ResCap Liquidating Trust v. Primary Residential Mortg., Inc. (In re ResCap Liquidating Trust Litig.)

• Court: U.S. District Court — District of Minnesota
• Writing for the Court: SUSAN RICHARD NELSON, United States District Judge
• Citation: ResCap Liquidating Trust v. Primary Residential Mortg., Inc. (In re ResCap Liquidating Trust Litig.), 432 F.Supp.3d 902 (D. Minn. 2020)
• Decision Date: 14 January 2020
• Docket Number: Case No. 13-cv-3451 (SRN/HB)
• Parties: IN RE: RESCAP LIQUIDATING TRUST LITIGATION This document relates to: ResCap Liquidating Trust v. Primary Residential Mortgage, Inc., No. 16-cv-4070

432 F.Supp.3d 902

IN RE: RESCAP LIQUIDATING TRUST LITIGATION

This document relates to: ResCap Liquidating Trust v.Primary Residential Mortgage, Inc., No. 16-cv-4070

Case No. 13-cv-3451 (SRN/HB)

United States District Court, D. Minnesota.

Signed January 14, 2020

MEMORANDUM OPINION AND ORDER ON MOTIONS TO EXCLUDE EXPERTS' OPINIONS

SUSAN RICHARD NELSON, United States District Judge

TABLE OF CONTENTS:

I. INTRODUCTION...913

II. BACKGROUND...913

III. DISCUSSION...913

A. Legal Standard...913

B. PRMI's Motion to Exclude Expert Testimony...914

1. Dr. Karl Snow...915

a. Qualifications and Opinion...915

b. Objections and Analysis...915

i. Whether Dr. Snow's Allocated Breaching Loss Approach Improperly Allocates Based on the Wrong Settlement Amount...915

ii. Whether Dr. Snow's Allocated Breaching Loss Approach Is Invalid Under UnitedHealth ...916

iii. Whether Portions of Dr. Snow's Allocation Opinion Should be Limited Based on the Sampling Populations...916

iv. Whether Dr. Snow's Opinion on Allocation of the Monoline Settlements Should be Limited...918

2. Steven Butler...920

a. Qualifications and Opinion...920

b. Objections and Analysis...921

i. Whether Mr. Butler's Opinions Regarding Certain Representations and Disclaimers are Beyond his Expertise...921

ii. Whether Mr. Butler Impermissibly Relied on 30(b)(6) Testimony...923

iii. Whether Mr. Butler's Opinions Impermissibly Relied on MLS Proxy Data...924

3. Donald Hawthorne...925

a. Qualifications and Opinion...925

4. Drs. John Kilpatrick, Albert Lee, and Mr. Steven Albert...926

a. Qualifications and Opinion...926

b. Objections and Analysis...926

C. ResCap's Motion to Exclude Expert Testimony...927

1. Phillip Burnaman...927

a. Qualifications and Opinion...927

b. Objections and Analysis...928

i. Whether Mr. Burnaman's Servicing-Related Opinions Should be Excluded...928

ii. Whether Mr. Burnaman's RMBS Settlement Comparisons Should Be Excluded...928

iii. Whether Mr. Burnaman's Loss Causation Opinion Should be Excluded...928

iv. Whether Mr. Burnaman's Opinions about MLS Proxy Data Should Be Excluded...929

v. Whether Mr. Burnaman's Opinions about RFC's Mental State Should Be Excluded...930

vi. Whether Mr. Burnaman's Opinions about RFC's History and Market Roles Should be Excluded as Inadmissible Fact Testimony...931

vii. Whether Mr. Burnaman's Opinions Relying on Experts from Other Cases Should be Excluded...932

viii. Whether Mr. Burnaman's Repurchase Protocol Opinions Should Be Excluded...932

ix. Whether Mr. Burnaman's Opinions about Sponsors' Timeliness Defense Should be Excluded...934

2. Steven Schwarcz...934

a. Qualifications and Opinion...934

b. Objections and Analysis...935

i. Whether Mr. Schwarcz's Sole-Responsibility Opinions Should Be Excluded...935

ii. Whether Mr. Schwarcz's Opinions about RFC's Mental State Should Be Excluded...936

iii. Whether Mr. Schwarcz's Opinions about RFC's History and Market Roles Should be Excluded as Inadmissible Fact Testimony...937

iv. Whether Mr. Schwarcz's Opinions Relying on Experts from Other Cases Should be Excluded...938

3. Lee Kennedy...939

a. Qualifications and Opinion...939

b. Objections and Analysis...940

4. Kori Keith...942

a. Qualifications and Opinion...942

b. Objections and Analysis...943

i. Whether Ms. Keith's Loss Causation Opinion Should be Excluded...943

ii. Whether Ms. Keith's Opinions about RFC's Mental State Should Be Excluded...943

iii. Whether Ms. Keith's "Bad Faith" Opinion Should be Excluded...944

iv. Whether Ms. Keith's Contractual Interpretation Opinions Should Be Excluded...944

5. Dr. Justin McCrary...947

a. Qualifications and Opinion...947

6. David Woll...947

a. Qualifications and Opinion...947

b. Objections and Analysis...949

IV. CONCLUSION...951

I. INTRODUCTION

Before the Court are the parties' cross motions to exclude certain expert opinions and testimony. On December 11, 2019, the Court heard oral argument on the parties' motion. For the reasons set forth below, Defendant's Motion to Exclude Certain Opinions of Plaintiff's Experts [Doc No. 5252] is granted in part, denied in part, and denied in part as moot, and Plaintiff's Motion to Exclude Certain Opinions of Defendant's Experts [Doc No. 5282] is granted in part, denied in part, and denied in part as moot.

II. BACKGROUND

The factual and procedural background of this litigation is thoroughly set forth in the Court's December 20, 2019 Memorandum Opinion and Order on Motions for Summary Judgment, In re ResCap Liquidating Tr. Litig. , Nos. 13-cv-3451, 16-cv-4070, 2019 WL 7038234, 428 F.Supp.3d 53 (D. Minn. Dec. 20, 2019) (" PRMI SJ Order ") [Doc. No. 5361], which is incorporated by reference here.

III. DISCUSSION

A. Legal Standard

Federal Rule of Evidence 702 governs the admissibility of expert testimony:

A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if:

(a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;

(b) the testimony is based on sufficient facts or data;

(c) the testimony is the product of reliable principles and methods; and

(d) the expert has reliably applied the principles and methods to the facts of the case.

Fed. R. Evid. 702. Under Rule 702, proposed expert testimony must satisfy three prerequisites to be admitted. Lauzon v. Senco Prods., Inc. , 270 F.3d 681, 686 (8th Cir. 2001). "First, evidence based on scientific, technical, or other specialized knowledge must be useful to the finder of fact in deciding the ultimate issue of fact." Id. (citation omitted). "Second, the proposed witness must be qualified to assist the finder of fact." Id. (citation omitted). "Third, the proposed evidence must be reliable or trustworthy in an evidentiary sense, so that, if the finder of fact accepts it as true, it provides the assistance the finder of fact requires." Id. (citation omitted) (internal quotation marks omitted).

These requirements reflect the Supreme Court's analysis in Daubert v. Merrell Dow Pharmaceuticals, Inc. , in which the Court emphasized the district court's gatekeeping obligation to make certain that all testimony admitted under Rule 702 "is not only relevant, but reliable." 509 U.S. 579, 589, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993) ; see also Kumho Tire Co., Ltd. v. Carmichael , 526 U.S. 137, 149, 119 S.Ct. 1167, 143 L.Ed.2d 238 (1999) (extending Daubert to technical and other specialized expert testimony). Under Daubert , the cornerstone for admissibility is assistance to the trier of fact. See Larson v. Kempker , 414 F.3d 936, 940–41 (8th Cir. 2005). When this Court sits as the finder of fact, however, there is "less need for the gatekeeper to keep the gate[.]" David E. Watson, P.C. v. United States , 668 F.3d 1008, 1015 (8th Cir. 2012) (citation omitted) (internal quotation marks omitted), cert. denied , 568 U.S. 888, 133 S.Ct. 364, 184 L.Ed.2d 160 (2012). Nonetheless, the Court still must assess whether expert testimony satisfies Daubert , while under a more "relax[ed] application for bench trials." Id. (citation omitted).

Under this standard, proponents must demonstrate by a preponderance of evidence that the expert's opinion is reliable. Courts generally support "an attempt to liberalize the rules governing the admission of expert testimony," and favor admissibility over exclusion. See Lauzon , 270 F.3d at 686 (citation omitted) (internal quotation marks omitted); Daubert , 509 U.S. at 596, 113 S.Ct. 2786 ("Vigorous cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof are the traditional and appropriate means of attacking shaky but admissible evidence."). Doubts regarding the usefulness of an expert's testimony should be resolved in favor of admissibility, United States v. Finch , 630 F.3d 1057, 1062 (8th Cir. 2011), and gaps in an expert witness's qualifications or knowledge generally go to the weight of the testimony and not its admissibility, Robinson v. GEICO Gen. Ins. Co. , 447 F.3d 1096, 1100 (8th Cir. 2006) (citing 29 Charles Alan Wright & Victor James Gold, Federal Practice and Procedure: Evidence § 6265 (1997) ).

B. PRMI's Motion to Exclude Expert Testimony

PRMI moves the Court for an order excluding (1) in its entirety, the testimony of ResCap's damages expert, Dr. Karl Snow; (2) certain opinions of re-underwriter Mr. Steven Butler, relating to the interpretation of certain trust-level representations, warranties, and disclaimers, as well as his reliance on MLS proxy data; (3) certain opinions of Mr. Donald Hawthorne regarding re-underwriting performed in RFC's bankruptcy and his discussion of financial reports; and (4) in its entirety, the opinions of ResCap's appraisal experts, Dr. John Kilpatrick, Mr. Steven Albert, and Dr. Albert Lee. (Def.'s Mem. at 1–2.)¹ The Court addresses each expert in turn.

1. Dr. Karl Snow

a. Qualifications and Opinion

Karl Snow, PhD, is an economist and partner at the Bates White economic consulting firm. (Smallwood Decl., Ex. 11 (Snow Damages Rpt.) ¶¶ 5–6.) ResCap retained Dr. Snow to provide expert analysis regarding the measure and allocation of damages, (see id. ¶ 3), and he crafted the Allocated Breaching Loss Approach methodology for doing so. (Id. ¶ 36.)

The Allocated Breaching Loss model measures damages in relation to the liabilities that RFC incurred in the Settlements, rather than the economic harm caused by breaching mortgages. In re RFC & ResCap Liquidating Tr. Litig. ("Common SJ Order"), 332 F. Supp. 3d 1101, 1198 (D. Minn. 2018). To assess damages that RFC incurred on RMBS Trust claims, Dr. Snow measures PRMI's share as a product of a settlement factor and the total losses on PRMI's breaching loans. Id. To measure damages under this approach, Dr. Snow estimates breach rates based on samples drawn from approximately 463,000 at-issue loans. (Smallwood Decl., Ex. 4 (Snow Suppl. Rpt.) at App. B.) His methodology excludes loans that had less than $500 of loss or were less than 90 days delinquent as of May...