Venetian Blind & Floor Covering, Ltd. v. Wells Fargo Bank, N.A.

Filing 104

MEMORANDUM OPINION AND ORDER denying 48 MOTION to Disqualify Micheline Ellas. (Signed by Magistrate Judge Stephen Wm Smith) Parties notified.(jmarchand)

V e n e t i a n Blind & Floor Covering, Ltd. v. Wells Fargo Bank, N.A.

D o c . 104

U N IT E D STATES DISTRICT COURT S O U T H E R N DISTRICT OF TEXAS H O U S T O N DIVISION V ENETIAN BLIND & FLOOR COVERING, LTD.,§ D /B /A GULF COAST WINDOW COVERING § P l a i n t i ff , § § vs. § § W ELLS FARGO BANK, N.A., § D e fe n d a n t. §

C IVIL ACTION H-08-2451

M E M O R A N D U M OPINION AND ORDER T h is banking dispute is before the court on defendant's motion to disqualify plaintiff's e x p e rt witness (Dkt. 48). A hearing was held on January 14, 2010. Defendant's motion is d e n ie d . P lain tiff has sued defendant for conversion of 654 checks that its employee (Marcia S in c lair) wrongly deposited into her own bank accounts. Plaintiff hired Micheline Ellas "to re v iew Wells Fargo's teller policies and procedures, compare them to the actual deposit tra n sa c tio n s at issue, and determine whether or not Wells Fargo acted in a commercially re a so n a b le manner in handling such deposit transactions." 1 In other words, Ellas will testify th a t Wells Fargo was negligent. D e f en d a n t moves to strike Ellas because she is not qualified to give an opinion about re a so n a b le commercial standards for accepting checks, and her method is unreliable.

1

Affidavit of Micheline Ellas, ¶ 25 (Dkt. 72).

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D a u b e r t Standards " [ A ] witness qualified as an expert by knowledge, skill, experience, training, or e d u c atio n , may testify . . . in the form of an opinion or otherwise." FED. R. EVID. 702.2 The a d m is s ib ility of an expert's testimony is committed to the trial court's sound discretion. See G e n 'l Elec. Co. v. Joiner, 522 U.S. 136, 146-147 (1997); Broussard v. State Farm Fire & C a s . Co., 523 F.3d 618, 630-31 (5th Cir. 2008). The trial judge must determine as an initial matter whether the proffered witness is q u a lif ie d to give the expert opinion she seeks to express. Kumho Tire Co. v. Carmichael, 526 U .S . 137, 156-57 (1999)); Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 589 (1 9 9 3 ). The expert testimony must also be relevant and reliable. Bocanegra v. Vicmar Serv., In c ., 320 F.3d 581, 585 (5th Cir. 2003) (listing and applying five non-exclusive Daubert f a c to rs for assessing reliability). "This so-called `gate-keeping' obligation applies to all types of expert testimony, not ju s t `scientific' testimony." Skidmore v. Precision Printing & Packaging, Inc., 188 F.3d 6 0 6 , 617-18 (5th Cir. 1999). However, Daubert's suggested indicia of reliability do not

2

Federal Rule of Evidence 702 governs the admission of expert testimony and provides: If scientific, technical or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case. 2

n e c e s s a rily apply to all types of testimony. Reliability is a fact-specific inquiry.3 Kumho, 526 U .S . at 147-151; Skidmore, 188 F.2d at 618; Black v. Food Lion, Inc., 171 F.3d 308, 311 (5th C ir. 1999). Analysis T h e subject matter of the expert testimony at issue in this case is commercially re a so n a b le banking practices. It is not scientific testimony, and the Daubert factors, relied u p o n so heavily by Wells Fargo, are not particularly relevant or helpful. A s an initial matter, the court concludes that Ellas is qualified by her education, trainin g , and experience to give the opinions she expresses in her report. Wells Fargo's m o tio n lists a number of specific tasks Ellas has never performed, but ignores the education an d work experience that Ellas does have. 4 In essence, despite Wells Fargo's

c h a ra c te riz a tio n s , what Ellas did was perform a type of bank audit, a field in which she has o v e r 25 years experience.

3

The five Daubert factors are (1) whether the experts theory can be or has been tested; (2) whether the theory has been subject to peer review and publication; (3) the known or potential rate of error of a technique or theory when applied, (4) the existence and maintenance of standards and controls, and (5) the degree to which the technique or theory has been generally accepted in the scientific community. 509 U.S. at 593-94. Ellas Affidavit, ¶¶ 3-24. Interestingly, Wells Fargo attacks Ellas for never having testified as an expert before. Reply, at 6. It is usual practice to attack "professional" experts for testifying too often. 3

4

T h e court further concludes that Ellas's testimony is relevant. Wells Fargo does not a rg u e otherwise. Whether Wells Fargo exercised ordinary care 5 in handling the checks goes to the heart of Gulf Coast's UCC § 3.420 conversion claim, and Wells Fargo's § 3.405 d e f en se . F in a lly, the court concludes that Ellas's methodology is sufficiently reliable to render h er opinion testimony admissible. The primary work conducted by Ellas, and the primary f o u n d a tio n for her ultimate opinion that Wells Fargo did not act in a commercially reasonable m a n n e r , involved comparing what actually happened with each check to Wells Fargo's own p o licie s and procedures. Ellas performed 4 "tests" of Wells Fargo's performance in

c o n n e ctio n with the 654 checks at issue. First, she reviewed each check to determine w h ethe r the payees and endorsements to determine whether they comply with Wells Fargo's s ta n d a rd requiring that "all deposited items must be verified to ensure that all payees have p ro p e rly endorsed the items. The final endorsement must be that of the depositor." Second, s h e determined whether Wells Fargo followed its own requirement that a teller must " d e p o sit checks payable to a business to that company's account." Third, she reviewed w h e th e r each check was deposited in compliance with Wells Fargo's policy that "the next le v e l of authority must approve all deposits over the team member's deposit limit." Fourth, s h e examined whether Wells Fargo complied with its "the t-method verification process" for

5

"Ordinary care" under the UCC means "observance of reasonable commercial standards, prevailing in the area in which the person is located, with respect to the business in which the person is engaged." TEX. BUS. COM. CODE § 3.103 (9). 4

a n y deposits totaling $25,000 or more, or individual checks in the amount of $5,000 or more. In connection with each of the four tests, Ellas observed that she surveyed three banks in H o u s to n , (BBVA Compass, Amegy Bank of Texas, and Whitney Bank) and they all have s ta n d a rd s comparable to those of Wells Fargo.6 W e lls Fargo attaches far too much significance to snippets of Ellas's deposition te stim o n y. When asked "could you have done your report, could you have prepared your o p in io n without [the survey]? Ellas answered: "No." 7 However, the question is compound, m ak ing Ellas's response ambiguous. More important, nothing about the survey renders E lla s 's opinions inherently unreliable. Ellas's affidavit states that she performed the survey not to learn reasonable c o m m e rc ia l standards, something she learned in her 28 years of experience in banking, but o n ly as further support for her opinion that Wells Fargo's internal practices and procedures w e r e commercially reasonable and if followed would have reduced Gulf Coast's loss.8 U n d e r the stringent standard Wells Fargo suggests, an expert could only opine as to

6

Wells Fargo takes issue with Ellas's choice of these three institutions to the exclusion of others. This is certainly an appropriate topic for cross examination. Deposition of Micheline Ellas (Dkt. 48-4), at 136. Ellas's Affidavit (Dkt. 72-1), at 29. This is supported by her deposition testimony that prior to her engagement in this case "I knew generally the procedures for accepting the deposits, and I knew generally the procedures for getting approvals." Ellas Dep., at 50-51. To address Wells Fargo's sports analogy ­ Earl Campbell would not need to do a survey to testify how to run for a touchdown or break a tackle. But if asked to opine on how most running backs in the NFL do it (or did it when he was playing), he might reasonably call up a few running back friends and ask, or at least watch tape. 5

7

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c o m m e rc ially reasonable banking standards if she had personally worked for every bank in th e Houston area. Such a degree of personal knowledge is not required by Rule 702 or D a u b e r t. Wells Fargo argues that Ellas's methodology is flawed because its own policies and p ro c e d u re s cannot set the standard for commercial reasonableness because they do not bind o th e r banks. But surely Wells Fargo's policies are some evidence of the standards prevailing in the area. Nor does it matter that the banks Ellas surveyed are not nearly as big as Wells F a rg o . The U.C.C.'s definition of ordinary care requires comparison of entities in a p a rticu lar area engaged in the same business. Wells Fargo has provided no authority re q u irin g comparison of entities of similar size. Wells Fargo and the three banks surveyed b y Ellas are undeniably engaged in banking. This case does not involve a sophisticated type o f investment banking in which local entities are not engaged, but common retail banking, i.e . the acceptance of checks for deposit into a customer account. In short, it is not

u n r e a s o n a b le for Ellas to draw on her own experience, and the practices of other banks in f o rm in g her own opinions. Finally, Wells Fargo argues that Ellas's opinion that 100% of the fault for Gulf C o a st's loss rests on Wells Fargo is pure speculation.9 Ellas was not hired to give an opinion o n comparative fault. Her report does not include such an opinion, but states only that Wells

9

Motion, at 10 (citing Ellas Dep., at 201-212). 6

F a rg o "contributed to the loss," and the exercise of ordinary care would have reduced Gulf C o a s t' s losses.1 0 C o n c lu s io n F o r the reasons discussed above, Wells Fargo's motion to disqualify Micheline Ellas (D k t. 48) is denied. S ig n e d at Houston, Texas on February 2, 2010.

10

Ellas's report (Dkt. 72-3). 7