Financial Guaranty Insurance Company v. The Putnam Advisory Company, LLC

Background

The order addresses the parties’ competing motions to strike portions of declarations submitted by prospective trial witnesses. Trial was scheduled to begin on July 6, 2020. The court ordered the parties to submit revised declarations conforming to its rulings by July 3, 2020, at 5:00 p.m.

Francis Longstaff

Financial Guaranty moved under Federal Rule of Evidence 702 to strike portions of defense expert Francis Longstaff’s testimony. The challenged testimony concerned what Financial Guaranty allegedly assumed about the credit risk and likely losses of the Pyxis collateralized debt obligation when it decided to insure it, and whether Financial Guaranty insured other collateralized debt obligations with greater credit risk.

The court held that Financial Guaranty waived its Rule 702 objection by failing to raise it in its earlier motion under the standards governing expert testimony. The court also ruled that the objection would fail on the merits because Longstaff relied on the Pyxis credit application, which supplied sufficient facts and data. Any failure to review underlying models, the court said, went to the weight of his testimony rather than whether it could be admitted.

The court reserved judgment on the relevance of Longstaff’s paragraphs 93–113 concerning Magnetar’s correlation-trading strategy and whether industry publications put Financial Guaranty on notice of that strategy. It would revisit those issues after Financial Guaranty’s case, particularly because the court had previously granted Putnam summary judgment on all claims except misrepresentation claims arising from the PCS.

The court granted Financial Guaranty’s motion to strike Longstaff’s responses to opinions that O’Driscoll was no longer offering, subject to reconsideration if Financial Guaranty placed those opinions at issue through its own expert testimony. The court also excluded paragraphs 175, 180, and 182 because they addressed Magnetar’s alleged influence on Putnam’s asset selection, an issue the court had previously found irrelevant. Paragraphs 11, 174–177, and 178–183 were likewise excluded because they responded to a hypothetical-loss theory that was no longer in the case. Putnam withdrew the Ischus-related sentences in paragraphs 85 and 90–92.

John Dolan

The court granted the motion to strike specified portions of defense expert John Dolan’s declaration, including the fourth and last sentences of paragraph 153, paragraphs 174 and 214, paragraph 10, the last sentence of paragraph 107, paragraph 113, paragraphs 37 and 38, the sentence beginning “It is evident” in paragraph 96, and paragraph 121. The court denied the motion as to paragraph 16, while reserving judgment on its relevance until the end of Financial Guaranty’s case; denied it as to paragraph 101; and denied it as to paragraphs 156–166.

The court also denied the motion as to paragraphs 14, 84, 98, 105, 108, 121, 123, and demonstratives D-161 and D-148 on the ground that they were argumentative, except that paragraphs 37 and 38 were stricken. The court stated that the remaining challenged testimony it did not strike reflected expert opinions based on the information Dolan reviewed and could be challenged through cross-examination. It also concluded that Dolan was qualified to testify as an expert.

Bell and Van Tassel

The court granted Financial Guaranty’s motion in part against proposed lay testimony from Bell and Van Tassel. It struck specified portions of Bell’s paragraphs 69, 117, 120, and 141, and specified portions or entire paragraphs from Van Tassel’s paragraphs 13, 24, 29, 58, and 79, because the testimony was either improper lay opinion or irrelevant to Phase 1 of the trial.

The court also granted the motion in part concerning testimony about how the witnesses would have acted regarding events they did not currently recall. It struck specified sentences in Bell’s paragraphs 176 and 179 and in Van Tassel’s paragraphs 13, 55, and 58. The court allowed the remaining testimony because it was based on personal knowledge or permissible evidence of habit or routine.

The court did not strike the reference to legal advice from Putnam’s general counsel in paragraph 74 of Bell’s declaration. It stated that any inconsistency between Bell’s declaration and deposition testimony could be addressed through cross-examination. The court also stated that exhibits offered through Bell and Van Tassel would be admitted subject to objections and possible questioning about whether a proper foundation had been established.

Dana Skelton

Financial Guaranty moved to strike Dana Skelton’s testimony under the rules governing expert disclosures and expert evidence. The disputed paragraphs concerned how a loss-coverage analysis would have applied to the actual Pyxis portfolio if Financial Guaranty had received that portfolio before deciding whether to insure it.

The court identified the issue as whether Skelton was offering permissible fact or lay opinion testimony, or instead expert testimony for which she had not been disclosed or qualified. The court reserved judgment and allowed Putnam to question Skelton before deciding whether to admit the testimony.

Fiachra T. O’Driscoll

Putnam moved to strike paragraphs 139–141 of O’Driscoll’s declaration. The court denied that request because O’Driscoll’s opinion that Putnam could have constructed an alternative portfolio containing 10% prime or seasoned assets while complying with the applicable limitation was not excluded by the earlier ruling. The court distinguished that opinion from a separate opinion about how such a portfolio would have performed, which had been excluded. Putnam could cross-examine O’Driscoll about his recollection and opinion.

The court excluded the first sentence of paragraph 149, which offered a new opinion about what potential collateralized debt obligation investors and insurers would have required. It allowed a revised version of the paragraph concerning rating agencies and detailed target portfolios, subject to cross-examination.

The court struck paragraphs 126–129 because they contained new opinions about Putnam’s exclusion of certain residential mortgage-backed securities and the relative credit quality of seasoned and new-issue securities. It also struck the fourth sentence of paragraph 125, while allowing Financial Guaranty to refer to the supporting document in argument if the document supported the factual point.

Disposition

The order resolved the specified evidentiary objections by granting some requests, denying others, striking identified testimony, and reserving judgment on additional testimony. Judge Lewis J. Liman ordered revised declarations and directed the Clerk of Court to close the pending motions at Docket Nos. 334 and 336.