Stewart Title Guaranty Company v. Credit Suisse

Filing 322

MEMORANDUM DECISION & ORDER The motions to exclude testimony of Thompson (dkt no. 280 ) and Mason (docket no. 292 ) are GRANTED and that the testimony of these experts shall be excluded. The motions to exclude Franklin (dkt no. 290 ) and Cook (dkt no. 288 ) are DENIED. The motions to exclude the testimony of Nielsen (dkt no. 284 ) is GRANTED IN PART AND DENIED IN PART. the motion to exclude Reilly (dkt no. 286 ) is GRANTED IN PART AND DENIED IN PART. The motion to exclude Rush (dkt no. 291 ) is GRANTED IN PART AND DENIED IN PART. Signed by Judge B. Lynn Winmill. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (jp)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

STEWART TITLE INSURANCE
COMPANY, a Texas corporation,

Case No. 1:11-cv-227-BLW

Plaintiff,
MEMORANDUM DECISION &
ORDER

v.
CREDIT SUISSE, Cayman Islands
Branch,
Defendant.

INTRODUCTION
The Court has before it seven motions to exclude the testimony of experts. The
Court heard oral argument on the motions on June 18, 2015. For the reasons explained
below, the Court will (1) grant the motions to exclude the testimony of Jeffrey Thomson
and Michael Mason, and (2) grant in part and deny in part the motions to exclude the
testimony of Bushnell Nielsen, Robert Reilly, and Albert Rush, and (3) deny the motions
to exclude Kenneth Franklin and Philip Cook.
LITIGATION BACKGROUND
On May 19, 2006, Tamarack and Credit Suisse signed a Credit Agreement setting
forth the Loan of $250 million from Credit Suisse to Tamarack to build a ski resort. The
Loan was secured by two mortgages on most of the 3,608 acres on which the resort was
to be built. On the same day the Loan was issued, Stewart Title, through its subsidiary,
Memorandum Decision & Order – page 1

AmeriTitle, issued Credit Suisse a lender’s title insurance policy (“the Policy”) on the
mortgaged land. The Policy was worth $227,000,000.00 and did not contain the standard
exceptions for mechanics’ liens and creditors’ rights.
Before the Credit Agreement was signed, Credit Suisse and Stewart Title
negotiated over the terms of the Policy. On April 20, 2006, Stewart issued a
“Commitment to Provide Title Insurance,” which functioned as a draft of the Policy.
Between issuing the Commitment and issuing the Policy, Stewart and Credit Suisse
negotiated Schedule B, the list of specific exclusions to the Policy. Stewart also
requested an appraisal of Tamarack from Credit Suisse and the list of accounts payable
from the Loan documents. Credit Suisse gave Stewart an appraisal that another firm –
Cushman & Wakefield – had prepared for financing purposes. Credit Suisse also
directed Stewart to communicate with Tamarack to obtain the Schedules from the Loan
documents.
Tamarack had contracted with multiple builders and architects to begin
construction on portions of the resort prior to May 19, 2006. Notably, Banner/Sabey II,
LLC, a general contractor, had begun construction of the Village Plaza in early April of
2006.
This becomes important because under Idaho law a contractor who has not been
paid can file a mechanic’s lien that attaches to the real property and takes priority over
liens or mortgages that attached after the date the contractor began the work at issue.
Thus, a company providing title insurance has a vested interest in knowing the date

Memorandum Decision & Order – page 2

contractors began work on a project and whether that date is prior in time to any
mortgages covered by the title insurance.
Stewart obtained lien waivers from some, but not all, of the contractors prior to
issuing the Policy. Banner/Sabey II and MHTN, the architect of the Village Plaza
project, did not sign waivers until several months after the Policy was issued.
Banner/Sabey II had signed a contract with Tamarack in March of 2006, but had made
the contract contingent on financing, which came in the form of Credit’s Suisse’s Loan.
The Loan documents reflected this fact: at the time the Loan and Policy were issued
Banner/Sabey II and MHTN were listed under Schedule 2.9, the accounts payable
schedule, but were not listed under Schedule 1.1(e), the list of contractors, or Schedule
4.33, the list of material contracts.
The Loan was set to mature on May 19, 2011. Long before that date, however,
Tamarack defaulted on the Loan. Credit Suisse filed a foreclosure action in Idaho state
court and tendered to Stewart Title the defense against multiple competing liens.
Stewart Title accepted the tender and defended Credit Suisse in the state court
foreclosure action. On May 1, 2009, the state court held that the lien waivers signed by
Banner/Sabey II and other contractors only waived the right to a lien for work performed
before the Loan documents were recorded, but not for later performed work.
On June 29, 2009, Stewart withdrew its defense of Credit Suisse against a
vendee’s lien held by BAG Property Holdings, LLC. On May 11, 2011, the state court
entered findings concluding that certain mechanics’ liens worth around $13 million were
valid and had priority over Credit Suisse’s mortgages. On May 17, 2011, Stewart
Memorandum Decision & Order – page 3

withdrew its defense of Credit Suisse against these mechanics’ liens and, on the next day
(May 18, 2011), filed this lawsuit. Stewart generally seeks a declaration that it does not
need to indemnify Credit Suisse for any loss due to these superior mechanics’ and
vendees’ liens.
Credit Suisse responded with a motion for partial summary judgment, seeking to
dismiss some of Stewart Title’s claims, and a motion to amend its complaint to add a
claim for punitive damages. The Court granted the motion to amend, finding that there
was sufficient evidence to present to a jury Credit Suisse’s claim that Stewart Title’s
denial of its claim for coverage was an extreme deviation from reasonable standards of
conduct and was done with an extremely harmful state of mind.
The Court also granted in part Credit Suisse’s motion for partial summary
judgment, ruling as follows: (1) The Policy affords coverage for the mechanic’s liens
claimed by Banner/Sabey II and MHTN, and the statutory BAG vendee’s liens; (2)
Stewart Title may not claim that Credit Suisse committed fraud because the Cushman &
Wakefield appraisal it provided was misleading; (3) Stewart Title may not claim that
Credit Suisse committed fraud because Credit Suisse knew, but failed to reveal, facts that
gave priority to mechanic’s liens filed by contractors Banner/Sabey II and MHTN; (4) An
exclusion (§ 3(a)) under the Policy is not applicable because Credit Suisse was not
responsible for the mechanic’s liens; (5) An exclusion (§ 3(b)) under the Policy, that
applied if the insured knew of liens that the insurer was not aware of, did not apply
because Stewart Title was at least on inquiry notice as to the mechanic’s liens; and (6)

Memorandum Decision & Order – page 4

Stewart Title cannot raise as a defense to coverage Credit Suisse’s failure to pursue its
remedies against Guarantors.
Both sides have now filed motions to exclude testimony from their opponent’s
experts. Credit Suisse has moved to exclude testimony from Bushnell Nielsen, Jeff
Thompson, Michael Mason, and Robert Reilly. Stewart Title has moved to exclude
testimony from Albert Rush, Philip Cook, and Kenneth Franklin. The Court will discuss
each motion after reviewing the legal standards governing expert testimony.
LEGAL STANDARDS
Rule 702
Rule 702 should be applied with a “liberal thrust” favoring admission. Daubert v.
Merrell Dow Pharm., Inc., 509 U.S. 579, 588 (1993). At the same time, Rule 702
requires that “[e]xpert testimony . . . be both relevant and reliable.” Estate of Barabin v.
AstenJohnson, Inc., 740 F.3d 457, 463 (9th Cir.2014).
The relevancy bar is low, demanding only that the evidence “logically advances a
material aspect of the proposing party’s case.” Daubert v. Merrell Dow Pharm., Inc., 43
F.3d 1311, 1315 (9th Cir.1995). Relevancy depends on the particular law at issue
because “[e]xpert opinion testimony is relevant if the knowledge underlying it has a valid
connection to the pertinent inquiry.” Primiano v. Cook, 598 F.3d 558, 563 (9th
Cir.2010). The reliability threshold requires that the expert’s testimony have “a reliable
basis in the knowledge and experience of the relevant discipline.” Kumho Tire Co., Ltd.
v. Carmichael, 526 U.S. 137, 149 (1999).
Ultimate Issue vs. Legal Conclusion
Memorandum Decision & Order – page 5

Expert testimony may “embrace[ ] an ultimate issue to be decided by the trier of
fact.” See Fed.R.Evid. 704(a). At the same time, an expert witness “cannot give an
opinion as to her legal conclusion, i.e., an opinion on an ultimate issue of law.”
Nationwide Transp. Fin. v. Cass Info. Sys., Inc., 523 F.3d 1051, 1058 (9th Cir.2008)
(excluding expert testimony labeling conduct as “wrongful” or “intentional,” but
allowing testimony on “industry standards” and “factual corporate norms”). Id.
Rule 704(a) must be read together with Rule 702. The reason that courts exclude
opinions that merely tell the jury what result to reach – for example, that a testator did not
have the capacity to make a will – is that the opinion is not helpful to the jury, as required
by Rule 702. See 29 Wright & Gold, Federal Practice & Procedure § 6284 at p. 380-82.
The opinion becomes helpful when it is linked to the facts of the case. See Advisory
Committee Notes to Rule 704. An example used in the Advisory Committee Notes makes
this plain:
Thus, the question “Did T have capacity to make a will?” would be
excluded, while the question, “Did T have sufficient mental capacity to
know the nature and extent of his property and the natural objects of his
bounty to formulate a rational scheme of distribution?” would be allowed.
Id.
Expert Testimony in Bad Faith Litigation
Closer to the context of this case, an expert’s testimony in a bad faith case that an
insurer violated the standards of the insurance industry was allowed in Hangarter v.
Provident Life, 373 F.3d 998 (9th Cir. 2004). In that case the plaintiff claimed his insurer
committed bad faith in denying his claim for disability insurance benefits. His expert
testified that the insurer (1) based its denial on “facts” it knew to be false, (2) relied on an
Memorandum Decision & Order – page 6

examining physician it knew to be biased in its favor, and (3) targeted claims by
professionals like plaintiff for denial. Id. at 1010-11. The expert testified that this
conduct deviated from industry standards, but never said it constituted bad faith under the
law. Id. at 1016. The district court allowed this testimony under Rules 702 and 704(a)
and the Circuit affirmed that decision.
The expert complied with Rule 702 because he (1) identified specific conduct of
the insurer, (2) explained its consequences for the insured, and (3) described how that
conduct deviated from industry standards, all without rendering a conclusion on the legal
significance of the conduct.
Describing Industry Standards By Referring to State Law
The insurer in Hangarter also challenged the expert for referring to state law while
discussing industry standards. The Circuit rejected this challenge as well:
Although [the expert’s] testimony that Defendants departed from insurance
industry norms relied in part on his understanding of the requirements of
state law, specifically California’s Unfair Settlement Claims Practice §
2695, a witness may refer to the law in expressing an opinion without that
reference rendering the testimony inadmissible. Indeed, a witness may
properly be called upon to aid the jury in understanding the facts in
evidence even though reference to those facts is couched in legal terms.
Id. at 1017 (internal quotations and citations omitted). This reference to state law, the
Circuit held, was proper because it was helpful to the jury in understanding the industry
standards and was “ancillary to the ultimate issue of bad faith.” Id.
Interpreting the Title Insurance Policy
In general, the interpretation of a contract or insurance policy is a matter of law for
the Court. See PMI Mortgage v. American, 2008 WL 3838297 (9th Cir. 2008)
Memorandum Decision & Order – page 7

(unpublished disposition) (excluding expert’s legal interpretation of policy term).
However, an expert is permitted to testify about how certain terms in the policy are
commonly interpreted in the title insurance industry. Manhattan Re–Ins. Co. v. Safety
Nat'l Cas. Corp., 2003 WL 22718008 (9th Cir. 2003) (unpublished disposition) (allowing
expert to testify about industry understanding of common terms in insurance policy).
The title insurance industry’s interpretation of common terms in policies is
relevant here because Credit Suisse claims Stewart Title’s acted in bad faith and is liable
for punitive damages because its conduct was an extreme deviation from reasonable
standards of conduct. Industry standards are relevant in determining whether the
“extreme deviation” test for punitive damages is satisfied. Weinstein v. Prudential
Property and Cas. Ins. Co., 233 P.3d 1221, 1235 (Id.Sup.Ct. 2010).
Thus, an expert on the standards and practices in the title insurance industry may
testify that (1) certain terms in a title insurance policy are standard in the industry; (2)
title insurance companies typically interpret those provisions in certain ways; and (3) the
conduct of an insurer or insured was in accord with, or deviated from, those industry
practices. Such testimony in this case would be relevant under Rule 702 to either prove
or rebut the claim that Stewart Title’s conduct constituted bad faith or was an extreme
deviation from reasonable standards of conduct.
The expert may not testify about what a certain term in the policy means and
whether the insured or insurer “violated” or “complied with” that term. Embedded in
such testimony are legal conclusions about contract interpretation and breach.
ANALYSIS
Memorandum Decision & Order – page 8

Motion to Exclude Albert Rush
Stewart Title moves to exclude certain parts of the testimony of Credit Suisse’s
expert Albert Rush, a licensed attorney with long experience in the title insurance
industry. Rush’s basic opinion is that Stewart Title’s conduct violated Idaho law and was
an extreme deviation from industry standards of conduct.
In response to the motion, Credit Suisse argues first that the Court has previously
held that Rush’s testimony is admissible. The Court disagrees. While Judge Benson in
2014 did deny Stewart Title’s motion to strike Rush’s report, the only briefed issue was
whether the unsworn signature of Rush was sufficient. See Stewart Title Briefs (Dkt.
Nos. 185-1 & 194). While Judge Benson went further in his written opinion and held that
Rush was qualified and that his opinions would aid the jury, that finding was not based
on any arguments made in the briefing, and was not the product of extensive argument.
See Order (Dkt. No. 213). Recognizing this, Judge Benson held that Stewart Title
retained the right to renew their motion during trial. Id. Stewart Title is renewing the
motion now, and the Court finds it was not resolved by Judge Benson.1
Turning to the admissibility of Rush’s opinions under Rule 702, the Court finds
that while portions of his testimony are subject to exclusion, most of his testimony
satisfies the “liberal thrust” of Daubert in favor of admission¸ discussed above. The
objectionable portions of Rush’s testimony come largely in the form of legal conclusions.
1

Credit Suisse also argues that this Court ruled that Rush’s testimony was admissible in the
punitive damage decision. See Memorandum Decision (Dkt. No. 128). But in that decision, the Court
accepted at face value the testimony of experts for both sides because there were no motions to exclude or
strike their testimony. Thus, the Court’s punitive damages decision did not resolve the issues faced here.

Memorandum Decision & Order – page 9

He frequently opines on Idaho law and concludes that Stewart violated that law, as shown
by the following examples: (1) “Stewart had an affirmative duty to settle claims for
which liability was reasonably clear. See e.g. IC section 41-1329(6) and (13).” See Rush
Report (Dkt. No. 291-2) at 6; (2) “Stewart breached this duty [to timely assert any
reservation of rights]”; (3) In failing to notify Credit Suisse of its intent to deny coverage,
Stewart’s conduct was “intentional” and “in bad faith”; and (4) Stewart Title’s conduct in
this case “demonstrates bad faith,” id. at p. 9, and (at two later points in his report) that its
conduct “demonstrates bad faith handling of these claims.” Id. at pp. 12 & 13; (5) that
Stewart Title’s acts were “intentional, malicious, fraudulent, oppressive, and outrageous,
and that Stewart’s conduct in this case was undertaken in bad faith.” Id at p. 19.
This is not an exhaustive list, but the examples serve to demonstrate the type of
testimony that will not be allowed at trial. In these examples, Rush is not using Idaho
law to explain industry standards, as was the case in Hangarter, discussed above.
Instead, Rush is testifying that Idaho law imposes certain duties on Stewart and that
Stewart violated those duties. That testimony must be excluded under the legal standards
quoted above.
Rush is on solid ground, however, when he explains industry standards, identifies
how Stewart Title’s conduct fell short of those standards, and describes the consequences
of that conduct for Credit Suisse. For example, Rush opines that Stewart Title’s conduct
in withdrawing its defense even though nothing had changed from its earlier acceptance
was a “substantial departure from normal title insurance claims handling procedures and
practices,” and left Credit Suisse “in a worse position than [it] would have encountered
Memorandum Decision & Order – page 10

had it not purchased title insurance at all.” Id. at p. 11. He goes on to opine that “the
better decision would have been for the insurer to file an action for a judicial declaration
regarding coverage, and obtain judgment, before either denying coverage or withdrawing
from the defense.” Id. This testimony describing the consequences of Stewart Title’s
violation of industry standards is relevant to the bad faith claim, and hence helpful to the
jury under Rule 702, and does not stray into the prohibited area of a legal conclusion.
Stewart Title challenges Rush’s opinions concerning the “best practice[s]”
governing an insurer’s demands to its insured for documentation or information in
support of a claim. Id. at p. 15. His testimony covers four main areas, and the Court will
examine each.
First, Rush notes that “[i]n my experience, the cooperation and proof of loss
requirements contained in the Policy are rarely invoked to threaten or deny coverage, and
in such a case it is commonly understood the insurer must articulate some theory as to
how the insurer has been prejudiced by the insured’s conduct.” Id. at p. 14. Here, Rush
is testifying based on his experience in the industry and is not making legal conclusions.
Second, Rush explains that Stewart Title’s demand for documentation regarding
Credit Suisse’s claim – asking for “everything” – failed to “reasonably explain what is
expected, and requires the insured to guess at his or her peril what is needed to protect
their rights under the policy.” Id. at p. 14. He further testified that the “best practice” for
an insurer who believes the insured is withholding information is “to require that the
insured provide a statement under oath.” Id. at pp. 14-15. Once again, this testimony

Memorandum Decision & Order – page 11

regarding industry standards and the consequences of Stewart’s conduct for Credit Suisse
is not subject to exclusion under Rule 702.
Third, Rush describes specially what Credit Suisse did provide to Stewart Title,
and then renders a general opinion based on his review of the files:
[I]it is my opinion that these notices of claim provided by Credit Suisse met
or exceeded the notice of claim and proof of loss requirements contained in
the Policy . . . .
Id. at p. 13. Here, Rush concludes that Credit Suisse did not violate certain terms of the
policy. That is an improper legal conclusion, as the Court discussed above in identifying
the governing legal standards. Rush is not basing this opinion on industry practices and
does not confine his opinion to describing how Credit Suisse’s conduct accorded with
industry practices. Instead, he bluntly concludes that Credit Suisse complied with the
policy, a legal conclusion, rendering his testimony subject to exclusion.
In this fourth example, Rush redeems himself and gets it right. Here he testifies
based on his review of the record that (1) Stewart Title “had in its possession or available
to it from its title agent all or substantially all it needed for a reasonable evaluation of the
Credit Suisse claims,” (2) Credit Suisse was “responsive” to Stewart Title’s demands for
information and was “diligent in documenting what was requested and what was
provided,” (3) Stewart Title’s “requests were overbroad and vague,” and (4) Stewart Title
often demanded information that “had already been supplied by Credit Suisse, or was
available to Stewart through its own records . . . .” Id. at p. 17.

Memorandum Decision & Order – page 12

Here Rush confines his testimony to his experience in the industry and avoids
making any legal conclusions. Moreover, this testimony is relevant under Rule 702 to
prove Credit Suisse’s bad faith and punitive damage claims.
Finally, Stewart Title challenges Rush’s testimony regarding when an insurer
should seek a judicial declaration:
When there is a good faith dispute between insurer and insured as to
coverage, the generally accepted practice in Idaho dictates that the insurer
must promptly seek a judicial declaration regarding the rights of the parties,
while continuing to provide a defense to the insured until excused from
further obligations by an adjudication.
Id. at p. 9. This testimony is based on “the generally accepted practice in Idaho,” and is
not a legal opinion that the conduct violates Idaho law. Thus, it is not subject to
exclusion. It is true, however, that two sentences later, Rush concludes that Stewart
Title’s conduct “demonstrates bad faith.” Id. at p. 9. As the Court has held above, this
sentence goes too far – it opines that Stewart Title violated Idaho law, and is hence
subject to exclusion.
The Court will not rule on each sentence of Rush’s twenty-two page report. It is
enough to set forth the general guidelines for admissibility as the Court has done above.
Motion to Exclude Franklin
Credit Suisse offers Kenneth Franklin as an expert on title insurance underwriting
and issuance practices in Idaho. He worked in the title insurance industry for 48 years,
and handled over 15,000 title and escrow transactions. His qualifications are not
challenged.

Memorandum Decision & Order – page 13

Stewart Title does challenge, however, Franklin’s testimony purporting to describe
Stewart Title’s subjective knowledge or intent, and his testimony based on conjecture and
speculation. For example, Stewart Title challenges Franklin’s testimony that Stewart
Title “knew before it closed the transaction at least that” Banner/Sabey was the general
contractor on the Village Plaza project. See Franklin Report (Dkt. No. 290-1) at pp. 4-5.
Stewart Title argues that Franklin in not a mind-reader and cannot divine Stewart Title’s
intent. See U.S. v. Adams, 2009 WL 1085490 (D.Id. 2009) (excluding expert testimony
on opposing party’s intent).
In an earlier decision, the Court dismissed Stewart Title’s fraud claim in part on
the ground that Stewart Title was at least on inquiry notice that Banner/Sabey was the
general contractor on the Village Plaza project. See Memorandum Decision (Dkt. No.
128). The Court described the evidence that clearly demonstrated Stewart Title should
have known of Banner/Sabey’s work. Franklin relies on much of this same evidence to
reach his conclusion that Stewart Title knew of Banner/Sabey’s work.
Of course Franklin cannot know what was truly in the minds of officials at Stewart
Title, but he can certainly testify without undue speculation that Stewart Title “must have
known” of Banner/Sabey’s work. As the Supreme Court has stated, “trained experts
commonly extrapolate from existing data.” General Electric v. Joiner, 522 U.S. 136, 146
(1997). While Stewart Title correctly points out that there is a factual dispute over what
Stewart Title actually knew, “[a] factual dispute is best settled by a battle of the experts
before the fact finder, not by judicial fiat.” City of Pomona v. SQM North America, 750
F.3d 1036, 1049 (9th Cir. 2014). The Court can find no reason here to exclude Franklin’s
Memorandum Decision & Order – page 14

testimony so long as it does not go beyond an opinion that Stewart Title “must have
known” about these matters.
Stewart Title also challenges Franklin’s testimony that Stewart Title took
“numerous shortcuts” in not obtaining a mechanic’s lien waiver from Banner/Sabey at
closing and not communicating with them in light of all the evidence that Banner/Sabey
had performed work. But this testimony is solidly based on industry practice. Franklin
testified that title insurers
most often do such shortcutting with existing customers where a
relationship of trust exists. It is also sometimes the result of competition
pressure and pressure to bring in more business for the insurer. A
transaction the size of the Credit Suisse loan ($227M) is a real boon to the
insurer. To lose such a huge deal to a competitor because a competitor
would shortcut or the customer would be annoyed with excessive
protections would be devastating.
See Franklin Report (Dkt. No. 290-2) at p. 6. Franklin inferred – from this industry
practice, from Stewart Title’s failure to obtain the waiver at closing, and from its failure
to talk to Banner/Sabey – that Stewart Title assumed the risk out of a desire to maintain
its relationship with Tamarack and to “receive the very substantial premium on this
transaction.” Id. at p. 7.
Here again, Franklin is not engaging in undue speculation. He is making an
inference based on industry practice and the facts of this case. This opinion is not subject
to exclusion for these reasons under Rule 702. The Court has examined Stewart Title’s
remaining arguments for exclusion of Franklin’s testimony under Rule 702 and finds
them without merit.

Memorandum Decision & Order – page 15

Switching now to Rule 403, Stewart Title argues that Franklin’s testimony will
result in unfair prejudice and confusion. The Court disagrees. The probative value of his
testimony is high and the danger of confusion or unfair prejudice is quite low. Thus, the
testimony is not subject to exclusion under Rule 403.
Motion to Exclude Cook
Philip Cook was retained by Credit Suisse as a damage expert, and he has long
experience in appraising real estate and businesses. While Stewart Title does not
challenge his qualifications, it does challenge his opinions.
Cook testified that Credit Suisse suffered two distinct kinds of actual loss in this
case. The first loss was the drop in value of Credit Suisse’s collateral when it was
separated into six parcels for foreclosure by the senior lien holders, a loss that Cook
estimates to be $21 million. The second loss occurred when Credit Suisse was deprived
of proceeds from the actual foreclosure sales, a loss measured by the sum of the insuredagainst superior liens in the amount of $14 million.
Stewart Title argues that by seeking both measures of damage, Credit Suisse wants
a double recovery. At most, Stewart Title argues, Credit Suisse is entitled to the $14
million value of the liens because if those liens had been paid off prior to foreclosure,
there would have been no division – or “balkanization” – of the properties and hence no
$21 million loss. In support of this argument, Stewart Title points to Cook’s testimony
that paying off these liens “would have cured the mechanic’s liens, and it would have
probably cured the balkanization discount . . . .” See Cook Deposition (Dkt. No. 288-5 )

Memorandum Decision & Order – page 16

at pp. 49-50. This means, according to Stewart Title, that Credit Suisse is entitled to at
most the cost of paying off the liens.
The Court disagrees. As Cook testified, it is precisely because Stewart Title failed
to pay off the liens prior to foreclosure that the property was divided into six parcels.
When the first parcel was sold at foreclosure by the mechanic’s lien holder, the value of
all the parcels dropped because they were not being sold as an intact, master-planned
community. That diminution in value of $21 million is a loss suffered by Credit Suisse
regardless of the amount of the liens, as Cook testified. Cook’s testimony that the $21
million in loss would not have occurred if Stewart Title had paid off the liens is accurate
but not fatal. In fact, Stewart Title did not pay off the liens, causing the diminished value
that is a function of the division of the parcels, not the amount of the liens.
But that was not the full extent of Credit Suisse’s damages because once the
foreclosures actually took place, the senior lien holders received $14 million that
otherwise would have gone to Credit Suisse. As each parcel was sold at foreclosure, the
liens amounts foreclosed upon reduced the proceeds from the foreclosure sales that were
available to Credit Suisse to credit toward Tamarack’s outstanding indebtedness.
Cook is not so clearly seeking a double recovery that his opinion must be
excluded. At most, the double recovery argument goes to the weight rather than the
admissibility of Cook’s opinion.
Stewart Title argues, however, that the $21 million dollar damage figure for
diminution in value is not allowed under the policy terms. But Credit Suisse is pursuing
that sum not only under the policy but also as damages for Stewart Title’s bad faith.
Memorandum Decision & Order – page 17

Damages under that bad faith claim include “[a] reasonable amount which will
compensate [the insured] for all actual detriment proximately caused by the [insurer’s]
wrongful conduct.” White v. Unigard Mut. Ins. Co., 730 P.2d 1014, 1017-18 (Id.Sup.Ct.
1986). Cook’s testimony is that the $21 million figure constitutes actual detriment
proximately caused by Stewart Title’s bad faith conduct. Thus, even if the title insurance
policy bars such damages, they might be awardable if Credit Suisse proves bad faith.
This line of testimony therefore has a basis in the law, and is not so unreliable or
unhelpful that it must be excluded under Rule 702.
Stewart Title argues next that Cook picked the wrong date to value the properties.
Stewart Title argues that the date of Credit Suisse’s foreclosure sale is the only date Cook
could use consistent with the law, and that the date he selected – about seven months
prior to foreclosure – is improper. In support of this argument, Stewart Title points to the
statement of this Court that “[g]enerally, it is difficult to calculate loss in a case like this
until [Credit Suisse’s] foreclosure sale takes place.” See Memorandum Decision (Dkt.
No. 128) at p. 18. But there, the Court was discussing loss under the terms of the policy.
Here, in contrast, Credit Suisse is pursuing damages for bad faith, which are not limited
by the terms of the policy, as discussed above.2 Moreover, Cook chose his date because
it was the date that Credit Suisse first lost a property to a senior lien holder in foreclosure,

2

While it is true, as Stewart Title points out, that there can be no bad faith claim in Idaho if the
“resulting harm is . . . fully compensable by contract damages,” Credit Suisse is alleging here that their
damage is not fully compensable if the title insurance policy limits their damage, and they seek that
remaining damage under bad faith. See Lakeland True Value hardware v. Hartford Fire Ins. Co., 291
P.3d 399, 404 (Id.Sup.Ct. 2012).

Memorandum Decision & Order – page 18

and that was the date the diminution in value occurred. This analysis is not so unreliable
or unhelpful that it must be excluded under Rule 702.
Finally, Stewart Title argues that Cook’s damages testimony must be struck
because Credit Suisse failed to take an opportunity to avoid all damages. More
specifically, Stewart Title points out that Credit Suisse rejected its offer to advance the
full sum necessary to redeem the property from foreclosure on the ground that the central
property – Village Plaza – was no longer worth the investment. Stewart Title argues that
Credit Suisse cannot argue that it lost value when it could not sell Village Plaza as part of
an intact master community and at the same time argue that Village Plaza was
undesirable and worth little. Cook did not consider the redemption in his analysis. See
Cook Deposition (Dkt. No. 288-3) at pp. 56-58 (“I have not developed an opinion on
that”). Stewart Title argues that this failure renders Cook’s entire testimony unreliable.
In essence, Stewart Title seeks a ruling that because it offered to redeem the property,
Credit Suisse suffered no damage and that Cook’s testimony should be excluded. Stated
in that way, Stewart Title’s argument essentially seeks a partial summary judgment on its
redemption issue. There is an opportunity for counsel to file summary judgment motions
on this issue by July 1, 2015. Summary judgment – rather than a motion to exclude
under Rule 702 – is the better vehicle for resolving this issue, and so the Court will await
those motions before ruling on this issue.
Motion To Exclude Jeffrey Thompson
Stewart offers Thompson as an expert witness in rebuttal to Rush. As Stewart
Title admits, much of Thompson’s testimony focuses on whether Stewart Title complied
Memorandum Decision & Order – page 19

with Idaho law. See Stewart Title Brief (Dkt. No. 301) at p. 1 (Thompson’s testimony
“admittedly consists largely of statements of law and legal conclusions”). Stewart Title
recognizes that neither Thompson nor Rush should be allowed to testify to legal
conclusions, but asserts that both should be allowed to testify as to “helpful background
information on industry practices.” Id.
Credit Suisse argues, however, that Thompson – unlike Rush – has no experience
in the title insurance industry and thus is not qualified to testify about title insurance
industry practices. The legal standard governing this issue was set forth in Avila v.
Willits, 633 F.3d 828 (9th Cir. 2011). There, an expert on cancer immunology, biology,
and medical toxicology sought to testify that the chemical processes used by a machine
shop resulted in the production of harmful dioxins that leaked from the shop and injured
the plaintiff. The district court excluded the testimony, ruling that the expert would
exceed the bounds of his biological and immunological expertise if he testified that the
chemical process of the machine shop created dioxins that then leaked from the shop. Id.
at 837. The Ninth Circuit affirmed, rejecting plaintiff’s argument that the expert’s lack of
specialization went to the weight rather than the admissibility of his opinion. Id. at 839.
The Circuit held that the “lack of specialization may go to weight only as long as an
expert stays within the reasonable confines of his subject area,” and the expert had
strayed beyond his area of expertise. Id.
Applying Avila here, the Court must determine Thompson’s area of expertise and
then limit his testimony to that area. Thompson is an attorney with over 30 years of
experience who has, over the last decade, spent about 80% of his time on insurance
Memorandum Decision & Order – page 20

coverage and bad faith issues. See Thompson Deposition (Dkt. No. 279-2) at pp. 10-11.
He works primarily on issues arising with auto, health, property and casualty insurance
policies. Id. at p. 11. He has consulted “on a couple of title insurance cases by attorneys
in other firms” who inquired about “general concepts of insurance law.” Id. at p. 15. But
he has never represented any party to a title insurance bad faith case, has never
represented an insured seeking coverage or benefits under a title insurance policy, and
has never published or presented any material concerning title insurance. Id. He admits
that title insurance is “not part of my regular practice.” Id. at p. 10-11.
Nevertheless, Thompson testified that he is qualified to give expert opinions on
title insurance industry practices and standards. See Thompson Deposition (Dkt. No. 2792) at p. 16. The Court disagrees. Thompson has no experience in the title insurance
industry with either its practices or standards. Stewart Title argues that any differences
between title insurance and general insurance go the weight of Thompson’s opinions not
to their admissibility. But Avila requires that the expert stay within the bounds of his
expertise. Thompson cannot testify as to title insurance industry practices and standards
because he has no experience with them. The Court will therefore exclude any testimony
from Thompson regarding title insurance industry practices and standards.
Having excluded any testimony from Thompson regarding legal conclusions or
title insurance industry standards, the Court has excluded all of Thompson’s testimony.
The Court will accordingly grant the motion to exclude his testimony in its entirety.
Motion to Exclude Mason

Memorandum Decision & Order – page 21

Stewart Title has retained Michael Mason to (1) evaluate the Cushman &
Wakefield appraisal provided by Credit Suisse to Stewart Title, and (2) rebut the opinions
of Philip Cook. The Court will turn first to his opinions on the appraisal.
Mason is a Certified Real Estate Appraiser with 35 years of experience, and there
is no challenge to his qualifications as an appraiser. He concluded that the Cushman &
Wakefield appraisal “does not comply with [the Uniform Standards of Professional
Appraisal Practice (USPAP)]” and was not “completed under the [Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 (FIRREA)] regulations . . . .” See
Mason Report (Dkt. No. 279-3) at p. 3. In addition to these deficiencies, Mason
concluded that “the appraiser appears to be attempting to bias the results to a greater
number than can be reasonably supported.” Id.
In its complaint, Stewart Title claimed that Credit Suisse committed fraud by
providing this appraisal that overvalued the property and misled Stewart Title into
assuming certain risks. Credit Suisse responded by moving for summary judgment on the
ground that the appraisal clearly stated on its face that it was for financing purposes only
and could not be used to estimate the market value of the property. The Court agreed,
and dismissed Stewart Title’s fraud claim, holding that Stewart Title could not argue that
it was misled by the Cushman & Wakefield appraisal. See Memorandum Decision (Dkt.
No. 128).
In making that ruling, the Court noted the opinions of Stewart Title’s experts,
including Mason, that the appraisal was confusing. Id. at p. 8. The Court held that if the
appraisal was confusing, Stewart Title had the burden of doing a follow-up investigation
Memorandum Decision & Order – page 22

before relying on its figures, especially given the appraisal’s express declaration that it
did not estimate market value. Id. at p.9. Stewart Title’s failure to conduct such an
investigation waived its right to argue that the appraisal was fraudulent.
Stewart Title recognizes the Court’s ruling and states that it is offering Mason’s
opinions not as a defense to coverage but rather as a defense to the claims for bad faith
and punitive damages. Those two claims require a showing that Credit Suisse’s claim
“was not fairly debatable.” Rizzo v. State Farm, 305 P.3d 519, 527-28 (Id.Sup.Ct. 2013).
Stewart Title argues that Credit Suisse’s claims were fairly debatable, and that the flaws
in the appraisal – identified by Mason – “raised reasonable doubts as to coverage.” See
Stewart Title Brief (Dkt. No. 305) at p. 8.
Mason himself does not, and cannot, testify that the appraisal gave Stewart Title
legitimate doubts about coverage. He stated at his deposition that he was not retained to
testify about “how Stewart Title interpreted the policy.” See Mason Deposition (Dkt. No.
305-1) at p. 106. Moreover, he could not testify as to how a typical title insurance
company might interpret the appraisal because it is undisputed that he has no expertise in
the title insurance industry. Id. at p. 23.
At most he is qualified to testify about flaws in the appraisal. But is that testimony
relevant? The Court has already held that Stewart Title cannot argue that it was misled
by the appraisal. Thus, any flaws in the appraisal would appear to be irrelevant,
rendering Mason’s testimony, standing alone, excludable under Rule 702.
Could it become relevant when combined with the testimony of others? Perhaps
theoretically, but that theory, if there is one, is not identified or described in Stewart
Memorandum Decision & Order – page 23

Title’s briefing. At oral argument, Stewart Title’s counsel stated generally that various
Stewart Title officials testified in depositions that the appraisal raised concerns that
eventually contributed to their decision to deny coverage and withdraw their defense of
Credit Suisse. But counsel never specifically identified this deposition testimony. Thus,
there is no way for the Court to determine if these Stewart Title officials relied on the
flaws identified by Mason to deny coverage, thereby providing the crucial link that would
render Mason’s testimony relevant. Without that link, the Court has no choice but to
exclude Mason’s testimony about flaws in the appraisal.
Mason also filed a report rebutting Cook’s testimony. Credit Suisse moved to
exclude that testimony, and Stewart Title has not responded. The Court finds good cause
to exclude the testimony.
With these rulings nothing remains of Mason’s testimony, and Credit Suisse’s
motion to exclude him must be granted.
Motion to Exclude Nielsen
Stewart Title retained Nielsen to rebut (1) Credit Suisse’s bad faith and punitive
damage claims, and (2) Credit Suisse’s experts Franklin and Cook. Nielsen, an attorney,
has over thirty years of experience in the title insurance industry in both the underwriting
and claims areas.
The Court notes first that Nielsen’s two reports, totaling about 45 pages, include
numerous citations to cases, statutes, and Nielsen’s own treatise. This testimony is
excludable, as another court has so found in ruling on Nielsen’s testimony. See
Nationwide Life Ins. Co. v. Commonwealth Land Title Ins. Co., 2011 WL 204619
Memorandum Decision & Order – page 24

(E.D.Pa. 2011) (excluding Nielsen’s opinions based on case law and statutes while
admitting his testimony confined to industry standards).
At the same time, as Nationwide recognized, Nielsen’s testimony on industry
standards is appropriate under Rule 701. For example, he testifies that “the custom of
claim administrators in the title insurance business is to deny payment of claims when the
insured has failed to disclose or has intentionally concealed important facts that increase
the risks assumed in the policy.” See Nielsen Report (Dkt. No. 282-3) at p. 2. That
testimony, based on Nielsen’s long experience in the industry, is relevant under Rule 702
because it addresses (1) Credit Suisse’s claims that Stewart Title’s failure to pay – and
demands for additional information to support the claim – was an extreme deviation from
reasonable standards of conduct, and (2) Stewart Title’s claim that it was following the
standards of the title insurance industry.
But later on the same page of his report, Nielsen goes too far in testifying that
“[t]he failure by the insured to disclose a material risk causes the policy, or that particular
coverage, to be void for concealment.” Id. Here, Nielsen is rendering a legal conclusion
that certain conduct renders a policy “void.” As discussed above, that is improper under
Rule 702 and must be excluded.
For the same reasons, there are four additional opinions that must be excluded. In
each of these four opinions, Nielsen identifies various “obligations” and concludes that
an insurer is “entitled” to certain rights. This is terminology associated with legal
conclusions rather than industry practices, and each such opinion must be excluded.
Those four opinions are as follows:
Memorandum Decision & Order – page 25

Opinion 1: “[T]hat a title insurer that is defending the priority of the insured
mortgage against competing liens is entitled to pursue that litigation to a
final determination” and that “until there has been a final determination in
that action, a lawsuit by the insured lender seeking payment of a loss is
premature.” See, Nielsen Report (Dkt. No. 282-4) at pp. 8-9.
Opinion 2: “The insurer is not obligated to pay liens when it receives a
demand from the insured” and, conversely, “the insured [is not] entitled to
seek an order commandpo’ing the insurer to pay the liens.” Id. at p. 12.
Opinion 3: “The insured may . . . not pay the liens and seek reimbursement
from the insurer, which is specifically prohibited by the voluntary
settlement provision of the Policy.” Id. at p. 12.
Opinion 4: “[I]n seeking protection from Stewart Title against inchoate
mechanics’ lien rights, Credit Suisse was obligated to disclose the
information it knew prior to closing about Banner-Sabey’s work at
Tamarack and its contract.” See Nielsen Rebuttal Report (Dkt. No. 282-3) at
pp. 1-3.

Credit Suisse also challenges Nielsen’s opinions rebutting Credit Suisse’s expert
on damages, Philip Cook. Nielsen concedes that he is not an expert appraiser like Cook,
but argues that he is challenging Cook’s damage methodology, rather than his underlying
appraisal, by showing it does not align with “the standard practice for measuring loss in
the title insurance industry.” See Stewart Title Brief (Dkt. No. 306) at p. 10.
While Nielsen prefaces his opinions with reference to industry custom, they are
often nothing more than legal conclusions. For example, Nielsen opines that Cook errs
by assuming that “someone will pay at least $100,000,000 to build new improvements on
the property,” and explains that
[l]oss under a title insurance policy is not measured as the potential value of
hypothetical buildings that might be built on the property in the future. It is
based on the value of the property as of the date of loss, with and without
the covered titled matter. This rule was stated in the seminal modern case of
Overholtzer v. Northern Counties Title Ins. Co., which held that “liability
should be measured by diminution in the value of the property caused by
Memorandum Decision & Order – page 26

the defect in title as of the date of the discovery the defect, measured by the
use to which the property is then being devoted.”
See Nielsen Rebuttal Report, supra, at p. 20. Nielsen continues by quoting from his own
treatise that contains additional legal citations. Id. at p. 21. He explains further that
[l]oss under a title insurance policy is not measured based on the future
value of land that might be developed even when the development plan is
frustrated or limited due to a covered title defect. Pulte Home Corp. v.
Industrial Valley Title Ins. Co. is still the leading case observed by the
industry on the subject.
Id. at p. 22. These opinions are straight legal conclusions. While it is true, as the Court
discussed above, that Hangarter allows an expert to discuss the law in connection with
explaining industry standards, Nielsen’s opinions quoted above do not discuss how
industry standards are informed by the law; they simply describe the law. But even if
Nielsen is attempting to explain industry standards on damages, he has strayed into an
area exclusively reserved for the Court: He is not describing the damage suffered by the
parties (for which he has no qualifications) but is instead opining on the method a jury
should use to calculate damages (“loss . . . is not measured based on the future value of
land”). That is improper. See Basic American, Inc. v. Shatila, 992 P.2d 175, 194
(Id.Sup.Ct. 1999) (holding that “[a]lthough the calculation of damages . . . is a factual
determination, the formula used in making that calculation is a question of law”). These
opinions on the formula to be used to calculate damages will therefore be excluded.3

3

Another such opinion that must be excluded for the same reason is as follows: “When a
final determination has been made [regarding priority and amount of adverse liens], the
value of the Resort can be measured. If the value of all the property on which Credit
Suisse holds a security interest is less than the total amount of indebtedness, a loss would

(Continued)
Memorandum Decision & Order – page 27

Credit Suisse seeks next to exclude Nielsen’s opinion concerning Stewart Title’s
offer of settlement with the lien claimants. That opinion is as follows:
It is my opinion that Stewart Title went considerably beyond industry
custom by offering in September, 2010 to pay up to $3 Million toward the
cost of settlements with lien claimants. I assume the amount was well in
excess of the expected cost of litigation. That offer was, in my opinion an
exceptionally large benefit offered by Stewart Title to its insured and not
required by the Policy or industry custom.
See Nielsen Report (Dkt. 282-4) at p. 14. The flaw in this opinion is that it is based
entirely on Nielsen’s assumption that “the amount was well in excess of the expected cost
of litigation.” He never testifies that such an assumption is typical in the industry –
indeed, that would be absurd because calculating (not assuming) the expected cost of
litigation is a key part of the process, according to his own testimony. Id. at pp. 13-14.
Because this opinion concerning industry practices is based on an assumption that is not
an industry practice, it must be excluded under Rule 702.
Credit Suisse challenges another group of opinions on the ground that they relate
to underwriting issues, which, according to Credit Suisse, “are now irrelevant to the
issues for trial and should be excluded.” See Credit Suisse Brief (Dkt. No. 312) at p. 3.
When Stewart Title counters that underwriting issues are relevant to rebut Credit Suisse’s
bad faith and punitive damage claims, Credit Suisse responds that those claims “are not

be payable that is equal to the lesser of (i) the amount of [Credit Suisse’s] reduced
security or (ii) the amount of the liens that have been adjudged to have priority over the
Mortgage.” See Nielsen Report, supra at p. 21.

Memorandum Decision & Order – page 28

premised on Stewart’s underwriting conduct.” Id. But Credit Suisse’s experts have made
underwriting an issue. For example, Credit Suisse’s expert Kenneth Franklin concludes
that Stewart Title assumed too much risk in the underwriting because it wanted to be part
of a very lucrative deal. See Franklin Report (Dkt. No. 290-2) at p. 7. The gist of his
testimony is that Stewart Title got greedy in the underwriting process, assumed too much
risk, and then attempted to dump that risk on Credit Suisse. Because Credit Suisse’s own
experts are making underwriting an issue, Nielsen will be allowed to testify about
industry standards and practices concerning underwriting.
Finally, Credit Suisse has challenged other opinions on industry standards. In
these opinions, Nielsen is testifying (without making legal conclusions) that Stewart Title
followed industry practices by electing to pay to defend against the lien claims in the
foreclosure action and in ultimately denying coverage to Credit Suisse under the policy.
Those opinions will be allowed.
Motion to Exclude Reilly
Stewart Title retained Robert Reilly to (1) “provide an independent estimate of the
economic damages, if any, suffered by Credit Suisse as a result of the alleged wrongful
acts of [Stewart Title]” and (2) “review and critique the [Credit Suisse] damages analysis
prepared by [Cook] . . . .” See Reilly Report (Dkt. No. 283-4) at p. 1. Reilly is a certified
appraiser and a CPA with long experience in business and asset valuation.
Reilly renders opinions that (1) Cook erred by including in Credit Suisse’s
damages the Local Improvement District (LID) liens totaling $11 million because Cook
mistakenly listed them as an insured-against encumbrance when they should have been
Memorandum Decision & Order – page 29

labeled as an unavoidable encumbrance similar to property taxes; (2) Cook erred in
setting his total damages above the sum that Credit Suisse would have received if there
were no superior liens; (3) Cook double-counted when he added the lien sums to the
balkanization damages; (4) Cook’s discount rate was too low because he failed to take
into account the risky nature of the development and the fact that Tamarack was a
distressed project and not an institutional-investment project, among other flaws; (5) if
the above 4 errors are corrected, the damages suffered by Credit Suisse due to the alleged
balkanization would total no more than $6.5 million; and (6) damages would be zero if
Credit Suisse had agreed to Stewart Title’s offer to redeem the properties.
Credit Suisse argues that these opinions should be excluded because Reilly
exceeded the bounds placed on him by Judge Benson in his Order of October 15, 2014.
See Order (Dkt. No. 213). In that Order, Judge Benson granted in part and denied in part
Stewart Title’s motion to substitute Reilly as an expert for Trey Knipe, who had filed a
short report but passed away after the expert discovery deadline had closed. Judge
Benson held that fairness required that Stewart Title be allowed to substitute Reilly in
Knipe’s place, but also held that it would be “prejudicial to allow Stewart Title to make a
drastic change in their expert analysis at this point in the proceedings.” Id. at p. 5. To
strike a balance, Judge Benson relied on Stewart Title’s representation that “they do not
intend to change the analysis, [but] simply intend to change the source of the analysis.”
Id. Accordingly, Judge Benson allowed Stewart Title to “designate a substitute expert
witness regarding any topic on which Mr. Knipe had previously opined.” Id. at p. 6.

Memorandum Decision & Order – page 30

To resolve Credit Suisse’s argument that Reilly exceeded the bounds of this Order,
the Court begins by defining the topics “on which Mr. Knipe had previously opined.”
Knipe was a certified appraiser who stated that his opinions were “limited to a desk
review of [Cook’s] appraisal.” See Knipe Report (Dkt. No. 283-2) at p. 1. He rendered
the following opinions: (1) Cook should have estimated damages as of the date of the
foreclosure, and not attempted to speculate about development over the next 17 years;
and (2) Cook’s discount rate of 18% was too low because it failed to take into account
how risky the Tamarack development was – the proper rate according to Knipe would
have been “25-30 percent, or even higher.” Id. at 3-5. Knipe took just 5 pages to explain
these opinions.
Reilly, on the other hand, filed a 34 page report in which he not only rebuts
Cook’s analysis, but also provides “an independent estimate of the economic damages, if
any, suffered by Credit Suisse.” See Reilly Report, supra at p. 1. Stewart Title explains
that “Reilly approached his task as an economic damages analyst, not a real estate
appraiser . . . .” See Credit Suisse Brief (Dkt. No. 302) at p. 12.
This creates a real problem for Stewart Title because Knipe was an appraiser, not
an economic damages analyst. The only opinion rendered by Reilly that is confined to
Knipe’s topics is that Cook’s discount rate was too low; Reilly’s other opinions all rely
on his expertise as an economic damage expert, an expertise not shared by Knipe, who
did not address economic damages. Certainly, Reilly was not confined to repeating
verbatim Knipe’s 5-page report. But he was clearly and appropriately limited by Judge
Benson to the subject matter of Knipe’s opinions – that is, the calculation of the discount
Memorandum Decision & Order – page 31

rate and the setting of the date for the damage estimate. Reilly’s opinions – other than
those concerning the discount rate – go far beyond Knipe’s and violate that part of Judge
Benson’s Order.
Stewart Title argues that Cook supplemented his reports, and that Reilly
“necessarily went beyond what Knipe was able to do” in order to respond to Cook’s
supplementations. See Stewart Title Brief (Dkt. No. 302) at p. 8. But Cook’s
supplementations did not change his methodology or analysis; they merely updated
certain figures based on the foreclosures and corrected errors. There is nothing in those
supplementations that would allow Reilly to expand his opinions beyond those allowed
by Judge Benson.
Stewart Title responds that Knipe had the right to supplement his report under
Rule 26(e), and that Reilly, as his substitute, was simply exercising that right. But “[a]
party may not rely on Rule 26(e)(1) as a way to remedy a deficient expert report or as a
means of getting in, in effect, a brand new report.” Medtronic v. Abbott Cardiovascular
Systems, Inc., 2008 WL 4601038 (N.D.Cal. 2008). Here, Reilly’s opinions are
admittedly based on his economic analysis rather than an appraisal analysis, and so
constitute new opinions, rather than a mere supplement.
There is, however, a twist in this analysis. In a separate section of his Order,
Judge Benson grants Stewart Title’s motion to reopen discovery on the redemption issue,
and allows Stewart Title to file “a supplemental expert report on Credit Suisse’s failure to
mitigate damages.” See Order, supra at p. 4. Reilly is the expert who addressed that
issue. As discussed, one of Reilly’s opinions is that Credit Suisse failed to mitigate
Memorandum Decision & Order – page 32

damages when it rejected Stewart Title’s redemption tender. That particular opinion falls
within the scope of Judge Benson’s Order.
The analysis to this point demonstrates that two opinions by Reilly are within
those allowed by Judge Benson: (1) The redemption offer, if accepted, would have
completely mitigated Credit Suisse’s damages; and (2) The discount rates are too low.
Three other opinions fall outside those permitted by Judge Benson’s Order and
must be excluded: (1) Cook erred by including in Credit Suisse’s damages the Local
Improvement District (LID) liens totaling $11 million because Cook mistakenly listed
them as an insured-against encumbrance when they should have been labeled as an
unavoidable encumbrance similar to property taxes; (2) Cook erred in setting his total
damages above the sum that Credit Suisse would have received if there were no superior
liens; (3) Cook double-counted when he added the lien sums to the balkanization
damages.
One remaining opinion must be considered – Reilly opined that if the four errors
in the Cook report were corrected (that is, the discount rate error and the three other
errors that have now been excluded above) the balkanization damages would be $6.5
million. Now that the Court has excluded three of the four opinions on which this $6.5
million figure is based, this opinion must be likewise excluded.
With regard to the two opinions that the Court has not excluded, Stewart Title
argues that Reilly is not qualified to opine on either. The Court disagrees. Reilly is a
CPA and he served on the Executive Committee of the American Institute of Certified
Public Accountants (AICPA) at the time the AICPA issued its report on the proper
Memorandum Decision & Order – page 33

manner of calculating discount rates. See Reilly Deposition (Dkt. No. 283-3) at pp. 2728. He was one of the reviewers of that report. Id. In addition to being a certified
general appraiser in Idaho, he has had long experience in the area of business and
property valuations, and has written extensively about valuation issues, including
analyses of AICPA valuation standards. See Report (Dkt. No. 283-4) at p. 63. These
credentials qualify Reilly to testify to the two opinions that the Court is not excluding.
In conclusion, the Court will grant in part and deny in part the motion to exclude
Reilly’s opinions. The Court will deny the motion as to two opinions: (1) The
redemption offer, if accepted, would have completely mitigated Credit Suisse’s damages;
and (2) The discount rates are too low.
The Court will grant the motion as to four other opinions and order that they be
excluded: (1) Cook erred by including in Credit Suisse’s damages the Local
Improvement District (LID) liens totaling $11 million because Cook mistakenly listed
them as an insured-against encumbrance when they should have been labeled as an
unavoidable encumbrance similar to property taxes; (2) Cook erred in setting his total
damages above the sum that Credit Suisse would have received if there were no superior
liens; (3) Cook double-counted when he added the lien sums to the balkanization
damages; and (4) The balkanization damages are $6.5 million.
ORDER
In accordance with the Memorandum Decision set forth above,

Memorandum Decision & Order – page 34

NOW THEREFORE IT IS HEREBY ORDERED, that the motions to exclude
testimony of Thompson (docket no. 280) and Mason (docket no. 292) are GRANTED
and that the testimony of these experts shall be excluded.
IT IS FURTHER ORDERED, that the motions to exclude Franklin (docket no.
290) and Cook (docket no. 288) are DENIED.
IT IS FURTHER ORDERED, that the motions to exclude the testimony of
Nielsen (docket no. 284) is GRANTED IN PART AND DENIED IN PART. It is
granted to the extent it seeks to exclude the following testimony of Nielsen:
(1)
All testimony citing cases, statutes, and his treatise, including but not
limited to the following: (a) “The failure by the insured to disclose a material risk
causes the policy, or that particular coverage, to be void for concealment.” See
Nielsen Report (Dkt. N0. 282-3) at p. 2; (b) “[T]hat a title insurer that is defending
the priority of the insured mortgage against competing liens is entitled to pursue
that litigation to a final determination” and that “until there has been a final
determination in that action, a lawsuit by the insured lender seeking payment of a
loss is premature.” See, Nielsen Report (Dkt. No. 282-4) at pp. 8-9; (c) “The
insurer is not obligated to pay liens when it receives a demand from the insured”
and, conversely, “the insured [is not] entitled to seek an order commanding the
insurer to pay the liens.” Id. at p. 12; (d) “The insured may . . . not pay the liens
and seek reimbursement from the insurer, which is specifically prohibited by the
voluntary settlement provision of the Policy.” Id. at p. 12; (e) “[I]n seeking
protection from Stewart Title against inchoate mechanics’ lien rights, Credit
Suisse was obligated to disclose the information it knew prior to closing about
Banner-Sabey’s work at Tamarack and its contract.” See Nielsen Rebuttal Report
(Dkt. No. 282-3) at pp. 1-3.
(2)
All testimony concerning the proper measure of damage such as the
following: (a) “Loss under a title insurance policy is not measured as the potential
value of hypothetical buildings that might be built on the property in the future. It
is based on the value of the property as of the date of loss, with and without the
covered titled matter. This rule was stated in the seminal modern case of
Overholtzer v. Northern Counties Title Ins. Co., which held that “liability should
be measured by diminution in the value of the property caused by the defect in
title as of the date of the discovery the defect, measured by the use to which the
Memorandum Decision & Order – page 35

property is then being devoted.” See Nielsen Rebuttal Report, supra, at p. 20. (b)
“Loss under a title insurance policy is not measured based on the future value of
land that might be developed even when the development plan is frustrated or
limited due to a covered title defect. Pulte Home Corp. v. Industrial Valley Title
Ins. Co. is still the leading case observed by the industry on the subject.”; (c)
“When a final determination has been made [regarding priority and amount of
adverse liens], the value of the Resort can be measured. If the value of all the
property on which Credit Suisse holds a security interest is less than the total
amount of indebtedness, a loss would be payable that is equal to the lesser of (i)
the amount of [Credit Suisse’s] reduced security or (ii) the amount of the liens that
have been adjudged to have priority over the Mortgage.” See Nielsen Report,
supra at p. 21.
(3)
Any opinions based on improper assumptions such as the following: “It is
my opinion that Stewart Title went considerably beyond industry custom by
offering in September, 2010 to pay up to $3 Million toward the cost of settlements
with lien claimants. I assume the amount was well in excess of the expected cost
of litigation. That offer was, in my opinion an exceptionally large benefit offered
by Stewart Title to its insured and not required by the Policy or industry custom.”
See Nielsen Report (Dkt. 282-4) at p. 14.
(4) The motion is denied in all other respects.

IT IS FURTHER ORDERED, that the motion to exclude Reilly (docket no. 286)
is GRANTED IN PART AND DENIED IN PART. It is granted to the extent it seeks to
exclude the following testimony of Reilly:
(1) Cook erred by including in Credit Suisse’s damages the Local Improvement
District (LID) liens totaling $11 million because Cook mistakenly listed them as
an insured-against encumbrance when they should have been labeled as an
unavoidable encumbrance similar to property taxes; (2) Cook erred in setting his
total damages above the sum that Credit Suisse would have received if there were
no superior liens; (3) Cook double-counted when he added the lien sums to the
balkanization damages; and (4) The balkanization damages are $6.5 million.
(2) The motion is denied in all other respects.

Memorandum Decision & Order – page 36

IT IS FURTHER ORDERED, that the motion to exclude Rush (docket no. 291) is
GRANTED IN PART AND DENIED IN PART. It is granted to the extent it seeks to
exclude the following testimony of Rush:
(1) Any testimony that constitutes a legal conclusion, including the following: (a)
“Stewart had an affirmative duty to settle claims for which liability was reasonably
clear. See e.g. IC section 41-1329(6) and (13).” See Rush Report (Dkt. No. 291-2) at
6; (b) “Stewart breached this duty [to timely assert any reservation of rights]”; (c) In
failing to notify Credit Suisse of its intent to deny coverage, Stewart’s conduct was
“intentional” and “in bad faith”; and (d) Stewart Title’s conduct in this case
“demonstrates bad faith,” id. at p. 9, and (at two later points in his report) that its
conduct “demonstrates bad faith handling of these claims.” Id. at pp. 12 & 13; (e) that
Stewart Title’s acts were “intentional, malicious, fraudulent, oppressive, and
outrageous, and that Stewart’s conduct in this case was undertaken in bad faith.” Id at
p. 19.
(2) All testimony giving a legal interpretation of the Policy, including the following: (a)
[I]it is my opinion that these notices of claim provided by Credit Suisse met or
exceeded the notice of claim and proof of loss requirements contained in the Policy . .
. .” Id. at p. 13.
(3) The motion is denied in all other respects.

DATED: July 13, 2015

_________________________
B. Lynn Winmill
Chief Judge
United States District Court

Memorandum Decision & Order – page 37