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Joshua David Mellberg LLC v. Will

United States District Court, D. Arizona

April 16, 2019

Joshua David Mellberg LLC, et al., Plaintiffs,
Jovan Will, et al., Defendants.


          Honorable Cindy K. Jorgenson, United States District Judge.

         Pending before the Court is Defendants' Motion to Exclude Plaintiffs' Untimely Damages Evidence. (Doc. 310). Plaintiffs filed a response (Doc. 317) and Defendants a reply (Doc. 322). Oral argument was held on February 6, 2019. (Doc. 390).


         Joshua David Mellberg, LLC (“JDM”) is a financial advisory firm. Throughout the years, JDM developed numerous confidential and proprietary business practices and trade secrets. JDM takes significant measures to protect that confidential information and has a policy that requires all employees to return any physical embodiments of confidential information and trade secrets to JDM upon the termination of their employment. JDM alleges that the Defendants, former employees of JDM, misappropriated JDM's confidential information and caused JDM significant financial damages.

         In August 2015, Plaintiffs submitted their initial disclosure statement (“August 2015 Disclosure”) indicating they were seeking over $85, 000, 000.00 in damages in connection with their underlying claims. (Doc. 317, pg. 2). In that disclosure, Plaintiffs identified eleven categories of damages, with lump-sum estimates for eight of the categories but provided no computations to support those estimates. (Doc. 310, pg. 5). Two months before the May 2017 expert witness deadline, Plaintiffs disclosed Lynton Kotzin (“Mr. Kotzin”), as their damages expert. Mr. Kotzin produced an expert report (the “Kotzin Report”) pursuant to Rule 26(a)(2)(B) which estimated that if liability were found, the amount of economic damages to JDM would be $16, 340, 000.00. This figure reflected Mr. Kotzin's estimation of two categories of damages: lost profits and a diminution of JDM's company value.

         On June 12, 2018, Plaintiffs disclosed that their interim CFO, Paul Crooks (“Mr. Crooks”), would present a new cost-based damages methodology via a supplemental disclosure statement. Mr. Crooks began his employment with JDM as a consultant in finance and operations in January 2017 and transitioned into JDM's interim Chief Financial Officer in the Summer of 2017. He stayed in that role until July 2018, when a full-time CFO was hired. (Doc. 327-3, pg. 9). In September 2018, Plaintiffs disclosed Mr. Crooks's supplemental disclosure statement. (“September 2018 Disclosure”). That disclosure statement included calculations prepared by Mr. Crooks and largely based loss amounts on a theory of unjust enrichment with an actual total loss amount of $107, 310, 000.00.

         On October 12, 2018, Defendants filed a Motion to Exclude Plaintiffs' Untimely Damages Evidence. (Doc. 310). Specifically, Defendants argue: (1) Mr. Crooks is an expert witness in lay witness clothing; (2) Mr. Crooks is an expert witness and was not timely disclosed; and (3) Mr. Crooks's testimony should be excluded.


         1. Is Mr. Crooks's Testimony Lay Testimony or Expert Testimony?

         Federal Rule of Evidence 701 governs lay opinion testimony and provides:

If a witness is not testifying as an expert, testimony in the form of an opinion is limited to one that is: (a) rationally based on the witness's perception; (b) helpful to clearly understanding the witness's testimony or to determining a fact in issue; and (c) not based on scientific, technical, or other specialized knowledge within the scope of Rule 702.

         “[T]he distinction between lay and expert witness testimony is that lay testimony ‘results from a process of reasoning familiar in everyday life,' while expert testimony ‘results from a process of reasoning which can be mastered only by specialists in the field.'” Fed.R.Evid. 701 (quoting State v. Brown, 836 S.W.2d 530, 549 (Tenn. 1992)). “[T]he mandate of Rule 701 is clear. Lay opinion testimony is ‘not to provide specialized explanations or interpretations that an untrained layman could not make if perceiving the same acts or events.'” Fresenius Med. Care Holdings, Inc. v. Baxter Int'l, Inc., No. 597, 2006 WL 1330002, at *3 (N.D. Cal. May 15, 2006) (quoting U.S. v. Conn, 297 F.3d 548, 554 (7th Cir. 2002)).

         Mr. Crooks's testimony can be properly admitted under Rule 701 only if it is: (1) based upon his personal knowledge of JDM and (2) not based on scientific, technical, or other specialized knowledge within the scope of Rule 702. The Court will examine each requirement separately.

         A. Personal Knowledge

         Rule 701 requires that Mr. Crooks's testimony be “rationally based on [his] perception.” Defendants take an overly expansive view of the personal knowledge component in Rule 701, claiming that since Mr. Crooks was not employed at JDM from 2010 through 2013, and his damages analysis is based on information, documents, and statements from 2010 through 2013, he does not satisfy the personal knowledge requirement. See (Doc. 310, pg. 7) (“Crooks' damages analysis is based on information from 2010 through 2013. But he did not perform any services for JDM until January 2017 and admits that he has no personal knowledge of events at JDM before then.”) (internal citation omitted).

         The personal knowledge requirement in Rule 701 is not a requirement that a witness be personally present or involved in every interaction that he or she is testifying to. See United States v. Gadson, 763 F.3d 1189, 1209 (9th Cir. 2014) (district court's decision to permit witness to testify based upon his knowledge of the case, including information contributed by others “rather than merely his personal observations” was not erroneous). Personal knowledge is also not knowledge that a witness possesses only if it is a party to an event. Even though Mr. Crooks was not employed with JDM from 2010 through 2013, if he is familiar with JDM's financial records due to his employment with JDM, he will have met the personal knowledge requirement even if the documents that he is reviewing were prepared by other employees. See Lightning Lube, Inc. v. Witco Corp., 802 F.Supp. 1180, 1193 (D.N.J. 1992), aff'd, 4 F.3d 1153 (3d Cir. 1993) (“It is logical that in preparing a damages report the author may incorporate documents that were prepared by others, while still possessing the requisite personal knowledge or foundation to render his lay opinion admissible under Fed.R.Evid. 701.”). Defendants' interpretation would create unnecessarily limited scenarios where only employees who were actively employed and involved in the creation of a document would be allowed to testify regarding its contents.

         Courts have previously held that corporate executives can possess the particularized knowledge of a corporation's financial data enabling them to testify as a lay witness. See Nevada Rest. Serv., Inc. v. City of Las Vegas, No. 215CV02240GMNGWF, 2018 WL 3973402, at *4 (D. Nev. Aug. 20, 2018) (court permitting CFO to provide lay testimony about corporation's damages because CFO, “by virtue of his position in the company . . . has particularized knowledge of Plaintiff's financial data”); Hot Stuff Foods, LLC v. Houston Cas. Co., 771 F.3d 1071, 1079 (8th Cir. 2014) (holding that district court did not abuse discretion in admitting company's president and former CFO's lay testimony on damages due to his “intimate knowledge of [company] operations”); Lativafter Liquidating Tr. v. Clear Channel Commc'ns, Inc., 345 Fed.Appx. 46, 51 (6th Cir. 2009) (finding that district court did not abuse discretion by permitting an investor who researched a company's financial condition and later served as a member of the company's board to provide lay testimony about the company's projected value because he “had personal, particularized knowledge” of the company's value).

         However, although Mr. Crooks was employed at JDM, the extent of Mr. Crooks's personal knowledge of JDM's finances is unclear. Mr. Crooks began his employment with JDM as a consultant in finance and operations in January 2017 and became JDM's interim CFO in July 2017. By July 2018, a full-time CFO was hired and Mr. Crooks stepped down from that position and transitioned to a new role as president of Mellberg Wealth Management, an LLC jointly owned by Mr. Crooks and JDM. (Doc. 327-4, pg. 8). Therefore, Mr. Crooks was only employed with JDM for a period of approximately one and one-half years. However, even while Mr. Crooks served as JDM's interim CFO, it appears that he was nothing more than a part-time employee. Mr. Crooks testified that he only traveled to Tucson to work for JDM three times per month and stated: “Generally speaking, I work between 30 and 40 percent of a month, as much as 50, depending on the needs of the organization.” (Doc. 327-3, pg. 8).

         Notably, Mr. Crooks did not even consider himself to be JDM's CFO. See (Doc. 327-4, pg. 7) (“Q. Okay. And when you say you were the CFO, was that an official job title that you held or -- A. No. Q. No? I mean, did your e-mail -- did your e-mail say that you were a CFO? A. No. Q. Did you ever hold yourself out as a CFO on behalf of the company? A. No. Q. Do you know if the company ever held you out as a CFO? A. I don't know that I could answer that.”). Furthermore, during Mr. Crooks's two depositions, he made abundantly clear that he lacked personal knowledge of company details, finances, and operations on multiple occasions.

Q. And your damages opinions in this case are based on your review of financial statements and financial records that were prepared by other people prior to your employment as a consultant for the company; is that correct?
A. Correct, in addition to conversations that I would have and __ and discussions that I would have with many people.
Q. So it's based on hearsay and documents that predate your arrival at the company; correct?
A. Define hearsay.
Q. Something that somebody else tells you.
A. Yes.

(Doc. 327-4, pg. 9).

Q: Who prepared the company's financials during the time period of 2010 to 2013?
A: I'm not sure.

(Doc. 327-3, pg. 16).

Q: And you don't know why the company moved towards print and broadcast media and away from digital marketing? A: I have no firsthand knowledge of that.

(Doc. 327-3, pg. 17)

Q. The agency turnover, was this all external agents that you are referring to__
A. Yes.
Q. __ in 2015?
A. ‘14, yes.
Q. Is it ‘14 or __ A. ‘14 was the period of turnover. ‘15 was when the financial ...

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