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FILED: WESTCHESTER COUNTY CLERK 03/11/2024 10:30 AM INDEX NO. 60767/2018
NYSCEF DOC. NO. 1726 RECEIVED NYSCEF: 03/11/2024
HL EXHIBIT 53
GARY KLEINRICHERT REPORT
FEBRUARY 15, 2023
PUBLIC REDACTED VERSION
FILED: WESTCHESTER COUNTY CLERK 03/11/2024 10:30 AM INDEX NO. 60767/2018
NYSCEF DOC. NO. 1726 RECEIVED NYSCEF: 03/11/2024
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF WESTCHESTER
________________________________________________________________________
Pamela Goldstein, Ellyn & Tony Berk as Administrators of the Estate of Winifred Berk,
and Paul Benjamin, on behalf of themselves and all others similarly situated,
v.
Houlihan Lawrence Inc.,
Index No. 60767/2018
____________________________________________________
EXPERT REPORT OF
GARY KLEINRICHERT, CPA, CVA, CFF, ABV
Submitted February 15, 2023
HIGHLY CONFIDENTIAL – ATTORNEYS’ EYES ONLY
SUBJECT TO COURT PROTECTIVE ORDER
FILED: WESTCHESTER COUNTY CLERK 03/11/2024 10:30 AM INDEX NO. 60767/2018
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Expert Report of Gary Kleinrichert
Table of Contents
I. Introduction ........................................................................................................................................................ 4
Qualifications ................................................................................................................................ 4
Scope of Assignment .................................................................................................................... 4
Relevant Case Background .......................................................................................................... 5
II. Executive Summary ........................................................................................................................................... 6
III. Profit Power Data Collection, Financial Statement Reconciliation, & Review .......................................... 7
Profit Power Data Collection ....................................................................................................... 7
Financial Statement Reconciliation............................................................................................. 8
Review of Profit Power Data ....................................................................................................... 8
IV. Structured Data Production ............................................................................................................................ 12
V. Methodology of In‐House Bonus Identification For Produced Transactions .......................................... 17
Definitions.................................................................................................................................... 17
Summary of Base In‐House Bonus Methodology .................................................................. 19
Exceptions to Base In‐House Bonus Methodology ................................................................ 20
Summary of In‐House Bonus Methodology Results ............................................................. 22
VI. Examples of Determination of In‐House Bonus .......................................................................................... 22
Automatic Calculated Commission Split with In‐House Bonus .......................................... 23
Automatic Calculated Commission Split with No In‐House Bonus.................................... 25
Overwritten Commission Split with In‐House Bonus ........................................................... 26
Overwritten Commission Split with No In‐House Bonus .................................................... 28
Overwritten Commission Split with Administered Commission Plan and In‐House Bonus
29
Overwritten Commission Split with Administered Commission Plan and No In‐House
Bonus ..................................................................................................................................................... 31
VII. Results Summary Tables ................................................................................................................................. 33
VIII. Expert Declaration and Signature .................................................................................................................. 34
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Index of Appendices
Appendix A – CV
Appendix B – Documents Considered
Index of Exhibits
Exhibit 1 – Excel Spreadsheet Containing In‐House Bonus Determination and Amount
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Expert Report of Gary Kleinrichert
I. INTRODUCTION
Qualifications
I am a Senior Managing Director in FTI’s Forensic and Litigation Consulting practice and
have more than 30 years of experience as an auditor and as a consultant in accounting, auditing, forensic
investigations, litigation, and valuation matters. At FTI, I am the U.S. Markets Leader for the Forensic &
Litigation Consulting practice. Prior to joining FTI, I was a partner in the international accounting firm of
KPMG LLP (“KPMG”). During my career, I have performed a variety of services, including serving as a
business advisor and auditor to public and private companies in multiple industries, including
manufacturing, financial services, health care, real estate, higher education, insurance,
transportation/distribution, sports, retail, and mining. I have also performed numerous accounting and
forensic investigations, damages calculations, business valuations, due diligence, and other consulting
related to mergers and acquisitions. At KMPG, I was the coordinating partner responsible for Forensic
Services for the Midwest Region of the United States.
I am a Certified Public Accountant (CPA), Accredited in Business Valuation (ABV), Certified
in Financial Forensics (CFF), a Certified Valuation Analyst (CVA), and a Chartered Global Management
Accountant (CGMA). I am a member of the American Institute of Certified Public Accountants (AICPA),
the Illinois CPA Society, the National Association of Certified Valuation Analysts (NACVA), and the
Association of Certified Fraud Examiners (ACFE). I earned my Bachelor of Science degree in Accountancy
and Computer Sciences from St. Joseph’s College. I have included a copy of my curriculum vitae, including
publications and testimony experience, as Appendix A to this report.
Scope of Assignment
FTI has been engaged to assist Houlihan Lawrence, Inc., (“Houlihan Lawrence” or
“Company”) in relation to the following matter Pamela Goldstein, Ellyn & Tony Berk as Administrators of the
Estate of Winifred Berk, and Paul Benjamin, on behalf of themselves and all others similarly situated, Plaintiffs, v.
Houlihan Lawrence Inc..1 FTI is being compensated for my services at an hourly rate of $700. FTI is being
compensated for the services of others working on this matter at hourly rates ranging from $320 to $700.
I have been retained to provide analysis and opinions regarding the collection and
1 Pamela Goldstein, et al v. Houlihan Lawrence, Inc., Third Amended Class Action Complaint filed June 10, 2019 (Index
No. 60767/2018, Dkt. No. 557) (“Third Amended Class Action Complaint”). Previous filed complaints include the
Class Action Complaint filed on July 14, 2018 (Dkt. No. 1), the First Amended Class Action Complaint filed on
October 1, 2018 (Dkt. No. 155) and the Second Amended Class Action Complaint filed on May 15, 2019 (Dkt. No.
373).
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production of Houlihan Lawrence’s transactional database (Profit Power); the existence or lack thereof of
a unique field identifying each transaction where an agent received an in‐house bonus maintained in the
ordinary course of business; the identification of an in‐house bonus by transaction agent level on the basis
of the data maintained in the ordinary course of business; and the amount of any such in‐house bonus
received by Houlihan Lawrence agents by transaction. In connection with this matter, I have been asked to
collect, reconcile, analyze, quantify, and produce Houlihan Lawrence’s transaction records relevant to this
litigation in such a way that identifies the existence and amount of each in‐house bonus at the transaction
agent level where it is possible to do so.
I have reviewed a number of documents produced in this case in connection with my
engagement. Appendix B contains a list of all documents that I have reviewed and considered in reaching
my conclusions. Additionally, I, or my team members under my direction, have also interviewed
employees of the Company to gain an understanding of the financial accounting records and historical
processes utilized by the Company with regards to commission payments.
I reserve the right to prepare a separate written response if additional materials and/or
information become available. Moreover, should additional information be produced in this matter, I may
amend this report or prepare further reports in response to that production.
Relevant Case Background
Houlihan Lawrence is a “full‐service real estate brokerage firm that represents buyers and sellers in
real estate transactions” which “owns and operates 30 offices, with over 1,300 agents, across the Westchester,
Putnam, and Duchess tri‐county area” in the state of New York.2 The nature of this litigation relates to the
buying and selling of real estate where the same brokerage firm, Houlihan Lawrence, had agents that
represented both sides (buyer and seller) of the transaction. These transactions could involve two different
Houlihan Lawrence agents or the same Houlihan Lawrence agent. At issue is the propriety of the “dual
agency disclosures” given by Houlihan Lawrence to the consumers in the transactions.3 The Complaint
alleges, among other things, that Houlihan Lawrence has financially incentivized its agents to “steer clients
into dual‐agent transactions”4 through what Plaintiffs call “in‐house bonuses”.5
2 Third Amended Class Action Complaint, ¶ 6.
3 Third Amended Class Action Complaint, ¶¶ 15‐19.
4 Third Amended Class Action Complaint, ¶ 29.
5 Third Amended Class Action Complaint, ¶¶ 58, 75, 85, and 89.
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II. EXECUTIVE SUMMARY
To perform my analysis, the database containing Houlihan Lawrence’s transaction
information, Profit Power, was collected. This database was reconciled, on a monthly basis, to key income
statement line items related to commissions received from real estate transactions. An analysis of the
database was performed which included reviewing and analyzing the fields and data structures
maintained within the database in its entirety, performing the financial statement reconciliation,
discussions with Company personnel, reviewing an affidavit from Ms. Polly Parrot, and reviewing a
sample of paper transaction documents. This analysis resulted in the production of Houlihan Lawrence’s
structured transaction data on December 22, 2022 and the in‐house bonus methodology detailed within
this report.
From this analysis, there was no unique field that existed in the database showing on a
transaction or agent level either (1) the presence of an in‐house bonus, or (2) the amount of an in‐house
bonus paid to an agent. In addition, I observed the following regarding the presence of an in‐house bonus
in the Profit Power database:
There is no automatic rule that was applied or can be applied to all transactions to determine in‐
house bonus existence or eligibility, or in‐house bonus amount at the agent‐transaction level.
Not all agent plans are eligible for in‐house bonus commission splits.
Agents eligible for an in‐house bonus do not receive an in‐house bonus on every transaction where
Houlihan Lawrence represented both sides.
Agents on commission plans which are ineligible for in‐house bonuses received in‐house bonuses
on certain transactions as directed by managers on an individualized basis.
In the absence of a unique field or automatic rule that was, or could be, applied to all
transactions to determine the presence of an in‐house bonus, a methodology was developed to identify
those agents that received an in‐house bonus on a transaction‐by‐transaction basis. This methodology is
described in Section V.B. below, which started with the produced transaction data provided on December
22, 2022, and involved (1) the identification of dual‐sided transactions, (2) the identification of listing and
selling agents on these transactions, and (3) the comparison of these agents’ commission splits received for
their role on the transaction to the recorded commission plan’s inside and outside brokerage commission
splits. As shown in Exhibit 1, for those commission splits matching the outside brokerage’s commission
split, the agents were determined as not receiving an in‐house bonus (indicated as ‘N’). For those
commission splits matching the inside brokerage’s commission split, the agents were determined as
receiving an in‐house bonus (indicated as ‘Y’). For certain exclusion categories to this base methodology,
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additional in‐house bonus determinations were able to be made as described in Section V.C. below. For
the remainder, the presence of an in‐house bonus was determined to be inconclusive (indicated as ‘I’).6
From this base methodology and exception methodology, the determination of the presence
or absence of the in‐house bonus was identified for 96.5% of agent roles7 on produced dual sided
transactions, with 3.5% remaining inconclusive.8 For the records determined to have received an in‐house
bonus, the bonus amount was estimated as the difference between applied commission split and
commission split for an outside brokage, resulting in percentage which was multiplied by the base
commission.9 The mean in‐house bonus amount was , and the median in‐house bonus amount was
.
III. PROFIT POWER DATA COLLECTION, FINANCIAL STATEMENT RECONCILIATION, & REVIEW
In this section I summarize the process my team and I completed to collect and analyze
Houlihan Lawrence’s back‐office software, Profit Power, and subsequent financial statement reconciliation
performed to ensure completeness and accuracy of the data collected.
Profit Power Data Collection
The software Profit Power is used by Houlihan Lawrence to run its daily operations and
manage its sale transactions and accounting processes. Profit Power is an enterprise resource planning
system that is designed to support real estate brokerages. The Profit Power database used by Houlihan
Lawrence is hosted by a 3rd Party vendor, LanTrax. Per the vendor’s website, “Profit Power is a real estate
back‐office software that ties all of the critical data a real estate broker needs to run daily operations. We
manage listings, sales, closings, commission calculations, check payouts, and more. Profit Power is the
central hub for processing closings and paying associates for residential real estate brokers.”10 A full
backup of the underlying SQL Server database was made by vendor LanTrax and provided in 2022 to FTI
as a .bak file. The database contains Houlihan Lawrence’s history of transactions from January 2, 2003.11
The database contains transaction records for all states and counties in which Houlihan Lawrence operates
6 Additional manual review beyond the methodology applied could be attempted to work towards determinations
for some of these inconclusive records. This manual review could include paper documents including e‐mails
and office transaction files, remarks made within the database, calculations of multi‐level tier plans, and changes
in total commission affecting an agent’s commission split, and/or interviews of the participants.
7 An “agent role” refers to a record for each agent on each side of a transaction.
8 See Exhibit 1.
9 The base commission is the total commission allocated to the side of the transaction an agent is on, less that side’s
referrals. If multiple agents are on the same side this amount will be divided between them.
10 https://lantrax.com/profit‐power/.
11 Excludes a sparse number of transactions before the 2003 start date and non‐sensical future dated transactions.
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including New York, Connecticut, and New Jersey. In general, the transaction types contained in the
database include (1) closed, pending, and aborted transactions, (2) residential and commercial transactions,
and (3) one‐sided sales, both sided sales, referrals, and other miscellaneous sale types.
Financial Statement Reconciliation
Upon collection of the Profit Power database, a financial statement reconciliation was
performed for key income statement line items related to commissions received from real estate
transactions: (1) Gross Commission, (2) Paid to Other Brokers, (3) Paid to Associates, and (4) Company
Dollar‐Base. For these four income statement line items, monthly income statements for January 2011
through December 2018 were reviewed and reconciled to the HL_PP_Sales table and
HL_PP_ReferralProspects table for transactions occurring within 2011 through 2018.12 Using these tables and
fields within Profit Power resulted in total variances of less than 3.8%, which was primarily driven by the
Paid to Other Brokers line item of the income statement representing referrals made to outside companies
as part of the transaction terms (and not relevant to commission bonus payments).13 To further analyze the
primary variance, additional general ledger detail was provided and discussed with Company accounting
personnel, Polly Parrott (“Ms. Parrott”), Houlihan Lawrence’s Commissions Processor for the Accounting
Department, and Tina Dunne (“Ms. Dunne”), Accounting Manager. Based on this review and discussions,
it was determined that the variances between the Profit Power transaction data and the monthly income
statements received can be explained through final closing accounting adjustments that have been made in
the general accounting system (NewViews) after the transaction and financial data has been exported from
Profit Power. These adjustments are not transferred back into Profit Power. The financial statements are
created from a feed of data from Profit Power which creates journal entries, followed by adjustments made
only within the general accounting software.14
Review of Profit Power Data
Upon completion of the reconciliation process, I then reviewed the information contained in
Profit Power to gain an understanding as to how the Company historically recorded transactions and
12 Fields used in the reconciliation from the HL_PP_Sales table included “ofc_commission_amt”,
“GrandTotalReferralsPaid”, and “Total_Associate_Payouts”;
Fields used in the reconciliation from the HL_PP_ReferralProspects table included “Amount_Paid_Out”;
Date restriction was done using dates as identified by the “Close_Date” field in the HL_PP_Sales table; and
transactions were limited to ‘closed’ transactions based on the “Deal_Status” field.
13 The total variance for line items, “gross commission” and “paid to associates” was less than 1.2% and 0.10%,
respectively. The 3.8% variance of company dollar was driven by the “paid to other brokers” line item of the
income statement representing referrals made to outside companies as part of the transaction terms.
14 Discussion with Houlihan Lawrence personnel.
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specifically, how it recorded and maintained commission information. As part of my review of the
information contained in Profit Power, I considered information obtained through discussions with
Company personnel as well as information provided by an affidavit signed by Ms. Parrott which contained
explanations on the processes involved in commission split calculations, including applicability of in‐house
bonuses on transactions.15 Ms. Parrott is responsible for maintaining and processing certain business
records relating to the real estate commission splits paid to agents and other transaction details.16 Ms.
Parrott uses Profit Power to finalize and process transaction financial details including commission
amounts received and paid out to agents, which is then fed into the accounting software.17
When Houlihan Lawrence processes payments to agents on transactions, there are times in
which a higher commission split is applied to the agent for dual sided transactions. This rate on dual sided
transactions is what Plaintiffs have called an “in‐house bonus”.18 Ms. Parrott detailed the following points
related to documentation and applicability of this in‐house bonus to transactions over time which informed
my review of the Profit Power database as well as my identification and analysis of in‐house bonus
commission amounts.
In‐House Bonus Generally: Houlihan Lawrence does not offer in‐house bonus commission splits
to all agents. Whether an agent on a transaction is subject to an in‐house bonus depends on the
individually negotiated compensation plan and specific transaction details. Additionally, each
Houlihan Lawrence office has different practices with respect to applying or allowing in‐house
bonuses on transactions.19
In‐House Bonus Recordkeeping: Houlihan Lawrence does not generate lists of paid in‐house
bonuses in the ordinary course of business.20 Ms. Parrott stated that her determination of whether
an agent on a transaction received an in‐house bonus would be a manual process involving a
review on a transaction‐by‐transaction basis of the commission split received by the agent
compared to the commission plan the agent was on at the time of the transaction.21
In‐House Bonus is Not Always Applied: Agents eligible for in‐house bonuses are only given the
bonus for qualifying transactions, which for example may exclude transactions where the total
commission is less than .22
15 Houlihan Lawrence Opposition to Motion to Certify Exhibit 7, Affidavit of Polly Parrott dated November 17, 2021,
¶ 4 (“Affidavit of Polly Parrott dated November 17, 2021”).
16 Affidavit of Polly Parrott dated November 17, 2021, ¶ 5.
17 Discussion with Houlihan Lawrence personnel.
18 Affidavit of Polly Parrott dated November 17, 2021, ¶ 8.
19 Affidavit of Polly Parrott dated November 17, 2021, ¶ 9.
20 Affidavit of Polly Parrott dated November 17, 2021, ¶ 12.
21 Affidavit of Polly Parrott dated November 17, 2021, ¶¶ 14‐17.
22 Affidavit of Polly Parrott dated November 17, 2021, ¶ 19.
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Agent Commission Plans: Agent portion rates or commission splits vary over time. Ms. Parrott
would receive a listing from each office detailing the appropriate commission splits for agents on
outside brokerage transactions and on in‐house transactions. This listing could be sent at any point
in time with updates to agent’s plans. The forms of these commission split documents varied by
office and over time.23
Even once reviewing these historical records, some transactions may be unable to be classified
due to lack of documentation sufficient to determine the split received for a specific
transaction and whether that split indicated an in‐house bonus.24
Additionally, just because an agent was on a plan which was eligible for an in‐house bonus,
that does not indicate an in‐house bonus was received on every transaction as only certain
qualifying dual sided transactions were eligible.25
Transaction Detail Sheets: Each transaction has a summary sheet called a “Transaction Detail
Sheet” or “TDS” which contains transaction fields including MLS number, property address, sale
id, sale type, commission type, sale price, total commission rate, list side rate, sell side rate, gross
commission, close date, agent name, office ID, agent ID, agent side, side split, gross commission
income (GCI) to each side, referral fees, agent adjusted base, associate split percentage, and net
commission to associate.26 In order to determine if an agent received an in‐house bonus, the details
of the agent split on the TDS ) would
be compared to the agent’s commission plan at the time of the transaction to determine if an in‐
house bonus was received.27
23Affidavit of Polly Parrott dated November 17, 2021, ¶ 15.
24 Affidavit of Polly Parrott dated November 17, 2021, ¶ 17.
25 Affidavit of Polly Parrott dated November 17, 2021, ¶ 19.
26 The example TDS shown below is from Affidavit of Polly Parrott dated November 17, 2021, Exhibit A, page 1.
27 Affidavit of Polly Parrott dated November 17, 2021, ¶¶ 14‐16.
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Example Transaction Detail Sheet
Houtihan Lausance av""te"a"m"s: wasrmisae.aePM
nomannairsomc"
z57summeronesaname
WhbaNa1asNY 1960s
9143284M00 Deal matum (3mead
Transaction Detail Sheet 'reestyneana soasoos4tasar
:a7imalPnewassume salemes:oiruntandsee
ML*: 33.t66 Canunlulun ge: sale
sules PIIces PrimaryseBer(s): pdmaryAs adgIn:
anal ounmismanstate: lan Thongsun
unt side Itate: 818988
8AU8
ses side Itase:
enas Commisulon:
me, g
127tangdommerma
ng igges gbanachmahanimmrenmxun
FrancNeeFes: PrimaryOuter(s): CordrattDate: 4t195013
Jongf5 PtUNE EstGulng Date: 8000013
OAFno Pa Edo 37 tincnIn Soust comeDeta: GG4G013
wastport, cr 0s880
127tangdew manue man pluens
NY 10605
was Ph NY 19605
aur agamam
Anantmm= cmon Agentm Edn Sdalet GCI assarralFea AdMad Bam Snat Nat ta Amanc
Itosenberg,camirn ssos0 salms
AmounttoPer OutsideIkehar
manamaganammerenam No Relocaton Asiane
assaserammermam No 8rcher Refeness Paramane Nons
Mts Ranumle:None nemarks: None
sals Canments:
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Data fields and amounts shown on the Transaction Detail Sheets were mapped to the
underlying tables and fields within Profit Power to identify relevant data for production and analysis.28
The production of Transaction Detail Sheet data was made on October 6, 2022, according to the parameters
described in the production letter.29 Further, in conducting an analysis of the collected Profit Power
database, an extensive review into tables and fields was performed related to commissions, in‐house
bonuses, and overall payments made to the agents. The results indicated the following which aligned with
Ms. Parrott’s affidavit and discussions with Ms. Parrott:
There is no unique field in the complete database that indicates which transactions received an in‐
house bonus.
There is no unique field in the complete database that contains the amount of an in‐house bonus
paid on a transaction.
There is no record of accumulated in‐house bonuses earned by specific agents for any time period.
An agent’s split of commission varies over time.
IV. STRUCTURED DATA PRODUCTION
Once the Profit Power database was collected, reconciled to financial statements, and
reviewed, relevant tables and fields were identified to be included in the structured data production. All
431 tables, 8,005 data fields, 349 views and 684 stored procedures contained within the Profit Power
database were reviewed to identify the tables and fields relevant to the allegations in this matter. These
decisions were based on a combination of factors including: (1) commission fields identified during the
reconciliation process, (2) data fields contained or mapped to the Transaction Detail Sheet (“TDS”), and (3)
relevant data fields for determination of an in‐house bonus for an agent on a transaction‐by‐transaction
basis based on information obtained through Ms. Parrott’s affidavit and discussions with Ms. Parrott.
The data records produced from the Profit Power database were limited by the following
five criteria: (1) time period, (2) geography, (3) source of sale, (4) deal status, and (5) property type. This
structured data was produced to Plaintiffs on December 22, 2022.30
Time Period: The data was restricted to the time period of January 1, 2011 through July 14, 2018
(inclusive) using the “Close_Date” field of the HL_PP_Sales table.
28 MacGill Letter to Mintz, Jeremy Vest dated October 6, 2022 related to Transaction Detail Sheets Production.
29 MacGill Letter to Mintz, Jeremy Vest dated October 6, 2022 related to Transaction Detail Sheets Production.
30 MacGill Letter to Mintz, Jeremy Vest dated December 22, 2022 with Houlihan Lawrenceʹs Structured Production
(HL‐STRUCPROD‐122222).
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" Geography: The data was restricted to subject properties within Dutchess Putnam
County, County
"Postal_Zip_Code"
or Westchester County as identified using USPS data and the or
"LISTING_CITY_NAME" table.31
fields of the HL_PP_Property_Listing
" "Sale" "Source_of_Sale"
Source of Sale: The data was restricted to records with the value of in the
field in the HL_PP_Sales table.
" 'Cosed' "Deal_Status"
Deal Status: The data was restricted to deal statuses of as identified in the
field of the HL_PP_Sales table.
" Type: The data was restricted to residential types non-residential
Property property by excluding
"Sale_No"
sale types as identified by the field of the HL_PP_Sales table containing values starting
'X001-047'
with 'M001-047', 'S001-047', or or transactions whose associate on the transaction had a
Conunercial' Corporate' "Office_Name"
value of ‰/L or ‰/L in the field of the HL_PP_Associates
table.32
20. The structured data production included 10 tables containing a total of 190 fields. A
description of each produced table and the number of fields produced is shown below.
Produced Profit Power Tables
HL_PP_Associates 11 Agent details, agent office, and agent join date
HL_PP_Branch_Offices 10 Houlihan Lawrence office name and address
HL_PP_Brokers 7 Other brokerage firm names and addresses
HL_PP_Clients 13 Buyer and seller name and contact information
genmansahed de0 Mu0g agM, agenhame,
HL - PP - Commission - Calcs 17
calculated agent commission fields, and commission plan applied
Lookup table of commission plan id, commission plan name, and
HL - PP - Commission - Plans 54
commission split percentage rates applied based on each plan
HL_PP_Companies 3 Company name and ID
HL_PP_Property_Listings 16 Property address details and MLS number
HL_PP_Referral_Prospects 14 Outside brokerage referral name and address
Transaction level details: address, close date, close price, commission,
- -
referral amounts, etc.
31The "Postal-Zip_Code"
HL_PP_Property_Listing value was mapped to its county using data obtained from the
USPS enabling zip code to be linked to county. For records with an invalid or NULL zip code, the
"LISTING_CITY_NAME"
HL_PP_Property_Listing value was mapped to county using the same USPS data.
32Two non-residential data records containing the list side transaction details for sale side records within this
population were also identified and included in the production.
HIGHLY CONFIDENTIAL
SUBJECT TO COURT PROTECTIVE ORDER Page 13 of 34
FILED: WESTCHESTER COUNTY CLERK 03/11/2024 10:30 AM INDEX NO. 60767/2018
NYSCEF DOC. NO. 1726 RECEIVED NYSCEF: 03/11/2024
February 15, 2023
Expert Report of Gary Meinrichert
21. The structured data production contains fields relevant to both dual-sided transactions and
those where Houlihan Lawrence only represented one side of a transaction. The side(s) represented by
"Type_of_Sale"
Houlihan Lawrence is contained in the field of the HL_PP_Sales table. The HL_PP_Sales
table, HL_PP_Commission_Cales table, and HL_PP_Commission_Plans table contained the fields used in my
analysis to understand the commission characteristics of a transaction and determine the existence and
amount of in-house bonuses. These three tables
Preview
FILED: WESTCHESTER COUNTY CLERK 03/11/2024 10:30 AM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1726 RECEIVED NYSCEF: 03/11/2024 HL EXHIBIT 53 GARY KLEINRICHERT REPORT FEBRUARY 15, 2023 PUBLIC REDACTED VERSION FILED: WESTCHESTER COUNTY CLERK 03/11/2024 10:30 AM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1726 RECEIVED NYSCEF: 03/11/2024 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF WESTCHESTER ________________________________________________________________________ Pamela Goldstein, Ellyn & Tony Berk as Administrators of the Estate of Winifred Berk, and Paul Benjamin, on behalf of themselves and all others similarly situated, v. Houlihan Lawrence Inc., Index No. 60767/2018 ____________________________________________________ EXPERT REPORT OF GARY KLEINRICHERT, CPA, CVA, CFF, ABV Submitted February 15, 2023 HIGHLY CONFIDENTIAL – ATTORNEYS’ EYES ONLY SUBJECT TO COURT PROTECTIVE ORDER FILED: WESTCHESTER COUNTY CLERK 03/11/2024 10:30 AM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1726 RECEIVED NYSCEF: 03/11/2024 February 15, 2023 Expert Report of Gary Kleinrichert Table of Contents I. Introduction ........................................................................................................................................................ 4 Qualifications ................................................................................................................................ 4 Scope of Assignment .................................................................................................................... 4 Relevant Case Background .......................................................................................................... 5 II. Executive Summary ........................................................................................................................................... 6 III. Profit Power Data Collection, Financial Statement Reconciliation, & Review .......................................... 7 Profit Power Data Collection ....................................................................................................... 7 Financial Statement Reconciliation............................................................................................. 8 Review of Profit Power Data ....................................................................................................... 8 IV. Structured Data Production ............................................................................................................................ 12 V. Methodology of In‐House Bonus Identification For Produced Transactions .......................................... 17 Definitions.................................................................................................................................... 17 Summary of Base In‐House Bonus Methodology .................................................................. 19 Exceptions to Base In‐House Bonus Methodology ................................................................ 20 Summary of In‐House Bonus Methodology Results ............................................................. 22 VI. Examples of Determination of In‐House Bonus .......................................................................................... 22 Automatic Calculated Commission Split with In‐House Bonus .......................................... 23 Automatic Calculated Commission Split with No In‐House Bonus.................................... 25 Overwritten Commission Split with In‐House Bonus ........................................................... 26 Overwritten Commission Split with No In‐House Bonus .................................................... 28 Overwritten Commission Split with Administered Commission Plan and In‐House Bonus 29 Overwritten Commission Split with Administered Commission Plan and No In‐House Bonus ..................................................................................................................................................... 31 VII. Results Summary Tables ................................................................................................................................. 33 VIII. Expert Declaration and Signature .................................................................................................................. 34 HIGHLY CONFIDENTIAL SUBJECT TO COURT PROTECTIVE ORDER Page 2 of 34 FILED: WESTCHESTER COUNTY CLERK 03/11/2024 10:30 AM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1726 RECEIVED NYSCEF: 03/11/2024 February 15, 2023 Expert Report of Gary Kleinrichert Index of Appendices Appendix A – CV Appendix B – Documents Considered Index of Exhibits Exhibit 1 – Excel Spreadsheet Containing In‐House Bonus Determination and Amount HIGHLY CONFIDENTIAL SUBJECT TO COURT PROTECTIVE ORDER Page 3 of 34 FILED: WESTCHESTER COUNTY CLERK 03/11/2024 10:30 AM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1726 RECEIVED NYSCEF: 03/11/2024 February 15, 2023 Expert Report of Gary Kleinrichert I. INTRODUCTION Qualifications I am a Senior Managing Director in FTI’s Forensic and Litigation Consulting practice and have more than 30 years of experience as an auditor and as a consultant in accounting, auditing, forensic investigations, litigation, and valuation matters. At FTI, I am the U.S. Markets Leader for the Forensic & Litigation Consulting practice. Prior to joining FTI, I was a partner in the international accounting firm of KPMG LLP (“KPMG”). During my career, I have performed a variety of services, including serving as a business advisor and auditor to public and private companies in multiple industries, including manufacturing, financial services, health care, real estate, higher education, insurance, transportation/distribution, sports, retail, and mining. I have also performed numerous accounting and forensic investigations, damages calculations, business valuations, due diligence, and other consulting related to mergers and acquisitions. At KMPG, I was the coordinating partner responsible for Forensic Services for the Midwest Region of the United States. I am a Certified Public Accountant (CPA), Accredited in Business Valuation (ABV), Certified in Financial Forensics (CFF), a Certified Valuation Analyst (CVA), and a Chartered Global Management Accountant (CGMA). I am a member of the American Institute of Certified Public Accountants (AICPA), the Illinois CPA Society, the National Association of Certified Valuation Analysts (NACVA), and the Association of Certified Fraud Examiners (ACFE). I earned my Bachelor of Science degree in Accountancy and Computer Sciences from St. Joseph’s College. I have included a copy of my curriculum vitae, including publications and testimony experience, as Appendix A to this report. Scope of Assignment FTI has been engaged to assist Houlihan Lawrence, Inc., (“Houlihan Lawrence” or “Company”) in relation to the following matter Pamela Goldstein, Ellyn & Tony Berk as Administrators of the Estate of Winifred Berk, and Paul Benjamin, on behalf of themselves and all others similarly situated, Plaintiffs, v. Houlihan Lawrence Inc..1 FTI is being compensated for my services at an hourly rate of $700. FTI is being compensated for the services of others working on this matter at hourly rates ranging from $320 to $700. I have been retained to provide analysis and opinions regarding the collection and 1 Pamela Goldstein, et al v. Houlihan Lawrence, Inc., Third Amended Class Action Complaint filed June 10, 2019 (Index No. 60767/2018, Dkt. No. 557) (“Third Amended Class Action Complaint”). Previous filed complaints include the Class Action Complaint filed on July 14, 2018 (Dkt. No. 1), the First Amended Class Action Complaint filed on October 1, 2018 (Dkt. No. 155) and the Second Amended Class Action Complaint filed on May 15, 2019 (Dkt. No. 373). HIGHLY CONFIDENTIAL SUBJECT TO COURT PROTECTIVE ORDER Page 4 of 34 FILED: WESTCHESTER COUNTY CLERK 03/11/2024 10:30 AM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1726 RECEIVED NYSCEF: 03/11/2024 February 15, 2023 Expert Report of Gary Kleinrichert production of Houlihan Lawrence’s transactional database (Profit Power); the existence or lack thereof of a unique field identifying each transaction where an agent received an in‐house bonus maintained in the ordinary course of business; the identification of an in‐house bonus by transaction agent level on the basis of the data maintained in the ordinary course of business; and the amount of any such in‐house bonus received by Houlihan Lawrence agents by transaction. In connection with this matter, I have been asked to collect, reconcile, analyze, quantify, and produce Houlihan Lawrence’s transaction records relevant to this litigation in such a way that identifies the existence and amount of each in‐house bonus at the transaction agent level where it is possible to do so. I have reviewed a number of documents produced in this case in connection with my engagement. Appendix B contains a list of all documents that I have reviewed and considered in reaching my conclusions. Additionally, I, or my team members under my direction, have also interviewed employees of the Company to gain an understanding of the financial accounting records and historical processes utilized by the Company with regards to commission payments. I reserve the right to prepare a separate written response if additional materials and/or information become available. Moreover, should additional information be produced in this matter, I may amend this report or prepare further reports in response to that production. Relevant Case Background Houlihan Lawrence is a “full‐service real estate brokerage firm that represents buyers and sellers in real estate transactions” which “owns and operates 30 offices, with over 1,300 agents, across the Westchester, Putnam, and Duchess tri‐county area” in the state of New York.2 The nature of this litigation relates to the buying and selling of real estate where the same brokerage firm, Houlihan Lawrence, had agents that represented both sides (buyer and seller) of the transaction. These transactions could involve two different Houlihan Lawrence agents or the same Houlihan Lawrence agent. At issue is the propriety of the “dual agency disclosures” given by Houlihan Lawrence to the consumers in the transactions.3 The Complaint alleges, among other things, that Houlihan Lawrence has financially incentivized its agents to “steer clients into dual‐agent transactions”4 through what Plaintiffs call “in‐house bonuses”.5 2 Third Amended Class Action Complaint, ¶ 6. 3 Third Amended Class Action Complaint, ¶¶ 15‐19. 4 Third Amended Class Action Complaint, ¶ 29. 5 Third Amended Class Action Complaint, ¶¶ 58, 75, 85, and 89. HIGHLY CONFIDENTIAL SUBJECT TO COURT PROTECTIVE ORDER Page 5 of 34 FILED: WESTCHESTER COUNTY CLERK 03/11/2024 10:30 AM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1726 RECEIVED NYSCEF: 03/11/2024 February 15, 2023 Expert Report of Gary Kleinrichert II. EXECUTIVE SUMMARY To perform my analysis, the database containing Houlihan Lawrence’s transaction information, Profit Power, was collected. This database was reconciled, on a monthly basis, to key income statement line items related to commissions received from real estate transactions. An analysis of the database was performed which included reviewing and analyzing the fields and data structures maintained within the database in its entirety, performing the financial statement reconciliation, discussions with Company personnel, reviewing an affidavit from Ms. Polly Parrot, and reviewing a sample of paper transaction documents. This analysis resulted in the production of Houlihan Lawrence’s structured transaction data on December 22, 2022 and the in‐house bonus methodology detailed within this report. From this analysis, there was no unique field that existed in the database showing on a transaction or agent level either (1) the presence of an in‐house bonus, or (2) the amount of an in‐house bonus paid to an agent. In addition, I observed the following regarding the presence of an in‐house bonus in the Profit Power database: There is no automatic rule that was applied or can be applied to all transactions to determine in‐ house bonus existence or eligibility, or in‐house bonus amount at the agent‐transaction level. Not all agent plans are eligible for in‐house bonus commission splits. Agents eligible for an in‐house bonus do not receive an in‐house bonus on every transaction where Houlihan Lawrence represented both sides. Agents on commission plans which are ineligible for in‐house bonuses received in‐house bonuses on certain transactions as directed by managers on an individualized basis. In the absence of a unique field or automatic rule that was, or could be, applied to all transactions to determine the presence of an in‐house bonus, a methodology was developed to identify those agents that received an in‐house bonus on a transaction‐by‐transaction basis. This methodology is described in Section V.B. below, which started with the produced transaction data provided on December 22, 2022, and involved (1) the identification of dual‐sided transactions, (2) the identification of listing and selling agents on these transactions, and (3) the comparison of these agents’ commission splits received for their role on the transaction to the recorded commission plan’s inside and outside brokerage commission splits. As shown in Exhibit 1, for those commission splits matching the outside brokerage’s commission split, the agents were determined as not receiving an in‐house bonus (indicated as ‘N’). For those commission splits matching the inside brokerage’s commission split, the agents were determined as receiving an in‐house bonus (indicated as ‘Y’). For certain exclusion categories to this base methodology, HIGHLY CONFIDENTIAL SUBJECT TO COURT PROTECTIVE ORDER Page 6 of 34 FILED: WESTCHESTER COUNTY CLERK 03/11/2024 10:30 AM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1726 RECEIVED NYSCEF: 03/11/2024 February 15, 2023 Expert Report of Gary Kleinrichert additional in‐house bonus determinations were able to be made as described in Section V.C. below. For the remainder, the presence of an in‐house bonus was determined to be inconclusive (indicated as ‘I’).6 From this base methodology and exception methodology, the determination of the presence or absence of the in‐house bonus was identified for 96.5% of agent roles7 on produced dual sided transactions, with 3.5% remaining inconclusive.8 For the records determined to have received an in‐house bonus, the bonus amount was estimated as the difference between applied commission split and commission split for an outside brokage, resulting in percentage which was multiplied by the base commission.9 The mean in‐house bonus amount was , and the median in‐house bonus amount was . III. PROFIT POWER DATA COLLECTION, FINANCIAL STATEMENT RECONCILIATION, & REVIEW In this section I summarize the process my team and I completed to collect and analyze Houlihan Lawrence’s back‐office software, Profit Power, and subsequent financial statement reconciliation performed to ensure completeness and accuracy of the data collected. Profit Power Data Collection The software Profit Power is used by Houlihan Lawrence to run its daily operations and manage its sale transactions and accounting processes. Profit Power is an enterprise resource planning system that is designed to support real estate brokerages. The Profit Power database used by Houlihan Lawrence is hosted by a 3rd Party vendor, LanTrax. Per the vendor’s website, “Profit Power is a real estate back‐office software that ties all of the critical data a real estate broker needs to run daily operations. We manage listings, sales, closings, commission calculations, check payouts, and more. Profit Power is the central hub for processing closings and paying associates for residential real estate brokers.”10 A full backup of the underlying SQL Server database was made by vendor LanTrax and provided in 2022 to FTI as a .bak file. The database contains Houlihan Lawrence’s history of transactions from January 2, 2003.11 The database contains transaction records for all states and counties in which Houlihan Lawrence operates 6 Additional manual review beyond the methodology applied could be attempted to work towards determinations for some of these inconclusive records. This manual review could include paper documents including e‐mails and office transaction files, remarks made within the database, calculations of multi‐level tier plans, and changes in total commission affecting an agent’s commission split, and/or interviews of the participants. 7 An “agent role” refers to a record for each agent on each side of a transaction. 8 See Exhibit 1. 9 The base commission is the total commission allocated to the side of the transaction an agent is on, less that side’s referrals. If multiple agents are on the same side this amount will be divided between them. 10 https://lantrax.com/profit‐power/. 11 Excludes a sparse number of transactions before the 2003 start date and non‐sensical future dated transactions. HIGHLY CONFIDENTIAL SUBJECT TO COURT PROTECTIVE ORDER Page 7 of 34 FILED: WESTCHESTER COUNTY CLERK 03/11/2024 10:30 AM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1726 RECEIVED NYSCEF: 03/11/2024 February 15, 2023 Expert Report of Gary Kleinrichert including New York, Connecticut, and New Jersey. In general, the transaction types contained in the database include (1) closed, pending, and aborted transactions, (2) residential and commercial transactions, and (3) one‐sided sales, both sided sales, referrals, and other miscellaneous sale types. Financial Statement Reconciliation Upon collection of the Profit Power database, a financial statement reconciliation was performed for key income statement line items related to commissions received from real estate transactions: (1) Gross Commission, (2) Paid to Other Brokers, (3) Paid to Associates, and (4) Company Dollar‐Base. For these four income statement line items, monthly income statements for January 2011 through December 2018 were reviewed and reconciled to the HL_PP_Sales table and HL_PP_ReferralProspects table for transactions occurring within 2011 through 2018.12 Using these tables and fields within Profit Power resulted in total variances of less than 3.8%, which was primarily driven by the Paid to Other Brokers line item of the income statement representing referrals made to outside companies as part of the transaction terms (and not relevant to commission bonus payments).13 To further analyze the primary variance, additional general ledger detail was provided and discussed with Company accounting personnel, Polly Parrott (“Ms. Parrott”), Houlihan Lawrence’s Commissions Processor for the Accounting Department, and Tina Dunne (“Ms. Dunne”), Accounting Manager. Based on this review and discussions, it was determined that the variances between the Profit Power transaction data and the monthly income statements received can be explained through final closing accounting adjustments that have been made in the general accounting system (NewViews) after the transaction and financial data has been exported from Profit Power. These adjustments are not transferred back into Profit Power. The financial statements are created from a feed of data from Profit Power which creates journal entries, followed by adjustments made only within the general accounting software.14 Review of Profit Power Data Upon completion of the reconciliation process, I then reviewed the information contained in Profit Power to gain an understanding as to how the Company historically recorded transactions and 12 Fields used in the reconciliation from the HL_PP_Sales table included “ofc_commission_amt”, “GrandTotalReferralsPaid”, and “Total_Associate_Payouts”; Fields used in the reconciliation from the HL_PP_ReferralProspects table included “Amount_Paid_Out”; Date restriction was done using dates as identified by the “Close_Date” field in the HL_PP_Sales table; and transactions were limited to ‘closed’ transactions based on the “Deal_Status” field. 13 The total variance for line items, “gross commission” and “paid to associates” was less than 1.2% and 0.10%, respectively. The 3.8% variance of company dollar was driven by the “paid to other brokers” line item of the income statement representing referrals made to outside companies as part of the transaction terms. 14 Discussion with Houlihan Lawrence personnel. HIGHLY CONFIDENTIAL SUBJECT TO COURT PROTECTIVE ORDER Page 8 of 34 FILED: WESTCHESTER COUNTY CLERK 03/11/2024 10:30 AM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1726 RECEIVED NYSCEF: 03/11/2024 February 15, 2023 Expert Report of Gary Kleinrichert specifically, how it recorded and maintained commission information. As part of my review of the information contained in Profit Power, I considered information obtained through discussions with Company personnel as well as information provided by an affidavit signed by Ms. Parrott which contained explanations on the processes involved in commission split calculations, including applicability of in‐house bonuses on transactions.15 Ms. Parrott is responsible for maintaining and processing certain business records relating to the real estate commission splits paid to agents and other transaction details.16 Ms. Parrott uses Profit Power to finalize and process transaction financial details including commission amounts received and paid out to agents, which is then fed into the accounting software.17 When Houlihan Lawrence processes payments to agents on transactions, there are times in which a higher commission split is applied to the agent for dual sided transactions. This rate on dual sided transactions is what Plaintiffs have called an “in‐house bonus”.18 Ms. Parrott detailed the following points related to documentation and applicability of this in‐house bonus to transactions over time which informed my review of the Profit Power database as well as my identification and analysis of in‐house bonus commission amounts. In‐House Bonus Generally: Houlihan Lawrence does not offer in‐house bonus commission splits to all agents. Whether an agent on a transaction is subject to an in‐house bonus depends on the individually negotiated compensation plan and specific transaction details. Additionally, each Houlihan Lawrence office has different practices with respect to applying or allowing in‐house bonuses on transactions.19 In‐House Bonus Recordkeeping: Houlihan Lawrence does not generate lists of paid in‐house bonuses in the ordinary course of business.20 Ms. Parrott stated that her determination of whether an agent on a transaction received an in‐house bonus would be a manual process involving a review on a transaction‐by‐transaction basis of the commission split received by the agent compared to the commission plan the agent was on at the time of the transaction.21 In‐House Bonus is Not Always Applied: Agents eligible for in‐house bonuses are only given the bonus for qualifying transactions, which for example may exclude transactions where the total commission is less than .22 15 Houlihan Lawrence Opposition to Motion to Certify Exhibit 7, Affidavit of Polly Parrott dated November 17, 2021, ¶ 4 (“Affidavit of Polly Parrott dated November 17, 2021”). 16 Affidavit of Polly Parrott dated November 17, 2021, ¶ 5. 17 Discussion with Houlihan Lawrence personnel. 18 Affidavit of Polly Parrott dated November 17, 2021, ¶ 8. 19 Affidavit of Polly Parrott dated November 17, 2021, ¶ 9. 20 Affidavit of Polly Parrott dated November 17, 2021, ¶ 12. 21 Affidavit of Polly Parrott dated November 17, 2021, ¶¶ 14‐17. 22 Affidavit of Polly Parrott dated November 17, 2021, ¶ 19. HIGHLY CONFIDENTIAL SUBJECT TO COURT PROTECTIVE ORDER Page 9 of 34 FILED: WESTCHESTER COUNTY CLERK 03/11/2024 10:30 AM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1726 RECEIVED NYSCEF: 03/11/2024 February 15, 2023 Expert Report of Gary Kleinrichert Agent Commission Plans: Agent portion rates or commission splits vary over time. Ms. Parrott would receive a listing from each office detailing the appropriate commission splits for agents on outside brokerage transactions and on in‐house transactions. This listing could be sent at any point in time with updates to agent’s plans. The forms of these commission split documents varied by office and over time.23 Even once reviewing these historical records, some transactions may be unable to be classified due to lack of documentation sufficient to determine the split received for a specific transaction and whether that split indicated an in‐house bonus.24 Additionally, just because an agent was on a plan which was eligible for an in‐house bonus, that does not indicate an in‐house bonus was received on every transaction as only certain qualifying dual sided transactions were eligible.25 Transaction Detail Sheets: Each transaction has a summary sheet called a “Transaction Detail Sheet” or “TDS” which contains transaction fields including MLS number, property address, sale id, sale type, commission type, sale price, total commission rate, list side rate, sell side rate, gross commission, close date, agent name, office ID, agent ID, agent side, side split, gross commission income (GCI) to each side, referral fees, agent adjusted base, associate split percentage, and net commission to associate.26 In order to determine if an agent received an in‐house bonus, the details of the agent split on the TDS ) would be compared to the agent’s commission plan at the time of the transaction to determine if an in‐ house bonus was received.27 23Affidavit of Polly Parrott dated November 17, 2021, ¶ 15. 24 Affidavit of Polly Parrott dated November 17, 2021, ¶ 17. 25 Affidavit of Polly Parrott dated November 17, 2021, ¶ 19. 26 The example TDS shown below is from Affidavit of Polly Parrott dated November 17, 2021, Exhibit A, page 1. 27 Affidavit of Polly Parrott dated November 17, 2021, ¶¶ 14‐16. HIGHLY CONFIDENTIAL SUBJECT TO COURT PROTECTIVE ORDER Page 10 of 34 FILED: WESTCHESTER COUNTY CLERK 03/11/2024 10:30 AM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1726 RECEIVED NYSCEF: 03/11/2024 February 15, 2023 Expert Report of Gary Kleinrichert Example Transaction Detail Sheet Houtihan Lausance av""te"a"m"s: wasrmisae.aePM nomannairsomc" z57summeronesaname WhbaNa1asNY 1960s 9143284M00 Deal matum (3mead Transaction Detail Sheet 'reestyneana soasoos4tasar :a7imalPnewassume salemes:oiruntandsee ML*: 33.t66 Canunlulun ge: sale sules PIIces PrimaryseBer(s): pdmaryAs adgIn: anal ounmismanstate: lan Thongsun unt side Itate: 818988 8AU8 ses side Itase: enas Commisulon: me, g 127tangdommerma ng igges gbanachmahanimmrenmxun FrancNeeFes: PrimaryOuter(s): CordrattDate: 4t195013 Jongf5 PtUNE EstGulng Date: 8000013 OAFno Pa Edo 37 tincnIn Soust comeDeta: GG4G013 wastport, cr 0s880 127tangdew manue man pluens NY 10605 was Ph NY 19605 aur agamam Anantmm= cmon Agentm Edn Sdalet GCI assarralFea AdMad Bam Snat Nat ta Amanc Itosenberg,camirn ssos0 salms AmounttoPer OutsideIkehar manamaganammerenam No Relocaton Asiane assaserammermam No 8rcher Refeness Paramane Nons Mts Ranumle:None nemarks: None sals Canments: HIGHLY CONFIDENTIAL SUBJECT TO COURT PROTECTIVE ORDER Page 11 of 34 FILED: WESTCHESTER COUNTY CLERK 03/11/2024 10:30 AM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1726 RECEIVED NYSCEF: 03/11/2024 February 15, 2023 Expert Report of Gary Kleinrichert Data fields and amounts shown on the Transaction Detail Sheets were mapped to the underlying tables and fields within Profit Power to identify relevant data for production and analysis.28 The production of Transaction Detail Sheet data was made on October 6, 2022, according to the parameters described in the production letter.29 Further, in conducting an analysis of the collected Profit Power database, an extensive review into tables and fields was performed related to commissions, in‐house bonuses, and overall payments made to the agents. The results indicated the following which aligned with Ms. Parrott’s affidavit and discussions with Ms. Parrott: There is no unique field in the complete database that indicates which transactions received an in‐ house bonus. There is no unique field in the complete database that contains the amount of an in‐house bonus paid on a transaction. There is no record of accumulated in‐house bonuses earned by specific agents for any time period. An agent’s split of commission varies over time. IV. STRUCTURED DATA PRODUCTION Once the Profit Power database was collected, reconciled to financial statements, and reviewed, relevant tables and fields were identified to be included in the structured data production. All 431 tables, 8,005 data fields, 349 views and 684 stored procedures contained within the Profit Power database were reviewed to identify the tables and fields relevant to the allegations in this matter. These decisions were based on a combination of factors including: (1) commission fields identified during the reconciliation process, (2) data fields contained or mapped to the Transaction Detail Sheet (“TDS”), and (3) relevant data fields for determination of an in‐house bonus for an agent on a transaction‐by‐transaction basis based on information obtained through Ms. Parrott’s affidavit and discussions with Ms. Parrott. The data records produced from the Profit Power database were limited by the following five criteria: (1) time period, (2) geography, (3) source of sale, (4) deal status, and (5) property type. This structured data was produced to Plaintiffs on December 22, 2022.30 Time Period: The data was restricted to the time period of January 1, 2011 through July 14, 2018 (inclusive) using the “Close_Date” field of the HL_PP_Sales table. 28 MacGill Letter to Mintz, Jeremy Vest dated October 6, 2022 related to Transaction Detail Sheets Production. 29 MacGill Letter to Mintz, Jeremy Vest dated October 6, 2022 related to Transaction Detail Sheets Production. 30 MacGill Letter to Mintz, Jeremy Vest dated December 22, 2022 with Houlihan Lawrenceʹs Structured Production (HL‐STRUCPROD‐122222). HIGHLY CONFIDENTIAL SUBJECT TO COURT PROTECTIVE ORDER Page 12 of 34 FILED: WESTCHESTER COUNTY CLERK 03/11/2024 10:30 AM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1726 RECEIVED NYSCEF: 03/11/2024 February 15, 2023 Expert Report of Gary Meinrichert " Geography: The data was restricted to subject properties within Dutchess Putnam County, County "Postal_Zip_Code" or Westchester County as identified using USPS data and the or "LISTING_CITY_NAME" table.31 fields of the HL_PP_Property_Listing " "Sale" "Source_of_Sale" Source of Sale: The data was restricted to records with the value of in the field in the HL_PP_Sales table. " 'Cosed' "Deal_Status" Deal Status: The data was restricted to deal statuses of as identified in the field of the HL_PP_Sales table. " Type: The data was restricted to residential types non-residential Property property by excluding "Sale_No" sale types as identified by the field of the HL_PP_Sales table containing values starting 'X001-047' with 'M001-047', 'S001-047', or or transactions whose associate on the transaction had a Conunercial' Corporate' "Office_Name" value of ‰/L or ‰/L in the field of the HL_PP_Associates table.32 20. The structured data production included 10 tables containing a total of 190 fields. A description of each produced table and the number of fields produced is shown below. Produced Profit Power Tables HL_PP_Associates 11 Agent details, agent office, and agent join date HL_PP_Branch_Offices 10 Houlihan Lawrence office name and address HL_PP_Brokers 7 Other brokerage firm names and addresses HL_PP_Clients 13 Buyer and seller name and contact information genmansahed de0 Mu0g agM, agenhame, HL - PP - Commission - Calcs 17 calculated agent commission fields, and commission plan applied Lookup table of commission plan id, commission plan name, and HL - PP - Commission - Plans 54 commission split percentage rates applied based on each plan HL_PP_Companies 3 Company name and ID HL_PP_Property_Listings 16 Property address details and MLS number HL_PP_Referral_Prospects 14 Outside brokerage referral name and address Transaction level details: address, close date, close price, commission, - - referral amounts, etc. 31The "Postal-Zip_Code" HL_PP_Property_Listing value was mapped to its county using data obtained from the USPS enabling zip code to be linked to county. For records with an invalid or NULL zip code, the "LISTING_CITY_NAME" HL_PP_Property_Listing value was mapped to county using the same USPS data. 32Two non-residential data records containing the list side transaction details for sale side records within this population were also identified and included in the production. HIGHLY CONFIDENTIAL SUBJECT TO COURT PROTECTIVE ORDER Page 13 of 34 FILED: WESTCHESTER COUNTY CLERK 03/11/2024 10:30 AM INDEX NO. 60767/2018 NYSCEF DOC. NO. 1726 RECEIVED NYSCEF: 03/11/2024 February 15, 2023 Expert Report of Gary Meinrichert 21. The structured data production contains fields relevant to both dual-sided transactions and those where Houlihan Lawrence only represented one side of a transaction. The side(s) represented by "Type_of_Sale" Houlihan Lawrence is contained in the field of the HL_PP_Sales table. The HL_PP_Sales table, HL_PP_Commission_Cales table, and HL_PP_Commission_Plans table contained the fields used in my analysis to understand the commission characteristics of a transaction and determine the existence and amount of in-house bonuses. These three tables