Floyd et al v. The City of New York et al

Filing 279

MEMORANDUM OPINION AND ORDER: #103189 For the reasons stated in this Memorandum Opinion and Order, the decision of the magistrate court is overruled and the Stewart Report is admissible. (Signed by Judge John F. Keenan in Part I on 5/13/2013). (rjm) Modified on 5/14/2013 (jab).

Case 1:09-md-02013-PAC Document 57

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
---------- X
UNITED STATES DISTRICT COURT
DAVID FLOYD t et al. t NEW YORK
SOUTHERN DISTRICT OF

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PI
iffs
In re FANNIE MAE 2008 SECURITIES t
:
LITIGATION
:
- against
:
:
THE CITY OF NEW YORK t et
• t
-----------------------------------------------------------x

Filed 09/30/10 Page 1 of 45
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: May 13, 2013

08 Civ. 7831 (PAC)
No. 08 Civ.
09 MD 2013 (PAC) 1034
MEMORANDUM OPINION
OPINION & ORDER
AND ORDER

Defendants.

X
HONORABLE PAUL A. CROTTY, United States District Judge:

John F. Keenan, United States District Judge:

This matter is before the Court in 1 a somewhat unusual
BACKGROUND
procedural posture. Before the Court is an appeal of an
The early years of this decade saw a boom in home financing which was fueled, among
evidentiary ruling referred to Magistrate Judge Pitman by Judge
other things, by low interest rates and lax credit conditions. New lending instruments, such as
Scheindlin in connection with a bench
that is currently
subprime mortgages (high credit risk loans) and Alt-A mortgages (low-documentation loans)
ongoing before Judge Scheindlin. Magistrate Judge Pitman found
kept the boom going. Borrowers played a role too; they took on unmanageable risks on the
primarily in favor of Plaintiffs t and Defendants have appealed
assumption that the market would continue to rise and that refinancing options would always be
to Part One over which this Court is currently presiding. For
available in the future. Lending discipline was lacking in the system. Mortgage originators did
the reasons that follow t the magistrate courtts decision is
not hold these high-risk mortgage loans. Rather than carry the rising risk on their books, the
overruled in part and the Defendantts expert
is
originators sold their loans into the secondary mortgage market, often as securitized packages
admissible in its entirety.
known as mortgage-backed securities (“MBSs”). MBS markets grew almost exponentially.
I. Background
But then the housing bubble burst. In 2006, the demand for housing dropped abruptly
In the case proceeding before Judge Scheindlin t Plaintiffs
and home prices began to fall. In light of the changing housing market, banks modified their
lege that the Defendants have endorsed an unconstitutional
lending practices and became unwilling to refinance home mortgages without refinancing.
conducting baseless stops and frisks.
pol
aintif
t

1

1

ions are described in greater detail in Judge

Unless otherwise indicated, all references cited as “(¶ _)” or to the “Complaint” are to the Amended Complaint,
dated June 22, 2009. For purposes of this Motion, all allegations in the Amended Complaint are taken as true.

1

Scheindlin's summary judgment decision, see Floyd v. City of New
York, 813 F. Supp. 2d 417 (S.D.N.Y. 2011).
this appeal is whether the City of New York

At issue

should be permitted to present an expert report to rebut the
report proffered by Plaintiffs' remedies expert.

Judge

Scheindlin has precluded expert testimony on the issue
liability, but has permitted the parties to submit expert
reports on the issue of what remedies would be appropriate if
the Court finds

City liable.

Plainti

s submitted their

expert report, prepared by Samuel Walker, on March 5, 2013.
("Walker Report.")

Defendants' remedies expert, James Stewart,

issued a rebuttal report on April 28, 2013.
Plaintiffs argue
two basic grounds:

("Stewart Report.")

preclusion of the Stewart Report on

(1) that it improperly addresses liability

and not remediesi and (2) that the Stewart Report would unduly
influence

factfinder.

Judge Pitman ruled for

large part, holding that most portions of

aintiffs in

Stewart Report

impermissibly address liability.
II. Discussion

A review of the Stewart Report shows that it merely serves
as a rebuttal to the plaintiffs' expert report, and there
should not be excluded.

At root, the Stewart Report simply

summarizes the recommendations of the Walker Report and then

2­

proceeds to explain why each is unfeasible, redundant, or ill­
advised.
While the Stewart report does reference the practices
currently in place by the New York Police Department ("NYPD"),
ricably linked to Stewart's explanation

such references are

of why Walker's proposed remedies are misguided.

For example,

while pages 19-20 of the Stewart Report include a description of
the NYPD's practices relating to performance indicators, it is
only included as part of a table

the express purpose of which

is to compare those practices with Walker's recommendations as
to performance indicators.

Addit

ly, on page 12 of his

report, Stewart explains why Walker's recommendation for
training of NYPD

ficers is redundant, by detailing the

training efforts

ready in place within the NYPD.

important to note that Stewart is not evaluat

the training

procedures currently in place, but rather rebutt
proposals with respect to officer training.

It is

Walker's

Such information

would be extremely helpful should Judge Scheindlin reach the
issue of remedies and wish to consider the possibility of
requiring additional officer training.
In precluding most of Stewart's report, Judge Pitman noted
that "Defendants' expert does not claim that the Plaintiffs'
suggestions lack merit

Rather, Defendants' expert

contends that the NYPD already utilizes most of the pract

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suggested by Plaintiffs' expert."

This is not a fair reading

the Stewart Report, however:

Stewart references

current

practices of the NYPD in an

fort to elucidate the shortcomings

in the Walker Report. Such expert testimony is appropriate
rebuttal on the issue of remedies.
Judge Pitman also noted that because the Stewart Report
would not become relevant unless Judge Scheindlin finds
liability, she would be precluded from accepting the statements
in Stewart's report.

"If defendants' expert were credited, the

case would end with the irreconcilable findings that the City of
New York has a custom or policy of violating the Constitution,
but

. no remedy is necessary because the existing monitoring

and training programs are sufficient."

This is a

misapprehension of both the report and the possible resolution
of the case.

As an initial matter, Judge Scheindlin need not

credit the entire report.

Indeed, if Judge Scheindlin finds

liability and moves on to review the remedies experts' reports,
she can choose to credit portions of the Stewart Report.

This

would not require her to alter the holding as to liability.
Instead, the Stewart Report could properly inform Judge
Scheindlin's assessment of the proposals set forth in the Walker
Report.
Nor would admitting the Stewart Report unduly influence the
factfinder, as the danger of prejudice is considerably

-4­

diminished during a bench trial.

The district court would not

be swayed in the same way a jury might be, in the event it
viewed evidence that was ultimately inadmissible.

Moreover, if

the district court reaches the point where it is reviewing the
remedies expert reports, then it has necessarily already made a
determination as to liability.

Accordingly, any inadvertent

reference to issues relating to liability in either expert
report would be viewed too late to affect the court's decision
making on the issue of liability.
Plaintiffs have also urged this Court to consider the
arguments it laid out in its letter of April 28, 2013, but were
not addressed by Judge Pitman.

But the Court can discern only

one argument that Judge Pitman did not reach:

that the Stewart

Report contains hearsay, and that the Defendants are seeking to
use an expert report to circumvent the rules prohibiting
hearsay.

This argument is entirely without merit as the Stewart

Report very clearly uses the hearsay at issue with the express
purpose of forming the basis for its expert opinion, which is
permissible, see Fed. R. Evid. 702, 703; United States v.
Dukagj ini, 326 F. 3d 45, 55 (2d Cir. 2003)

("An expert wi tness

may rely on hearsay evidence while reliably applying expertise
to that hearsay evidence, but may not rely on hearsay for any
other aspect of his testimony. ") .

Moreover, the Court

reiterates that because this case is proceeding as a bench

-5­

trial, hearsay testimony need not be as strenuously guarded. See
1012 Germantown Road

U.S. v. One Parcel of Real
Beach CountYI Fla., 963 F.2d 1496

1

1501 (11th Cir. 1992)

Palm
(noting

that it is "relatively easy for the judge as factfinder to sort
out the hearsay evidence from the admissible evidence before
making a factual determination").

FinallYI it is worth noting

that if the Court accepted Plaintiffs
would implicate much

l

hearsay argument 1 it

the Walker Report as well, as it covers

similar ground.
III. Conclusion

For the reasons stated above, the decision

the

magistrate court is overruled and the Stewart Report is
admissible.

SO ORDERED.
Dated:

New York New York
May 13
2013
l

I

United States District Judge

CP~I

-6­