U.S. Sec. & Exch. Comm'n v. Collector's Coffee Inc.
| Decision Date | 05 August 2021 |
| Docket Number | 19 Civ. 4355 (VM) (GWG) |
| Citation | 552 F.Supp.3d 427 |
| Parties | UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. COLLECTOR'S COFFEE INC., et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Gregory Alan Kasper, Mark Lander Williams, Stephen C. McKenna, Terry Ryan Miller, U.S. Securities and Exchange Commission, Denver, CO, for Plaintiff.
Harlan J. Protass, Protass Law PLLC, New York, NY, Stanley Charles Morris, Corrigan & Morris LLP, West Los Angeles, CA, for Defendant Collector's Coffee Inc.
Peter Alan Joseph, Law Offices of Peter Joseph, Robert Gerard Heim, Tarter Krinsky & Drogin LLP, Guillermo Ariel Gleizer, Guillermo Gleizer, New York, NY, Steven Sessa, Steven C. Sessa P.A., Curtis Alva, Alva & Gleizer, West Palm Beach, FL, George A. Lambert, Law Offices of Leonard Suchanek, Washington, DC, for Defendant Mykalai Kontilai.
This lawsuit was brought by the Securities and Exchange Commission ("SEC") against Collector's Coffee Inc., d/b/a Collectors Café ("CCI"), Mykalai Kontilai, the founder, President, and Chief Executive Officer of CCI, and Veronica Kontilai, Mykalai's wife, as a relief defendant, alleging that the defendants violated federal securities laws by defrauding investors. See Amended Complaint, filed November 4, 2019 (Docket # 134). Plaintiff now moves to exclude the testimony of Kontilai's proposed expert witness, Bennett L. Gershman.1 For the following reasons, plaintiff's motion is granted.
In its initial scheduling order, the Court set tca deadline of June 1, 2020 for "[d]isclosure of expert evidence as required by Rule 26(a)(2)(A), (B), or (C), including the identities and reports of experts." Scheduling Order, filed October 16, 2019 (Docket # 124), at 4. That deadline was subsequently extended multiple times, with the last extension fixing a deadline of March 12, 2021. See Memorandum Endorsement, filed March 2, 2021 (Docket # 814).
Gershman's report first appeared in this case in connection with a motion to compel filed by Kontilai, in which Kontilai sought to compel various attorneys of Gail Holt to sit for a deposition. See Motion to Compel, filed March 8, 2021 (Docket # 820). Kontilai's counsel submitted a declaration in support of this motion and annexed to that declaration a copy of Gershman's "preliminary expert report ... dated March 3, 2021." Declaration of George Lambert, filed March 8, 2021 (Docket # 821), ¶ 7; Expert Report, dated March 3, 2021, filed March 8, 2021 (Docket # 821-5). The Report in identical form was disclosed to the SEC on March 12, 2021, in accordance with the deadline for expert disclosures. See Pl. Mem. at 3; Expert Report, dated March 3, 2021, annexed as Exh. 1 to Pl. Mem. (the "Report"). Notwithstanding the deadline, the introduction to the Report recites that it is "a very preliminary Report." Report at 2. Gershman further purports to "reserve the right to supplement this Report and amplify my opinions and conclusions if necessary." Id.
The SEC deposed Gershman about the Report on April 29, 2021. See Excerpts of Video Deposition of Bennet L. Gershman, annexed as Exh. 2 to Pl. Mem. At that deposition, Gershman again characterized his report as "preliminary," stating that "[t]here are additional opinions that I will be expressing." Id. at 27.2
The Report consists of a one-paragraph introduction, a listing of Gershman's qualifications, and ten pages dedicated to his opinions. See generally Report. Gershman does not list the materials he reviewed in making the report but rather refers generally to "the record" and occasionally cites to specific materials, some of which are reflected in the docket of this case. See, e.g., id. at 4 (), 5 (referencing Timothy Dennin's website), 7 (describing Holt's deposition on December 7, 2020).
The report is divided into four sections, each headed by a summary of the opinion expressed in that section. The first section opines that an "extortion letter" from the attorney of shareholders of CCI, Mr. Timothy Dennin, "triggered the subsequent SEC investigation and prosecution of ... Kontilai" and "exposed a corrupt relationship between Mr. Timothy Dennin and SEC lawyers." Id. at 4.
The second section opines that the SEC improperly obtained an ex parte order from the Court by using a declaration from Holt that the SEC "well knew was a recent fabrication made to protect herself from criminal liability." Id. at 5. The Report provides a factual narrative of evidence involving Holt, concluding that Holt was untruthful, see id. at 5-7, and opining that Holt "is the most critical witness in the SEC's prosecution of ... Kontilai." Id. at 7. The Report opines that "[n]o prosecutor ... would give any credence to ... Holt's story unless they were willfully blind to the truth, or were indifferent to the truth." Id. The Report further opines that the SEC's purported "failure to disclose ... Holt's previous statements" during its application for a temporary restraining order constituted "legal and ethical misconduct." Id. at 8.
The third section opines that because a witness, John Mark Dougan, had a "deceitful and unscrupulous history," the SEC acted improperly by using him as a "key informant." Id. at 8. The fourth section states that the SEC's lawyers have "engaged in a pattern of irregular, overzealous, unethical, and unlawful conduct" throughout this litigation. Id. at 10. Gershman describes various circumstances that he contends support his opinion, such as the involvement of the SEC's Denver office, id. at 10-11, the lack of any "Wells Notice" to Kontilai, id. at 11, the SEC's "interference with" Kontilai's counsel, id., the SEC's filing of a contempt motion, id. at 12, and the SEC's relationship with Andrew Ceresney, Kontilai's former counsel, id. at 12-13.
"The district court's determination whether to admit expert testimony is guided by Fed. R. Evid. 702." United States v. Gatto, 986 F.3d 104, 117 (2d Cir. 2021). Federal Rule of Evidence 702 provides:
The Rule 702 standard incorporates the principles enunciated in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 597, 589, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993), in which the Supreme Court held that trial courts have a "gatekeeping" function to "ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable," and Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 119 S.Ct. 1167, 143 L.Ed.2d 238 (1999), in which the Supreme Court held that Daubert’s general gatekeeping obligation "applies not only to testimony based on ‘scientific’ knowledge, but also to testimony based on ‘technical’ and ‘other specialized’ knowledge." Id. at 141, 119 S.Ct. 1167 (citing Fed. R. Evid. 702).
"One of the fundamental requirements of Rule 702 is that the proposed testimony ‘assist the trier of fact to understand the evidence or to determine a fact in issue.’ " In re Rezulin Products Liab. Litig., 309 F. Supp. 2d 531, 540 (S.D.N.Y. 2004) (quoting Fed. R. Evid. 702 ); accord Lippe v. Bairnco Corp., 288 B.R. 678, 685 (S.D.N.Y. 2003), aff'd, 99 F. App'x 274 (2d Cir. 2004) ; see also In re Initial Pub. Offering Sec. Litig., 174 F. Supp. 2d 61, 68 (S.D.N.Y. 2001) () (emphasis in original). In deciding whether expert testimony will be helpful to the fact-finder, the Court must ensure that the testimony does not "usurp either the role of the trial judge in instructing the jury as to the applicable law or the role of the jury in applying that law to the facts before it." United States v. Lumpkin, 192 F.3d 280, 289 (2d Cir. 1999) (quoting United States v. Duncan, 42 F.3d 97, 101 (2d Cir. 1994) ) (punctuation omitted); accord United States v. Bilzerian, 926 F.2d 1285, 1294 (2d Cir. 1991). While an expert "may opine on an issue of fact within the jury's province," an expert "may not give testimony stating ultimate legal conclusions based on those facts." Bilzerian, 926 F.2d at 1294 ; see also Hygh v. Jacobs, 961 F.2d 359, 363 (2d Cir. 1992) () (citing cases). In addition, expert testimony is inadmissible when it addresses "lay matters which a jury is capable of understanding and deciding without the expert's help."
Andrews v. Metro N. Commuter R.R. Co., 882 F.2d 705, 708 (2d Cir. 1989) (citing cases).
Moreover, as with all testimony, the expert's testimony must actually be relevant to an issue in the case. See, e.g., United States v. Cruz, 363 F.3d 187, 192 (2d Cir. 2004). Thus, as part of the Rule 702 analysis, a court must "analyz[e] whether [the] proffered expert testimony is relevant, i.e., whether it has any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence." Amorgianos v. Nat'l R.R. Passenger Corp., 303 F.3d 256, 265 (2d Cir. 2002) (punctuation omitted).
"The decision to admit expert testimony is left to the broad discretion of the trial judge." Zerega Ave. Realty Corp. v. Hornbeck Offshore Transp., LLC, 571 F.3d 206, 213 (2d Cir. 2009)....
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