In Re SemCrude L.P. ( 2016 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 14-4356
_____________
In re: SEMCRUDE L.P.,
Debtors
BETTINA WHYTE,
as the Trustee, on behalf of SemGroup Litigation Trust,
Appellant
_____________
On Appeal from the United States District Court
for the District of Delaware
(D.C. Civ. No. 1-13-cv-01375, 1-13-cv-01376)
District Judge: Honorable Sue L. Robinson
______________
Submitted Under Third Circuit L.A.R. 34.1(a)
January 25, 2016
______________
Before: VANASKIE, SHWARTZ, and KRAUSE, Circuit Judges
(Filed: April 28, 2016)
_____________
OPINION*
_____________
*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7
does not constitute binding precedent.
VANASKIE, Circuit Judge.
The Bankruptcy Trustee appeals adverse judgments in actions she brought to set
aside two equity distributions as constructively fraudulent conveyances. She argues that
the Bankruptcy Court erred in granting partial summary judgment on her claim that the
equity distributions, made in August 2007 and February 2008, left the debtor with
unreasonably small capital, and that the Bankruptcy Court again erred during the trial in
permitting expert witness testimony on the question of whether the debtor was insolvent
at the time of the February 2008 equity distribution. Discerning no error in the
Bankruptcy Court’s rulings, we will affirm.
I.
We write primarily for the parties, who are familiar with the facts and procedural
history of this case. Accordingly, we set forth only those facts necessary to our analysis.
SemGroup, L.P. was a “midstream” energy company that filed for bankruptcy in
July 2008. At one point, SemGroup was the fifth-largest privately held company in the
United States. SemGroup’s primary business consisted of providing transportation,
storage, and distribution of oil and gas products to oil producers and refiners. In
connection with its business, SemGroup also traded options on oil-based commodities.
To maintain its operations, SemGroup depended on credit facilities for capital.
From 2005 through July 2008, SemGroup had a significant line of credit from a syndicate
of over 100 different lenders (the “Bank Group”). This line of credit was secured
pursuant to a Credit Agreement. As a part of this Credit Agreement, SemGroup agreed
2
not to trade “naked options”—trades where the security is neither offset by other trades
nor backed by physical inventory. Nevertheless, SemGroup’s trading activity involved
trading naked options, which carried significant risk and was inconsistent not only with
the Credit Agreement, but also SemGroup’s risk management policy.
In addition to trading naked options, SemGroup made advances to fund trading
losses incurred by Westback Purchasing Company, L.L.C.—a company owned by
SemGroup’s CEO and his wife. These advances to Westback were also risky as
SemGroup made them without charging any interest, securing collateral, or executing
contracts requiring repayment.
SemGroup’s trading strategy was predicated on stability in oil prices. Between
July 2007 and February 2008, however, oil prices were erratic. The price volatility
resulted in SemGroup having to post large margin deposits, which in turn, compelled
SemGroup to draw on its credit line. From July 2007 to February 2008, SemGroup’s
borrowings grew from $800 million to more than $1.7 billion.
After being informed that SemGroup transferred its trading book in July 2008, the
Bank Group declared that SemGroup was in default of the Credit Agreement due to its
substantial losses on options trades in 2007 and 2008.1 After the Bank Group declared
SemGroup in default, SemGroup filed for bankruptcy on July 22, 2008. On October 28,
1
It does not appear that the Bank Group declared a default based upon the option
trading strategy pursued by SemGroup or the loans to Westback. Nor does it appear that
SemGroup attempted to conceal its trading activities or loans to Westback or otherwise
engaged in fraud.
3
2009, the bankruptcy court confirmed a plan of reorganization, which became effective
on November 20, 2009. The plan created a litigation trust and vested the trust with the
claims held by the SemGroup estate.
The court-appointed Trustee commenced two adversary proceedings against
SemGroup equity holders, seeking to avoid equity distributions approved by SemGroup’s
management in August 2007 and February 2008.2 The Trustee sought to avoid these
distributions as constructively fraudulent transfers based on two theories: (1) SemGroup
was left with unreasonably small capital after the equity distributions; and (2) SemGroup
was insolvent on the date of the 2008 distributions. The bankruptcy court denied the
unreasonably small capital claim as to the 2007 equity distribution on summary judgment
and the insolvency claim after a trial. See In re SemCrude, L.P., No. 08-11525 (BLS),
2013 WL 2490179 (Bankr. D. Del. June 10, 2013). The District Court affirmed, see In re
Semcrude, L.P., 526 B.R. 556 (D. Del. 2014), and this appeal followed.
II.
The Bankruptcy Court had jurisdiction over the initial proceedings under 28
U.S.C. § 1334. The District Court exercised jurisdiction to review the bankruptcy appeal
2
In August 2007, SemGroup distributed approximately $90 million to its equity
holders, of which about $23 million went to Defendants Ritchie SG Holdings LLC,
SGLP Holdings, Ltd., and SGLP US Holding, LLC (collectively the “Ritchie
Appellees”), and $2.8 million went to Appellee Cottonwood Partnership, LLP. In
February 2008, SemGroup distributed approximately $100 million to its equity holders,
of which about $26 million went to the Ritchie Appellees and $3 million was paid to
Cottonwood. Only the distributions to the Ritchie Appellees and Cottonwood are at issue
in this litigation.
4
under 28 U.S.C. § 158(a). We have appellate jurisdiction to review the District Court’s
ruling under 28 U.S.C. §§ 158(d) and 1291. “We exercise plenary review over the
District Court’s appellate review of the Bankruptcy Court’s decision and exercise the
same standard of review as the District Court in reviewing the Bankruptcy Court’s
determinations.” In re Miller, 730 F.3d 198, 203 (3d Cir. 2013) (internal quotation marks
and citations omitted). “We review a bankruptcy court’s legal determinations de novo, its
factual findings for clear error, and its exercises of discretion for abuse thereof.” Id.(brackets, internal quotation marks, and citations omitted).
As it pertains to this case, our review of the grant of summary judgment is de
novo. See In re G–I Holdings, Inc., 755 F.3d 195, 201 (3d Cir. 2014). With respect to
the trial, only the Bankruptcy Court’s admission of expert witness testimony is at issue.
“We review the decision to admit or reject expert testimony under an abuse of discretion
standard.” Schneider ex rel. Estate of Schneider v. Fried, 320 F.3d 396, 404 (3d Cir.
2003) (citing In re Paoli R.R. Yard PCB Litig., 35 F.3d 717, 749 (3d Cir. 1994)).
III.
The Trustee seeks to void SemGroup’s 2007 and 2008 equity distributions as
constructively fraudulent transfers pursuant to section 5 of the Oklahoma Uniform
Fraudulent Transfer Act (“UFTA”), 24 Okla. Stat. Ann. § 116, and the United States
Bankruptcy Code, 11 U.S.C. § 548. The Bankruptcy Appellate Panel for the Tenth
Circuit has noted that “the Oklahoma UFTA and § 548 are identical, and cases construing
the elements under § 548 are persuasive interpretations for the UFTA.” In re Solomon,
5
299 B.R. 626, 633 (B.A.P. 10th Cir. 2003) (footnote omitted).3 Because Section 548 of
the United State Bankruptcy Code is at issue, and because the parties focus primarily on
the United States Bankruptcy Code, our analysis will focus on the relevant elements
under the United States Bankruptcy Code.
A. The Unreasonably Small Capital Claims
The Trustee contends that both the 2007 and 2008 equity distributions should be
set aside pursuant to 11 U.S.C. § 548(a)(1)(B)(ii)(II).4 A transaction by a debtor may be
set aside as constructively fraudulent under this Bankruptcy Code provision if it can be
shown that the debtor (1) “received less than a reasonably equivalent value in exchange
for such transfer or obligation;” and (2) “was engaged in . . . a transaction . . . for which
any property remaining with the debtor was an unreasonably small capital[.]” Id.5 The
3
Under the strong-arm provision of the United States Bankruptcy Code, the
Trustee can also avoid any of SemGroup’s transactions that would be voidable under
state law. See 11 U.S.C. § 544(b)(1) (granting the power to “avoid any transfer of an
interest of the debtor in property or any obligation incurred by the debtor that is voidable
under applicable law by a creditor holding an unsecured claim”).
4
The parties vigorously dispute whether the Trustee waived her unreasonably
small capital claim with respect to the 2008 distribution. Appellees argue that the
Bankruptcy Court’s summary judgment ruling only addressed the unreasonably small
capital claim in the context of the 2007 distribution and the Trustee did not question the
scope of the Bankruptcy Court’s ruling when the matter proceeded to trial on only the
2008 distribution. We, however, need not resolve the waiver issue, because the facts
underlying the unreasonably small capital claims are essentially the same for both
distributions and the Bankruptcy Court’s rationale for rejecting the claim as to the 2007
distribution applies with equal force to the 2008 distribution.
5
To void SemGroup’s equity distributions under the Oklahoma UFTA, the
Trustee was required to demonstrate (1) that SemGroup made the transfers “without
receiving a reasonably equivalent value in exchange for the transfer” and (2) “was
6
Bankruptcy Court found, and it is undisputed, that the Trustee satisfied the first of these
requirements because “no reasonably equivalent value was provided” for the equity
distributions. See In re SemCrude, L.P., 2013 WL 2490179, at *5. Accordingly, the
dispositive question here is whether, following either equity distribution, SemGroup was
“left with an unreasonably small capital under the circumstances.” Moody v. Sec. Pac.
Bus. Credit, Inc., 971 F.2d 1056, 1071 (3d Cir. 1992).
It is indisputable that, in determining whether SemGroup was left with an
unreasonably small capital following the equity distributions, the Bankruptcy Court
properly considered the availability of credit under the Credit Agreement. See id. at 1073(“[I]t was proper for the district court to consider availability of credit in determining
whether [the debtor] was left with an unreasonably small capital.”). There is also no
dispute that SemGroup was adequately capitalized if it could borrow the amounts
available to it under the Credit Agreement. Indeed, SemGroup continued to have access
to the credit facility after each of the equity distributions. What is hotly contested is
whether SemGroup would have been able to draw on its line of credit if the Bank Group
knew of its allegedly improper trading strategy.
Pointing to our statement in Moody that “the test for unreasonably small capital is
reasonable foreseeability,” id., the Trustee argues that SemGroup’s projected reliance
engaged . . . in a . . . transaction for which the remaining assets of the debtor were
unreasonably small in relation to the business or transaction[.]” 24 Okla. Stat. Ann. §
116(A)(2)(a).
7
upon its continuing ability to draw upon its line of credit was not “reasonable” given that
its trading strategy was prohibited by the terms of the Credit Agreement. Stated
otherwise, the Trustee asserts that it was reasonably foreseeable at the time of the equity
distributions that SemGroup would not have access to its line of credit because its trading
strategy violated the Credit Agreement. The Trustee argues that there are at least
questions of fact material to the issue of whether it was reasonably foreseeable that the
Bank Group would have pulled their line of credit as a result of SemGroup’s derivatives
trading.
Both the Bankruptcy Court and the District Court reasoned that the Trustee’s
argument rested upon conjecture biased by hindsight such that it was not reasonably
foreseeable that SemGroup would lose access to credit when it made the challenged
equity distributions. See Boyer v. Crown Stock Distrib., Inc., 587 F.3d 787, 794 (7th Cir.
2009) (“[A] term like ‘unreasonably small’ . . . is fuzzy, and in danger of being
interpreted under the influence of hindsight bias.”). The Bankruptcy Court explained:
Case law . . . teaches that as a general proposition, hindsight
should not be used to answer the question of unreasonably
small capital. . . . Here the availability of the bank facility
provided the Debtor with actual liquidity sufficient to operate
its business going forward. There is no material allegation of
fraud or criminal conduct by [SemGroup], but there is an
allegation of trading activities that were beyond what was
permitted under the terms of the bank facility. . . . These cases
in Bankruptcy Court always present a context of a failed
business, and there is a temptation . . . to use hindsight to
establish whether a debtor was adequately capitalized, and . . .
that’s a temptation to be avoided, because it would
8
improperly expand fraudulent conveyance law far beyond its
proper borders. . . .
Here, to accept the plaintiffs’ theory, the Court would have to
disregard the actual facts of adequate capitalization for
SemGroup and imagine what would have happened had [its]
trading practices become known to the lenders. And I note
that the parties dispute whether the speculative trading was
disclosed. Defendants have offered substantial support that
the trading in fact was disclosed either in the Debtors’
financial reporting, in its footnotes or otherwise, including the
affiliate transactions that relate to Westback, and the plaintiffs
similarly contend that it was not sufficiently or adequately
disclosed or that to the extent it was disclosed that those
disclosures were countervailed by [SemGroup’s]
representations that it was, in fact, not engaging in speculative
trading. Regardless of this admittedly live dispute, there is no
significant allegation of fraud or “cooking the books” by
SemGroup, and I am exceedingly reluctant to engage in the
speculative exercise that the plaintiffs propose . . . .
First, I observe that I am dubious, frankly, of the proposition
that the line would have simply been pulled or that that is
even the most likely result. There is a range of options, a
broad range of options from pulling the line, to restructuring
it, to requiring a sale of assets to pay down a portion of the
line, to imposing restrictions on the Debtors’ trading activity,
to simply doing nothing. All of which can be plausibly
explained or anticipated to have occurred in 2007. And
because neither I nor anyone . . . can demonstrate which of
these options would have occurred or would have been . . .
likely to have occurred, I defer to the wisdom of the case law
that limits the use of hindsight and discourages the
consideration of later information absent circumstances that
are not present here.
(J.A. 42, 44, 45–46, 47.)
The District Court similarly explained:
9
There . . . can be no dispute that, at the time of the two
distributions at issue, SemGroup had a substantial line of
credit. [The Trustee] maintains in this regard that she at least
raised a genuine issue of material fact sufficient to withstand
summary judgment as to “whether it was reasonably
foreseeable that SemGroup would be unable to sustain its
operations due to its massive breach of the Credit Agreement”
and the likely termination of the credit facility provided
thereunder. (D.I. 18 at 10)
It is not clear from the record whether or not the Bank Group
was aware of the business activities identified by appellant as
being inconsistent with SemGroup’s obligations under the
Credit Agreement. As recognized by the bankruptcy court,
however, it makes no difference. If the Bank Group was
aware of such, [the Trustee’]s position collapses on itself, for
there is no forecast to make—SemGroup’s access to credit
had not been withdrawn at the time of either of the
distributions despite the “massive” breach of the Credit
Agreement. If the Bank Group was not aware of such
activities, one has to engage in multiple levels of forecasting
in order to embrace [the Trustee’s] position. More
specifically, in the cases relied on by the parties, the courts
had the benefit of historical data and of a company’s financial
projections going forward, the question under Moody being
whether such future projections were reasonable at the time of
the event in question (generally a distribution or LBO). Here,
[the Trustee] would have the court, in effect, forecast (1) the
lenders’ reaction to discovering the conduct, and then (2) the
consequences of that reaction, i.e., that the only option chosen
by all of the lenders would have been to foreclose access to
all credit, which (3) had the reasonably foreseeable
consequence of bankruptcy.
I agree with the bankruptcy court that what appellant
proposes is a “speculative exercise” not rooted in the case
law.
In re Semcrude, L.P., 526 B.R. at 561.
10
We concur with these analyses. Absent the bias of hindsight, it simply cannot be
said that SemGroup was likely to be denied access to a credit facility that had been in
place while it was engaging in the allegedly improper trading strategy. Telling in this
regard is the fact that SemGroup’s trading strategy was not cited by the Bank Group
when they declared a default under the Credit Agreement. As we observed in Moody, the
test for unreasonably small capital holds debtors responsible “when it is reasonably
foreseeable that [a company] will fail, but at the same time takes into account that
‘businesses fail for all sorts of reasons, and that fraudulent [conveyance] laws are not a
panacea for all such failures.’” 971 F.2d at 1073 (second alteration in original) (quoting
Bruce J. Markell, Toward True and Plain Dealing: A Theory of Fraudulent Transfers
Involving Unreasonably Small Capital, 21 Ind. L. Rev. 469, 506 (1988)). In this case, the
Trustee cannot show that SemGroup could reasonably foresee either that its trading
strategy would fail or that the Bank Group would declare a default based upon that
trading strategy. The Trustee presented no evidence that SemGroup tried to disguise its
trading strategy from the Bank Group or acted deceptively. From SemGroup’s
perspective, it was acting transparently vis-à-vis the Bank Group in connection with its
trading strategy. Under these circumstances, it cannot be said that it was reasonably
foreseeable that its capitalization was unreasonably small because it would lose its ability
to draw upon its credit facility. Accordingly, the Bankruptcy Court did not err in
11
granting summary judgment in favor of the Appellees on this aspect of the Trustee’s
constructive fraud claim.6
B. The Insolvency Claim
The Trustee also challenges the 2008 equity distribution as constructively
fraudulent on the ground that SemGroup was insolvent when that distribution was made.
Under the United States Bankruptcy Code, the Trustee may void SemGroup’s 2008
equity distribution if she can demonstrate SemGroup (1) “voluntarily or involuntarily . . .
received less than a reasonably equivalent value in exchange for such transfer or
6
Appellees argue that we may affirm the Bankruptcy Court’s ruling on the
unreasonably small capital claim on the alternative ground that the Trustee cannot show a
causal link between the equity distributions and the adequacy of SemGroup’s
capitalization. In other words, Appellees assert that the distributions must be the cause of
undercapitalization. Appellees point out that the premise of the Trustee’s argument is
that “SemGroup’s derivatives trading, and its purported impact on SemGroup’s access to
credit, caused SemGroup to lack sufficient capital.” (Ritchie Appellees’ Br. 20.) There
may be some force to this argument. After all, in Moody, we observed that the concept of
unreasonably small capital denotes “a standard of causation which looks for a link
between the challenged conveyance and the debtor’s insolvency.” 971 F.2d at 1071(emphasis added). Other courts have concluded that the contested transaction must be the
cause of the small capital condition. See, e.g., In re Terrific Seafoods, Inc., 197 B.R. 724,
736 (Bankr. D. Mass. 1996) (“I must determine whether the transfer caused [the debtor]
to engage in business with ‘any property remaining [being] an unreasonably small
capital.’”) (citing 11 U.S.C. § 548(a)(2)(B)(ii)); In re Pioneer Home Builders, Inc., 147
B.R. 889, 894 (Bankr. W.D. Tex. 1992) (interpreting the Bankruptcy Code to require that
“the disputed transfers cause the unreasonably small capital condition.”) (citing 11
U.S.C. § 548(a)(2)(B)(ii)). The Trustee vigorously disputes the necessity of establishing
a causal relationship between the challenged distribution and the debtor’s capitalization at
the time of the distribution. According to the Trustee, the only question is whether the
debtor was undercapitalized at the time of the distribution, and not what caused that
status. We, however, need not resolve the question of whether there must be a causal link
between the challenged transaction and the status of the debtor’s capitalization in this
case because it cannot be shown that it was reasonably foreseeable at the time of the
equity distributions that SemGroup would lack adequate access to capital.
12
obligation;” and (2) “was insolvent on the date that such transfer was made or such
obligation was incurred, or became insolvent as a result of such transfer or obligation[.]”
11 U.S.C. § 548(a)(1)(B)(ii)(I).
As was the case for SemGroup’s 2007 equity distribution, the Bankruptcy Court
found that “no reasonably equivalent value was provided” for SemGroup’s 2008 equity
distribution. See In re SemCrude, L.P., 2013 WL 2490179, at *5. After conducting a
three-day bench trial, exclusively focused on whether SemGroup was insolvent at the
time of its 2008 equity distribution, the Bankruptcy Court concluded that “the Trustee did
not carry her burden to prove that [SemGroup] w[as] insolvent when [it] made the 2008
Distributions.” Id. at *11. On appeal, the Trustee argues that the Bankruptcy Court’s
holding on this claim should be vacated because it purportedly relied upon inadmissible
expert witness testimony. Specifically, the Trustee contends that the Bankruptcy Court
should not have allowed the Appellees’ expert, Michael Lederman, to opine that
SemGroup was solvent at the time of the 2008 equity distribution because Lederman
improperly relied upon a June 2008 valuation prepared by Goldman Sachs.
“Under the Federal Rules of Evidence, it is the role of the trial judge to act as a
‘gatekeeper’ to ensure that any and all expert testimony or evidence is not only relevant,
but also reliable.” Kannankeril v. Terminix Int’l, Inc., 128 F.3d 802, 806 (3d Cir. 1997)
(citing Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 589 (1993)). We have
explained that the “Rules of Evidence embody a strong preference for admitting any
evidence that may assist the trier of fact.” Pineda v. Ford Motor Co., 520 F.3d 237, 243
13
(3d Cir. 2008) (citation omitted). In particular, we have explained that Rule 702 “has a
liberal policy of admissibility.” Kannankeril, 128 F.3d at 806.
“Rule 702 embodies a trilogy of restrictions on expert testimony: qualification,
reliability and fit.” Schneider ex rel. Estate of Schneider, 320 F.3d at 404. Here, the
Trustee focuses on reliability. Stated concisely, we have explained that in order for
testimony to be reliable, it must be based on appropriate methods and procedures “rather
than on subjective belief or unsupported speculation; the expert must have good grounds
for his o[r] her belief.” Id. (internal quotations and citations omitted).
Here, the crux of the Trustee’s argument is that Lederman did not have good
grounds for his testimony because his opinion “was based entirely on a draft June 2008
valuation created . . . by Goldman Sachs, which Lederman adopted wholesale as his
opinion without conducting any independent analysis, providing any further input, or
investigating any of the underlying assumptions.” Appellant’s Br. 51. The Trustee
correctly notes that in ZF Meritor, LLC v. Eaton Corp., we upheld a finding that an
expert’s reliance on a business plan was “improper because he did not know either the
qualifications of the individuals who prepared the [business plan] estimates or the
assumptions upon which the estimates were based.” 696 F.3d 254, 291 (3d Cir. 2012).
In ZF Meritor, however, we also clarified that, “[i]n some circumstances, an expert might
be able to rely on the estimates of others in constructing a hypothetical reality, but to do
so, the expert must explain why he relied on such estimates and must demonstrate why he
believed the estimates were reliable.” Id. at 292. After conducting a thorough review of
14
the record, we find that this is one of those cases where an expert may rely on the
estimates of others. As such, we disagree with the Trustee’s contention that this case “is
indistinguishable from ZF Meritor.” Appellant’s Br. 58. Our disagreement is three-fold.
First, ZF Meritor is distinguishable because in that case the plaintiff’s expert
simply “relied on a one–page set of profit and volume projections” to calculate damages.
See 696 F.3d at 292. Here, on the other hand, Lederman utilized the Goldman Sachs
valuation, which, as the Bankruptcy Court noted, was contemporaneously prepared in
2008 and not made in anticipation of litigation. Cf. Id. at 292 (“Businesses are generally
well-informed about the industries in which they operate, and have incentives to develop
accurate projections.”); Peltz v. Hatten, 279 B.R. 710, 738 (D. Del. 2002) (“[I]n
determining whether a value is objectively ‘reasonable’ the court gives significant
deference to marketplace values.”), aff'd sub nom. In re USN Commc’ns, Inc., 60 F.
App’x 401 (3d Cir. 2003). Buttressing the Bankruptcy Court’s conclusion that the
Goldman Sachs report was sufficiently reliable for purposes of Lederman’s opinion was
the fact that it was prepared in anticipation of a contemplated securities offering under
Rule 144A of the Securities Act of 1933. As the Bankruptcy Court noted, Goldman
Sachs undertook significant due diligence in connection with its valuation efforts that
“consisted of frequent conversations with SemGroup’s management, access to a data
room containing documents posted since SemGroup’s credit agreement was originally
drafted in 2005, and ‘due diligence sessions’ with SemGroup’s management through
2008.” 2013 WL 2490179, at *10.
15
Second, while the Trustee is correct that this case is similar to ZF Meritor insofar
as Lederman did not know who at Goldman Sachs created the report, see ZF Meritor, 696
F.3d at 293, this case is still distinguishable because Lederman had previously worked for
Goldman Sachs. Accordingly, it cannot be said that Lederman did not “know the
methodology used to create the [Goldman Sachs Report] or the assumptions on which the
[Goldman Sachs Report’s] price and volume estimates were based.” Id. In other words,
the Trustee did not show that Lederman “‘lack[ed] . . . familiarity with the methods and
reasons underlying [Goldman’s projections.]’” Id. (quoting TK–7 Corp. v. Estate of
Barbouti, 993 F.2d 722, 732 (10th Cir. 1993)).
Finally, ZF Meritor is distinguishable because Lederman did not simply adopt the
Goldman Sachs’ evaluation as his own. Instead, Lederman used his own analysis and
judgment to adjust the Goldman Sachs Report to account for SemGroup’s speculative
derivative trading by using the Ritchie Appellees’ trading expert, Joseph Graham. As the
Bankruptcy Court explained, “any effect of unknown speculative trading is adequately
quantified and adjusted for in Lederman’s valuation, which adopted Graham’s analysis.”
In re SemCrude, L.P., 2013 WL 2490179, at *10. We find it sufficient that Lederman’s
opinion was grounded on his own analysis and judgment, as supplemented by an analysis
in the record that was produced by another expert.
In closing, we emphasize that, for admissibility purposes, the proponents of expert
testimony “‘do not have to demonstrate to the judge by a preponderance of evidence that
the assessments of their experts are correct, they only have to demonstrate by a
16
preponderance of evidence that their opinions are reliable.’” Oddi v. Ford Motor Co.,
234 F.3d 136, 145 (3d Cir. 2000) (quoting In re Paoli R.R. Yard PCB Litig., 35 F.3d at
744). Under the deferential abuse of discretion standard, we will not disturb a trial
court’s decision to exclude testimony unless we are left with “‘a definite and firm
conviction that the court below committed a clear error of judgment.’” ZF Meritor, 696
F.3d at 293 (quoting In re TMI Litig., 193 F.3d 613, 666 (3d Cir. 1999) (citation
omitted)). Here, the Trustee does not clear that high hurdle. Because the Goldman Sachs
Report was a contemporaneous report capturing the marketplace value; Lederman
explained the reasons for his reliance on the Goldman Sachs analysis; and Lederman then
adjusted the Goldman Sachs valuation based on his own analysis and judgment while
giving cogent reasons to support his conclusions, we do not find that the Bankruptcy
Court abused its discretion in admitting Lederman’s expert testimony.
IV.
For the foregoing reasons, the Bankruptcy Court properly entered judgment in
favor of the Appellees. We will affirm the District Court’s ruling affirming the judgment
of the Bankruptcy Court.
17