HMH Enterprises v. TAG Enterprises CA2/5
B303640
| Cal. Ct. App. | Nov 24, 2021Background
- TAG owned the shopping center; tenant Min sought to sell his newly opened laundromat to plaintiffs (HMH and individuals), subject to TAG’s lease-assignment consent.
- Min prepared a document titled the “Cudahy Breakdown” purporting to show monthly gross sales (~$73,120) and monthly profit; plaintiffs relied on it during escrow and later retained CPA expert Samuel Biggs.
- Biggs based a lost-profits opinion (~$6,966,517 over 21 years) almost entirely on the Cudahy Breakdown, applying a 1.5% escalation rate and assuming lease renewals and a residual value, without independently verifying underlying records or coin-count documentation.
- Min conceded the Cudahy Breakdown contained “rough” numbers, was not an official record, and differed from tax/financial statements; plaintiffs did not produce underlying ledgers or documented coin counts.
- TAG moved in limine to exclude the Cudahy Breakdown (hearsay/business-records challenge) and to exclude Biggs’s testimony under Evidence Code §801 and Sargon; the trial court granted both motions, plaintiffs could not prove damages, consented to judgment, and appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Admissibility of the Cudahy Breakdown under the business-record exception | The Breakdown was prepared in ordinary course of Min’s business and was verified by plaintiffs’ coin counts and lender review | The Breakdown was preparatory sales material, ‘‘rough’’ and unofficial, lacked foundation and underlying records, and thus untrustworthy hearsay | Excluded: not shown to be made in regular course or sufficiently trustworthy; trial court did not abuse discretion |
| Admissibility of expert Biggs’s lost-profit opinion under Evidence Code §801 / Sargon | Biggs could rely on documents admitted into evidence and on factual bases represented by plaintiffs and lender; expert may rely on otherwise inadmissible hearsay as basis for opinion | Biggs’ opinion rested entirely on the inadmissible Breakdown, was unverified, speculative, and relied on unsupported assumptions (21-year operation, escalation, residual value) | Excluded: opinion speculative and lacked adequate evidentiary foundation once Breakdown excluded; court acted as gatekeeper per Sargon |
| Voluminous-records / summary exception (summary of underlying records) | The Breakdown is a permissible summary/compilation of voluminous records (Heaps) | No foundation that originals were too voluminous or that summaries were properly supported | Forfeited at trial; in any event plaintiffs didn’t show criteria met, so exception not applied |
| Standard of review for in limine exclusion (abuse of discretion vs de novo) | Ruling effectively disposed of claim and should be reviewed de novo | In limine rulings on admissibility are reviewed for abuse of discretion unless they amount to a nonsuit | Abuse of discretion review applies: court ruled on evidentiary admissibility (not a procedural nonsuit), so appellate review is deferential |
Key Cases Cited
- Sargon Enterprises, Inc. v. University of Southern California, 55 Cal.4th 747 (2012) (trial court gatekeeper excludes speculative expert opinion under Evidence Code §801)
- People v. Sanchez, 63 Cal.4th 665 (2016) (experts’ case-specific out-of-court statements that explain bases for opinion are hearsay and must satisfy an exception)
- Heaps v. Heaps, 124 Cal.App.4th 286 (2004) (summary of voluminous records admissible when originals cannot reasonably be examined)
- Kinda v. Carpenter, 247 Cal.App.4th 1268 (2016) (discusses when an in limine ruling that effectively disposes of a claim should be treated like a nonsuit for review)