The recent decision in Marini v. Adamo, 2014 WL 465036 (E.D.N.Y., February 6, 2014) tells a sad tale of greed and betrayal. How the allure of quick profits can, unfortunately, turn long-time friends into foes. The good news is that the law provides remedies for victims of perfidy, as this case illustrates.
At age 15, Rocco Marini began buying and selling “irregular” sweaters at flea markets. By his early twenties, the enterprising Marini had amassed millions from his growing textile business.
Several years later, Marini became close friends with Harold Adamo, one of his neighbors. The two men and their wives socialized regularly, and became godparents to each other’s children.
Adamo was a rare coin dealer. Their friendship well established, Adamo proposed that Marini invest some of his wealth in rare coins that Adamo would select for him. Marini agreed.
To reassure Marini, Adamo made certain representations, including that: (1) Adamo would be investing in the same coins as Marini; (2) the coins were liquid and Marini could sell them on 24 to 48 hours notice; and (3) Adamo would only charge a small commission on each coin he sold to Marini. Over time, Adamo also provided Marini with written statements purporting to show the market value of the coins that Marini had purchased.
However, unbeknownst to Marini, Adamo was defrauding him. Adamo would buy coins at low prices, and then sell them to Marini at exorbitant markups. For example, Adamo purchased a 1988 $1 Morgan Silver Dollar in April 2003 for $200, and then sold the coin to Marini in December 2003 for $100,000. In another instance, Adamo sold Marini an 1880–S Morgan Dollar for $250,000 in December 2002, and then just one month later, bought back the same exact coin for himself from another dealer for only $33,500.
Eventually, Marini discovered the fraud and demanded that Adamo buy back his coins. When Adamo refused, Marini sued him for fraud, alleging damages of over $11 million.
Legal Issues Requiring Expert Testimony
Expert testimony played a crucial role in helping Marini establish both liability and damages.
In order to prove fraud, Marini needed to show, among other things, that Adamo had misrepresented the value of the coins he sold to Marini, and charged Marini an excessive markup. To establish these facts, Marini presented the testimony of two coin experts. The two determined the true market value of the coins sold to Marini primarily by looking at auction prices for comparable coins and then drawing on their own expertise as coin dealers and appraisers to estimate the value of the coins actually purchased by Marini.
Adamo challenged the reliability of this valuation methodology under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). The gist of Adamo’s argument was that reliance on auction prices was inappropriate given that subjective factors like taste can affect the value of extremely rare coins.
The court disagreed and found the experts’ testimony reliable under Daubert. While conceding that “there is a subjective component to valuing coins,” the court held that it did not “render the expert testimony unreliable given the widely-accepted valuation publications and other methods (such as auction records) that are utilized in the industry to determine the current market value of coins.” 2014 WL 465036, at *18. Instead, the court held that issues such as the “difficulty of pricing coins with such a limited supply” were more appropriately explored on cross-examination, and thus went to the weight of the experts’ testimony and not its admissibility. Id.
Aside from contesting liability, Adamo sought to limit his damages by arguing that Marini should have discovered the fraud earlier than he did, using auction records available on the Internet. In response, one of Marini’s experts testified that at least one of the main auction websites was not publically available until after 2008 – well after Marini had already discovered the fraud.
The court ultimately found that Marini had suffered an economic loss by paying more than $16 million for coins that were worth far less, and awarded him damages equal to $11,304,079 -- the excess of what he paid over the value of what he got (as established by his experts’ testimony) (plus prejudgment interest at a rate of 9% from January 1, 2005).
Please share your thoughts. Have you previously worked with valuation experts where both subjective and objective factors played a role in determining market value? If so, was the reliability of these experts’ methodologies challenged under Daubert? What was the outcome?