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In re ResCap Liquidating Trust Litigation

United States District Court, D. Minnesota

January 14, 2020

In Re ResCap Liquidating Trust Litigation
v.
Primary Residential Mortgage, Inc., No. 16-cv-4070 This document relates to ResCap Liquidating Trust

          MEMORANDUM OPINION AND ORDER ON MOTIONS TO EXCLUDE EXPERTS' OPINIONS

          SUSAN RICHARD NELSON, UNITED STATES DISTRICT JUDGE

         TABLE OF CONTENTS:

         I. INTRODUCTION ............................................................................................................................... 1

         II. BACKGROUND .................................................................................................................................. 1

         III. DISCUSSION ...................................................................................................................................... 1

         A. Legal Standard ............................................................................................................................ 1

         B. PRMI's Motion to Exclude Expert Testimony ......................................................................... 3

         1. Dr. Karl Snow ....................................................................................................................... 4

         a. Qualifications and Opinion ........................................................................................... 4

         b. Objections and Analysis ................................................................................................ 5

         i. Whether Dr. Snow's Allocated Breaching Loss Approach Improperly Allocates Based on the Wrong Settlement Amount ............................................. 5

         ii. Whether Dr. Snow's Allocated Breaching Loss Approach Is Invalid Under UnitedHealth ............................................................................................. 6

         iii. Whether Portions of Dr. Snow's Allocation Opinion Should be Limited Based on the Sampling Populations ..................................................................... 7

         iv. Whether Dr. Snow's Opinion on Allocation of the Monoline Settlements Should be Limited ..................................................................... 11

         2. Steven Butler ....................................................................................................................... 15

         a. Qualifications and Opinion ......................................................................................... 15

         b. Objections and Analysis .............................................................................................. 17

         i. Whether Mr. Butler's Opinions Regarding Certain Representations and Disclaimers are Beyond his Expertise ................................................................ 17

         ii. Whether Mr. Butler Impermissibly Relied on 30(b)(6) Testimony .................... 22

         iii. Whether Mr. Butler's Opinions Impermissibly Relied on MLS Proxy Data ...... 24

         3. Donald Hawthorne .............................................................................................................. 25

         a. Qualifications and Opinion ......................................................................................... 25

         4. Drs. John Kilpatrick, Albert Lee, and Mr. Steven Albert ................................................... 27

         a. Qualifications and Opinion ......................................................................................... 27

         b. Objections and Analysis .............................................................................................. 28

         C. ResCap's Motion to Exclude Expert Testimony .................................................................... 29

         1. Phillip Burnaman ................................................................................................................ 29

         a. Qualifications and Opinion ......................................................................................... 29

         b. Objections and Analysis .............................................................................................. 31

         i. Whether Mr. Burnaman's Servicing-Related Opinions Should be Excluded ..... 31

         ii. Whether Mr. Burnaman's RMBS Settlement Comparisons Should Be Excluded ....................................................................................................... 32

         iii. Whether Mr. Burnaman's Loss Causation Opinion Should be Excluded ........... 33

         iv. Whether Mr. Burnaman's Opinions about MLS Proxy Data Should Be Excluded ....................................................................................................... 34

         v. Whether Mr. Burnaman's Opinions about RFC's Mental State Should Be Excluded ....................................................................................................... 35

         vi. Whether Mr. Burnaman's Opinions about RFC's History and Market Roles Should be Excluded as Inadmissible Fact Testimony .................... 38

         vii. Whether Mr. Burnaman's Opinions Relying on Experts from Other Cases Should be Excluded ................................................ 39

         viii. Whether Mr. Burnaman's Repurchase Protocol Opinions Should Be Excluded ..................................................................................................... 41

         ix. Whether Mr. Burnaman's Opinions about Sponsors' Timeliness Defense Should be Excluded ....................................................... 44

         2. Steven Schwarcz ................................................................................................................. 45

         a. Qualifications and Opinion ......................................................................................... 45

         b. Objections and Analysis .............................................................................................. 46

         i. Whether Mr. Schwarcz's Sole-Responsibility Opinions Should Be Excluded ..................................................................................................... 47

         ii. Whether Mr. Schwarcz's Opinions about RFC's Mental State Should Be Excluded ..................................................................................................... 49

         iii. Whether Mr. Schwarcz's Opinions about RFC's History and Market Roles Should be Excluded as Inadmissible Fact Testimony .......................... 51

         iv. Whether Mr. Schwarcz's Opinions Relying on Experts from Other Cases Should be Excluded ............................................................. 52

         3. Lee Kennedy ....................................................................................................................... 55

         a. Qualifications and Opinion ......................................................................................... 55

         b. Objections and Analysis .............................................................................................. 57

         4. Kori Keith ........................................................................................................................... 60

         a. Qualifications and Opinion ......................................................................................... 60

         b. Objections and Analysis .............................................................................................. 62

         i. Whether Ms. Keith's Loss Causation Opinion Should be Excluded ................. 62

         ii. Whether Ms. Keith's Opinions about RFC's Mental State Should Be Excluded ...................................................................................................... 63

         iii. Whether Ms. Keith's “Bad Faith” Opinion Should be Excluded ...................... 66

         iv. Whether Ms. Keith's Contractual Interpretation Opinions Should Be Excluded ...................................................................................................... 67

         5. Dr. Justin McCrary .............................................................................................................. 70

         a. Qualifications and Opinion ......................................................................................... 70

         6. David Woll .......................................................................................................................... 71

         a. Qualifications and Opinion ......................................................................................... 71

         b. Objections and Analysis .............................................................................................. 75

         IV. CONCLUSION .................................................................................................................................. 79

         I. INTRODUCTION

         Before the Court are the parties' cross motions to exclude certain expert opinions and testimony. On December 11, 2019, the Court heard oral argument on the parties' motion. For the reasons set forth below, Defendant's Motion to Exclude Certain Opinions of Plaintiff's Experts [Doc No. 5252] is granted in part, denied in part, and denied in part as moot, and Plaintiff's Motion to Exclude Certain Opinions of Defendant's Experts [Doc No. 5282] is granted in part, denied in part, and denied in part as moot.

         II. BACKGROUND

         The factual and procedural background of this litigation is thoroughly set forth in the Court's December 20, 2019 Memorandum Opinion and Order on Motions for Summary Judgment, In re ResCap Liquidating Tr. Litig., Nos. 13-cv-3451, 16-cv-4070, 2019 WL 7038234, __F.3d __ (D. Minn. Dec. 20, 2019) (“PRMI SJ Order”) [Doc. No. 5361], which is incorporated by reference here.

         III. DISCUSSION

         A. Legal Standard

         Federal Rule of Evidence 702 governs the admissibility of expert testimony:

         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. Under Rule 702, proposed expert testimony must satisfy three prerequisites to be admitted. Lauzon v. Senco Prods., Inc., 270 F.3d 681, 686 (8th Cir. 2001). “First, evidence based on scientific, technical, or other specialized knowledge must be useful to the finder of fact in deciding the ultimate issue of fact.” Id. (citation omitted). “Second, the proposed witness must be qualified to assist the finder of fact.” Id. (citation omitted). “Third, the proposed evidence must be reliable or trustworthy in an evidentiary sense, so that, if the finder of fact accepts it as true, it provides the assistance the finder of fact requires.” Id. (citation omitted) (internal quotation marks omitted).

         These requirements reflect the Supreme Court's analysis in Daubert v. Merrell Dow Pharmaceuticals, Inc., in which the Court emphasized the district court's gatekeeping obligation to make certain that all testimony admitted under Rule 702 “is not only relevant, but reliable.” 509 U.S. 579, 589 (1993); see also Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 149 (1999) (extending Daubert to technical and other specialized expert testimony). Under Daubert, the cornerstone for admissibility is assistance to the trier of fact. See Larson v. Kempker, 414 F.3d 936, 940-41 (8th Cir. 2005). When this Court sits as the finder of fact, however, there is “less need for the gatekeeper to keep the gate[.]” David E. Watson, P.C. v. United States, 668 F.3d 1008, 1015 (8th Cir. 2012) (citation omitted) (internal quotation marks omitted), cert. denied, 568 U.S. 888 (2012). Nonetheless, the Court still must assess whether expert testimony satisfies Daubert, while under a more “relax[ed] application for bench trials.” Id. (citation omitted).

         Under this standard, proponents must demonstrate by a preponderance of evidence that the expert's opinion is reliable. Courts generally support “an attempt to liberalize the rules governing the admission of expert testimony, ” and favor admissibility over exclusion. See Lauzon, 270 F.3d at 686 (citation omitted) (internal quotation marks omitted); Daubert, 509 U.S. at 596 (“Vigorous cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof are the traditional and appropriate means of attacking shaky but admissible evidence.”). Doubts regarding the usefulness of an expert's testimony should be resolved in favor of admissibility, United States v. Finch, 630 F.3d 1057, 1062 (8th Cir. 2011), and gaps in an expert witness's qualifications or knowledge generally go to the weight of the testimony and not its admissibility, Robinson v. GEICO Gen. Ins. Co., 447 F.3d 1096, 1100 (8th Cir. 2006) (citing 29 Charles Alan Wright & Victor James Gold, Federal Practice and Procedure: Evidence § 6265 (1997)).

         B. PRMI's Motion to Exclude Expert Testimony

         PRMI moves the Court for an order excluding (1) in its entirety, the testimony of ResCap's damages expert, Dr. Karl Snow; (2) certain opinions of re-underwriter Mr. Steven Butler, relating to the interpretation of certain trust-level representations, warranties, and disclaimers, as well as his reliance on MLS proxy data; (3) certain opinions of Mr. Donald Hawthorne regarding re-underwriting performed in RFC's bankruptcy and his discussion of financial reports; and (4) in its entirety, the opinions of ResCap's appraisal experts, Dr. John Kilpatrick, Mr. Steven Albert, and Dr. Albert Lee. (Def.'s Mem. at 1- 2.)[1] The Court addresses each expert in turn.

         1. Dr. Karl Snow

         a. Qualifications and Opinion

         Karl Snow, PhD, is an economist and partner at the Bates White economic consulting firm. (Smallwood Decl., Ex. 11 (Snow Damages Rpt.) ¶¶ 5-6.) ResCap retained Dr. Snow to provide expert analysis regarding the measure and allocation of damages, (see id. ¶ 3), and he crafted the Allocated Breaching Loss Approach methodology for doing so. (Id. ¶ 36.)

         The Allocated Breaching Loss model measures damages in relation to the liabilities that RFC incurred in the Settlements, rather than the economic harm caused by breaching mortgages. In re RFC & ResCap Liquidating Tr. Litig. (“Common SJ Order”), 332 F.Supp.3d 1101, 1198 (D. Minn. 2018). To assess damages that RFC incurred on RMBS Trust claims, Dr. Snow measures PRMI's share as a product of a settlement factor and the total losses on PRMI's breaching loans. Id. To measure damages under this approach, Dr. Snow estimates breach rates based on samples drawn from approximately 463, 000 at-issue loans. (Smallwood Decl., Ex. 4 (Snow Suppl. Rpt.) at App. B.) His methodology excludes loans that had less than $500 of loss or were less than 90 days delinquent as of May 2013. (Id., Ex. 11 (Snow Damages Rpt.) ¶¶ 38-40).)

         For damages that RFC incurred as a result of the Monoline Settlements, Dr. Snow utilizes the same general framework for allocating Monoline claims as he does for RMBS Trust claims. However, for the Monoline Settlements, Dr. Snow also assesses breach rates to account for the fact that each monoline insurer settled with RFC for different amounts and paid out different amounts on insurance claims. (Id. ¶¶ 56, 75-87.)

         b. Objections and Analysis

         PRMI argues that Dr. Snow's opinion should be excluded in its entirety because: (1) he fails to consider that the parties agreed to different settlement amounts as between the Original Settling Trusts and the Additional Settling Trusts; and (2) his opinions are invalid under UnitedHealth Group Inc. v. Executive Risk Specialty Insurance Co., 870 F.3d 856 (8th Cir. 2017). (Def.'s Mem. at 3-6.) Alternatively, PRMI argues that certain of Dr. Snow's opinions should be limited for the following reasons: (1) he drew his samples from the wrong population; and (2) portions of his Monoline Opinions are flawed. (Id. at 7-22.) The Court will respond to each argument in turn.

         i. Whether Dr. Snow's Allocated Breaching Loss Approach Improperly Allocates Based on the Wrong Settlement Amount

         As noted, PRMI moves to exclude Dr. Snow's opinion, arguing that he fails to consider that as part of the Global Settlement in Bankruptcy Court, the parties agreed to different settlement amounts as between the Original Settling Trusts and Additional Settling Trusts. (Def.'s Mem. at 3-6.) Thus, PRMI argues, Dr. Snow's methodology is fatally flawed because it starts with the wrong number. (Id.) PRMI also sought summary judgment on this basis.

         In its December 20, 2019 Order, the Court rejected PRMI's argument and found as a matter of law that Dr. Snow's Allocated Breaching Loss methodology was based on the correct settlement amount, i.e., the single unallocated RMBS Trust Settlement amount that United States Bankruptcy Judge Glenn allowed and approved in December 2013. PRMISJ Order, 2019 WL 7038234, at *63-69. ...


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