Assessing Damages in Real Estate Holding Matter
A California arbitration panel denied a claim for damages in a matter involving the purchase of real estate-related financial products in a 1031 exchange and interest rate swap. The plaintiff, a real estate developer, alleged that the defendant, a major financial institution, misled or omitted information about restrictions on his ability to sell the holdings, which ultimately created a lack of liquidity that triggered substantial losses, including the inability to conduct ongoing business.
The plaintiff's expert calculated damages based on estimated losses and speculated as to the downstream effect of the losses. Vice President Niall MacMenamin was hired by counsel for the bank to analyze the plaintiff's damages theory and calculations. In doing so, Mr. MacMenamin identified several flaws. In particular, the plaintiff had elected to sell half of his holdings in 2007 and waited several years to sell his remaining interests, during which time the real estate market experienced a sharp decline. Had plaintiff chosen to liquidate entirely in October 2007, there would have been no loss, and in fact, he would have made a modest profit. Citing Mr. MacMenamin's testimony in their decision, the arbitration panel found that since the timing of the sale was solely the plaintiff's decision, any loss on the sale of his investment was attributable to his decision to hold the remaining shares. Given that the plaintiff's additional claims were predicated on the alleged loss from the sale of his holdings - the timing of which he controlled - they were also found to be invalid.