W.R. Starkey Mortgage, LLP v. Chartis Specialty Insurance Company et al

Filing 117

MEMORANDUM AND OPINION AND ORDER - DENYING 92 MOTION to Strike Expert Testimony filed by Chartis Specialty Insurance Company. Signed by Magistrate Judge Amos L. Mazzant on 11/12/2013. (baf, )

United States District Court
EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION

W.R. STARKEY MORTGAGE, LLP,

§
§
v.
§
§
CHARTIS SPECIALTY INSURANCE CO., §
f/k/a AMERICAN INTERNATIONAL
§
SPECIALTY LINES INSURANCE CO., and §
CERTAIN UNDERWRITERS AT LLOYD’S §
LONDON
§

Case No. 4:12-CV-219
Judge Clark/Judge Mazzant

MEMORANDUM OPINION AND ORDER
Pending before the Court is Defendant Chartis Specialty Insurance Co.’s Motion to Strike
Expert Testimony (Dkt. #92).

Having considered the relevant pleadings, the Court finds

Defendant’s motion is denied.
BACKGROUND FACTS
In November of 2009, two separate legal proceedings were initiated against Starkey
relating to Starkey’s mortgage lending operations in North Carolina. Those actions alleged that
“Starkey failed to verify the consumers’ financial information… and [that] because of this
failure, Starkey improperly extended credit to consumers who could not afford to pay the loans
they received” (Dkt. #92 at 1 (citing Dkt. #89 at 14)). On June 26, 2013, this Court found that
“all of the alleged misconduct [in the two underlying North Carolina lawsuits] constitutes
professional services,” and ruled that Chartis had no duty to pay Starkey’s defense costs in those
actions (Dkt. #89 at 16). Chartis filed the present motion to strike, alleging that the expert
testimony of James Butler (“Butler”) is irrelevant because the Court has already determined the
issue on which Butler will provide testimony. Chartis argues that Butler’s testimony seeks to
undermine a prior order of this Court, and is irrelevant to any fact issue in the case.

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On August 16, 2013, Defendant filed its Motion to Strike Expert Testimony (Dkt. #92).
Plaintiff filed its response on August 23, 2013 (Dkt. #95).

Defendant filed its reply on

September 10, 2013 (Dkt. #100).
LEGAL STANDARD
In Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 590-93 (1993), the
Supreme Court instructed courts to function as gatekeepers and determine whether expert
testimony should be presented to the jury. Courts act as gatekeepers of expert testimony “to
make certain that an expert, whether basing testimony upon professional studies or personal
experience, employs in the courtroom the same level of intellectual rigor that characterizes the
practice of an expert in the relevant field.” Kumho Tire Co. v. Carmichael, 526 U.S. 137, 152
(1999).
The party offering the expert’s testimony has the burden to prove by a preponderance of
the evidence that: (1) the expert is qualified; (2) the testimony is relevant to an issue in the case;
and (3) the testimony is reliable. Daubert, 509 U.S. at 590-91. A proffered expert witness is
qualified to testify by virtue of his or her “knowledge, skill, experience, training, or education.”
FED. R. EVID. 702. Moreover, in order to be admissible, expert testimony must be “not only
relevant, but reliable.” Daubert, 509 U.S. at 589. “This gate-keeping obligation applies to all
types of expert testimony, not just scientific testimony.” Pipitone v. Biomatrix, Inc., 288 F.3d
239, 244 (5th Cir. 2002) (citing Kumho, 526 U.S. at 147).
In deciding whether to admit or exclude expert testimony, the Court should consider
numerous factors. Daubert, 509 U.S. at 594. In Daubert, the Supreme Court offered the
following, non-exhaustive list of factors that courts may use in evaluating the reliability of
expert testimony: (1) whether the expert’s theory or technique can be or has been tested; (2)

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whether the theory or technique has been subjected to peer review and publication; (3) the
known or potential rate of error of the challenged method; and (4) whether the theory or
technique is generally accepted in the relevant scientific community. Id. at 593-94; Pipitone,
288 F.3d at 244. When evaluating Daubert challenges, courts focus “on [the experts’] principles
and methodology, not on the conclusions that [the experts] generate.” Daubert, 509 U.S. at 594.
The Daubert factors are not “a definitive checklist or test.” Daubert, 509 U.S. at 593. As
the Court has emphasized, the Daubert framework is “a flexible one.” Id. at 594. Accordingly,
the decision to allow or exclude experts from testifying under Daubert is committed to the sound
discretion of the district court. St. Martin v. Mobil Exploration & Producing U.S., Inc., 224 F.3d
402, 405 (5th Cir. 2000) (citation omitted).
ANALYSIS
Defendant moves to exclude the testimony of Butler, arguing that Butler's opinion
testimony is an impermissible attack on this Court’s prior order holding that Starkey’s failure to
verify consumer financial information required specialized knowledge and was a professional
service. Defendant also argues that Butler’s report and testimony are not relevant because the
testimony will not assist the trier of fact in understanding the evidence or determining a fact in
issue.
“When expert testimony has been challenged, it is incumbent upon the court to conduct a
preliminary fact-finding to determine whether the expert is qualified to render the proffered
opinions and whether the substance of the testimony is both reliable and relevant.” Allison v.
NIBCO, Inc., No. 9:02-CV-172, 2003 WL 25685229, at *1 (E.D. Tex. May 21, 2003). To be
admissible under Rule 702 of the Federal Rules of Evidence, expert testimony as to a scientific,
technical or other specialized area must: (1) assist the trier of fact to understand the evidence or

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to determine a fact in issue; (2) be based upon sufficient facts or data; (3) be the product of
reliable principles or methods; (4) and have reliably applied the principles and methods to the
facts. FED. R. EVID. 702. The party offering the expert testimony has the burden of establishing
by a preponderance of the evidence that the challenged testimony is admissible. Moore v.
Ashland Chem., Inc., 151 F.3d 269, 276 (5th Cir. 1998).
Defendant contends that this Court has already determined that all of the allegations in
the underlying North Carolina litigation relate to Starkey’s professional services. In addition,
Defendant argues that Butler’s opinion and testimony are irrelevant because the Court concluded
that even if “not all tasks required to perpetuate [Starkey’s] fraud were technical or specialized in
nature,” that would not be “dispositive because rendering any professional service ‘invariably
involves menial tasks’” (Dkt. #89 at 17).

Butler’s report opines that “the verification of

mortgage loan application information is a clerical function as opposed to a function that
involves executive decision making for which specialized training or licensing is required” (Dkt.
#92, Ex. B at 2).
Starkey contends that, under Texas law, the duty to defend and the duty to indemnify are
“distinct and separate duties,” and the duty to indemnify depends on the actual facts establishing
liability in the underlying matter (Dkt. #95 at 1 (citing D.R. Horton-Texas, Ltd. v. Markel Int’l
Ins. Co., 300 S.W.3d 740, 743-44 (Tex. 2009)). Starkey argues that whether the services at issue
were professional services or clerical functions is a fact issue, and that Butler’s report is relevant
to determining this fact issue. The Court agrees. The Court determined that in the context of the
duty to defend the professional services exclusion applied. However, in determining whether a
duty to indemnify exists, actual facts may be considered to determine liability in the underlying
matter. Thus, the Court finds that Defendant’s motion is denied.

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.

CONCLUSION
For the foregoing reasons, the Court finds that Defendant Chartis Specialty Insurance
Co.’s Motion to Strike Expert Testimony (Dkt. #92) is DENIED.
IT IS SO ORDERED.
SIGNED this 12th day of November, 2013.

___________________________________
AMOS L. MAZZANT
UNITED STATES MAGISTRATE JUDGE

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