Parkway Neuroscience & Spine Inst., LLC v. Katz, Abosch, Windesheim, Gershman & Freedman, P.A.

• Decision Date: 30 September 2022
• Docket Number: 0658, Sept. Term, 2021
• Citation: 255 Md.App. 596,283 A.3d 753
• Parties: PARKWAY NEUROSCIENCE AND SPINE INSTITUTE, LLC v. KATZ, ABOSCH, WINDESHEIM, GERSHMAN & FREEDMAN, P.A., et al.
• Court: Court of Special Appeals of Maryland

255 Md.App. 596

283 A.3d 753

PARKWAY NEUROSCIENCE AND SPINE INSTITUTE, LLC

v.KATZ, ABOSCH, WINDESHEIM, GERSHMAN & FREEDMAN, P.A., et al.

No. 0658, Sept. Term, 2021

Court of Special Appeals of Maryland.

September 30, 2022

Argued by: Michelle J. Dickinson (Law Office of Michelle J. Dickinson, LLC, Columbia, MD and Robert D. Schulte, Schulte Booth PC, Easton, MD), all on the brief, for Appellant.

Argued by: Steven M. Klepper (Kramon & Graham PA, Baltimore, MD and Michael E. Thorsen, John D. McGavin, Bancroft, McGavin, Horvath & Judkins PC, Fairfax, VA), all on the brief, for Appellee.

Panel: Berger, Friedman, Adkins, Sally D. Senior Judge, Specially Assigned, JJ.

Adkins, J.

In 1978, the Maryland Court of Appeals adopted the Frye standard for expert testimony, which allowed admission of an expert's testimony if the basis of that opinion "ha[d] gained general acceptance in the particular field in which it belongs." Reed v. State , 283 Md. 374, 381, 391 A.2d 364 (1978) (quoting Frye v. U.S. , 293 F. 1013, 1014 (D.C. Cir. 1923) ). Thus, Maryland's Frye - Reed standard was born. During its tenure as the evidentiary standard for expert testimony admission in Maryland, the Supreme Court adopted a new standard for admission of scientific expert testimony in federal courts, commonly referred to as the Daubert¹ standard. Rather than focusing on the general acceptance of the expert's methodology—like in Frye —the Daubert standard focuses on the reliability of the methodology. See Daubert v. Merrell Dow Pharms., Inc. , 509 U.S. 579, 589–90, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993).

The Supreme Court later expanded the reach of Daubert by applying the standard to admission of expert testimony that was non-scientific in nature. Kumho Tire Co., Ltd. v. Carmichael , 526 U.S. 137, 141, 119 S.Ct. 1167, 143 L.Ed.2d 238 (1999). The supermajority of states had already jumped aboard the Daubert train when Maryland followed suit. In 2020, our Court of Appeals overruled Reed v. State and adopted Daubert as the new standard for admission of expert testimony in Maryland. Rochkind v. Stevenson , 471 Md. 1, 5, 236 A.3d 630 (2020). Although Maryland courts had used a " Frye - Reed Plus" standard² —which considered some of the Daubert factors—applying the new Daubert - Rochkind standard and sifting through the thousands of cases applying the Daubert standard may pose a challenge to circuit courts—as it did in the case at hand.

Parkway Neuroscience and Spine Institute, LLC ("PNSI" or "Appellant") brought suit against Katz, Abosch, Windesheim, Gershman & Freedman, P.A. ("Katz Abosch") and Mark Rapson (collectively, "Appellees")—its previous accounting firm and main accountant. As a remedy, PNSI is seeking lost profits damages. In order to establish lost profits damages, PNSI proffered the expert testimony of Meghan Cardell, a Certified Public Accountant ("CPA"). Appellees moved to exclude Ms. Cardell's testimony—asserting that the methodology she employed was unreliable—and to strike the lost profits claim. After a Daubert hearing, the Circuit Court for Howard County agreed with Appellees and granted their motion to exclude Ms. Cardell's testimony and strike the lost profits claim. The circuit court—over PNSI's opposition—granted the Appellees’ motion for summary judgment on all remaining counts. PNSI timely appealed.

PNSI presents us with the following questions:

1. Did the Trial Court Abuse its Discretion in Granting Defendants’ Renewed Motion to Strike Plaintiff's Lost Profits Claim and Exclude Plaintiff's Experts Based on New Daubert Standard and Barring Meghan Cardell from Presenting Expert Testimony Regarding PNSI's Lost Profits?

2. Did the Trial Court Erroneously Conclude that Ms. Cardell was not Qualified to Render an Expert Opinion Regarding the Lost Profits of a Medical Practice?

3. Did the Trial Court Erroneously Conclude that Ms. Cardell's Testimony Would Not Assist the Trier of Fact?

For the following reasons, we reverse.

FACTS AND PROCEDURAL HISTORY

PNSI is a mixed-specialty medical practice whose practitioners provide treatment for brain, spine, and peripheral nervous system disorders. Starting in 2011, PNSI began to expand its operation with the hiring of more physicians and support staff. Between 2013 and 2014, PNSI had ten physician members who owned the practice. Since none of the members had the necessary background in finance and accounting, PNSI entered into a written agreement in October 2013 with Katz Abosch to provide tax, accounting, "and financial guidance and direction to help PNSI continue to grow its practice."

Appellee, Mark Rapson, is a CPA and Chair of Katz Abosch's Medical Services Group. Mr. Rapson—assisted by the CEO of Katz Abosch and another senior accountant—was in charge of PNSI's account. PNSI normally reconciled its books at the end of the year, so Appellees allegedly agreed to prepare the reconciliation beginning at the end of 2013. According to Appellant, Katz Abosch recommended that PNSI wait to make its end-of-year reconciliation payments until October 2014. At that time PNSI paid four members a total of $422,897 in reconciliation payments. PNSI alleged that Katz Abosch and Mr. Rapson failed to properly evaluate PNSI's financial position before making this recommendation.

"Between 2012 and 2014, PNSI received payments totaling over $400,000 as part of the Medicare and Medicaid Electronic Health Record (EHR) Incentive Program," which are also referred to as meaningful use payments. These meaningful use payments are subject to audit and recovery. Allegedly on the advice of Katz Abosch and Rapson, PNSI deposited the meaningful use payments in PNSI's general funds for member distribution. Soon after, PNSI was required to repay over $400,000 in meaningful use payments to the government. To do so, PNSI alleged, it had to take out a loan.

According to Appellant, Katz Abosch and Rapson proposed a compensation model to PNSI's board in early 2014. Under this compensation model, each member, regardless of their specialty, was allocated an equal portion of two-thirds of PNSI's net increase or decrease in fixed expenses and a portion of the remaining one-third of PNSI's net increase or decrease in expenses based on that member's net collections for the period. PNSI alleged that this model did not address the unique issues of its mixed medical practice. Nor did it provide a reserve for future expenses or Katz Abosch's annual accounting fees. Despite this, PNSI—allegedly relying on Katz Abosch's advice—adopted the proposed compensation model.

After following Katz Abosch's advice on reconciliation payments, meaningful use payments, compensation models, and future payments, PNSI alleged, it was "deeply in debt." Allegedly, as a result of this debt and Appellees’ actions, seven of PNSI's nine members³ left the practice, causing further financial difficulty and lost profits.

PNSI sued Katz Abosch and Rapson for accountant malpractice and negligent misrepresentation in June 2018. In this suit, PNSI included counts against Katz Abosch for breach of contract and unjust enrichment.

PNSI retained Meghan Cardell as an expert to testify regarding damages and lost profits. In June 2019, Appellees filed a Motion to Compel Certain Depositions and Request for Hearing seeking to depose PNSI's witnesses, including Ms. Cardell. Appellees’ motion was denied. In July 2019, Appellees moved to strike PNSI's lost profits claim and exclude Ms. Cardell's testimony. Appellees’ motion was again denied. In February 2020, Appellees moved for leave to take certain depositions, including Ms. Cardell's. This too was denied.

When this litigation began in 2018, Maryland followed the Frye - Reed standard for admissibility of expert witnesses. The Frye - Reed standard required that the principles underlying an expert's opinion be generally accepted within their professional community. Reed , 283 Md. at 381, 391 A.2d 364 (holding that "before a scientific opinion will be received as evidence at trial, the basis of that opinion must be shown to be generally accepted as reliable within the expert's particular scientific field").

In August 2020—as this case was pending—our Court of Appeals overruled Reed and adopted the United States Supreme Court's standard set forth in Daubert . Rochkind , 471 Md. at 5, 236 A.3d 630. " Daubert ... refocuses the attention away from acceptance of a given methodology—although that is not totally removed from the calculus—and centers on the reliability of the methodology used to reach a particular result." Id. at 31, 236 A.3d 630. The Court set forth the five Daubert factors and an additional five factors as follows:

(1) whether a theory or technique can be (and has been) tested;

(2) whether a theory or technique has been subjected to peer review and publication;

(3) whether a particular scientific technique has a known or potential rate of error;

(4) the existence and maintenance of standards and controls; ...

(5) whether a theory or technique is generally accepted[;] ....

(6) whether experts are proposing to testify about matters growing naturally and directly out of research they have conducted independent of the litigation, or whether they have developed their opinions expressly for purposes of testifying;

(7) whether the expert has unjustifiably extrapolated from an accepted premise to an unfounded conclusion;

(8) whether the expert has adequately accounted for obvious alternative explanations;

(9) whether the expert is being as careful as he [or she] would be in his [or her] regular professional work outside his [or her] paid litigation consulting; and (10) whether the field of expertise claimed by the expert is known to reach reliable results for the type of opinion the expert would give.

Rochkind , 471 Md. at 35–36, 236 A.3d 630 (citations omitted).

This new standard applies to " ‘any ... cases ... that [were] pending on direct appeal when [the Rochkind opinion was] filed, where the relevant question ha[d] been preserved for appellate...