Krys v. Aaron
Filing
713
OPINION. Signed by Chief Judge Jerome B. Simandle on 6/12/2015. (dmr)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
KENNETH M. KRYS, MARGOT
MACINNIS, and THE HARBOUR
TRUST CO. LTD.,
Plaintiffs,
HONORABLE JEROME B. SIMANDLE
Civil Action
No. 14-2098 (JBS/AMD)
v.
ROBERT AARON, DERIVATIVE
PORTFOLIO MANAGEMENT LLC, DPMMELLON, LLC, DERIVATIVE
PORTFOLIO MANAGEMENT, LTD.,
DPM-MELLON, LTD, and BANK OF
NEW YORK MELLON CORPORATION,
Defendants.
APPEARANCES:
David J. Molton, Esq.
Mason C. Simpson, Esq.
BROWN RUDNICK LLP
Seven Times Square
New York, N.Y. 10036
-andLeo R. Beus, Esq.
L. Richard Williams, Esq.
Thomas A. Gilson, Esq.
Lee M. Andelin, Esq.
BEUS GILBERT PLLC
701 North 44th Street
Phoenix, A.Z. 85008
Attorney for Plaintiffs
B. John Pendleton, Jr., Esq.
Andrew O. Bunn, Esq.
Kristin A. Pacio, Esq.
Gina Trimarco, Esq.
DLA PIPER LLP (US)
51 John F. Kennedy Parkway
Short Hills, N.J. 07078
Attorney for Defendants
OPINION
SIMANDLE, Chief Judge:
Contents
INTRODUCTION .............................................. 2
BACKGROUND ................................................ 4
STANDARD OF REVIEW ...................................... 6
DISCUSSION ............................................... 10
A.
The Parties’ Experts on Segregation Issues ............. 10
1.
Defendants’ Motion to Exclude I. Michael Greenberger .. 11
2.
Plaintiffs’ Motion to Exclude Anthony J. Leitner ...... 22
B.
The Parties’ Experts on Damages/Valuation Issues ....... 26
1. Defendants’ Motion to Strike Joan A. Lipton, CPA/ABV/CFF,
Ph.D. ..................................................... 27
2.
C.
Plaintiffs’ Motion to Strike Avram S. Tucker .......... 32
The Parties’ Experts on Industry Practices ............. 38
1.
Defendants’ Motion to Exclude Peter U. Vinella ........ 38
2. Plaintiffs’ Motion to Exclude Certain Testimony by
Raymond O’Neill ........................................... 46
D.
Defendants’ Motion to Exclude R. David Wallace, CPA, CFF 49
REDACTIONS TO EXPERTS’ REPORTS ........................... 54
CONCLUSION ............................................... 54
INTRODUCTION
In this lengthy multi-district securities litigation, the
parties move to exclude in whole or in part the following
experts:1
1.
I. Michael Greenberger, Plaintiffs’ expert on
Commodity Futures Trading Commission (hereinafter,
“CFTC”) and Commodities Exchange Act (hereinafter,
“CEA”) issues [see Docket Item 580];
1
The Court conducted oral argument on the pending motions on
June 4, 2015.
2
2.
3.
4.
5.
6.
7.
8.
R. David Wallace, CPA, CFF, Plaintiffs’ expert on the
audit and advisory services rendered to Refco [see
Docket Item 581];
Peter Vinella, Plaintiffs’ expert concerning
Defendants’ alleged knowledge of Refco’s failure to
segregate SMFF’s excess cash [see Docket Item 582];
Joan Lipton, CPA/ABV/CFF, Ph.D., Plaintiffs’ expert on
PlusFunds’ valuation [see Docket Item 583];
Raymond O’Neill, Defendants’ expert on the practices
of fund administrators [see Docket Item 584];
Anthony Travers, Defendants’ expert on the standards
for directors under Cayman Islands’ Law [see id.];2
Anthony J. Leitner, Defendants’ expert (in rebuttal to
I. Michael Greenberger) on segregation issues under
the CEA and the CFTC [see Docket Item 585]; and
Avram S. Tucker, Defendants’ damages expert [see
Docket Item 586]
The principal issue before the Court concerns whether the
proposed testimony of these expert witnesses meets the
qualification, reliability, and fit requirements under Federal
Rule of Evidence 702.
For the reasons that follow, Defendants’ motions will be
granted in part and denied in part with respect to Mr.
Greenberger, granted in part and denied in part with respect to
Mr. Wallace, granted in part and denied in part with respect to
Mr. Vinella, and denied with respect to Dr. Lipton.
2
The parties requested on the oral argument record that
resolution of Plaintiffs’ motion to exclude Mr. Travers be
reserved pending the parties’ informal discussions to resolve
the issues with respect to Mr. Travers. (See Hr’g Tr. At
101:16.) Plaintiffs’ motion will, accordingly, be deferred to
the extent it seeks to exclude Mr. Travers.
3
Plaintiffs’ motions will be denied with respect to Mr.
O’Neill, deferred with respect to Mr. Travers, granted in part
and denied in part with respect to Mr. Leitner, and denied with
respect to Mr. Tucker.
BACKGROUND
For purposes of the pending motions, the Court need not
retrace the parties’ complex history.3
Rather, the Court notes that this action generally arises
from the complex financial and brokerage relationships between,
and ultimate dissolutions of, three entities (and the multitude
of affiliates associated with each): PlusFunds Group, Inc.
(hereinafter, “PlusFunds”), SPhinX Funds (hereinafter,
“SPhinX”), and Refco, Inc. (hereinafter, “Refco”).
As relevant here, in 2002, PlusFunds created SPhinX, a
global hedge fund consisting of approximately seventy Cayman
Islands funds, as an investment vehicle to track the Standard &
Poor’s hedge fund index.
One of the seventy SPhinX funds,
SPhinX Managed Futures Fund (hereinafter, “SMFF”), in turn,
maintained brokerage accounts with the onshore and offshore
affiliates of Refco, a then-existing financial services and
3
For a more detailed discussion of the factual predicate and
procedural history of this action, the Court refers any
interested readers to the Court’s prior Opinions: Krys v. Aaron,
No. 14-2098, 2015 WL 3452324 (D.N.J. May 29, 2015); Krys, ___ F.
Supp. 3d ____, No. 14-2098, 2015 WL 2453720 (D.N.J. May 22,
2015); Krys, ___ F. Supp. 3d ____, No. 14-2098, 2015 WL 2412448
(D.N.J. May 20, 2015).
4
brokerage firm.
In connection with such accounts, PlusFunds
agreed to sweep any of SMFF’s excess cash on deposit with Refco,
LLC, the onshore affiliate in New York, to Refco Capital
Markets, Ltd, the offshore affiliate in the Cayman Islands.
After the revelation that several of Refco’s officers and
directors participated in a wide-scale, fraudulent
underreporting of corporate liabilities, however, Refco filed
for bankruptcy on October 17, 2005.
At that time, Refco held
$312 million of SMFF’s excess cash in unsegregated accounts, all
of which the bankruptcy proceeding placed beyond the reach of
PlusFunds or SPhinX, and ultimately caused these entities to
file their own bankruptcy proceedings.
In this action, Plaintiffs Kenneth M. Krys and Margot
Macinnis, the Joint Official Liquidators of the SPhinX Trust,
and The Harbour Trust Co. Ltd., the Trustee of the SPhinX Trust
(collectively, “Plaintiffs”), allege that Defendants,4 all SPhinX
Funds’ and PlusFunds’ agents and fiduciaries, allowed and/or
facilitated the unauthorized diversion of SMFF’s excess cash
from protected, customer-segregated accounts to non-regulated
and unsegregated offshore accounts with Refco and failed to take
4
Defendants in this action specifically consist of Robert Aaron,
Derivatives Portfolio Management, LLC, Derivatives Portfolio
Management, Ltd., DPM–Mellon, LLC, DPM–Mellon, LTD, and Bank of
New York Mellon Corporation (collectively, “Defendants”).
5
certain corrective steps in the face of Refco’s potential
insolvency.5
(See generally Joint Final Pretrial Order.)
STANDARD OF REVIEW
Federal Rule of Evidence 702 governs the admissibility of
expert testimony, and specifically permits a witness qualified
as an expert to testify in the form of an opinion if: (1) the
expert’s knowledge will assist the factfinder in understanding
the evidence or an issue of fact; (2) the testimony relies upon
sufficient facts or data; (3) the testimony resulted from
“reliable principles and methods; and (4) the expert “reliably
applied the principles and methods to the facts of the case.”
See FED. R. EVID. 702.
In other words, Rule 702 “embodies a
trilogy of restrictions on expert testimony: qualification,
reliability, and fit.”
Schneider v. Fried, 320 F.3d 396, 404
(3d Cir. 2003) (citing In re Paoli R.R. Yard PCB Litig., 35 F.3d
717, 741–43 (3d Cir. 1994)).
5
Following the filing of Plaintiffs’ initial and amended state
court complaints in early 2008, Defendants removed this action
to this federal Court on April 17, 2008. [See Docket Item 41 in
Civil Action No. 08-1902 (JBS/AMD).] Shortly thereafter,
however, the Judicial Panel on Multi-District Litigation
transferred this action to the Southern District of New York
(hereinafter, the “MDL District Court”) for inclusion in MDL No.
1902. [See Docket Item 41 in Civil Action No. 08-1902
(JBS/AMD).] Following six years of litigation before the MDL
District Court, the exchange of tens of thousands of documents
(if not substantially more), and the completion of hundreds of
depositions, the MDL District Court transferred this action back
to this Court for all further proceedings on March 24, 2014.
[See Docket Item 505.]
6
Qualification refers to the requirement that the witness
possess specialized knowledge, skills, training, or expertise.
See id. at 404 (citation omitted).
The requirement, however,
encompasses “‘a broad range of knowledge, skills, and
training.’”
Id. (citation omitted).
Indeed, the Court of
Appeals eschews “overly rigorous requirements of expertise” and
therefore permits witnesses to testify as experts even in the
absence of formal qualifications (as opposed to simply
specialized knowledge and training).
In re Paoli, 35 F.3d at
741.
The reliability restriction requires that the testimony be
based upon “the ‘methods and procedures of science’ rather than
on ‘subjective belief or unsupported speculation’” and that the
expert have “‘good grounds’ for his or her belief.”
Calhoun v.
Yamaha Motor Corp., U.S.A., 350 F.3d 316, 321 (3d Cir. 2003)
(quoting Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 589
(1993)).
In that respect, reliability requires, in essence, an
examination “‘into the expert’s conclusions in order to
determine whether [the conclusions] could reliably flow from the
facts known to the expert and [the] methodology used.’”
In re
Diet Drugs (Phentermine/Fenfluramine/Dexfenfluramine) Prod.
Liab. Litig., 706 F.3d 217, 225 n.7 (3d Cir. 2013) (quoting Oddi
v. Ford Motor Co., 234 F.3d 136, 146 (3d Cir. 2000) (internal
7
quotation marks omitted)).6
The rule does not, however, require
the party proffering the expert to demonstrate the “correctness”
of their expert’s opinion.
In re Paoli, 35 F.3d at 744
(concluding that the “evidentiary requirement of reliability”
amounts to a lower burden “than the merits standard of
correctness”).
Rather, the party need only demonstrate “by a
preponderance of the evidence” that the expert’s opinion bears
adequate indicia of reliability.
Id.
Indeed, “[a] judge will
often think” that an expert “has good grounds to hold the
opinion,” even if the judge finds the opinion otherwise
“incorrect.”
Id.
The third requirement, whether the expert testimony would
assist the trier of fact, “goes primarily to relevance,”
6
In evaluating reliability, Daubert (and its progeny) directs
courts to take into account an array of nonexclusive factors,
including: “(1) whether a method consists of a testable
hypothesis; (2) whether the method has been subject to peer
review; (3) the known or potential rate of error; (4) the
existence and maintenance of standards controlling the
technique's operation; (5) whether the method is generally
accepted; (6) the relationship of the technique to methods which
have been established to be reliable; (7) the qualifications of
the expert witness testifying based on the methodology; and (8)
the non-judicial uses to which the method has been put.” In re
Paoli, 35 F.3d at 742 n.8. These factors, however, “are neither
exhaustive nor applicable in every case,” Kannakeril v. Terminix
Int’l, Inc., 128 F.3d 802, 806-07 (3d Cir. 1997), and “[t]he
District Court has broad discretion in determining the
admissibility of evidence, and ‘considerable leeway’ in
determining the reliability of particular expert testimony under
Daubert.” Simmons v. Ford Motor Co., 132 F. App’x. 950, 952 (3d
Cir. 2005) (quoting Kumho Tire Co. v. Carmichael, 526 U.S. 137,
152–53 (1999)).
8
Daubert, 509 U.S. at 591, and specifically requires that the
testimony “‘fit’” the disputed issues in the case.
320 F.3d at 404 (citation omitted).
Schneider,
“In other words, the
expert’s testimony must be relevant for the purposes of the case
and must assist the trier of fact.”
Id. (citation omitted).
This “‘helpfulness’ standard,” accordingly, requires “as a
precondition to admissibility” that that the expert testimony
possess a valid and specialized connection to the pertinent
inquiries in the litigation.
In applying these considerations, “the district court must
act as a gatekeeper,” preventing the admission of opinion
testimony that does not meet these three requirements.
ZF
Meritor, LLC v. Eaton Corp., 696 F.3d 254, 294 (3d Cir. 2012)
(citation omitted).
Nevertheless, Rule 702 prescribes “‘a
liberal policy of admissibility.’”
Pineda v. Ford Motor Co.,
520 F.3d 237, 243 (3d Cir. 2008) (quoting Kannankeril v.
Terminix Int’l, Inc., 128 F.2d 802, 806 (3d Cir. 1997)).
Indeed, “vigorous cross-examination, presentation of contrary
evidence, and careful instruction on the burden of proof” serve
as “the traditional and appropriate means of attacking shaky but
admissible evidence.”
Daubert, 509 U.S. at 595.
9
DISCUSSION
A. The Parties’ Experts on Segregation Issues
This action will turn, in large part, upon the jury’s
assessment of various parties’ involvement in, knowledge of,
and/or responsibility for the unsegregated manner in which Refco
held SMFF’s excess cash.
As a result, the parties intend to
proffer competing experts on the regulatory requirements and
industry practices with respect to segregation.
As set forth in greater detail below, I. Michael
Greenberger and Anthony J. Leitner, specifically produced
lengthy reports, for Plaintiffs and Defendants respectively,
discussing the laws and industry practices relevant to
segregation and their opinions concerning the propriety of
various parties’ conduct.
Following submission of the briefing associated with the
pending motion, however, the parties acknowledged at oral
argument that Berckeley Inv. Grp., Ltd. v. Colkitt, 455 F.3d
195, 217 (3d Cir. 2006) precludes either expert (and indeed any
expert) from testifying on questions of law or from stating
ultimate conclusions of law, particularly with respect to
whether any individual and/or entity (including, Defendants)
violated and/or complied with applicable legal requirements.
(See Hr’g Tr. at 7:8-19.)
The parties further conceded that
their experts’ reports run afoul of this preclusion in certain
10
respects, and confirmed that the experts would not be called to
proffer those opinions.
The remaining inquiry presented by the parties’ motions
therefore concerns whether these experts have the qualifications
necessary to offer helpful testimony on segregation issues.
Despite the parties’ concessions (and because this issue
presents a common thread throughout several of the disputed
expert reports), however, the Court will first address, with
greater specificity, the prohibited areas of conclusory legal
testimony, prior to turning to the issue of qualifications.
1. Defendants’ Motion to Exclude I. Michael Greenberger
Mr. Greenberger, a law professor and a former Director of
Trading and Markets at the CFTC from September 1997 through
September 1999, produced a 96-page expert report on June 29,
2012, in which he generally discusses the CFTC and CEA
segregation requirements as they pertained to SMFF’s excess cash
held on deposit with Refco.
[See generally Docket Item 580-3.]
In moving to exclude Mr. Greenberger, Defendants argue that
his Report amounts to an “impermissible opinion on governing
law,” because he offers little more than legal opinions
concerning the meaning and application of the CEA and CFTC
regulations regarding segregation of customer cash.
[Docket
Item 580-1 at 1, 5-7; see also Docket Item 651 at 1-2.]
Moreover, even if certain select sentences constitute “helpful
11
expert opinion” regarding industry customs, practices, and
segregation, Defendants assert that Mr. Greenberger lacks the
qualifications necessary to discuss these issues, because he was
not employed in the futures’ industry during the relevant
period.
[Docket Item 651 at 2-3.]
Plaintiffs counter, however, that Mr. Greenberger’s Report
provides admissible “‘background information’” on segregation,
including the relevant “industry standards and the regulatory
regime,” that supports Plaintiffs’ position that SPhinX and
PlusFunds had “reason to expect” that the SPhinX assets on
deposit with Refco remained “protected.”7
4.]
[Docket Item 634 at 2-
Plaintiffs further argue that excluding Mr. Greenberger’s
testimony “would be patently unfair,” given the fact that
Defendants have proffered a rebuttal expert (Mr. Leitner,
discussed below) who opines on substantively identical issues.
[Id. at 6-8.]
The Court “has discretion to determine whether expert
testimony” will prove helpful to the trier of fact.
Berckeley
Inv. Grp., Ltd. v. Colkitt, 455 F.3d 195, 217 (3d Cir. 2006)
(citation omitted).
In utilizing that discretion, however, the
Court “must ensure that an expert does not testify as to the
7
Plaintiffs further state that the “Report will not be entered
[into] evidence, and [that] Mr. Greenberger will offer only nonlegal opinions,” if permitted to testify at trial. [Docket Item
634 at 9.] As stated above, counsel for Plaintiffs reiterated
this position on the oral argument record.
12
governing law of the case.”
Id.
Indeed, although Federal Rule
of Evidence 704 permits an expert to provide testimony that
“embraces an ultimate issue to be decided by the trier of fact,”
an expert may not “usurp” a court’s “pivotal role in explaining
the law to the jury” by “rendering a legal opinion.”
Id.
(citations omitted).
Here, Mr. Greenberger states, at the outset (and as his
ultimate conclusion), that “SMFF was statutorily, regulatorily,
and contractually entitled by a series of related, but also
separate and independent, Commodity Exchange Act provisions,
CFTC Regulations, and contract clauses to have its excess cash
segregated at a futures commission merchant such as Refco LLC or
wherever Refco LLC unlawfully deposited those funds,” and that
Defendants’ “many” segregation violations, “especially when
viewed in their totality in the circumstances of this case
constitute a knowing fraud, breach of fiduciary duty and trust,
and conversion.”
[Docket Item 580-3 at 2, 69.]
In support of this ultimate opinion, Mr. Greenberger
provides a lengthy recitation of the CFTC and CEA segregation
and auditing requirements pertaining to customer funds on
deposit [id. at 12-35],8 the purposes of such requirements, and
8
An expert witness usurps the Court’s function by defining the
applicable law. If the applicable law is in dispute, it is for
the judge and not the jury (or the expert witness) to make that
determination and to instruct the jury appropriately. It is
13
why these segregation protections applied to the SMFF funds yet
were violated by a series of actions and/or inaction.
36-75.]
[Id. at
Indeed, Mr. Greenberger specifically concludes that the
various entities and individuals involved in the transfer of
SMFF’s excess cash committed fraud, breaches of their fiduciary
duties, and conversion.9
[Id. at 76-78.]
In these respects, Mr. Greenberger unquestionably invades
the Court’s province by rendering a legal opinion concerning
whether various agents of Refco, SPhinX, and PlusFunds complied
with their obligations under federal securities law.10
See
Berckeley Inv. Grp., 455 F.3d at 218 (finding that an expert
could not testify concerning whether the plaintiff “complied
with legal duties” under the securities law).
Indeed, in
related litigation before the MDL District Court, the MDL
District Court found that this very Report “appears on its face
further the judge’s function to assure that evidence at trial,
by experts or otherwise, does not undermine the clarity of
actual legal requirements.
9 The remainder of Mr. Greenberger’s Report contains, in primary
part, Mr. Greenberger’s criticism of various rulings by the MDL
District Court and Daniel J. Capra, the Special Master appointed
by the MDL District Court to issue Report and Recommendations
concerning various pre-trial issues (hereinafter, the “Special
Master”). [See, e.g., Docket Item 580-3 at 63-66.] Efforts to
relitigate determinations of the MDL District Court in related
litigation hardly provides “helpful” information to the jury in
this action, particularly to the extent those determinations
have no application to this litigation.
10 Indeed, counsel for Plaintiffs conceded on the oral argument
record that Mr. Greenberger’s opinions in these respects exceed
that permitted under the Federal Rules of Evidence.
14
to be an opinion of law, in substantial part, if not almost
entirely.”
[Docket Item 580-6 at 3:7-8.]
The MDL District
Court therefore struck the Report sua sponte in its entirety.
[See id.]
This Court agrees that Mr. Greenberger’s Report
contains many impermissible legal conclusions. Nevertheless, the
Court will not strike Mr. Greenberger’s Report in its entirety.
Rather, the Court will endeavor to better define the line
between permissible testimony on ultimate issues and an
impermissible legal opinion.
Critically, Federal Rule of Evidence 704(a) specifically
permits an expert to proffer testimony that “embraces an
ultimate issue to be decided by the trier of fact.”
704(a).
FED. R. EVID.
Indeed, “if a witness (especially an expert) provides a
solid foundation and explanation on an issue for which the
factfinder needs assistance, the factfinder might be left
hanging if the witness cannot cap off the testimony with a
conclusion about the ultimate issue to which the expert is
testifying.”
3 STEPHEN A. SALTZBURG, MICHAEL M. MARTIN & DANIEL J.
CAPRA, FEDERAL RULES
OF
EVIDENCE MANUAL § 704.02[1] (9th ed. 2006).
Indeed, testimony that amounts to “less than a full narrative
... is like the joke without the punchline, the mystery without
the last page,” particularly with respect to experts, where “a
conclusion on the ultimate issue often ties the witness’
testimony together into a coherent whole.”
15
Id.
Nevertheless,
the ultimate issue rule does not enable an expert to “merely
tell the jury what result to reach.”
committee’s notes (1972).
FED. R. EVID. 704 advisory
Thus, an expert may not render any
ultimate opinion concerning, for example, whether a specific
party had “‘capacity to make a will,’” but may offer an opinion
concerning whether that party had “‘sufficient mental capacity
to know the nature and extent of his property and the natural
objects of his bounty and to formulate a rational scheme of
distribution.’”
Id. (citation omitted).
In other words, under
Rule 704, an expert may not make a conclusory statement on a
party’s capacity, but may provide testimony that touches the
underlying issues relevant to a determination of capacity.
This guidepost must then be viewed through the lens of the
Court of Appeals for the Third Circuit’s guidance in Berckeley
Inv. Grp., Ltd. v. Colkitt, 455 F.3d 195, 217 (3d Cir. 2006).
In Berckeley, the Court of Appeals acknowledged that “the line
between admissible and inadmissible expert testimony as to the
customs and practices of a particular industry often becomes
blurred when the testimony concerns a party's compliance with
customs and practices that implicate legal duties.”
Id. at 218.
Nevertheless, the Court of Appeals concluded that an opinion on
the issue of whether a party complied with and/or violated
“legal duties” constitutes an impermissible legal opinion, even
if offered by a well-qualified expert.
16
Id. at 217-218
(precluding an “experienced” former Securities and Exchange
Commission attorney from offering these types of opinions).
Taken together, these authorities therefore instruct that
any qualified expert, including Mr. Greenberger, may provide an
opinion on whether a party’s conduct or actions meet the
underlying bases for an ultimate issue in a case (by, for
example, testifying concerning whether certain acts would in the
abstract be improper and/or inconsistent with a party’s legal
duties), but may not merely instruct the jury on the result to
reach based upon a party’s specific conduct or actions (by, for
example, stating that a party did indeed violate an applicable
duty through certain actions).11
This distinction, albeit a fine
one, saves Mr. Greenberger’s Report from being struck in its
entirety.
With appropriate redactions, Greenberger’s proposed
testimony will be helpful to the jury in assessing the
underlying conduct in this case.
Nevertheless, the Court will
exclude Mr. Greenberger’s Report to the extent he reaches the
specific conclusion that any Defendant acted in compliance with
and/or in violation of applicable legal duties or segregation
requirements.
When stripped of these improper and ultimate legal
conclusions, however, the Court cannot ignore that Mr.
11
This distinction applies equally to all testimony discussed
within this Opinion that will be excluded on these bases.
17
Greenberger’s Report provides contextual information on
segregation issues and on common customs and practices in the
securities industry during the relevant period.
Docket Item 580-3.]
[See generally
These issues remain plainly relevant and
this background information may prove infinitely helpful to the
jury in unpacking the intricacies of this complex litigation.
See Berckeley Inv. Grp., 455 F.3d at 218.
Indeed, Defendants do
not dispute the helpfulness of this testimony.
at 2.]
[Docket Item 651
Rather, Defendants challenge Mr. Greenberger’s
qualifications on these industry issues, because he “was working
as a law professor,” rather than in the futures industry during
the relevant timeframe.
[Id.]
In order to provide testimony concerning the “customs and
business practices in the securities industry,” a proffered
expert, like Mr. Greenberger, must generally have expertise “in
the securities industry at the time” relevant to the litigation.
Berckeley Inv. Grp., Ltd., 455 F.3d at 218.
Nevertheless, an
expert need only possess “specialized knowledge” regarding the
area of testimony.
Leonard v. Stemtech Health Scis., Inc., 981
F. Supp. 2d 273 (D. Del. 2013) (quoting Elcock v. Kmart Corp.,
233 F.3d 734, 741 (3d Cir. 2000)).
In other words, the
testimony must be, “at a minimum,” greater than that of “‘the
average layman’” at the relevant time, a standard liberally
applied within this Circuit.
Id. (citation omitted).
18
In applying this standard to Mr. Greenberger, an
introduction to his general professional background prior to the
issues implicated in this litigation proves critical.
From
September 1997 through September 1999, Mr. Greenberger served as
the Director of the Division of Trading & Markets at the CFTC.
[Docket Item 580-3 at 3.]
In that capacity, he “engaged” in the
regulation and oversight of the futures industry on a wide array
of issues, including “the statutorily and regulatory required
segregation of customer funds” and the “reporting and auditing”
requirements related to those customer funds.
[Id. at 4.]
During this period, Mr. Greenberger also served on “the Steering
Committee of the President’s Working Ground on Financial
Markets,” a committee that specifically addressed “issues
pertaining to the proper segregation of customer funds as
required by statute and regulation.”
[Id.]
In these respects,
Mr. Greenberger spent much of this two-year period developing an
expertise specifically on the issue of segregation.
Indeed,
counsel for Plaintiffs asserted during oral argument that Mr.
Greenberger spent “two full years [at the CFTC] working on just
... the issue of segregation.”12
(Hr’g Tr. At 13:21-24.)
Then, following a brief but prominent stint with the United
States Department of Justice (serving directly under the
12
Mr. Greenberger’s report further reflects that he supervised
the issuance and implementation of over 50 CFTC regulations and
interpretative letters. [See Ex. 4 to Docket Item 580-3.]
19
Attorney General),13 Mr. Greenberger joined the faculty of the
University of Maryland Law School as a Professor in July 2001.
[Docket Item 580-3 at 3.]
In this academic capacity, Mr.
Greenberger’s professorial duties have, since the beginning of
his academic career, specifically included course work on
“Futures, Options & Derivatives” and lectures on “derivatives
regulations” in classes “focusing on securities regulation,
business concepts, and advanced corporate finance.”
[Docket
Item 580-3 at 5; see also Ex. 2 to Docket Item 580-3.]
In
addition to these core academic duties, Mr. Greenberger has made
“66 academic presentations on commodity, futures and derivatives
regulation,” has written “11 articles” on these subjects, and
has briefed and/or testified before House and Senate
Congressional Committees on at least 12 different occasions.
[Docket Item 580-3 at 5; see also Exs. 2 & 3 to Docket Item 5803.]
Thus, although Mr. Greenberger no longer worked directly in
the futures’ industry during the timeframe specifically
implicated in this litigation, i.e., 2002 to 2005, the industry
expertise that he developed during his tenure at the CFTC
13
Immediately following his tenure with the CFTC, Mr.
Greenberger acted as “Counselor to the United States Attorney
General and then as Principal Deputy Associate Attorney
General.” [Docket Item 580-3 at 5.] In these roles, he
supervised five of the Department of Justice’s “six litigating
divisions,” again on a wide range of issues, including fraud.
[Id.]
20
continued to be relied upon and augmented during and after this
period.
[See Exs. 2 & 3 to Docket Item 580-3.]
In these respects, Mr. Greenberger’s knowledge and
professional experience regarding the futures’ industry through
the relevant time period plainly exceeds that of the average
layman.
See Kannankeril, 128 F.3d at 809 (“If [an] expert meets
[the] liberal minimum qualifications, then the level of [an]
expert’s expertise goes to credibility and weight, not
admissibility.”).
Moreover, even in the absence of Mr.
Greenberger’s academic experience, Defendants have not
identified any relevant change in law that might have diminished
the expertise that Mr. Greenberger gained from his time with
CFTC.14
And, in light of Mr. Greenberger’s relevant academic
pursuits, Plaintiffs have sufficiently demonstrated that Mr.
Greenberger will offer “background testimony [that] could be
helpful to the jury.”
Berckeley Inv. Grp., Ltd., 455 F.3d at
218 (finding a “former counsel for the SEC” qualified to offer
background testimony on “offshore securities transactions”);
Leonard, 981 F. Supp. 2d at 281 (finding a professor met the
minimal qualifications to testify as an expert).
Therefore, the Court will not exclude Mr. Greenberger from
providing background testimony relevant to the futures’
14
To the contrary, counsel for Defendants conceded on the oral
argument record that changes in the relevant law occurred only
after the time frame implicated in this litigation.
21
industry, and specifically concerning the customs and business
practices with regard to issues of segregation and/or sweeps of
customer funds.
For all of these reasons, Defendants’ motion will be
granted in part and denied in part, without prejudice to
Defendants’ right to voice any appropriate objections (on
relevance grounds or otherwise) during Mr. Greenberger’s
testimony.
The Court therefore turns to Plaintiffs’ challenges
to Defendants’ expert on segregation issues.
2. Plaintiffs’ Motion to Exclude Anthony J. Leitner
Mr. Leitner, the former Managing Director and Co-General
Counsel of the Equities Division of Goldman, Sachs & Co. and a
current consultant on securities’ and derivatives’ regulations,
prepared a rebuttal to Mr. Greenberger’s report on September 14,
2012, in which he similarly discusses the regulations and common
industry practices relative to the segregation of customer
funds.
[See generally Docket Item 585-3.]
In moving to exclude Mr. Leitner, Plaintiffs argue, in
essence, that if Mr. Greenberger’s Report fails, so too must Mr.
Leitner’s, because the Reports reach ultimate conclusions on the
same substantive issues and therefore suffer from the same
22
deficiencies.15
[See Docket Item 585-1 at 1-6; Docket Item 655
at 2-4.]
The Court, however, need not belabor Plaintiffs’ positions,
because counsel for Defendants conceded on the oral argument
record that the disputed portions of Mr. Leitner’s Report exceed
the permissible scope of expert opinion (and concern portions
distinct from those for which he will be called to testify).
(See Hr’g Tr. at 18:11-12.)
Nevertheless, for the sake of the
15
Plaintiffs further argue that Mr. Leitner’s opinions should be
excluded because “they include improper findings of fact,” and
therefore “invad[e] the province of the jury.” [Docket Item 5851.] The Court, however, finds Plaintiffs’ position without
merit. Indeed, in support of their position, Plaintiffs rely
entirely upon Mr. Leitner’s inclusion of a section of “Relevant
Facts” within this Report. [Docket Item 585-3 at ¶¶ 26-31.]
Critically, although experts “are generally precluded from
disclosing inadmissible evidence to a jury,” Williams v.
Illinois, 132 S. Ct. 2221, 2241 (2012), there is no indication
at this stage that Defendants will rely upon Mr. Leitner for a
factual narrative relative to the disputed transfers of SMFF’s
excess cash (i.e., to explain to the jury Plaintiffs’ version of
the dispute events). Indeed, counsel for Defendants expressly
disclaimed any such intention on the oral argument record (see
Hr’g Tr. At 18:19-21), and the factual assertions themselves
appear to do little more than disclose the bases of his opinion.
See FED. R. EVID. 703. Moreover, an expert may “‘base his opinion
on a particular version of disputed facts and the weight to be
accorded to that opinion’” rests with the jury, and presents
“‘proper subject for cross-examination.’” Johnson v. Duffy, 855
F. Supp. 2d 311, 320 (M.D. Pa. 2012) (quoting Walker v. Gordon,
46 F. App’x 691, 694-96 (3d Cir. 2002)). Indeed, “Rule 705,
together with Rule 703, places the burden of exploring the facts
and assumptions underlying the testimony of an expert witness on
opposing counsel during cross-examination.” Stecyk v. Bell
Helicopter Textron, Inc., 295 F.3d 408, 414 (3d Cir. 2002).
Finally, because the Court will instruct the jury on the use and
weight of expert testimony, the Court finds no incurable risk of
jury confusion.
23
clarity, the Court will briefly highlight the improper portions
as examples of the proffered testimony which must be eliminated.
Critically, in his Report, Mr. Leitner essentially
concludes that PlusFunds (rather than Defendants) “authorized”
the transfer of SMFF’s excess cash (thereby rendering PlusFunds
accountable for any resulting losses) and that these transfers,
in any event, comported with regulatory requirements and
industry practices.
53, 56.]
[Docket Item 585-3 at ¶¶ 3, 36, 41-44, 51-
In concluding that “ample documentary evidence”
supports the conclusion that PlusFunds “authorized” and/or
“ratified” the sweeps of SMFF’s excess cash, however, Mr.
Leitner, like Mr. Greenberger, renders an impermissible legal
opinion.
[See, e.g., id. at ¶¶ 3, 11, 51-52, 56.]
Mr.
Leitner’s conclusion that the transfer of SMFF’s excess cash to
Refco complied with applicable CEA and CFTC regulations
similarly constitutes an improper opinion on an ultimate legal
issue.
[See, e.g., id. at ¶¶ 3, 36, 56.]
As does Mr. Leitner’s
statement that “no statutory or regulatory impediment” prevented
the specific “cash sweep practices” that form the predicate for
this litigation. [Id. at ¶ 36.]
Indeed, in these respects, Mr. Leitner largely echoes the
impermissible legal opinions discussed by Mr. Greenberger, and
counsel for Defendants has now specifically conceded that no
expert, including Mr. Leitner, should offer an opinion
24
concerning any party’s compliance with, or violation of,
applicable law.
(See Hr’g Tr. at 18:11-17.)
As a result, Mr.
Leitner will, like Mr. Greenberger, be barred from offering any
legal conclusions, particularly as to whether any Defendant
acted in compliance with legal duties and/or violated any
segregation requirements.16
Nevertheless, the Court has little doubt that Mr. Leitner’s
testimony on industry customs and practices with respect to
segregation and cash sweeps will prove helpful to the jury under
Rule 702.
Indeed, Mr. Leitner’s testimony on these issues will
allow the jury to contextualize the transactions at issue in
this litigation, and will further provide helpful comparative
information concerning industry standards relevant to this
litigation. [See, e.g., id. at ¶¶ 11, 40-46, 52-53.]
For all of
these reasons, the Court will not exclude provide background
testimony relevant to the futures’ industry, and specifically
16
The Court need not reach those areas of Mr. Leitner’s Report
in which he contradicts Mr. Greenberger’s interpretations of law
and fact. [See Docket Item 585-3 at ¶¶ 11, 33-54.] Indeed,
those portions of Mr. Leitner’s Report served only to rebut Mr.
Greenberger’s testimony in the event the Court allowed him to
testify “unencumbered in offering all of his legal conclusions.”
(Hr’g Tr. At 18:14-17.) For the reasons stated above, however,
Mr. Greenberger will not be permitted to offer these
conclusions, rendering Mr. Leitner’s impermissible assertions in
rebuttal unnecessary.
25
concerning the customs and business practices with regard to
issues of segregation.17
Plaintiffs’ motion will, accordingly, be granted in part
and denied in part, without prejudice to Plaintiffs’ right to
voice any appropriate objections (on relevance grounds or
otherwise) during Mr. Leitner’s testimony.
B. The Parties’ Experts on Damages/Valuation Issues
In this action, Plaintiffs seek damages for the loss of
$263 million in excess cash, the loss of equity or “enterprise
value” caused by the collapse of PlusFunds, the loss of
PlusFunds’ license to use the Standards & Poor’s brand “to
create and market” investment products, and the additional fees
and expenses prompted by Defendants’ alleged breaches.
(Joint
Final Pretrial Order at 20, 73.)
As relevant here, the parties’ experts, Dr. Joan A. Lipton
and Avram S. Tucker, have both produced experts’ reports
concerning the “enterprise value” of PlusFunds, and the manner
in which to assess and/or discount that value based upon various
conditions.
In now challenging these experts’ determinations,
the critical inquiry concerns whether their assessments of
PlusFunds’ value properly “fits” this action, by offering a
17
Plaintiffs do not specifically challenge Mr. Leitner’s
qualifications, nor does the Court find any arguable basis to do
so, given his lengthy industry experience before, during, and
after the time frame relevant to this litigation. [See generally
Docket Item 585-3 at ¶¶ 12-25.]
26
relevant financial assessment given the circumstances presented.
Therefore, the Court turns to the specific nature of each
expert’s conclusions.
1. Defendants’ Motion to Strike Joan A. Lipton,
CPA/ABV/CFF, Ph.D.
Dr. Lipton, a Partner in the forensic, litigation, and
valuation services group of ParenteBeard, LLC, produced an
expert report on June 28, 2012, concerning the fair market value
of PlusFunds as of September 30, 2005.
Item 583-3.]
[See generally Docket
As relevant here, Dr. Lipton specifically asserted
her opinion that PlusFunds had, to “a reasonable degree of
certainty,” a fair market value of $196 million as of September
30, 2005, the month-end immediately prior to the revelation of
Refco’s widespread financial fraud.
[Id. at 41.]
In moving to exclude Dr. Lipton, Defendants argue that her
Report fails to fit the damages issues implicated in this
litigation, because her calculation of PlusFunds’ “value” fails
to account for the fact that “Defendants’ alleged wrongful
conduct—allowing the [SMFF cash] sweeps to occur—directly (and
positively) impacted PlusFunds’ [assets under management]
through its relationship with Refco.”18
18
[Docket Item 583-1 at 10
In their opening submissions, Defendants did not challenge Dr.
Lipton’s qualifications, nor the methodology imbedded within her
valuation. [See generally Docket Item 583-1.] Rather, in
response to Plaintiffs’ assertions that Defendants have waived
any challenge to Dr. Lipton on these bases, Defendants assert in
27
(emphasis in original).]
In other words, Defendants assert that
Dr. Lipton’s Report fails to answer the critical question “of
the value of PlusFunds had there never been sweeps of SMFF’s
excess cash” to Refco.
[Docket Item 652 at 3-4.]
Defendants
therefore argue that presentation of this inflated and
“extraordinarily high” valuation will serve only to confuse the
jury, because it bears no relationship to the damage analysis
ultimately tasked to the jury.
[Id. at 1, 4-6.]
Plaintiffs counter, however, that Dr. Lipton did not
reach “any conclusions as to damages or causation,” because
Plaintiffs only retained her “for the limited purpose of
the concluding page of their reply that they “list a variety of
objections to Dr. Lipton’s methodology through the report and
proposed testimony of Avram S. Tucker, and in their opposition
to the Tucker Motion, which should be read in conjunction with
this motion.” [Docket Item 652 at 7.] Defendants, however, may
not raise new arguments in a reply. See Laborers’ Int’l Union of
N. Am., AFL–CIO v. Foster Wheeler Energy Corp., 26 F.3d 375, 398
(3d Cir. 1994) (citation omitted) (“An issue is waived unless a
party raises it in its opening brief, and for those purposes ‘a
passing reference to an issue ... will not suffice to bring that
issue before this court.’”). Nor may Defendants challenge Dr.
Lipton through incorporating b reference their briefing on a
distinct expert. The Court will, accordingly deem arguments made
for the first time in reply waived. See, e.g., Am. Home
Mortgage Corp. v. First Am. Title Ins. Co., No. 07–1257, 2007 WL
3349320, at *3 n.8 (D.N.J. Nov. 9, 2008) (finding arguments made
for the first time in reply waived). Moreover, even upon
consideration of Defendants’ arguments, the Court has no doubt
that Dr. Lipton utilized a reliable and indeed prevailing
valuation methodology. Indeed, several courts have expressly
approved the “‘destruction of business’” approach utilized by
Dr. Lipton. MacDermid Printing Solutions, Inc. v. Cortron
Corp., No. 08-1649, 2014 WL 2616836, at *4 (D. Conn. June 12,
2014) (quoting Indu Craft v. Bank of Baroda, 47 F.3d 490 (2d
Cir. 1995)).
28
calculating the value of PlusFunds as of September 30, 2005.”
[Docket Item 635 at 7.]
Nevertheless, that omission alone
purportedly proves insufficient to provide “a basis for
excluding [Dr. Lipton’s Report] from consideration by the jury,”
because “the valuation of PlusFunds immediately prior to its
destruction provides a critical starting” or reference point
“that the jury may use to calculate the damages attributable to
Defendants’ wrongdoing, whatever those damages may be.”
[Id. at
8-9.]
Despite the parties’ lengthy positions, they critically
agree on the appropriate measure of damages in the event
PlusFunds ultimately prevails on the issue of liability.
Indeed, the parties consistently assert that the proper measure
of PlusFunds’ purported damages (assuming a determination of
liability) amount to the difference between (i) PlusFunds’
hypothetical value in the absence of Defendants’ allegedly
wrongful conduct, and (ii) the actual financial position of
PlusFunds.
[See Docket Item 583-1 at 1; Docket Item 635 at 8;
Docket Item 652 at 2.]
In other words, Plaintiffs seek damages
equivalent to the value of PlusFunds had there never been sweeps
of SMFF’s excess cash to Refco for placement into unsegregated
accounts.
[Docket Item 635 at 8; Docket Item 652 at 2.]
Here, there is no dispute that PlusFunds has a present
value of zero.
The critical question posited to the jury on the
29
issue of damages therefore becomes the damages, if any,
attributable to Defendants’ alleged conduct.
Nevertheless, Dr.
Lipton “does not purport to offer an opinion on damages,” nor to
reach any conclusions as to what portion, if any, of her $196
million valuation arguably constitutes these damages.
Item 635 at 10.]
[Docket
Rather, Dr. Lipton narrowly addressed only
PlusFunds’ value as of September 30, 2005.
Docket Item 583-8.]
[See generally
For that reason, Defendants take the
position that Dr. Lipton’s evaluation will not assist the jury
in reaching a determination on the fundamental question it will
face relative to damages, namely, the value of PlusFunds in the
absence of the disputed sweeps of SMFF’s excess cash to Refco.
Nevertheless, the Court emphasizes that Dr. Lipton’s Report
discloses, on its face, that it concerns only a valuation as of
a date certain, and based upon clearly disclosed circumstances.
[See generally Docket Item 583-8.] In that respect, Defendants’
challenges to Dr. Lipton’s Report principally rest upon an
effort to recalibrate Dr. Lipton’s testimony in a manner that
Dr. Lipton herself expressly disclaims.
Indeed, Dr. Lipton
could not be clearer in expressing that her Report only relates
to valuation, and not damages. [See generally id.]
And, based
upon the expressed nature of Dr. Lipton’s Report, the Court will
permit her to testify on her valuation opinion, but will not
permit Dr. Lipton to testify on the issue of damages, nor will
30
the Court permit her conclusions to be construed as an opinion
on damages.
Her testimony will instead be limited to the
contours of her Report, and will be contextualized and explained
to the jury based upon the Report’s intended purpose as a
valuation, and not as a projection of Plaintiffs’ potential
recovery.19
Moreover, the Court finds that Defendants’ challenges to
the underlying bases for Dr. Lipton’s Report go to weight, not
admissibility, and therefore constitute challenges properly
presented through cross-examination, and not through exclusion
of her otherwise reliable and relevant valuation work.
See
Stecyk, 295 F.3d at 414 (noting that “Rule 705, together with
Rule 703, places the burden of exploring the facts and
assumptions underlying the testimony of an expert witness on
opposing counsel during cross-examination”).
The factual
narrative that underpins her conclusions is based on evidence
that is disputed but provable at trial, as outlined at length by
Plaintiffs’ counsel at oral argument.
Whether such evidence is
adopted by the jury is not determined in this Daubert motion.
It suffices that Lipton propounds a reasonable factual basis
that resonates with Plaintiffs’ view of the evidence.
For all of these reasons, Defendants’ motion to exclude Dr.
Lipton on admissibility grounds under Federal Rule of Evidence
19
The Court will also reinforce this through jury instructions.
31
702 will be denied, without prejudice to Defendants’ right to
voice appropriate objections during Dr. Lipton’s testimony at
trial.
The Court therefore turns to Plaintiffs’ challenges to
Defendants’ damages expert.
2. Plaintiffs’ Motion to Strike Avram S. Tucker
Mr. Tucker, the Chief Executive Officer of TM Financial
Forensics, LLC, produced an expert report on August 17, 2012,
concerning the “appropriateness of Plaintiffs’ claimed damages
of $263 million relating to losses alleged suffered by SMFF” as
a result of the excess cash on deposit with Refco, and
concerning Dr. Lipton’s opinion on the fair market value of
PlusFunds as of September 30, 2005.
[Docket Item 586-3 at 2-3.]
In assessing these issues, Mr. Tucker essentially concluded: (1)
that Plaintiffs have failed to demonstrate a causal connection
between Defendants’ alleged misconduct and the losses claimed as
damages; (2) that Dr. Lipton failed, for a variety of reasons,
to perform a proper valuation of PlusFunds; and (3) that
Plaintiffs’ SMFF damages claim failed to account for the conduct
of SMFF that occurred after “the disclosure of the Refco
fraud.”20
[Id. at 6-9.]
In moving to exclude Mr. Tucker, Plaintiffs argue that Mr.
Tucker cannot opine on PlusFunds’ value based upon events
20
Defendants, however, have conceded that Mr. Tucker would not
testify about contingent liabilities, nor PlusFunds’ alleged
fault for the SMFF transfers.
32
subsequent to PlusFunds’ collapse, namely, financial market
conditions between 2008-2009, and that Mr. Tucker lacks the
qualifications and support necessary for his opinions that
SPhinX could have obtained a greater recovery from Refco through
pursuit of a claim within the Refco bankruptcy proceeding,
rather than through a private settlement.21
2-6.]
[Docket Item 656 at
The Court, however, finds Plaintiffs’ arguments without
merit.
Critically, Plaintiffs take the position in this litigation
that Defendants’ allegedly wrongful conduct with respect to
SMFF’s excess cash resulted in PlusFunds’ ultimate destruction.
(See Joint Final Pretrial Order at 73.)
In that respect, and as
stated above, the parties agree that the measure of damages
relative to this claim amounts, in essence, to PlusFunds’
hypothetical value in the absence of the alleged conduct.
Defendants, in turn, take the plausible position—supported in
part by Mr. Tucker’s opinion—that the calamities Plaintiffs
attribute to Defendants’ conduct may ultimately have occurred
even in its absence.
As a result, Mr. Tucker’s opinion goes not
to the issue of PlusFunds’ value as of Plaintiffs’ designated
21
Plaintiffs initially moved to exclude Mr. Tucker on an array
of additional bases. [See Docket Item 586-1.] In opposition,
however, Defendants conceded that Mr. Tucker would not be relied
upon for many of these purposes [see Docket Item 633], and
Plaintiffs have, accordingly, acknowledged that Defendants’
“several concessions ... narrow the issues” before the Court.
[Docket Item 656 at 1.]
33
valuation date (September 30, 2005), but instead amounts, in
essence, to a different and supported conclusion based upon the
same data.
See In re Fosamax Prods. Liab. Litig., 645 F. Supp.
2d 164, 209 (S.D.N.Y. 2009) (denying motions to preclude expert
testimony where the parties simply drew “different conclusions
from the same data”).
Moreover, even if they did not, the Court
cannot conclude that events that occurred after 2005 have no
relevance to the potential calculation of damages in this
lawsuit, see Legier & Materne v. Great Plains Software, Inc.,
No. 03-0278, 2005 WL 2037346 (E.D La. Aug. 3, 2005) (denying a
motion to strike based upon an economic expert’s consideration
of subsequent events), nor that these subsequent events would,
under no circumstances, have been reasonably foreseeable to a
hypothetical willing buyer as of the valuation date.
Therefore,
the Court finds that Mr. Tucker’s consideration of subsequent
events does not render his opinion unreliable or otherwise
inadmissible under Federal Rule of Evidence 702.
Nor can the Court conclude that Mr. Tucker lacks the
expertise or support necessary for his opinion concerning the
potential recovery Plaintiffs would have received by pursuing a
bankruptcy claim against Refco.
Critically, Mr. Tucker’s Resume specifically states that
his experience includes consulting in the area of “bankruptcy
(including solvency, fraudulent conveyance and valuation),” and
34
discloses that he has provided expert deposition and trial
testimony before at least one Bankruptcy Court.
586-3.]
[Docket Item
Indeed, counsel for Plaintiffs conceded on the oral
argument record that Mr. Tucker has “testified in bankruptcy
cases” and “evaluated the solvency of companies.”
(Hr’g Tr. At
55:2-4.)
Nevertheless, in arguing that Mr. Tucker’s limited
testimony impermissibly places him in the role of “a bankruptcy
lawyer,” Plaintiffs’ fundamentally mischaracterize the nature
and scope of Mr. Tucker’s conclusions.
(Hr’g Tr. At 55:3-6.)
Indeed, despite Plaintiffs’ position, Mr. Tucker does not opine
on issues “regarding the bankruptcy claim administration and
adjudication process.” [Docket Item 656 at 4.]
Rather, Mr.
Tucker assumes that SMFF “could have filed a claim” against
Refco’s bankruptcy estate in the amount of $312 million and that
SMFF’s “claim would have been allowed and treated as a Class 3”
unsecured claim under Refco’s Chapter 11 Plan.
586-3 at 39.]
[Docket Item
Based upon these assumptions, Mr. Tucker then
proceeds to discuss the potential valuation of the hypothetical
bankruptcy claim in light of publicly-available information
concerning the distributions made to unsecured creditors in the
Refco bankruptcy.
[Id. at 39-43.]
Even if bankruptcy falls
within the penumbra of Mr. Tucker’s overall expertise,
Plaintiffs cannot dispute that his quantitative expertise as a
35
Certified Public Account and Certified Financial Forensic expert
renders him acutely qualified to make these sorts of narrow
conclusions.
For these reasons, the Court finds Mr. Tucker
amply qualified to render an opinion regarding SMFF’s
hypothetical bankruptcy claim.
Therefore, the Court turns to Plaintiffs’ related position
that Mr. Tucker’s “unsupported analysis” concerning SMFF’s
potential bankruptcy claim proves “too speculative to be offered
as expert testimony.”
[Docket Item 586-1 at 14.]
Plaintiffs,
in particular, take issue with Mr. Tucker’s opinion to the
extent he “conducts no analysis,” nor expresses any independent
opinion of this hypothetical claim, and instead “simply parrots
statements and assumptions made by certain of Plaintiffs’
experts.”
[Docket Item 656 at 6.]
Nevertheless, the Court need
not belabor Plaintiffs’ position, because Mr. Tucker’s
assumptions primarily concern basic issues regarding the filing
and allowance of bankruptcy claims [see generally Docket Item
586-3 at 39-43], and his conclusions largely recapitulate
assumptions relied upon and supported by Plaintiffs’ own
experts.22
22
The conclusions of an arbitration panel in a related
litigation concerning certain of these experts’ helpfulness has
no impact on this Court’s determination of these experts’
admissibility under Federal Rule of Evidence 702. [See Docket
Item 656 at 6; see also Docket Item 656-2.]
36
These assumptions therefore have sufficient foundation
within the record, see Stecyk, 295 F.3d at 414 (citation
omitted) (generally noting that an expert’s assumptions must
have some foundation in the record in order to be admissible),
and Plaintiffs’ criticism of these assumptions goes to the
weight to be afforded his testimony, but not to its
admissibility.
See, e.g., Bruno v. Bozzuto’s, Inc., No. 09-874,
2015 WL 1862990, at *10 (D.N.J. Apr. 23, 2015) (finding the
reliability of the numbers relied upon in the expert’s
conclusion an issue concerning the weight to be afforded the
expert testimony, rather than its admissibility); Floorgraphics,
Inc. v. News Am. Mktg. In–Store Servs., Inc., 546 F. Supp. 2d
155, 169 (D.N.J. 2008) (citing Kannankeril v. Terminix Int’l,
Inc., 128 F.3d 802, 809 (3d Cir. 1997)) (“Whether [Plaintiff's
expert witness] should have more diligently researched the
underlying facts given to him by Plaintiff, in the Court's view,
is a question of weight, not admissibility”); Burke v. TransAm
Trucking, Inc., 617 F. Supp. 2d 327, 335 (M.D. Pa. 2009)
(citation omitted) (“Mere weakness in the factual basis of an
opinion bears on the weight of the evidence, not its
admissibility”).
These perceived weaknesses can, in turn, be
addressed through cross-examination, but do not present a basis
for exclusion.
See Heller v. Shaw Indus., Inc., 167 F.3d 146,
152 (3d Cir. 1999) (noting that “vigorous cross-examination” and
37
“presentation of contrary evidence” are the “traditional and
appropriate means of attacking” potentially flawed evidence).
For all these reasons, Plaintiffs’ motion to exclude Mr.
Tucker, as narrowed by Defendants’ concessions, will be denied.
C. The Parties’ Experts on Industry Practices
1. Defendants’ Motion to Exclude Peter U. Vinella
On June 29, 2012, Mr. Vinella, a Director at the Berkeley
Research Group, an expert services and advisory firm, produced a
137-page expert report, purporting to offer an “opinion
concerning pertinent regulations and generally accepted industry
customs and practices concerning the administration of” hedge
funds, particularly “those domiciled in the Cayman Islands,” and
“the extent to which Defendants complied with [relevant]
standards of care.”
[Docket Item 582-3 at 5.]
As relevant
here, Mr. Vinella specifically rendered the following 8
opinions:
1. The Losses suffered by Plaintiffs were the direct
result of Defendants’ gross and willful negligence
to perform their duties as an independent fund
administrator and as an independent director and
their willful failure to take necessary and
sufficient action to protect assets belonging to the
SPhinX Funds as they were obligated to do by
contract, as a fiduciary, and by regulation;
2. Defendants acknowledge that the OM sets forth that
that SMFF Excess Cash Balances must be held in
Segregated Customer Accounts at all times and that
such provisions protected said cash from seizure in
the event of the default of the
custodian/depository;
38
3. Defendants willfully failed in their duty to
determine and ensure that the SMFF Excess Cash
Balance funds would be held in Segregated Customer
Accounts at RCM prior to any transfer of such funds
directed, authorized, or facilitated by DPM/DPM
Cayman;
4. Moreover, Defendants willfully failed in their duty
to determine that said funds, in fact, would be held
in Segregated Customer Accounts at RCM subsequent to
any transfer of such funds directed, authorized, or
facilitated by DPM/DPM Cayman;
5. Further, DPM/DPM Cayman willfully failed in their
duty to properly invest SMFF Excess Cash Balances
(i.e. the RCM Sweep Program) in a manner consistent
with the governing agreements and industry
practices, but which essentially constituted
unsecured loans to RCM;
6. DPM/DPM Cayman knowingly and willfully delivered
reports and financial statements to the SMFF
Investment Manager, the board of SMFF SPC, the
external auditor, and investors which contained
information that Defendants knew at the time was
factually incorrect and which materially
misrepresented the state of SPhinX Funds’
investments and their associated risks;
7. Additionally, Defendants willfully failed to report
suspicious activity and other factors that might
materially impact the SPhinX Funds to the
appropriate parties as they were obligated to do by
regulation; and
8. Defendants also willfully failed to perform their
contracted duties and responsibilities in a timely
and professional manner and willfully failed to
correct these material deficiencies despite multiple
warnings and notices.
[Id. at 7-8 (emphases added).]
Based upon these opinions, Mr.
Vinella ultimately concluded that the losses Plaintiffs suffered
“would have been altogether avoided,” if Defendants had
39
“performed their duties and responsibilities in a manner
generally consistent with those set forth in governing
agreements, relevant regulations, and accepted industry
standards of care.”
[Id.]
Defendants now move to exclude Mr. Vinella to the extent he
opines on Defendants’ state of mind, questions of law, and
ultimate issues of fact, all issues beyond the ken of expert
witnesses.23
[Docket Item 582-1 at 16-26.]
Defendants further
challenge Mr. Vinella’s qualifications to opine on industry
practices, based upon his purported lack of “specific hedge fund
experience.”
[Id. at 24.]
Plaintiffs counter, however, that Mr. Vinella “was not
asked, nor did he intend, to opine” on Defendants’ subjective
intentions or motivations.
[Docket Item 637 at 20.]
Rather,
Plaintiffs argue that his opinions concern “industry standards—
that is, what Defendants should have known” or would be
“expected” to understand under the circumstances.
(emphasis in original).]
[Id.
Plaintiffs further submit his “25
23
Defendants further challenge Mr. Vinella’s Report on the basis
that he mischaracterized certain “facts” and/or relied upon some
“hotly contested point[s]” in reaching his various conclusions.
[Docket Item 582-1 at 19-22; see also Docket Item 654 at 4-6.]
As stated above, however, an expert may, in reaching an opinion,
rely upon disputed issues of fact, and the Court finds
Defendants’ challenges better address through cross-examination,
not exclusion. See Stecyk, 295 F.3d at 414. The Court further
notes that the foundational facts laid out by counsel for
Plaintiffs seem to be plausible and rooted in evidence
Plaintiffs intend to present at trial.
40
years” of “practical, hands-on experience with hedge funds and
hedge funds administration” render him amply qualified.
[Id. at
2-8.]
The Court notes, at the outset, that experts may not
provide testimony concerning “the state of mind” or
“culpability” of Defendants.
Wolfe v. McNeil-PPC, Inc., 881 F.
Supp. 2d 650, 661-62 (E.D. Pa. 2012); see also Deutsche v.
Novartis Pharms. Corp., 768 F. Supp. 2d 420, 448 (S.D.N.Y. 2011)
(precluding an expert witness from testifying on the defendant’s
“intent, motivations or state of mind).
Indeed, the question of
intent constitutes a “‘classic[al] jury question and not one for
experts.’”
Robinson v. Hartzell Propeller, Inc., 326 F. Supp.
2d 631, 648 (E.D. Pa. 2004) (citations omitted) (noting that
“intent” fails to constitute “a proper subject for expert
testimony); In re Rezulin Prods. Liab. Litig., 309 F. Supp. 2d
531, 547 (S.D.N.Y. 2004) (excluding expert testimony regarding
“the intent, motives or states of mind of corporations,
regulatory agencies and others”).
Likewise, “[a]lthough Federal
Rule of Evidence 704 permits an expert witness to give expert
testimony that embraces an ultimate issue to be decided by the
trier of fact,” an expert witness may not, as described above,
“render[] a legal opinion.” Berckeley Inv. Grp., Ltd., 455 F.3d
at 217; see Wolfe, 881 F. Supp. 2d at 662 (noting that only a
41
jury, not an expert, can determine whether a defendant behaved
negligently).
Here, however, Mr. Vinella plainly reaches conclusions that
exceed these bounds.24
Critically, in reaching each of the
ultimate opinions set forth above, Mr. Vinella invariably relies
upon his “25 years of experience” in order to opine on what an
entities and individuals with backgrounds similar to Defendants
should have known, or should have done, under various
circumstances.25
[Id. at 59-74.]
Nevertheless, in stating his
belief on what industry practice would have dictated, and in
suggesting that Defendants’ actions failed to comport with these
practices, Mr. Vinella then explicitly reaches an ultimate legal
conclusion concerning the severity and extent of Defendants’
alleged deficiency.
For example, Mr. Vinella opines that, based upon his
experience, “it is impossible that anyone with the experience of
[Defendants] could have believed that these transfers to” Refco
constitute “truly [cash] [s]weeps in the generally accepted use
of the term without significant doubt.”
[Id. at 59.]
As result
of this opinion, Mr. Vinella states that, “Defendants willfully
24
Indeed, counsel for Plaintiffs acknowledged on the oral
argument record that Mr. Vinella’s Report would require
revisions. (See Hr’g Tr. at 81:9-12.)
25 All parties appeared to agree on the oral argument record that
testimony by a qualified expert concerning what should have
occurred or been known rests squarely within the province of an
expert.
42
neglected their fiduciary duty and contractual duty to
positively affirm” that these transfers amounted “in fact, [to]
Sweep.”
[Id. (emphasis added).]
Similarly, Mr. Vinella opines
that he would have expected Defendants’ “document retention
program to archive all critical records in regard to the booksand-records, operations, and administration of funds in a
readily available format” for at least “five years.”
66.]
[Id. at
Based upon his review of available evidence, however, Mr.
Vinella found that many of these records “do no exist” in
Defendants’ files, and/or “are incomplete and difficult to
find.”
[Id. at 68.]
As a result of this alleged failure, Mr.
Vinella concludes that Defendants “willfully failed in their
duty to properly maintain records and communication pertaining”
to the operation of SMFF. [Id. at 66 (emphasis added).]
This
testimony amounts, on its face, to an opinion concerning
Defendants’ state of mind and/or subjective intent, and must be
excluded.
See Wolfe, 881 F. Supp. 2d at 661-62 (excluding
expert testimony concerning the defendants’ state of mind and
culpability).
Mr. Vinella’s testimony likewise will be excluded to the
extent he concludes that Defendants’ conduct breached certain
legal or contractual duties, because this testimony reaches
beyond merely addressing an ultimate issue, and instead
constitutes an inadmissible legal opinion.
43
See Berckeley Inv.
Grp., 455 F.3d at 218 (finding that an expert could not testify
concerning whether the plaintiff “complied with legal duties”
under the securities law); see also Wolfe, 881 F. Supp. 2d at
661-62 (excluding expert testimony concerning whether the
defendant acted negligent on the grounds that such testimony
amounted to an impermissible legal opinion).
The Court, however, finds no support for Defendants’
position that Mr. Vinella lacks sufficient qualifications and
experience to testify on industry practices relevant to this
litigation.
Indeed, in challenging Mr. Vinella’s credentials,
Defendants rely, almost entirely, upon Mr. Vinella’s lack of
formal training and/or “relevant” specialized expertise.
[Docket Item 582-1 at 23-24 (arguing that Mr. Vinella “is not a
CPA ... has no professional designations in accounting ... holds
no professional licenses” and lacks experience “relevant to SMFF
or a Cayman Island hedge fund”).]
Critically, however, although Rule 702 requires an expert
witness to have specialized knowledge regarding the area of
testimony, the basis of this specialized knowledge need not be
comprised of formal academic training and professional
credentials.
See Elcock, 233 F.3d at 742 (quoting Waldorf v.
Shuta, 142 F.3d 601, 625 (3d Cir. 1998)).
Rather, the
specialized knowledge requirement “‘liberally’” extends to
“‘practical experience,’” and requires that the proffered expert
44
witness possess, at a minimum, “‘skill or knowledge greater than
the average layman.’”
Id. (citation omitted).
Here, although Mr. Vinella lacks any formal academic
training in an area relevant to the securities area, he does
have decades of experience advising and consulting on “capital
market issues concerning trading, risk management, operations,
and technology” across “global capital markets businesses.”
[Docket Item 582-3 at Ex. A.]
During this time, Mr. Vinella
also authored various publications and presentations on topics
regarding the international financial industry, and participated
in an array of professional associations, including the
“Securities Industry and Financial Markets Association.”
[Id.]
Moreover, in connection with his Report, Mr. Vinella reviewed
literature specifically concerning the management of Cayman
Islands’ funds.
[Docket Item 582-3 at Ex. C.]
Thus, even if his qualifications remain somewhat thin, the
Court must acknowledge that his practical training (through
work, publications, presentations, and review of relevant
literature), reflects that he possesses more knowledge than an
average lay person regarding “generally accepted industry
customs and practices” in the administration of hedge funds.
[Docket Item 582-3 at 5.]
Therefore, the Court finds that Mr.
Vinella possesses the minimum qualifications necessary to
testify concerning the industry practices discussed in his
45
Report.
See Pineda, 520 F.3d at 244 (“‘[I]t is an abuse of
discretion to exclude testimony simply because the trial court
does not deem the proposed expert to be the best qualified or
because the proposed expert does not have the specialization
that the court considers most appropriate.’”) (citation
omitted); Elcock, 233 F.3d at 744 (finding that an expert
without formal training nevertheless qualified as an expert,
based upon degree in a “tangentially related field” and his
review of “relevant literature in the field”).
For all of these reasons, Defendants’ motion will be
granted to the extent it seeks to exclude Mr. Vinella’s
testimony concerning Defendants’ state of mind (by, for example,
testifying that Defendants acted “willfully” or “knowingly”) and
to the extent his testimony constitutes a legal opinion (by, for
example, testifying that any Defendant breached an applicable
duty), but denied to the extent it seeks to bar Mr. Vinella’s
testimony in its entirety.
Plaintiffs shall make redactions to
Mr. Vinella’s proposed Report consistent with this Opinion and
counsel’s concessions.
2. Plaintiffs’ Motion to Exclude Certain Testimony by
Raymond O’Neill
On August 31, 2012, Mr. O’Neill produced an expert report
on the general practices of hedge fund administrators, and
specifically concerning:
46
1. DPM’s role as an administrator and whether its
actions were consistent with the standard of care in
the hedge fund industry at the time;
2. The market practice of transferring money from prime
brokers to offshore accounts;
3. The SPhinX directors’ role in the opening of
accounts at Refco;
4. The role of DPM around the movement of cash at the
prime broker;
5. The alleged inadequacies of the accounting for and
reporting on the SPhinX hedge funds and the alleged
nondisclosure of excess cash held at RCM; and
6. The conclusions reached by certain of Plaintiffs’
experts.
[Docket Item 584-3 at 2.]
In moving to narrow the scope of Mr. O’Neill’s potential
trial testimony,26 Plaintiffs argue that Mr. O’Neill’s Report
reaches “improper findings of facts and conclusions of law.”
[Docket Item 584-1 at 4.]
Plaintiffs therefore argue that Mr.
O’Neill should be precluded “from stating legal conclusions or
testifying as to the facts of the case without a foundation of
personal knowledge, and that his testimony should instead be
limited to the standard practices of accountants and hedge fund
administrators.
[Id. at 4-5.]
Despite Plaintiffs’ position,
26
Plaintiffs moved to preclude certain testimony of Raymond
O’Neill and Anthony Travers in a single submission. [See Docket
Item 584-1; Docket Item 657.] Nevertheless, because the experts
opine on distinct topics, the Court will address Plaintiffs’
motion separately as to each witness.
47
the Court finds exclusion of any of Mr. O’Neill’s testimony
unwarranted at this time.
As explained above, it is clear that an expert’s testimony
may, if otherwise qualified under Rule 702, reach an ultimate
issue in a case, but may not provide an ultimate legal opinion.
See Berckeley Inv. Grp., Ltd., 455 F.3d at 217; see also Lynch
v. J.P. Stevens & Co., 758 F. Supp. 976, 1014 (D.N.J. 1991)
(“[l]egal conclusions are not within the ambit of expert
testimony permitted under Rule 703 of the Federal Rules of
Evidence”).
Moreover, as with all witness testimony, an
“expert’s testimony must be accompanied by a sufficient factual
foundation.”
Gumbs v. Int’l Harvester, Inc., 718 F.2d 88, 98
(3d Cir. 1983).
In other words, “an expert cannot be presented
to the jury solely for the purpose of constructing a factual
narrative based on record evidence.”
Highland Capital Mgmt.,
L.P. v. Schneider, 379 F. Supp. 2d 461, 469 (S.D.N.Y. 2005).
Here, however, Plaintiffs mischaracterize the conclusions
set forth in O’Neill’s Report.
Indeed, in arguing that “legal”
and “unsupported” conclusions plague Mr. O’Neill’s Report
[Docket Item 584-1 at 4-6], Plaintiffs rely entirely upon
statements in the “Executive Summary” of Mr. O’Neill’s Report—a
section that provides little more than an abbreviated overview
of his conclusion and constitutes a mere fraction of Mr.
O’Neill’s (7 pages) of Mr. O’Neill’s lengthy and otherwise well48
supported Report.
In the substantive portions of Mr. O’Neill’s
Report, he then proceeds to provide an in-depth analysis of the
bases for his opinions (including detailed record citations),
and specifically couches his testimony upon his perceptions of
industry understandings and practices.
at 85.]
[See Docket Item 584-3
In that respect, the Court cannot conclude that Mr.
O’Neill’s Report exceeds “the purview of experts.”
584-1 at 4.]
[Docket Item
Rather, the report, when viewed as a whole, bears
adequate indicia of reliability for purposes of admissibility.
See Pineda, 520 F.3d at 247 (citation omitted) (noting that the
standard “‘of reliability is lower than the merits standard of
correctness’”).
For all of these reasons, Plaintiffs’ motion as to Mr.
O’Neill will be denied, without prejudice to Plaintiffs’ right
to voice any objections at the time of trial in the event Mr.
O’Neill’s actual testimony reflects an impermissible legal
conclusion.
Moreover, to the extent Plaintiffs have a basis at
trial to challenge Mr. O’Neill’s underlying factual assumptions,
Plaintiffs, of course, retain the right to cross-examine him on
this and any related issues. See Stecyk, 295 F.3d at 414.
D. Defendants’ Motion to Exclude R. David Wallace, CPA, CFF
On June 29, 2012, Mr. Wallace produced an expert report
specifically for the purposes of companion litigation before the
MDL District Court regarding professional services rendered to
49
Refco, namely, “the ‘audit’ services” provided by Grant Thornton
LLP, and the “professional ‘advisory’ services provided by the
public accounting firm of PricewaterhouseCoopers” LLP.27
[Docket
Item 581-8 at 5.]
In that capacity, Mr. Wallace generally opined that Grant
Thornton LLP and PricewaterhouseCoopers LLP “substantially
assisted Refco in perpetrating and continuing the Refco fraud,”
by drafting financial statements that “misrepresented and
concealed” Refco’s “true financial condition,” and by issuing
“‘clean’” audition opinions on the financial statements.
at 10-15.]
[Id.
As specifically relevant here, however, Mr. Wallace
concluded that PricewaterhouseCoopers LLP’s audited financial
statements of SMFF for the years 2003 and 2004 failed to
“disclose” that Refco held SMFF’s excess cash in non-segregated
accounts.
[Id. at 15.]
In moving to exclude Mr. Wallace’s testimony, Defendants
argue that Mr. Wallace should be precluded from testifying
concerning any alleged deficiencies in any of the SMFF financial
statements discussed by Mr. Wallace, because Defendants “did not
prepare those statements, let alone the footnotes that
27
On September 6, 2011, Mr. Wallace produced a pre-Report
Affidavit, which provided, in essence, a preview of the
lengthier opinions ultimately set forth in Mr. Wallace’s Report.
[See Docket Item 581-5.]
50
Plaintiffs (and Mr. Wallace) find objectionable.”28
653 at 4 (emphasis in original).]
[Docket Item
In the alternative,
Defendants take the position that Mr. Wallace should, at a
minimum, be precluded from offering any testimony concerning
SMFF’s 2002 financial statement, because it exceeds what Mr.
Wallace included in his Affidavit and Report.
[Id. at 10.]
Because Mr. Wallace’s report contains no reference to
SMFF’s 2002 financial statement, the Court will, at the outset,
preclude Mr. Wallace’s testimony about the 2002 financial
statement.
Critically, though an expert is not strictly limited
to the precise words contained within the expert report, it is
axiomatic that an expert may not present new opinions on topics
not timely included or otherwise disclosed in the expert’s
report.
See Fed. R. Civ. P. 26(a)(2)(B) (providing that an
expert report “shall contain a complete statement of all
opinions to be expressed and the basis and reasons therefore”);
see also Pritchard v. Dow Agro Sciences, 263 F.R.D. 277, 284
(W.D. Pa. 2009) (citation omitted) (generally noting that expert
testimony “should be stricken if it contains new opinions or
28
In their opening brief, Defendants challenged Mr. Wallace’s
Report on an array of additional bases, all of which principally
concerned the fact that Mr. Wallace did not render any opinions
with respect to Defendants. [See Docket Item 581-1.] In
opposition, however, Plaintiffs asserted that Mr. Wallace’s
testimony would extend no further than a discussion of alleged
misstatements in SMFF’s 2002, 2003, and 2004 financial
statements. [See Docket Item 636 at 1-2.]
51
information” other than that “set forth in the expert report”);
Bowers v. Nat’l Collegiate Athletic Ass’n, 564 F. Supp. 2d 322
(D.N.J. 2008) (exclusion of expert testimony relating to
information not included in draft expert reports that were
belatedly disclosed was proper discovery sanction).
Indeed,
such an untimely inclusion deprives the adversary of adequate
notice, and the ability to assess the underpinnings of the
opinion in connection with that expert’s deposition,
particularly where, as here, the intention to rely upon the
expert for an undisclosed topic only becomes apparent on the eve
of trial.
Therefore, the Court will preclude Mr. Wallace from
providing testimony concerning SMFF’s 2002 financial statements.
With to SMFF’s 2003 and 2004 financial statements, however,
the Court will not exclude Mr. Wallace’s limited testimony
(which would, necessarily, be substantially similar to the 6
relevant paragraphs of his expert report).29
Critically, Mr.
Wallace’s Report in this narrow respect concerns his opinion
that an industry professional would understand SMFF’s financial
statements “to mean that SMFF’s customers assets were, in fact,
segregated, and therefore insulated, i.e., protected, from the
claims of creditors of the custodians of those assets.”
Item 581-8 at 169.]
[Docket
In other words, he concludes that SMFF’s
29
At oral argument, counsel for Defendants stated that their
challenge to this portion of Mr. Wallace’s Report amounted to
only a “nominal” objection.
52
financial statements contained “false” disclosures.
[Id. at
169-70.]
This case will hinge, in large part, upon the jury’s
determination concerning the parties with knowledge and
responsibility for the failure to maintain SMFF’s excess cash
within segregated accounts.
In that respect, Mr. Wallace’s
testimony concerning any industry professional’s interpretation
of SMFF’s financial statements may prove helpful to the jury in
determining the cause of Plaintiffs’ claimed losses.
Nor can
the Court find that any significant jury confusion will result
from the introduction of this limited testimony.
Finally,
Defendants’ undisputed position that they “did not prepare” the
financial statements can be fully aired through crossexamination, and therefore does not provide a basis for
exclusion of this otherwise limited testimony.30
[Docket Item
653 at 4 (emphasis in original).]
For all of these reasons, Defendants’ motion to exclude Mr.
Wallace, as narrowed by Plaintiffs’ concessions, will be granted
30
Defendants initially argued that the MDL District Court had
striken at least portions of Mr. Wallace’s pre-Report Affidavit
in connection with a motion to dismiss in the companion
litigation before the MDL District Court. [See Docket Item 581-1
at 2-3.] In response to Plaintiffs’ concessions in opposition,
Defendants no longer pursue this issue. The Court nevertheless
notes that it is clear and undisputed based upon the parties’
submissions that neither the Special Master, nor the MDL
District Court, ever struck Mr. Wallace’s Report, or expressed
any doubt concerning the narrow aspects of Mr. Wallace’s Report
implicated in connection with the pending motion.
53
with respect to Mr. Wallace’s anticipated testimony on SMFF’s
2002 financial statements, but denied with respect to testimony
concerning SMFF’s 2003 and 2004 financial statements.
REDACTIONS TO EXPERTS’ REPORTS
As a result of the Court’s decision on the parties’ various
motions to exclude, the expert reports will require revisions
consistent with this Opinion and the parties’ various
concessions concerning the scope of each expert’s testimony.
Therefore, the Court will direct counsel to revise the proposed
expert reports and to provide copies to the adversaries’ counsel
by no later than June 19, 2015.
The Court further reminds counsel that, as discussed at
oral argument, the revised reports provide only the outline and
scope of the anticipated expert testimony, but are not
themselves admissible, nor will they be shown directly to the
jury.
It is, of course, the duty of counsel to clearly advise
their experts of any limitations placed on their testimony.
CONCLUSION
An accompanying Order will be entered.
June 12, 2015
Date
s/ Jerome B. Simandle
JEROME B. SIMANDLE
Chief U.S. District Judge
54
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