Acosta v. Vinoskey

• Decision Date: 17 April 2018
• Docket Number: Case No. 6:16–CV–00062
• Citation: 310 F.Supp.3d 662
• Parties: R. Alexander ACOSTA, Plaintiff, v. Adam VINOSKEY, et al., Defendants.
• Court: U.S. District Court — Western District of Virginia

310 F.Supp.3d 662

R. Alexander ACOSTA, Plaintiff,

v.Adam VINOSKEY, et al., Defendants.

Case No. 6:16–CV–00062

United States District Court, W.D. Virginia, Lynchburg Division.

Signed April 17, 2018

Andrea Christensen Luby, United States Department of Labor Office of the Regional Solicitor, Philadelphia, PA, for Plaintiff.

Alton Larue Gwaltney, III, Kristen J. Kenley, Pro Hac Vice, Moore & Van Allen PLLC, Charlotte, NC, Chelsea Royce Mikula Tomko, Pro Hac Vice, Paul Lewis Janowicz, Pro Hac Vice, Tucker Ellis, LLP, Cleveland, OH, Scott J. Stitt, Pro Hac Vice, Tucker Ellis LLP, Columbus, OH, Alexandra E. Brisky Cunningham, Thomas Richard Waskom, Brian Adam Wright, Hunton & Williams LLP, Richmond, VA, for Defendants.

MEMORANDUM OPINION

NORMAN K. MOON, SENIOR UNITED STATES DISTRICT JUDGE

Congress enacted the Employee Retirement Income Security Act of 1974, or ERISA, to protect employees and the benefit plans employers create for them. Congress did this by imposing high standards of fiduciary duty on plan administrators and banning certain types of transactions with "interested parties." These transactions with interested parties are banned because they present opportunities for employer self-dealing at the employees' expense. But one specific type of benefit plan envisioned by ERISA is an employee stock ownership plan, or an ESOP. In an ESOP, part of the employees' remuneration is made in shares of their employer's company. Definitionally then, an ESOP requires the very transactions with interested parties that are generally anathema. And so ERISA carves out an exception for ESOPs, allowing these plans if any purchases of the employers' stock are for "adequate consideration."

In this case, the Secretary of Labor ("the Secretary") alleges an employer ("Sentry"), its CEO ("Vinoskey"), and certain other alleged fiduciaries ("Evolve" and "New") violated ERISA by approving an ESOP's purchase of the employer's stock at an allegedly inflated price. The Secretary now moves for summary judgment on these claims. (Dkt. 78). The defendants respond by moving to exclude the Secretary's expert on "adequate consideration," (dkts. 80 & 82), and some of the defendants have additionally moved for summary judgment. (Dkts. 83 & 85). The Court will partially exclude the Secretary's expert testimony because portions of his damages theory are novel and underdeveloped. Concomitantly, the Court will grant the defendants' motions for summary judgment on the claims the Secretary no longer has expert testimony to support. The Court will also grant one of the alleged fiduciaries' motions because no reasonable jury could find he is a de facto fiduciary. However, the Court will deny the parties' motions on the remaining claims because factual disputes (namely whether reliance on a valuation report was reasonable) remain.

I. DAUBERT MOTIONS TO EXCLUDE THE SECRETARY'S EXPERT

The Court jointly addresses Vinoskey's and Evolve's motions to exclude the Secretary's expert, Dana Messina. (Dkts. 80 & 82). "Because the testimony defendants seek to strike is essential for plaintiffs to withstand defendants' summary judgment motion, the court will address [these] motion[s] first." Ruffin v. Shaw Indus., Inc. , 149 F.3d 294, 296 (4th Cir. 1998).

A. Legal Standard

"The Federal Rules of Evidence provide that a qualified expert witness ‘may testify in the form of an opinion or otherwise if [his] scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue.’ " United States v. Landersman , No. 16-4066, 886 F.3d 393, 412, 2018 WL 1514417, at *13 (4th Cir. Mar. 28, 2018) (quoting Fed. R. Evid. 702 ). "Implicit in the text of Rule 702, ... is a district court's gatekeeping responsibility to ‘ensure that an expert's testimony both rests on a reliable foundation and is relevant to the task at hand.’ " Nease v. Ford Motor Co. , 848 F.3d 219, 229 (4th Cir. 2017) (alteration omitted, emphasis in original) (quoting Daubert v. Merrell Dow Pharms. , 509 U.S. 579, 597, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993) ). "With respect to reliability, the district court must ensure that the proffered expert opinion is based on scientific, technical, or other specialized knowledge and not on belief or speculation, and inferences must be derived using scientific or other valid methods." Id. (internal quotation marks and emphasis omitted). With respect to relevance, the district court must ensure the proffered testimony will help "the trier of fact to understand the evidence or to determine a fact in issue." Daubert , 509 U.S. at 591, 113 S.Ct. 2786.

Here, the parties are primarily concerned with the reliability of the Secretary's expert, and so the Court will also focus on that prong of its gatekeeping responsibility. Rule 702 provides expert testimony is only admissible if (1) "the testimony is based upon sufficient facts or data," (2) "the testimony is the product of reliable principles and methods," and (3) "the expert has reliably applied the principles and methods to the facts of the case." Likewise, the Fourth Circuit has directed district courts to "consider whether the expert witness theory or technique: (1) can be or has been tested; (2) has been subjected to peer review and publication; (3) has a high known or potential rate of error; and (4) is generally accepted within a relevant scientific community." Bresler v. Wilmington Tr. Co. , 855 F.3d 178, 195 (4th Cir. 2017) (citation and internal quotation marks omitted); see also Daubert , 509 U.S. at 593–94, 113 S.Ct. 2786. This list of factors is not exhaustive. See Kumho Tire Co. v. Carmichael , 526 U.S. 137, 141, 119 S.Ct. 1167, 143 L.Ed.2d 238 (1999). Importantly, "courts may not evaluate the expert witness' conclusion itself, but only the opinion's underlying methodology." Bresler , 855 F.3d at 195. If the methodology is reliable, further criticisms of the expert's testimony will go to its weight, not its admissibility.

Finally, the Court has increased discretion in how to perform its gatekeeping role in bench trials: "There is less need for the gatekeeper to keep the gate when the gatekeeper is keeping the gate only for himself." United States v. Brown , 415 F.3d 1257, 1269 (11th Cir. 2005) ; see also 29 Charles Wright & Arthur Miller, Fed. Prac. & Proc. Evid. § 6270 (2d ed.) ("[S]ince Rule 702 is aimed at protecting jurors from evidence that is unreliable for reasons they may have difficulty understanding, in a bench trial there is greater discretion regarding procedure and even the stringency of gatekeeping."). But it is error for a district court to merely consider the Daubert factors in determining the weight attributable to certain evidence, a separate admissibility determination "still must be made at some point." Metavante Corp. v. Emigrant Sav. Bank , 619 F.3d 748, 760 (7th Cir. 2010).

B. Discussion

Messina, the Secretary's expert, calculates two categories of damages allegedly suffered by the ESOP: (1) the amount overpaid for Sentry shares, and (2) the loss in value to existing plan participants' shares because of the structure of the purchase. (Dkt. 79–19 at ECF 4–5). The report calculates the first category of damages by determining a fair market value for Sentry stock and then asking how much more than that the ESOP actually paid. The Court finds Messina's testimony concerning this category of damages will be partially admissible. Messina's second category of damages is calculated by multiplying the amount allegedly overpaid per stock by the existing shares held by plan participants. These damages are supposed to represent a separate harm: the loss in value to the existing shares because of the transaction's structure. Because the Court finds this methodology is unreliable and underdeveloped, it will be excluded. The defendants' other objections to the admissibility of Messina's testimony will be overruled.

1. Is the testimony the product of reliable principles and methods?

The Court will overrule the defendants' objections to the reliability of the general method Messina used in calculating his first category of damages, i.e. , those damages the ESOP allegedly suffered by overpaying for the new Sentry stock. Messina calculated these damages by subtracting his calculation of the fair market value of the shares purchased by the ESOP from the price the ESOP actually paid. This is a common approach. See, e.g., Perez v. Bruister , 823 F.3d 250, 265 (5th Cir. 2016) ("The court's basic approach was to estimate the FMV of the BAI stock at the time of each transaction and deduct it from the higher amount the ESOP actually paid. This is the approach generally used by courts to compute overpayments." (citation omitted) ). Messina determined the fair market value of Sentry shares with a discounted cash flow model and a comparison to a guideline company. (Dkt. 79–19 at ECF 27–33). Other courts have accepted the use of these models. See, e.g, Brundle on behalf of Constellis Employee Stock Ownership Plan v. Wilmington Tr. N.A. , 241 F.Supp.3d 610, 618 (E.D. Va. 2017) (referring to these models as "two basic methodologies" that valuation professionals "commonly employ"). As discussed below, Messina may not have reliably applied the methodology, but the methodology itself was reliable and there is no reason to exclude this first category of damages in toto.

Messina's second category of damages, i.e. , the damages the ESOP allegedly suffered from a decrease in the value of the Sentry stock it already owned, suffers from a more fundamental problem. Messina calculated these losses by multiplying the alleged overpayment per share from his first category of damages by the number of shares existing at the time of the transaction. (Dkt. 81–8 at ECF 36). This calculation falters for two primary reasons. First, it double counts the losses allegedly caused by the defendants. The defendants correctly demonstrate that any reduction or increase in the first category has a...