Erhart v. Bofi Holding Inc.

Filing 193

ORDER granting in part and denying in part #128 Charles Erhart's Motion to Exclude Experts. BofI fails to demonstrate that its non-retained expert CFO Micheletti's proposed testimony is admissible under Rule 702. Consequently, the Court grants Erhart's request to preclude Micheletti from testifying as an expert, but the Court recognizes that Micheletti may be able to provide lay opinion testimony on the Bank's lost profits under Rule 701. The Court grants in part and denies in part Erhart's request to exclude BofI's retained expert van Drunen. The Court admits van Drunen's testimony regarding internal audit objectives, standards, and procedures. The Court reaches a mixed result as to van Drunen's more specific opinions on Erhart's conduct. Some of these opinions are appropriate under Rule 702; other opinions either fail to meet Rule 702s requirements or are subject to exclusion under Rule 403. Signed by Judge Cynthia Bashant on 4/1/2020.

1
2
3
4
5
6
7
8
9
10

UNITED STATES DISTRICT COURT

11

SOUTHERN DISTRICT OF CALIFORNIA

12
13

CHARLES MATTHEW ERHART,
Plaintiff,

14
15
16
17

Case No. 15-cv-02287-BAS-NLS
consolidated with
15-cv-02353-BAS-NLS
ORDER GRANTING IN PART
AND DENYING IN PART
CHARLES ERHART’S
MOTION TO EXCLUDE
EXPERT TESTIMONY
(ECF No. 128)

v.
BOFI HOLDING, INC.,
Defendant.

18
19
20
21
22

And Consolidated Case

23
24

Presently before the Court is Charles Erhart’s motion to exclude the opinions

25

of two experts that BofI Federal Bank plans to call at trial. (ECF No. 128.) BofI

26

opposes. (ECF No. 152.) The Court finds this motion suitable for determination on

27

the papers submitted and without oral argument. See Fed. R. Civ. P. 78(b); Civ. L.R.

28
–1–

15cv2287

1

7.1(d). For the following reasons, the Court GRANTS IN PART and DENIES IN

2

PART Erhart’s motion.
BACKGROUND

3
4

The Court and the parties are well versed in the background of these

5

consolidated actions. The Court incorporates its summary of the parties’ evidence

6

and their remaining claims from the Court’s order resolving the cross-motions for

7

summary judgment (“Summary Judgment Order”). (See ECF No. 192.) The Court

8

further provides below a snapshot of the parties’ claims and additional background

9

regarding the two proposed experts.

10

Charles Erhart was an internal auditor for BofI Federal Bank. 1 After Erhart

11

discovered conduct he believed to be wrongful, he reported it to BofI’s principal

12

regulator. BofI responded by allegedly defaming and terminating him. Erhart then

13

brought federal and state whistleblower retaliation claims against the Bank. At the

14

heart of Erhart’s federal claims is whether he reasonably believed the conduct he was

15

reporting violated certain enumerated laws. His state law retaliation claims are

16

broader; they hinge on whether Erhart disclosed a reasonable belief of a violation of

17

any law. For the reasons explained in the Summary Judgment Order, there are triable

18

issues on all of Erhart’s whistleblower retaliation claims.

19

To confront these claims, BofI has designated a retained expert, Guido van

20

Drunen, as its “Internal Audit Expert.” (Rule 26 Expert Disclosure (Nov. 26, 2018),

21

ECF No. 188-1.) Van Drunen is expected to offer various opinions at trial, including

22

his opinion that Erhart’s allegations of wrongdoing “are not supported with

23

information and/or evidence.” (Id. Ex. A.) Erhart moves to exclude all of van

24

Drunen’s testimony, arguing he is unqualified to render these opinions. (Mot. 14:8–

25

16:4.)

Erhart also claims van Drunen’s opinions are improper because they

26
27
28

1

The Court uses “BofI” and “the Bank” to refer to either BofI Holding or BofI Federal
Bank. (See Summary Judgment Order 2 n.1.)
–2–

15cv2287

1

impermissibly invade the province of the jury, contain disguised legal conclusions,

2

and speculate about Erhart’s motivations. (Id. 8:6–21:17.)

3

In addition, after Erhart sued the Bank, it filed a countersuit against him, which

4

the Court has consolidated with Erhart’s action. The Bank’s countersuit portrays

5

Erhart as an internal auditor gone rogue—a loose cannon who recklessly handled

6

confidential information and conducted unauthorized investigations. BofI claims it

7

suffered harm when Erhart took confidential information outside the Bank’s

8

controlled systems, disclosed confidential information to third parties, and deleted

9

data from a Bank-owned computer. The Court similarly determined there are triable

10

issues on the Bank’s lone federal claim and all but one of its barrage of state law

11

claims.

12

To support these claims, the Bank has disclosed that its Chief Financial Officer

13

(“CFO”), Andrew Micheletti, is expected to testify as an expert at trial. (Rule 26

14

Expert Disclosure (Nov. 5, 2018), ECF No. 135-2.) The proposed expert testimony

15

will involve the damages the Bank has purportedly suffered due to Erhart’s conduct.

16

(Id.) Erhart moves to exclude this testimony, arguing it is not expert testimony,

17

Micheletti is not qualified to testify as an expert, and his damage assessments are

18

improper. (Mot. 17:22–19:9.)
ANALYSIS

19
20

Both of Erhart’s challenges involve the requirements for expert opinion

21

testimony under Federal Rule of Evidence 702. However, in resolving his challenge

22

to Micheletti’s testimony on damages, the Court reasons that some of the proposed

23

testimony may be admitted as lay witness opinion testimony under Rule 701. Hence,

24

the Court reviews the two types of opinion testimony before assessing BofI’s

25

proposed experts.

26
27
28
–3–

15cv2287

1

I.

Opinion Testimony

2

A.

Lay Witnesses

3

The Federal Rules of Evidence differentiate between opinion testimony

4

provided by lay and expert witnesses. Fed. R. Evid. 701, 702. Under Rule 701, a lay

5

witness may provide opinion testimony if it is: “(a) rationally based on the witness’s

6

perception; (b) helpful to clearly understanding the witness’s testimony or to

7

determining a fact in issue; and (c) not based on scientific, technical, or other

8

specialized knowledge within the scope of Rule 702.” Id. 701.

9

“Rule 701(a) contains a personal knowledge requirement.” United States v.

10

Lopez, 762 F.3d 852, 864 (9th Cir. 2014); see also Fed. R. Evid. 602 (noting that

11

except for expert testimony under Rule 703, “[a] witness may testify to a matter only

12

if evidence is introduced sufficient to support a finding that the witness has personal

13

knowledge of the matter”). “In presenting lay opinions, the personal knowledge

14

requirement may be met if the witness can demonstrate firsthand knowledge or

15

observation.”

16

necessarily draws on the witness’s own understanding, including a wealth of personal

17

information, experience, and education, that cannot be placed before the jury.”

18

United States v. Gadson, 763 F.3d 1189, 1209 (9th Cir. 2014). “But a lay opinion

19

witness ‘may not testify based on speculation, rely on hearsay or interpret

20

unambiguous, clear statements.’” United States v. Lloyd, 807 F.3d 1128, 1154 (9th

21

Cir. 2015) (quoting United States v. Vera, 770 F.3d 1232, 1242 (9th Cir. 2014)).

Lopez, 762 F.3d at 864.

“A lay witness’s opinion testimony

22

B.

Expert Witnesses

23

Whereas Rule 701 governs lay opinion testimony, Rule 702 covers expert

24

opinion testimony. Fed. R. Evid. 702. This rule establishes several requirements for

25

this testimony: (1) the witness must be sufficiently qualified as an expert by

26

knowledge, skill, experience, training, or education; (2) the scientific, technical, or

27

other specialized knowledge must “assist the trier of fact” either “to understand the

28

evidence” or “to determine a fact in issue”; (3) the testimony must be “based on
–4–

15cv2287

1

sufficient facts and data”; (4) the testimony must be “the product of reliable principles

2

and methods”; and (5) the expert must reliably apply the principles and methods to

3

the facts of the case. Id.

4

Under Daubert and its progeny, the trial court is tasked with assuring that

5

expert testimony “both rests on a reliable foundation and is relevant to the task at

6

hand.” Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 597 (1993). “Expert

7

opinion testimony is relevant if the knowledge underlying it has a valid connection

8

to the pertinent inquiry. And it is reliable if the knowledge underlying it has a reliable

9

basis in the knowledge and experience of the relevant discipline.” Primiano v. Cook,

10

598 F.3d 558, 565 (9th Cir. 2010). Shaky but admissible evidence is to be attacked

11

by cross-examination, contrary evidence, and careful instruction on the burden of

12

proof, not exclusion. Daubert, 509 U.S. at 596. The court is “to screen the jury from

13

unreliable nonsense opinions, but not exclude opinions merely because they are

14

impeachable.” Alaska Rent–A–Car, Inc. v. Avis Budget Grp., Inc., 738 F.3d 960, 969

15

(9th Cir. 2013). In its role as gatekeeper, the court “is not tasked with deciding

16

whether the expert is right or wrong, just whether his [or her] testimony has substance

17

such that it would be helpful to a jury.” Id. at 969–70.

18

The tests for admissibility in general, and reliability in particular, are flexible.

19

Primiano, 598 F.3d at 564. The court “has discretion to decide how to test an expert’s

20

reliability as well as whether the testimony is reliable, based on the particular

21

circumstances of the particular case.” Id. (quoting Kumho Tire Co. v. Carmichael,

22

526 U.S. 137, 150 (1999)). “[T]he test under Daubert is not the correctness of the

23

expert’s conclusions but the soundness of [the expert’s] methodology.” Daubert v.

24

Merrell Dow Pharmaceuticals, Inc., 43 F.3d 1311, 1318 (9th Cir. 1995). Once the

25

threshold established by Rule 702 is met, the expert may testify and the fact finder

26

decides how much weight to give that testimony. Primiano, 598 F.3d at 565.

27

Further, Rule 703 “relaxes, for experts, the requirement that witnesses have

28

personal knowledge of the matter to which they testify.” Claar v. Burlington N. R.
–5–

15cv2287

1

Co., 29 F.3d 499, 501 (9th Cir. 1994). Experts may offer opinions based on otherwise

2

inadmissible testimonial hearsay if “experts in the particular field would reasonably

3

rely on those kinds of facts or data in forming an opinion on the subject,” Fed. R.

4

Evid. 703, and if they are “applying [their] training and experience to the sources

5

before [them] and reaching an independent judgment,” as opposed to “merely acting

6

as a transmitter for testimonial hearsay,” United States v. Gomez, 725 F.3d 1121,

7

1129 (9th Cir. 2013) (quoting United States v. Johnson, 587 F.3d 625, 635 (4th Cir.

8

2009)).

9

II.

The Proposed Damages Expert—Micheletti

10

The Court first considers Erhart’s challenge to BofI’s non-retained expert CFO

11

Micheletti. BofI discloses that Micheletti “is expected to present evidence under

12

Federal Rules of Evidence 702, 703, or 705” on the subject matter of “BofI’s

13

damages.” (Rule 26 Expert Disclosure (Nov. 5, 2018) 1:26–2:1.) There are two parts

14

to this testimony.

15

BofI’s Expenses and Costs. First, Micheletti seeks to testify regarding the

16

economic injury BofI suffered “in the form of expenses and costs that BofI incurred

17

in responding to, investigating, and assessing” Erhart’s alleged removal and deletion

18

of confidential information. (Rule 26 Expert Disclosure (Nov. 5, 2018) 2:3–6; see

19

also Micheletti Dep. 70:20–71:21, ECF No. 135-4.) BofI identifies two types of costs

20

that Micheletti will discuss. (Rule 26 Expert Disclosure (Nov. 5, 2018) 2:7–14.) The

21

first cost is the amount BofI paid to an outside firm for “digital forensic examination

22

and analysis” to help BofI assess and mitigate the harm purportedly caused by

23

Erhart’s conduct. (Id. 2:7–10; see also Micheletti Dep. 71:17–21.) The second cost

24

is the “internal labor” that BofI expended “in assessing and mitigating harm caused

25

by” the alleged misconduct. (Rule 26 Expert Disclosure (Nov. 5, 2018) 2:10–13; see

26

also Micheletti Dep. 71:10–16.)

27

In the Summary Judgment Order, the Court recognized that BofI may be able

28

to recover these costs as damages on its remaining claims. (See Summary Judgment
–6–

15cv2287

1

Order 74:7–28; 85:11–26; 87:1–11; 88:6–17.) For example, there is a triable issue

2

as to whether Erhart knowingly accessed and deleted data from one of BofI’s

3

computers outside the scope of his employment. (Id. 84:1–85:10.) A jury could

4

conclude BofI is entitled to recover the costs “reasonably and necessarily incurred by

5

[BofI] . . . to verify that . . . data was or was not altered, damaged, or deleted by the

6

access.” See Cal. Penal Code § 502(e)(1); see also Copart, Inc. v. Sparta Consulting,

7

Inc., 277 F. Supp. 3d 1127, 1162 (E.D. Cal. 2017) (denying summary judgment

8

where company submitted evidence indicating it had spent over eighty hours

9

investigating the defendants’ unauthorized access to its computer systems).

10

Accordingly, Micheletti’s testimony is relevant to BofI’s claims.

11

That said, just because Micheletti’s testimony involves the subject of damages

12

does not mean it requires either expert or lay opinion testimony. For instance,

13

opinion testimony is unnecessary to prove that BofI paid an outside firm for digital

14

forensic services to investigate Erhart’s “data breach.” Micheletti is not providing

15

lay opinion testimony when reporting the amount the Bank paid for these services.

16

See Fed. R. Evid. 701. Nor is Micheletti relying on his “scientific, technical, or other

17

specialized knowledge” to do so. See id. 702. BofI can prove these damages through

18

other means, including a witness with personal knowledge of the expense or

19

appropriate documentary evidence.

20

Erhart argues Micheletti’s proposed testimony regarding the second cost BofI

21

identifies—its internal labor costs—similarly does not fall under Rule 702. Erhart

22

argues Rule 702 is inapplicable because Micheletti’s analysis is not “based on

23

scientific, technical, or other specialized knowledge.” (Mot. 19:2–6.) The Court

24

agrees. To summarize BofI’s labor costs, Micheletti claims he “obtained the hours

25

by day of specific individuals who worked in the process of mitigating and

26

determining the cause/and or magnitude of Mr. Erhart’s taking of confidential

27

information.” (Micheletti Dep. 71:11–16.) Micheletti provides a spreadsheet where

28

he tallies up the time allegedly spent on these tasks. (Summary of Personnel Costs,
–7–

15cv2287

1

BofI’s Opp’n Ex. G, ECF No. 152-8.) Micheletti then multiplies the employees’

2

respective costs by the time they spent and adds all the costs together—to reach a

3

sum of $147,981.71 in internal labor costs. (Id.)

4

This summary of personnel costs does not fall under Rule 702. BofI argues

5

Micheletti’s “model” involves technical or specialized knowledge because the

6

“internal cost must itself be derived mathematically from other data” and requires

7

“familiarity with employee compensation data.” (Opp’n 20:2–5.) The Court is

8

unconvinced. BofI fails to demonstrate that Micheletti’s summary of its alleged

9

employee costs involves anything other than basic arithmetic. Cf. LifeWise Master

10

Funding v. Telebank, 374 F.3d 917, 929 (10th Cir. 2004) (noting “damages model”

11

involved “technical, specialized subjects” where model “concerned moving

12

averages, compounded growth rates, and S-curves”). There is no need to allow

13

Micheletti to come “before the jury cloaked with the mantle of an expert” to provide

14

this testimony under Rule 702. See Jinro Am. Inc. v. Secure Investments, Inc., 266

15

F.3d 993, 1004 (9th Cir. 2001); see also United States v. Freeman, 498 F.3d 893, 903

16

(9th Cir. 2007) (noting that by qualifying a witness as an expert, the “witness attains

17

unmerited credibility when testifying about factual matters from first-hand

18

knowledge” (quoting United States v. Dukagjini, 326 F.3d 45, 53 (2d Cir. 2003))).

19

In the same vein, the Court finds it inappropriate to allow Micheletti to place

20

this evidence before the jury by taking advantage of Rule 703’s relaxed personal

21

knowledge and hearsay requirements. See Fed. R. Evid. 703; see also Jinro Am. Inc.,

22

266 F.3d at 1004 (noting that allowing a witness to come before a jury as an expert

23

is significant because it allows the witness “to testify based on hearsay information,

24

and to couch . . . observations as generalized ‘opinions’ rather than as firsthand

25

knowledge”). BofI can prove this component of its damages claim through other

26

evidence, including testimony by its employees, business records, and appropriate

27

lay witness opinion testimony. See Allied Sys., Ltd. v. Teamsters Auto. Transp.

28

Chauffeurs, Local 604, 304 F.3d 785, 790, 792 (8th Cir. 2002) (noting employee who
–8–

15cv2287

1

was internal accountant and vice-president of internal audit appropriately provided

2

lay opinion testimony regarding damages that was based on personal knowledge of

3

the company’s books and financial status); but see United States v. Albertelli, 687

4

F.3d 439, 447 (1st Cir. 2012) (highlighting the “danger” that lay witness opinion

5

testimony may allow “the witness [to] act as a summary witness without meeting the

6

usual requirements”). The Court will require, however, that any lay witness opinion

7

testimony not be based on mere speculation or inadmissible hearsay. See Lloyd, 807

8

F.3d at 1154.

9

Lost Profits. Aside from describing its costs, BofI proposes that Micheletti

10

provide expert testimony under Rule 702 regarding its lost profits. (Rule 26 Expert

11

Disclosure (Nov. 5, 2018) 2:15–22.) BofI claims it “suffered economic injury in the

12

form of [a] lost investment opportunity caused by the withdrawal and loss of

13

deposited funds . . . as a result of Erhart’s” alleged misconduct. (Id. 2:15–17.) BofI

14

claims it “earned less net interest income than it would have earned absent loss of the

15

deposit funds.” (Id. 2:20–21.) Specifically, Micheletti testified that “[t]he lifetime

16

history of” the type of account lost is “approximately four years,” and the “difference

17

between the four-year fixed rate” and the amount that would have been paid had BofI

18

retained the account “for that period was approximately $1,022,000.” (Micheletti

19

Dep. 74:9–14.)

20

The Court did not address this component of BofI’s alleged damages in its

21

Summary Judgment Order. And there is an issue of fact as to whether these

22

“damages” were caused by Erhart’s protected whistleblower activity. If, however,

23

the Bank can demonstrate these damages are not speculative and flow from Erhart’s

24

purportedly wrongful conduct, then it may be able to recover its lost profits. (See

25

Summary Judgment Order 67:4–22; 74:7–28.)

26

Even though this evidence may be relevant, Erhart contends Micheletti’s

27

proposed testimony should be excluded because he “is not qualified as an expert”

28
–9–

15cv2287

1

under Rule 702. (Mot. 18:13.) BofI does not submit evidence to address this point. 2

2

Erhart also argues Micheletti’s testimony is improper because it is based “on mere

3

hearsay and his own legal conclusions and interpretations of what he was told.” (Id.

4

18:14–16.)

5

The Court agrees that this testimony should not be admitted under Rule 702.

6

Beyond neglecting to provide the Court with Micheletti’s qualifications, BofI does

7

not give the Court sufficient information to assess the remaining considerations under

8

Rule 702. The Court thus will not permit Micheletti to testify as an expert under Rule

9

702. See Daubert, 509 U.S. at 593 n.10 (noting the proponent of the expert testimony

10

bears the burden to establish its admissibility).

11

That said, the Court recognizes that Micheletti may be able to testify regarding

12

the Bank’s lost profits under Rule 701 instead. “[T]here is an abundance of case law

13

where corporate employees are permitted to testify about damages or company

14

valuation without qualifying as an expert.” Joshua David Mellberg LLC v. Will, 386

15

F. Supp. 3d 1098, 1105 (D. Ariz. 2019); see also McCormick on Evidence § 10 (8th

16

ed. 2020) (collecting cases). As the advisory committee notes to Rule 701 recognize,

17

“most courts have permitted the owner or officer of a business to testify to the value

18

or projected profits of the business, without the necessity of qualifying the witness as

19

an accountant, appraiser, or similar expert.” Fed. R. Evid. 701 advisory committee’s

20

note to 2000 amendment. This opinion testimony is admitted “because of the

21

particularized knowledge that the witness has by virtue of his or her position in the

22

business.” Id.; see In re Palmdale Hills Prop., LLC, 577 B.R. 858, 868–69 (Bankr.

23

C.D. Cal. 2017) (reasoning business owner and manager could testify about lost

24
2

25
26
27
28

Although Erhart briefly argues Micheletti is not qualified to testify as an expert, the Bank
does not submit a declaration from Micheletti or otherwise demonstrate he is qualified under Rule
702. The Bank’s opposition mentions that Micheletti has “finance and accounting knowledge” and
that he “is qualified to give [his opinion],” but these statements are insufficient under Rule 702.
(See Opp’n 1:23–26; 20:21.) See also Daubert, 509 U.S. at 593 n.10 (requiring the proponent of
the expert testimony to establish its admissibility by a “preponderance of proof”). The Court
assumes that BofI’s CFO is an accomplished accountant and financier, but arguments of counsel
are simply not evidence. See, e.g., Carrillo-Gonzalez v. I.N.S., 353 F.3d 1077, 1079 (9th Cir. 2003).
– 10 –

15cv2287

1

profits or damages); Bright Harvest Sweet Potato Co. v. H.J. Heinz Co., L.P., No.

2

1:13-cv-296-BLW, 2015 WL 1020644, at *5–6 (D. Idaho Mar. 9, 2015) (permitting

3

president and CFO of company to “testify about lost profits to the extent that they

4

have personal and particularized knowledge of the facts that form their opinions”);

5

see also, e.g., Miss. Chem. Corp. v. Dresser–Rand Co., 287 F.3d 359, 373 (5th Cir.

6

2002); HM Compounding Servs., LLC v. Express Scripts, Inc., 349 F. Supp. 3d 781,

7

792 (E.D. Mo. 2018).

8

Moreover, the Court’s decision to funnel Micheletti’s testimony under Rule

9

701 addresses Erhart’s complaints about Micheletti grounding his opinion in

10

“unsubstantiated assumptions.” (Reply 5:20–21, ECF No. 159.) The Court will

11

require opinion testimony under Rule 701 to be based on “personal and particularized

12

knowledge of the facts” underlying any opinions. See Bright Harvest Sweet Potato

13

Co., 2015 WL 1020644, at *6. BofI will also have to establish sufficient foundation

14

for any lost profits testimony, and this testimony must not be based on pure

15

speculation. See Lloyd, 807 F.3d at 1154; see also Express Scripts, 349 F. Supp. 3d

16

at 792 (“Personal knowledge acquired through review of records prepared in the

17

ordinary course of business, or perceptions based on industry experience, is a

18

sufficient foundation for such testimony.”).

19

In sum, the Court concludes allowing BofI’s CFO Micheletti to provide expert

20

testimony under Rule 702 is neither appropriate nor necessary. However, for the

21

reasons described above, the Court’s conclusion does not prevent the Bank from

22

seeking to prove its alleged damages through other evidence, including potentially

23

lay opinion testimony.

24

III.

The Proposed Internal Audit Expert—Van Drunen

25

The Court next considers Erhart’s challenge to Guido van Drunen—BofI’s

26

retained internal audit expert. Van Drunen’s opinions and qualifications are set forth

27

in his amended expert report (ECF No. 188-1). Erhart raises an assortment of

28

challenges to van Drunen’s proposed testimony.
– 11 –

15cv2287

1

A.

Qualified as an Expert

2

Preliminarily, Erhart argues van Drunen is not qualified to testify as an expert

3

on the subjects his opinions address. (Mot. 14:18–15:4.) As mentioned, a witness

4

who will offer expert opinion testimony must be “qualified as an expert by

5

knowledge, skill, experience, training, or education.” Fed. R. Evid. 702. This inquiry

6

depends on whether the witness has “expertise and experience” that “is relevant to

7

the issues on which” the witness will opine. See Pyramid Techs., Inc. v. Hartford

8

Cas. Ins. Co., 752 F.3d 807, 814 (9th Cir. 2014). For example, an accountant was

9

not qualified to testify as an appraisal expert where he testified “that he had no

10

appraisal experience and had never conducted a discounted cash flow analysis of real

11

estate” and “did not develop the numbers he used in his analysis.” United States v.

12

99.66 Acres of Land, 970 F.2d 651, 657 (9th Cir. 1992).

13

Erhart argues van Drunen is unqualified because he “does not appear to have

14

any specialized knowledge about internal audits or whistleblowing, and certainly no

15

specialized knowledge about how BofI specifically ran its internal audit department.”

16

(Mot. 15:24–26.) The Bank counters that van Drunen is “no doubt qualified” because

17

he “has worked in the internal audit department of a Fortune 100 company and, as a

18

Principal in KPMG’s Forensic Advisory Services practice, has performed and

19

supervised engagements directly for, or in conjunction with, internal audit

20

departments at Fortune 500 companies.” (Opp’n 4:16–19 (citing Am. van Drunen

21

Report Ex. 2).)

22

The Court rejects Erhart’s qualification challenge. Given his experience,

23

credentials, and education, van Drunen is plainly qualified to testify about internal

24

auditing standards and practices. Van Drunen has been a Certified Internal Auditor

25

since 1997. (Van Drunen Decl. ¶ 2, ECF No. 152-15.) And his resume reflects over

26

thirty-five years of internal auditing and investigatory experience. (Am. van Drunen

27

Report Ex. 2.) Further, although Erhart raises other objections to van Drunen’s

28
– 12 –

15cv2287

1

testimony while discussing his qualifications, (see Mot. 16:5–17:21), the Court will

2

instead consider these arguments while discussing van Drunen’s opinions below.

3

B.

Reliable and Admissible Opinions

4

Beyond challenging whether van Drunen is qualified, Erhart raises a storm of

5

objections to van Drunen’s opinions. To guide its analysis, the Court will summarize

6

and categorize van Drunen’s opinions. The Court will then rule on the admissibility

7

of the opinions in each category.
1.

8

Internal Audit Objectives and Standards

9

Van Drunen’s report initially provides opinions regarding the purpose of an

10

internal audit system. (Am. van Drunen Report §§ 3.0–3.1) In doing so, van Drunen

11

relies on guidance from the Institute of Internal Auditors (“IIA”) and the International

12

Standards for the Professional Practice of Internal Auditing (“IIA Standards”). (Id.)

13

He explains that the goal of an “effective internal audit function” is to provide

14

“assurance to an organization’s board of directors, audit committee, and senior

15

management as to the quality and effectiveness of the organization’s internal control,

16

risk management, and governance systems and processes.” (Id. § 3.1.)

17

Further, van Drunen notes that BofI’s Internal Audit Policy “specifically

18

references the IIA Standards’ definition for internal auditing” and that guidance from

19

the Bank’s primary regulator similarly describes the “primary role” of internal

20

auditors. (Am. van Drunen Report § 3.1.) He then opines that internal auditors

21

“should be independent from the activities they audit, thereby enabling them to

22

perform their assignments with objectivity.” (Id.) In addition, van Drunen opines

23

that the “development and implementation of internal controls should also remain the

24

responsibility of management and the internal audit function should not be involved

25

in designing . . . or operating specific internal control measures.” (Id.)

26

Van Drunen further describes the duties and responsibilities of internal

27

auditors.

(Am. van Drunen Report § 3.1.)

28

“commonly have access to sensitive and confidential information . . . and thus have
– 13 –

He opines that internal auditors

15cv2287

1

an enhanced obligation to maintain confidentiality of that information.” (Id.) In

2

relying on the IIA Code of Ethics, van Drunen also opines that internal auditors

3

should “not use information for any personal gain” and should “respect the value and

4

ownership of information they receive and . . . not disclose information without

5

appropriate authority unless there is a legal or professional obligation to do so.” (Id.)

6

The Court finds van Drunen’s opinions regarding internal audit objectives and

7

standards are admissible under Rule 702. Many of the events underlying these

8

consolidated actions occurred while Erhart was working as an internal auditor in the

9

Bank’s Internal Audit Department. The objectives and standards for internal audit

10

systems are not matters of common knowledge. Hence, van Drunen’s specialized

11

knowledge about these topics “will help the trier of fact to understand the evidence.”

12

See Fed. R. Evid. 702. Further, these opinions are reliably derived from van Drunen’s

13

specialized knowledge and experience and the IIA Standards.

14

Erhart, however, claims van Drunen’s opinions improperly rely on

15

publications by the IIA. (Mot. 16:5–25.) He argues “there is no evidence that [he]

16

was ever trained on or required to apply the IIA’s guidelines and publications in his

17

job, and his own supervisor, Mr. Ball, admitted that he did not directly require his

18

auditors to adhere to the IIA best practices standards.” (Id.; see also Erhart Dep.

19

357:6–16, ECF No. 152-2; Ball Dep. 50:19–51:1, ECF No. 135-5.)

20

challenge is unpersuasive. There is evidence suggesting that BofI’s internal audit

21

system incorporated the IIA Standards. Hence, Erhart’s disagreement bears on the

22

weight of these opinions rather than their admissibility. See Primiano, 698 F.3d at

23

565. Erhart can challenge the applicability and persuasiveness of these standards

24

through cross-examination and the presentation of contrary evidence. See Daubert,

25

509 U.S. at 596.

26

2.

Erhart’s

Internal Audit Procedures

27

The next category of van Drunen’s opinions consists of his description of

28

internal audit procedures. (Am. van Drunen Report § 3.2.) He describes the “typical
– 14 –

15cv2287

1

phases and procedures for conducting internal audits,” including “pre-fieldwork

2

procedures, fieldwork procedures, and reporting results.” (Id. §§ 3.2.1–3.2.3.) For

3

example, van Drunen opines that upon completing the fieldwork portion of an

4

internal audit, “internal auditors typically prepare a draft report which describes the

5

scope of the procedures performed, the information gathered, the observations, and

6

[the] recommendations and basis for such observations.” (Id. § 3.2.3.) He also

7

opines that there is usually then a meeting “with the auditee and other internal

8

stakeholders (which can include senior management) to share and review the draft

9

report.” (Id.) Van Drunen explains that “it is not unusual to have disagreements

10

regarding the accuracy of the potential audit observations.” (Id.)

11

The Court similarly finds van Drunen’s opinions regarding internal audit

12

procedures are admissible under Rule 702. The parties’ evidence involves these

13

procedures at BofI, and several of Erhart’s allegations concern draft audit reports and

14

his interactions with senior management concerning these reports. Van Drunen’s

15

testimony about these specialized topics “will help the trier of fact to understand the

16

evidence.” See Fed. R. Evid. 702. And his testimony is reliably derived from his

17

specialized knowledge and experience, making it admissible.

18

3.

Erhart’s Conduct

19

Next, van Drunen’s opinions turn to discussing Erhart’s conduct in this case.

20

For example, van Drunen opines that Erhart’s allegations of “malfeasance” at the

21

Bank are not founded “on information and/or evidence as required by IIA Standards.”

22

(Am. van Drunen Report § 4.1.)

23

particularized opinions. He argues van Drunen’s opinions “directly invade[] the

24

province of the jury” and “consist merely of legal conclusions, speculation, and his

25

own assessment of facts.” (Mot. 8:6–14:17.) BofI responds that van Drunen’s

26

opinions are “highly probative of the issues” at hand and should be permitted because

27

they address whether “a reasonable person in Erhart’s internal auditing position under

Most of Erhart’s objections concern these

28
– 15 –

15cv2287

1

the same circumstances [would] have formed the same” beliefs about BofI’s

2

purported wrongdoing. (Opp’n 1:12–18.)

3

Having reviewed these opinions, the Court agrees that some of them should be

4

excluded. Because these opinions largely concern the allegations underlying Erhart’s

5

whistleblower retaliation claims, the Court incorporates its discussion of the

6

standards for these claims from the Summary Judgment Order. (See Summary

7

Judgment Order 19:6–22:18; 51:3–52:5; 53:1–54:8; 63:10–64:2.) To recap, Erhart’s

8

Sarbanes–Oxley whistleblower retaliation claim requires him to demonstrate he

9

“provide[d] information . . . regarding any conduct which [he] reasonably believe[d]

10

constitute[d] a violation of section 1341 [mail fraud], 1343 [wire fraud], 1344 [bank

11

fraud], or 1348 [securities or commodities fraud], any rule or regulation of the

12

Securities and Exchange Commission, or any provision of Federal law relating to

13

fraud against shareholders . . . .” 18 U.S.C. § 1514A(a)(1). Hence, Erhart does “not

14

have to prove that he reported an actual violation.” See Wadler v. Bio-Rad Labs.,

15

Inc., 916 F.3d 1176, 1186–87 (9th Cir. 2019). Rather, Erhart has “to prove only that

16

he ‘reasonably believed that there might have been’ a violation.” See id. at 1187

17

(quoting Van Asdale v. Int’l Game Tech., 577 F.3d 989, 1001 (9th Cir. 2009)).

18

The “reasonable belief” standard includes both a subjective component and an

19

objective component. E.g., Wadler, 916 F.3d at 1187–88, Van Asdale, 577 F.3d at

20

1000. For the subjective component, Erhart must demonstrate he believed the

21

conduct he reported violated one of the categories of laws in § 1514A. Van Asdale,

22

577 F.3d at 1000. “The objective reasonableness component . . . ‘is evaluated based

23

on the knowledge available to a reasonable person in the same factual circumstances

24

with the same training and experience as the aggrieved employee.’” Wadler, 916

25

F.3d at 1188 (quoting Sylvester v. Parexel Int’l LLC, No. 07-123, 2011 WL 2517148,

26

at *12 (Dep’t of Labor May 25, 2011)). This evaluation “requires an examination of

27

the reasonableness of a complainant’s beliefs, but not whether the complainant

28
– 16 –

15cv2287

1

actually communicated the reasonableness of those beliefs to management or the

2

authorities.” Id. (quoting Sylvester, 2011 WL 2517148, at *13).

3

Moreover, “[t]o encourage disclosure, Congress chose statutory language

4

which ensures that ‘an employee’s reasonable but mistaken belief that an employer

5

engaged in conduct that constitutes a violation of one of the six enumerated

6

categories is protected.’” Van Asdale, 577 F.3d at 1001. Therefore, an employee is

7

not required to “essentially prove the existence of fraud before suggesting the need

8

for an investigation,” as such a requirement “would hardly be consistent with

9

Congress’s goal of encouraging disclosure.” Id. at 1002.

10

Accordingly, the jury will be tasked with determining whether Erhart

11

reasonably believed he was reporting a violation of the laws listed in Sarbanes–

12

Oxley’s whistleblower retaliation provision.

13

whistleblower retaliation claim, the jury will have to determine whether Erhart had

14

“reasonable cause to believe that the information” he disclosed to the government

15

revealed “a violation of [a] state or federal statute, or a violation of . . . a local, state,

16

or federal rule or regulation.” See Cal. Labor Code § 1102.5(b); see also Ross v. Cty.

17

of Riverside, 36 Cal. App. 5th 580, 592 (2019) (noting an employee engages in

18

conduct “protected by the statute when the employee discloses ‘reasonably based

19

suspicions’ of illegal activity” (quoting Green v. Ralee Eng’g Co., 19 Cal. 4th 66, 87

20

(1998))). With these standards as a backdrop, the Court turns to van Drunen’s

21

proposed opinions regarding Erhart’s conduct.

Similarly, for Erhart’s state law

22

Topic No. 1: Erhart’s Allegations Are Not Supported by Evidence. First, under

23

the guise of internal audit and fraud investigation standards, van Drunen opines that

24

Erhart’s complaint “includes a number of allegations that do not appear to be founded

25

on information and/or evidence.” (Am. van Drunen Report § 4.1.) To support this

26

opinion, van Drunen first references IIA Standards that provide internal auditors: (1)

27

are to “identify, analyze, evaluate, and document sufficient information to achieve

28

the engagement’s objectives”; and (2) “must identify, sufficient, reliable, relevant,
– 17 –

15cv2287

1

and useful information to achieve the engagement’s objectives.”

(Id.)

It is

2

questionable whether these standards even apply in those circumstances where

3

Erhart’s beliefs did not arise in the context of an assigned audit with “objectives,”

4

but that concern alone does not doom these opinions’ admissibility.

5

Curiously, however, van Drunen also introduces a second set of standards in

6

this section—the Certified Fraud Examiners (“CFE”) Standards. (Am. van Drunen

7

Report § 4.1.) One of these CFE Standards requires that “[c]onclusions shall be

8

supported with evidence that is relevant, competent and sufficient.” (Id.) Further,

9

van Drunen notes the CFE Standards state that “[t]he Certified Fraud Examiner’s

10

objective shall be to obtain evidence and information that is complete, reliable and

11

relevant.” (Id. (emphasis added).) Van Drunen then goes on to examine Erhart’s

12

various allegations, and he concludes based on his review of testimony and

13

documentary evidence that Erhart’s allegations “are not supported with information

14

and/or evidence.” (Id.)

15

This proposed testimony does not pass muster under Rule 702. For one, van

16

Drunen references CFE Standards to critique Erhart’s conduct, but Erhart

17

indisputably was not a Certified Fraud Examiner. He was an entry-level internal

18

auditor that had previously not done internal audit work. (Summary Judgment Order

19

3:25–4:5.) Whereas van Drunen’s report at least feasibly connects the IIA Standards

20

to Erhart’s circumstances, there is no explanation for why Erhart’s beliefs should be

21

assessed in the context of CFE Standards. See Wadler, 916 F.3d at 1188 (“The

22

objective reasonableness component . . . ‘is evaluated based on the knowledge

23

available to a reasonable person in the same factual circumstances with the same

24

training and experience as the aggrieved employee.” (emphasis added) (quoting

25

Sylvester, 2011 WL 2517148, at *12)). This testimony will not help the jury; its task

26

will be to determine whether an entry-level internal auditor could reasonably form

27

Erhart’s beliefs, not a CFE. And because there is also not a sufficient basis for relying

28

on these standards to critique Erhart’s conduct, the Court will preclude van Drunen
– 18 –

15cv2287

1

from mentioning the CFE Standards or rendering opinions on Erhart’s conduct based

2

on these standards.

3

Moreover, aside from this standards issue, the Court will not permit van

4

Drunen to simply rehash the evidence and assert that his analysis of the evidence

5

leads to a particular conclusion. On this point, the Court finds helpful the district

6

court’s decision in an analogous case, Sharkey v. J.P. Morgan Chase & Co., 978 F.

7

Supp. 2d 250 (S.D.N.Y. 2013). There, an employee brought suit under Sarbanes–

8

Oxley’s whistleblower retaliation provision, alleging she reported fraudulent activity

9

because she believed a suspicious bank client “was violating one or more of the [laws

10

enumerated in Sarbanes–Oxley] in addition to money laundering.” Id. at 252. She

11

thus had also recommended that the banking relationship with this client be

12

terminated. See id. at 253; see also Sharkey, 805 F. Supp. 2d 45, 57–58 (S.D.N.Y.

13

2011) (summarizing the plaintiff’s allegations).

14

To support her whistleblower retaliation claim, the plaintiff sought to rely on

15

an expert under Rule 702 who had “vast experience” in Sarbanes–Oxley compliance

16

and “other areas of financial compliance.” Sharkey, 978 F. Supp. 2d at 253. This

17

expert opined that the plaintiff had a “reasonable belief” that the suspicious client

18

was engaged in wrongdoing and that “there [was] sufficient, competent evidential

19

matter to support” the plaintiff’s belief that the banking relationship should have been

20

terminated. Id.

21

The defendants moved to exclude these opinions for a host of reasons,

22

including that the opinions improperly usurped the jury’s factfinding function.

23

Sharkey, 978 F. Supp. 2d at 253. The court agreed. It determined the expert could

24

not testify whether the plaintiff had a “reasonable belief” of wrongdoing or whether

25

the plaintiff’s recommendation to terminate the client relationship was “reasonable.”

26

Id. The court further ruled that it would not permit the expert to “merely bolster [the

27

plaintiff]’s testimony as to the internal processes of [her employer] of which [the

28

expert] ha[d] no personal knowledge.” Id. Hence, the court excluded “[a]ll testimony
– 19 –

15cv2287

1

as to these issues, including any opinion as to whether the evidence in th[e] case

2

reasonably supported a termination of [the suspicious client]’s relationship with” the

3

bank. 3 Id.

4

Van Drunen’s proposed opinions are more skillfully drafted than the expert’s

5

opinions in Sharkey, but they are still unacceptable. Like the expert in Sharkey, van

6

Drunen proposes to testify whether the documents and evidence in the case support

7

Erhart’s beliefs. 4 This testimony is both improper and unnecessary under Rule 702

8

for the same reasons expressed in Sharkey. See 978 F. Supp. 2d at 253–54; see also

9

id. at 252 (“Simply rehashing evidence about which an expert has no personal

10

knowledge is impermissible under Rule 702.”). The jury is capable of determining

11

this issue on its own. See Nationwide Transp. Fin. v. Cass Info. Sys., Inc., 523 F.3d

12

1051, 1060 (9th Cir. 2008) (“Under either [Rule 701 or Rule 702], evidence that

13

merely tells the jury what result to reach is not sufficiently helpful to the trier of fact

14

to be admissible.” (alteration in original) (quoting Kostelecky v. NL Acme Tool/NL

15

Indus., Inc., 837 F.2d 828, 830 (8th Cir. 1988))).

16

testimony’s probative value is substantially outweighed by the danger of unfair

17

prejudice and this testimony’s potential to waste time and lead to the needless

18

presentation of cumulative evidence. See Fed. R. Evid. 403. Hence, the Court

19

excludes all of these opinions.

The Court also finds this

20

Topic No. 2: Erhart Made Improper Legal Conclusions. Next, van Drunen

21

opines that Erhart “appears to have made legal conclusions regarding the Bank’s

22
23
24
25
26
27
28

3

In contrast, the court determined that in light of the plaintiff’s expert’s qualifications, the
expert could “testify as to the type of transactions which might be subject to concern as an
accountant, and those matters which she believes, and why, are worthy of [Sarbanes–Oxley]
consideration (or so called ‘red flags’).” Sharkey, 978 F. Supp. 2d at 254. Further, the court
permitted the expert to testify “why these various types of conduct would be considered ‘red flags’
within the industry, and the types of fraudulent activity they suggested.” Id.
4
(See, e.g., Van Drunen Report § 4.1 (“Based on the documentation provided to me, I have
not observed information and/or evidence that Mr. Erhart provided to support his allegations.”) (“I
also did not observe evidence that other employees of the Bank thought Mr. Tolla’s changes were
material/inappropriate.”) (“After reviewing these allegations, I note that Mr. Erhart’s allegations
are not supported by audit evidence.”).)
– 20 –

15cv2287

1

compliance with state and federal regulations, outside his skills, experience, and role

2

as an internal auditor within the Bank which is inconsistent with the IAA Standards.”

3

(Am. van Drunen Report § 4.2.) Van Drunen explains that internal audit “is not

4

responsible for drawing any legal conclusions as to whether the Bank has violated

5

any laws, as this is the responsibility of management and the Audit Committee

6

assisted by qualified legal counsel.” (Id.) Thus, van Drunen opines that it was not

7

“appropriate” for Erhart to draw legal conclusions regarding the Bank’s compliance

8

with laws. (Id.)

9

While this analysis may ring true in the corporate arena, its relevance and

10

helpfulness to the jury is questionable. The federal whistleblower retaliation statutes

11

at issue expressly protect Erhart’s disclosures that provide information regarding

12

believed violations of certain laws, see 15 U.S.C. § 78u-6(h)(1)(A), 18 U.S.C. §

13

1514A(a)(1), and California’s whistleblower retaliation statute similarly protects

14

Erhart’s disclosures of reasonably believed violations of law, “regardless of whether

15

disclosing the information is part of [Erhart’s] job duties,” see Cal. Labor Code §

16

1102.5(b). Indeed, these statutes require that Erhart demonstrate he subjectively

17

believed the conduct he reported violated either enumerated laws or any law,

18

respectively. See Van Asdale, 577 F.3d at 1000; Cal. Labor Code § 1102.5(b). There

19

is no requirement that Erhart serve in a legal capacity with his employer or be

20

permitted to make legal conclusions as part of his job duties to engage in protected

21

activity. See Nielsen v. AECOM Tech. Corp., 762 F.3d 214, 221 (2d Cir. 2014)

22

(noting the reasonable person standard recognizes that “[m]any employees are

23

unlikely to be trained to recognize legally actionable conduct by their employers”). 5

24
25
5

26
27
28

The Court notes that the Bank has claimed Erhart was an employee who should have been
expected to know “whether the conduct [he] reported in fact constituted an enumerated violation”
because he was “an internal auditor.” (See BofI’s Summ. J. Mot. 30 n. 25, ECF No. 127-1.)
Interestingly, the Bank now oscillates to relying on testimony that it was improper for Erhart to
make “legal conclusions regarding the Bank’s compliance with state and federal regulations.” (Am.
van Drunen Report § 4.2.)
– 21 –

15cv2287

1

The potential for confusion is apparent. The Court will be instructing the jury

2

that Erhart must demonstrate he subjectively believed the law was being violated, but

3

van Drunen seeks to opine that it was inappropriate for Erhart to even make legal

4

conclusions at the Bank. The Court finds the probative value of this opinion is

5

minimal in these circumstances. The Court further concludes that this probative

6

value is substantially outweighed by the potential to confuse the issues and mislead

7

the jury. See Fed. R. Evid. 403. Hence, the Court will exclude van Drunen’s opinion

8

about the appropriateness of Erhart’s conduct on this topic but will otherwise allow

9

van Drunen to generally opine regarding the role of the internal audit function as

10

compared to management and the audit committee.

11

Topic No. 3: Erhart Raised Issues Unrelated to Assigned Audits. Van Drunen

12

next opines that based on his review of the evidence, “there appears to be a number

13

of instances where Mr. Erhart appears to either insert himself into audits or conduct

14

adhoc, random inquiries.” (Am. van Drunen Report § 4.3.) Van Drunen opines that

15

when internal auditors “act in this manner without the approval or knowledge of

16

senior management, it can result in:” (1) “Duplication of efforts,” (2) “Negative

17

results with respect to achieving and completing the annual audit plan,” (3)

18

“Confusion amongst auditees,” (4) “Reduced audit quality, and” (5) “A variety of

19

other issues that could negatively impact the audit process.” (Id.) Van Drunen then

20

summarizes his interpretation of the evidence and the instances where he believes

21

Erhart improperly inserted himself into audits. (Id.)

22

The Court will permit van Drunen to testify that Erhart appeared to deviate

23

from auditing practices and to discuss the impacts this type of conduct may have on

24

an internal audit system and audit results. The Court cautions, however, that it will

25

not permit van Drunen to merely rehash the evidence and bolster BofI’s anticipated

26

testimony regarding Erhart’s assigned job duties and the Bank’s internal policies

27

under the guise of expert testimony. See Sharkey, 978 F. Supp. 2d at 253; see also

28

Fed. R. Evid. 403 (allowing the court to exclude needlessly cumulative evidence).
– 22 –

15cv2287

1

In addition, the Court will not permit van Drunen to opine that Erhart acted

2

inappropriately in calling an “external regulatory agency regarding a legal matter,”

3

which he opines did not follow “the Bank’s procedures and protocols with respect to

4

communicating with external regulatory agencies.” (Am. van Drunen Report § 4.3.)

5

This opinion concerns Erhart’s belief that the Bank was providing a misleading

6

response to a subpoena issued by the Securities and Exchange Commission, which

7

led him to contact the SEC. As mentioned above, the laws at issue protect Erhart

8

from retaliation if he provides certain information to government agencies regarding

9

believed wrongdoing. The permissiveness of these laws is not on trial. See Van

10

Asdale, 577 F.3d at 1001 (noting Congress chose statutory language that

11

“encourage[s] disclosure”); see also Lawson v. FMR LLC, 571 U.S. 429, 432 (2014)

12

(explaining that Sarbanes–Oxley’s whistleblower protection provision was designed

13

to address the problems caused by Enron Corporation’s “corporate code of silence,”

14

which “discourage[d] employees from reporting fraudulent behavior . . . to the proper

15

authorities, such as the FBI and the SEC”). The issue for the jury to decide is whether

16

Erhart’s belief of wrongdoing was reasonable, not whether corporate policies or

17

auditing practices made it appropriate for Erhart to directly contact a regulator. The

18

Court finds this opinion is subject to exclusion because it is not helpful for the jury

19

to determine a fact in issue and its probative value is substantially outweighed by the

20

danger that it will confuse or mislead the jury. See Fed. R. Evid. 403, 702.

21

Topic No. 4: Erhart Lacked Independence. Van Drunen opines that “[t]he IAA

22

Standards require internal audit activity to be independent” and that internal auditors

23

“be ‘objective in performing their work.’” (Am. van Drunen Report § 4.3.) He

24

further opines that Erhart’s “allegations into Bank activities appear to be influenced

25

by personal reasons, which has the potential to impact his impartiality and

26

independence.” (Id.) Van Drunen then reviews some of Erhart’s allegations and

27

auditing conduct and explains why he believes Erhart’s conduct lacked the

28

independence required by IIA Standards. (Id.) For example, van Drunen concludes
– 23 –

15cv2287

1

that Erhart appears to have targeted certain individuals in his Lottery and Structured

2

Settlements Audit. (Id.) Van Drunen opines that “the likelihood of both of these

3

individuals being selected as part of a random sample is remote.” (Id.)

4

The Court will permit this testimony under Rule 702. Erhart’s alleged lack of

5

independence in conducting his audits may bear on the objective reasonableness of

6

his beliefs, and therefore this testimony may help the jury determine a fact in issue.

7

The Court also finds this testimony is based on sufficient information and is reliably

8

derived from the IIA Standards and van Drunen’s specialized knowledge. Finally,

9

this testimony is not otherwise subject to exclusion under Rule 403.

10

Topic No. 5: Failure to Close Out Audits and Improper Remediation Efforts.

11

Van Drunen provides several opinions on this topic. He initially opines that in “year

12

2014,” Erhart “completed four audits, in comparison to his [two] colleagues . . . who

13

completed 14 and 16 audits, respectively.” (Am. van Drunen Report § 4.5.) Further,

14

van Drunen expresses that “[i]t appears that the reason for [Erhart’s] failure to close

15

out and/or delay [in] filing his audit reports may be because he was not doing what

16

he was assigned and authorized to do and he was taking on unauthorized management

17

responsibilities.” (Id.)

18

The Court finds this testimony is not admissible under Rule 702. Determining

19

whether Erhart completed less audits than his colleagues does not involve “scientific,

20

technical, or other specialized knowledge.” See Fed. R. Evid. 702. Similarly, the

21

Bank can introduce admissible evidence regarding what Erhart was assigned and

22

authorized to do at the Bank. There is no need for expert testimony on this subject.

23

See Jinro Am. Inc., 266 F.3d at 1004 (cautioning that allowing a witness to come

24

before a jury as an expert is significant because it allows the witness “to testify based

25

on hearsay information, and to couch . . . observations as generalized ‘opinions’

26

rather than as firsthand knowledge”); see also Fed. R. Evid. 403.

27

In contrast, van Drunen also opines about the role of remediation efforts in

28

internal auditing based on “his experience and understanding.” (Am. van Drunen
– 24 –

15cv2287

1

Report § 4.5.) Van Drunen opines that “if remediation is required as a result of

2

findings that an internal auditor has noted in the audit reports, there is a process to be

3

followed.” (Id.) He explains that “internal audit’s role in the remediation process is

4

to report on whether the other [organizational] functions are making required changes

5

within a defined time period.” (Id.) Van Drunen further opines that because Erhart

6

directed remedial actions in some instances, he placed “the internal audit department

7

in a position where in the future it might [have been] required to audit its own work.”

8

(Id.)

9

recommendations to remediate issues that have already been or are in the process of

10

He also opines it is unusual for an auditor like Erhart “to make

being remediated.” (Id.)

11

This proposed testimony regarding the role of an internal audit system and

12

Erhart deviating from common practice is adequately based on van Drunen’s

13

specialized knowledge. See Fed. R. Evid. 702. The Court also finds it will help the

14

jury to understand the evidence and Erhart’s role in the Bank’s internal audit system.

15

Hence, the Court finds this testimony is admissible.

16

Topic No. 6: Failure to Conform to Chain of Command. Van Drunen next

17

opines that Erhart “failed to conform to chain of command / reporting structure in

18

various ways.” (Am. van Drunen Report § 4.6.) He highlights that Erhart “sent

19

information to regulators” regarding certain allegations of believed wrongdoing.

20

(Id.) Van Drunen opines that he believes Erhart did not take “the appropriate action

21

by escalating the matters to regulators” and that he should have instead presented his

22

concerns to the Bank’s audit committee “per normal protocols and per the

23

instructions in the Bank’s Employee Handbook.” (Id.)

24

The Court will not admit this proposed testimony for the same reasons the

25

Court discussed above. The laws at issue protect Erhart’s disclosures to appropriate

26

regulators regarding believed wrongdoing, and these laws and the value judgments

27

Congress made are not on trial. The issue for the jury is whether Erhart’s beliefs of

28

wrongdoing were reasonable, not whether BofI’s Employee Handbook or auditing
– 25 –

15cv2287

1

protocols made it “inappropriate” for him to reach out to regulators directly. The

2

Court finds this testimony will not assist the jury in the task at hand. Moreover, the

3

probative value of these opinions is substantially outweighed by their potential to

4

confuse the issues and mislead the jury. See Fed. R. Evid. 403. Hence, the Court

5

excludes these opinions.

6

Topic No. 7: Failure to Comply with IIA’s Confidentiality Requirements.

7

Finally, van Drunen references the IIA’s Code of Ethics discussed above and its

8

confidentiality requirements. (Am. van Drunen Report § 4.7.) Van Drunen then

9

opines that Erhart “failed to apply and uphold the IIA’s Code of Ethics with respect

10

to confidentiality,” including by storing confidential bank information in a bag buried

11

in his closet. (Id.)

12

The Court will admit this testimony under Rule 702. Van Drunen’s testimony

13

is relevant to BofI’s claims in its countersuit regarding Erhart’s alleged mishandling

14

of confidential bank information.

15

determining whether Erhart breached his duty of care to the Bank on this basis. Last,

16

the testimony is based on sufficient information and is reliably derived from van

17

Drunen’s experience and his application of the IIA’s Code of Ethics and industry

18

standards.

19

interpretation of BofI’s Confidentiality Agreement and whether Erhart breached the

20

contract. (See Am. van Drunen Report § 4.7.) See, e.g., McHugh v. United Serv.

21

Auto. Ass’n, 164 F.3d 451, 454 (9th Cir. 1999) (noting expert testimony cannot “be

22

used to provide legal meaning” or interpret contractual language).

23
24
25

This testimony also may assist the jury in

That said, the Court will not permit van Drunen to opine on the

Overall, the Court grants in part and denies in part Erhart’s request to exclude
all of van Drunen’s proposed testimony under Rule 702.
CONCLUSION

26

In light of the foregoing, the Court GRANTS IN PART and DENIES IN

27

PART Erhart’s motion to exclude expert testimony. BofI fails to demonstrate that

28

its non-retained expert CFO Micheletti’s proposed testimony is admissible under
– 26 –

15cv2287

1

Rule 702. Consequently, the Court grants Erhart’s request to preclude Micheletti

2

from testifying as an expert, but the Court recognizes that Micheletti may be able to

3

provide lay opinion testimony on the Bank’s lost profits under Rule 701.

4

The Court also grants in part and denies in part Erhart’s request to exclude

5

BofI’s retained expert Guido van Drunen. The Court finds van Drunen’s proposed

6

testimony regarding (1) internal audit objectives and standards and (2) internal audit

7

procedures is admissible under Rule 702. This testimony is reliably based on van

8

Drunen’s specialized knowledge and will help the jury understand the evidence. As

9

for van Drunen’s more specific opinions on Erhart’s conduct, the Court reaches a

10

mixed result. Some of these opinions are appropriate under Rule 702; other opinions

11

either fail to meet Rule 702’s requirements or are subject to exclusion under Rule

12

403 for the reasons outlined above.

13

IT IS SO ORDERED.

14
15

DATED: April 1, 2020

16
17
18
19
20
21
22
23
24
25
26
27
28
– 27 –

15cv2287