Montalvo v. Bank of America Corporation et al
ORDER DENYING 67 Motion to exclude expert witnesses. Signed by Judge Nancy Stein Nowak. (rf)
UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
BANK OF AMERICA CORPORATION, §
BAC HOME LOANS SERVICING, LP
f/k/a Countrywide Home Loans
CIVIL ACTION NO.
ORDER DENYING MOTION TO EXCLUDE PLAINTIFF’S EXPERTS
This order addresses the defendants’ motion to exclude plaintiff Lissette
Montalvo’s expert witnesses.1 By way of this lawsuit, Montalvo seeks damages she
maintains flowed from the breach of the terms of her mortgage and her rights under her
deed of trust. Montalvo alleged that her credit was damaged by a wrongful foreclosure,
even though the foreclosure was later rescinded. Montalvo designated Gregory
Rubiola and Dr. Kenneth Lehrer as experts on her damages. Defendants Bank of
America Corporation and BAC Home Loans Servicing seek to exclude testimony by
Montalvo’s experts. As the proponent of the witnesses, Montalvo must demonstrate
Docket entry # 67. I have authority to resolve the motion under 28 U.S.C.
§ 636(b) and the district judge’s order of referral. See docket entry # 78.
the admissibility of their testimony.2
Rubiola. Rubiola originates loans for banks. Montalvo designated Rubiola to
opine that she cannot, and will not in the foreseeable future, obtain credit.3 Rubiola
reached his opinions after denying Montalvo’s application for a mortgage. The
defendants challenge the following opinions from Rubiola’s report:
1. The reason that Ms. Montalvo was denied a loan was because her credit
report reflected that she had a foreclosure on her home on November 3, 2009.
With this foreclosure on her record, Ms. Montalvo is not eligible to receive
financing from Fannie Mae or Freddy Mac for 7 years.
2. Based on Ms. Montalvo’s credit scores, in June 2011 she would have
qualified for a fixed rate loan at an annual rate of 4 percent if she did not
have a foreclosure on her credit record.
3. Since Ms. Montalvo’s current loan is at 7.5%, she will pay $133,772.97
more on her loan over the remaining 25 years of her current note. The
present value of the difference between the interest rate of Ms. Montalvo’s
current note, and the interest she could have obtained but for the foreclosure
on her record, using a discount factor of .5% is $100,391.43.4
The defendants maintain Rubiola’s opinions are unreliable because Rubiola denied the
loan based on a rescinded foreclosure that was not reflected on Montalvo’s credit
See Bocanegra v. Vicmar Services, 320 F.3d 581, 585 (5th Cir. 2003) (“The party
seeking to have the district court admit expert testimony must demonstrate that the
expert’s findings and conclusions are reliable, but need not show that the expert’s
findings and conclusions are correct.”).
Docket entry # 68, ex. A.
Docket entry # 68, ex. C (Rubiola’s report) (emphasis added).
Rule 702 applies to the testimony of an expert witness. The rule provides the
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.5
For an expert to be considered reliable under the rule, the expert must have
“knowledge, skill, experience, training or education”6 that allow the expert to clarify
facts at issue which may not be readily apparent to a juror. The defendants do not
challenge the “knowledge, skill, experience, training or education” of Montalvo’s
experts, but instead complain about assumptions underlying the basis of expert
The defendants asked the court to exclude Rubiola’s testimony because there was
no foreclosure at the time of the application. The defendants reasoned that although
they foreclosed on Montalvo’s loan and purchased Montalvo’s home at foreclosure sale,
the defendants rescinded the foreclosure after Montalvo hired legal counsel. The
Fed. R. Evid. 702.
Fed. R. Evid. 702.
defendants argued that the foreclosure was never reported to a credit reporting agency
and that the recision returned the parties to their respective positions as if no
foreclosure sale had occurred. The defendants contended Rubiola’s testimony is
unreliable because the opinions in his report were based on a non-existent foreclosure.
The defendants complained that because Rubiola never talked to Montalvo and never
saw her earlier credit reports, Rubiola was unaware of other facts which impacted
Montalvo’s credit profile and disqualified her from obtaining a loan.
There are several reasons the defendants’ challenge fails. First, Rubiola’s
testimony about why the loan was denied is a fact, rather than an opinion. During his
deposition, Rubiola testified that he sent Montalvo a loan application and Montalvo
reported the foreclosure on her application. He explained: “I stopped at the point
where I saw that she had been foreclosed on and stopped the whole process.”7 He
acknowledged that he was mistaken when he stated in his report that Montalvo’s credit
report reflected the foreclosure,8 but maintained that his decision would not have
Docket entry # 72, ex. A, p. 47 (Rubiola’s deposition). See id., p. 48 (“Basically, I
was told to try to do a loan app for a client, I got the application back, I looked at it, I
read through it and found out she had been foreclosed and I stopped immediately.”);
id., p. 50 (“I went through the application briefly, saw that she had a foreclosure and
there was no way I could help her.”).
Docket entry # 73, ex. A, p. 57 (responding to being asked whether the only
reference that he saw to foreclosure was on Montalvo’s loan application, “That was a
mistake on my part.”).
changed if he had known the foreclosure was rescinded, “[b]ecause she’s already
checked the box that she has had a foreclosure [on the loan application].”9
Mis-stating the source of his knowledge about the foreclosure did not render
Rubiola’s testimony about why he denied the loan unreliable because Rubiola denied
the application based on knowledge of the foreclosure, not on the source of his
knowledge of the foreclosure. Rubiola’s report contains a mistake, but unless Montalvo
offers Rubiola’s report as evidence, the reported statement—that the credit report
reflected the foreclosure—does not undermine the reliability of testimony about why
Rubiola denied the loan application. Knowing his mistake, Rubiola can correctly testify
that he denied the loan because Montalvo reported the foreclosure on her loan
application. To the extent Montalvo considers Rubiola’s testimony helpful to prove
damages, the defendants can explore the discrepancy in Rubiola’s report through crossexamination.
The defendants also maintain Rubiola’s testimony should be excluded because
Rubiola assumed Montalvo had a good credit rating prior to the foreclosure, where the
evidence shows Montalvo had poor credit rating before the foreclosure. During his
deposition, the defendants presented Rubiola with Montalvo’s credit report from the
time Montalvo applied for the defaulted loan. Rubiola characterized Montalvo’s rating
Docket entry # 73, ex. A, p. 58.
as “fair” and agreed that the score was close to making her ineligible for a loan.
Although Rubiola assumed Montalvo had a good credit rating before the foreclosure,
he explained that he denied the loan because of the foreclosure, not because of
Montalvo’s credit report.10 After comparing Montalvo’s credit report shortly before the
rescinded foreclosure and the credit report used for the loan application, Rubiola
observed the same type of credit delinquencies.11
The comparison of Montalvo’s credit reports negated Montalvo’s testimony that
she had a good credit score prior to the foreclosure, but it does not demonstrate the
unreliability of Rubiola’s assumption. Because responsible lenders do not typically
approve loans for borrowers with poor credit scores, it was reasonable for Rubiola to
assume Montalvo had a good credit score prior to obtaining her mortgage—the amount
of the defaulted loan was $184,568.00. That Montalvo secured the loan with a “fair”
score may go more to lending policy than Rubiola’s assumption. Had Rubiola’s
assumption been correct—that Montalvo had a good credit rating—Montalvo likely
“would have qualified for a fixed rate loan at an annual rate of 4 percent if she did not
have a foreclosure on her credit record.”12 That Montalvo did not have a good credit
Docket entry # 72, ex. A, pp. 60 & 65.
Docket entry # 68, ex. A, p. 67.
Docket entry # 68, ex. C.
rating, and was therefore unqualified for refinancing at a lower interest rate, can be
explored through cross-examination. To the extent Montalvo finds Rubiola’s testimony
helpful, Rubiola can testify about the basis of his assumption and whether the erroneous
assumption undermines his opinion that Montalvo “would have qualified for a fixed
rate loan at an annual rate of 4 percent if she did not have a foreclosure on her credit
Finally, the defendants argued that Rubiola’s calculation about Montalvo’s
damages should be excluded because the calculation assumed Montalvo qualified for
refinancing at a lower interest rate. The defendants relied on Montalvo’s poor credit
score when she sought refinancing and Rubiola’s acknowledgment that numerous
factors other than the rescinded foreclosure contributed to the poor rating. Thus, the
defendants argued that the court must exclude Rubiola’s testimony about how much
more Montalvo must pay in mortgage interest because of the foreclosure.
Rubiola’s erroneous assumption that Montalvo qualified for refinancing at a
lower rate does not undermine the reliability of the calculation. Borrowers know that
they pay less interest at an interest rate of 4% than at an interest rate of 7.5%. To the
extent Montalvo finds Rubiola’s testimony helpful—knowing the defendants will
present evidence showing she did not have a good credit score when she sought
Docket entry # 68, ex. C.
refinancing—the defendants can explore the basis of Rubiola’s calculation through
Lehrer. Lehrer is an economist who operates an economic and financial services
consulting company. Montalvo designated Lehrer to testify about economic damages
flowing from the alleged wrongful foreclosure and the present value of money at
different interest rates for available loans. The first opinion the defendants challenged is
the following one:
1. [B]ased upon [the defendants’ failure] to promptly and properly
administer and monitor the mortgage of Ms. Montalvo, Ms. Montalvo has
suffered an initial financial loss of at least $12,000 plus, costs, interest, fees
and other associated expenses often associated with improper actions on
the part of a financial institution or their servicing agent.14
This opinion adds Lehrer’s fee for his report ($1,000) and Montalvo’s attorney fees todate ($11,000) to reach an initial financial loss. The defendants maintain Lehrer’s
testimony about initial financial loss is unreliable because Lehrer is unqualified to testify
about attorney fees and because Lehrer was uncertain about the source of his
information for attorney costs. These complaints do not effect the reliability of Lehrer’s
testimony because Montalvo designated her attorney as a witness and because Lehrer
did not address the reasonableness of attorney fees. Lehrer’s opinion represents typical
initial costs to prosecute a lawsuit: hiring an attorney for legal representation and hiring
Docket entry # 68, ex. E, p. 5 (Lehrer’s report).
an expert to quantity damages. Lehrer’s testimony about initial financial loss is
The defendants also challenged the following three reported opinions:
2. If the matter at hand had not come into being and Ms. Montalvo still
had her prior significant credit ratings, then she would have been easily able
to refinance her residence in San Antonio, Texas at an interest rate of
4.50%(+/-). With the average life of a mortgage at seven (7) years, then on
the $180,000 mortgage (approx.), Ms. Montalvo would have been able to
save the average amount…[of $37,800] with her prior, non foreclosure
3. [B]ased on [my] credit banking experience…, it will cost the Montalvo
Household appropriately 4.0% ADDITIONAL [credit card] interest costs
per year for the next seven (7) years [in the amount of $1,400].16
4. [B]ased on [my] credit banking experience…, it will cost the Montalvo
Household appropriately 4.0% ADDITIONAL…[insurance] costs per year
for the next seven (7) years [in the amount of $1,120].17
Like Rubiola’s opinions, these opinions assume Montalvo had a good credit rating prior
to the foreclosure and that she qualified for refinancing at a lower interest rate. The
defendants argued that Lehrer’s testimony should be excluded as unreliable because
Montalvo had a poor good credit rating before the foreclosure and was disqualified
from refinancing. The assumption, however, does not render Lehrer’s testimony
Docket entry # 68, ex. E, pp. 13-14 (emphasis added).
Docket entry # 68, ex. E, p. 14.
Docket entry # 68, ex. E, p. 15.
Lehrer’s second opinion addresses costs Montalvo would have saved had she
had refinanced her 7.5% mortgage at 4%. Lehrer assumed Montalvo qualified for
refinancing. When questioned about the basis of his opinion that Montalvo had a good
credit rating before the foreclosure, Lehrer testified that Montalvo told him she had a
credit rating of 720 before the foreclosure and 525 after the foreclosure.18 Had Montalvo
had a good credit score when she sought refinancing, “she [likely] would have been
easily able to refinance her residence in San Antonio, Texas at an interest rate of
4.50%(+/-),” and thus realized significant savings with a refinanced loan at a lower
interest rate. To the extent that Montalvo values Lehrer’s opinion, knowing her prior
credit reports indicate she may not have qualified for refinancing, Lehrer may testify
about the amount Montalvo could have saved with a refinanced loan. The defendants
can explore Lehrer’s assumption through cross-examination.
The defendants also complained that Lehrer’s calculation of savings in mortgage
interest does not consider the amortization of Montalvo’s present loan,19 but “simply
assumes a $180,000.00 unpaid balance and simply multiplies this amount by 7.5% and
Docket entry # 68, ex. F, p. 21-22 (Lehrer’s deposition). See also id., pp. 39
(testifying that “I just took her word for it” that she had a score of 720 before the
foreclosure and 525 after the foreclosure).
See docket entry # 67, pp. 17-18.
4.5% and subtract the latter sum from the former sum.”20 Considering the amount of
loan, the interest rate, and the nominal amount of principal repaid in the first seven
years of a mortgage, the simplification of Lehrer’s calculation is not fatal to Lehrer’s
opinion. Moreover, Lehrer’s opinion is stated in terms of approximation and
Lehrer’s third opinion addressed additional costs in credit card interest
purportedly flowing from wrongful foreclosure. The defendants asked the court to
exclude testimony about increased costs in credit card interest because Montalvo does
not have a credit card. When questioned about the basis of the opinion, Lehrer testified
that Montalvo told him she had a credit card, but stated that he did not review credit
card information in reaching his opinion.22 Lehrer explained that a person with a
posted foreclosure would qualify for a credit card at a higher interest rate than a person
without the foreclosure.23 Although the defendants may be correct about whether
Montalvo has a credit card, the existence of a credit card does not necessarily
Docket entry # 67, p. 17.
See docket entry # 68, ex. E, p. 13 (stating “then on the $180,000 mortgage
(approx.), Ms. Montalvo would have been able to save the average amounts denoted
below”) (emphasis added).
Docket entry # 68, ex. F, p. 47.
Docket entry # 68, ex. F, p. 47.
undermine Lehrer’s opinion about the effect of a foreclosure on credit-card interest
Lehrer opined that even if Montalvo does not have a credit card at the present
time, she will likely need one in the future.24 Lehrer explained that Montalvo will pay a
higher credit-card interest rate because of the “posting of the house for foreclosure, the
foreclosure, the setting aside of the foreclosure, and all the legal documentation that’s
probably now semi-voluminous that surrounded”25 the foreclosure. If Montalvo
presents evidence that she has a credit card with a higher interest rate than before the
foreclosure, or that she requires a credit card in the future, Lehrer’s testimony about the
consequences of a foreclosure and and increased interest rates would support
Lehrer’s fourth opinion addressed increased property insurance costs that
Montalvo will purportedly pay as a result of the foreclosure. The defendants asked the
court to exclude testimony about increased insurance costs because Lehrer assumed
Montalvo suffered a significant decrease in credit scores as a result of the foreclosure
and Montalvo has property insurance. The latter reason fails because the assumption is
reasonable. Typically, lenders require property insurance as a condition of obtaining a
Docket entry # 68, ex. F, pp. 51-52.
Docket entry # 68, ex. F, p. 52.
mortgage. The former reason—the assumption Montalvo suffered a significant
decrease in credit scores as a result of the foreclosure—can be explored through crossexamination. Even with a “fair” credit rating before the foreclosure, it is reasonable to
assume that a rescinded foreclosure impacts a lender’s credit rating.
Conclusion. “The party seeking to have the district court admit expert
testimony must demonstrate that the expert’s findings and conclusions are reliable, but
need not show that the expert’s findings and conclusions are correct.”26 Although her
experts’ opinions may be incorrect because of erroneous assumptions, Montalvo has
demonstrated the reliability of her experts’ conclusions. Consequently, I DENY the
defendants’ motion to exclude expert witnesses (docket entry # 67).
SIGNED on December 19, 2011.
NANCY STEIN NOWAK
UNITED STATES MAGISTRATE JUDGE
Bocanegra, 320 F.3d at 585.
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