CLIENTRON CORP. v. DEVON IT, INC.

Filing 263

MEMORANDUM AND/OR OPINION SIGNED BY HONORABLE MICHAEL M. BAYLSON ON 3/29/16. 3/30/16 ENTERED AND COPIES MAILED, E-MAILED.(ti, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
CLIENTRON CORP.,
Plaintiff
v.

CIVIL ACTION
NO. 13-05634

DEVON IT, INC., JOHN
BENNETT, and NANCE DIROCCO,
Defendants
MEMORANDUM RE: DEFENDANTS’ MOTION IN LIMINE
ON EXPERT TESTIMONY
Michael M. Baylson, USDJ

March 29, 2016

The facts of this breach of contract and fraud action have been amply documented in
prior opinions of this Court. See, e.g., ECF 215 at 1 n.1. A key remaining issue for trial
concerns whether the evidence justifies piercing the corporate veil and holding that Defendant
Devon IT, Inc. is the alter ego of its two owners, husband John Bennett and wife Nance DiRocco
(collectively, “Defendants”) such that Bennett and DiRocco are personally liable to plaintiff.
Through their sole Motion in Limine, ECF 224, Defendants seek to preclude Clientron’s expert
witness Kyle Anne Midkiff (“Midkiff”) from providing opinions or testimony regarding piercing
the corporate veil. A copy of Midkiff’s expert report is attached to the Motion. Clientron
supports admissibility of all of the experts’ opinions (ECF 240).
For the reasons set forth below, Defendants’ Motion shall be granted in part and denied in
part. Specifically, while Midkiff can opine on topics within her purview as an accountant, she
cannot offer legal conclusions.
I.

Legal Standards
Two guiding criteria govern resolution of this Motion.

First, “[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 is
prohibited from rendering a legal opinion. Such testimony is prohibited because it would usurp
the District Court’s pivotal role in explaining the law to the jury.” Berckeley Inv. Grp., Ltd. v.
Colkitt, 455 F.3d 195, 217 (3d Cir. 2006) (citations omitted).
Second, to opine as an expert at all a witness must satisfy the three requirements of
Federal Rule of Evidence 702. Pineda v. Ford Motor Co., 520 F.3d 237, 244 (3d Cir. 2008).
First, “the proffered witness must be an expert, i.e., must be qualified.” Id. A broad
range of knowledge, skills, and training can qualify a witness as an expert. In re Paoli R.R. Yard
PCB Litig., 35 F.3d 717, 741 (3d Cir. 1994). However, the rule requires a witness to have some
specialized knowledge pertaining to the particular area of the witness’s testimony. Smolow v.
Hafer, 513 F. Supp. 2d 418, 425-26 (E.D. Pa. 2007) (citing Betterbox Commc’ns Ltd. v. BB
Techs., Inc., 300 F.3d 325, 334-35 (3d Cir. 2002)); Main St. Mortg., Inc. v. Main St. Bancorp.,
Inc., 158 F. Supp. 2d 510, 513 (E.D. Pa. 2001).
Second, the “expert must testify about matters requiring scientific, technical, or
specialized knowledge.” Pineda, 520 F.3d at 244. Expert testimony is admissible only if the
process or technique used to formulate the opinion is reliable. Id. Subjective belief or
unsupported speculation is insufficient. Paoli, 35 F.2d at 742.
Third, the “expert’s testimony must assist the trier of fact.” Pineda, 520 F.3d at 244.
“[E]ven if an expert’s proposed testimony constitutes scientific knowledge, his or her testimony
will be excluded if it is not scientific knowledge for purposes of this case.” Paoli, 35 F.3d at 742
(emphasis in original).
II.

Ms. Midkiff’s Qualifications and Purported Expert Testimony

2

Midkiff is Managing Director of Forensic Accounting and Litigation Services at Smart
Devine. As set forth in her CV, she has over twenty five years of forensic accounting experience
including a ten-year tenure as Director of Forensic and Litigation Services at KPMG. She is a
Certified Public Accountant (CPA), Certified Fraud Examiner (CFE), and is Certified in
Financial Forensics (CFF). However, Midkiff has no law degree or legal training.
Midkiff’s findings and opinions are contained in the “Expert Report of Kyle Anne
Midkiff, CPA, CFE, CFF” (“Report”). ECF 186-5 Pl. Ex. J; ECF 224-2 Def. Ex. B. Several of
these opinions fall directly within Midkiff’s expertise as a forensic accountant. For example,
Midkiff opines that:
1. Defendants’ failure to produce complete records inhibited her analysis (Report at
10-11);
2. Bennett and DiRocco’s financial records indicate that they maintain a lifestyle
“which cannot be sustained by their reported income without funds from other
sources” (Report at 2); 1
3. Devon IT was insolvent on a balance sheet basis while dealing with Clientron
(Report at 12-13);
4. Devon IT’s rent payments to another Bennett/DiRocco owned entity fluctuated
dramatically, and thus far inexplicably, from 2011 to 2012 and 2013 (Report at 7);
5. Records document Devon IT contemporaneously transferring funds from outside
transferees to other Devon companies shortly after money was received (Report at
9); and

1

The Court previously denied Clientron Motion in Limine 9, seeking to exclude testimony of
Bennett’s personal bankruptcy, on grounds that it goes to rebut this testimony. ECF 259 at 7.
3

6. Certain evidence (including Bennett and DiRocco’s deposition testimony)
supports the inference that Devon IT and Bennett/DiRocco commingled funds
(Report at 15-16).
Midkiff’s report also contains conclusions that do not directly tie into her accounting
background. Most notably, she purports to outline the legal standards for piercing the corporate
veil under Pennsylvania law (Report at 3-4) and then posits:
1. Devon IT “failed to observe corporate formalities” (Report at 13-14);
2. Bennett “dominated and controlled the Devon entities” (Report at 20);
3. Bennett has previously “attempt[ed] to abuse the concept of tenants by the
entireties in a bankruptcy setting” by claiming he and his wife owned vehicles
titled in his name alone (Report at 12);
4. Devon entities have engaged in a “Pattern of Defaults/Bankruptcy” (Report at
11); and
5. “[T]he inclusion of Clientron as a creditor in Bennett’s personal bankruptcy filing
acknowledges a personal obligation to Clientron” (Report at 12). 2
III.

Application and Conclusion
Midkiff is qualified to offer her expert opinion on accounting-related issues such as

Devon IT’s insolvency, the fluctuating rent payments, and potential commingling of funds.
Midkiff’s qualifications are similar to those found sufficient by other courts. See Smolow v.
Hafer, 513 F. Supp. 2d 418, 439 (E.D. Pa. 2007) (holding accountant qualified to testify as
expert about costs incurred by Pennsylvania Department of Treasury); Main St. Mortg., Inc. v.

2

In Defendants’ Opposition to Clientron Motion in Limine 9 (regarding evidence of Bennett’s
bankruptcy), Defendants challenge Midkiff’s assertion. ECF 249 at 3-4. At present, the Court
expresses no opinion as to which side has the correct argument.
4

Main St. Bancorp., Inc., 158 F. Supp. 2d 510, 518-19 (E.D. Pa. 2001) (holding accountant
qualified to testify as expert on damages in service mark infringement case in mortgage
industry). As to those conclusions, Defendants’ Motion shall be denied.
When testimony is presented at trial, which is relevant to the alter ego issue, the Court
will allow Midkiff to testify generally with opinions from an accounting point of view. Some of
these issues may have both a legal and accounting context. She can testify to the latter, but not
the former. The alter ego issue is technical, but important. An expert’s opinion on accounting
related concepts may be very helpful to the jury and the Court. However, Midkiff shall not be
permitted to give legal conclusions.
Clientron fails to persuasively distinguish this case from the Defendants’ reliance on
Tindall v. H & S Homes, LLC, Civil Action No. 5:10-CV-044(CAR), 2012 WL 3242128 (M.D.
Ga. Aug. 7, 2012), which presents an analogous fact pattern. In Tindall, the plaintiff sought to
preclude a defense expert named Robert Taylor from offering opinions about defendants’
corporate structure, finances, and valuation of assets in an attempt to rebut plaintiff’s claim that
one defendant was merely an alter ego of another. Id. at *1. The Tindall court took a nuanced
approach to the case. It held that Taylor could not offer opinions about Georgia law, both
because he was unqualified to do so and because it is improper generally for experts to offer
legal conclusions as expert opinions. Id. at *5-6. However, Tindall further held that Taylor
could offer factual evidence within his realm of competence even if it dovetails to some extent
with the legal standards required for piercing the corporate veil. See id. at *7 (“Thus, for
example, Mr. Taylor may testify as to whether Defendants’ assets and liabilities were
‘commingled,’ as this can be established as a question of fact, but he may not offer a legal

5

definition of ‘commingling’ or offer any opinions about the legal relevance [of] commingled
assets.”).
Clientron is correct that “[u]nlike the expert in Tindall v. H & S Homes, LLC, Ms.
Midkiff does not opine directly on whether Devon IT is the alter ego of Bennett and/or
DiRocco.” ECF 240 at 4. Nevertheless, Midkiff does offer several conclusions which have
some legal context. Most notably, Midkiff contends that Devon IT failed to observe corporate
formalities (Report at 13-14). An accountant routinely reviews corporate books and records and
notes adherence, or lack thereof, to corporate formalities. However, as previously held in this
case, strict adherence to corporate formalities in a husband and wife owned corporation is often
ignored and provides little support for alter ego liability. This “testimony” is argument best
reserved for summations, not expert evidence. Similarly, Midkiff opines on the legal
significance of Bennett listing Clientron as a creditor in his personal bankruptcy filing, Report at
12, and argues that Bennett dominated and controlled various companies including Devon IT,
Report at 20.
The Court will adopt the approach from Tindall. Midkiff shall be allowed at trial to
testify to the facts underlying her report and to opinions within her purview as an accounting
expert. She will not, however, be allowed to offer testimony regarding the legal standards for
piercing the corporate veil in Pennsylvania, or to offer legal conclusions based on Devon IT’s
failure to respect corporate formalities.
The Court recognizes, as other courts have noted, that the distinction between a fact
underlying an expert’s report and a legal conclusion can at times be “hazy.” Orner v. Nat’l Beef
Packaging Co., LLC, No. 4:13-CV-0837, 2015 WL 8334544, at *7 (M.D. Pa. Dec. 9, 2015). To

6

the extent ambiguities remain in what Midkiff can and cannot say at trial, the Court will deal
with specific objections to Midkiff’s testimony with these principles in mind at trial.
An appropriate Order follows.

O:\CIVIL 13\13-5634 clientron v. devon it\13cv5634 MemoOp on Devon IT MIL.docx

7