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Dietz v. Jacobs

United States District Court, D. Minnesota

March 21, 2014

Michael S. Dietz, Plaintiff,
Irwin L. Jacobs et al., Defendants.

Nicholas H. Callahan and Kelly W. Hoversten appeared for Plaintiff Michael S. Dietz.

Geoffrey P. Jarpe and Dawn C. Van Tassel appeared for Defendants Irwin L. Jacobs, Jacobs Management Corporation, Jacobs Trading, LLC, John Paul DeJoria, and Operation Bass, Inc. Courtney M. Strean appeared for Defendant Tom Grimmett.


JOAN N. ERICKSEN, District Judge.

Plaintiff Dietz[1] is the Chapter 7 Trustee for debtors Genmar Holdings, Inc. ("Genmar Holdings"), Genmar Michigan, LLC, Genmar Tennessee, Inc., Triumph Boats, Inc., and Wood Manufacturing Company, Inc., all of which filed bankruptcy petitions in the United States Bankruptcy Court for the District of Minnesota.[2] At the time of its filing on June 1, 2009, Genmar Holdings was the parent company at the top of the corporate structure in which the other debtors were subsidiaries. In his capacity as trustee, Dietz filed adversary proceedings in the Bankruptcy Court against the individual Defendants in this action on behalf of the bankruptcy estates of particular debtors, [3] seeking to avoid certain alleged preferential and fraudulent transfers by the debtors, as provided for by 11 U.S.C. §§ 547 and 548. The Bankruptcy Court consolidated those adversary proceedings[4] and then transferred them, pursuant to Bankruptcy Local Rule 5011-3(a)(1), to the United States District Court for the District of Minnesota for a jury trial.

Presently before the Court are two motions seeking to exclude expert testimony: (1) a motion filed by Defendants Irwin L. Jacobs, Jacobs Management Corporation, Jacobs Trading, LLC, John Paul DeJoria Family Trust, and Operation Bass, Inc. to exclude the testimony of Harold A. Schaeffer and (2) a motion filed by Plaintiff to exclude the testimony of Arthur H. Cobb. For the reasons stated below, the Defendants' motion is denied and the Plaintiff's motion is granted in part and denied in part.


In Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 597 (1993), the Supreme Court confirmed that the Federal Rules of Evidence "assign to the trial judge the task of ensuring that an expert's testimony both rests on a reliable foundation and is relevant to the task at hand." More specifically, Federal Rule of Evidence 702 governs the admissibility of expert testimony. It provides that a

witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if:
(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; and
(d) the expert has reliably applied the principles and methods to the facts of the case.

Fed. R. Evid. 702.

The factors that a district court may consider in making reliability and relevancy determinations include: "(1) whether the [expert's] theory or technique can be or has been tested; (2) whether the theory or technique has been subjected to peer review or publication; (3) whether the theory or technique has a known or potential error rate and standards controlling the technique's operation; and (4) whether the theory or technique is generally accepted in the scientific community." Russell v. Whirlpool Corp., 702 F.3d 450, 456-57 (8th Cir. 2012) (citing Daubert, 509 U.S. at 593-94). But the "evidentiary inquiry is meant to be flexible and fact specific, and a court should use, adapt, or reject Daubert factors as the particular case demands." Unrein v. Timesavers, Inc., 394 F.3d 1008, 1011 (8th Cir. 2005). As long as the expert's proffered testimony appears reliable and relevant, no single requirement for admissibility exists. Id.

The "traditional and appropriate means of attacking shaky but admissible evidence" are "[v]igorous cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof." Daubert, 509 U.S. at 596. The Daubert inquiry should therefore focus on "principles and methodology" rather than on the "conclusions that they generate." Daubert, 509 U.S. at 595. Similarly, the factual basis of an expert's opinion generally "goes to the credibility of the testimony, not the admissibility, and it is up to the opposing party to examine the factual basis for the opinion in cross-examination." Bonner v. Isp Techs., 259 F.3d 924, 929-30 (8th Cir. 2001) (internal quotation marks omitted).

With these principles in mind, the Court turns to each of the two motions.

1. Moving Defendants' Motion to Exclude Harold A. Schaeffer

Harold A. Schaeffer has over 40 years of experience in the credit and banking field and is president of D & H Credit Services Inc. Docket No. 15-2 at 7.[5] Defendants' motion relates to two expert rebuttal reports, both dated November 26, 2012, that Mr. Schaeffer submitted in connection with the adversary proceedings against Defendants. One report concerns Defendant Jacobs Management Corporation ("JMC") and the other relates to Defendant Operation Bass, Inc.[6] Docket Nos. 15-2, 15-3. The Defendants do not challenge Mr. Schaeffer's qualifications, but contend that his proposed testimony should be excluded for lack of reliability.

A. Overview of Mr. Schaeffer's Proposed Testimony

Defendants' motion focuses on Mr. Schaeffer's opinions related to certain defenses under 11 U.S.C. § 547(c) to the Trustee's claims seeking to avoid preferential transfers. Under 11 U.S.C. § 547(b), a trustee may "avoid" certain preferential transfers made by a debtor in the time leading up to the debtor's bankruptcy filing and when "a preferential transfer is avoided, the transferee generally must disgorge the amount of the transfer and return it to the debtor's estate." Gulfcoast Workstation Corp. v. Peltz (In re Bridge Info. Sys.), 447 F.3d 1076, 1079 (8th Cir. 2006). Certain transfers, however, may not be avoided by the trustee. For example, the provisions of § 547(c)(1) and (c)(4) protect from avoidance transfers made in connection with "new value" to the debtor that meet certain conditions. The provision of § 547(c)(2) prevents avoidance of a transfer made in the "ordinary course of business" and specifically

to the extent that such transfer was in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor ...

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