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17‐0616  

Jamil v. SPI Energy Co., Ltd.

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

AMENDED SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A

SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY

FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1.

WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST

CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION

ASUMMARY ORDER@). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON

ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second

Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley

Square, in the City of New York, on the 29th day of November, two thousand

seventeen.

PRESENT: DENNIS JACOBS,

    ROBERT D. SACK,   

    BARRINGTON D. PARKER,

Circuit Judges.  

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TAIMUR JAMIL,  

Plaintiff‐Appellee,

  ‐v.‐                  17‐0616

SPI ENERGY CO., LTD.,

Defendant‐Appellant.

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FOR APPELLANT: KUUKU MINNAH‐DONKOH,

Gordon Rees Scully Mansukhani,

LLP, New York, NY.

FOR APPELLEE: JAY B. ZIMNER (Neal S.

Dobshinsky, on the brief), Zimner

Law PC, New York, NY.

Appeal from a judgment of the United States District Court for the

Southern District of New York (Rakoff, J.).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,

ADJUDGED AND DECREED that the judgment of the district court is

AFFIRMED.

SPI Energy Co., Ltd. (“SPI”), appeals the judgment of the district court

determining the value of restricted stock.  SPI argues that the district court

(1) improperly relied on actual economic conditions in light of hindsight and

(2) should have applied a minimum 30% discount rate to the restricted shares.  

We assume the parties’ familiarity with the underlying facts, the procedural

history, and the issues presented for review.

In November 2016, the district court ruled on summary judgment that SPI

breached an employment contract with Taimur Jamil by failing to transfer three

blocks of shares upon his termination: 35,000 sign‐on shares and 260,000

miscellaneous shares (on April 16, 2015) and 180,000 time‐based shares (on

November 3, 2015).  The parties stipulated to the over‐the‐counter share price on

the dates of breach ($2.01 on April 16, 2015 and $1.87 on November 3, 2015) and

to the length of the respective statutory and contractual restrictions.  The only

issues before the district court were the discount to be applied to the restricted

stock, and the resulting damages.

Under New York law, once “the non‐breaching party has proven the fact of

damages by a preponderance of the evidence, the burden of uncertainty as to the

amount of damage is upon the wrongdoer.”  Process Am., Inc. v. Cynergy

Holdings, LLC, 839 F.3d 125, 141 (2d Cir. 2016) (citation and quotation marks
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omitted) (emphasis in original).  Generally, the market value of restricted stock

should be discounted to account for decreased marketability.  See Simon v.

Electrospace Corp., 28 N.Y.2d 136, 147 (1971).

SPI made no attempt to establish the appropriate discount rate.  SPA‐8‐10

(Op. and Order at 6‐8).  Without the benefit of expert testimony, the district court

adopted the following methodology:

Based on [the] undisputed information ‐‐ and in the absence of any other

further information, as a result of the parties’ joint decision to forgo a

bench trial ‐‐ a reasonable estimate of the rate at which the restrictions

(which were solely short‐term time restrictions) affected the value of the

securities on the dates of breach would be to assume that the value of Solar

Powerʹs unrestricted common stock was falling steadily at that rate ‐‐ 

which works out to seven‐hundredths of a cent per day ‐‐ and to multiply

that rate by the relevant holding period.  This method reasonably

approximates the sole effect of the restrictions in forcing plaintiff (if he had

received the stock) to hold the securities over a period of time when their

value was declining in accordance with the stipulated market prices.

SPA‐10.  Applying this reasoning, the district court found that Jamil’s damages

totaled $736,385.00, exclusive of interest and a stipulated severance, and entered

judgment accordingly.  SPA‐12.

“Although the amount of recoverable damages is a question of fact, the

measure of damages upon which the factual computation is based is a question

of law.”  Oscar Gruss & Son, Inc. v. Hollander, 337 F.3d 186, 196 (2d Cir. 2003)

(citations and quotation marks omitted).

New York courts reject calculating damages on the basis of what the

“actual economic conditions and performance were in light of hindsight.”  Id.;

see also Sharma v. Skaarup Ship Mgmt. Corp., 916 F.2d 820, 826 (2d Cir. 1990).  

SPI argues that the district court erred in its valuation of the 475,000 shares

because it used hindsight and actual economic conditions to determine the

discount.
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However, we do not need to decide whether SPI is correct because SPI

failed to make this argument to the district court.  See App. 195‐201 (Def. Mem.).  

“[I]t is a well‐established general rule that an appellate court will not consider an

issue raised for the first time on appeal.”  In re Nortel Networks Corp. Sec. Litig.,

539 F.3d 129, 132 (2d Cir. 2008) (citation and quotation marks omitted).  The

“court has discretion to consider arguments waived below,” and will exercise

that discretion “where necessary to avoid a manifest injustice.”  Id. at 133.  But

“the circumstances normally do not militate in favor of an exercise of discretion

to address . . . new arguments on appeal where those arguments were available

to the [parties] below and they proffer no reason for their failure to raise the

arguments below.” Id. (citations and quotation marks omitted) (alterations in

original).

Judge Rakoff indicated at the conclusion of oral argument on January 6,

2017 that he was considering applying a methodology on the basis of the

stipulated share prices: “I am inclined to think I have a basis for computing the

discount based on what the change in price was.  I am saying that out loud, not

making a holding.”  App. 302.  Counsel for SPI did not invoke the New York

damages rule at that time, and failed thereafter to raise it by letter or motion

before the Opinion and Order was issued on January 31, 2017.  Because SPI had

notice of the district court’s reasoning and waived the argument by failing to

raise it, we decline to exercise our discretion to hear the argument now.  

Accordingly, the district court’s methodology stands.

SPI attempts to satisfy its burden of proving the discount rate by pointing

to several cases that found 30% to 35% to be an appropriate range; but none are

controlling.  For example, Waxman v. Envipco Pickup & Processing Servs., Inc.,

No. 02‐cv‐10132 (GEL), 2006 WL 1788964, at *4 (S.D.N.Y. June 28, 2006), and

BrandAid Mktg. Corp. v. Biss, No. 03‐cv‐5088 (WHP), 2008 WL 190494, at *5

(S.D.N.Y. Jan. 22, 2008), both calculated a 30% to 35% discount rate on restricted

shares.  However, Waxman states that “the precise discount that applies in any

particular case, including this one, depends on the facts of that case, including

expert testimony on the question of the proper discount amount considering the

characteristics of the company at issue and the precise nature of the restrictions

involved.”  2006 WL 1788964, at *4.  BrandAid Mktg. Corp. notes that some

courts have found 30% to 35% to be a “starting point” for valuing restricted
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shares, but then quotes Waxman to the effect that the analysis depends on the

facts of each case, including expert testimony.  2008 WL 190494, at *5.

Indeed, all of the authorities cited by SPI that apply a discount rate

between 30% and 35% are informed by expert testimony or state that the

discount rate depends on the facts and circumstances of each case.  See Holmes

v. Bateson, 583 F.2d 542, 563 (1st Cir. 1978) (noting that appellants’ expert had

applied a 30% discount to unregistered stock that could not be sold on the open

market); In re Colonial Realty Co., 226 B.R. 513, 523‐24 (Bankr. D. Conn. 1998)

(considering competing expert testimony and finding that applying a 35%

discount to shares for lack of marketability is appropriate); Mandelbaum v.

Comm’r, 69 TCM (CCH) 2852, 1995 WL 350881 (1995), aff’d, 91 F.3d 124 (3d Cir.

1996) (rejecting the expert opinions and conducting a multi‐factor, fact‐intensive

inquiry to determine that a 30% marketability discount is appropriate); Russel T.

Glazer, Understanding the Valuation Discount for Lack of Marketability, 75 THE

CPA JOURNAL 60, 60 (2005) (“Valuation discounts are not automatic [] and their

applicability and magnitude must be grounded in a careful analysis of the facts

and circumstances of each case.”).

In short, there is no support for SPI’s assertion that a 30% discount is

categorically appropriate for lack of marketability, and SPI may not rely upon the

findings of other courts to satisfy its burden to prove the discount rate that

should be applied in this case.  As the district court stated, each party “gambled

on who bears the burden of proving the discount rate, with each contending it

was the other’s responsibility.”  SPA‐7 (Op. and Order at 5).  This gamble implies

that SPI was willing to accept the risk that it could receive zero discount if the

district court held that SPI bears the burden of proof, as in fact it did.  Id.  It is not

for us to relieve SPI from its miscalculated gamble, especially since SPI is

fortunate that the district court applied any discount at all.  We conclude that

SPI’s failure to sustain its burden is sufficient to justify affirming the district

court’s calculation of damages.
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For the foregoing reasons, the judgment of the district court is

AFFIRMED.

FOR THE COURT:

CATHERINE O’HAGAN WOLFE, CLERK