Pac. Life Ins. Co. v. Bank of N.Y. Mellon
| Decision Date | 22 February 2021 |
| Docket Number | 17-CV-1388 (KPF) (RWL) |
| Parties | PACIFIC LIFE INSURANCE COMPANY And PACIFIC LIFE & ANNUITY COMPANY, Plaintiffs, v. THE BANK OF NEW YORK MELLON, Defendant. |
| Court | U.S. District Court — Southern District of New York |
DECISION AND ORDER: MOTIONS TO EXCLUDE EXPERT TESTIMONY
The parties in this RMBS trustee action both have moved to exclude the opinion testimony of the other party's experts in whole or in part pursuant to Fed. R. Evid. 702, Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), and its progeny. On December 8, 2020, the Honorable Katherine P. Failla, District Judge, referred the motions to me as non-dispositive motions for decision and order. The Court has carefully reviewed the extensive briefing and supporting exhibits of the parties and the tendered reports for the thirteen experts at issue. The Court presumes the parties familiarity with all relevant facts. The parties' respective motions are GRANTED in part and DENIED in part as follows.1 Plaintiffs will be referred to as PacLife; Defendant as BNYM.
BNYM seeks to exclude two opinions of PacLife's securitization expert Adelson, which are similar and in some respect the same, as opinions excluded by the Honorable Valerie E. Caproni, District Judge, in Phoenix Light SF Ltd. v. Bank of New York Mellon, No. 14-CV-10104, 2020 WL 1322856 (S.D.N.Y. March 20, 2020) ("Phoenix Light II"), modified on other grounds on reconsideration, 2020 WL 2765044 ("Phoenix III").3
The first opinion concerns trustee obligations after an event of default ("EOD" or "default"), and paragraphs 214-216 of Adelson's report in particular. Paragraphs 214 and 215 contain prescriptive language as to whether or not it is "prudent" for a trustee to wait until investors request action by the trustee in response to an EOD rather than taking action proactively. Judge Caproni excluded similar prescriptive language in Phoenix Light. In particular, Judge Caproni determined that Adelson's opinion of what a trusteeshould do in response to an EOD was unreliable and not sufficiently tied to his experience. Phoenix Light II, 2020 WL 1322856 at *6-7. The same conclusion is warranted here; Adelson may not testify as to the issue of whether or not a prudent trustee "should" affirmatively take action (beyond sending a notice of default) in response to an EOD without direction. The inadmissible phrases are (a) "The trustee should choose among the reasonable alternatives based on what it expects to produce the best net result for investors" in paragraph 214, and (b) "because such a thing is not prudent" and (c) "(in the mode of a prudent person in the conduct of his own affairs)" in paragraph 215.
The remaining language of paragraphs 214 and 215 offer Adelson's opinions of what "market participants typically expect" and "do not expect" an RMBS trustee to do post-default. Phoenix Light does not address those opinions, which are not prescriptive and not Adelson's opinion of what "should" be done. As PacLife correctly notes, substantial earlier portions of Adelson's opinion are devoted to identifying sources of the expectations of various market constituents. (See Adelson Report ¶¶ 81-93, 90-91, 94-112, 115-134, 138-156, 213.) Neither BNYM's moving brief or its reply brief make mention of those portions of Adelson's report; nor do they lodge any objection to Adelson's opinion as to what market participants expect as stated other than in paragraphs 214-216. As long as Adelson specifically connects his opinions of market expectations to those sources and his experience, the opinions are admissible. See, e.g., Financial Guaranty Insurance Co. v. Putnam Advisory Company, LLC, No. 12-CV-7372, 2020 WL 4251229, at *12 (S.D.N.Y. Feb. 19, 2020) (); Securities and Exchange Commission v. Revelation Capital Management,Ltd., 215 F. Supp. 3d 267, 273-74 (S.D.N.Y. 2016) (). Any remaining concerns about this testimony do not merit exclusion; instead, they go to weight, not admissibility, and can be dealt with on cross-examination.
In Paragraph 216, Adelson quotes from and opines that BNYM's policy manual confirms its post-default obligations. Adelson has no expert foundation for construing BNYM's policy manual, and the Court agrees with BNYM that the quoted policy is just as consistent with the opposite of what Adelson suggests it means. See Phoenix Light II, 2020 WL 1322856 at *7 (); American Home Assurance Co. v. Merck & Co., Inc., 462 F. Supp. 2d 435, 449 (S.D.N.Y. 2006) (). Adelson may not offer his opinion of what the policy means or requires.
The second Adelson opinion at issue, found at paragraphs 249-256 of Adelson's report, asserts that proper disclosure of document defects in loans and noncompliance with so-called "Reg AB" would have led to "market pressure" to correct the problems. As Judge Caproni found, that opinion is inadmissible conjecture without sufficient basis. 2020 WL 1322856 at *7-8. PacLife's attempt to shore up the opinion with various articles, reports, and studies fails for the reason highlighted by BNYM: Adelson did not cite mostof those sources in his report at all, and two articles that Adelson did cite were not cited for his "market pressure" opinion. (Adelson Reply at 6.)
BNYM seeks to exclude three aspects of Beckles's opinions concerning loan servicing practices and analyses.
The first is an analysis assessing foreclosure timelines, i.e., the length of time from loan default to foreclosure. Beckles determined that the foreclosure timelines for the loans at issue exceeded those for loans held by government sponsored entities ("GSE") Freddie Mac and Fannie Mae by an average of 527 days. (Beckles Report ¶ 176.) BNYM contends that Beckles's analysis is unreliable primarily because she selectively chose to include only two of more than a dozen "allowable delays," and she did not analyze individual loan files to determine what allowable delays likely would have applied to each individual loan. (Beckles Mem. at 4.) Beckles provided rationales for these choices at her deposition, explaining that the methods she used were consistent with those she employed during her tenure analyzing foreclosure timeline compliance at Freddie Mac. (See Beckles Opp. at 9-10 ().) BNYM lodges some salient criticisms of the foreclosure timeline analysis and the choices made by Beckles, but her opinions are sufficiently reliable to be admitted. Accordingly, Beckles is not precluded from testifying about her foreclosure timeline analysis.
The second issue concerns Beckles's opinion that 4,847 at-issue loans with outstanding document exceptions were imprudently liquidated. Beckles drew herconclusion from review of "final exception reports" and other material. BNYM asserts that Beckles's opinion is inadmissible because she made an assumption - that none of the outstanding document exceptions were cured prior to liquidation - that is unsupported and false. The problem with that argument is that the evidence produced by BNYM on cures apparently is sparse and disputed. Indeed, BNYM does not dispute PacLife's assertions that BNYM did not produce its available cure data and instead obtained a protective order on the purported basis that it was too burdensome to produce.4 (Beckles Reply at 6.) BNYM should not be rewarded with excluding Beckles opinion based on its own refusal to produce the relevant data that supposedly undermines it.
In reply, BNYM says it does not fault Beckles for not considering "additional" data but rather for not considering information that BNYM did produce. (Beckles Reply at 6-7.) BNYM points in particular to an internal BNYM email referring to "progress" in curing document exceptions and states that Beckles "would have found evidence of the considerable progress" in curing document exceptions "[h]ad [she] sought out additional information." But BNYM does not identify what that evidence is other than the vague email; nor does BNYM indicate whether that progress included any of the loans at issue.
BNYM argues that Beckles did receive but improperly ignored trailing exception and cure reports that she reviewed but deemed unreliable. BNYM then faults Beckles as not making it "entirely clear" why she deemed the reports unreliable. But in attempting to illustrate that contention, BNYM cites to two explanations given by Beckles, one in her deposition and one in her report. (Beckles Mem. at 9.) The explanations may be different, but that does not render them incompatible. Ultimately, the parties disagree about what to conclude from the limited information that BNYM produced regarding document exception cures. BNYM can make its points on cross-examination of Beckles. It is up to the fact-finder, however, to resolve the dispute about what the evidence shows regarding document exception cures and to assess whether Beckles's assumption that none of the 4,847 loans had document exception cures is reasonable. Accordingly, Beckles's opinion in that regard is not excluded.
BNYM's third challenge seeks to exclude Beckles's opinion concerning the cause - which she identifies as servicing performance - of the...
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