Skatteforvaltningen v. The Stor Capital Consulting LLC 401K Plan

Background

The opinion concerns consolidated litigation involving the Customs and Tax Administration of the Kingdom of Denmark, identified as Skatteforvaltningen, and numerous defendants. The court’s notice identifies the matter as part of master docket 18-md-2865 and lists multiple related case numbers.

Defendants retained Dr. Emre Carr, a consultant at FTI Consulting, Inc. and a former Securities and Exchange Commission economist, as a proposed expert witness. His primary, rebuttal, and reply reports totaled 169 pages. Defendants proposed that he testify that transactions underlying their allegedly fraudulent Danish withholding-tax refund claims were structured-finance transactions consistent with accepted market practices and gave the pension plans an economic claim to dividend payments.

Dr. Carr’s proposed testimony focused on “net settlement,” meaning that a custodian handling both sides of offsetting trades may settle those trades internally without changing its holdings. He proposed to testify that the pension plans could have purchased Danish securities even if the custodians, and all of their clients, held no shares of those securities. Skatteforvaltningen moved under Federal Rules of Evidence 702 and 403 to exclude the testimony as unreliable, irrelevant, and likely to confuse the jury.

Court’s analysis

The court explained that Rule 702 and the Supreme Court’s expert-evidence decisions require judges to screen expert testimony for reliability. An expert opinion may be excluded when there is too large a gap between the supporting data and the conclusion, or when the opinion is connected to existing data only by the expert’s unsupported assertion.

The court found that Dr. Carr’s sources supported only the proposition that net settlement and internalization can transfer beneficial ownership when the custodian already holds the asset. They did not support the proposition that beneficial ownership could pass through an internal settlement when the custodian held none of the underlying shares. The court therefore excluded testimony that defendant pension plans became, or could have become, beneficial owners in that circumstance as unreliable.

The court also found that testimony supporting that proposition was irrelevant. It had previously ruled that a seller without ownership rights cannot convey those rights to a buyer. Therefore, if the short sellers from whom defendants purportedly purchased shares never owned them, the defendants could not have beneficially owned the shares. The court further concluded that contrary testimony would risk confusing or misleading the jury, providing an additional basis for exclusion under Rule 403.

Skatteforvaltningen separately sought to exclude testimony that its experts had failed to show that the pension plans knew about trades to which they were not parties or whether the custodians held Danish securities. The court stated that experts may not testify about the knowledge or state of mind of parties. It therefore found such testimony irrelevant and inadmissible.

Disposition

The court granted in part and denied in part Skatteforvaltningen’s motion to exclude Dr. Carr’s testimony. The court specifically stated that its denial concerning other aspects of the proposed testimony was not a definitive ruling on admissibility of the matters discussed in Sections II through V of Dr. Carr’s report. The court indicated that all or most of those matters appeared to be undisputed and could be presented more efficiently through a stipulation, and directed the parties to follow the procedure previously established for stipulating to aspects of another proposed witness’s testimony.

The opinion was signed by United States District Judge Lewis A. Kaplan on August 6, 2024.