In Re: RFC and RESCAP Liquidating Trust Litigation

Background

The court considered cross-motions under Federal Rule of Evidence 702 to exclude expert opinions and testimony in the related case ResCap Liquidating Trust v. Primary Residential Mortgage, Inc., No. 16-cv-4070. Rule 702 permits qualified experts to testify when their specialized knowledge will help the factfinder, their opinions rely on sufficient facts or data, and their methods and application of those methods are reliable. Because the court would serve as the factfinder, it applied the reliability standard more flexibly than it might in a jury trial, but still performed its required review.

The opinion states that earlier summary-judgment rulings had already decided several underlying issues, including that RFC’s bankruptcy settlements were reasonable and made in good faith and that Dr. Karl Snow used the correct settlement amount in his damages-allocation method. Those earlier rulings affected whether some exclusion requests remained relevant or had become moot.

Primary Residential Mortgage’s motion

Primary Residential Mortgage, Inc. (PRMI) moved to exclude opinions from ResCap’s experts Dr. Karl Snow, Steven Butler, Donald Hawthorne, Dr. John Kilpatrick, Albert Lee, and Steven Albert.

The court denied as moot PRMI’s requests to exclude Dr. Snow’s opinion because he allegedly used the wrong settlement amount and because his method allegedly violated UnitedHealth. The court had already held that Snow used the correct single, unallocated settlement amount and that his allocation method was admissible and consistent with that decision. The court denied PRMI’s requests concerning Snow’s sampling population, Breach Scenario I, and his blended monoline analysis. The court treated the objections as challenges to the weight or precision of the evidence, which could be addressed through cross-examination and contrary evidence rather than exclusion. The opinion also states that PRMI’s challenge to Snow’s settlement-by-settlement monoline analysis was denied because the concerns involved the weight of the opinion rather than admissibility.

As to Butler, the court granted in part and denied in part PRMI’s motion. It denied the motion to the extent PRMI argued that Butler lacked expertise concerning particular trust-level representations and liability disclaimers. It granted the motion to the extent Butler attempted to testify about the meaning of the contracts and provisions at issue. Butler could testify about normal industry practices, customs, and how a reasonable industry participant would view contractual provisions, but he could not give a personal legal interpretation of the contracts. The court denied PRMI’s requests to exclude Butler’s reliance on corporate-designee testimony and on substitute mortgage loan schedules, finding that those materials could be relied on under Rule 703 and that PRMI’s objections could be explored through cross-examination.

The court denied as moot PRMI’s requests concerning Hawthorne’s opinions about the reasonableness of the bankruptcy settlements because the court had already decided that issue as a matter of law. Hawthorne remained permitted to testify about the strength of certain legal defenses and trust representations insofar as Snow relied on those opinions for damages allocation. The court also denied PRMI’s motion to exclude the appraisal opinions of Kilpatrick, Lee, and Albert. It again held that challenges to the reliability of the automated valuation method affected the opinions’ weight, not their admissibility, and that the use of post-settlement tax-assessed values did not violate the applicable allocation standard.

ResCap’s motion

ResCap moved to exclude opinions from PRMI’s experts Phillip Burnaman II, Professor Steven Schwarcz, Lee Kennedy, Kori Keith, Dr. Justin McCrary, and David Woll.

As to Burnaman, the court denied as moot requests concerning his opinions about servicing claims, comparisons to other mortgage-backed-securities settlements, and the strength of statute-of-limitations defenses because those opinions concerned the reasonableness of settlements that the court had already found reasonable and made in good faith. The court granted ResCap’s motion to exclude Burnaman’s loss-causation opinions, finding that they remained unreliable because they lacked competent, reliable support. The court also granted the motion to exclude Burnaman’s opinions criticizing substitute mortgage loan schedule data, his opinions about the repurchase protocol in the pooling and servicing agreements, and his reliance on an unidentified, non-testifying expert from an earlier proceeding. The court denied the motion concerning Burnaman’s opinions about RFC’s history and market role, allowing general industry background testimony but not testimony about RFC’s mental state, intentions, knowledge, or motivations. The court denied the motion concerning the challenged statement about RFC’s intentions because it viewed that statement as an opinion about industry language and practice rather than RFC’s actual state of mind.

The court granted ResCap’s motion to exclude Schwarcz’s “sole responsibility” opinions because they were unsupported speculation. It also granted the motion concerning Schwarcz’s opinions about RFC’s state of mind, intentions, and motivations, while allowing testimony about industry understanding and practice that did not address RFC’s mental state. The court denied the request to exclude his general history and market-role testimony, but granted the request to bar him from repeating the opinions of absent, non-testifying experts from an earlier proceeding.

The court granted ResCap’s motion to exclude Kennedy’s opinions in their entirety. It concluded that his opinions disputing the reliability of the automated valuation method were irrelevant as a matter of law because RFC had sole discretion under the governing agreements to identify breaches, and PRMI’s bad-faith defense had already been barred.

The court granted in part and denied in part ResCap’s motion concerning Keith. It granted the motion to exclude her loss-causation opinion and her opinions about RFC’s state of mind, intent, or motivation. It denied as moot the request concerning her bad-faith opinions because the court had already barred PRMI from presenting that defense. It granted in part the request concerning contract applicability, barring Keith and Butler from giving opinions about the legal meaning or applicability of the contracts, while denying in part the request to the extent Keith could testify about loan-specific evidence supporting PRMI’s waiver and estoppel defenses or about industry views of contractual provisions.

The court granted ResCap’s motion to exclude McCrary’s supplemental opinion that Snow used different settlement amounts for different groups of trusts. The court had already ruled that Snow used the correct settlement amount.

The court denied as moot ResCap’s request to exclude Woll’s testimony addressing the reasonableness of the bankruptcy settlements. It denied the request to exclude Woll’s use of Analysis Group’s work, allowing him to discuss that analysis as an input for McCrary and in assessing the strength of legal defenses. The court also denied the request based on Woll’s prior legal representation, finding that any concerns about usefulness or bias could be addressed through cross-examination. Finally, the court granted in part and denied in part the request concerning Woll’s statements about RFC’s knowledge: it excluded statements about what RFC knew, but allowed opinions about general industry standards and practices.

Disposition

The court’s final order states that PRMI’s motion to exclude certain opinions of ResCap’s experts was granted in part, denied in part, and denied in part as moot. It states that ResCap’s motion to exclude certain opinions of PRMI’s experts was also granted in part, denied in part, and denied in part as moot. The order was signed by Susan Richard Nelson, United States District Judge.