State of Delaware v. Card Compliant, LLC ( 2018 )

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
THE STATE OF DELAWARE,
Plaintiff,
ex rel.
WILLIAM SEAN FRENCH,
v.
)
)
)
)
)
§
Plaintiff-Relator, ) C.A. No. N13C-06-289 PRW CCLD
)
)
)
CARD COMPLIANT, LLC, er al., )
)
)
Defendants.
Submitted: June 5, 2018
Decided: August 29, 2018
MEMORANDUM OPINION
Upon Plaintijjfs ’ Daubert Motl``on to Exclua’e the Opl'nions
of Defendants ’ Expert Jennifer Bora’en,
DENIED.
Upon Plaz'nti/j% ’ Dauber“c Motion to Exclua’e the Opinions
of Defendants ’ Expert James Ryan,
DENIED.
Upon Defendants ’ Motion to Exclude or Lz``mit Testimony
of Plaz``ntijj% ’ Expert Brian Dujjj>,
DENIED in part, GRANTED in part.
Thomas E. Brown, Esquire, Edward K. Black, Esquire (argued), Stephen G.
MacDonald, Esquire, Deputy Attorneys General, Delaware Department of Justice,
Wilmington, Delaware, Attorneys for the State of Delaware.
Stuart M. Grant, Esquire, Mary S. Thomas, Esquire (argued), Laina M. Herbert,
Esquire, Vivek Upadhya, Esquire, Grant & Eisenhofer P.A., Wilmington, Delaware,
Attorneys for Plaintiff-Relator William Sean French.
Kenneth J. Nachbar, Esquire, Michael Houghton, Esquire, Matthew R. Clark,
Esquire, Barnaby Grzaslewicz, Esquire, Morris, Nichols, Arsht & Tunnell LLP,
Wilrnington, DE, Ethan D. Millar, Esquire, Of Counsel (pro hac vice), J. Andrew
Howard, Esquire, Of Counsel (pro hac vice), Alston & Bird LLP, Los Angeles, CA,
William R. Mitchelson, Jr., Esquire, Of Counsel (pro hac vice)(argued), Jason D.
Popp, Esquire, Of Counsel (pro hac vice), Alston & Bird LLP, Atlanta, GA,
Attorneys for Defendants Apple Arnerican Group LLC, CBC Restaurant Corp., Il
Fomaio (America) Corporation, Noodles & Company, and Shutterfly, Inc.
Stephen E. Jenkins, Esquire, Catherine A. Gaul, Esquire, Ashby & Geddes,
Wilmington, Delaware, Richard M. Zuckerman, Esquire, Of Counsel (pro hac
vice)(argued), Sean Cenawood, Esquire, Of Counsel (pro hac vice), Kiran Patel,
Esquire, Of Counsel (pro hac vice), Catharine Luo, Esquire, Of Counsel (pro hac
vice), Dentons US LLP, New York, NY, Attomeys for Defendants Card Compliant,
LLC, Cardfact I, Inc., Cardfact II, Inc., Cardfact III, Inc., Cardfact IV, Inc., Cardfact
V, Inc., Cardfact VI, Inc., Cardfact VII, Inc., Cardfact VIII, Inc., Cardfact IX, Inc.,
Cardfact X, Inc., Cardfact XI, Inc., Cardfact XII, Inc., Cardfact XIII, Inc., Cardfact
XIV, Inc., Cardfact XV, Inc., Cardfact XVI, Inc., Cardfact XVII, Inc., Cardfact
XVIII, Inc., Cardfact XIX, Inc., Cardfact XXI, Inc., Cardfact XXVI, Inc., Cardfact
XXVII, Inc., Cardfact XXIX, Inc., Cardfact XXX, Inc., Cardfact XXXI, Inc.,
Cardfact XXXII, Inc., Cardfact XXXIII, Inc., Cardfact XXXIV, Inc., Cardfact
XXXV, Inc., Cardfact XXXVI, Inc., Cardfact XXXVII, Inc., CARDCO Holding,
Inc., CARDCO Cl, Inc., CARDCO CV, Inc., CARDCO CVIII, Inc., CARDCO CXI,
Inc., CARDCO CXII, Inc., CARDCO CXV, Inc., CARDCO CXVI, Inc., CARDCO
CXVII, Inc., CARDCO CXIX, Inc., CARDCO CXX, Inc., CARDCO CXXl, Inc.,
CARDCO CXXII, Inc., Darden SV, Inc., as successor by merger to CARDCO
CXXIV, Inc., CARDCO CXXV, Inc., CARDCO CXXVI, Inc., CARDCO CXXVII,
Inc., CARDCO CXXVIII, Inc., CARDCO CXXXII, Inc., CARDCO CXXXII!, Inc.,
CARDCO CXXXIV, Inc., CARDCO CCCIII, Inc., CARDCO CCCIV, Inc.,
CARDCO CCCVI, Inc., CARDCO CX, Inc., and CARDCO DI, Inc.
Colm F. Connolly, Esquire, Jody C. Barillare, Esquire, Morgan, Lewis & Boc'kius
LLP, Wilmington, Delaware, Gregory T. Parks, Esquire, Of Counsel (pro hac vice),
Ezra D. Church, Esquire, Of Counsel (pro hac vice), Courtney McCormick, Esquire,
Of Counsel (pro hac vice), Morgan Lewis & Bockius LLP, Philadelphia, PA,
_2_
Attorneys for Defendants Hanna Anderson, LLC, Nash-F inch Company, Pamida
Stores Operating CO., LLC and Shopko Stores Operating Co., LLC.
David S. Eagle, Esquire, Michael W. Yurkewicz, Esquire, Klehr, Harrison Harvey
Branzburg LLP, Wilmington, Delaware, Martin I. Einstein, Esquire, Of Counsel
(pro hac vice), David SWetnam-Burland, Esquire, Of Counsel (pro hac vice), Stacy
O. Stitham, Esquire, Of Counsel (pro hac vice), Brann & Isaacson, Lewiston, ME,
Attorneys for Defendant Overstock.com, Inc.
Brian M. Rostocki, Esquire, Benjamin P. Chapple, Esquire, Reed Smith LLP,
Wilmington, Delaware, Michael J. Wynne, Esquire, Of Counsel (pro hac vice),
David A. Rammelt, Esquire, Of Counsel (pro hac vice), Reed Smith LLP, Chicago,
IL, Attorneys for Defendant Einstein Noah Restaurant Group, Inc.
Brian E. Farnan, Esquire, Farnan LLP, Wilmington, Delaware, ShaWn J. Organ,
Esquire, Of Counsel (pro hac vice), Joshua M. Feasel, Esquire, Of Counsel (pro hac
vice), Organ Cole LLP, Columbus, OH, Attorneys for Defendant Vacation
Properties United Ltd.
WALLACE, J.
I. INTRODUCTION
This Court discussed the background of this case extensively in an earlier
opinion.l In summary, Plaintif``f-Relator William Sean French and the State of
Delaware (“Delaware") bring suit under Delaware’s False Claims and Reporting
Act, alleging that CardFact, Ltd. (“CardFact”), its successor-in-interest Card
Compliant LLC (“Card Compliant”), and several retailer parties entered into a
contractual scheme designed to deprive Delaware of millions of dollars in unclaimed
gift card balances to which it was lawfully entitled under Delaware’s Abandoned
and Unclaimed Property Law (the “Escheat Law”).
This omnibus opinion addresses three motions seeking to exclude certain
expert testimony on the grounds of lack of qualification, reliability, and relevancy.
II. DA UBERTANALYSIS
Delaware Rule of Evidence 702 governs the admission of expert testimony:
[i]f scientific, technical or other specialized knowledge
will assist the trier of fact to understand the evidence or to
determine a fact in issue, a witness qualified as an expert
by knowledge, skill, experience, training or education may
testify thereto in the form of an opinion or otherwise, if (1)
the testimony is based upon sufficient facts or data, (2) the
testimony is the product of reliable principles and
methods, and (3) the witness has applied the principles and
methods reliably to the facts of the case.
l State v. Card Compliant, LLC, 2018 WL 2077349, at *1 (Del. Super. Ct. Apr. 30, 2018).
_4_
D.R.E. 702 is substantially similar to Rule 702 of the Federal Rules of Evidence,
which is governed by Daubert v. Merrell Dow Pharmaceaticals, Inc.,2 and Kumho
Tire Co., Ltd. v. Carmichael.3 The Delaware Supreme Court has expressly adopted
the holdings in Daubert and Kumh0.4
When its admission is challenged, a trial judge must ensure that expert
testimony is both reliable and relevant5 Expert testimony is relevant if it assists the
fact finder in “understand[ing] the evidence or . . . determin[ing] a fact in issue.”6
Reliable expert testimony is premised on technical or specialized knowledge, which
requires the testimony to be grounded in reliable methods and procedures and
“supported by appropriate validation_i.e., ‘ good grounds,’ based on what is
known.”7
The trial judge functions as a gatekeeper for relevant and reliable testimony
by inquiring, where the testimony is scientific: (1) whether the theory or technique
has or can be tested; (2) whether the theory or technique has been subjected to peer
2 509 U.S. 579 (1993) (addressing scientific testimony).
3 526 U.S. 137 (1999) (extending Daubert’s holdings to all scientific, technical, and
specialized matters).
4 Bowen v. E.I. DuPont de Nemours & Co., Inc. , 906 A.2d 787, 794 (Del. 2006) (citing M. G.
Bancorporation, Inc. v. Le Beau, 737 A.2d 513, 522 (Del. 1999)).
5 Daub€rl‘, 509 U.S. at 597 (1993).
6 Id. at 591 (quoting Fed. R. Evid. 702).
7 ]a'. at 590.
review and publication; (3) whether the technique has a rate of error and what that
rate of error is; and (4) whether the theory or technique has gained a general
acceptance within the relevant scientific community.8 These four factors are not
meant to be a “definitive checklist.”9 lnstead, a trial judge enjoys broad latitude in
determining whether expert testimony is both reliable and relevant.IO The goal of
this inquiry is not “wholesale exclusion” of testimony because it has not been
“generally accepted;” rather, “cross examination, presentation of contrary evidence,
and careful instruction on the burden of proof’ are, more often, the appropriate
methods of attacking scientific, technical, or other testimony based on specialized
knowledge.l '
Consistent with Daubert, Delaware requires the trial judge to engage a five-
step test to determine the admissibility of expert testimony. '2 The trial judge must
determine that:
(1) the witness is qualified as an expert by knowledge,
skill experience, training or education;
8 Daubert, 509 U.S at 592-94.
9 Tumlinson v. Aa'vanced Micro Devl'ces, Inc., 81 A.3d 1264, 1269 (Del. 2013) (quoting
Daubert, 509 U.S. at 593).
10 Cornell Glasgow, LLC v. LaGrange Propertl``es, LLC, 2012 WL 6840625, at *20 (Del.
Super. Ct. Dec. 7, 2012); see also Kumho, 526 U.S. at 141-42.
ll Daubert, 509 U.S. at 596.
12 Bowen, 906 A.2d at 795.
(2) the evidence is relevant;
(3) the expert’s opinion is based upon information
reasonably relied upon by experts in the particular
field;
(4) the expert testimony will assist the trier of fact to
understand the evidence or to determine a fact in
issue; and
(5) the expert testimony will not create unfair prejudice
or confuse or mislead the jury.13
lt is the burden of the party seeking to introduce the expert testimony to establish its
admissibility by a preponderance of the evidence.14 But as our Supreme Court has
again very recently observed, “[a] strong preference exists” for admitting expert
opinions “when they will assist the trier of fact in understanding the relevant facts
or the evidence.” 15
At the outset, the Court notes that a rigid application of the Daubert factors
simply cannot be engaged to determine testimonial reliability in every field of
expertise.16 For example, many scientific, technical, or specialized fields are not
subject to peer review and publication. That is why the test of reliability is
13 Bowen, 906 A.2d at 795.
14 Id.
15 Norman v. AllAbout Women, P.A., _ A.3d _, _, 2018 WL 3980138, at *3 (Del. Aug.
21, 2018).
16 See, e.g., Watkins v. Telsmith, Inc., 121 F.3d 984, 990 (5th Cir. 1997) (noting “[n]ot every
guidepost outlined in Dcmbert will necessarily apply to expert testimony based on engineering
principles and practical experience”).
“flexible,” and the trial court has “broad latitude when it decides how to determine
reliability.”17
III. PLAINTIFFS’ DAUBERT MoTIoNs To EXCLUDE oR LIMIT EXPERT
OPINIONS
A. Testimony of Jennifer C. Borden
The Defendants offer Jennifer C. Borden as an expert in the area of unclaimed
property consulting Ms. Borden offered numerous opinions on the unclaimed
property issues in this case, including a report and deposition testimony, as well as
anticipated trial testimony.
Plaintiffs seek to exclude these opinions for the following reasons:
(1) MS. Borden’s opinions on the voluntary disclosure agreement (“VDA”) program
are temporally irrelevant, as the program was enacted after the Retailer Defendants
entered into Card Services Agreements (“CSAS”); (2) Ms. Borden’s opinions lack
sufficient indicia of reliability; (3) Ms. Borden’s opinions are premised on
inadmissible hearsay; and (4) Ms. Borden’s invocation of attorney-client privilege
precludes Plaintiffs from testing the conclusions drawn in her testimony.
17 Kumho, 526 U.S. at 141-42.
1. Ms. Borden’s Qualifications
Ms. Borden is a Massachusetts attorney with twenty-two years of experience
in the field of unclaimed property.18 Ms. Borden served as General Counsel to the
Unclaimed Property Fund of the Massachusetts Office of the Treasurer for five years
before transitioning to private practice in unclaimed property.19 The law firm of
Ernst & Young, LLP employed Ms. Borden as the Regional Director of its
Unclaimed Property Practice for six years, and the law firm of Holland & Knight,
LLP later employed Ms. Borden as a partner for five years.20 Ms. Borden has
represented holders in connection with more than one hundred unclaimed property
audits and VDAs, forty-five of which were conducted by or on behalf of the State of
Delaware.21
2. Ms. Borden’s Opinions are Relevant
The Defendants seek to prove, through Ms. Borden’s testimony, that there are
no salient differences between the transactions that were the subject of the Delaware
audits/VDAs and the transactions at issue in this case.22 Plaintiffs counter that
18 Aff. of Jennifer C. Borden, 1111 1-2 (hereinafter “Borden Aff.”).
19 Borden Aff. 11 3.
20 Id. 11 4.
21 Id. 11 7.
22 Defs.’ Borden Opp. at 2.
Borden’s opinions regarding the VDA program are temporally irrelevant, because
the program was not adopted until 2012, and did not become active until 2013: and
the Retailer Defendants entered into the CSAs between 2005 and 2008, five years
before the VDA program was enacted, and therefore could not have relied on the
positions held by Delaware in the VDAs.23
Defendants contend that while the VDA program became active in 2013,
l\/Is. Borden will opine that Delaware consistently maintained the same position from
before 2005 until 2015, “show[ing] that Delaware itself never wavered in its
approach and that Delaware itself believed Defendants’ interpretation to be
reasonable.”24
Under the Delaware Rules of Evidence, relevant evidence is any evidence
having any tendency to make the existence of a fact in question more or less likely
to be true.25 All relevant evidence is admissible, unless it is excluded by another
evidentiary rule or statute, and all irrelevant evidence is inadmissible.26 And the
Court must exclude even relevant evidence where its “probative value is
substantially outweighed by the danger of unfair prejudice, confusion of the issues
23 Pls.’ Borden Br. at 3.
24 Defs.’ Borden Opp. at 4.
25 D.R.E. 401.
26 See D.R.E. 402.
_1()_
or misleading the jury, or by considerations of undue delay, waste of time or needless
presentation of cumulative evidence.”27
The Court finds that Ms. Borden’s opinions are relevant to Delaware’s historic
posture on unclaimed property issues, given her experience in the area of unclaimed
property law and knowledge of prior Delaware audits. Thus, Plaintiffs’ motion to
preclude Ms. Borden’s testimony as to its temporal relevancy is denied.
3. Ms. Borden’s Opinions are Proper Subjects for Expert Opinion
Plaintiffs next argue that Ms. Borden’s opinions regarding an industry
perspective of Delaware’s position toward unused gift card balances are not proper
subjects for expert opinion, as they are not sufficiently grounded in science.28
Plaintiffs argue that Ms. Borden’s failure to perform a scientific survey of the
industry, or to define the industry itself, render her opinions insufficiently
technical.2° Further, Plaintiffs argue, Ms. Borden cannot opine on the economic
substance and business purpose of Defendants’ relationship with CardFact, because
the relationship between the companies is fact testimony.30 Ms. Borden’s opinions
27 D.R.E. 403.
28 Pls.’ Borden Br. at 4.
29 [d.
30 Id. ar 5_
_11_
on the “industry’s” views, Plaintiffs contend, are premised on impermissible
hearsay.31
Defendants assert that Ms. Borden’s opinions are based on specialized
knowledge gleaned from her extensive experience in the unclaimed property field,
as well as communications with other experts in the field regarding Delaware’s
position on unclaimed property issues.32 Defendants contest Plaintiffs’ argument
that hearsay cannot form a basis for expert testimony.
Delaware case law provides that experts may rely on hearsay while forming
their opinions, as long as that hearsay evidence is reasonably relied upon by experts
in the field.33 But, experts are not to serve as a “conduit” for otherwise inadmissible
hearsay statements.34
31 Id.
32 Defs.’ Borden Opp. at 5.
33 See Brcmdt v. Rokeby Realty Co., 2005 WL 16543621, at *4 (Del. Super. Ct. May 9, 2005)
(finding expert’s reliance on inadmissible hearsay evidence is limited by Rule 703’s requirement
that it also be reasonably relied upon by others in the field).
34 See ia'. at *5 (“An expert may not, however, rely on hearsay evidence alone to substantively
prove the truth of his statement or opinion. If the expert is merely acting as a mouthpiece or conduit
for another’s opinions or statements, he cannot be said to be acting in his capacity as an expert in
the matter and the hearsay evidence is inadmissible.”); Unil'ed States v. Mejl``a, 545 F.3d 179, 197
(2d Cir. 2008) (“The expert may not . . . simply transmit . . . hearsay to the jury”). See also Gannetl
C0. v. Kanaga, 750 A.2d 1174, 1187-89 (Del. 2000) (cautioning against allowing experts to bring
in “back-door” hearsay and finding “[i]nadmissible facts that form the basis for an expert’s opinion
are not simply elements of proof subject to the jury’s ‘weighing’ option”).
_12_
Ms. Borden’s opinions on common practice in the unclaimed property
industry are not scientific in nature, but specialized knowledge appropriate for expert
testimony.35 Ms. Borden’s reliance on the opinions of other industry professionals
in forming her understanding of industry perspective falls within Delaware Rule of
Evidence 703’s parameters.36 Plaintiffs fail to show that her reliance on
communications with other professionals renders Ms. Borden little more than a
mouthpiece.
4. Ms. Borden’s Opinions are Suff"lciently Reliable
Plaintiffs next argue that Ms. Borden failed to consult with anyone who had
asked the State how it would apply unclaimed property laws to CardFact, and so Ms.
Borden lacks a basis for concluding that her sources were reliable, rendering her own
opinions unreliable.37
35 See, e.g., Norman v. AllAbout Women, P.A., __ A.3d ___, _, 2018 WL 3980138, at *4
(clarifying what constitutes information or data “of a type reasonably relied upon by experts in the
particular field in forming opinions or inferences upon the subject”and that it is not nearly as
cabined a definition as Plaintiffs would argue for here).
36 D.R.E. 703 (“An expert may base an opinion on facts or data in the case that the expert has
been made aware of or personally observed. If experts in the particular field would reasonably
rely on those kinds of facts or data in forming an opinion on the subject, they need not be
admissible for the opinion to be admitted.”). See also Conway v. Bayhealth Mea'. Ctr., 2001 WL
337228, at *2 (Del. Super. Ct. Mar. 26, 2001) (“The fact that [the testifying expert] bases his
opinion, in part, on hearsay such as asking other doctors what they did recently does not change
the admissibility of his opinion. Expert opinions do not have to be based solely on admissible
evidence.”).
37 Pls.’ Borden Br. at 8.
_13_
Given Ms. Borden’s extensive experience in the area of unclaimed property,
the Court finds her qualified to form an informed opinion on the reliability of the
experts with whom she has communicated Challenges to the factual bases for Ms.
Borden’s opinions go to their credibility, not their admissibility, and may be
explored by Defendants’ cross examination at trial.38
Plaintiffs also contend that Ms. Borden’s practice of referring clients to
CardFact and vice versa makes her opinions biased and unreliable.39 Defendants
counter that there is no evidence that Ms. Borden ever referred a client to CardFact,
nor was she ever hired on the basis of one of CardFact’s referrals.40 Plaintiffs’
arguments go toward weight and credibility of Ms. Borden’s evidence, issues best
left for cross examination and the presentation of contrary evidence.41
38 Perry v. Berkley, 996 A.2d 1262, 1271 (Del. 2010) (citing Porter v. Turner, 954 A.2d 308,
313 (Del. 2008)) (noting cross-examination rather than exclusion can be the proper method of
examining the factual basis of an expert’s opinion).
39 Pls.’ Borden Br. at 9.
40 Defs.’ Borden Opp. at 8-9.
41 See Greatbatch Lla’. v. AVX Corp., 2015 WL 9171042, at *2 (D. Del. Dec. ll, 2015)
(holding that, where the opposing party alleged an expert witness had a financial interest in the
litigation, “[the witness’s] alleged bias may be explored during cross-examination but is not a
proper basis for excluding his testimony entirely.”).
_14_
5. Ms. Borden’s Invocation of Attorney-Client Privilege Does Not
Preclude Her Testimony
Finally, Plaintiffs assert that Ms. Borden’s invocation of the attorney-client
privilege during discovery prevented them learning the identity of her clients and,
therefore, from testing her conclusions.42 Defendants contest the validity of this
assertion, arguing that Ms. Borden was forthright about the identity of her clients but
refused to disclose privileged information pertaining to those clients.43
Plaintiffs do not challenge the propriety of Ms. Borden’s assertion of
privilege, but only that it impeded their ability to fully test her opinions. Plaintiffs
concede that Ms. Borden identified clients during her expert deposition.44 To the
extent that Ms. Borden asserted privilege regarding some aspects of her relationship
with those clients, that, again, goes to the weight and credibility of Ms. Borden’s
testimony.
Plaintiffs’ Daubert motion to exclude Ms. Borden’s opinions is therefore
DENIED.
42 Pls.’ Borden Br. at 10.
43 Defs.’ Borden Opp. at 11.
44 Pls.’ Borden Br. at 10.
_15_
B. Testimony of James G. Ryan
The Defendants offer J ames G. Ryan as an expert in the business, financial,
and legal aspects of the gift card industry. Plaintiffs seek to exclude Mr. Ryan’s
opinions on the grounds that they are not the proper subject of expert testimony, are
not sufficiently reliable nor grounded in reliable methodology, and are based
exclusively on impermissible hearsay.
l. Mr. Ryan’s Qualifications
Mr. Ryan is an Ohio attorney with over twenty-eight years of experience in
the field of unclaimed property.45 Mr. Ryan works with the law firm of Bailey
Cavalieri LLC, where he has represented holders in connection with more than fifty
unclaimed property audits and VDAs, more than twenty-five of which were
conducted by or on behalf of the State of Delaware.46 Through those representations,
Mr. Ryan has communicated extensively with officers and representatives of the
State pertaining to the application of unclaimed property laws to unused gift card
balances.47
43 Aff. of James G. Ryan, 111[ 1, 3 (hereinafter “Ryan Aff.”).
46 Ryan Aff. 1111 2-4.
47 ld. 11 5.
_16_
2. Mr. Ryan’s Opinions are Proper Subjects for Expert Testimony
Plaintiffs first dispute that Mr. Ryan’s opinions are proper subjects for expert
testimony, arguing that his opinions are not sufficiently grounded in science but
instead offer merely anecdotal evidence of his conversations with others in an
undefined “gift card industry.”48 Defendants counter that Mr. Ryan’s testimony is
properly grounded in his experience in the area of unclaimed property, and that
though his testimony may be based on hearsay, Delaware law permits the use of
hearsay to form an expert opinion under these circumstances49
Plaintiffs’ arguments must fail, here, for the same reasons they failed in the
Daubert motion to exclude Ms. Borden’s opinions. Mr. Ryan’s opinions are based
in specialized knowledge suitable for expert testimony; as such, his opinions need
not be grounded in “research or [a] study”30 to merit consideration by the jury.31
Discussing Federal Rule of Evidence 702 in Kamho Tire Co., Ltd. v. Carmichael,32
48 Pls.’ Ryan Br. at 3.
49 Defs.’ Ryan Opp. at 6-7, 9.
50 Pls.’ Ryan Br. at 3.
31 See Conway, 2001 WL 337228, at *2 (permitting expert opinion on an industry standard,
gleaned solely through conversations with other industry professionals, even though it was not a
“‘scientific’ matter” because it was still a “‘specialized’ matter which is relevant and helpful to the
fact finder.”).
52 526 U.s. 137 (1999).
_17_
an opinion adopted by our Supreme Court,33 the United States Supreme Court
cautioned against a strict application of the Daubert factors to experience-based
expert testimony.34 “Daubert referred only to ‘scientific’ knowledge because that
was the nature of the expertise there at issue.”33 Mr. Ryan’s opinions are sufficiently
grounded in the specialized knowledge he gained from extensive work in the field
of unclaimed property.36
Plaintiffs’ hearsay argument is similarly unavailing Because of the lack of
formal guidance from the State regarding Delaware’s stance on unused gift card
balances, unclaimed property experts relied on each other’s experiences to advise
clients. This Court has previously held that where sharing such information is
industry standard, it is reasonable for an expert to rely on communications from
others to form an opinion.37
33 Bowen, 906 A.2d at 794 (“Though the United States Supreme Court’s interpretations of
F.R.E. 702 in Daabert and Kumho are only binding upon federal courts, this Court has expressly
adopted their holdings as correct interpretations of D.R.E. 702.”).
34 Kumho, 526 U.S. at 138.
33 Ia’.
56 See Norman v. All Aboat Women, P.A., __ A.3d _ _, , 2018 WL 3980138, at *4.
37 See n.34, supra.
_13_
3. Mr. Ryan’s Opinions are Reliable
Plaintiffs next contest the reliability of Mr. Ryan’s opinions, arguing that his
failure to ask Delaware its position on unused gift card balances renders his opinions
purely speculative.58 Defendants assert that Delaware bore the obligation of issuing
guidance on its position.39
As with Ms. Borden, the Court finds that this argument goes to the weight and
credibility of Mr. Ryan’s testimony, rather than its admissibility.60 “Vigorous cross-
examination, presentation of contrary evidence, and careful instruction on the burden
of proof are the traditional and appropriate means of attacking shaky but admissible
evidence.”61 Mr. Ryan’s opinions are rooted in his substantial experience in the field
of unclaimed property. Given the dearth of information on Delaware’s stance at the
time the CSAS were entered into, the Court finds discussion among industry
professionals of the acceptable standard a sufficiently reliable basis for expert
testimony.
Plaintiffs’ Daubert motion to exclude Mr. Ryan’s opinions is therefore
DENIED.
38 Pls.’ Ryan Br. at 7-11.
39 Defs.’ Ryan Opp. at 10.
66 See n.38, supra.
61 Daubert, 509 U.S. at 596.
_19_
IV. DEFENDANTS’ MoTIoN To EXCLUDE oR LIMIT EXPERT TEsTIMoNY oF
BRIAN DUFFY
A. Testimony of Brian Duffy
Plaintiffs offer Brian Duffy as an accounting expert whose opinions are
intended to elucidate the “economic reality” of CardFact’s business arrangement62
Defendants move to exclude Mr. Duffy’s opinions, arguing that Mr. Duffy lacks
sufficient qualifications, opines on proposed accounting entries without evidence
that the entries were ever implemented, and expresses opinions that fail to meet the
standard for reliability.63 Defendants further argue that Mr. Duffy should not be
permitted to comment on their expert’s rebuttal report at trial.64
l. Mr. Duffy’s Qualifications
Mr. Duffy is a Certified Public Accountant who has worked as an accountant
and auditor for more than eighteen years.63 Mr. Duffy has specialized in forensic
accounting and litigation support services for the past fourteen years.66 Currently,
Mr. Duffy is employed as a partner in the accounting firm of Friedman LLP.67
62 See Pls.’ Duffy Opp.
63 Defs.’ Duffy Br. at 1-3.
64 Ia'. at 3.
63 Duffy Expert Report 11 1.
66 Duffy Expert Report 11 1.
67 Ia’.
_20_
Defendants dispute the validity of Mr. Duffy’s qualifications, arguing that he
lacks unclaimed property experience sufficient to form an opinion.68 Plaintiffs
counter that the application of unclaimed property laws to unused gift balances is
not a distinct area of accounting, and that Mr. Duffy’s certifications as a CPA and in
the field of financial forensics show that he possesses the specialized knowledge
necessary to testify as an expert.69
“Anyone with relevant expertise enabling him to offer responsible opinion
testimony helpful to judge or jury may qualify as an expert witness.”76 “[A] CPA
generally possesses the ‘specialized knowledge’ to qualify as a helpful expert
witness under the proper circumstances.”71 Mr. Duffy’s experience as an auditor of
companies with gift card programs equips him with sufficient expertise to testify
regarding CardFact’s proposed accounting entries.
2. Mr. Duffy’s Opinions are Relevant
Defendants next argue that Mr. Duffy’s opinions lack relevancy, as they are
based on proposed accounting entries, and Mr. Duffy cites no evidence that the
68 Defs.’ Duffy Br. at 6-7.
69 Pls.’ Duffy Opp. at 2, 4.
76 TafRacing Proa'., Inc. v. Am. Suzuki Motor Corp., 223 F.3d 585, 591 (7th Cir. 2000). See
also City ofTascaloosa v. Harcros Chemicals, Inc., 158 F.3d 548, 563, 563 n.17 (1 lth Cir. 1998).
71 De Jager Const., Inc. v. Schleininger, 938 F. Supp. 446, 449 (W.D. Mich. 1996).
_2]_
proposals were actually implemented.72 Plaintiffs contend, essentially, that
Defendants misconstrue the purpose of the proposed accounting entries_Mr. Duffy
does not opine on the proposals for the purpose of showing that Defendants actually
used them in any way, but rather to show that the proposals put Defendants on notice
of inconsistencies with the CSAs, thereby undermining Defendants’ good faith
argument.73
Mr. Duffy purports to compare the proposed accounting entries with the actual
economic arrangement between CardFact and the Defendants, as determined
through discovery in this matter.74 The disparity between the accounting
arrangement in the proposed entries and what was actually used is relevant to the
issue of scienter. The fact that the proposed accounting entries were not
implemented may be used by Defendants to attack the weight of the evidence at trial.
But because Plaintiffs do not assert that Defendants implemented or considered
implementing the proposals, merely that the Defendants received and saw the
proposals,73 the Court finds Mr. Duffy’s opinions on the proposed accounting entries
relevant.
72 Defs.’ Duffy Br. at 8.
73 Pls.’ Duffy Opp. at 6-7.
74 Ex. A to Defs.’ Duffy Br.at jj 38.
75 1a air 37.
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3. Mr. Duffy’s Opinions are Reliable
Defendants next contend that Mr. Duffy’s opinions are based upon neither
information relied upon by experts in the field, nor a reliable methodology.76
Defendants assert that Mr. Duffy fails to cite to any accepted accounting authority
or standard in his opinions, and thus has not relied on any objective standard.77
Defendants further assert that Mr. Duffy’s reliance on “true economic reality” fails
to satisfy the Daubert factors for establishing reliability.78 Plaintiffs counter only
with the assertion that “true economic reality” is not a technical term, but plain
English, and therefore a sufficiently reliable basis for his opinion that the
Defendants’ actual arrangement with CardFact does not match the proposed
accounting entries.79
Defendants concede that “[d]uring the relevant time period, there were no
[Generally Accepted Accounting Principles (“GAAP”)] provisions specific to gift
card accounting,”80 but critique Mr. Duffy’s reliance on non-binding accounting
guidance (the Statement of Financial Accounting Concepts, distributed by the
76 See Defs.’ Duffy Br. at 9-13.
77 Ia'. at 9.
78 Id. at 12.
79 Pls.’ Duffy Opp. at 8-9.
86 Defs.’ Duffy Br. at 9.
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Financial Accounting Standards Board (“FASCON”)). The Court finds that, in the
absence of GAAP provisions on point, Mr. Duffy’s reliance on FASCON in
conjunction with his specialized knowledge as a CPA render his opinions
sufficiently reliable. Defendants’ arguments again challenge Mr. Duffy’s
conclusions and credibility rather than the admissibility of his opinions, and, again,
under Daubert, such challenges are properly left to cross-examination and the
presentation of contrary evidence.81
4. Mr. Duffy’s Opinions on Defendants’ SEC Filings
Will Not be Excluded
Defendants additionally move to exclude Mr. Duffy’s opinions regarding the
SEC filings of certain of the Defendants.82 Defendants argue that Mr. Duffy’s
opinions are in fact based on a single SEC filing, and therefore it would be
inappropriate for Mr. Duffy to offer generalized opinions about the Defendants’ SEC
disclosures.83 Defendants further argue that Mr. Duffy’s opinion regarding that SEC
filing is not based on sound accounting analysis.84 Plaintiffs argue that Mr. Duffy’s
opinions are admissible insofar as they pertain to the one Defendant whose filing he
81 Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 595 (1993) (Court must focus “solely
on principles and methodology, not on the conclusions that they generate”); ia’. at 596.
82 Defs.’ Duffy Br. at 13.
83 Ia'. at 14.
84 Defs.’ Duffy Br. at 14.
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reviewed, and that Defendants’ arguments go to the weight rather than the
admissibility of Mr. Duffy’s opinions in this matter.83
Mr. Duffy may opine solely on the SEC filings he has reviewed: those of
Defendant Overstock.com, Inc (“Overstock”). Defendants may challenge the weight
of this evidence during cross examination Mr. Duffy’s opinion here merely asserts
a difference between Overstock’s SEC disclosures and the arrangement between
Overstock and CardFact as illustrated in the CSAs. Again, the Court finds the basis
for Mr. Duffy’s opinions sufficiently reliable in light of his qualifications
5. Mr. Duffy is Permitted to Opine on the Opinions Expressed in
Defendants’ Rebuttal Reports
Finally, Defendants argue that Mr. Duffy should be precluded from opining
on opinions expressed in the rebuttal reports of certain Defendants’ experts on the
basis that Mr. Duffy has testified that, having reviewed the rebuttal reports, there
was nothing in his own report or testimony that he wished to amend.86 Plaintiffs
argue that Mr. Duffy may attempt to rebut criticism of his report raised by
Defendants’ experts, and that the schedule did not provide for sur-rebuttal expert
reports.87
83 Pls.’ Duffy Opp. at 9.
86 Defs.’ Duffy Br. at 15-16.
87 Pls.’ Duffy Opp. at 9-10.
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“‘The scope of a rebuttal is limited to the same subject matter encompassed
in the opposing party’s expert report[.]”’88 The opposing experts, therefore, have
not raised anything outside the scope of Mr. Duffy’s initial report. Mr. Duffy himself
has already testified that there is nothing in his report he would change in light of
Defendants’ experts’ opinions.89 On the present record, it appears no sur-rebuttal is
necessary. lf there is a request made at trial in this regard, a ruling will be made with
the factual record then more fully developed.
Defendants’ Daubert motion to exclude or limit the expert testimony of Mr.
Duffy is hereby DENIED, but Mr. Duffy may not provide sur-rebuttal testimony at
trial with the matter being heard outside the jury’s presence and based on the trial
@¢)M,)
Paul R. Wallace, Judge
record that has been developed.
IT IS SO ORDERED.
Original to Prothonotary
cc: All counsel via File & Serve
88 Scott v. Chipotle Mexican Grill, Inc., 315 F.R.D. 33, 44 (S.D.N.Y. 2016) (quoting Allen v.
Dairy Farmers ofAm., Inc., 2013 WL 211303, at *5 (D. Vt. Jan. 18, 2013)).
89 See Ex. B to Defs.’ Duffy Br. at 222-23.
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