The resolution of a federal Rule 702 and Daubert motion in an ongoing complex litigation shows how a federal judge views the admissibility of expert testimony versus weight. This article summarizes why the U.S. District Court for the Northern District of Texas ruled that several arguments against admissibility amounted to issues of weight that should be left to the jury. VeroBlue Farms U.S., Inc. v. Wulf, et al., Civil Action 3:19-CV-0764-X (N.D. Tex. Mar. 13, 2023). Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993).
The resolution of a Federal Rule of Evidence 702 and Daubert motion in an ongoing complex litigation shows how a federal judge views the admissibility of expert testimony versus weight. In a recent case, the U.S. District Court for the Northern District of Texas considered several arguments against admissibility, but determined that each amounted to an issue of weight that should be left to the jury.
Challenged testimony
The defendants founded VeroBlue Farms to revolutionize the farm-raised fishing industry, but plans went awry. The company filed for bankruptcy and sued its founders, alleging mismanagement and misrepresentation. (Three of its founders have recently been indicted on felony counts related to deception.)
The defendants filed a motion to exclude the testimony of the company’s damages expert. They argued it was unreliable and irrelevant under Rule 702 and Daubert. The expert concluded that the total damages to the company, caused by the defendants, was about $102 million. She reached that figure by combining the results of two damages theories.
The company’s expert also submitted a supplemental report opining that the company was always insolvent. As a result, she concluded that every dollar it obtained or spent constituted waste.
Damages theory
The same expert argued that the defendants’ devaluation and waste of the company’s assets caused damages of at least $93 million, equal to the total debt and equity investment in the company. The defendants contended that this opinion: 1) was irrelevant because these weren’t damages the company had standing to recover, and 2) relied on the wrong measure of damages.
The magistrate judge found that the expert’s opinion couldn’t be excluded as irrelevant simply because the defendants believed she was opining on damages that the company couldn’t recover as a matter of law. As to the measure of damages, the judge found the argument may be a better summary judgment argument or fodder for cross-examination at a trial. It didn’t convince the judge that the opinion couldn’t assist the trier of fact.
The judge found that the defendants’ reliability arguments went to the weight of the opinion, not its admissibility. Their doubts about the bases and sources for the opinion didn’t render the opinion so unsupported as to be inadmissible.
Extra damages assessment
The expert also found that the defendants’ misappropriations caused damages of at least $9 million. Specifically, she theorized that “every penny” paid to or spent by the defendants in their role as the company’s directors constituted misappropriations and were recoverable as out-of-pocket damages.
The defendants asserted that the expert double-counted when she added the total amount invested in and loaned to the company (in other words, debt plus equity) to the amount allegedly misappropriated. However, the judge found that this wasn’t a challenge to the reliability of the method but to the expert’s consistency across damages models — so it was a matter for cross-examination.
The judge made a similar point regarding the defendants’ arguments that the opinion was unreliable based on the timing and receipt of payments. These challenges, too, were related to the opinion’s bases and sources and didn’t render the opinion fatally unsupported.
Discredited insolvency method
The defendants also made several challenges to the expert’s supplemental report regarding the company’s insolvency. Most importantly, they claimed that she relied on a “discredited balance sheet method.” The defendants said that the fundamental flaw in her methodology was her failure to value the company’s assets and liabilities during the relevant period.
The judge found the defendants’ assertions again addressed the bases and sources of the opinion. While some other experts may question the appropriateness of valuing a company based on its balance sheets, that goes to the weight of the opinion, rather than its admissibility.
Key takeaway
The magistrate judge made clear that the party putting forth the expert doesn’t need to prove to the judge by a preponderance of the evidence that the testimony is correct. The proponent must show only that the testimony is sufficiently reliable and relevant. The rejection of expert testimony is the exception, not the rule. Generally, questions relating to the bases and sources of an expert’s opinion affect the weight to be assigned that opinion, rather than its admissibility. Please contact us here if you have any questions.
