In Re: RFC and RESCAP Liquidating Trust Litigation

Background

The court considered cross motions under Federal Rule of Evidence 702 and the standards from Daubert v. Merrell Dow Pharmaceuticals. Those standards require proposed expert testimony to be useful to the factfinder, offered by a qualified expert, and based on reliable methods.

The underlying case is ResCap Liquidating Trust v. Home Loan Center, Inc., No. 14-cv-1716 (SRN/HB). After the motions were filed, the parties agreed that ResCap would replace Residential Funding Company, LLC as the sole plaintiff, and the court approved that substitution. The defendants named in this order were Home Loan Center, Inc., CTX Mortgage Company, Standard Pacific Mortgage, Inc., Impac Funding Corp., iServe Residential Lending, LLC, and Freedom Mortgage Corporation. The plaintiff’s motion was addressed only to experts used by Home Loan Center, although the ruling also applied to other defendants relying on those same experts. Challenges involving other experts remained under advisement.

Defendants’ Motion to Exclude ResCap’s Experts

Dr. Karl Snow. The court had previously ruled that only Snow’s Allocated Breaching Loss model would go to the jury. The court therefore denied as moot the challenge to his other two damages models. It denied the challenge to the Allocated Breaching Loss model based on the argument that it offered a speculative damages theory. It also denied the challenges based on Snow’s use of statistical sampling from the At-Issue Loans and his method for allocating claims among insurance pools. The court concluded that these criticisms concerned the weight and precision of the evidence, rather than whether it was admissible.

Judge Richard Solum. The court granted the motion to exclude Solum’s testimony. Although Solum had substantial experience as a mediator, former judge, and commercial litigator, the court found that his experience did not relate sufficiently to the complex bankruptcy settlement involving mortgage securitization claims. The court also found that his opinions crossed into legal matters that the court, not an expert, must explain to the jury.

Dr. John Kilpatrick. The court denied the motion to exclude Kilpatrick’s appraisal opinions. Kilpatrick used the Greenfield Automated Valuation Model to evaluate whether property appraisals were inflated. The court held that objections to the model’s reliability and to its use of post-settlement tax-assessment data went to the credibility and weight of the testimony, not its admissibility. The court also found that using later tax-assessment values as a proxy for information available at the time of settlement did not violate the applicable settlement-valuation standard.

Donald Hawthorne. The court denied the challenges to Hawthorne’s opinions. It found him qualified, based on his experience litigating residential mortgage-backed securities matters, to discuss the litigation risks and reasonableness of the bankruptcy settlements. The court allowed him to offer opinions about the significance of re-underwriters’ methods when those opinions were based on objective indicators, and it allowed his opinions about other experts’ re-underwriting analyses and residential mortgage-backed securities industry practices. The court also allowed his limited use of financial analysts’ reports to describe information that parties may have considered when assessing settlement risks. Finally, it denied the challenge to his opinion that the settlements were reached in good faith, finding that his opinion relied on objective evidence rather than speculation about the parties’ private state of mind or confidential mediation communications.

Louis Dudney. The court denied the motion to exclude re-underwriting opinions that relied on Dudney’s substitute mortgage-loan schedules. The court found that Dudney gathered missing information from reliable sources and corroborated the information across sources. It also held that the defendants had not shown that the re-underwriters’ reliance on those datasets made their opinions so unreliable that exclusion was required.

ResCap’s Motion to Exclude the Defendants’ Experts

Phillip Burnaman. The court found Burnaman qualified to discuss residential mortgage-backed securities industry practices, settlement reasonableness, and loan servicing. But it excluded his opinion estimating the maximum potential value of certain foreclosure-timeline servicing claims because he did not account for litigation risk, making the testimony misleading. The court also excluded his opinion that defaults occurring after two or three years of good payment history were unlikely to result from origination defects because the opinion lacked competent supporting evidence. The court’s ruling therefore granted the motion in part and denied it in part as to Burnaman’s opinions.

Dr. Walter Torous. Because the court had excluded the damages model that Torous criticized, the challenge to that portion of his testimony was moot. The court stated that Torous could not testify about loss causation in response to Snow’s remaining Allocated Breaching Loss model because his report limited that criticism to the excluded model.

Dr. Ethan Cohen-Cole. The court excluded Cohen-Cole’s opinion in its entirety. His analysis found higher losses for loans serviced by RFC than for other loans, but did not connect that difference to particular servicing practices or breaches of RFC’s servicing contracts. The court concluded that the risk of unfair prejudice and jury confusion substantially outweighed the testimony’s usefulness.

Steven Schwarcz. The court deferred ruling on the challenge to Schwarcz’s opinion that some representations and warranties created liability for RFC alone. Schwarcz could not add support to his report, but the court would consider a trial-time offer of competent factual evidence that might support the opinion.

Thomas Kaufman. The court granted the motion to exclude Kaufman’s testimony. His opinion concerned the meaning of “remaining life of the Loans,” but the court had already interpreted the relevant contract provision on summary judgment, so his testimony could no longer assist the jury.

George Triantis. The court granted the motion to exclude Triantis’s testimony and opinions in their entirety. Triantis lacked residential mortgage-backed securities experience and did not assess the strengths, weaknesses, or litigation risks of the underlying claims. The court found that his opinions about the bankruptcy settlements and Snow’s damages allocation were speculative or addressed issues already resolved by the court’s prior summary-judgment ruling.

Justice Anthony Carpinello. The court granted the motion to exclude Carpinello’s testimony and opinions in their entirety. Although he had experience with New York law, commercial litigation, and statutes of limitations, the court found that he lacked relevant residential mortgage-backed securities experience to assess the settlement risks. The court also found his opinions about how negotiating parties would have predicted a later court decision too speculative and prejudicial.

Disposition

The court ordered that Defendants’ Motion to Exclude Certain Opinions of Plaintiff’s Experts was granted in part, denied in part, and denied as moot in part. It ordered that Plaintiff’s Motion to Exclude Expert Testimony and Opinions of Defendants’ Experts was also granted in part, denied in part, and denied as moot in part. The opinion was signed by Judge Susan Richard Nelson on September 19, 2018.