Category Archives: General

Bank Penalties – Logical???

Have you ever given consideration to the ultimate destination of huge fines levied on U.S. banks and other financial institutions in recent years? Billion dollar fines do not grab the attention they commanded a few years ago simply since it is occurring more frequently. And that’s not saying anything about the smaller multi-million dollar fines that barely make the headlines these days.

Various sources indicate the fines fall into basic categories, i.e., civil money penalties, and disgorgements or required restitution.

Disgorgements or Required Restitution

Disgorgements or required restitution payments make sense in theory, since they are intended to provide recovery for damaged businesses or consumers. However, the determination of damage is complex. For example, scores of home buyers contend their financial well-being was damaged by unaffordable mortgages obtained during the housing boom in the mid-2000s. These damages were caused by loans with balloon payments, payment choices that resulted in negative amortization, step-up mortgages, and other sub-prime loan terms. Some borrowers were qualified on “stated income.” In other words, the lender took the loan applicant’s word for what his or her income was. In many cases, the applicant’s income was grossly overstated.

Borrowers have a personal responsibility to basically understand their business transactions and deal honestly, or so it would seem. Having faith in our justice system, one would expect a balance to be struck between personal responsibility and wrongdoing on the part of the bank. Thus, settlements with businesses and consumers would take into consideration their culpability in the failed transactions and be distributed appropriately.

Civil Penalties: Where Does the Money Go and Who Ends Up Paying?

What about civil money penalties? In a recent multi-billion dollar settlement, over half the settlement was allocated to civil money penalties. Where does that money go – to enforcement efforts and development of other programs? Federally regulated banks and other financial institutions are typically billed directly for the cost of exams conducted by their regulators. Don’t regulatory exams encompass “enforcement”? If an institution is determined by the regulators to be out of compliance, memorandums of understanding or cease and desist orders are issued and regulatory monitoring is increased until compliance is once again accomplished. In extreme cases, regulators can take control of an errant institution. The increased costs of monitoring are also passed along to the institution.

Once again, what about civil money penalties?? Who ends up paying? General business economics says money coming in to a business must exceed money going out or the business will become insolvent and eventually be forced to close. Assuming the business provides relevant goods and services that are in demand, price increases are the most likely method of covering cash shortfalls and maintaining profit margins. So, who pays the tab? Good customers, businesses and consumers who need the services to conduct their daily lives. Ultimately, the penalty is nothing more than a speed bump for the business as costs are passed along and customers pay the increased cost.

What percentage of business owners and consumers would you assume read a news article and understand exactly what their bank was penalized for? Those articles most likely do not cause customers to pack up and move their accounts elsewhere. Rather than levying unreasonable penalties that affect innocent businesses and consumers, perhaps there are other more basic solutions that put an institution’s reputation on the line and informs its customers there is a problem. One such solution may be to require a noncompliant institution to prominently post notices in each of their business locations and website stating: Banking regulators have found this institution to be out of compliance with Regulation ___ because it has a pattern and practice of ______.

Ok, so maybe that’s at the other end of the penalty spectrum, but the point is that all factors must be considered and penalizing innocent people is unacceptable.

Museum and Non-Profit Experts Present Alternatives to Corcoran Gallery Merger

The future of the historic Corcoran Gallery of Art, an independently owned art gallery in Washington DC which is one of the oldest museums in the country, sits in the hands of a DC Judge after days of testimony in a merger lawsuit. The proposal, which involves millions of dollars in both endowment funds and value of an extensive art collection, has met vigorous opposition from supporters of the museum who have presented a variety of expert witnesses with specialties ranging from financial planning to art valuation who argued at trial that the Corcoran can continue to exist as an independent gallery as it has for over 150 years.

Corcoran Gallery Merger Trial

After years of financial struggles, trustees of Corcoran have submitted a proposal that requests legal authority to abandon the 1869 deed of trust, which established the institution in favor of a merger with George Washington University and the National Gallery of Art. Opponents to the proposal, made up of current faculty and students of the Corcoran College of Art, challenged the trustees, arguing that there are alternative means to raise capital, better manage the museums financials, and keep Corcoran in its traditional place as an independent art gallery and college.

Under the merger, Corcoran would donate most of its 17,000 artworks to the National Gallery of Art, and give the building, along with $35 million for renovations, to the George Washington University – merging Corcoran’s art college into GWU. Citing $28 million in cumulative deficits since 2008, the Corcoran trustees claim they have no choice but to seek support from stronger institutions and claim the merger will keep the Corcoran tradition alive even if the institution is no longer independent. During trial, the Corcoran trustees presented witnesses who outlined the dire financial situation and promised that the merger would preserve the institution’s history and legacy, cutting at the opponents’ position that the proposal would dissolve the museum for good.

Corcoran Merger Opponents Call Expert Witnesses

Opponents of the Corcoran merger, known as Save the Corcoran (STC), sought to attack the trustees’ argument that the financially insolvent museum had no alternative but to merge with GW and the National Gallery of Art by use of three expert witnesses. The experts specialized in non-profit management, museum oversight and development, financial planning, and donor fundraising. During the 8-day trial, these experts explained that Corcoran’s financial troubles were not inevitable nor irreversible, and that proper non-profit management could undo the trustees’ dysfunction and keep the museum operating independently.

The STC’s experts pointed out that proper management of non-profit museums like Corcoran could keep institutions financially solvent and even successful. During testimony, the experts made use of tutorials on how art museums operate, and pointed to real life examples across the country of art galleries that raised millions in capital through effective donation and development offices that Corcoran lacks. The STC’s expert witnesses also contrasted the failings of Corcoran’s management with successful museum operations and presented testimony that supported alternative plans for the museum’s financial recovery.

Corcoran’s fate now sits in the hands of District of Columbia Superior Court Judge Robert Okun who will consider whether or not the trustee’s request to break the terms of the deed is allowable. With the Corcoran’s art collection and building worth more than $2 billion in assets, the decision will have a significant impact across DC’s cultural and educational community.

Expert Witnesses Key in Detroit Teen Murder Verdict

Earlier this month, jurors in Detroit found homeowner Theodore Wafer guilty of second-degree murder, manslaughter, and a felony firearm charge for fatally shooting 19-year-old Renisha McBride when she banged on his door after crashing her car. Throughout Wafer’s trial, a variety of expert witnesses testified by explaining the issues that were critical in helping jurors understand how the fatal incident transpired.

Homeowner in Detroit Porch Shooting Guilty of Murder

Last November, 19-year-old Renisha McBride approached the home owned by Theodore Wafer at around 4:30 AM and began banging on his door. Wafer, who lives alone, responded to the loud pounding on his door by getting his shotgun, approaching the doorway, and eventually firing a shot that killed McBride. During testimony, a visibly shaken Wafer claimed that he had grabbed the gun out of fear for his safety, and he did not know it was loaded before it discharged. Wafer also testified that the shotgun discharged accidentally, reinforcing his argument that he did not mean to kill McBride.

Prosecutors argued that Wafer’s actions were unreasonable and unnecessary considering the level of threat that McBride presented, and Wafer’s defense team countered that his actions were driven by fear of being attacked and that he did not intentionally discharge the gun. After nearly two days of deliberations, jurors agreed with the prosecution and convicted Wafer of second-degree murder, manslaughter, and felony firearm usage. Both parties relied heavily on expert witnesses familiar with gun safety, forensic pathology, and police investigations during the trial.

Expert Witnesses Key to McBride Murder Verdict

During Wafer’s trial for the murder of Renisha McBride, both parties leaned heavily on expert witnesses to support, or refute, Wafer’s recollection of the events and to interpret the evidence gathered by police at the scene. Prosecutors, attempting to demonstrate that Wafer fired intentionally in an unreasonable response to the perceived threat, called the following:

  • Shawn Kolonich, a forensic firearms expert witness, testified that the 12-gauge shotgun used by Wafer was in good condition and did not have any defect that would have caused it to fire accidentally. Part of Wafer’s testimony was his claim that he had not intentionally fired the gun, but Kolonich’s expert opinion indicated that it is unlikely that the gun misfired. Kolonich further testified that the gun’s safety mechanism had been released, which enabled Wafer to fire it.
  • Detective Stephen Gurka, lead investigator in charge of the case, offered expert testimony on the evidence gathered at the scene of McBride’s death. Det. Gurka testified that the police found no evidence of attempted entry into Wafer’s home, and nothing to suggest that a second individual was attempting to enter through the home’s side door – a claim Wafer made to reinforce his perception of the threat. Gurka’s work was criticized by defense attorneys who argued the police investigation was botched, resulting in tainted evidence.
  • Dr. Kilak Kesha, MD was the final prosecution expert witness. Dr. Kesha performed the autopsy on Renisha McBride and testified that he did not observe swelling or injuries on her hands – supporting the prosecution’s claim that she was not the aggressor.

In response, the defense presented two expert witnesses to support Wafer’s claim:

  • Dr. Werner Spitz, MD is a widely recognized expert on forensic pathology, and he directly contradicted Dr. Kesha’s assessment that McBride did not have wounds on her hands. Dr. Spitz testified that there was evidence of bruising on McBride’s hands that would suggest she banged violently on Wafer’s door. Dr. Spitz also testified that McBride was severely intoxicated at the time, an assessment Dr. Kesha agreed with. Prosecutors challenged Dr. Spitz, getting him to admit he had based part of his testimony on Wafer’s own statements rather than the condition of McBride’s body.
  • David Balash is a firearms expert witness who was called to testify about the condition of Wafer’s screen door at the time he fired the shot that killed McBride. Mr. Balash testified that the angle of the gun at the time it fired suggested that the screen door was dislodged from the force of McBride’s banging. Balash also testified that Renisha was very close to the door – less than a foot – at the time she was shot.

Wafer’s guilty verdict is not necessarily an indication that his expert witnesses were unconvincing. Despite evidence that McBride aggressively banged on his doorway, jurors determined that Wafer’s response was unnecessary and sufficiently out of line to justify a murder conviction. Expert testimony in support of the prosecution demonstrated flaws in Wafer’s story, and contributed to a guilty verdict.

 

DOJ Requests EPA Expert Witness Be Removed Over Conflict of Interest

The Department of Justice (DOJ) has requested that former Environmental Protection Agency (EPA) official Jeffrey Holmstead be barred from testifying in a federal trial against utility company, Ameren Missouri. Holmstead, who has knowledge of EPA enforcement proceedings, has been accused of having confidential information resulting in a conflict of interest that, according to the DOJ, should preclude him from serving as an expert witness.

Former EPA Official an Environmental Enforcement Expert Witness

Ameren Missouri is a utility company charged by the EPA for allegedly failing to obtain proper construction permits and declining to install the best available pollution control technology when the company updated two coal-fired electricity units. Ameren is contesting the EPA, and hired Mr. Holmstead as an environmental enforcement expert to offer his opinion during trial. In an expert witness report filed earlier this year, Holmstead outlined his intent to testify:

  • That the regulations Ameren allegedly violated did not apply to the company’s renovation of its coal-fire units because they only apply to new construction or significant modifications
  • Missouri state regulations have jurisdiction over the case – not the EPA
  • The EPA’s expert witness used improper methodology when predicting the long-term emissions from Ameren’s new coal-fired units
  • The method for analyzing emission increases applied by the EPA was not considered at the time the regulations were created, and therefore the EPA cannot now use it to enforce the rule

Mr. Holmstead, who helped develop the EPA regulations while he was working for the agency, submitted his report after analyzing the government’s case against Ameren. With years of experience working with the EPA, Holmstead’s qualifications as an expert witness are not in dispute, however, his former position with the agency have created questions of a conflict of interest that may prohibit him from being further involved in the litigation.

Government Asks for Removal of Environmental Expert Witness

After reading Holmstead’s report, the DOJ immediately prepared a motion to dismiss him as an expert witness because of the confidential information he obtained while working for the EPA. Although Holmstead is a private attorney now, his time as a government employee gave him access to behind-the-scenes meetings and discussions regarding the creation and enforcement of EPA regulations. Throughout his expert witness report, Holmstead cites his experience with the creation of the regulations Ameren is charged with violating, causing the DOJ to request his removal.

Expert witnesses are usually not permitted to testify if there is, or was, a confidential relationship between the expert and one of the parties to the suit. In this case, the EPA is claiming that Holmstead had, over the course of his tenure with the agency, developed a confidential relationship, particularly regarding the creation and administration of the regulations relevant to the government’s case against Ameren. Holmstead, who held the highest position within the EPA’s Office of Air and Radiation, was privy to internal communications regarding the program Ameren is allegedly in violation of, and the DOJ argued that it is therefore objectively reasonable to disqualify him from testimony.

DOJ Leaves Gaps in Request to Disqualify EPA Expert Witness

As the court considers the government’s request to disqualify Holmstead due to his access to confidential information, it is worth noting that the DOJ”s motion does not specify what that information may be. The DOJ simply points to “internal communications” and “privileged information concerning the issues about which he now seeks to testify on behalf of Ameren,” without going into specific details. Further, Holmstead left the EPA in 2005, which is a full six years before the government’s investigation began in 2011 – removing him from years of communications that may have specifically addressed the Ameren case.

While the DOJ is correct that an expert witness with access to confidential information may be disqualified, it is unclear if the government made enough of a case to connect Holmstead’s prior EPA experience with confidential knowledge of its case against Ameren.

6th Circuit Admits Contradictory Expert Witness Testimony

Last week, the federal 6th Circuit Court of Appeals issued an interesting ruling on expert witness testimony when it approved of an expert who directly contradicted the party who hired him. In Lee v Smith & Wesson Corp., the 6th Circuit determined that if an expert witness satisfies the Federal Rule of Evidence 702 qualifications, as articulated in Daubert v Merrell Dow, then testimony that conflicts with his client does not preclude his involvement in the trial.

Expert Witness Contradicts Plaintiff in Personal Injury Lawsuit

In 2006, plaintiff Mark Lee was seriously injured when his Smith & Wesson revolver discharged improperly, causing damage to his face, eye, and nose. While shooting his revolver, Mr. Lee fired three times, with the third shot causing an injurious blast to expel from the weapon into his face. Lee filed a personal injury lawsuit against the gun manufacturer, and testified that before the third shot the gun cylinder swung open – causing the blast that knocked off Lee’s safety glasses and resulted in his facial injuries.

To support his case, Lee reached out to mechanical engineer Roy Ruel as a gun expert witness. Ruel was asked to examine the revolver and testify that it was the cause of Lee’s injuries. Although Ruel concluded that the gun was faulty in its manufacture and design, he determined that the gun cylinder did not swing open as Lee had testified. Instead, Ruel concluded that the accident occurred because the cylinder did not fully lock into place between shots, resulting in high pressure gas expelling from the revolver into Lee’s face. Finding that the gun’s design allowed for the trigger to be pulled even with the cylinder not fully closed, Ruel concluded that Lee’s injuries were created by a Smith & Wesson design defect.

Trial Court Dismissed Contradictory Expert Testimony

Smith & Wesson requested the trial court dismiss Ruel’s testimony because of the critical inconsistencies between his expert opinion and Lee’s account of the accident. The district court granted the motion, and determined that Ruel’s expert testimony failed to satisfy the relevancy requirement of the Daubert test for the following reasons:

  • Lee testified he had no difficulty firing the gun the third time, but Ruel testified that the gun had not fired immediately because the cylinder did not close fully
  • Lee claimed the cylinder swung open after firing, but Ruel concluded that it was closed – however not locked into place
  • Lee’s demonstrated hand grip on the gun showed that he did not touch the thumb latch, but Ruel stated that Lee pushed on the thumb latch prior to pulling the trigger

The differences in victim and expert witness testimony were not minor – in fact Ruel’s expert testimony drastically altered the account of the incident that caused Mr. Lee’s injuries. After the trial court determined that the inconsistent expert would be excluded, Lee dismissed the case contingent on the 6th Circuit’s opinion on Ruel’s ability to offer expert testimony.

6th Circuit Permits Expert Witness Contradiction

In its review of the case, the Court of Appeals for the 6th Circuit looked to the text of Daubert for guidance and pointed out that, “The Rule 702 inquiry is a flexible one… [and its focus] must be solely on principles and methodology, not on the conclusions that they generate.” With that mindset, the court determined that Mr. Ruel had adequately demonstrated that his opinion was relevant to the issues at trial, and was therefore admissible despite being contradictory to Lee’s account. In preparing his expert report, Ruel analyzed the gun, reviewed multiple accounts of Lee’s accident, read Lee’s medical records, and looked over several photos of the revolver immediately after the incident. Finding that “a party is not precluded from proving his case by any relevant evidence, even though that evidence may contradict the testimony of a witness previously called by him,” the 6th Circuit looked at Ruel’s testimony in a vacuum and determined that it was relevant to determining the cause of Lee’s injuries and should have been admitted.

The 6th Circuit concluded that a reasonable jury could determine that Mr. Lee may have been wrong in his account of the incident, but Smith & Wesson would still be liable for the cause of his injuries based on Ruel’s expert testimony. An expert witness questioning or contradicting testimony he is called upon to support is not unheard of, and the 6th Circuit’s analysis in Lee v Smith & Wesson reminds attorneys and judges that the Daubert criteria, independent of other testimony, controls the analysis of the admissibility of expert testimony.

Expert Witness Approves Detroit’s Bankruptcy Plan

Earlier this month, the financial expert witness hired to review the City of Detroit’s bankruptcy restructuring plan approved of the strategy, but reminded city officials there is a long way to go.  Marti Kopacz, the financial expert hired by US Bankruptcy Judge Steven Rhodes to analyze Detroit’s recovery strategy, finalized her assessment in late July.

Detroit’s Bankruptcy Expert Witness Approves Restructuring Strategy

Ms. Kopacz and her team of financial analysts were brought in to the case by Judge Rhodes to help him understand whether or not Detroit’s bankruptcy plan was feasible.  As we blogged about here, Detroit was ordered to pay Kopacz $500,000 for her expert witness report that helped Judge Rhodes determine the right course of action in the city’s bankruptcy.  With Detroit venturing into unknown territory, Judge Rhodes relied on Kopacz’s expert opinion to ensure the unique restructuring process went as smoothly as possible.

After reviewing the city’s financial situation and reading its plan to address the more than $36 million in debt, Kopacz and her team issued a report that approves of Detroit’s bankruptcy emergence strategy.  In a 226-page assessment, Kopacz provided the critical go-ahead on the city’s $1.4 billion reinvestment plan compiled by emergency city manager Kevyn Orr and his army of bankruptcy consultants and attorneys.  Although Kopacz’s expert opinion reflected optimism that Detroit could achieve its financial goals, she noted reasons for concern and reminded city officials that the work has just begun.

Expert Witness Calls for Unified City Leaders in Detroit

In Kopacz’s report, she strongly emphasized that Detroit’s bankruptcy plan is only possible if the city’s labor force and politicians work together to take advantage of the influx of cash to improve upon services.  Sending a message to city employees, Kopacz expressed some criticism that public union workers don’t always grasp “that their job is to provide a service to the taxpayers versus the taxpayers owing them a job.”  Although she praised the city’s employees for their willingness to work and knowledge, Kopacz’s expert report pointed out that differences between public workers and city officials could derail Detroit’s bankruptcy plan.

In Kopacz’s expert opinion, Detroit also needs to update its technology infrastructure as it works through the bankruptcy plan.  Without better technology to streamline the supply of public services, Detroit could easily slip back into costly bad habits that would stunt the city’s planned revitalization.  Overall, Kopacz repeatedly pointed to the need for strong leadership and cooperative government as Detroit worked through its bankruptcy, conditioning her approval of the strategy on the city officials who will take the lead after Judge Rhodes approves the plan.

Other Recommendations from Detroit’s Bankruptcy Expert Witness

In addition to approving the plan and reminding city officials of the importance of quality management in the coming months, Kopacz and her financial team:

  • Recommended that Michigan hire full-time financial experts to monitor Detroit’s bankruptcy and provide oversight reports that ensure the plan is moving along smoothly.
  • Suggested additional efforts to raise funds to remove the blight that plague’s Detroit’s neighborhoods. Currently the city has plans to secure $300 million in loans to combat blight, and Kopacz recommended there be other funding efforts.
  • Offered the suggestion that Detroit lease or sell the city’s airport, which is “currently a cash drain on the city’s budget.”
  • Called to question the city’s expectation of a 6.75{d61575bddc780c1d4ab39ab904bf25755f3b8d1434703a303cf443ba00f43fa4} return on investment for worker pension funds.  Saying that number could be too high, she cautioned city officials about relying on it.
  • Questioned the planned speed of the bankruptcy, which is something that both Mr. Orr and Judge Rhodes have pushed for during the bankruptcy process.  Kopacz warned officials from rushing the bankruptcy at the expense of city improvement.

Ms. Kopacz and her financial expert witness team compiled her analysis after reviewing the city’s financial documents and conducting over 200 interviews and fact-finding meetings with Detroit officials and public employees.  Kopacz also worked closely with Mr. Orr and his bankruptcy consultancy team to understand the strategy before approving of the plan.  As Detroit moves forward, Kopacz and many of the bankruptcy experts will remove themselves, leaving the daunting task ahead up to Mayor Mike Duggan and the other elected officials.

Peanut Contamination Criminal Trial to Rely on Expert Witnesses

The trial of three former Peanut Corporation of America (PCA) executives for allegedly causing a salmonella outbreak that killed 9 people and sickened over 700 more begins this week, and will feature key expert witness testimony in support of federal prosecutors.  Brothers Stewart and Michael Parnell, along with former PCA quality control manager Mary Wilkerson, are charged with felonies for distributing contaminated peanuts, and experts from the Center for Disease Control (CDC) as well as private food laboratories look to aid the government’s case.

CDC Expert a Late Addition to PCA Trial

Key to the government’s prosecution of PCA’s executives is expert witness, Dr. Ian Williams, chief of the Outbreak Response and Prevention Branch at the CDC.  Dr. Williams is the head of the CDC department that works with epidemiologists and other public health officials who investigate outbreaks of foodborne illnesses in the United States, and has a PhD in Infectious Disease Epidemiology from the Johns Hopkins School of Hygiene and Public Health.

In addition to his education and career qualifications, Dr. Williams has been chosen as a food contaminant expert witness due to his involvement in numerous multistate illness outbreaks since he began working with the CDC in 1994.  Defense attorneys took exception to Dr. Williams because he was a late addition to the government’s witness list, but his qualifications and experience will contribute to the trial and he looks to be an important expert witness during the upcoming proceedings.

Additional Expert Witnesses to be reviewed during Trial

The government will call other food safety expert witnesses to demonstrate the PCA executives were aware of the peanut contamination, including Tracey Buchholz, the corporate director of quality for Deibel Laboratories Group.  Deibel Labs is a food safety organization, and Mr. Buchholz has been called to testify about food quality in an effort to show that PCA either knew, or should have known, its peanuts presented a serious health risk – thus aiding prosecutors build the argument that PCA’s leadership team’s failure to prevent the salmonella outbreak is a criminal offense.

Buchholz and other potential expert witnesses will be reviewed for admissibility during the course of trial by presiding judge, W. Louis Sands.  Judge Sands has cleared a total of 8 expert witnesses to offer testimony bolstering the government’s prosecution, and will allow for additional time during trial to hear arguments about other experts whose testimony may prove valuable.  Expert witnesses must not only be qualified, but also be prepared to offer testimony that is both reliable and relevant to the issues at hand.

Defense Expert Witness Rejected

As blogged about here, the approval of the government’s expert witnesses comes shortly after Judge Sands rejected Mr. Parnell’s request for a neuropsychologist’s expert testimony explaining that the defendant’s ADHD prevented him from having the necessary mental capabilities to be aware of the extent of the peanut contamination.  After a seven hour Daubert hearing regarding expert witness admissibility, Judge Sands determined that Dr. Joseph Conley’s unique expert testimony regarding the impact of ADHD lacked “a link with the allegations” in the PCA trial, and was therefore not relevant to the criminal proceedings.

With the PCA criminal trial set to begin, jurors will hear testimony from several expert witnesses that the government has prepared to explain the nature of contaminated food outbreaks, and connect the defendants’ behavior with the fatal peanut-born salmonella incident.  Prosecutors hope to use the testimony of food safety experts to demonstrate that the three PCA executives knowingly distributed the unhealthy peanuts in violation of federal law, and are consequently guilty of causing the deadly salmonella outbreak.

Federal Appeals Court Reinforces Importance of Reliable Expert Testimony

Earlier this year, the Sixth Circuit Court of Appeals issued a ruling on expert witness testimony that reminds parties that an expert must not only be qualified, but must be prepared to offer reliable testimony.  In dismissing a defective drug lawsuit, the 6th Circuit pointed out that the plaintiff’s expert, although capable, failed to present evidence relevant to the facts of the case.

Plaintiff Files Defective Drug Lawsuit

In Rodrigues v Baxter Healthcare Corp, the 6th Circuit affirmed the trial court’s refusal to admit an expert witness submitted by Fernando Rodrigues, who sued Baxter after allegedly receiving a contaminated dose of the company’s muscle relaxant, heparin.  Mr. Rodrigues was administered heparin, which was recalled in 2008 due to a spike in adverse reactions, prior to bypass surgery.  During his surgery, Mr. Rodrigues experienced severe swelling and drop in blood pressure that required he spend three days in the ICU, sedated, with his chest still open until the surgeons could close the incision.  Claiming the heparin he was administered was defective and the cause of his ordeal, Mr. Rodrigues filed a lawsuit against Baxter seeking damages for his bypass surgery complication.

Rodrigues Expert Witness Rejected by 6th Circuit

The district court judge ruled before trial that any expert witnesses in the case must be prepared to offer testimony linking heparin use to “one or more symptoms [that] were apparent within the sixty minute period” of the patient receiving the drug.  The trial court made this ruling because the available scientific evidence, notably data from the Center for Disease Control (CDC), on the side effects of contaminated doses of heparin indicated that adverse reactions only occurred within sixty minutes of a patient receiving the drug.  Without evidence to support a causal link between heparin and surgical complications after sixty minutes of receiving the dose, the trial court determined that limiting expert witnesses was an appropriate measure.

Rodrigues was prepared to offer the testimony of Dr. Debra Hoppensteadt, a qualified physician, who claimed that the side effects of heparin could emerge after the sixty minute time window established by the CDC.  Despite Dr. Hoppensteadt’s qualifications, the 6th Circuit agreed with the trial court and found her expert testimony inadmissible because her supporting evidence was unreliable.  Dr. Hoppensteadt based her expert opinion about the side effects of heparin on one study, which only gave her enough support to speculate about the possibility that heparin could create complications more than sixty minutes after being ingested.  Without strong evidence to forge a causal link between heparin use and symptoms arising more than 60 minutes after dosage, the 6th Circuit determined that Rodrigues’ medical expert witness could not provide reliable testimony.

With Rodrigues’ only expert witness testifying that his symptoms arose more than sixty minutes after he received the drugs, his case was dismissed by the lower district court.  On appeal, the 6th Circuit agreed that the trial court had appropriately limited expert witness testimony under Daubert by only allowing experts who could rely on existing scientific evidence to link contaminated heparin to adverse medical complications.

Sixth Circuit Points to Expert Witness Reliability

In Rodrigues, the 6th Circuit reminded parties that the Daubert standards for admitting an expert witness require experts be qualified and be prepared to provide reliable testimony.  Determining whether or not expert testimony is reliable is measured on a number of factors, but reliance on established science and proven research is of particular importance to judges.  In Rodrigues, the 6th Circuit faulted Mr. Rodrigues for failing to recognize that professional qualifications are not the singular factor in admitting expert witnesses.  Pointing out that Daubert, which interprets Rule of Evidence 702, requires an expert have “more than subjective belief or unsupported speculation,” the 6th Circuit’s opinion reinforced the importance of expert witnesses satisfying all the necessary qualifications by providing qualified and reliable testimony.

Expert Public Adjuster’s Testimony Regarding Insurer’s Bad Faith Rejected in Texas Court

A Texas couple suing State Farm for bad faith and unfair dealings was struck a blow last week when the trial judge determined their expert witness was not qualified to opine on State Farm’s behavior at trial.  Andrew and Donna Falcon filed the lawsuit alleging State Farm owed more than $112,000 for damages to their home covered by their home insurance policy, and attempted to call Stephen Hadhazi, a public adjuster, to testify that the insurance company denied their claim in bad faith.

Homeowner Calls Public Adjuster as Expert Witness

The Falcon’s trouble started in 2011 when a wildfire threatened their home and forced evacuation. Unable to return to the property, and believing their home had been destroyed, the Falcons contacted State Farm, with whom they had a home insurance policy, to begin the process of filing a claim. State Farm assisted the Falcons while they were unable to return to their home, and, when the threat of fire had been neutralized, went to inspect the property to assess damage. Although the home had not been destroyed, State Farm issued payments of close to $20,000 to help the Falcons clean and repair fire and smoke damage to the home and property and pay for expenses accrued while they were unable to return to their residence.

The Falcons disagreed with State Farm’s damage assessment, and called upon the expert analysis of Stephen Hadhazi to independently examine their home and provide an estimate. Following Hadhazi’s review, the Falcons sent State Farm a letter claiming that they were entitled to $112,766.59 to pay for all the damages caused by the fire to the property. When State Farm rebuked the Falcons’ claim, they filed a lawsuit alleging the company failed to investigate their claims in good faith and had paid an unfairly low settlement. Mr. Hadhazi, a public adjuster, was called as an insurance expert witness to comment on bad faith practices.

Judge Rejects Testimony of Bad Faith Expert Witness

In response to the Falcons’ attempt to use their independently consulted public adjuster as an expert witness on bad faith and unfair dealing, State Farm moved to strike Hadhazi’s testimony because: 1) it was only based on the fact that his estimate differed from State Farm’s; 2) it was incomplete because he did not review the claims file, the Service Master’s estimate of damages, or the depositions taken in the pre-trial phase; and 3) Mr. Hadhazi could not properly define bad faith. The Falcons countered that Hadhazi’s experience as a public adjuster qualified him to “assess the physical loss of or damage to structural or personal property, and structural or personal property values,” and thus serve as an expert witness in a dispute over a home insurance settlement.

While the trial court agreed that Mr. Hadhazi was qualified in the area of public adjusting and assessing property damage, it ultimately rejected his testimony as an expert witness. First, the court found that Mr. Hadhazi was not acting as a public adjuster in this case, but was performing as an independent consultant for the Falcons – an important distinction because his testimony was driven by guesswork and unsupported statements he made in defense of the damage estimate he provided for the Falcons. Second, the Court was unimpressed with the vague and expansive definition of bad faith Mr. Hadhazi provided during deposition. Hadhazi was unable to clearly identify bad faith behavior, but instead offered a generic analysis that ended with the unhelpful suggestion that the court “look up” the term bad faith. Since expert witnesses are tasked with assisting the jury, Hadhazi’s attempt to point to bad faith were unconvincing and irrelevant. Finally, the court found that because Hadhazi hadn’t even reviewed any of the documents associated with the Falcon’s claim, he could not comment on bad faith practices in the particular case at issue.

The court’s order, found here, also denied the Falcon’s use of a smoke analysis expert witness because his methodology for examining the smoke damage to their home was unreliable and not representative of the damage the residence suffered. State Farm’s expert witness on smoke damage, called to refute the Falcons’ claims regarding the extent of their losses, was accepted for the trial. Given that the Falcons have lost the early battle over expert witnesses, chances of success in their lawsuit against State Farm have been reduced dramatically.

 

Detroit Pays $500,000 in Financial Expert Fees for Bankruptcy Filing

Detroit has added more than $500,000 in expert witness fees to its growing short term debt accrued as a result of the city’s bankruptcy filing. Massachusetts financial advisor Marti Kopacz will receive payment of $514,736.71 for work performed in April and May that resulted in a financial expert witness report that assesses the feasibility of Detroit’s bankruptcy plan. Detroit will present its bankruptcy plan to US Bankruptcy Judge Steven Rhodes in a trial this summer in an effort to have the restructuring strategy approved.

Detroit Pays for Financial Expert Witness

Marti Kopacz, manager of Boston’s Phoenix Management Services, has a background in public-sector turnarounds and was appointed by Judge Rhodes as the court’s expert witness. Judge Rhodes hired Kopacz to give him the information he needs to understand the “issues of municipal finance and viability” that will come into play while he oversees Detroit’s bankruptcy restructuring. Kopacz’s primary responsibility is to present an expert witness report analyzing the city’s plan for addressing its $18 billion in debt in order to determine whether or not the strategy is feasible, and she may also be called upon to testify during the bankruptcy proceedings.

Last week, Judge Rhodes ordered the city to pay the over $500,000 in fees that Kopacz and her firm have accrued in two months of work. Kopacz’s financial management team have reviewed financial documents, interviewed current and former city officials, consulted with judges and other financial professionals, and compiled the report requested by Judge Rhodes at the time he appointed Kopacz as his expert witness. How Judge Rhodes will use Kopacz’s report and potential testimony remains to be seen, but her work will undoubtedly influence the outcome of Detroit’s bankruptcy trial as the judge has indicated he will rely heavily on her expert analysis to understand municipal finance.

Judge Rhode’s use of Kopacz and her financial management team comes as no surprise – courts often rely on the reports of independent expert witnesses to evaluate strategic and financial planning before approving a course of action. Given that a city of Detroit’s size has never filed for bankruptcy protection, it is expected that the presiding judge would need to tap a top-dollar expert witness to assist him through relatively uncharted territory. Detroit, which is responsible for the administrative and court costs of its bankruptcy filing, has little say in the matter and must pay Kopacz’s expert fees as part of its bankruptcy proceedings.

Detroit’s Bankruptcy Costs Rise

The expert witness fees owed Kopacz and her financial team are added to the over $36 million in costs Detroit has accrued as part of its bankruptcy filing. The bulk of the fees have been paid to its legal restructuring firm, Jones Day, which has billed over $17 million in fees and expenses accrued while creating the city’s bankruptcy plan. Fifteen other consulting firms and bankruptcy professionals filled out the remaining balance, and now Kopacz’s expert report adds another 1/2 million to the total.

Although the fees associated with Detroit’s bankruptcy are substantial, the law firm appointed by Judge Rhodes to track the costs has found every dollar spent to be justified. The Fee Examiners at Chicago-based bankruptcy law firm Shaw Fishman Glantz & Towbin wrote, “Due to the magnitude and complexity of the Case, the novelty of the legal issues, the extremely tight time frames imposed by the Court and the strong differences in opinion between the various parties about what to do and how to do it, it was (and continues to be) inevitable that the costs associated with the services provided by the various Professionals were going to be significant.” Finding that the unprecedented nature of Detroit’s bankruptcy has created a unique situation, Judge Rhodes seems to be taking all the necessary steps to ensure the process is properly managed, regardless of the costs. Marti Kopacz’s financial expert witness report is simply the latest in a growing use of financial, legal, and bankruptcy professionals who have been tapped to assist the bankruptcy court in approving Detroit’s massive restructuring strategy.