United States District Court, D. Arizona
ORDER
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).
Background
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.
Analysis
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 ...