Woodmen of the World Life Insurance Society v. US Bank National Association

Filing 563

MEMORANDUM AND ORDER - All motions in limine, Filing No. 473 , Filing No. 475 , Filing No. 477 , Filing No. 481 , Filing No. 484 , and Filing No. 491 are denied, as are the requests in each of these motions for Rule 104 hearings. Ordered by Judge Joseph F. Bataillon. (AOA)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
WOODMEN OF THE WORLD LIFE
INSURANCE SOCIETY, a Nebraska Not
for Profit Fraternal Benefit Society;

8:09CV407

Plaintiff,
vs.
MEMORAUNDUM AND ORDER
U.S. BANK NATIONAL ASSOCIATION,
U.S. BANCORP ASSET MANAGEMENT,
INC., a Delaware Corporation; U.S.
BANCORP, a Delaware Corporation; and
EMIL C. BUSSE, JR.,
memoran

Defendants.

This matter is before the court on a number of motions filed by both parties in this
case. Plaintiff Woodmen has filed motions in limine to exclude expert testimony of
Donald M. Nicholson, Filing No. 475; to exclude the testimony of Stephen G. Dennis,
Filing No. 481; and to exclude the testimony of defendants’ experts Bentsen, Blount
Brown-Hruska, Conroy, Goss and Sirri, Filing No. 484. Defendant Emil C. Busse, Jr.
has filed a motion in limine to exclude opinions of Goates, Filing No. 473. Defendant
U.S. Bancorp Asset Management, U.S. Bancorp, and U.S. Bank National Association
have filed a motion in limine to exclude expert opinions of Goates, Filing No. 477, and to
exclude all opinions of Borg-Brenner, Stein and Lawrence, Filing No. 491. The parties
have filed briefs and evidence in support of and in opposition to these motions.
Woodmen has sued defendants alleging: declaratory judgment for disposition of toxic
assets, conversion, tortious interference, unjust enrichment, as well as other causes of
action including negligence and intentional torts, and additionally is asking for punitive

damages. Defendants argue that Woodmen has failed to establish a claim under any of
these theories.
BACKGROUND
This is a rather convoluted case. Briefly, plaintiff Woodmen seeks to recover
investment losses it incurred by participating in the U.S. Bank National Association
securities lending business. U.S. Bancorp is a publicly-traded bank holding company,
incorporated in Delaware, with this principal place of business in Minneapolis,
Minnesota. The securities lending business at U.S. Bank is administered by U.S. Bank
National Association, U.S. Bancorp Asset Management, Inc., and the Mount Vernon
Securities Lending Trust, which oversaw the management of the mutual funds at issue
in this lawsuit.
STANDARD OF REVIEW
Fed. R. Evid. 702 states:
A witness qualified as an expert by knowledge, skill, experience, training,
or education, may testify thereto in the form of an opinion or otherwise, if
(a) the expert’s scientific, technical, or other specialized knowledge will
help the trier of fact to understand the evidence or to determine a fact in
issue; (b) the testimony is based upon sufficient facts or data, (c) the
testimony is the product of reliable principles and methods, and (d) the
witness has reliably applied the principles and methods to the facts of the
case.
A witness may qualify to render an expert opinion in one of five ways:
knowledge, skill, experience, training or education. Kumho Tire Co. v. Carmichael, 526
U.S. 137, 147 (1999); Fed. R. Evid. 702. This court serves as a gatekeeper to “ensure
that any and all scientific testimony or evidence admitted is not only relevant, but
reliable.” Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 589 (1993).

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Rule 702 permits a witness to testify in the form of an opinion when that expert
possesses scientific, technical, or other specialized knowledge that will assist the trier of
fact. Fed. R. Evid. 702. The central inquiry under Rule 702 is whether the proffered
expert’s testimony is sufficiently reliable. First Union Nat’l Bank v. Benham, 423 F.3d
855, 861 (8th Cir. 2005). The burden of establishing reliability rests on the proponent of
the expert testimony. Barrett v. Rhodia, 606 F.3d 975,980 (8th Cir. 2010) (quoting
Marmo v. Tyson Fresh Meats, Inc., 457 F.3d 748, 757 (8th Cir. 2006)). The testimony
must be based on scientific, technical, or other specialized knowledge. United States v.
Cawthorn, 429 F.3d 793, 799 (8th Cir. 2005).

“Knowledge” requires more than a

subjective belief or an unsupported speculation; it requires an appropriate level of
validation. Id. at 799-800 (quoting Daubert, 509 U.S. 590).
Rule 702 sets out three general standards for determining the reliability and
relevance of proffered expert testimony. First, the proffered testimony must be based
on sufficient facts or data. Fed. R. Evid. 702(b). Second, it must be the product of
reliable principles and methods. Fed. R. Evid. 702(c). Third, the expert must have
applied those principles and methods reliably to the facts of the case. Fed. R. Evid.
702(d). Rule 702 reflects a “relax[ation of] the traditional barriers to opinion testimony,”
and the court’s inquiry is intended to be flexible.

In re Prempro Prods. Liab. Litig.

(Scroggin), 586 F.3d 547, 565 (8th Cir. 2009); see Daubert, 509 U.S. 579, 588, 594.
The district court must assess whether the methodology used by the proposed expert is
valid and whether it was properly applied. In re Prempro (Scroggin), 586 F.3d at 565.
In Daubert, the Supreme Court listed four factors for consideration: (1) whether the
theory or technique applied can be tested, (2) whether the theory or technique has been
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subject to peer review or publication, (3) the known or potential rate of error, and (4)
general acceptance. Daubert, 509 U.S. at 593-95; In re Prempro (Scroggin), 586 F.3d
at 565 n.11 (noting that those factors do not constitute a definitive checklist or test).
District courts apply a number of nonexclusive factors in performing this role,
including “whether the expertise was developed for litigation or naturally flowed from the
expert’s research;” whether the expert ruled out other alternative explanations; and
whether the expert sufficiently connected the proposed testimony with the facts of the
case. Lauzon v. Senco Prods., Inc., 270 F.3d 681, 686-87 (8th Cir. 2001). “There is no
single requirement for admissibility as long as the proffer indicates that the expert
evidence is reliable and relevant.” In re Prempro (Scroggin), 586 F.3d at 565 (quoting
Unrein v. Timesavers, Inc., 394 F.3d 1008, 1011 (8th Cir. 2005)). “[N]othing in Rule
702, Daubert, or its progeny requires ‘that an expert resolve an ultimate issue of fact to
a scientific absolute in order to be admissible.’” Kudabeck v. Kroger Co., 338 F.3d 856,
861 (8th Cir. 2003) (quoting Bonner v. ISP Tech., Inc., 259 F.3d 924, 929 (8th Cir.
2001)). Importantly, any doubts regarding the usefulness of an expert’s testimony are
to be resolved in favor of admissibility. Marmo v. Tyson Fresh Meats, Inc., 457 F.3d
748, 757-58 (8th Cir. 2006). When the analytical gap between the data and proffered
opinion is too great, the opinion must be excluded. Id.
“[A]s a general rule, the factual basis of an expert opinion goes to the credibility
of the testimony, not the admissibility, and it is up to the opposing party to examine the
factual basis for the opinion in cross-examination.” Hartley v. Dillard’s, Inc., 310 F.3d
1054, 1061 (8th Cir. 2002) (quoting Bonner v. ISP Tech., Inc., 259 F.3d 924, 929 (8th
Cir. 2001)). However, it also is true that if the expert’s opinion is so fundamentally
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unsupported that it can offer no assistance to the jury, it must be excluded. Id. An
expert opinion that fails to consider the relevant facts of the case is fundamentally
unsupported. Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039, 1056 (8th Cir.
2000) (citations and footnote omitted).
Although the motion in limine is an important tool available to the trial judge to
ensure the expeditious and evenhanded management of the trial proceedings,
performing a gatekeeping function and sharpening the focus for later trial proceedings,
some evidentiary submissions cannot be evaluated accurately or sufficiently by the trial
judge in such a procedural environment.

Jonasson v. Lutheran Child and Family

Servs., 115 F.3d 436, 440 (7th Cir. 1997).

A motion in limine is appropriate for

“evidentiary submissions that clearly ought not be presented to the jury because they
clearly would be inadmissable for any purpose.” Id. In other instances, it is necessary
to defer ruling until during trial, when the trial judge can better estimate the impact of the
evidence on the jury. Id. To the extent that a party challenges the probative value of
the evidence, an attack upon the probative sufficiency of evidence relates not to
admissibility but to the weight of the evidence and is a matter for the trier of fact to
resolve.

United States v. Beasley, 102 F.3d 1440, 1451 (8th Cir. 1996).

“This

evidentiary inquiry is meant to be flexible and fact specific, and a court should use,
adapt, or reject Daubert factors as the particular case demands.” Unrein, 394 F.3d
1011.

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DISCUSSION
A. Donald Nicholson, Filing No. 4751
Woodmen moves to exclude the testimony of defendants’ expert witness, Donald
M. Nicholson. Mr. Nicholson is a certified public accountant and will testify regarding
reallocations and damages in this case. Woodmen contends that Mr. Nicholson will
testify regarding alleged benefits to Woodmen due to a reallocation.

Woodmen

contends that Mr. Nicholson will testify as to matters contradictory to the facts and that
such opinions will fail to meet the requirements of Fed. R. Evid. 702. Woodmen further
contends that Mr. Nicholson’s opinion is based on third-party pricing information and will
likely confuse the jury.
The court has carefully reviewed the briefs and evidence submitted by the parties
as well as the relevant law. After a review of the same, the court finds it will be very
difficult, if not impossible, to make a decision on this evidence prior to trial. The court
will have to hear it in the context of the total evidence to make a determination of
admissibility. It appears from plaintiff’s brief that many of the issues go to the weight of
the testimony and not to admissibility.2 “The factual basis of an expert opinion goes to
the credibility of the testimony, not the admissibility, and it is up to the opposing party to
examine the factual basis for the opinion on cross-examination.” Nebraska Plastics,
Inc. v. Holland Colors Am., Inc., 408 F.3d 410, 416 (8th Cir. 2005).

1

Mr. Nicholson’s expert report and curriculum vitae are located at Filing Nos. 480-8 and10 and at
486-9 and 10.
2

Woodmen also contends that certain expert documents were not provided until well after the
discovery deadline had passed. The court suggests that any such issues can be taken up with the
magistrate judge in this case.
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The court finds that the motions should be denied at this time without prejudice to
its reassertion at trial.
B. Stephen G. Dennis, Filing No. 4813
Woodmen moves to exclude the testimony of Stephen G. Dennis who is
defendant Emil C. Busse, Jr.’s expert witness. Mr. Dennis is certified public accountant
who will likewise testify as to damages in this case. Mr. Dennis has a Bachelor of
Science in business with an accounting emphasis and a Juris Doctorate. Again, he will
testify regarding the reallocation of funds and the issue of economic or monetary loss in
this case. Woodmen alleges he will express an opinion that Woodmen’s losses were
caused by the economy and the “Great Recession.”

Woodmen contends that Mr.

Dennis is not qualified to make these opinions and lacks any methodology for his
conclusions. Woodmen contends that Mr. Dennis is not an economic expert and cannot
offer an opinion about the economy and its effect on Woodmen’s damages. Mr. Dennis,
argues Woodmen, cannot just parrot hearsay from other reports.

See Williams v.

Illinois, __U.S.__, 132 S. Ct. 2221, 2241 (2012) (ruling that the trial court must “screen
out experts who would act as mere conduits for hearsay by strictly enforcing the
requirement that experts display some genuine, ‘scientific, technical, or other
specialized knowledge [that] will help the trier of fact to understand the evidence or
determine a fact in issue’”). Further, Woodmen contends that Mr. Dennis’s opinions will
not assist the trier of fact and are unreliable under Fed. R. Evid. 702.
Mr. Busse disagrees with Woodmen’s assessments. Mr. Busse contends that
Mr. Dennis’s testimony is relevant to the history of dealings between the parties, and will

3

See curriculum vitae of Mr. Dennis at Filing No. 483-3 and 486-7.
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show a decline in the value of securities by the three troubled assets and the ways in
which Mr. Busse began to bring new money into the fund. Mr. Dennis intends to testify
as to this dilution effect caused by adding the new money to the fund. Mr. Busse
argues that Mr. Dennis’s opinions will be based on arithmetic and will be helpful to the
jury.
The court finds that Mr. Dennis is qualified to testify to those matters within his
education and expertise. He can testify as to the loss suffered by Woodmen. However,
the court is uncertain as to whether it will allow Mr. Dennis to testify as to particular
economic issues not related to his expertise. The court will listen to the evidence as it
evolves and will make a determination at that time. The court will not permit Mr. Dennis
to testify outside his areas of expertise. The court finds that the motions should be
denied at this time without prejudice to its reassertion at trial.
C.

Opinions of Richard Bentsen, Edmon Blount, Sharon BrownHruska, Patrick Conroy, Ernest Goss, and Erik Sirri, Filing No. 4844

Woodmen moves the court to exclude the testimony of these experts because
they failed to provide their methodologies in their Rule 26 reports, failed to show that
their theories are reliable and have been tested or been the subject of peer review, or
are generally accepted in the relevant community. Additionally, Woodmen argues that
at times their opinions contradict the facts.

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The qualifications and expert report of Richard Bentsen can be located at Filing No. 486-2 and
3; and for Edmon Blount at Filing No. 486-4; and for Sharon Brown-Hruska at Filing No. 486-5; and for
Patrick Conroy at Filing No. 486-6; and for Ernest Goss at Fling No. 486-8; and for Erik Sirri, at Filing No.
486-11.
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Of these eight experts, three are identified as experts in economics: Drs. Goss,
Sirri and Brown-Hruska; one as an expert in portfolio management: Dr. Conroy; and
two as experts in securities lending: Bentsen and Blount.
1. Richard Bentsen – Mr. Bentsen worked in securities lending for 25 years and
does strategic securities lending consulting. Mr. Bentsen will explain the inner workings
of “securities lending.” Woodmen argues there is no showing of experience in analysis
or purchase of secured liquidity notes or mortgage-backed securities. The court has
carefully reviewed the qualifications of Mr. Bentsen. The court finds he is qualified to
express his opinions based on his experience and education. The court further finds his
general knowledge is reliable and will assist the trier of fact. Accordingly, the motion in
limine is denied as to Mr. Bentsen.
2. Edmon Blount – Mr. Blount collected securities processing and other data
from securities lending programs. He then sold the information to securities lending
providers. He also founded a nonprofit think-tank to look at policy-related issues. Mr.
Blount is asked to testify on issues involving heightened risk of capital loss and whether
certain collateral investment processes were consistent with industry norms. Woodmen
argues his testimony is not reliable and that there is no showing of experience in
analysis or purchase of secured liquidity notes or mortgage-backed securities. The
defendants contend that Mr. Blount does in fact have extensive securities lending
experience.
The court has carefully reviewed Mr. Blount’s credentials and finds that Mr.
Blount is qualified as an expert to testify in this case. If during trial Mr. Blount exceeds
his level of expertise, Woodmen can make the appropriate motion at trial. Defendants
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likewise contend that Woodmen is wrong in making them provide methodology for their
opinions. Woodmen makes this argument with regard to Mr. Blount as well as the
remaining experts. The court has reviewed Mr. Blount’s credentials and experience and
finds he qualifies as an expert in this case. The court agrees with the defendants that
this is not a case where science and technical data must be explained and determined
to be reliable. On the contrary, the reliability of the experts in this case will depend in
large measure on their experience and education as to the particular issues in the
lawsuit. In most instances, if not all, the court will not need a scientific foundation for the
opinion. Accordingly, the motion in limine is denied as to Mr. Blount.
3. Sharon Brown-Hruska – Dr. Brown-Hruska is an economist. Woodmen
argues there is no showing that she has any experience in securities lending, or in
analysis or purchase of secured liquidity notes or mortgage-backed securities.
Defendants state that Dr. Brown-Hruska is not going to give an opinion on securities
lending but will stay within her area of expertise. The court has reviewed Dr. BrownHruska’s credentials and finds she is qualified to be an expert economist in this case.
Accordingly, the motion in limine is denied as to Dr. Brown-Hruska.
4.

Patrick Conroy – Dr. Conroy is asked to provide testimony on certain

common concepts involving investments and managing of investment portfolios.

In

particular, he will testify as to the concept of diversification, and specifically the
diversification in this case. Dr. Conroy has a background in securities and financial
economics and has worked for the Securities and Exchange Commission in the Office
of Economic Analysis as an economist. It does not appear that he has experience in
securities lending. Again, Woodmen argues that Dr. Conroy gives no basis for his
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methodology but opines that the fund in question was diversified. He also opines as to
the percentage of losses in the fund, but again does not identify his methodology for his
calculations. The defendants argue, and the court agrees, that this does not appear to
be an issue where the methodology for the opinions will be needed. The court has
reviewed Dr. Conroy’s credentials and experience and finds he qualifies as an expert in
this case. Accordingly, the motion in limine is denied as to Dr. Conroy.
5. Richard Dennis – Mr. Dennis is an attorney and a certified public accountant.
Woodmen contends that Mr. Dennis is going to give an opinion on the securities lending
program based on hearsay and has performed no independent analysis. Mr. Dennis,
argues Woodmen, has no training or experience in the field of economics. Mr. Dennis
opines that Woodmen’s damages were caused by national and global economic
variables. The court has already addressed Mr. Dennis’s qualifications and finds he can
testify at trial as previously discussed herein. Accordingly, the motion in limine is denied
as to Mr. Dennis.
6. Ernest Goss – Dr. Goss is an economist. Woodmen contends that Dr. Goss
is relying on a summary of information from others and there is no methodology for his
determinations. Again, the court finds the argument regarding methodology irrelevant at
this time. Second, Dr. Goss is entitled to rely on certain data and data compilations to
form his opinion. If at trial defendants believe Dr. Goss’s opinions are unsupported,
they can notify the court at that time. Accordingly, the motion in limine is denied as to
Dr. Goss.
7. Donald Nicholson – Mr. Nicholson is likewise a certified public accountant.
He has been designated as a damages expert. Woodmen argues that Mr. Nicholson
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uses a methodology that is inconsistent with the undisputed facts in the case by using
the extended net asset value and an average extended net asset value to calculate the
damages. Woodmen argues this makes his opinion unreliable. Woodmen contends
that some of the opinion rests on information disclosed well after the discovery deadline
had closed. Again, if this is the case, the issue can be raised with the magistrate judge.
The court has reviewed Mr. Nicholson’s credentials and expert report and finds he is
qualified to testify. Woodmen is free to cross-examine Mr. Nicholson and to make
appropriate objections if necessary. Accordingly, the motion in limine is denied.
8. Eric Sirri – Dr. Sirri is an economist and was the Chief Economist of the
Securities and Exchange Commission for several years. He has been asked to discuss
the general structure and operation of mutual funds and the funds at issue in this
lawsuit, in particular. Woodmen argues there is no indication that Dr. Sirri has any
experience in securities lending and he does not set forth his methodology for any of his
opinions. Defendants state that Dr. Sirri is qualified because he is an industry expert on
mutual funds and securitization. The court has reviewed Dr. Sirri’s qualifications and
finds he is qualified to be an expert in this case and to testify on these opinions.
Accordingly, the motion in limine is denied as to Dr. Sirri.
D. Kent Goates5, Filing Nos. 473 and 477
Mr. Goates is a certified public accountant who will testify about damages and
reallocations of funds. Defendants Busse and U.S. Bank contend that the method used
by Mr. Goates is based on incomplete facts and data. U.S. Bank also argues that Mr.
Goates will attempt to give opinions on lay matters, such as internal cover-ups by the

5

Mr. Goates’ expert report is located at Filing Nos. 474-1, Attach. A-C; 479-1; 487-1, Ex. A.
12

bank. U.S. Bank also argues that Mr. Goates intends to testify as to the “cause” of the
increase favoring other shareholders over Woodmen.

Woodmen contends that the

defendants misconstrue the opinion of Mr. Goates.

The basis for the damages

calculation at issue appears to be a determination made by an independent firm,
Deloitte, concerning the sudden ownership changes caused by the alleged improper
reallocations.

Woodmen contends that Mr. Goates has adopted the Deloitte

methodology and applied the same.

Woodmen also contends that the defendants

mischaracterize the opinions held by Mr. Goates. The court has carefully reviewed the
report of Mr. Goates as well as his credentials and finds he is qualified to be an expert
in this case and to testify on these opinions. Accordingly, the motion in limine is denied
as to Mr. Goates.
E. Bella Borg-Brenner, Avram Stein, Edward C. Lawrence6, Filing No. 491
U.S. Bank moves to exclude the opinions of all three of these experts because
their reports contain lengthy portions of “impermissible narrative” and document
summaries, address credibility and motivation of witnesses, give opinions on numerous
matters that are for lay persons to decide, and draw legal conclusions.
The court has reviewed the qualifications of these experts and finds they can
testify at trial. Borg-Brenner has a Master’s of Business Administration and is a Ph.D.
mathematics candidate. Borg-Brenner is portfolio and risk manager. She was the fund
manager at Stillwater Capital, a research analyst at Bear Stearns, and a vice president
of fixed income research at Credit Suisse. Avram Stein received his MBA from Harvard
Graduate School of Business and has been involved in the securities lending markets
6

The expert report and qualifications of Bella Borg-Brenner and Avram Stein are located at Filing
No. 493-1; the qualifications and expert report of Edward Lawrence are located at Filing No. 493-2.
13

since 1989.

He headed the Chase Global Securities Lending area.

Dr. Lawrence

received his Ph.D. in business administration from Penn State and his M.B.A. in finance
from Penn State. He is a professor of finance at the University of Missouri and founded
an economic consulting firm that conducts economic impact studies.
The issues raised by U.S. Bank are better decided at trial, not on a Daubert
motion. If an admissibility or evidentiary issue arises, the parties can discuss it with the
court. The parties have the right of cross-examination, and many of these issues will be
more amenable to such. Accordingly, the motion in limine is denied as to all three of
these experts.
The court wants to note for the record as follows. In general, the court will not
permit legal conclusions as part of expert testimony.

The court will not permit the

experts to offer opinions on the issues better left to the jurors. The court will not permit
expert speculation. In general, the issues presented to this court by the parties in this
multitude of motions in limine are really not appropriate for resolution at this stage of the
proceedings. The disagreements are for trial, and the credibility issues for the jury to
determine. Testimony that invades the province of the court or jury will not be allowed,
but testimony that merely assists the trier of fact will be permitted. The court is not
interested in allowing duplication of opinions. All testimony will, of course, be subject to
a showing of proper foundation and reliability. Further, if there is a genuine concern
about the admissibility of certain evidence, the parties should approach the court as the
issues arise in trial.
The court also is concerned about the number of expert witnesses scheduled to testify
in this matter. It appears that there will be considerable duplication and overlap of
14

expert testimony. The court is not interested in requiring the jury to suffer through
cumulative testimony. Accordingly, the court will contact the parties to arrange a trial
management conference shortly after the magistrate judge completes the pretrial order
and conference.

THEREFORE, IT IS ORDERED that all motions in limine, Filing No.

473, Filing No. 475, Filing No. 477, Filing No. 481, Filing No. 484, and Filing No. 491 are
denied, as are the requests in each of these motions for Rule 104 hearings.
Dated this 21st day of December, 2012.
BY THE COURT:

s/ Joseph F. Bataillon
United States District Judge

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