ATI Titanium v. US Magnesium
MEMORANDUM DECISION AND ORDER: 1) ATI's Motion to Exclude Mr. Hoffman 318 is GRANTED IN PART and DENIED IN PART; 2) USMG's Motion to Exclude Mr. Nelson 333 is DENIED; and 3) USMG's Motion to Exclude Mr. Stanton 327 is DENIED. Signed by Magistrate Judge Jared C. Bennett on 2/17/21. (dla)
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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
U.S. MAGNESIUM, LLC, a Delaware
limited liability company,
ATI TITANIUM, LLC, a Delaware limited
liability company; ALLEGHENY
TECHNOLOGIES, INC., a Delaware
Corporation; and DOES 1-220,
MEMORANDUM DECISION AND
Case No. 2:17-cv-00923-HCN-JCB
District Judge Howard C. Nielson, Jr.
Magistrate Judge Jared C. Bennett
The late Judge Dee Benson originally referred this case to Magistrate Judge Paul M.
Warner under 28 U.S.C. § 636(b)(1)(A). 1 Because of Judge Benson’s untimely passing, this case
is now before Judge Howard C. Nielson, Jr., and due to Judge Warner’s retirement, this case is
now referred to Magistrate Judge Jared C. Bennett. This Memorandum Decision and Order
addresses three motions: ECF Nos. 318, 327, and 333. Each motion seeks to exclude expert
testimony under Fed. R. Evid. 702. The court held a hearing on the motions on January 13, 2021
and, at the conclusion of the hearing, took the matter under advisement. After considering the
parties’ memoranda, the evidence attached thereto, the relevant law, and the parties’ oral
arguments, this court renders the following Memorandum Decision and Order. For the reasons
ECF No. 63.
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set forth below: (1) Defendants ATI Titanium, LLC and Allegheny Technologies, Inc.’s
(collectively, “ATI”) Motion to Exclude Richard Hoffman 2 is GRANTED IN PART and
DENIED IN PART; (2) Plaintiff U.S. Magnesium, LLC’s (“USMG”) Motion to Exclude Clarke
Nelson 3 is DENIED; and (3) USMG’s Motion to Exclude Steven F. Stanton 4 is DENIED.
USMG is a producer and supplier of magnesium, and ATI operates a titanium sponge
manufacturing facility, which uses magnesium in its production process. This action arises out of
a Supply and Operating Agreement (“Agreement”) that the parties entered in September 2006. In
the Agreement, ATI agreed to purchase magnesium from USMG, and USMG agreed to sell
magnesium to ATI at the price as determined by the parameters set forth in the Agreement. The
parties describe their relationship as “symbiotic” in that ATI’s titanium sponge manufacturing
process would produce magnesium chloride, which USMG would use to produce magnesium to
sell to ATI. The Agreement contemplated a twenty-year term, and the parties operated
neighboring plants in Rowley, Utah until mid-2016 when ATI invoked the Agreement’s
Economic Force Majeure (“EFM”) provision to suspend performance.
ECF No. 318.
ECF No. 333.
ECF No. 327.
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This action eventually followed. USMG asserted claims for anticipatory and material
breach of contract against ATI. 5 In turn, ATI asserted counterclaims for breach of contract,
breach of the implied covenant of good faith, and repudiation against USMG. 6
After an extensive discovery period, the parties submitted motions for summary
judgment. 7 Along with the parties’ respective summary judgment motions, both parties seek to
exclude expert testimony under Fed. R. Evid. 702. Specifically, ATI seeks to exclude Mr.
Hoffman 8 from providing testimony on damages and serving as a rebuttal expert on EFM.
Likewise, USMG seeks to exclude opinions from Mr. Nelson, 9 which seek to rebut Mr.
Hoffman’s testimony, and from Mr. Stanton, which contend that ATI met the requirements of
EFM. 10 Following an explanation of the legal principles that govern the court’s analysis of these
motions, the court discusses each parties’ respective requests to exclude the testimony of Mr.
Hoffman, Mr. Nelson, and Mr. Clark in turn below.
Expert testimony frequently is a crucial part of establishing a claim or defense. However,
to provide testimony, an expert must be qualified, and his/her testimony must rest “on reliable
ECF No. 233.
ECF No. 238.
ECF Nos. 314, 317.
ECF No. 318.
ECF No. 333.
ECF No. 327.
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foundation” that is “relevant to the task at hand.” Fed. R. Evid. 702. Rule 702 allows an expert
“by knowledge, skill, experience, training, or education” to testify “in the form of an opinion or
(a) the expert’s scientific, technical, or other specialized knowledge
will help the trier of fact to understand the evidence or to determine
a fact in issue;
(b) the testimony is based on sufficient facts or data;
(c) the testimony is the product of reliable principles and methods;
(d) the expert has reliably applied the principles and methods to the
facts of the case. 11
The advisory committee notes accompanying the 2000 amendments to Rule 702 expound upon
factors the court should consider to the extent applicable and provide extensive guidance for
assessing reliability. 12 Specifically, this commentary provides that proponents of expert
testimony bear the burden of establishing its admissibility but
do not have to demonstrate to the judge by a preponderance of the evidence
that the assessments of their experts are correct, they only have to demonstrate
by a preponderance of evidence that their opinions are reliable [because]
evidentiary requirement of reliability is lower than the merits standard of
Because “reliability” instead of “correctness” is the standard for assessing expert testimony
under Rule 702, “[v]igorous cross-examination, presentation of contrary evidence, and careful
instruction on the burden of proof are the traditional and appropriate means of attacking shaky
Fed. R. Evid. 702.
Fed. R. Evid. 702 advisory committee’s notes to 2000 amendment.
Fed. R. Evid. 702 advisory committee’s note to 2000 amendment (emphasis added).
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but admissible evidence.” 14 Thus, under Rule 702, the question is not whether the proposed
expert testimony is correct or even shaky; it is whether the testimony is reliable or unreliable.
If the court determines that the proffered expert testimony is “unreliable,” then it is
inadmissible. However, if the court deems the expert testimony “reliable,” then the expert
testimony is subjected to the other requirements in the Federal Rules of Evidence to determine
admissibility. 15 Once the reliable expert evidence is deemed admissible under the other Federal
Fed. R. Evid. 702 advisory committee’s note to 2000 amendment (quoting Daubert v. Merrell
Dow Pharm., Inc., 509 U.S. 579, 595 (1993)).
Even if an expert’s testimony is deemed “reliable” under Rule 702, a subsequent legal ruling
from the court can render the expert’s testimony irrelevant under Fed. R. Evid. 403. For example,
if the court ruled as a matter of law that damages were limited to a shorter period than an expert
calculated, a party would be able to move under Rule 403 to exclude the portion of the expert
opinion that conflicts with the court’s legal ruling on the grounds that the conflicting opinion
confuses the issues and is unduly prejudicial. Additionally, even if the expert’s report is
“reliable,” it would likely be excluded from evidence as hearsay under Rule 802. Thus, “reliable
evidence” does not necessarily equal “admissible evidence” whereas “unreliable evidence”
necessarily equals “inadmissible evidence.”
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Rules of Evidence, the fact finder is free to assess where along the weight spectrum of “correct”
and “reliable” the expert evidence falls. Even though expert evidence may be reliable and
otherwise admissible, a fact finder may find it so shaky that it warrants little to no weight.
However, as shown in the visual aid above, the court’s focus in deciding Rule 702
motions is narrow because instead of assessing whether the fact finder will give the expert
evidence any weight, the court focuses solely on which side of the “Reliable/Unreliable” line the
expert evidence falls. In making this determination, the court relies on the factors stated in Fed.
R. Evid. 702, the additional factors contained in the 2000 advisory committee’s note, and the
court’s broad discretion. 16
Besides providing what a court may consider in determining the narrow question of
“Reliability/Unreliability,” the advisory committee’s note to the 2000 amendments also states
what a court cannot consider. Specifically,
[w]hen facts are in dispute, experts sometimes reach different
conclusions based on competing versions of the facts. The emphasis
in the amendment on “sufficient facts or data” is not intended to
authorize a trial court to exclude an expert’s testimony on the ground
that the court believes one version of the facts and not the other. 17
Consequently, if determining “reliability” requires the court to decide which party’s facts are
more believable, then the court cannot exclude the expert but must leave it to the fact finder to
Id. (stating additional factors that a court may consider, among others, in determining
reliability of expert testimony); see also Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 142
(1999) (stating that courts are given ‘“broad latitude’ in deciding ‘how to determine reliability
and in making the ‘ultimate reliability determination’” (citations omitted)).
Fed. R. Evid. 702 advisory committee’s note to 2000 amendment
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determine the facts and how much weight to afford the expert’s testimony based on that factual
Relatedly, when expert opinion is based on the parties’ competing views of the law,
motions to exclude expert testimony under Fed. R. Evid. 702 are not the appropriate medium for
resolving these legal disputes; that is what summary judgment and trial are for. 18 Indeed, not one
of the factors for determining “reliability” listed in Rule 702 includes an evaluation of the
parties’ underlying legal arguments. Besides not being textually supported under Rule 702, the
court cannot include the validity of the parties’ legal arguments in determining reliability as a
practical matter. By illustration, assume that two opposing experts’ analyses are based on
differing legal interpretations of the same contract. Further assume that the court rules as a matter
of law that a plaintiff’s interpretation of the contract is correct. Although both expert’s opinions
may be “reliable” under Rule 702 based on the rules of the experts’ professional discipline, the
opinion of the plaintiff’s expert would be well taken, whereas the opinion of the defendant’s
expert would be subject to exclusion as irrelevant under Fed. R. Evid. 403. But if the court were
to reach the opposite legal conclusion, then the opposite result would occur relating to the
experts’ opinions. Notice that the exclusion of one expert’s opinion does not turn on whether the
expert’s opinion was “reliable” (i.e, whether the expert was qualified, applied the proper methods
Wells Fargo Bank, N.A. v. Stewart Title Guar. Co., No. 19-CV-285, 2020 WL 6451963, *3 (D.
Utah. Nov. 3, 2020) (stating that “the court will not entertain summary judgment-esque
arguments disguised as Daubert objections” (citing Okla. ex rel. Doak v. Acrisure Bus.
Outsourcing Servs., LLC, 529 F. App’x 886, 896 (10th Cir. 2013)); see also Sabal Trail Trans.,
LLC v. 0.589 Acres of Land in Hamilton Cty., No. 16-CV-277-JJ-BT, 2018 WL 3655556, at *7
(M.D. Fla. Aug. 2, 2018); Kirksey v. Schindler Elevator Corp., No. CV 15-0115-WS-N, 2016
WL 5213928, at *3 (S.D. Ala. Sept. 21, 2016).
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of his discipline, or reached a sound conclusion, among other things). Instead, exclusion turns on
relevance stemming from the court’s legal ruling, which may be a central issue in the entire
lawsuit. Thus, the court will not decide the validity of the parties’ genuinely disputed legal
contentions when deciding whether expert evidence is “reliable” under Rule 702.
ATI’S MOTION TO EXCLUDE MR. HOFFMAN’S TESTIMONY IS GRANTED
IN PART AND DENIED IN PART.
ATI raises three principal challenges to Mr. Hoffman’s testimony. First, ATI claims that
Mr. Hoffman’s rebuttal report regarding whether ATI could establish EFM under the Agreement
is untimely. Second, ATI asserts that Mr. Hoffman’s opinion did not appropriately consider
several qualitative assumptions in rendering his rebuttal opinion on EFM and his calculation of
damages. Finally, ATI argues that Mr. Hoffman’s alter ego opinion should be excluded because
it is a legal opinion that is not helpful to the fact finder. Each argument is discussed below.
A. Mr. Hoffman’s EFM Rebuttal Opinion Was Timely Disclosed.
The court declines to exclude Mr. Hoffman’s EFM opinion because it was timely
disclosed. However, because Mr. Hoffman’s EFM opinion is a “rebuttal” opinion—and because
USMG agreed at oral argument—Mr. Hoffman may not reference his EFM rebuttal opinion in
USMG’s case in chief unless ATI opens the door to that line of questioning during that phase of
the trial. The timing of expert disclosures in this case is governed by the operative scheduling
order. That scheduling order provides that the party who has the burden of proof must produce
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its expert report by February 25, 2020. 19 USMG disclosed Mr. Hoffman’s rebuttal EFM opinion
after February 25, 2020. Therefore, if USMG bore the burden of proof on the issue of EFM, then
Mr. Hoffman’s opinion is untimely.
USMG does not bear the burden of proof on the EFM issue because EFM is an
affirmative defense. 20 As such, the party asserting the affirmative defense bears the burden of
proving it. 21 Notwithstanding, ATI argues that USMG bears the burden of proof because it
alleged in the complaint that ATI’s EFM designation was a breaching act and, therefore, USMG
transformed EFM from an affirmative defense into an element of USMG’s breach of contract
claim that it must prove during its case in chief. 22 ATI’s argument is unavailing because to
establish a breach of contract, USMG need only prove that: (1) ATI had an obligation to perform
under the Agreement; (2) USMG performed its obligations under the Agreement, and ATI failed
to do so; and (3) USMG suffered damages as a result of ATI’s failure to perform. 23 The elements
of breach of contract do not require the plaintiff to preemptively disprove all the possible
defenses that the breaching party may assert to excuse the purported breach. Instead, ATI bears
the burden of establishing its affirmative defense. Further, as the court pointed out at oral
ECF No. 308.
Desert Power, LP v. Pub. Serv. Comm’n, 2007 UT App 374, ¶14, 173 P.3d 218 (stating that
party asserting force majeure would not be entitled to relief “unless it could prove that several
factual conditions had been met”).
Aquila, Inc. v. C.W. Mining, 545 F.3d 1258, 1264 (10th Cir. 2008) (stating that burden of proof
on a force majeure defense rests with party asserting the defense).
ECF No. 318 at 15.
Elopulos v. McFarland & Hullinger, LLC, 2006 UT App 352, ¶10, 145 P.3d 1157.
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argument, if ATI never mentions EFM during the trial, then EFM will never become an issue.
Thus, EFM is an affirmative defense that USMG does not bear the burden of disproving, and the
post-February 25, 2020 submission of Mr. Hoffman’s EFM rebuttal opinion is timely.
Although timely, Mr. Hoffman’s EFM analysis is a rebuttal opinion and should not be
shared during USMG’s case in chief. As the parties agreed at oral argument, USMG will only
elicit Mr. Hoffman’s EFM opinion to rebut any affirmative defense of EFM that ATI presents in
its case in chief unless ATI opens the door to that evidence during USMG’s case in chief.
Accordingly, ATI’s motion on this point is granted in part and denied in part.
B. Mr. Hoffman’s Damages Calculation, Including the Discount Rate and EFM
Opinions, Are Reliable.
ATI challenges Mr. Hoffman’s opinions on damages (including the discount rate) and
whether ATI qualified for EFM because his opinions fail to “fit the facts” of this case. 24 The
court first addresses ATI’s objections to Mr. Hoffman’s damages calculation followed by ATI’s
challenges to his EFM determination.
1. ATI Fails to Show that Mr. Hoffman’s Damages Calculation Is Unreliable
ATI claims that Mr. Hoffman’s damages calculation is unreliable because it: (1) includes
more years than USMG will likely be in business; (2) applies an incorrect discount rate by
ignoring business and market risks; and (3) assumes that ATI will pay top dollar for magnesium
even though the market provides for much cheaper options. The court considers arguments (1)
and (2) together because they are closely related and addresses argument (3) separately.
ECF No. 318 at 16.
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a. Although Subject to Challenge, Mr. Hoffman’s Damages
Assessment and Discount Rate Are Reliable.
Referring the court’s visual aid above, ATI’s arguments, at best, show that Mr.
Hoffman’s opinions are short of “correct” but not that his opinions are “unreliable.” One of the
chief complaints that ATI has with Mr. Hoffman’s analysis is that his damages assessment
extends too far into the future. This argument has both a factual and legal component. ATI
challenges Mr. Hoffman’s opinion as a factual matter because he fails to consider whether
USMG will be in business for as long as Mr. Hoffman calculates damages. ATI also alleges that
Mr. Hoffman’s temporally excessive damage period affects his discount rate calculation because
“future profits” is a variable in that equation. 25 Thus, ATI argues, Mr. Hoffman fails to
appropriately consider the “facts.” Additionally, ATI argues that Mr. Hoffman’s damages period
is too long as a matter of law. Therefore, ATI argues, his assessment of damages is unreliable.
The problem with ATI’s factual argument is that Mr. Hoffman used two quantitative
analyses to consider future market and industry uncertainties, which his professional discipline
commends as an acceptable way to account for such uncertainties. In fact, Mr. Hoffman
recognizes that his damages calculation must consider market volatility on both a micro and
macro level. 26 To address these uncertainties, Mr. Hoffman relies on the “Expected Cash Flow
A “discount rate” means “[a] rate of return used to convert a future monetary sum into present
value.” See Roman L. Weil, Daniel G. Lentz, Elizabeth A. Evans, Litigation Services Handbook:
The Role of the Financial Expert, 395 (John Wiley & Sons, 2017) (hereinafter “Litigation
Services Handbook”). Because a discount rate converts future dollars into present dollars, how
far into the future one looks for money has an impact on the calculation of present-day value.
ECF No. 320-4 at 19-20 of 47.
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Approach” and the “Capital Markets Approach.” 27 ATI does not provide any treatise, wellconsidered text, or other source relevant to the issue of evaluating economic damages to show
that using quantitative methods to account for market volatility is improper. 28 To the contrary,
using such quantitative methods to account for uncertainty in future profits appears to be
acceptable within Mr. Hoffman’s professional discipline. Therefore, his opinion is reliable. 29
Even though Mr. Hoffman’s opinion appears to be based on accepted methods within his
profession, ATI claims that his analysis fails to sufficiently account for volatility at USMG and
within the industry in which it operates. At best, however, ATI’s argument shows that Mr.
Hoffman’s analysis falls short of “correct” and lingers near “shaky but admissible.” But, as
shown in the court’s visual aid above, “shaky” is within the reliability zone and, therefore, is
eligible for vigorous cross-examination and the presentation of contrary evidence, not exclusion
under Rule 702. Therefore, ATI’s factual challenges to Mr. Hoffman’s opinion on damages and
the discount rate are unavailing.
As a matter of law, ATI’s argument fares no better. The period for which USMG may
receive damages is a hotly contested legal issue for which both parties are armed with cases and
ECF No. 320-4 at 20-22 of 47.
Additionally, ATI complains that Mr. Hoffman should not have used the rate at which USMG
can borrow money as a means of calculating “net present value” of future damages. However,
ATI has not presented anything to the court showing that this is an unacceptable analytical factor
in calculating damages. Based on the quantitative analysis that Mr. Hoffman has rendered, which
appears to comport with the accepted methodology of Mr. Hoffman’s profession, the court must
conclude that any dispute over this component of Mr. Hoffman’s analysis, at best, places his
testimony somewhere around “shaky but admissible,” which is subject to vigorous crossexamination the presentation of contrary evidence, not exclusion.
Litigation Services Handbook at 359.
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treatises that purportedly support their respective views. Accordingly, the court cannot decide
that legal issue in the context of a Rule 702 motion because the correctness of a party’s
substantive legal analysis is not a factor of reliability; it is the stuff of summary judgment and,
possibly, trial. Therefore, ATI’s challenge to Mr. Hoffman’s analysis as a matter of law is not
contemplated under Rule 702. If ATI persuades Judge Nielson that USMG is not entitled to
damages for the lengthy period that Mr. Hoffman analyzed, then ATI may seek to exclude Mr.
Hoffman’s testimony under Rule 403 for being irrelevant and confusing to the issues but not
because Mr. Hoffman’s opinion is “unreliable.”
b. Mr. Hoffman’s Assumptions Regarding ATI’s Magnesium
ATI’s argument and USMG’s counterarguments regarding Mr. Hoffman’s assumptions
as to how much ATI would pay for magnesium embody a legal dispute over the Agreement, not
a challenge to reliability under Rule 702. ATI argues that the text of the Agreement allows ATI
to purchase either molten or solid magnesium. 30 However, USMG claims that the course of
dealing between the parties required ATI to purchase only molten magnesium. Again, Mr.
Hoffman’s ability to guess the correct legal interpretation of the Agreement is not a factor of
“reliability” under Rule 702. It is a subject for summary judgment or trial and not for resolution
on a motion to exclude expert testimony. Therefore, Mr. Hoffman’s reliance on molten
magnesium is not unreliable under Rule 702, but if Judge Nielson disagrees with USMG’s
reading of the Agreement, then Mr. Hoffman’s opinion on this point may become irrelevant.
ECF No. 329-1 at 10 of 50.
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2. Mr. Hoffman’s EFM Opinion Is Reliable Albeit Subject to Challenge at Trial.
ATI contends that Mr. Hoffman’s opinion is unreliable because he relies on “large
amounts of waste product” called “revert” to determine EFM and, again, assumes that the
magnesium prices that ATI will pay are higher than historically probable. 31 Neither argument
renders his opinion on EFM unreliable.
First, the court cannot find that Mr. Hoffman’s use of revert renders his opinion
unreliable because there is a factual dispute between the parties as to whether ATI relied on
revert to reach its calculations and whether use of revert in those calculations is acceptable as
matter of contractual interpretation. Because a motion under Rule 702 is not a forum to resolve
either factual or legal disputes, the court cannot find that Mr. Hoffman’s reliance on revert in his
EFM calculation is unreliable.
Second, Mr. Hoffman’s use of molten magnesium at high purchase prices does not render
his opinion unreliable for the reasons stated above in section I.B.1.b. This issue is one of law and
not reliability. Therefore, the court cannot resolve that issue here under the guise of a Rule 702
motion. Consequently, Mr. Hoffman’s substantive opinions regarding damages and EFM are not
excluded as “unreliable.”
C. Mr. Hoffman’s Opinion on Alter Ego Is Not Reliable Because It Is Unhelpful to
the Trier of Fact.
ATI contends that Mr. Hoffman’s alter ego opinion is unreliable because it is unhelpful to
the fact finder. To be “reliable” under Rule 702, an expert’s opinion must “help the trier of fact
ECF No. 318 at 18.
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to understand the evidence or to determine a fact in issue.” 32 Because an expert’s job is to help
the fact finder understand and determine the facts, courts routinely exclude expert opinions that
merely provide legal analysis because, after all, legal analysis is the court’s job. 33 Indeed, as the
advisory committee note to Fed. R. Evid. 704 provides, courts “stand at the ready to exclude
opinions phrased in terms of inadequately explored legal criteria.” Consequently, the Court of
Appeals for the Tenth Circuit has stated that “an expert may not state his or her opinion as to
legal standards nor may he or she state legal conclusions drawn by applying the law to the
By illustration, if an attorney in a trial over a contested will asks an expert, “Did the
testator have the capacity to make a will?” then the answer to that question will be improper
under Rule 702 because the expert would state a legal conclusion by applying the law to the
facts. However, if the attorney asks an expert, “Based on your mental health evaluation of the
testator, was she able to remember the nature and extent of her property?” then the expert will
opine on facts to assist the trier of fact understand the evidence. The attorney could continue to
Fed. R. Evid. 702(a).
See, e.g., United States v. Brooks, 81 Fed. R. Evid. Serv. 381 (E.D.N.Y. 2010) (stating that
“courts specifically preclude the expert from offering either legal conclusions or opinions that
apply corporate governance concepts to the case’s specific facts”); Cryovac Inc. v. Pechiney
Plastic Packaging, Inc., 430 F. Supp. 2d 346 (D. Del. 2006) (noting that experts may not testify
regarding the substance of patent and contract law); Pinal Creek Grp. v. Newmont Mining Corp.,
352 F. Supp. 2d 1037, 1044 (D. Ariz. 2005) (holding that law professor’s expert testimony
regarding Maine law on “piercing the corporate veil” was an inadmissible legal opinion).
Okland Oil Co. v. Conoco, Inc., 144 F.3d 1308, 1328 (10th Cir. 1998).
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ask questions about the expert’s factual observations and opinions to elicit the necessary
evidence to argue that the facts support the legal conclusions for which the attorney advocates. 35
As USMG recognized at oral argument, Mr. Hoffman cannot opine whether ATI is the
alter ego of Allegheny Technologies, Inc. because such testimony would merely provide a legal
conclusion drawn by applying the facts to the law. However, Mr. Hoffman can testify regarding
facts that are relevant to the alter ego issue and are within his expertise. For example, although
Mr. Hoffman cannot render a legal conclusion that ATI was “undercapitalized,” he could testify
as to the capitalization for ATI based on his expert review and could opine whether the level of
ATI’s capitalization is adequate or low based on his experience. Therefore, Mr. Hoffman’s legal
conclusion that ATI is Allegheny’s alter ego is unreliable because it is unhelpful to the fact
finder. However, Mr. Hoffman can opine about facts that are disclosed in his reports and would
allow USMG to argue in favor of a finding of alter ego during closing argument. Accordingly, on
this point, ATI’s motion is granted in part and denied in part.
USMG’S MOTION TO EXCLUDE THE REBUTTAL OPINION OF MR.
NELSON IS DENIED.
USMG moves to exclude the rebuttal opinions of ATI’s expert, Mr. Nelson, for three
reasons. First, USMG argues that Mr. Nelson’s reliance on qualitative analysis to criticize Mr.
Hoffman’s quantitative analysis of damages is unreliable because Mr. Nelson’s qualitative risks
are speculative. Second, USMG contends that Mr. Nelson should be precluded from testifying
See David H. Kaye, David E. Bernstein, Andrew G. Ferguson, Maggie Wittlin, and Jennifer L.
Mnookin, The New Wigmore: Expert Evidence § 2.3 (Aspen 3d ed. 2021); cf Okland Oil, 144
F.3d at 1327 n.22. 1328 (recognizing that expert opinion relating to facts that allow attorneys to
argue in favor of a legal conclusion based on the expert testimony is proper).
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about the adverse economic impact that USMG would have suffered had it reduced its
magnesium prices to a degree that would have allowed ATI to avoid declaring EFM. Finally,
USMG asserts that Mr. Nelson cannot criticize Mr. Hoffman for failing to calculate damages
under the Agreement’s “Interim Penalty Clause” because Judge Benson purportedly invalidated
that argument as a matter of law. As shown in order below, none of these arguments show that
Mr. Nelson’s opinions are unreliable. Therefore, USMG’s motion is denied.
A. Qualitative Criticism of Mr. Hoffman’s Calculations Is Not Unreliable.
Whereas Mr. Hoffman’s damages calculation relies on quantitative methods to account
for uncertainty in future profits, Mr. Nelson cites several qualitative risks to USMG’s future
profits that he contends Mr. Hoffman failed to consider. Although USMG contends that raising
these qualitative factors is speculative, it has failed to provide any authority showing its
impropriety among experts of Messrs. Hoffman and Nelson’s professional discipline. In fact, at
least one treatise on calculating economic damages states that consideration of qualitative factors
is an important part of evaluating economic damages. 36 This treatise further provides that
relevant qualitative factors include, among other things, “risks associated with operating and
investing in the business . . . supplier reliability . . . industry trends, and competitive position.” 37
Mr. Nelson’s critiques of Mr. Hoffman’s valuation align with these qualitative factors.
For instance, Mr. Nelson devotes a great deal of discussion to USMG’s ability to remain
Litigation Service Handbook at 368 (stating that even though valuation models primarily
consist of quantitative elements, valuation “also requires inputs that involve qualitative analysis
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operational and competitive in the magnesium market. This discussion clearly touches on the
risks associated with USMG’s continued operation, industry trends, and USMG’s competitive
position in that market. 38 Mr. Hoffman also cites other geopolitical and economic risks, which
implicate industry trends and supplier reliability. This analysis is relevant to proving ATI’s legal
arguments that Mr. Hoffman’s damages calculation includes too many years because USMG
may not be around long enough to incur damages for the years that it alleges. Therefore, Mr.
Nelson’s qualitative critiques of Mr. Hoffman’s chiefly quantitative work are not “unreliable”
because Mr. Nelson’s critiques are consistent with the accepted practices of his professional
discipline and can be vigorously cross-examined at trial. 39
USMG contends that Mr. Nelson’s opinion about USMG’s survival as a company is irrelevant
as to damages because the law does not countenance such a concern in determining damages.
Not surprisingly, ATI contends that USMG’s survival is relevant for calculating damages.
However, this debate is not helpful in the context of determining the reliability of Mr. Nelson’s
opinion under Rule 702 because whether USMG’s continued survival is relevant to damages is
just that: a question of relevance under Rule 403 and not reliability under Rule 702. The court
will not decide legal issues under the guise of a Rule 702 motion. If Judge Nielson rules that
USMG’s longevity in the corporate world is irrelevant as a matter of law, USMG can move to
exclude Mr. Nelson’s opinion under Rule 403.
In criticizing Mr. Nelson’s opinion, USMG complains that Mr. Nelson has never calculated a
discount rate himself and did not calculate one here. However, this argument does not require
exclusion of Mr. Nelson’s opinions because organically calculating a discount rate is not the role
that Mr. Nelson is fulfilling in this litigation. Fed. R. Civ. P. 26(a)(2)(D)(ii) recognizes a special
category of expert witnesses whose function is simply to contradict the work of other experts.
USMG does not cite any authority—and the court cannot find any—requiring a rebuttal expert to
engage in his/her own organic analysis or do more than point out flaws in another expert’s work.
Mahaska Bottling Co. v. Pepsico, Inc., 441 F.Supp. 3d 745, 759 (S.D. Iowa 2019) (stating that
“[i]t is the proper role of rebuttal experts to critique plaintiffs’ experts’ methodologies and point
out potential flaws in the plaintiffs’ reports”). Therefore, this argument fails to push Mr. Nelson’s
opinions into the realm of “unreliable.”
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B. USMG’s Challenge to Mr. Nelson’s EFM-Avoidance Opinion Requires Legal
Rulings on Central Issues in this Action.
Mr. Nelson opines that if USMG would have reduced its magnesium prices so that ATI
could have avoided EFM, then USMG would have lost money, and, therefore, ATI’s declaration
of EFM was unavoidable under the Agreement. USMG contends that this opinion should be
excluded from trial because it lacks foundation and fails to consider that ATI materially breached
the Agreement 40 by, among other things, “not properly invoke[ing] the EFM clause.” 41 Neither
reason shows that Mr. Nelson’s opinion is unreliable.
First, USMG’s foundation challenge is not well taken because relying on another expert’s
work to form an opinion in the same case is proper. “Of course, as a general matter, there is
nothing objectionable about an expert relying upon the work [of] a colleague.” 42 USMG
concedes that Mr. Nelson obtained the foundation for this challenged opinion from ATI’s other
expert, Mr. Stanton. Relying on the opinion of another expert as a basis for forming opinions is
an accepted litigation practice that is expressly allowed under Fed. R. Evid. 703, which allows an
expert to rely on evidence “that the expert has been made aware of . . . .” Mr. Nelson’s reliance
on Mr. Stanton’s work does not push Mr. Nelson’s testimony into the realm of unreliable.
Second, USMG’s contentions that Mr. Nelson did not consider ATI’s alleged breach of
contract and failure to properly invoke EFM would require the court to decide the central legal
ECF No. 327 at 18.
ECF No. 327 at 19 (emphasis deleted).
See, e.g., Gopalratnam v. Hewlett-Packard Co., 877 F.3d 771, 789 (7th Cir. 2017) (citations
Case 2:17-cv-00923-HCN-JCB Document 404 Filed 02/17/21 PageID.14156 Page 20 of 30
issues in this action to determine whether to exclude Mr. Hoffman’s opinion. Deciding these
crucial legal issues as a prerequisite to determining “reliability” is improper in the context of
Rule 702 motions. Therefore, the court declines to exclude Mr. Nelson’s challenged opinion.
C. Judge Benson Did Not Preclude Consideration of the Interim Penalty Clause.
USMG’s final challenge to Mr. Nelson’s testimony is that he relied upon the
Agreement’s Interim Penalty Clause in reaching his opinions even though Judge Benson had
previously proscribed that line of reasoning from consideration. USMG argues that under the law
of the case, Mr. Nelson’s opinion on this point is no longer relevant. Although USMG’s
objection is predicated on relevance under Fed. R. Evid. 403—instead of reliability under Rule
702—the court declines to exclude Mr. Nelson’s opinion because the law of the case does not
Even though the parties debate whether the law of the case doctrine applies to nondispositive orders, such debate is a red herring because the parties agree that, at a minimum,
there must be an actual court order. 43 Judicial skepticism expressed at oral argument does not an
order make. During oral argument on the parties’ prior summary judgment motions, Judge
Benson expressed skepticism about the viability the Interim Penalty Clause claim, but he never
Rimbert v. Eli Lilly & Co., 647 F.3d 1247, 1251 (10th Cir. 2011) (“[E]very order short of a
final decree is subject to reopening at the discretion of the district judge.” (citation and
quotations omitted, emphasis added)); Raiser v. Utah Cnty., No. 02-CV-1209, 2008 WL 477804,
*1 (D. Utah. Oct. 31, 2008) (unpublished) (“It is within the court’s discretion to reconsider a
previous order . . . .” (emphasis added)).
Case 2:17-cv-00923-HCN-JCB Document 404 Filed 02/17/21 PageID.14157 Page 21 of 30
issued an oral or written order precluding its future use. 44 Therefore, Mr. Nelson’s opinion on
this subject is not precluded by a prior order.
USMG’S CHALLENGE TO MR STANTON’S OPINIONS IS DENIED.
USMG seeks to exclude Mr. Stanton’s opinion regarding EFM for three reasons. First,
USMG contends that Mr. Stanton failed to properly determine variable costs. Second, USMG
argues that Mr. Stanton’s opinion contradicts ATI’s discovery responses and, therefore, should
be excluded. Finally, USMG contends that ATI failed to timely disclose information on which
Mr. Stanton relied to form his EFM opinions. Each contention is discussed in order below.
A. Mr. Stanton’s Calculation of Variable Costs Is Reliable.
USMG’s argument regarding variable costs arises from the Agreement’s provision that
ATI can only declare EFM if, among other things, ATI is able to purchase “titanium sponge for a
period of at least five (5) consecutive years at a price . . . at or below eighty-five percent (85%)
of its variable costs to produce titanium sponge . . . .” 45 Thus, to justify a declaration of EFM,
ATI’s calculation of its variable costs is essential.
However, the Agreement neither defines the term “variable costs” nor provides the
factors that ATI should consider when evaluating them. Because the Agreement is silent on the
meaning of “variable costs,” Mr. Stanton applied his own definition of “variable costs,” and,
based on that definition, calculated which costs to ATI were “variable” and which were “fixed.”
Mr. Stanton aided his variable cost calculation by introducing two terms that he contends are
ECF No. 60 at 95-96 (hearing transcript); ECF No. 49 (written order following oral argument).
ECF No. 329-1 at 26.
Case 2:17-cv-00923-HCN-JCB Document 404 Filed 02/17/21 PageID.14158 Page 22 of 30
constituent parts of variable costs: “linear variable costs” (“LVCs”) and “non-linear variable
costs” (“NLVCs”). After categorizing costs according to LVCs and NLVCs, Mr. Stanton
calculated variable costs and concluded that ATI could claim EFM because ATI could purchase
titanium sponge for 85% of its production costs for the time required in the Agreement.
USMG contends that Mr. Stanton’s reliance on LVCs and NLVCs is unreliable because
the Agreement speaks only about “variable costs,” and, therefore, because Mr. Stanton
considered LVCs and NLVCs, he relied on improper factors to reach his EFM conclusion.
Instead of arguing that the use of LVCs and NLVCs is inconsistent with accepted accounting
practices when calculating variable costs, USMG instead contends that Mr. Stanton
misinterpreted the Agreement as a matter of law. Once again, the application of what USMG
deems to be a “correct” legal interpretation of a contract is not a factor in Rule 702 to determine
reliability. Thus, the question under Rule 702 is not whether Mr. Stanton correctly interpreted the
law but whether his methods and application of those methods are acceptable under the rules of
his discipline (i.e., accounting). Unfortunately, USMG fails to provide any authority showing
that reliance on LVCs and NLVCs violates accepted accounting principles and practices when
determining variable costs.
In evaluating Mr. Stanton’s opinion, the court cannot find that his reliance on LVCs and
NLVCs is unreliable. Mr. Stanton defines “fixed costs” as “[a] cost that does not change as
output changes” and “variable cost” as a cost “that increases in total with an increase in output
and decreases in total with a decrease in output.” 46 Mr. Stanton did not invent those definitions;
ECF No. 329-9 at 10 (citations and quotations omitted).
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he quoted them from a well-established accounting publication entitled Cornerstones of Cost
Management. 47 Additionally, his definition of “linear variable costs” is in accordance with wellaccepted accounting practices, which recognize that when costs increase in proportion to the
increase of production, the variable cost is “linear.” 48 Conversely, when a variable cost increases
with production but not in direct proportion thereto, then the variable cost is “non-linear.” 49
Thus, using “linear variable costs” and “nonlinear variable costs” is a well-accepted accounting
practice to more granularly delineate “variable costs.” Accordingly, Mr. Stanton’s use of these
two concepts does not render his opinion “unreliable.”
Moreover, USMG’s failure to provide any authority as to what is and is not reliable in the
discipline of accounting for classifying LVCs and NLVCs is significant. USMG contends that
putting variable costs into each category is “subjective” and, therefore, unreliable because the
jury will be left to speculate why Mr. Stanton declared one variable cost “linear” but another
“non-linear.” 50 Not so. Upon being introduced to Mr. Stanton’s cost categories and his
explanation for why he categorized individual costs the way he did, the fact finder can apply the
definitions of each category to each cost and, after having the benefit of cross-examination and
Roy R. Hansen, Maryanne C. Mowen, Cornerstones of Cost Management, 77 (Boston 4th ed.
2018); see also Geoff Turner, Effective Financial Management: The Cornerstone for Success, 40
(Business Expert Press 2011).
Lane K. Anderson, Harold M. Sollenberger, Managerial Accounting, 760 (1982) (hereinafter
“Managerial Accounting”); see also Management Accounting, https://ecatalyst.net/content/textbooks/management_accounting/en/3_estimation/children-3-2cost_behaviors/children-3-2-1-linear/ (last visited Feb. 13, 2021).
Managerial Accounting at 772; see also Hasaan Fazal, What is a non-linear variable cost?,
https://pakaccountants.com/what-is-a- non-linear-variable-cost/ (last visited Feb. 13, 2021).
ECF No. 327 at 24.
Case 2:17-cv-00923-HCN-JCB Document 404 Filed 02/17/21 PageID.14160 Page 24 of 30
contrary evidence from Mr. Hoffman, can give whatever weight to Mr. Stanton it deems
appropriate. Therefore, USMG has failed to show that Mr. Stanton’s calculation of variable costs
B. ATI’S Discovery Reponses Do Not Preclude Mr. Stanton’s EFM Opinion.
USMG uses Rule 702 for a purpose for which it was never intended: ensuring
consistency with previous discovery responses. Specifically, USMG argues that ATI’s response
to a Request for Admission during discovery precludes Mr. Stanton from providing his own
independent analysis of EFM. However, conspicuously absent from Rule 702’s factors to
ascertain reliability is the extent to which the expert’s opinion squares with the party’s discovery
responses. Consistency with a party’s discovery responses simply has no relevance as to whether
an expert’s analysis is “reliable” under the factors provided in Rule 702. If anything, estopping
an expert from testifying contrary to a party’s discovery response is the stuff of the Rules of
Civil Procedure and, possibly, Fed. R. Evid. 403, not Rule 702. Nevertheless, the parties have
briefed and argued this matter in the context of their Rule 702 memoranda. Accordingly, even
though the court will not rely on Rule 702 here, it will rule on this issue because it is part of the
motion that Judge Nielson referred, is ripe, and is unlikely to prejudice Judge Nielson’s ability to
rule on the parties’ pending motions for summary judgment.
To determine whether Mr. Stanton’s EFM opinion is admissible, the court will consider
the impact of ATI’s responses to certain Requests for Admission under Fed. R. Civ. P. 36. In so
doing, the court assumes—without deciding—that a party’s responses to Requests for Admission
can limit the sources of information that its expert can consider when rendering an opinion.
Case 2:17-cv-00923-HCN-JCB Document 404 Filed 02/17/21 PageID.14161 Page 25 of 30
Rule 36 governs Requests for Admission and provides that “[a] matter admitted under
this rule is conclusively established” unless the court rules otherwise. 51 If a matter is not
admitted, then the “answer must specifically deny [the request for admission] or state in detail
why the answering party cannot truthfully admit or deny it.” 52 When considering a response to a
Request to Admit, the court must consider the “phraseology of the requests as carefully as that of
the answers or objection.” 53 USMG’s Request for Admission and ATI’s response were:
A common-sense reading of USMG’s Request for Admission No. 1 seeks an answer that
both authenticates a document bearing Bates number ATI-00000290 and admits that ATI’s fixed
Fed. R. Civ. P. 36(b).
Fed. R. Civ. P. 36(a)(4).
Thalheim v. Eberheim, 124 F.R.D. 34, 36 (D. Conn. 1988).
Case 2:17-cv-00923-HCN-JCB Document 404 Filed 02/17/21 PageID.14162 Page 26 of 30
and variable costs for purposes of EFM are contained in that authenticated document. However,
nowhere in the Request does USMG seek an admission that the document is the sole or exclusive
source of information from which ATI calculates its fixed and variable costs for purposes of
declaring EFM. Even though Request for Admission No. 1 does not seek an admission relating
to the exclusivity of ATI-00000290 for determining variable costs, ATI apparently sensed that
the Request was seeking such information. Consequently, ATI denied the Request in part by
explaining that although the variable costs listed in the document are used “in the ordinary
course of business for all budgeting and accounting purposes,” ATI also relies on additional
materials that track “additional variable costs . . . that are not represented on [ATI-00000290]”.
Thus, USMG’s request does not directly ask whether ATI-00000290 is the exclusive source of
financial information to calculate EFM, and ATI does not pigeonhole itself to the exclusive use
of ATI-00000290 to calculate its variable costs for EFM purposes. Accordingly, Request for
Admission No. 1 cannot conclusively bind ATI to ATI-00000290 as the exclusive source of
variable costs for its EFM determination. Therefore, even assuming arguendo that a Request for
Admission can limit the universe of documents that an independent expert can consider when
rendering an expert opinion, ATI is not exclusively bound to ATI-00000290 as a source of its
variable costs, and nothing precludes Mr. Stanton from considering other costs that may not be
listed in ATI-00000290 to reach his independent analysis of EFM. USMG’s attempt to exclude
Mr. Stanton’s opinion under the auspices of Fed. R. Civ. P. 36 fails.
Case 2:17-cv-00923-HCN-JCB Document 404 Filed 02/17/21 PageID.14163 Page 27 of 30
C. ATI Did Not Transgress Its Expert Disclosure Obligations Relating to Mr.
USMG contends that Mr. Stanton’s opinion should be excluded because he relied on
information that was not timely disclosed to USMG. Once again, this objection to Mr. Stanton’s
testimony is foreign to Fed. R. Evid. 702. Rule 702’s reliability criteria does not include the
production of documents as a reliability factor. Instead of Rule 702, Fed. R. Civ. P. 37(c)(1)
provides the consequences for failing to disclose information. Specifically, Rule 37(c)(1)
provides that “[i]f a party fails to provide information or identify a witness as required by Rule
26(a) or (e), the party is not allowed to use that information or witness” in any subsequent
proceeding. 54 Thus, instead of relying on Fed. R. Evid. 702 to exclude Mr. Stanton’s testimony,
USMG must first establish a failure to comply with Fed. R. Civ. P. 26(a) or (e). As shown below,
USMG cannot do either.
1. USMG Cannot Establish a Failure to Disclose Under Fed. R. Civ. P. 26(a).
USMG’s attempt to exclude Mr. Stanton’s testimony under Rule 37 fails because it
cannot show a violation of Fed. R. Civ. P. 26(a). Fed. R. Civ. P. 26(a)(2)(B) requires Mr. Stanton
to produce a report. That report must include, among other things, “the facts or data considered
by the witness” in forming his opinions.55 The Advisory Committee explains that ‘“facts or data’
is meant to limit the disclosure to material of a factual nature.” 56 The Committee further states
that “facts or data” are to be interpreted broadly to require disclosure of any material considered
Fed. R. Civ. P. 37(c)(1).
Fed R. Civ. P. 26(a)(2)(B)(iii).
Fed. R. Civ. P. 26 advisory committee’s note to 2010 amendment subdivision (a)(2)(B).
Case 2:17-cv-00923-HCN-JCB Document 404 Filed 02/17/21 PageID.14164 Page 28 of 30
by the expert . . . that contains factual ingredients. The disclosure obligation extends to any facts
or data ‘considered’ by the expert . . . .” 57 Although Mr. Stanton’s report must disclose the facts
or data he considered, Rule 26 does not require him to produce the documents containing that
factual material lest his report become so large and cumbersome that it is rendered useless.
By illustration, assume that Mr. Stanton considered 5,000 pages of company spreadsheets
in reaching his opinion. Rule 26(a)(2)(B) does not require him to produce (i.e., attach) those
5,000 spreadsheet pages to his report; it only requires him to disclose in the report that he
obtained facts and data from company spreadsheets. If Mr. Stanton were to rely on any of the
spreadsheets as a supporting exhibit to his report, Rule 26 requires him to attach those exhibits to
the report. 58 However, Rule 26 does not require that he automatically produce all documents that
he considered. If USMG wants all the documents that Mr. Stanton considered, then USMG can
rely on Fed. R. Civ. P. 45, among other mechanisms, to obtain them. 59
However, USMG fails to point to any “facts or data” that Mr. Stanton failed to disclose in
his report. Instead, USMG claims that ATI did not disclose any “documents concerning 2017
Fed. R. Civ. P. 26(a)(2)(B)(iii).
The authority that USMG cites in support of its argument alleging failure to disclose does not
contradict the court’s analysis as to Rule 26(a)(2)(B)’s requirements. For example, in Icon-IP Pty
Ltd. v. Specialized Bicycle Component, Inc., 87 F.Supp.3d 928, 949 (N.D. Cal. 2015), the court
excluded expert testimony under Rule 26 because the expert’s report failed to disclose that he
had relied on telephone conversations to render his opinions. The court precluded the expert from
relying on the information gleaned from those telephone calls at trial. Id. However, the court did
not hold that the expert had to produce recordings or notes of those telephone conversations
under Rule 26.
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expenses for the titanium plant . . . during fact discovery.” 60 Thus, USMG’s argument to exclude
Mr. Stanton’s testimony is actually based on ATI’s alleged failure to produce fact discovery, not
on Mr. Stanton’s failure to disclose “facts and data” in his report. Accordingly, USMG has failed
to show that Mr. Stanton failed to disclose facts or data in his report and, therefore, violated his
disclosure obligations under Rule 26(a).
2. USMG Cannot Establish a Violation of Rule 26(e).
By arguing that ATI failed to provide certain documents in fact discovery after Mr.
Stanton relied on them, USMG appears to argue that ATI violated Fed. R. Civ. P. 26(e). Rule
26(e) provides that a party must supplement its Rule 26(a) disclosures and any discovery
responses it made during fact discovery when certain conditions are met. 61 However, USMG has
not provided any fact discovery request that it claims ATI failed to appropriately supplement.
Therefore, the court cannot evaluate whether ATI failed to comply with Rule 26(e). Because the
court has no evidence of a violation of either Rule 26(a) or (e), it cannot exclude Mr. Stanton’s
opinion under Rule 37(c)(1). Consequently, USMG’s attempt to exclude Mr. Stanton’s testimony
under either Fed. R. Evid. 702 or Fed R. Civ. P. 37(c)(1) fails.
For the reasons stated above, IT IS HEREBY ORDERED that:
ATI’s Motion to Exclude Mr. Hoffman 62 is GRANTED IN PART and DENIED
ECF No. 327 at 22 (emphasis added).
Fed. R. Civ. P. 26(e).
ECF No. 318.
Case 2:17-cv-00923-HCN-JCB Document 404 Filed 02/17/21 PageID.14166 Page 30 of 30
USMG’s Motion to Exclude Mr. Nelson 63 is DENIED; and
USMG’s Motion to Exclude Mr. Stanton 64 is DENIED.
DATED this 17th day of February 2021.
BY THE COURT:
JARED C. BENNETT
United States Magistrate Judge
ECF No. 333.
ECF No. 327.
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