PRCM Advisers LLC v. Two Harbors Investment Corp.

Background

This case concerns a dispute between Two Harbors Investment Corp., a real estate investment trust, and its external manager, PRCM Advisers LLC. The opinion refers to PRCM Advisers LLC and the other plaintiffs collectively as Pine River. The parties had filed cross-motions for summary judgment and competing motions seeking to exclude expert testimony under Daubert. The court had adopted Magistrate Judge Moses’s recommendations on summary judgment on May 23, 2025.

Magistrate Judge Moses’s order on the Daubert motions granted and denied each side’s motion in part. Among other rulings, the order excluded parts of Dr. David Lynn’s rebuttal opinion, excluded Robert Zeidman’s opinions about ownership of certain intellectual property and his untimely supplemental analysis, and limited or excluded portions of several defense experts’ opinions. It also excluded Dr. Christopher Vellturo’s $686 million unjust-enrichment damages estimate.

Standard of Review

Because the objection concerned a magistrate judge’s ruling on a non-dispositive matter, the district court reviewed the ruling for clear error or a legal error. The court explained that magistrate judges have broad discretion in resolving such disputes and that a party seeking reversal carries a heavy burden.

Vellturo Opinions 1, 2a, and 2

Two Harbors asked the court to “confirm” portions of Magistrate Judge Moses’s order. The court held that request was procedurally improper because no party had objected to those portions and there was no need for confirmation. The court also held that Two Harbors had mischaracterized the order: the order had not ruled on the admissibility of Vellturo’s $722.3 million estimate, called Opinion 1, or his $303.7 million estimate, called Opinion 2a.

The court found no clear error in leaving Opinions 1 and 2a unexcluded. Opinion 2 had been excluded because it relied on an inadmissible opinion by Michael Maffatone about how long Two Harbors would have needed to restore its business after losing access to Pine River’s intellectual property. Opinion 1 instead relied on Kenneth Slosser’s opinion that Two Harbors’s existing real estate investment trust would have been forced to wind down without access to Pine River’s intellectual property. Opinion 2a relied on an admissible opinion by O’Laughlen about how long Two Harbors’s principals would have needed to wind down and rebuild its mortgage-servicing-rights business. The court declined to change the order.

Vellturo Opinions 3 and 3a

Opinions 3 and 3a were estimates of reasonable royalties for allegedly misappropriated intellectual property. They used a formula applied to Vellturo’s unjust-enrichment estimates. The court held that Opinion 3a should not be excluded merely because it was related to Opinion 2a, which the earlier order had not excluded.

Pine River conceded that the $283.4 million Opinion 3 estimate was derived from Opinion 2, which had been excluded. But Pine River argued that the same reasonable-royalty method could instead be applied to the $722.3 million wind-down estimate in Opinion 1. The court accepted that approach because the earlier order had found the methodology reliable. It ruled that Vellturo could offer a reasonable-royalty estimate derived from Opinion 1 using the methodology used for Opinions 3 and 3a. He could not offer a reasonable-royalty estimate based on the excluded $686 million unjust-enrichment estimate.

O’Laughlen and Slosser Opinions

Two Harbors also argued that the opinions of O’Laughlen and Slosser, on which Vellturo relied, were speculative. The court rejected that objection. It explained that the earlier order treated Two Harbors’s arguments about O’Laughlen’s opinions as challenges to their weight, meaning how persuasive they were, rather than to their admissibility, meaning whether they could be presented to the factfinder. Those arguments could be tested through cross-examination.

The court also upheld the earlier rejection of Two Harbors’s challenges to Slosser’s alleged speculation, experience, and factual support. It stated that Two Harbors was effectively asking the court to exclude Slosser’s opinion because it believed the opinion was incorrect, which was not the applicable standard. The court found that Two Harbors had shown no error, much less clear error, in the earlier ruling.

Disposition

Judge Lewis A. Kaplan sustained Two Harbors’s objection to Magistrate Judge Moses’s Daubert order to the extent that Vellturo could not offer a reasonable-royalty damages estimate based on his $686 million unjust-enrichment estimate. The objection was otherwise overruled.