Gibson et al v. Credit Suisse Securities USA, LLC et al

Filing 753

MEMORANDUM OPINION AND ORDER DENYING DEFENDANTS' MOTION TO STRIKE Defendants' Motion to Strike, ECF 702 & 703 , is DENIED.. Signed by Judge Justin L. Quackenbush. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (jp)

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UNITED STATES DISTRICT COURT

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DISTRICT OF IDAHO

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L.J. GIBSON, BEAU BLIXSETH; AMY
KOENIG, VERN JENNINGS, MARK NO. 1:10-CV-00001-JLQ
MUSHKIN, MONIQUE LAFLEUR,
GRIFFEN DEVELOPMENT, LLC, JUDY
MEMORANDUM OPINION AND
LAND, CHARLES DOMINGUEZ, et al,
ORDER DENYING
DEFENDANTS’ MOTION TO
Plaintiffs,
STRIKE
v.
CREDIT SUISSE AG, a Swiss corporation;
CREDIT SUISSE SECURITIES (USA), LLC,
a Delaware limited liability company, CREDIT
SUISSE FIRST BOSTON LLC, a Delaware
limited liability corporation; CREDIT SUISSE
AG, CAYMAN ISLAND BRANCH, an entity
of unknown type; and CUSHMAN &
WAKEFIELD, INC., a Delaware corporation,
Defendants.

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I.

Introduction

BEFORE THE COURT is Defendants’ Motion to Strike Plaintiffs’ Appraisal

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Rebuttal Reports. ECF No. 702. Credit Suisse seeks to strike two of the rebuttal expert

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real property appraisal reports filed by Plaintiffs because, claims Defendants, the two

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reports appraising additional properties do not constitute rebuttal testimony and the

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untimely filing was not substantially justified or harmless. See ECF No. 702-1. Cushman

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& Wakefield joined in the Motion to Strike. ECF No. 703. On November 16, 2015,

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Plaintiffs opposed the Motion (ECF No. 711) and on December 3, 2015, Credit Suisse

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submitted a Reply brief. (ECF No. 720). The matter was submitted for decision without

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oral argument
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II. Background and Procedural History

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A.

Initial Expert Disclosure

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Pursuant to the court’s Order, ECF No. 638, entered at the request of the parties,

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initial expert reports were filed on September 1, 2015. See ECF No. 669; ECF No. 670;

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ECF No. 671; ECF No. 672. The four Plaintiffs represented by Robert Huntley (“Huntley

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Plaintiffs”) identified previously filed initial expert reports by three individuals, provided

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one new expert report, and joined the simultaneously filed expert appraisal reports filed

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by the Plaintiffs represented by James Sabalos (“Sabalos Plaintiffs”).

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The previously filed expert reports by Michael Mason asserted the Cushman &

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Wakefield appraisals at each of the four Master Planned Communities should have

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complied with the Financial Institutions Reform, Recovery, and Enforcement Act

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(“FIRREA”) and Uniform Standards of Professional Appraisal Practice (“USPAP”). See

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ECF No. 142 and ECF No. 442-1. Douglas Haney’s previously submitted expert reports

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on behalf of the Huntley Plaintiffs assert the Total Net Value appraisals and Total Net

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Proceeds approach (which replaced the Total Net Value methodology) failed to comply

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with FIRREA and USPAP and was required to do so. ECF No. 59, ECF No. 68-1, and

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ECF No. 141. The last previously filed expert report was by Randall Bell who analyzed

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the Cushman & Wakefield appraisals underpinning the Credit Suisse loans. See ECF No.

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287-1.

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The Huntley Plaintiffs also identified a new expert, Larry Leasure, who provided

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his opinion as to the propriety of the Credit Suisse loans in light of prevailing standards

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of real estate financing. See ECF No. 670-1. The Huntley Plaintiffs also joined in the

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reports simultaneously filed by the five Sabalos Plaintiffs. See ECF No. 670.

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The Sabalos Plaintiffs filed two expert reports from J. Randall Schneider

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appraising real properties owned by the Sabalos Plaintiffs at Lake Las Vegas and

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Tamarack. See ECF No. 672. Schneider’s reports addressed the claimed effect the Credit

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Suisse loans had on the value of specific properties owned by the Sabalos Plaintiffs at

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Lake Las Vegas and Tamarack. See ECF No. 672-1 at 3; ECF No. 672-4 at 2-3. The
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values of the Sabalos Plaintiffs’ properties were compared to other properties at

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“competitive Master Planned Communities” to “determine if there is a difference

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between the effects of the overall housing market compared to the effects of the loss of

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amenities due to bankruptcy.” ECF No. 672-1 at 3; ECF No. 672-4 at 3. At the time, Mr.

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Huntley failed to observe his clients’ Lake Las Vegas and Tamarack properties were not

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included in Mr. Schneider’s appraisals. ECF No. 711 at 3.
Defendants submitted expert reports from several individuals. Ronald Hendricks

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provided an analysis of the Cushman & Wakefield appraisals and the Total Net Value

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methodology, opining that they were not misleading. See ECF No. 669-1; ECF No. 671-

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1. Paula Konikoff provided her opinion that the appraisals complied with the

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requirements of USPAP. See ECF No. 669-2; ECF No. 671-2. An expert report from

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Mark Olson asserted the appraisals were not required by law to comply with FIRREA.

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See ECF No. 669-3; ECF No. 671-3. Julie Persily submitted an expert report stating her

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opinion that the Credit Suisse loans were not consistent with a “loan to own” strategy.

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See ECF No. 669-4; ECF No. 671-4.
The last expert report Defendants submitted was from Walter Torous, PhD. See

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ECF No. 669-5; ECF No. 671-5. Dr. Torous did not appraise any of the Plaintiffs’

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individual properties, but provided his opinion as to what caused the failure of the Master

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Planned Communities. See ECF No. 669-5; ECF No. 671-5. Dr. Torous claimed the

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economic recession caused the failure of all four Master Planned Communities, not the

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Credit Suisse loans. See ECF No. 669-5 at 62-77.

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B.

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Rebuttal Expert Disclosures
On October 9, 2015, all parties submitted their rebuttal expert reports. See ECF No.

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689; ECF No. 690; ECF No. 691; ECF No. 692; ECF No. 694; ECF No. 695. Plaintiffs

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submitted three rebuttal reports from Mr. Schneider. The first Schneider rebuttal report

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countered the report of Dr. Torous. See ECF No. 690-1. The first Schneider rebuttal

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report discussed how the Credit Suisse loans, not the economy, caused Plaintiffs’ alleged

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damages. See ECF No. 690-1.
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The other two rebuttal reports from Mr. Schneider (“Schneider Rebuttal

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Appraisals”) appraised six properties at Tamarack and one property at Lake Las Vegas,

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owned by Huntley Plaintiffs, that were previously omitted from his initial expert reports.

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See ECF No. 694; ECF No. 695. Specifically, the Schneider Rebuttal Appraisals

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appraised the properties owned by Jennings at Lake Las Vegas, as well as the properties

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owned by Land and Dominguez at Tamarack, Idaho. ECF No. 690-1 at 19. The Schneider

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Rebuttal Appraisals used the same process and methodology as Schneider’s initial reports

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concerning the Sabalos Plaintiffs’ Tamarack and Lake Las Vegas properties. The only

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difference in the Schneider Rebuttal Appraisals was the addition of the evaluation of the

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additional Huntley represented properties. See ECF No. 702-1 at 5-6. Neither the initial

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Schneider appraisals nor the Schneider Rebuttal Appraisals appraised properties owned at

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Yellowstone Club or Ginn sur Mer. See ECF No. 672; ECF No. 702-1.
Defendants submitted a report from Dr. Torous rebutting the initial Schneider

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reports. ECF No. 691-5. Dr. Torous’ rebuttal report asserted the method used by

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Schneider was flawed and did not establish a causal link between the alleged damages for

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the evaluated properties and the loans financed by Credit Suisse. See ECF No. 691-5 at 5.

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Dr. Torous did not appraise any of the individual properties, but noted the initial

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Schneider reports did not analyze any property purchased by Jennings, Blixseth,

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Dominguez, and Land (the Huntley Plaintiffs). ECF No. 691-5 at 8.
On October 28, 2015, 19 days after the challenged rebuttal reports were filed,

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Defendants deposed Mr. Schneider. See ECF No. 711-1 at 1. The deposition included

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discussion of his initial and rebuttal expert reports which were admitted as exhibits

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during the deposition. See ECF No. 711-1 at 3.

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C.

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Motion to Strike
On October 22, 2015, the Defendants filed the instant Motion seeking to strike the

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Schneider Rebuttal Appraisals. ECF No. 702 at 2. Defendants argued those two reports

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are not proper rebuttal and asserted the court must strike the reports. ECF No. 702-1 at

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11-16. As an alternative to striking the reports, Defendants requested the court to not
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allow testimony on the Schneider Rebuttal Appraisals or to prevent Mr. Schneider from

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testifying during Plaintiffs’ case-in-chief. ECF No. 702-1 at 16-17.
Plaintiffs oppose the Motion to Strike, arguing the Schneider Rebuttal Appraisals

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are proper rebuttal because they, along with the first Schneider rebuttal report, form “part

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of a cohesive whole” which directly rebuts the expert report of Dr. Torous. ECF No. 711

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at 7. Plaintiffs also assert the timing of the Schneider Rebuttal Appraisals did not harm

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Defendants. ECF No. 711 at 9.
III.

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A.

Legal Analysis

Rebuttal Expert Reports
Witnesses who are “retained or specially employed to provide expert testimony in

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the case” must provide a written report containing the information required by Rule 26.

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Fed.R.Civ.P. 26(a)(2)(B). Rebuttal experts are those experts whose testimony “is

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intended solely to contradict or rebut evidence on the same subject matter identified by

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another party under Rule 26(a)(2)(B) or (C).” Fed.R.Civ.P. 26(a)(2)(D)(ii). Rebuttal

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reports are not the proper place for presenting new arguments.

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Defendants argue the Schneider Rebuttal Appraisals are not rebuttal because they

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do not rebut any of Defendants’ expert reports, do not cite to any reports, and are largely

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duplicative of the initially furnished real property appraisals except for the new properties

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being appraised. ECF No. 702-1 at 8-9. Plaintiffs argue the contents of the Schneider

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Rebuttal Appraisals are identical to his initial reports except for the properties being

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appraised. See ECF No. 711 at 7. Plaintiffs concede the Schneider Rebuttal Appraisals

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could have been submitted as initial reports, but contend they were not required to be

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submitted as initial reports. ECF No. 711 at 3. Plaintiffs characterize the Schneider

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Rebuttal Appraisals as “partial foundation analyses” for Schneider’s rebuttal to Dr.

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Torous’ report and should be considered in conjunction with the other report. See ECF

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No. 711 at 1-2.

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Dr. Torous’ report presented opinions concerning the cause of the Master Planned

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Communities’ failure, but did not present an individual appraisal of or damage estimates
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for each Plaintiff’s property. See ECF No. 669-5; ECF No. 671-5. Mr. Schneider’s

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rebuttal to Dr. Torous focuses on the causation of damages (the economy versus Credit

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Suisse’s loans) not specific property appraisals. See ECF No. 690-1. Since Dr. Torous did

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not make specific parcel appraisals, and specifically noted the missing properties without

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evaluating them, the Huntley Plaintiffs’ contention that the Schneider Rebuttal Appraisals

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are, in fact rebuttals to Torous’ opinions, lacks weight. It appears to the court the reason

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for the belated second Schneider filings for the Huntley Plaintiffs was the oversight that

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the first Schneider report did not include the Huntley Plaintiffs’ Lake Las Vegas and

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Tamarack properties.
It further appears the Schneider Rebuttal Appraisals are critical to the claims of the

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three Huntley Plaintiffs whose properties were therein appraised. Apparently those

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appraisals constitute the only expert testimony establishing the monetary loss from the

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subject properties arising from the Credit Suisse’s loans. The Schneider Rebuttal

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Appraisals do not formally constitute rebuttal evidence, because the alleged damages to

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each Plaintiff are a part of Plaintiffs’ case-in-chief. To preclude the Huntley Plaintiffs’

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Schneider “rebuttal appraisals” from being introduced in their case in chief could result in

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those Plaintiffs having their cases dismissed before or during trial, a draconian result for a

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40 day delay (September 1, 2015 to October 9, 2015) in the furnishing of their Schneider

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Rebuttal Appraisals. A much longer continuance of the trial date at the request of

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Cushman & Wakefield’s counsel was granted. See ECF No. 725 at 1-2.

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B.

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Justification for Untimely Disclosure
The belated furnishing of the challenged Schneider reports does not subject them to

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mandatory rejection if the untimely disclosure of the Schneider Rebuttal Appraisals “was

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substantially justified or is harmless.” Fed.R.Civ.P. 37(c)(1). In determining whether a

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late disclosure is substantially justified or harmless, the court considers four factors: 1)

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prejudice or surprise to the non-offending party; 2) ability of the non-offending party to

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cure any prejudice; 3) likelihood of disrupting trial; and 4) bad faith or willfulness of the

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party failing to timely disclose the report. Lanard Toys Ltd. v. Novelty, Inc., 375 Fed.
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Appx. 705, 713 (9th Cir. 2010) (unpublished). The burden is on the party facing such

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sanctions as the preclusion of evidence to prove the untimely disclosure was substantially

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justified or harmless. Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1107

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(9th Cir. 2001). Late disclosure can be considered harmless when the non-offending party

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“knew about the expert, knew about the content of the expert’s testimony, and had an

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opportunity to depose the expert.” Amos, 2011 WL 43092 at *4.

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The sanctions provision of Rule 37(c)(1) “provides a strong inducement for

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disclosure of material.” Fed.R.Civ.P. 37(c) advisory committee’s note to 1993

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amendment; Yeti by Molly, 259 F.3d at 1106. However, “[l]imiting the automatic sanction

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to violations ‘without substantial justification,’ coupled with the exceptions for violations

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that are ‘harmless,’ is needed to avoid unduly harsh penalties in a variety of situations”

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such as “the inadvertent omission ... of the name of a potential witness known to all

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parties.” Fed.R.Civ.P. 37(c) advisory committee’s note to 1993 amendment. The Ninth

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Circuit “give[s] particularly wide latitude to the district court’s discretion to issue

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sanctions under Rule 37(c)(1).” Yeti by Molly, 259 F.3d at 1106.

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Excluding an expert from testifying is in fact a “Draconian sanction.” Downs v.

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River City Group, LLC, No. 3:11-CV-00885-LRH-WGC, 2014 WL 814303, *8 (D. Nev.

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February 28, 2014). “Excluding expert testimony is not proper when there are other, less

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severe sanctions available.” Amos, 2011 WL 43092 at *4. Courts decline to exclude

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experts as a sanction for untimely disclosure where there is time to depose the expert.

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See, e.g., Downs, 2014 WL 814303 at *8; Amos, 2011 WL 43092 at *5; Galentine v.

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Holland America Line-Westours, Inc., 333 F. Supp. 2d 991, 994 (W.D. Wash. 2004).

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When the party seeking exclusion was aware of the expert before the initial deadline, as

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herein, disclosure of additional testimony at the rebuttal deadline does not warrant

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exclusion. See id. at 994.

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Plaintiffs argue the late disclosure of the Schneider Rebuttal Appraisals was

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harmless because the Schneider Rebuttal Appraisals applied Mr. Schneider’s same

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methodology from his initial reports to the additional properties but provided no new
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theories. ECF No. 711 at 9. Defendants deposed Mr. Schneider after the Schneider

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Rebuttal Appraisals were filed and questioned him about the belatedly furnished portions

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of the Schneider Rebuttal Appraisals. ECF No. 711 at 9.

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Defendants argue they are prejudiced because the untimely filing means they will

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not be able to rebut the Schneider Rebuttal Appraisals. ECF No. 702-1 at 14. Defendants

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contend the only way to remedy prejudice is to “extend multiple succeeding discovery or

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pretrial deadlines” to allow Defendants to: 1) obtain reports rebutting the Schneider

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Rebuttal Appraisals; 2) depose Mr. Schneider again; and 3) address the Schneider

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Rebuttal Appraisals in its summary judgment briefing. ECF No. 702-1 at 15.

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Defendants’ claims of prejudice appear overstated. Defendants do not need to

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obtain reports to rebut Schneider’s analysis of the additional properties. Dr. Torous

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rebutted the methodology used by Mr. Schneider without discussing the individual

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property appraisals. See ECF No. 691-5. It appears the same objections would apply to

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the additional properties. There is no reason to believe Defendants need to file sur-

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rebuttal reports to combat the Schneider Rebuttal Appraisals. Had there been a request,

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Defendants could have had Dr. Torous supplement his rebuttal to include the Schneider

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Rebuttal Appraisals.

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Defendants have no apparent need to depose Mr. Schneider again. The Schneider

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Rebuttal Appraisals were submitted almost three weeks before the Schneider deposition

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took place, were admitted as exhibits at the deposition of Mr. Schneider, and Defendants

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questioned Mr. Schneider regarding the Schneider Rebuttal Appraisals. See ECF No.

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711-1 at 3.

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After Defendants filed the instant Motion, the court extended the dispositive

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motion deadline. See ECF No. 705 at 2. Because of the extension, Defendants had

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additional time to prepare their briefs and include consideration of the Schneider Rebuttal

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Appraisals. Both Defendants addressed all of the Schneider reports and methodology in

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their Motions. See ECF No. 737-1 at 23-24; ECF No. 741-1 at 15. The additional

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Schneider reports did not prejudice Defendants’ dispositive motions.
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Defendants do not assert Plaintiffs acted in bad faith by failing to timely file the

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Schneider Rebuttal Appraisals. See ECF No. 720 at 7. Defendants have not established

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the Schneider Rebuttal Appraisals will disrupt the trial or pretrial deadlines. Defendants

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were aware of Mr. Schneider, his methodology, his theory concerning the cause of

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damages in this case, and deposed Schneider on his rebuttal reports. The delay in the

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untimely disclosure of the Schneider “rebuttal” reports, while constituting a violation of

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the court’s prior Scheduling Order, has not resulted in any prejudice or harm to the

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Defendants.
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Conclusion

The Schneider Rebuttal Appraisals covering the additional Huntley Plaintiffs’

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property were not “rebuttal reports.” The report of the appraisal of those properties

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should have been included at the time of the initial expert reports on September 1, 2015.

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The striking of those reports is not warranted. That finding should not be construed by

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counsel as an indication that any future violations of court-established deadlines will be

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tolerated.

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IT IS HEREBY ORDERED:

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Defendants’ Motion to Strike, ECF 702 & 703, is DENIED.

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IT IS SO ORDERED. The Clerk is hereby directed to enter this Order and furnish

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copies to counsel.
DATED this 7th day of January, 2016.
s/ Justin L. Quackenbush
JUSTIN L. QUACKENBUSH
SENIOR UNITED STATES DISTRICT JUDGE

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ORDER - 9