNIA 13 FOR THE COUNTY OF LOS ANGELES 14 CENTRAL DISTRICT (STANLEY MOSK COURTHOUSE) 15 [| MOSHE BARKAT and MODERN Case No. BC583437 VIDEOFILM HOLDINGS, LLC, 16 (Consolidated with BC631888) Plaintiffs, 17 NOTICE OF MOTION AND MOTION IN LIMINE VS. NoO.1 To EXCLUDE ANY EVIDENCE OR CLAIM 18 OF DAMAGES MEDLEY CAPITAL CORPORATION, et al., 19 [Filed Concurrently with Supporting Declaration Defendants, of Michael J. Betz] 20 21 Complaint Filed: May 29, 2015 Trial Date: August 11, 2020 22 | AND RELATED CROSS-ACTION AND RELATED CASES. 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP w]= 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP TO ALL PARTIES AND THEIR COUNSEL OF RECORD: PLEASE TAKE NOTICE that on August 11, 2020 at 8:30 a.m. in Department 32 of the above-captioned Court located at 111 N. Hill Street, Los Angeles, California, Defendants, Cross- Complainants, and Cross-Defendants Medley Capital Corporation, Medley Opportunity Fund IT LP, MCC Advisors LLC, Richard Craybas, James Feeley, Congruent Credit Opportunities Fund II, LP, Congruent Investment Partners, LLC, Preston Massey and Main Street Capital Corporation (collectively, "Medley") will and hereby do move in /imine for an Order precluding any evidence, argument, references or questioning regarding Plaintiff's purported damages claim, and also each and every opinion of Plaintiff's expert Robert Walston. This Motion is made on the grounds that Plaintiff's damages claim is wholly speculative, refuted by indisputable and objective financial data, and Walston's opinions violate fundamental requirements as to the reliability of such evidence and testimony. This Motion will be and is based upon this Notice of Motion, the attached Memorandum of Points and Authorities, the Declaration of Michael J. Betz and all exhibits attached thereto, all documents already on file in this action, and upon such further oral and documentary evidence as may be presented at the time of the hearing. Dated: July 1, 2020 ALLEN MATKINS LECK GAMBLE MALLORY & NATSIS LLP By: /s/ Robert R. Moore ROBERT R. MOORE MICHAEL J. BETZ GRAYSON (TREY) MARSHALL III Attorneys for Defendants, Cross- Complainants, and Cross-Defendants MEDLEY CAPITAL CORPORATION; MEDLEY OPPORTUNITY FUND II LP; MCC ADVISORS LLC; RICHARD CRAYBAS; JAMES FEELEY; CONGRUENT CREDIT OPPORTUNITIES FUND II, LP; CONGRUENT INVESTMENT PARTNERS, LLC; PRESTON MASSEY; MAIN STREET CAPITAL CORPORATION =D 1141254.03/SF MoTION IN LIMINE NO. 1 To EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP TABLE OF CONTENTS LL INEEOAUCTION Leicester eee sete sheets eee eb aesa esas eens 7 II. FACTUAL BACKGROUND ......oiiiiiiiiiiitcie cients sates eee sven ens 10 A. MVF's History of INSOLVENCY ......eevuiiiiiiiiiiiieciie cece ee 10 B. Medley Saves MVF from Foreclosure by GE Capital ...........cccoecveeiiiiiinnecnenen. 11 C. MVF Defaults, and Receives Repeated Accommodations and Further Cash Infusions from the Lenders to Stay Alive.......cccoeceeviiiinieniecneennen. 12 D. MVF's Last-Gasp Attempt at a Joint Venture with Technicolor Fails Once Technicolor Discovers the True and Dire Facts ..........cccocveeieeiiiniieennennen. 12 E. MVF Enters First Forbearance Agreement .............ccccoeviivieeieeieeniiienie iee 13 Medley Rescues MVF from OneWest Bank..........ccccooviiiniienieiieeniiinniienie c , 14 G. Medley Appoints New Leadership, Who Ultimately Terminates Barkat co.cc eee sane 15 H. Discovery Responses Related. to DERTADES, sums sms inssnss ss sums ssmsss iusssssis sms 16 LL Barkat's Expert Robert Walston's Unreliable Opinions ........c..cccceveevevienieenenne. 16 I. Walston's "Diffetent" MethoAolomy sme muss msm sissies sammsso s sows 16 2. Walston's $136.6 Million at the time of the Medley Loan........................ 17 3. Walston's $163.6 Million Valuation Based on the TechnICOLOT JV cu s 18 4. Walston's $102 Million Valuation Based on Barkat's "Plan TB vite 5000450855 5 50H 5 5 FS. 5 45.55 SRS ABT 59 SERS ATR 19 HI. ARGUMENT coisas este eae ates estes eee sa ee sees 20 A. THE COURT SHOULD BAR REFERENCE TO BARKAT'S PURPORTED DAMAGES ABSENT PROOF MEDLEY HARMED MVF AND MVF WOULD HAVE OTHERWISE ACHIEVED NET PROFITS CALCULATED BASED ON RELIABLE METHODS LOGICALLY LINKED TO A RELIABLE FOUNDATION ......etii teseee eae sates eee eae sae nees 20 I. A "Perfect Storm" Destroyed MVF, Not Anything Medley VTE cm 00500005505 50.555 5 45.55 SRS AB T5055 SERS AS 21 B. Barkat's Expert Robert Walston's Valuation Opinions Must Be Excluded Under Sargon Because They Lack Reliable Methodology................... 22 I. Walston's Valuations Lack Reliable Methodology ..........ccccoevveeuiennnennnen. 22 -3- 1141254.03/SF Motion In Limine No. 1 To Exclude Any Evidence Or Claim Of Damages 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP 2. Affixing the Label of "Enterprise Value" Does not Save WALSTON... eee eee see eae 24 C. Even if Walston's Valuation Methodology was Reliable, It is Not Logically Linked to the Facts of this Case..........ccceecuieriiiniienieeieeiieieeee c n, 24 IV. ~~ Walston's Underlying Opinions On Which his Valuations are Founded Are Each Speculative, Lack Foundation, and Are Analytically flawed, And Should DE EXCIUAE.....coo ieee 27 1. Walston's "Core-Business" Valuation Must Be Excluded ...........c............ 27 2. Walston's $20-70 Million "DETE" Valuation Must Be EXCIUAEA cee eee eee eee eee eee eee eee eee eee eee aes 27 3. Walston's $30 Million "Additional Capacity" Valuation Must BE EXCIUAEA eeeeee eee eee eee eee ae eeeenes 28 V. Walston's Technicolor and Plan B Valuations Lack Foundation and Must BE EXCIUAEA eveeeee eee eee eee ee eee eee se eae seaeae ae aenenenenes 29 1. There was No Technicolor Joint VENTULE .........ocovveveveiiiiiiiiiiiiiiiiiiiiinenen, 29 B. Walston's "Plan B" Valuation Must Be Excluded Because the Underlying Assumptions are Impermissibly Speculative ...........ccoceveeiiiiennenne. 30 VL CONCLITBIOIN ems sessssnssmssssssnssmenssms eesnes os 6emms e osm isms ess sess sms 32 4- 1141254.03/SF Motion In Limine No. 1 To Exclude Any Evidence Or Claim Of Damages 1 TABLE OF AUTHORITIES 2 Page(s) 3 || Cases 4 | Engalla v. Permanente Medical Group, Inc. (1997) 15 Calidth O51 ...ciuiieeieeeeeee eee see ete ete eee ee sree sree eae 20 5 General Electric Co. v. Joiner 6 (1997) 522 TLS. 136 cee eee see ete sates be see eben 25 7 | Grupe v. Glick (1DA5Y, 2 CIAL 2. BBV cr mw msn smn 5055880505055 509 50 FF 5 AA THEA 85 25 8 Jennings v.Palomar Pomerado Health Sys., Inc., 9 114 Cal. App. 4th T1108 (2003)...cuierieieiieieie eee eters seers ete esses ese seen 27 10 | Kids’ Universe v. In2Labs (2002) 95 Cal. APP.Ath 873... see steerer een 7,21,25 | Kumho Tire Co. v. Carmichael, 12 (1999) 526 U.S. 137, 119 S.Ct. 1167 weeuveeiieeeieieeeieeeeee sees sree sree eae 23 13 | LaMonte v. Sanwa Bank California (1996) 45 Cal. ADT SD rns 5505505555885 510550555550 5350555550 FF 55 AAS 20 14 Nasrawi v. Buck Consultants LLC 15 (2014) 231 Cal. APP.-Ath 328... eters sree sree eae 20 16 || Peralta v. Vons Companies, Inc. (2018) 24 Cal. APP. Sth 1030....ccueeiieieieeeiie etter eters sree sree sees 28 17 Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc. 18 (2017) 2 Cal. 5th S505... eee eben snes 20 19 || San Francisco Print Media Co. v. The Hearst Corp. (O20) Ad Cll, AT. SU DT T50.55 cms cn smn 05 0553885 205055555 550565 5 450 FS SF 8, 25,26 20 Sargon Enterprises, Inc. v. University of Southern California, 21 (2012) 55 Cal. 4th TAT coon e cts ee eres eee erases eae passim 22 || Taylor v. Trimble (2017) 13 Cal. APP. Sth 934... sree sree 2f 23 Statutes 24 Cal. Bus. & Prof. Code § 17200 .......ccuiiiiiieieiie cei eee ees eaae seers eens eens 20 25 Cal Bit, COE § BUTE sn vus 050005505 555055550855. 558500545.5595585, 500500545050, FA FA HT SAA 25 26 Other Authorities 27 Kennon, J. Learn How to Calculate the Enterprise Value of a Company, available at 28 https://www.thebalance.com/calculating-the-enterprise-value-of-a- COMPANY -35T49S oo e ee e eee e eee e ae 24 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP -5- 1141254.03/SF Motion In Limine No. 1 To Exclude Any Evidence Or Claim Of Damages 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP Page(s) Treatises Black et al., Science and the Law in the Wake of Daubert: A New Search for Scientific Knowledge (1998) TZ TER. LalR8Ve TE sun sunsin mame moss on se550 5500550. 5550550 5505555 505535555 S505. 23 Imwinkelried & Faigman, Evidence Code Section 802: The Neglected Key to Rationalizing the California Law of Expert Testimony (2009 42 Loyola L.A. Wc BRET NET mmm, 505 0805, 8.550, 5 T4555 SAS FS 22 -6- 1141254.03/SF Motion In Limine No. 1 To Exclude Any Evidence Or Claim Of Damages 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP MEMORANDUM OF POINTS AND AUTHORITIES I. INTRODUCTION This action arises from Moshe Barkat's fraudulent inducement of Medley to loan $50 million to Modern VideoFilm, Inc. ("MVEF" or the "Company"), Barkat's bankrupt Hollywood post- production company upon whose behalf this shareholder derivative action is purportedly pursued. After decades of Barkat's mismanagement and corporate raiding rendered MVF insolvent and on the verge of bankruptcy, the Medley Loan kept MVF afloat until what Barkat's own expert called a "perfect storm of issues" unrelated to Medley hit MVF. After Barkat failed to right the ship and MVF sunk further into crisis, he was replaced with new management that later terminated his employment for poor performance and malfeasance. Barkat blames MVF's failures on everyone but himself, including the lenders that extended the lifeline temporarily saving MVF. In 2015, Barkat initiated the first of his serial lawsuits no doubt anticipating that Medley would seek recovery of the more than $80 million balance owed on the Medley Loan and for Barkat's fraudulent projections. Barkat's individual claims have all been dismissed, but this repackaged derivative action ostensibly on behalf of MVF (but for which Barkat seeks recover only for himself), and Medley's cross-claims, remain. As he had to, Barkat disclosed an "expert" to opine about his damages. As it turns out, Robert Walston is nothing of the sort. Walston has never testified as an expert, never been asked to be an expert, never held himself out as an expert, and never done expert work of any kind. As explained below, he "valued" MVF without any recognized methodology, all in his head without a report or paper trail of any kind, and he did not review the Loan documents, depositions, or consider MVF's enormous debt in his "valuations." He was recruited to testify by Barkat, with whom he has enjoyed lunches, dinners, cocktails, operas, and Christmas parties over their 27-year friendship. In exchange for $25,000, Walston fantastically valued MVF at up $163.6 million, well beyond even Barkat's wildest dreams when he launched this $100 million lawsuit. Barkat's entire damages theory, founded entirely on Walston's inadmissible and speculative opinions, should be excluded in /limine for at least three reasons. -7- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP First, Barkat cannot prove any act by Medley harmed M VF's prospects of future profits, the recovery of which under California law requires proof with "reasonable certainty" that MVF would have achieved "net pecuniary gain" if not for Medley's actions. Kids’ Universe v. In2Labs (2002) 95 Cal.App.4th 873, 884. Walston ended that theory, conceding that MVF's demise was caused by the "perfect storm of issues’ unrelated to Medley. Specifically, MVF was insolvent, on the brink of foreclosure, massively overleveraged, and had years' of negative net worth when it received the Medley Loan, and its financial condition only worsened thereafter while still under Barkat's exclusive control when the "perfect storm" hit: Warner Brothers took important work in-house, key employees left, and MVF expanded into a new facility it could not afford. The "perfect storm" doomed MVF, and it had nothing to do with Medley, according to Barkat's own expert. Second (and/or Third), Walston's "opinions" upon which Barkat's damages claim rests must be excluded under this Court's gatekeeping function articulated in Sargon Enterprises, Inc. v. University of Southern California, 55 Cal. 4th 747 (2012). Sargon teaches that an expert opinion must be based on a reliable methodology (i.e., income approach, market value approach, comparable sales) logically linked to a reliable foundation (i.e. case-specific facts). Walston does not even have a methodology, and certainly did not base his opinions on the facts of this case. Walston's approach for valuing MVF (using outdated and inaccurate projection and guessing at future business) is, in his words, "different." He considered no balance sheets, comparable businesses, or any data resembling the hallmark of an expert analysis. It was done all "in his head": no spreadsheets, formulas, and not even a "back of the napkin" analysis—"There's no napkin." (Ex. 1, Walston Depo. 96:6-11 and 175:23-25"). His unwritten "methodology" is not recognized in any treatise or article, and has never been accepted in any courtroom. Walston simply did what his friend Barkat asked him to do. In an astounding concession, Walston called the projections upon which his opinions rest "speculative." (Walston Depo. at 220.) Without a reliable methodology, Walston's opinions must be excluded. I Exhibits are attached to the Declaration of Michael J. Betz in support of this Motion. -8- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP Third, Walston's speculative opinions suffer the same flaw as the expert in Sargon: there is no foundation for the opinions based on the case-specific facts. The only numbers Walston's valuations looked at were financial projections provided eight years ago by Barkat that proved grossly wrong. Whether those projections were fraudulent or grossly incompetent will be resolved in the next phase of this bifurcated trial, but they are undisputedly not the facts of this case. Worse, on the back of the inaccurate and outdated projections, Walston pretended that two "perfect storm" issues — work that Warner Brothers took in house, and an expensive new facility that MVF could not afford — were not fatal to MVF (as Walston and MVF's former CFO admitted), but were instead wildly profitable. Indeed, Walston's approach to any fact fatal to his "valuations" was to simply ignore them. Walston's speculation with respect to these two factors are classic "what if" assumptions not logically linked to actual facts that are barred by Sargon. 55 Cal. 4th at 781 ("World history is replete with fascinating 'what ifs."") In sum, Barkat's farcical damages theory lacks a reliable methodology logically linked to a foundation tethered to reality. Sargon and its progeny, most recently San Francisco Print Media Co. v. The Hearst Corp. (2020) 44 Cal. App. 5th 952, emphasize the court's role to act as gatekeeper under Evidence Code Sections 801 and 802 to exclude speculative expert testimony before it is allowed at trial. Walston's opinions are unreliable and must be excluded. Without these opinions, Barkat has no evidence to pursue damages, which ends this derivative case. If, however, the Court declines to bar Barkat's damages theory entirely, the Court should alternatively exercise its gatekeeping function to exclude the following unreliable opinions underpinning Walston's valuations: 1. Walston's "Core-Business" valuation (and the three valuations that rely on this valuation) must be excluded because it is founded entirely on unreliable projections that are eight years old, and proven wrong; 2. Walston's $20-70 million "DETE"? valuation (and the three valuations that rely on this valuation) must be excluded because Warner Brothers took DETE revenue in-house, a 2 "DETE" stands for Digital End to End, technology digital distribution that MVF licensed from Warner Brothers, which Warner Brothers subsequently took in-house. -9- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP financial catastrophe for MVF according to all parties, and Walston had no basis to believe it would return; 3. Walston's $30 million "if you build it they will come" value placed on MVF's expensive facility it could not afford must be excluded (along with the three valuations that rely on this valuation) because there is no demonstrable basis to believe that the expensive facility was useable. More importantly, and this is not a projection: nobody came. Finally, the Court should exclude the two Walston valuations based on events that never happened: a joint-venture with Technicolor, and Barkat's "Plan B" presented to new management just before he was terminated. These valuations are impermissibly speculative, and should be excluded: there was no joint-venture because Technicolor walked away upon seeing MVF's true and dire financial state, and "Plan B" was a pie-in-sky theory that was dead on arrival to MVF's new management, based on assumptions that Barkat could not deliver. Walston did not critically analyze "Plan B", did not do projections, apply a methodology, or anything an expert might do — he took it at face value, in his words, "speculating" and "guessing" that Barkat could deliver. For all of these reasons, as further set forth below, Robert Walston's expert opinions must be excluded, which exclusion is the death knell to Barkat's damages theory. Alternatively, each of the underpinnings for Walston's opinions upon which the lost profits theory is founded should be independently excluded. IL FACTUAL BACKGROUND A. MVE's History of Insolvency Contrary to the facade Barkat put on to outsiders (such as his friend and "expert" Robert Walston), MVF has been saddled with debt and in serial default to its lenders for the past 20 years. According to MVF's sole director, it was an insolvent business enterprise since at least 2008. (Ex. 2 Grobstein MSJ Decl. § 18) Ex. 3, MVF Adversary FAC).) Due to Barkat's managerial incompetence and profligate spending, "by 2010 MVF had incurred approximately fifty million in cumulative operating losses and its accrued liabilities were more than twice its assets." (/d., Grobstein Decl. 920.) "The figures in the table below, taken from MVF's balance sheets, confirm that MVF's -10- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 || 4 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP liabilities substantially exceeded its assets" before, at the time of, and after the September 2012 Medley Loan, throughout the year-and-a-half that Barkat remained in exclusive control of MVF, and also after Barkat was removed from his position at MVF: (Ex. 2, Grobstein Decl § 21; Ex. 4, BDO Depo. Exs. 2, 3, 4, 5, 6 and 25 (Audited MVF Financial Records; Ex. 1, Walston Depo. 182:21-183:18).) MVF's negative net worth was always in the tens of millions, and just before Barkat's termination the company had lost $15 million year-over-year. (Ex. 4, BDO Depo. pp. 40:15-42:3; 81:20-23; 83:11-85:20, Exs. 2, 3, 4, 5, 6, 25.) By any measure — be it a balance sheet or cash flow* perspective — MVF was insolvent at all relevant times to this litigation, and specifically, at every point Barkat's expert purports to opine as to MVF's value. B. Medley Saves MVF from Foreclosure by GE Capital Since 1998, MVF had been heavily indebted, and repeatedly in default, with its primarily lender, GE Capital Corporation. Even Barkat's right-hand man Hugh Miller admitted, even back when he joined in 2001, that MVF "had too much debt" and could not afford to pay GE back. (Ex. 5, Miller Depo. at 31.) In 2012, Barkat approached 50 potential lenders, including Medley, to refinance MVF's existing $80 million debt. (FAC § 45; Ex. 2, Grob. Decl. § 29; Ex. 6, EFA 000001716.) MVF was incurring default penalty interest, and GE was threatening bankruptcy. (See Ex 7; October 1, 2010 Termination Notice from GE Capital re: default and acceleration of loan; July 30, 2012 email from S. Aronson of GE to EFA Partners: ("GE is open (as it has been for many years) to negotiating a solution that avoids the issues associated with bankruptcy filings.").) 3 Without the $30 million write-off by GE, this figure would have exceeded $100 million. blogs.hardard.edu/bankruptcyroundtable/tag/cash-flow-insolvency-test -11- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP Medley's $50 million offer blew away the field — "all of the groups we approached either passed on the opportunity or provided proposals less than $40 Million." (Ex. 8, EFA Bates 2729.) GE, who knew MVF's finances better than anyone, forgave more than $30 Million in connection with the financing. (Ex. 2, Grob. Decl. § 30, Ex. 2, p. 58, n. 6.) GE's write-off is the financial high point in MVF's history, as MVF's auditor noted, "the Company has recorded as an extraordinary gain on the Statement of Operations for the 2013 fiscal year." (Ex. 4, BDO Audit Report FY 2012, at Dep. Ex. 5, p.12.) To induce the Medley's offer, Barkat provided a series of fraudulent financial projections that proved immediately, and drastically, inaccurate. Egregiously, MVF's Fiscal Year ends in June, and thus by the time of the Medley Loan in September 2012, Barkat had a quarter of financial results and knew the projections were off. Barkat's EBITDA and revenue projections for Fiscal Years 2013 and 2014 were not close to the ball park: Barkat Actual Variance Projection Results FY 2013 Revenue $80 M $64 M 20% FY 2013 EBITDA $14 M $3 M 79% FY 2014 Revenue $85 M $51M 40% FY 2014 EBITDA $17 M $-$1M 100% (Compare Ex. 9, Medley Nov. 2012 Investor Presentation, "Management Case: Historical & Projected Income Statement" [MED005578] with Audited Financials at Ex. 4, Depo Exs. 6 and 25.) The above projection column — proven inaccurate by the actual results column — is the core of Barkat's wildly speculative damages claims in this case. Duped by Barkat's fraudulent projections, Medley loaned MVF $50 million. C. MVE Defaults, and Receives Repeated Accommodations and Further Cash Infusions from the Lenders to Stay Alive Within a month of the Medley Loan, MVF was in default. (Grob. Decl. 433.) MVF only ever made one principal payment on the Medley Loan. MVF was overleveraged, and its financial goals were to make rent and payroll — paying lenders and vendors were third and fourth priorities, and making a profit was not even in the picture. (See Exs. 10 and 11; 11/13/13 and 12/2/13 Hugh Miller -12- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP emails related to payroll and rent.) Given its overleveraged position, MVF's downfall was hastened between 2012 and 2014 due to what Mr. Barkat's expert termed a "perfect storm of issues": the decline of the physical duplication business, MVF's historical bread and butter (Ex. 1, Deposition of Robert Walston at 107:14-15 and 108:14-23); combined with 1) the in-housing of Digital End to End ("DETE") work by Warner Brothers and others (143:19-144:2); 2) the loss of key employees, and 3) MVF's simultaneous move to a large new location with "a lot of higher cost structure." (/d. at 146:19-20.) D. MVEF's Last-Gasp Attempt at a Joint Venture with Technicolor Fails Once Technicolor Discovers the True and Dire Facts As MVF's revenue rapidly declined, Medley patiently gave Barkat and his management team opportunities to present and execute turnaround plans. None worked. One plan was the mythical Technicolor Joint Venture, which Barkat claims would have been wildly profitable. The Technicolor JV is like the fish you caught when nobody was watching, or the bear encountered while hiking, or a fine wine — it gets bigger and better with time. In November 2013, just before Technicolor walked away from the negotiating table, MVF's internal discussions were far from rosy. Hugh Miller railed against the potential JV, emailing Barkat, in CAPS, "We are going into this deal BLIND! This is not the first time you have done this so please don't make the same mistake." (Ex. 12, 11/16/13 Email from Hugh Miller, Bates MVF040934). MVF was not worried about Medley, but another lender, OneWest Bank: "OWB will NOT be happy with the JV deal... OWB will freeze our Revolver and if they want to preserve their collateral they will probably grab the deposits out of our bank account. If this happens MVF will be immediately out of business." ld. The reason Technicolor negotiations lasted as long as they did, without even a signed term sheet, is that Barkat withheld key information from Technicolor: the Medley Loan documents, MVF's Loan default, the fact that MVF was not paying interest and Medley was injecting cash to keep MVF alive, the existence of multiple IRS audits into MVF's questionable accounting treatment of Barkat's $3.6 million in personal loans, and MVEF's actual, and dismal, 2013 financial -13- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP performance. (See 11/16/13 Miller Email; See also Ex. 13, Technicolor Depo. at 43:1-7, 44:1-45:25, 48:6-11; Ex. 14, July 12, 2013 Email from E. Epstein to Simon Hunter (Bates TECHNICOLOR 02717).) Once Technicolor saw MVF's "grave financial state," and saw it would need to inject far too much cash to keep the venture afloat, Technicolor backed away from the deal. (Wappet Depo. at 20:6-21:22, 85:13-14; Ex. 15, Feb 12, 2014 Project M Status Update, Executive Summary 2/2.) Four days after receiving MVF's audited financials, Technicolor wrote: "based on our due diligence review in connection with the proposed joint venture, we will no longer be able to proceed with the transaction." (Ex. 16, February 14, 2014 Email [MVF-040022].) After the joint-venture failed, Technicolor closed the division that it would have contributed, which was not profitable and trivial to its overall business. (Wappet Depo. 32:2-6 and 82:7-13.) E. MVF Enters First Forbearance Agreement As MVF proved unable to correct its downward trajectory, pressure mounted to pay outstanding vendor bills. As one consultant noted in an April 10, 2014 Cash Flow Analysis, "The Company is experiencing a liquidity crisis due to the cumulative effect of operating losses from declining revenue and the stoppage of working capital advances..." (Ex. 17, Kibel Green Analysis). The "liquidity crisis" had caused MVF to have past due accounts payable of roughly $1.8 million related to critical operating expenses, which needed to be paid to "stabilize the Company and maintain viability according to Management." 1d. MVF Director Grobstein concurred that MVF was "unable to pay its accruing payables and debts as they became due" and had "unreasonably small" capital and assets to continue operating its business. (Grob. Decl. § 45.) Vendors were fed up and peppered MVF with demands for payment: "I am not in a position to support the account without payment. As you know the license and support is 6 months past due." (Ex. 18, 5/23/2014 email from CIVOLUTION to Miller (Bates MVF 054905; 5/5/2014 email from ARRI Inc. to Miller (Bates MVF 054901) ("We have two invoices past due. Invoice 213162 in the amount of $19,800.00 which was due in Jan and invoice 213163 in the amount of $19,800.00 which was due in April. These invoices are for your service contract. Please let me know the status of payment. If these invoices are not paid we will not be able to honor your -14- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP contract."). MVF, in turn, was begging vendors to cut their bills. "Is there any way we can work out a reduced fee on these invoices so I can get them paid faster?" (Ex. 19, 5/27/2014 email from Miller to CohnReznick, Bates MVF 054899). Desperate for cash, MVF and Medley entered into a Forbearance Agreement dated May 27, 2014. The Forbearance Agreement gave MVF a final chance to restructure, and provided notice that failure to comply with its terms would likely result in Medley exercising its rights and remedies to protect its investment. To aid MVF in satisfying its Forbearance Agreement obligations, and pay overdue vendors, Medley funded an additional $1,662,618. F. Medley Rescues MVF from OneWest Bank After the Forbearance Agreement expired, given MVF's increasingly dire financial situation, OneWest Bank became extremely nervous about its $3.5 Million revolving loan to MVF. Ironically, the $3.5 Million owed to OneWest is nearly the precise amount Barkat had taken from the company in "loans" over the years. Medley pleaded with OneWest, on MVF's behalf, to forbear from exercising their rights for another month, but OneWest refused. On July 1, 2014, OneWest swept MVF's accounts. At the time One West swept the accounts, MVF had approximately $700,000 outstanding in checks, including for its rent payment. As they had done before, and would do again, the lenders rescued MVF with a $3.5 Million Loan. Without Medley's bailout, MVF would have ceased operations immediately. G. Medley Appoints New Leadership, Who Ultimately Terminates Barkat Medley's concluded Medley Loan had no chance of being repaid under MVF's current trajectory. On July 1, 2014, Medley sent Barkat a letter invoking its proxy rights to install a new board of directors at MVF and provide for new management. Months later, in September 2014, new management terminated Barkat's employment, in large part for well documented reasons related to his performance and misuse of company funds. As MVF Director Charles Sweet explained new management's decision: A. Sure. Mr. Avila and I spoke frequently, multiple times a week, sometimes multiple times a day, about the progress or lack of progress or issues, etc. It became pretty evident very early on that Moshe was not being -- was not being helpful in the efforts to build a restructuring plan and to work with the -15- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP team and with the chief restructuring officer, and so concerns began to mount early and I heard frequently from Scott about those concerns; and that went on for a couple of months. Q. What specific concerns do you recall hearing from Mr. Avila? A. Well, the ones that stick out in my mind, Mr. Barkat was aware that we were developing a restructuring plan and that we had actually asked him to stay on to participate in that effort. He was told up front not to conduct any business outside of the ordinary course of business and yet he developed on his own a restructuring plan separate from the restructuring plan that was in the works and approached the lenders with that plan in the hopes of moving on in a different direction. So that was one instance that I found very concerning. The other was that the management team appeared to be getting signals from Moshe that they should not cooperate, that they should simply wait because Deloitte was not going to survive and he would again be at the helm. Then finally, we as part of the Deloitte effort had contracted with an outside firm called ManagEase to come in and look at our policies and procedures. They did a pretty extensive review, as I recall, and the outcomes of that were horrific, to say the least, some 70 percent failures. And they advised in their report that the company had significant liability risk as a result of lack of these procedures, all of which had been communicated at one point or another as being sound or adequate. (Ex. 20, Charles Sweet Depo., April 12, 2018, 25:16-27:13.) Setting new management's valid reasons aside, and focusing on MVF's financial performance, MVF needed a new direction: in the two years preceding Mr. Barkat's termination, MVF revenue had declined by over $23 million (31%) and its EBITDA had gone negative. In the eight months preceding Barkat's termination, MVF had not had a single month with positive operating profit (let alone its enormous debt). H. Discovery Responses Related to Damages In discovery in this case, Medley asked Plaintiffs repeatedly what evidence supported the claim that MVF was worth $50 or $75 million or $100 Million at various points in time throughout this case: September 2012 (time of Medley Loan); September 2013 (during Technicolor negotiations); February 13 and 15, 2014 (the days before and after Technicolor walked away). (Ex. 21, Responses to Special Interrogatories Nos. 11-15.) Plaintiffs objected that the requests "improperly seeks premature expert discovery," and Plaintiff provided no substantive response but "reserves its right to present this evidence at trial through expert testimony." (/d.) And when Medley asked for all facts supporting Holdings' claim MVF was worth $100 Million, Holdings again -16- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP provided the same objections, adding that it had many "brand-name clients" and pointed to only the inaccurate projections, such as Medley's 2012 pre-deal valuations. (/d., Response to Special Interrogatory No. 23). Based on these responses, the only way Barkat can pursue damages in this case is through expert testimony. I. Barkat's Expert Robert Walston's Unreliable Opinions Barkat's expert Robert Walton seeks to offer wildly speculative opinions of MVF's value at three points in time during MVF's above-documented financial collapse: the September 2012 Medley Loan; in 2013, if the Technicolor Joint-Venture was consummated; and in September 2014, when Barkat was terminated. (See Walston Depo, Ex. 2.) 1. Walston's "Different" Methodology Walston's "valuations" are not based on any recognized methodology: no article, treatise, or writing of any kind recognizes his "calculations" as an accepted methodology for valuing a company. (Ex. 1, Walston Depo. at 99:21-100:3.) Walston termed his approach "different," and he made it up all "in his head." (Id. 175:21-25.) Mr. Walston did not prepare any spreadsheets or worksheets to describe how he arrived at his several nine figure valuations. (Id. 98:9-11.) He did not even do a "back of the napkin" analysis, stating his way "[d]oesn't need to be" in writing. (Id. 97:24-98:2.) While inexperience testifying is not reason itself to exclude Walston, his cavalier and unrecognized methods are more alarming given that he has never been an expert witness before. (Depo. at 66:21-25.) Walston has never held himself out as an expert (67:1-3); never been asked be an expert (67:4-6), and never done any expert work of any kind. (/d. 69:2-5 and 103:7-9). He made several wild claims to prove that he is not an expert, for example, his repeated claim that negative net worth has no impact on business value. (/d. at 184, 197-198, 228-229). Walston is, however, a friend of Barkat's. (Id. at 69:10-21.) Barkat recruited him to testify, in exchange for $25,000, half of which is contingent upon his trial testimony. (Ex. 1, Walston Depo. at 102:1-6, 21-23.) Under the circumstances, it is a surprise Walston did not peg MVF's value in the billions. -17- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP 2. Walston's $136.6 Million at the time of the Medley Loan Once again, in 2012, MVF approached fifty potential parties, none of whom valued the company anywhere near as high as Medley at the time, based on their review of Barkat's wildly inaccurate projections. Walston did not consider those valuations, but relied on the same inaccurate data from Barkat, to come in more than $50 million higher than Medley despite the benefit of 20/20 hindsight. Specifically, Walston's $136.6 million "valuation" for MVF at the time of the Medley Loan in September 2012 was based on 3 purely arbitrary factors: (1) accepting the lender's pre-deal analysis that MVF was worth $80 million at (which analysis was based the Barkat's fraudulent projections); (2) the "assumption" that DETE work was worth $20 Million (while ignoring that Medley's $80 million valuation already included DETE revenue and ignoring that MVF's actual DETE revenue was soon $0); and (3) the "assumption" that expensive expanded facilities would lead to more work — "incremental value" in Walston's words — which he ball-parked at $30 million. (Walston Depo. at 158:4-16, 159:1-5, 161:7-15, and 166:2-6.) When asked how 80 plus 30 plus 20 (which equals 130) lead to the more precise $136.6 million valuation, Walston answered: "I rounded." (Id. 167:18-25.) How precise. Worse than his fuzzy math, Walston's valuation ignored any fact that was bad for MVF that would be relevant to any business valuation, including MVF's enormous debt, actual financial performance; and the fact that GE agreed to take a $30 million haircut, just so it could get paid back something. Walston acknowledged trouble in the industry, and testified it is not unusual for businesses like MVF to just cease to exist due to changes in the evolving industry (the switch from physical to data, talent leaving, consolidation of studios, and competition). (Walston Depo 109- 112.) But then Walston inexplicably refused to consider the "perfect storm" of issues, unrelated to Medley, that caused MVF's demise when he valued MVF. (Walston Depo. at pp. 143-147.) 3. Walston's $163.6 Million Valuation Based on the Technicolor JV Walston's $163.6 million valuation, based on the purported Technicolor deal, is more speculative than his first valuation. -18- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP As a starting point, Walston's conclusion Medley interfered the joint-venture comes out of thin air: Walston did not even read Technicolor's person most knowledgeable deposition, nor did he see the related correspondence or ultimate internal Technicolor presentation, after which it elected to walk away upon seeing MVF's true financial status. From there, Walston used the same three arbitrary factors to value the company, again all in his head. (Ex. 1, Walston Depo. at 251:10-13.) Then, based on what he read in an unsigned term sheet, Walston concluded the Joint-Venture would yield over $100 Million of additional revenue. (Id. 12:2-15 and 245:16-19.) The core of this enormous increase was revenue that he claimed DETE work would provide. Walston glowed about DETE, which had been pure profit for MVF, but admitted "DETE is going so well that Warner Bros. without -- without warning decides to bring the work that they're giving Moshe back into their own system because they increased the capacity of their own system." (Id. 143:19-23.) As a result, MVF actually had $0 in DETE revenue at the time of the JV. Walston, however, pretended DETE still existed and added $50 million more to his valuation. When asked how the $20 Million from DETE went to $70 million in his world, while it ceased to exist in the real world, Walston answered: "Expansion of Opportunity." (Id. 244:11). What? Walston's Technicolor valuation again ignores every fact that was bad for MVF's value: e MVF'sactual FY 2013 results (i.e., collapse in revenue and only $3 million EBITDA) e MVF's actual DETE revenues ($0) e MVF's enormous debt load (approaching $80 million) e MVF's Loan default status (to GE, Medley, or OneWest Bank) and liquidity crisis, and how it impacted the joint-venture negotiations; and e the testimony from Technicolor's person most qualified regarding why the Joint- Venture failed (MVF was a financial disaster). 4. Walston's $102 Million Valuation Based on Barkat's "Plan B" In his third valuation, Mr. Walston claims MVF was worth $102 million at the time new management terminated Barkat, if new management had just supported Barkat's "Plan B." -19- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP Walston claims without analysis that "Plan B" was the path back to where MVF had been (decades of negative net worth and surviving on loans). Barkat's "Plan B" included a reduction in Barkat's enormous salary (decades too late), terminating more employees, and two wild assumptions: a 50% rent reduction, and convincing Warner Brothers to outsource the DETE work it took in-house. (Walston Depo. at 267.) Walston "assumed" Barkat had a plan for a second building lease, that the landlord on the new expensive facility would accept a 50% rent reduction, and that vendors would agree to discounts or an accounts payable plan. (/d. at 283, 285, 290.) And it almost goes without saying, Plan B did not contemplate paying back the Medley Loan — Barkat's plan in that regard was almost assuredly the same as with GE — Medley could infuse more cash for a few decades without loan repayment, and then take a haircut in the tens of millions as part of a refinancing down the road. As with his prior valuations, Walston valued "Plan B" in his head, too. (Id. 271:8-11. "[I]s there any piece of paper that describes how you come up — came up with $102 million? A- No".) Walston used the same three arbitrary factors, but lowered the value of the "core business" because of "down performance over the last few years." Walston continued to value non-existent DETE work ($20 million) and expanded facilities ($30 million). Again, absent from his analysis is recognition of what actually happened to MVF in 2014: operating losses every single month, negative EBITDA; MVF closed 3 out of 5 operating locations; MVF laid off hundreds of staff; and MVF proved unable to cover payroll, pay rent, or pay its vendors without further infusions from Medley. (Hugh Miller Depo. at 109-11). In accepting "Plan B" as a valid path with blind faith that Barkat could deliver his proposals, Walston did not consider whether "Plan B" was viable or not, but just accepted it at face value. Had he read Hugh Miller's deposition, he would know that attempts to renegotiate leases were met with a resounding "No!" (Hugh Miller Depo at 316.) Walston, further, could not even say who decided not to pursue Plan B. (Walston Depo. at 269:14-16.) Had he read the testimony of Cooper Crouse or Charles Sweet, or talked to Scott Avila about why they did not accept "Plan B", he would have learned new management decided it was just another of many pie-in-the sky plans based on speculative assumptions that -20- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP Barkat could not deliver. (Sweet Depo. at 128, 187:15-18 (from the "evidence that I saw, Barkat was unsuccessful at meeting his projections repeatedly.").) III. ARGUMENT A. THE COURT SHOULD BAR REFERENCE TO BARKAT'S PURPORTED DAMAGES ABSENT PROOF MEDLEY HARMED MVF AND MVF WOULD HAVE OTHERWISE ACHIEVED NET PROFITS CALCULATED BASED ON _ RELIABLE METHODS LOGICALLY LINKED TO A RELIABLE FOUNDATION To obtain damages on any of his claims in the First Amended Complaint, Barkat must prove MVF suffered lost profits due to Medley's allegedly improper acts.’ Barkat made clear in discovery that his claim for damages rested solely on expert testimony. Barkat's expert Robert Walston's testimony, however, is not admissible. The opinions of Robert Walston must all be excluded, and Barkat barred from pursuing damages, because: 1) Barkat cannot pursue lost profits without showing Medley caused MVF not to achieve "net pecuniary" gain, which he cannot do because Walston conceded MVF's demise was caused by a "perfect storm" of issues unrelated to Medley that crushed the insolvent and over-levered company; 2) the expert opinion upon which the damages are based is not based on a recognized and reliable methodology, and therefore must be excluded; and 3) even if the methodology were reliable, it is not logically linked to a foundation rooted in the facts of this case. For any of these independent reasons, Barkat's damages theory is untenable, and the expert testimony upon which it is based must be excluded. 1. A "Perfect Storm" Destroyed MVF, Not Anything Medley Did Before even reaching the unsound expert "valuations" underpinning this case, Barkat cannot pursue damages because he cannot prove any act by Medley harmed MVF. 5 (1) breach of fiduciary duty (see, e.g., LaMonte v. Sanwa Bank California (1996) 45 Cal.App.4th 509, 517); (2) aiding and abetting breach of fiduciary duty (see, e.g., Nasrawi v. Buck Consultants LLC (2014) 231 Cal.App.4th 328, 343); (3) breach of the implied covenant of good faith and fair dealing; (4) intentional interference with prospective economic advantage (see, e.g., Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc. (2017) 2 Cal.5th 505, 512); and (5) fraud (see, e.g., Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 974). The cause of action for violations of Business & Professions Code section 17200 is derivative of the other claims 21- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP California law requires proof with "reasonable certainty" that MVF would have achieved "net pecuniary gain" if not for Medley's actions. Kids" Universe v. In2Labs (2002) 95 Cal. App.4th 873, 884. Barkat cannot do so because his expert Robert Walston conceded that MV F's demise was caused by a "perfect storm of issues" unrelated to Medley. (146:7-147:10 and 313:8-19.) Specifically, at a time when the entire physical tape duplication business was declining, and MVF was massively overleveraged and struggling to make payroll, with "accumulated deficits" in the tens of millions, three things happened that ended MVF: 1) Warner Brothers took the DETE work in- house, 2) several key employees left MVF for better opportunities, and 3) MVF simultaneously expanded — a "big move into new location with a lot higher cost structure." (Walston Depo., 146:7- 147:10 and 226:18-25.) In Walston's own words: Q. ... The perfect storm financial issues that affected MVF between 2012 and 2015 include, one, the DETE work being moved in-house to Warner Bros.; and, two, people leaving because of market conditions; is that correct? That's correct. Q. Any other perfect storm issues that affected MVF finances during this time period? A. A big move into new location with a lot higher cost structure. So the loss of the creative team and the additional work from Warner Bros. on a much bigger cost structure put -- I mean, I think the real estate cost sig- -- you know Q. Got it. A. -- more than doubled or maybe even tripled, so looking at now a much larger footprint, much larger facility, much more capacity and that's not covering overhead -- Q. You -- -- as well. Q. You listed three issues that affected MVF performance: One, DETE; two, people leaving; three, increased space. Anything else or are those -- A. Those are the principal ones. (Id 146:7-147:10.) As Walston conceded, once again, the perfect storm happened at a time when MVF had losses in the millions: 99. 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP Q. That was all -- That was during a time frame before the perfect storm and during the perfect storm; correct? Yes. Q. So even before the perfect storm, MVF had losses in the tens of millions? A. They -- Yes. They had accumulated deficits. (Ex. 1, Robert T. Walston Depo., February 13, 2020, 226:18-25.) He further confirmed the "perfect storm" happened when Barkat was in full control of the company, and had nothing to do with the lenders. (/d. at 227:1-3.) Because MVF collapsed due to a "perfect storm" unrelated to Medley, there are no damages in this case to pursue. B. Barkat's Expert Robert Walston's Valuation Opinions Must Be Excluded Under Sargon Because They Lack Reliable Methodology Mr. Walston's opinions, valuing MVF at three points in time, are based on an unrecognized and unreliable methodology. They therefore be excluded under Evidence Code 801, 802 and Sargon. 1. Walston's Valuations Lack Reliable Methodology Citing Evidence Code Section 801, the Supreme Court confirmed in Sargon that "the trial court acts as a gatekeeper to exclude speculative expert testimony and may exclude testimony if it is not based upon the type of material an expert in the field would reasonably rely." (Id. at 770.) The Supreme Court explained the Court's gatekeeping role: [The Court] conducts a "circumscribed inquiry" to "determine whether. as a matter of logic, the studies and other information cited bv experts adequately support the conclusion that the expert's general theory or technique is valid." (Imwinkelried & Faigman. Evidence Code Section 802: The Neglected Key to Rationalizing the California Law of Expert Testimony (2009 42 Lovola L.A. L.Rev. 427). at p. 449.) The goal of trial court gatekeeping is simply to exclude "clearly invalid and unreliable" expert opinion. (Black et al., Science and the Law in the Wake of Daubert: A New Search for Scientific Knowledge (1994) 72 Tex. L.Rev. 715. 788.) In short, the gatekeeper's role "is to make certain that an expert, whether basing testimony upon professional studies or personal experience, employs in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in the relevant field." (Kumho Tire Co. v. Carmichael (1999) 526 U.S. 137,152, 119 S.Ct. 1167.) (Sargon, 55 Cal. 4th at 772.) 23. 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP In Sargon, the expert at least started with a generally accepted valuation theory, but then failed to logically link the method to the case. In this case, Walston did not provide any "studies and other information" to support his "general theory or technique." (Sargon at 772.) Rather, without any prior experience valuing a company for litigation, Walston performed an unrecognized "analysis" all in "his head": not a single document, spreadsheet, formula, paper, or even napkin to support what he made up. (Walston Depo at 174-175.) When pressed regarding his opinions, he conceded his opinions and their underpinnings were "speculative." (Id. at 220-221.) Walston's "different" analysis is not recognized in any treatise, lecture, or other material as a way to value a company for any reason, let alone to calculate damages in litigation. And his "different" way of doing it is an alarmingly unsound way to purportedly value a business. Specifically, Walston combined three purely arbitrary factors that enabled him to value MVF, in the words of the Sargon Court, "wildly beyond" anything Barkat ever dreamed when he launched this lawsuit: 1) outdated and incorrect projections that he deemed "realistic" in 2012, even if they were not "realized" (215:21-216:13, 216:22-217:2); 2) the "assumption" that DETE work taken in-house by Warner Brothers would return and be worth $20 million-$70 million; and 3) the "assumption" the expensive new facility that MVF could not afford would one day be filled and be a $30 million asset. His "different" method of valuing MVF ignores literally ever factor that any recognized method for valuing a business would consider: MVF's negative net worth, always in the tens of millions for a decade (228:13-15); MVF's enormous debt, which amount Walston does not know, but is above $80 million (123:15-124:11); MVF's inability to pay vendors, employees, or rent; MVF's decades of Loan defaults with GE, Medley, and One West Bank (228:16-18, 230:16- 231:2); MVF's well-documented Human Resources failures (116:12-20), the IRS Audit into Barkat's $3.6 million in "loans", all combined with a rapidly changing industry where Walston acknowledged businesses like MVF often simply cease to exist. Most alarmingly, Walston conceded that any true valuation of MVF's business would considerdebt. (Id. 126:4-127:5.) 6 Barkat makes a big deal of Medley's pre-closing analysis, but that analysis was based on Barkat's fraudulent manipulation of the financial records. As importantly, those records are contradicted by MVF's actual performance, as even Walston conceded. (Walston Depo. at 216-217.) 24- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP Walston's methodology supplants the facts relevant to MVF's value with "what ifs" that do not exist. His methods are unrecognized and unreliable and the resulting opinions must be excluded. Zs Affixing the Label of "Enterprise Value" Does not Save Walston Walston labels his approach "enterprise valuation," which is a concept that exists but is not recognized in any California Court as a valid method for calculating lost profits. But even if "enterprise valuation" was an accepted method, what Walston did was not an "enterprise valuation." An "enterprise valuation," as Walston concedes (Depo. at 127), is calculated by "adding a corporation's market capitalization, preferred stock, and outstanding debt together and then subtracting out the cash and cash equivalents found on the balance sheet." See Kennon, J. Learn How to Calculate the Enterprise Value of a Company, available at https://www.thebalance.com/calculating-the-enterprise-value-of-a-company-357495. Mr. Walston's valuations contained none of those attributes (e.g., adding market capitalization, preferred stock, outstanding debt and subtracting cash). (Walston Depo. at 124-125.) Walston's method does not remotely follow the formula, but instead chooses three arbitrary factors to make MVF look good, while ignoring a mountain of evidence that proves MVF was not valuable at all. Walston did not calculate enterprise value, even if that were an admissible method for calculating lost profits in this case. Indeed, Walston even conceded that he would need to consider debt to truly value the company. (Walston Depo. 127). His methodology is not reliable and his opinions must be excluded. C. Even if Walston's Valuation Methodology was Reliable, It is Not Logically Linked to the Facts of this Case Even if Mr. Walston exercised a recognized methodology, his opinions are an impermissible leap in logic because his conclusions are not based on a foundation rooted in the facts of this case. In Sargon, a "small dental implant company" with "net profits of $101,000" sued a university for breach of contract, claiming lost profits damages "ranging from $200 million to over $1 billion." (Id. at 753.) The trial court barred this theory, which was offered in the form of expert testimony, as improperly speculative. (Id.) Specifically, the expert's projections were based on anticipated market -25- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP share that was conjectural, and not based on actual results or on any profit the company had actually realized. The Supreme Court held that the trial court acted appropriately "when it excluded opinion testimony that the company would have become extraordinarily successful had the university completed the clinical testing." (Id.) The Supreme Court confirmed that "damages for the loss of prospective profits are recoverable where the evidence makes reasonably certain their occurrence and extent." (Sargon, supra, 55 Cal.4™ at 773-774, citing Grupe v. Glick (1945) 26 Cal.2d 680, 693.) Sargon was critical of the plaintiff's damages theory because it was not based on "any objective evidence of 'past volume of business' or any 'other provable data relevant to the probable future sales." (Id. at 778.) In this regard, it is settled that a plaintiff may not recover lost profits simply by producing evidence that it might have obtained some gross income absent allegedly wrongful conduct. (Kids' Universe, supra, 95 Cal.App.4th at 888.) Rather, the plaintiff must show it would have made a net gain: "Net profits are the gains made from sales, after deducting the value of the labor, materials, rents, and all expenses, together with the interest of the capital employed. A plaintiff must show loss of net pecuniary gain, not just loss of gross revenue." (Kids' Universe, supra, 95 Cal.App.4th at 884 (internal quotations, citations omitted).) Sargon noted that Evidence Code Section 802 requires an examination of the reasons and "material on which an expert relies" in determining whether a particular opinion will be allowed, and "may conclude that there is simply too great an analytical gap between the data and the opinion proffered." (Sargon, supra, 55 Cal.4th at 771, citing General Electric Co. v. Joiner (1997) 522 U.S. 136, 146.) This year, in San Francisco Print Media Co. v. The Hearst Corp. (2020) 44 Cal. App. 5th 952, the Court of Appeal applied Sargon to emphasize the court's role as gatekeeper to exclude speculative testimony. (/d. at 961-62.) Evidence Code section 802 permits a court to inquire into the expert's reasons for an opinion, both as to the type of material on which an expert relies, and also whether the material actually supports the expert's reasoning (i.e., the analytical soundness). (/d.) The Court upheld the exclusion of expert testimony because that expert lacked the foundational knowledge to conduct the requisite damage analysis. (Id. at 963.) -26- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP In Sargon, and San Francisco Print Media, the expert opinions were properly excluded as speculative because they used overly optimistic assumptions involving numerous variables that made any calculation of anticipated lost profits inherently uncertain. Here, it is far worse: the MVF financial projections are not just overly optimistic, they have now proven wrong by orders of magnitude. Starting from that "foundation", Walston rests the remainder of his valuations on "assumptions" untethered to the actual facts of the case: that two of the "perfect storm" issues that destroyed MVF — DETE work that left, and expanded facilities that were not filled — would come back and be wildly profitable. In this regard, Sargon's discussion of historic "what ifs" is an apt evaluation of the "what if" theory that Plaintiffs hope to present: "What if" Barkat's projections were right? "What if" the DETE business returned? "What if" MVF had some use for $30 Million new facility? How about, "what if" Hollywood reverted to videotapes? Then MVF would truly be in business. But MVF is not. It is bankrupt, and would have been decades ago if not for the generous lenders that for decades enabled Barkat's lifestyle and MVF's continuing operations. Compounding the problem, Walston's three "What Ifs," even if true, still do not bridge the impermissible analytical gap to his monstrous valuations of MVF. Any reliable measure of MVF's damages must consider MVF's enormous debt, and the way the industry was changing, both from a pure numbers standpoint, but also on the ways it negatively impacted the business. In this regard, even Barkat acknowledged the way MVF's debt and outdated technology saddled the Company. Gloating about ColorTime, his new company formed on MVF's misappropriated trade secrets, Barkat noted the perks of not being saddled with debt and old technology anymore: "In our industry technology changes constantly. Every time you come to the game late, you instantly have an advantage because you don't have any legacy technology that you invested in 10 years earlier..." (Ex. 22, April 17, 2018 Deposition of Barkat as PMK for ColorTime, 63:2-7.) Barkat's speculative and conjectural damages claims do meet the fundamental standards of Sargon. Sargon requires intellectual rigor tethered to reality, and a bridge between the data and conclusion offered. (55 Cal.4th at p. 774.) Walston offers neither and his flawed opinions must be excluded. Once again, without those opinions, Barkat cannot pursue damages. 27- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP IV. WALSTON'S UNDERLYING OPINIONS ON WHICH HIS VALUATIONS ARE FOUNDED ARE EACH SPECULATIVE, LACK FOUNDATION, AND ARE ANALYTICALLY FLAWED, AND SHOULD BE EXCLUDED 1. Walston's ""Core-Business' Valuation Must Be Excluded As areminder, the Sargon and San Francisco Print Media the expert opinions were properly excluded because they used overly optimistic assumptions involving numerous variables that made any calculation of anticipated lost profits inherently uncertain. Here, the core underpinning of Walston's valuations are Medley's 2012 valuation, based on Barkat's fraudulent projections. Walston adopts Medley's valuations because the projections were made with reasonable assumptions, even though they weren't realized. (Walston Depo. at 217.) The problem is, Walston is opining that the projections were reasonable then — he seeks to testify as to MVF's damages based on the projections that were wrong. What Walston seeks to do in relying on this assumption is entirely different than Sargon and San Francisco Print Media, where the projections were merely overly optimistic about the future. Walston knows that his data is wrong. In that vein, he conceded, the "only thing that's 100 percent certain is a retrospective review and an audited financial statement." (Walston Depo. 221:24-222:1). Walston had the benefit of retrospect, and the audited financials. He just ignored them. What Walston has done is akin to one of the hundreds of pharmaceutical companies testing a promising COVID vaccine, which vaccine ends up not working, claiming a decade from now that it should be valued based on projections made before it was known that the vaccine did not work. Walston's "core business" valuation lacks foundation and is analytically unsound under Sargon and must be excluded. Similarly, the three valuations which are based on Walston's "core-valuation" must be excluded. 2. Walston's $20-70 Million "DETE" Valuation Must Be Excluded Expert opinion must have a foundation, and the an expert opinion that does not contain "a reasoned explanation illuminating why the facts have convinced the expert" need not be relied on. Taylor v. Trimble (2017) 13 Cal. App. 5th 934, 945 n.15. Without an adequate foundation, the connection between predicate and opinion is not manifest and thus the opinion is worthless. 28- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP (Jennings v.Palomar Pomerado Health Sys., Inc., 114 Cal. App. 4th 1108, 1117-18 (2003) (Pure conclusory opinions are not admissible).) Here, Walston provides no support for the "assumption" that DETE work taken in house would return to MVF, let alone be wildly profitable. He just calculated what he thought DETE would be worth if Warner Brothers sent it back to MVF: "So DETE was about 20 million and that was based upon continuing the Warner Bros. relationship and building that business." (Walston Depo. 162:1-3.) No evidence in this case supports the "assumption" DETE would return; Walston provides no logical reason why Warner Brothers would send the work back. Just the opposite: Walston testified that Warner Brothers found it profitable and had additional capacity, and thus likely would not send the work back: "So DETE is going so well that Warner Bros. without -- without warning decides to bring the work that they're giving Moshe back into their own system because they increased the capacity of their own system." (Walston at 143:19-23). Walston's use of DETE value, be it $20 Million, $70 Million, or any amount greater than zero, is pure speculation and Walston admitted it: Q. But you're speculating as to the growth of the DETE scalability and capacity expansion; correct? A. Yes, I mean — (Ex. 1, Walston Depo. at 223:14-17.) Walston's DETE opinions lack foundation and are analytically unsound under Sargon, and must be excluded, as should every valuation which relies on DETE revenue. 3. Walston's $30 Million "Additional Capacity" Valuation Must Be Excluded Once again, it is settled that expert testimony cannot be based on "what if's," but rooted in facts. In this regard, in Peralta v. Vons Companies, Inc. (2018) 24 Cal. App. 5th 1030, the appellate court excluded expert testimony based on conjecture that the plaintiff's fall might have been caused by a slippery surface, because it would have been slippery if there was grease and oil, but there was no evidence of grease and oil. -20- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP Similarly here, Walston purported to add $30 million in additional value to MVF based on the new facility that was in fact empty, based on what the "additional capacity" might be worth if it was full: I was looking at it from how much capacity does Modern Video actually have to produce revenue. So a fairly thorough analysis of the 30-million-dollar capital spend and the massive capacity expansion that they executed in 2011, 2012 in their move to Empire. So what could the company do in terms of total revenue capacity. (Walston Depo. at 95.) Walston's speculation is no different than the grease and oil case: Walston's calculation of "what if" it was full revenue is useless, because the facility was not full. It was however leased, it was too expensive, it was empty, and it was part of the "perfect storm" that ended MVF. Walston's opinion as to value of the "additional capacity" of new facility is speculation untethered to the facts, and must be excluded. V. WALSTON'S TECHNICOLOR AND PLAN B VALUATIONS LACK FOUNDATION AND MUST BE EXCLUDED If the Court does not exclude Walston's testimony entirely, and does not strike the underlying pieces of his valuations, the should bar Walston from testifying as to MVF's value based on purported events that simply never happened: a joint-venture with Technicolor, and Barkat's "Plan B" presented to new management just before he was terminated. These valuations are impermissibly speculative and not logically linked to the facts of this case. 1. There was No Technicolor Joint Venture Here, Walston purports to testify that Medley acted unreasonably in connection with Technicolor negotiations, which potential joint-venture, Walston claims, would have been wildly profitable, based on the review of an unsigned term sheet and some financial projections, and no other documents. (Walston Depo 12:2-15). Walston formed his opinions without reading the loan documents that set forth Medley's rights (92:6-13), and without reading the deposition of Technicolor's person most qualified, who testified that it was not Medley, but MVF's dire financial state that ended the deal. There was thus no joint venture to analyze. -30- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP Specifically, and unknown to Walston, Technicolor walked away from the deal four days after receiving MVF's audited financials because of MVF's financial state was not as it had originally represented (Ex. 3, Wappet Depo. pp. 20:6-21:22); Technicolor realized it would need to inject far too much cash to keep MVF's portion of the joint venture afloat (id. pp. 20:6-21:22); and the non- contributed portion of MVF could not support MVF's remaining operations, and Technicolor believed MVF would default. (id. p. 24:1-10). There simply was no joint venture, for undisputed reasons having nothing to do with Medley. Walston's claimed that depositions did not matter to him: " my focus was on what happened and -- to the company, what -- what the metrics were, what -- what the valuation of the company at three critical points were." (Walston Depo. 76:17-20.) But again, Technicolor's deposition testimony shows there was no foundation upon which Walston can attempt to value a joint venture, because no joint venture existed. The outrageous Technicolor valuation of $163.6 million is thus a joint-venture that did not happen, and valued based on three factors that did not exist. It is speculation layered upon speculation, and Barkat's expert's Technicolor valuation must be excluded. B. Walston's "Plan B'" Valuation Must Be Excluded Because the Underlying Assumptions are Impermissibly Speculative As a starting point, Walston valued "Plan B" without any knowledge whatsoever regarding who rejected Plan B. (Walston Depo. at 269:14-16.) It was not Medley, but MVF's new management that rejected Plan B. (Sweet Depo. at 128, 187:15-18.) As a result, valuing "Plan B" is not in any way useful to the claims in this case, which are against Medley. Further, like the Technicolor theory, Walston valued MVF at the time of Barkat's "Plan B" without even the most rudimentary steps to investigate whether "Plan B" was actionable. "Plan B", in reality, was not a plan at all: the strategy was to fire employees, negotiate enormous rent decreases, negotiate with past-due vendors to allow more time or forgive payments, and continue making no payments on the $75 Million Medley Loan balance. Walston demonstrated how little went into Plan B, and also how little analysis he put into it: Q. Give me the specifics again of Plan B. 31- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP Significant cost reductions relative to personnel, so -- Q. What cost reductions? > Just an elimination of staff and overhead across both sides of the organization. Eliminate staff and overhead. Yes. Who was going to be eliminated? > L o » LR I'd have to get Plan B out and go through it in detail, but it's all laid out in Plan B as to exactly what he was going to do. What overhead was going to be reduced? His sales and -- and corporate overhead team -- What else was -- -- and his own compensation reduced as well, significant. What else was part of Plan B? > o > o P » AR Revenue, essentially steady state. Identified the sources of revenue and beginning of the recovery of the relationship with Warner Bros., which he predicted would happen in getting back the DETE business that was -- that was lost. What else -- There's a little bit of that revenue margin in there. What else was part of Plan B? > L o » LR That's essentially it. (Ex. 1, Walston Depo. at 267:11-268:14.) Walston accepted "Plan B" without critical analysis, and did not blink at its unsupported assumptions, such as whether MVF's landlord would accept a 50% rent reduction, DETE would return, and vendors would agree to discounts or an accounts payable plan. (Id. at 283, 285, 290.) Walston explained just how deeply he dug: "I presume he had the relationship with the landlord to make that happen." (Id. 267:20-21.) Had Walston read the depositions of Hugh Miller, he would have seen that the landlord refused to accept a rent reduction. Instead, he "speculated": -32- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP Q. Did the landlord tell you that? A. That would be my speculation about why a land- -- you asked me why a landlord in their right mind would do that -- Q That's your -- A. -- that's my answer. Q -- speculation -- That's your speculation; correct? A. Yes. (Ex. 1, Walston Depo., 285:10-18.) Walston did not dig any deeper in considering whether or which vendors would simply agree not to be paid, but just guessed: Q. What other vendors were going to be requested to defer payment? A. So Capital Lease Financing, so lease sources, just the typical operating costs. I mean, you can see -- [ mean, there's not -- there are not a thousand vendors. You know, there -- if I had to guess, I'd say there are -- probably the top 30 vendors to this company would be 95 percent. So it's not like managing a list of thousands of different vendors. Q. But you're guessing? A. But I'm guessing. (Id. 290:11-22.) Walston's "Plan B" valuation is pure speculation and lacks intellectual rigor. Under Sargon, it must be excluded. VI. CONCLUSION Barkat's fictional damages theory does not meet fundamental principles of evidence. The entire damages case, and each foregoing opinion of expert Robert Walston, should be disallowed. -33- 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP Dated: July 1, 2020 ALLEN MATKINS LECK GAMBLE MALLORY & NATSIS LLP By: /s/ Robert R. Moore -34- ROBERT R. MOORE MICHAEL J. BETZ GRAYSON (TREY) MARSHALL III Attorneys for Defendants, Cross- Complainants, and Cross-Defendants MEDLEY CAPITAL CORPORATION; MEDLEY OPPORTUNITY FUND II LP; MCC ADVISORS LLC; RICHARD CRAYBAS; JAMES FEELEY; CONGRUENT CREDIT OPPORTUNITIES FUND II, LP; CONGRUENT INVESTMENT PARTNERS, LLC; PRESTON MASSEY; MAIN STREET CAPITAL CORPORATION 1141254.03/SF MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OR CLAIM OF DAMAGES
