In re Maher, 12 C 7169

• Decision Date: 20 January 2015
• Docket Number: No. 12 C 7169,12 C 7169
• Parties: ROBERT P. MAHER and MARILYN V. MAHER, Plaintiffs, v. THE ROWEN GROUP, INC., d/b/a PLAYROOM ENTERTAINMENT, and DANIEL M.J.ROWEN, Defendants.
• Court: U.S. District Court — Northern District of Illinois

ROBERT P. MAHER and MARILYN V. MAHER, Plaintiffs, v. THE ROWEN GROUP, INC., d/b/a PLAYROOM ENTERTAINMENT,and DANIEL M.J.ROWEN, Defendants.

No. 12 C 7169

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

January 20, 2015

Honorable Marvin E. Aspen

MEMORANDUM OPINION AND ORDER

MARVIN E. ASPEN, District Judge:

Before us is a case that aptly illustrates the wisdom of Lord Polonius' advice: "Neither a borrower nor a lender be."¹ Plaintiffs Robert P. and Marilyn V. Maher (collectively, "Plaintiffs" or "the Mahers;" individually, "Robert" and "Marilyn") brought suit against The Rowen Group, Inc., d/b/a Playroom Entertainment ("Playroom") and its president and founder, Daniel M.J. Rowen ("Rowen"), alleging numerous claims arising out of a loan made from the Mahers to Playroom. Rowen had acted as guarantor for the loan. Playroom and Rowen subsequently filed counterclaims against the Mahers, alleging that the Mahers had breached the loan agreements themselves and had committed tortious interference with a contract.² Before us is the Mahers' Motion for Partial Summary Judgment ("MPSJ") with respect to Counts One and Two of theircomplaint, alleging breaches of contract and guaranty against Playroom and Rowen, and with respect to Defendants' remaining counterclaims. (Dkt. 179.)

Our efforts to resolve the MPSJ are complicated by numerous related motions filed by both parties that must be decided before we begin our analysis. These motions include Defendants' Motion to Strike Robert Maher's Affidavit, (Dkt. 223), Defendants' Motion to Strike Robert Maher's Addendum Affidavit, (Dkt. 225), Plaintiffs' Motion to Strike Defendants' 56.1 Responses, (Dkt. 243), Plaintiffs' Motion to Strike Defendants' Additional Facts, (Dkt. 244), Plaintiffs' Motion to Strike Daniel Rowen's Affidavit, (Dkt. 245), Plaintiffs' Motion to Strike Rebekah Zetty's Affidavit, (Dkt. 246), Defendants' Motion to Strike New Facts and Arguments in Plaintiffs' Reply Brief, (Dkt. 265), and Plaintiffs' Motion to Strike Defendants' Addendum Response, (Dkt. 286).³ We address these motions in Part One of this opinion.

For the reasons discussed further below in Part Two, we deny Plaintiffs' MPSJ with respect to Plaintiffs' Count One and Defendants' Count Three, and grant the MPSJ with respect to Plaintiffs' Count Two and Defendants' Count Four.

I. PRELIMINARY MOTIONS TO STRIKE

Before we reach the merits of Plaintiffs' MPSJ, we must tackle the above-listed preliminary motions. In determining whether summary judgment is appropriate, we consider only those facts and evidence that would be admissible at trial. Eisenstadt v. Centel Corp., 113 F.3d 738, 742 (7th Cir. 1997); Allstate Ins. Co. v. St. Anthony's Spine & Joint Inst., P.C., 691 F. Supp. 2d 772, 777 (N.D. Ill. 2010). In the case of affidavits or depositions, we consider testimony that would be admissible if given at trial. Fed. R. Civ. P. 56(c)(4); Eisenstadt, 113 F.3d at 742. In examining affidavits, we will strike only portions that are "clearly irrelevant,redundant, impertinent and prejudicial," so that we can retain the appropriate context in which to consider the claims and defenses before us. C.L.U.B. v. City of Chi., 94 C 6151, 1996 WL 697630, at *1 (N.D. Ill. Nov. 20, 1996); see also Adusumilli v. City of Chi., 164 F.3d 353, 359-60 (7th Cir. 1998); Robinson v. Midlane Club, Inc., 94 C 1459, 1994 WL 577219, at *2 (N.D. Ill. Oct. 18, 1994). Both parties have raised numerous objections to the admissibility of parties' and witnesses' affidavits, as well as to portions of the facts and argument put forth in the MPSJ and in Defendants' responses. Keeping in mind the previously-stated principles, we examine each document in turn. Because they involve the evidence underlying the primary motion, we turn first to the objections surrounding the parties' and witnesses' affidavits, and then we address the motions to strike facts and argument in the primary briefing.

A. Robert Maher's Affidavit

In May 2014, Defendants filed a motion to strike portions of Robert's affidavit, which had been included as an exhibit to the Mahers' Rule 56.1 Statement of Undisputed Material Facts ("SUMF"). (Dkt. 223.) Defendants object to various portions of the affidavit on evidentiary grounds including lack of foundation, hearsay, and improper legal conclusions. Additionally, Defendants seek to strike large portions of Robert's affidavit testimony regarding Generally Accepted Accounting Principles ("GAAP") standards and compliance, arguing that the disputed portions constitute improper and inadmissible expert testimony.

With regard to Defendants' first category of objections, we will refuse to consider any content in the affidavit that would not be admissible at trial. We thus strike paragraphs 26, 31, and 46, as well as the fifth through seventh sentences of paragraph 41, as containing improper conclusions. (For example, Robert asserts in paragraph 26: "Marilyn and I as lenders had no obligation to continue making disbursements under the Loan pursuant to Section 9.4 of the LoanAgreement.") We also strike portions of the Mahers' SUMF that rely solely on evidence stricken from the affidavit, including parts of paragraph 20 containing legal conclusions, and paragraphs 25, 27, 31, and 75. We are not persuaded by the remainder of Defendants' non-expert objections. When the affidavit is considered in conjunction with the other evidence before us, there are no foundation or hearsay concerns.

Defendants' expert testimony objections present a thornier issue. As the Mahers apparently concede, expert testimony is the appropriate vehicle for testimony regarding GAAP standards and violations. Danis v. USN Commc'ns, Inc., 121 F. Supp. 2d 1183, 1192 (N.D. Ill. 2000) (citing Wikoff v. Vanderveld, 897 F.2d 232, 235 (7th Cir. 1990)); see also United States v. Turner, 05 CR 355C, 2007 WL 1367597, at *1 (W.D. Wash. May 8, 2007) ("It also appears to be undisputed that expert testimony is generally required, or at least preferred, in order to prove the scope of [GAAP] as well as whether particular practices do—or do not—qualify as GAAP."). Federal Rule of Evidence 702 explains that an expert witness may be qualified by "knowledge, skill, experience, training, or education." There is no requirement that an expert hold any particular credentials to give expert opinion testimony. Smith v. Ford Motor Co., 215 F.3d 713, 718 (7th Cir. 2000) ("The court should also consider the proposed expert's full range of experience and training in the subject area."); Tuf Racing Prods., Inc. v. Am. Suzuki Motor Corp., 223 F.3d 585, 591 (7th Cir. 2000) (holding that an accountant did not need to have a degree in mathematics or economics to testify as an expert regarding calculation of damages).

Nevertheless, an expert's testimony must be both relevant and reliable to be admissible. Fed. R. Evid. 702; Kumho Tire Co. v. Carmichael, 526 U.S. 137, 147, 119 S. Ct. 1167, 1174 (1999); Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 589, 113 S. Ct. 2786, 2795 (1993). The Seventh Circuit has imposed a two-step analysis, requiring first that evidence be establishedas reliable by verifying that the expert "knows of what he speaks" and is not offering "subjective belief or unsupported speculation," and, second, that we determine that the evidence will assist us in understanding the evidence. Cummins v. Lyle Indus., 93 F.3d 362, 367-68 (7th Cir. 1996) (citations omitted); see also Pierce v. Chi. Rail Link, LLC, 03 C 7524, 2005 WL 599980, at *4 (N.D. Ill. Mar. 15, 2005) (extending the Cummins test to non-scientific expert testimony).

The evidence before us demonstrates that Robert holds considerable business experience, having worked in management review at an accounting firm and run multiple consulting firms. (Dkt. 180-1 (Robert Aff.) ¶¶ 10-13.) The precise nature of Robert's knowledge of and experience with accounting principles is unclear, although Magistrate Judge Keys permitted him to testify regarding Playroom's financial records and their compliance (or lack thereof) with GAAP in an evidentiary hearing related to another motion in this litigation.⁴ (Id. ¶ 11.) In light of our ruling below, we need not fully assess Robert's expert qualifications and turn instead to review the helpfulness of his GAAP testimony.

In his affidavit, Robert states that he has reviewed Playroom financial records as accessed through MAS 500, a system that Playroom uses to record its financial transactions. (Robert Aff. ¶¶ 17-19; 21.) He recites a litany of errors that constitute GAAP violations; one typical example is his statement that, "[c]ontrary to GAAP, interest expense is not accrued." (Id. ¶ 21(g).) Similarly, Robert asserted at the hearing before Judge Keys that Playroom's financial statements were not up to GAAP, and upon a request for foundation simply stated: "There are entries in multiple areas off the financials that are either incorrect in their entry or they're not entered at all." (Dkt. 81 at 29.) Such generic assertions are not reliable and relevant in the manner required by Daubert and Kumho.

The Supreme Court has commented that there are numerous sources of GAAP rules and procedures. As the court has explained, "GAAP is not the lucid or encyclopedic set of pre-existing rules that the dissent might perceive it to be. Far from a single-source accounting rulebook, GAAP 'encompasses the conventions, rules, and procedures that define accepted accounting practice at a particular point in time.'" Shalala v. Guernsey Mem'l Hosp., 514 U.S. 87, 101, 115 S. Ct. 1232, 1239 (1995) (adding further that "GAAP changes and, even at any one point, is often indeterminate. '[T]he determination that a particular accounting principle is generally accepted may be difficult because no single source exists for all principles.' . . . There are 19 different GAAP sources, any number of which might present conflicting treatments of a particular accounting question.") (internal citations omitted)...