In Re: Unisys

Opinions of the United
1999 Decisions States Court of Appeals
for the Third Circuit
3-22-1999
In Re: Unisys
Precedential or Non-Precedential:
Docket 98-1007
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Filed March 22, 1999
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 98-1007
IN RE: UNISYS SAVINGS PLAN LITIGATION
JOHN P. MEINHARDT, on behalf of himself and all others
similarly situated
v.
UNISYS CORPORATION (E.D. PA. Civil No. 91-cv-03067)
BERNARD MCDEVITT, on behalf of himself and all others
similarly situated
v.
UNISYS CORPORATION (E.D. PA. Civil No. 91-cv-03126)
PARKER C. KEAN, on behalf of himself and all others
similarly situated
v.
UNISYS CORPORATION (E.D. PA. Civil No. 91-cv-03164)
MICHAEL HECK; JOSEPH MCCARTHY; ANGELO
DEPIETRO, on behalf of themselves and all others
similarly situated
v.
UNISYS CORPORATION; THE ADMINISTRATIVE
COMMITTEE OF THE UNISYS SAVINGS PLAN; THE
INVESTMENT COMMITTEE OF THE UNISYS SAVINGS
PLAN; JACK A. BLAINE; JOHN J. LOUGHLIN; KENNETH
MILLER; DAVID A. WHITE; STEFAN RIESENFELD
(E.D. PA. Civil No. 91-cv-03276)
GARY VALA, individually and on behalf of all others
similarly situated
v.
JACK A. BLAINE; MICHAEL R. LOSEY; JOHN J.
LOUGHLIN; KENNETH L. MILLER; STEFAN C.
RIESENFELD; CURTIS A. HESSLER; DAVID A WHITE;
UNISYS CORPORATION; THE NORTHERN
TRUST COMPANY
(E.D. PA. Civil No. 91-cv-03278)
CAROLYN A. GOHLIKE, on behalf of herself and all others
similarly situated
v.
UNISYS CORPORATION (E.D. PA. Civil No. 91-cv-03321)
NADIA F. SOS; FAROUK M. SOS, individually and on
behalf of all others similarly situated
v.
UNISYS CORPORATION (E.D. PA. Civil No. 91-cv-03582)
KENNETH GOERS; JOHN J. CIESLICKI, on behalf of
themselves and all others similarly situated
v.
UNISYS CORPORATION; THE NORTHERN
TRUST COMPANY
(E.D. PA. Civil No. 91-cv-04678)
DENNIS C. STANGA; JAMES M. COLLINS, on behalf of
themselves and all others similarly situated
v.
UNISYS CORPORATION (E.D. PA. Civil No. 91-cv-04689)
JOHN H. BURGESS, JR., on behalf of himself and all
others similarly situated
v.
UNISYS CORPORATION (E.D. PA. Civil No. 91-cv-04696)
WILLIAM TORKILDSON
v.
2
UNISYS CORPORATION (E.D. PA. Civil No. 91-cv-04754)
John M. Meinhardt, Michael Heck, Joseph
McCarthy, Angelo DiPietro, Gary Vala, Carolyn
Gohlike, Dennis C. Stanga, James M. Collins,
John H. Burgess, Jr., Bernard McDevitt, Parker
Kean, Nadia F. Sos, Farouk M. Sos, Kenneth
Goers, John J. Cieslicki, and William
Torkildson, plaintiffs in the above-listed
actions, individually and on behalf of the class
certified by Order of the district court entered
on January 28, 1992 in Master File Civil
Action No. 91-3067,
Appellants
No. 98-1037
IN RE: UNISYS SAVINGS PLAN LITIGATION
JOHN P. MEINHARDT, on behalf of himself and all others
similarly situated
v.
UNISYS CORPORATION
(E.D. PA. Civil No. 91-cv-03067)
HENRY ZYLLA; RICHARD SILVER; RONALD GRIPPO;
EDWARD LAWLER; RICHARD ANDUJAR; CLARENCE
MULLER; CHARLES WAHLER; JAMES MCLAUGHLIN;
DONALD RADER; JOSEPH LAU; JAMES GANGALE;
ALFRED CONTARINO; JOHN MARCUCCI; JOSEPH A.
FIORE; RICHARD MASTRODOMENICO; NICK KLEMENZ;
PETER SZCZYBEK, on behalf of themselves and all others
similarly situated; ENGINEERS UNION LOCAL 444 OF
THE INTERNATIONAL UNION OF ELECTRONIC,
ELECTRICAL, SALARIED, MACHINE AND FURNITURE
WORKERS, A.F.L.-C.I.O.; LOCALS 445 OF THE
INTERNATIONAL UNION OF ELECTRONIC, ELECTRICAL,
SALARIED, MACHINE AND FURNITURE WORKERS,
A.F.L.-C.I.O.; LOCALS 450 OF THE INTERNATIONAL
3
UNION OF ELECTRONIC, ELECTRICAL, SALARIED,
MACHINE AND FURNITURE WORKERS, A.F.L.-C.I.O.;
LOCALS 470 OF THE INTERNATIONAL UNION OF
ELECTRONIC, ELECTRICAL, SALARIED, MACHINE AND
FURNITURE WORKERS, A.F.L.-C.I.O.; LOCALS 165 OF
THE INTERNATIONAL UNION OF ELECTRONIC,
ELECTRICAL, SALARIED, MACHINE AND FURNITURE
WORKERS, A.F.L.-C.I.O.; LOCAL 3, INTERNATIONAL
BROTHERHOOD OF ELECTRICAL WORKERS, A.F.L.-C.I.O.
v.
UNISYS CORPORATION; EDWIN P. GILBERT; JOHN J.
LOUGHLIN; THOMAS PENHALE, individually and in their
capacities as members of the Unisys Employee Benefits
Executive Committee and administrators of the Unisys
Retirement Investment Plan; RICHARD H. BIERLY, EDWIN
P. GILBERT; CURTIS A. HESSLER; LEON J. LEVEL;
KENNETH L. MILLER; DAVID A. WHITE; JACK A.
BLAINE; STEFAN C. RIESENFELD; GEORGE T. ROBSON,
individually and in their capacities as members of the
Investment Committee of the Unisys Retirement
Investment Plan
(E.D. PA. Civil No. 91-cv-03772)
Henry Zylla, Richard Silver, Ronald Grippo,
Edward Lawler, Richard Andujar, Clarence
Muller, Charles Wahler, James McLaughlin,
Donald Rader, Joseph Lau, James Gangale,
Alfred Contarino, Richard Colby, John
Marcucci, Joseph Fiore, Richard
Mastrodomenico, Nick Klemenz and Peter
Szczybek, plaintiffs in the above-listed actions,
individually and on behalf of the class certified
by Order of the district court entered on
January 28, 1992 in Master File Civil Action
No. 91-3067,
Appellants
4
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 91-cv-03067)
District Judge: Honorable Herbert J. Hutton
Argued Friday, September 25, 1998
BEFORE: BECKER, Chief Judge,
WEIS and GARTH, Circuit Judges
(Opinion filed March 22, 1999)
James R. Malone, Jr. (Argued)
Michael E. Gottsch
Pamela Nicolaysen
Chimicles, Jacobsen & Tikellis
361 West Lancaster Avenue
One Haverford Centre
Haverford, PA 19041
Joel C. Meredith
Daniel B. Allanoff
Meredith Cohen Greenfogel &
Skirnick, P.C.
117 S. 17th Street
22nd Floor
Philadelphia, PA 19103
Attorneys for Appellants
Laurence Z. Shiekman (Argued)
Brian T. Ortelere
Pepper Hamilton LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
5
John Teklits
Unisys Corporation
Township Line & Union Meeting
P.O. Box 500 C2NW14
Blue Bell, PA 19424-0001
Attorneys for Appellees
Marvin Krislov
Deputy Solicitor for
National Operations
Marc I. Machiz
Associate Solicitor
Karen L. Handorf
Counsel for Special Litigation
Paul C. Adair
Trial Attorney
U.S. Department of Labor
Office of the Solicitor
Plan Benefits Security Division
P.O. Box 1914
Washington, D.C. 20013
Attorneys for Secretary of Labor as
Amicus Curiae in Support of
Plaintiffs-Appellants
OPINION OF THE COURT
GARTH, Circuit Judge:
This action, brought by employees who had participated
in individual account pension plans maintained by their
employer Unisys Corporation ("Unisys"), charged essentially
that Unisys and the individual defendants1 had breached
their fiduciary duties prescribed by ERISA2 by investing in
_________________________________________________________________
1. Unisys is one of eleven defendants. Other defendants are the
Administrative Committee and the Investment Committee of the Plan and
those individuals involved in making decisions for the Plan. The
defendants will be referred to collectively as "Unisys."
2. Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C.
S 1001 et seq.
6
Executive Life Insurance Guaranteed Investment Contracts
("GICs"). After a bench trial, the District Court granted
judgment for all defendants, ruling in their favor on all
issues related to the breach of fiduciary duty claims, thus
denying all relief and damages to the plaintiff class of
Unisys employees.3
We have reviewed the trial record independently and
conclude that in all material respects, the District Court's
findings of fact were not clearly erroneous, the District
Court did not abuse its discretion in excluding Dr.
Gottheimer's testimony, and the District Court did not err
in making its conclusions of law. We also conclude that
while we do not agree with some of the holdings of the
District Court, those disagreements have no effect on the
District Court's overall holding of prudence, and that
therefore, the orders entered by the District Court on
November 24, 1997 and January 9, 1998 will be affirmed.
I.
This is the second appeal from the District Court's
rulings in this case. Initially, summary judgment was
entered in favor of Unisys, but on review, we remanded for
trial. In re Unisys Savings Plan Litig., 74 F.3d 420 (3d Cir.),
cert. denied, 117 S. Ct. 56 (1996) ("Unisys I"). Almost all of
_________________________________________________________________
3. Plaintiffs are a class of Unisys employees who will be referred to
throughout this Opinion as "Meinhardt." John P. Meinhardt had
originally brought this action as a class action on behalf of himself and
all others similarly situated. See In re Unisys Savings Plan Litig., 74
F.3d
420 (3d Cir.), cert. denied, 117 S. Ct. 56 (1996) ("Unisys I").
This is an appeal of two consolidated cases. In thefirst action, final
judgment was entered on November 24, 1997 in eleven related actions
after a bench trial. A timely notice of appeal wasfiled on December 18,
1997. We exercise appellate jurisdiction under 28 U.S.C. S 1291, as an
appeal from a final judgment.
The second appeal before this court involves the ERISA claims in a
twelfth related action, upon which final judgment has not been entered.
The District Court certified the ERISA claims in that action under Fed.
R. Civ. P. 54(b) on January 9, 1998; a notice of appeal was filed on
January 16, 1998. We exercise appellate jurisdiction for the second
appeal under Fed. R. Civ. P. 54(b) in tandem with 28 U.S.C. S 1291.
7
the background facts and details are found in our earlier
opinion and we refer here only to those matters particularly
relevant to the arguments made by the parties on appeal.
Now that the District Court has rendered its findings of
fact and conclusions of law in favor of the Unisys, 4
Meinhardt complains that the standard used by the District
Court was improper, that Meinhardt's expert's testimony
was improperly excluded, and that Meinhardt suffered
damages that were not recognized by the District Court. As
indicated above, we hold that the District Court's essential
factual findings were not clearly erroneous and that
measured by the appropriate prudence standard of ERISA,
the District Court properly concluded that Unisys did not
breach any fiduciary duty. This threshold holding makes it
unnecessary for us to discuss in detail the subsidiary
issues raised on appeal by Meinhardt.
At the outset we call attention to the fact that the
contours of the factual record have changed significantly
since we last addressed the GIC issue presented in this
case. At the earlier summary judgment stage, the prior
panel of this court was obliged to assume that various facts
presented by Meinhardt were true and that all inferences
had to be drawn in Meinhardt's favor. Moreover, we
assumed the report of Dr. Gottheimer, Meinhardt's
proposed expert witness, would be admitted into evidence.
As we discuss infra, the District Court properly excluded
Dr. Gottheimer from testifying under Fed. R. Evid. 702.
As we have mentioned, at the conclusion of a ten-day
bench trial, the District Court entered judgment for Unisys
and issued extensive findings of fact and conclusions of
law. We review the District Court's findings of facts for clear
error. Application of legal precepts to historical facts
receives plenary review. Feder v. Evans-Feder, 63 F.3d 217,
222 n.9 (3d Cir. 1995). The District Court's decision to
qualify an expert is reviewed for abuse of discretion.
_________________________________________________________________
4. The District Court's findings of fact and conclusions of law can be
found at In re Unisys Savings Plan Litig., No. 91-3067, 1997 WL 732473(E.D. Pa. Nov. 24, 1997). For the sake of convenience, we will refer to
the
District Court's findings of fact as "FF P __," and to its conclusions of
law
as "CL P __."
8
General Elec. Co. v. Joiner, 118 S. Ct. 512 (1997); In re Paoli
R.R. Yard Litig., 35 F.3d 717, 741-46 (3d Cir. 1994) ("Paoli
II").
II.
Meinhardt participated in a 401(k) savings plan ("Plan")5
administered by Unisys. Two companies, Sperry and
Burroughs, had merged in 1986 to create Unisys, and thus
their retirement plans also merged. See Unisys I, 74 F.3d at
425-26. Meinhardt and the class he represents elected to
invest their money in two of the funds offered by the Plan,
the Fixed Income Fund ("FIF ") and the Insurance Contract
Fund ("ICF "). Investments in the FIF/ICF were exclusively
restricted to Guaranteed Investment Contracts ("GICs").6
For ease of reference throughout this Opinion we will refer
to the FIF/ICF as the "Fund."
Unisys described the Fund as one of the more
conservative funds that was intended to return principal
with interest.7 Plan participants could invest as much or as
little of their money as they desired. In order to prevent
interest rate arbitrage by the participants and in order to
receive a higher yield from the GICs, Fund assets could not
be transferred to the money market fund directly; Fund
assets had to be held for at least a year in one of the four
equity stock funds. In 1990, Unisys shortened this "equity
wash" to a period of six months after receiving approval
from Executive Life. App. 1702.
In 1987 and 1988, Unisys purchased three Executive Life
GICs as investments for the Fund. The Executive Life GICs
_________________________________________________________________
5. The Plan is actually three separate plans that make joint investments.
See Unisys I, 74 F.3d at 426-27 & 427 n.5.
6. A GIC is a contract under which the issuer is obligated to repay the
principal deposit at a designated future date and to pay interest at a
specified rate over the duration of the contract. Unisys I, 74 F.3d at
426.
7. The Plan offered five other investment funds: the Diversified Fund, the
Indexed Equity Fund, the Active Equity Fund, the Unisys Common Stock
Fund, and the Short Term Investment Fund ("money market fund"). The
money market fund invested in United States Treasury Bills, bank
obligations, and other short term investments.
9
themselves were comprised of assets that potentially had
high rates of return, some of which were high yield bonds,
or "junk bonds." The junk bonds did not fare well in the
late 1980's markets. In 1991, California regulators seized
Executive Life and temporarily froze all payments from the
Executive Life GICs. By 1996, however, the Fund
reimbursed the principal to Meinhardt and had paid some
interest, but at a lower rate than had been guaranteed.
FF P 80.
Meinhardt accuses Unisys of breaching its fiduciary
duties of prudence, diversification, and disclosure with
respect to the Executive Life contracts that had been
purchased for the Fund. ERISA prescribes that fiduciaries
must adhere to a standard of prudence. ERISA requires
that a fiduciary's duty shall be discharged:
with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man
acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise with like
character and with like aims; . . . .
29 U.S.C. S 1104(a)(1)(B).
III.
To determine whether Unisys had satisfied the ERISA
standard of prudence, the district court found the following
facts from the evidence.
Unisys delegated the responsibility of investing for the
Fund to David White and Leon Level. White and Level have
educational and practical backgrounds in financial matters.
FF PP 17-18; App. 643-45, 1136-37. At the direction of
White and Level, Unisys purchased three Executive Life
GICs as investments for the Fund through bidding
processes in June 1987, December 1987 (both for the FIF),
and January 1988 (for the ICF). Of the many GICs
purchased for the Fund, only three were Executive Life
GICs, constituting between 15 and 20 percent of the Fund's
assets. FF PP 14-15; App. 4450. Unisys, through White and
Level, considered many firms through a process of
competitive bidding, and Unisys heard in-person
10
presentations from the insurance companies. FF P 20; App.
523, 1154.
Unisys presented evidence that for the first bid (June
1987), White and Level hired an experienced investment
consultant, Murray Becker, who evaluated many different
insurance firms.8 FF P 20. In evaluating potential insurance
companies from which to purchase GICs, Becker obtained
information and ratings from Standard and Poor's and A.M.
Best, ratings services that evaluate the stability and
potential profitability of various types of companies
including insurance companies. Both ratings services gave
Executive Life their highest rating.9 Becker and others
testified that the ratings services were quite thorough
because they analyzed raw data and interviewed investment
managers. App. 535. Becker testified that he and other
professionals had a high confidence in the thoroughness of
the ratings services, which led to their respective ratings.
FF P 21; App. 658-62, 702-03, 708-12, 1160-61. As detailed
in the District Court's findings of fact, Becker was very
familiar with how the ratings services evaluated the GICs.
Id.Prior to the first bid, Unisys reviewed Becker's bid
specifications. FF P 20 n.2; App. 1267-68, 3659. White
testified that he carefully considered the use of high yield
bonds and knew the risks involved. The prevailing view in
the investment world at that time was that high yield
guaranteed insurance contracts were good risks. FF P 27;
App. 1038-39.
_________________________________________________________________
8. Becker had given Sperry advice about GICs through his firm, Johnson
& Higgins, before the Unisys merger. See Unisys I, 74 F.3d at 427.
Becker handled more than 500 such bids in his career. FF P 20; App.
522.
9. Standard and Poor's gave Executive Life an AAA rating, which was
reaffirmed on several occasions to meet questions concerning, inter alia,
the inclusion of high yield bonds in Executive Life's portfolio. FF P 23.
An
"AAA" rating means that an insurer offers"superior financial security on
both an absolute and relative basis." The insurer possesses "the highest
safety and [has] an overwhelming capacity to meet policyholder
obligations." FF P 24; App. 4279. A.M. Best also gave Executive Life its
highest rating, A+. FF P 24.
11
In addition to understanding the risks associated with
Executive Life GICs, White chose Executive Life GICs for
their other unique features. He selected the three Executive
Life GICs to balance other Fund investments -- the
Executive Life GICs had longer maturity dates, App. 656-
57, 692, and their portfolios lacked real estate mortgages or
derivatives and had a low proportion of commercial real
estate investments. App. 1010, 1156-58. Furthermore,
Executive Life used the "barbell" approach in making
investments for the GICs; that is, the higher risk associated
with the high yield bonds was balanced with low risk, lower
yield government bills. FF P 25; App. 1156-58.
For the second two bids and upon completion of the
merger between Burroughs and Sperry into Unisys, Unisys
decided not to utilize Becker's services. White, Level, and
three other employees under their direction had sufficient
professional experience to select GIC issuers. Moreover,
Becker had charged the Plan $25,000 per bid. FF P 31; App.
1162-65. White and Level expanded the list of potential
bidders for the second and third bids and maximized the
market information available to them. FF P 32; App. 1054-
55.
In the months between the bids, White and Level
"engaged in an ongoing process of reviewing and updating
the information on the potential bidders." FF P 33; App.
615-22. They testified that they also kept abreast of
developments in the GIC industry by reading trade
publications and journals. FF P 33 n.6; App. 617, 632. They
analyzed the portfolio and risk of the insurance carriers,
using the Standard and Poor's and A.M. Best ratings as a
source of information about both the insurance companies'
asset composition and their creditworthiness. FF P 35; App.
1056. They testified that they would not have been able to
replicate the analyses done by the ratings services in-
house. App. 711. They had available to them SEC forms
10K and 10Q to review prior to making their selection.
FF P 35; App. 1065-66, 631. They had also consulted with
a firm that Unisys had engaged to advise it on its defined
benefit pension plan. That firm advised Unisys on its
selection of issuers for the GIC funds. App. 608, 626-27.
12
In Unisys I, 74 F.3d at 436, we directed the District
Court to determine whether the ratings could be used
reliably by Unisys. As mentioned earlier, Level and White
both testified that the ratings services were respected for
their competence and thoroughness throughout the
investment and finance community. App. 1160-61, 658-
623, 702, 708-11. The District Court found that the ratings
services provided reliable information. FF P 21. We are
satisfied that this finding is not clearly erroneous. See also
Bussian v. RJR Nabisco, ___ F. Supp. 2d ___, No. Civ. A. H-
91-1533, 1998 WL 639320, at *7 (S.D. Tx. Sept. 2, 1998)
("Nabisco's use of the consultant and rating agencies [in
selecting an Executive Life annuity] does not demonstrate
imprudence.").
The District Court also resolved at trial four other issues
of fact that we identified in Unisys I. First, evidence in the
summary judgment record may have indicated that Becker
had recommended the purchase of a three-year GIC, rather
than a five-year GIC. Unisys I, 74 F.3d at 427. At trial,
however, Becker testified that he had not recommended the
shorter maturity (three-year) Executive Life GIC. Rather, his
discussion with Unisys officers about maturity dates was
very general, leading to the conclusion that the investment
in five-year GICs was appropriate. FF P 30; App. 555-558.
Second, at the summary judgment stage, the evidence
suggested that Becker told White that Executive Life would
lose its AAA rating from Standard & Poor if its investments
of junk bonds exceeded 35%, and White believed that 40-
50% of Executive Life's investments were junk bonds.
Unisys I, 74 F.3d at 427. At trial, Becker stated that it was
not his view that Executive Life would lose their Standard
and Poor's AAA rating if high yield bonds comprised more
than 35% of Executive Life's portfolio. Rather, he testified
that Executive Life thought its AAA rating might be in
jeopardy if their high yield bond holdings exceeded 35%.
However, Standard and Poor's had access to the actual
percentage of high yield bonds in Executive Life's portfolio,
and it still issued a AAA rating to Executive Life. Thus,
White's reliance on the AAA rating was neither
unreasonable nor imprudent. As discussed infra, even if
White had an erroneous view of the percentage of high yield
13
bonds in Executive Life's portfolio, a hypothetical prudent
fiduciary would have known that Executive Life's high yield
bond percentage was within an acceptable range in
Executive Life's and Standard and Poor's analyses. FF P 28;
App 501.10
Third, in Unisys I, we stated:
[A] reasonable factfinder could infer from this evidence
that Unisys failed to analyze the bases underlying
[Becker's] opinion of Executive Life's financial condition
and to determine for itself whether credible data
supported [Becker's] recommendation that Unisys
consider investing plan assets with the insurer. A
reasonable factfinder could also conclude that Unisys
passively accepted its consultant's positive appraisal of
Executive Life without conducting the independent
investigation that ERISA requires.
Unisys I, 74 F.3d at 435-36 (emphasis added). However,
after taking evidence at trial, the District Court did not find
that Unisys had failed to make its own evaluation of
Executive Life's financial condition, nor did itfind that
Unisys "passively" had accepted Becker's appraisal. On the
contrary, the District Court made numerous findings that
White and Level were aware of the composition of assets of
Executive Life GICs and that they understood the risks
associated with each of those assets. FF PP 25-27.
Fourth, in Unisys I, we advised the District Court that it
should determine the significance, if any, of Executive Life's
substantially higher interest rates. We suggested that
dramatically higher interest rates might have prompted
Unisys to conduct extra investigation into Executive Life's
creditworthiness. As stated earlier, at trial, White testified
that he carefully had considered the use of high yield bonds
and knew the risks involved. Unisys recognized that higher
rates could, over time, yield dramatic differences in income,
but that the trustees were "constrained by their standards
_________________________________________________________________
10. As counsel for Unisys pointed out at oral argument, if Executive Life
had 40% of its holdings in high yield bonds, and Executive Life GICs
constituted 15-20% of the Fund, White invested only 8% of the Fund
assets in high yield bonds.
14
of risk tolerance." FF P 25; App. 1250. The District Court
credited the testimony of the Unisys fiduciaries and was
satisfied and concluded that Unisys had made a reasonable
and thorough investigation of Executive Life GICs. CL P 3.
We will not disturb that holding here.11
IV.
The District Court's factual findings support its legal
conclusions that Unisys was prudent under the standard
articulated in ERISA and that a hypothetical prudent
investor would have purchased each of the three GICs. As
we stated in Unisys I, ERISA requires that afiduciary shall
discharge his duties
with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man
acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise with like
character and with like aims; . . . .
_________________________________________________________________
11. Meinhardt contests three other alleged failures of the District Court
to follow this Court's mandate or to consider evidence in the record.
Each of these objections however, is without merit because Meinhardt
did not tender an expert to show how these facts supported the
conclusion that Unisys was imprudent.
First, the evidence revealed that Unisys did not have written
investment or diversification standards for the Fund, but that it had
guidelines for the money market fund. However, Meinhardt did not
present evidence that prudence required written fund guidelines and
Unisys testified that the unwritten guideline for investment diversity was
that no one investment should constitute more than 20% of a fund's
portfolio.
Second, some evidence suggested that Unisys spent less than twenty
minutes evaluating each bidder on bid day. Meinhardt presented no
evidence that more time should have been spent at bid day, and
considering this fact in isolation ignores evidence of Unisys's
investigation and consideration of each bidder prior to bid day.
Third, Unisys admitted at trial that the FIF bids had late maturity
dates, and thus Executive Life GICs would become larger percentages of
the FIF as time wore on. App. 1081. Again, Meinhardt did not
demonstrate that the percentages were ever beyond the norm. Moreover,
the FIF was phasing out in favor of the ICF.
15
Unisys I, 74 F.3d at 434 (quoting 29 U.S.C. S 1104(a)(1)(B)).
We also stated that the prudence requirement focuses on "a
fiduciary's conduct in arriving at an investment decision,
not on its results, and asking whether a fiduciary employed
the appropriate methods to investigate and determine the
merits of a particular investment." Id.After taking evidence on the issue of Unisys's prudence,
the District Court held that the actions taken by the Fund's
trustees satisfied the prudence standard: "Based on the
evidence at trial I find that the Unisys fiduciaries undertook
adequate and reasonable steps before purchasing the three
Executive Life contracts." CL P 3. The District Court
concluded, "Measured by any standard, the Unisys
fiduciaries' actions are consistent with the prudence
requirements of ERISA." CL P 13. We hold that the District
Court's findings of fact support its conclusions of law that
Unisys was prudent in investing in Executive Life GICs, and
thus Meinhardt failed to prove an essential element of his
ERISA claim.
As an alternate theory for holding that Unisys was not
imprudent, the District Court considered the objective
prudence of Unisys investments in Executive Life GICs by
applying the "hypothetical prudent investor" test. Unisys I,
74 F.3d at 436 (citing Fink v. National Savings & Trust Co.,
772 F.2d 951, 962 (D.C. Cir. 1985) (Scalia, J., concurring
in part and dissenting in part) and Roth v. Sawyer-Cleator
Lumber Co., 16 F.3d 915, 919 (8th Cir. 1994)).
The District Court held that a hypothetical prudent
fiduciary would have invested in Executive Life GICs
because (1) Executive Life was qualified under federal
regulations as an insurance company authorized to provide
annuities to facilitate the termination of benefit pension
plans because it was state licensed, 46 Fed. Reg. 9532,
9534 (1981); (2) other judicial decisions endorsed the
purchase of Executive Life annuities, e.g., Riley v. Murdock,
890 F. Supp. 444, 458-60 (E.D.N.C. 1995);12 (3) Becker, the
adviser Unisys retained for the first bid, included Executive
_________________________________________________________________
12. See also Bussian v. RJR Nabisco, ___ F. Supp. 2d ___, No. Civ. A. H-
91-1533, 1998 WL 639320 (S.D. Tx. Sept. 2, 1998) (decided after the
District Court issued its findings of fact and conclusions of law).
16
Life on his approved list of GIC bidders until six months
after Unisys made its third and final purchase of Executive
Life, App. 559; and (4) other well-known pension plans
purchased Executive Life GICs. App. 559, 1742. The
District Court did not err in concluding that a hypothetical
prudent fiduciary would have made the same investments
in Executive Life GICs as the investments made by Unisys.
FF P 24 n.3; CL PP 8-10.
In sum, we are satisfied that the District Court's holdings
that Unisys was prudent, and in the alternative, that a
hypothetical prudent fiduciary would have made the same
investments, are supported by the evidence.
V.
In addition to holding that the trustees' actions satisfied
the standard of prudence required by ERISA, the District
Court went on to discuss why the trustees' actions were not
arbitrary and capricious. The District Court need not have
discussed application of an arbitrary and capricious
standard in this case. In light of the District Court's holding
of prudence and our affirmance of that holding, the District
Court's discussion of an arbitrary and capricious standard
cannot affect the judgment in favor of Unisys.
In Unisys I, we stated that fiduciaries of investment plans
had to satisfy the "prudent" legal standard specified in
ERISA, cited supra. We stated that one of ERISA's
underlying purposes was "to enforce strict fiduciary
standards." Unisys I, 74 F.3d at 434 (citing 29 U.S.C.
S 1001 and H.R. Rep. No. 93-533 (1974), reprinted in 1974
U.S.C.C.A.N. 4639, 4639-43).
In Struble v. New Jersey Brewery Employees' Welfare
Trust Fund, 732 F.2d 325 (3d Cir. 1984), we held
specifically that the duties of loyalty and prudence
demanded by ERISA should not be reviewed through an
"arbitrary and capricious" lens. We held that the "standards
set forth explicitly in ERISA" should be used to evaluate the
trustees' conduct. Id. at 333-34 (finding support in cases
from the Second, Fifth, and Eleventh Circuits). Struble
governs the question of Unisys's duty of prudence under
ERISA.
17
The District Court should have applied only the standard
of "prudence under the circumstances" as required by the
statute. Only the standard found in ERISA, 29 U.S.C.
S 1104(a)(1)(B); Unisys I, 74 F.3d at 434, should have been
applied to determine whether Unisys's investment methods
were prudent.
As authority for an arbitrary and capricious standard,
the District Court cited Varity Corp. v. Howe, 516 U.S. 489(1996), Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101(1989), and Moench v. Robertson, 62 F.3d 553 (3d Cir.
1995), cert. denied, 516 U.S. 1115 (1996). These cases,
however, involved situations not relevant to the present
claims asserted against Unisys.
In the context of a case challenging a denial of benefits
under 29 U.S.C. S 1332(a)(1)(B) -- and not challenging the
prudence of investment decisions -- the Supreme Court
held that the "inherently discretionary" nature of fiduciary
functions does not necessarily require a deferential
standard of review. Firestone Tire & Rubber Co. v. Bruch,
489 U.S. 101, 112 (1989). Under ERISA, the standard of
review over a trustee's decision to deny benefits or the
interpretation of the plan is de novo as a general rule; only
when the plan gives the trustee discretion to deny benefits
or construe the terms of the plan should a court employ the
arbitrary and capricious standard. As the instant case does
not concern a denial of benefits under 29 U.S.C.
S 1332(a)(1)(B) or an interpretation of Unisys's Plan,
Firestone's standard is inapplicable. Nor did Varity Corp. v.
Howe, 516 U.S. 489 (1996), involve a claim that a trustee's
investments were imprudent -- the claim that Meinhardt
makes here.
In Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995), cert.
denied, 516 U.S. 1115 (1996), we did apply a deferent
arbitrary and capricious standard of review to a claim by a
plan's participants that the fiduciary was imprudent. We
were careful to point out in Moench, however, that our
holding was limited to the specific type of plan involved in
that case, an Employee Stock Ownership Plan ("ESOP").
Here, of course, the Unisys Plan was not an Employee
Stock Ownership Plan. Furthermore, Moench specifically
held its analysis was in "complete harmony with the
18
prudent man standard of care obligations imposed by 29
U.S.C. S 1104 on fiduciaries, as our holding implicates only
the standard of review of the conduct of a fiduciary and not
the standards governing that conduct," Moench, 62 F.3d at566 n.3 (emphasis added), as is the case here.
In sum, Unisys's methods of making that decision must
be evaluated using the ERISA standard mandated by
Unisys I and in accordance with Struble. The District Court
did not err in concluding that Unisys did not breach its
duty of prudence.
For these reasons, the District Court's discussion of an
arbitrary and capricious standard was superfluous and
constitutes no more than harmless error. Fed. R. Civ. P. 61.
The District Court's statements that Unisys's actions were
not arbitrary and capricious do not negate its otherwise
correct holding that Unisys satisfied the ERISA prudence
standard.
VI.
Meinhardt also argues that the District Court abused its
discretion when it decided to exclude the testimony of Dr.
George M. Gottheimer, one of Meinhardt's two proposed
expert witnesses.13 Meinhardt offered Dr. Gottheimer to
testify on the subject of "the customary methods of
investigating the financial condition and creditworthiness of
insurance companies."
To qualify as an expert under Fed. R. Evid. 702, a
witness must have sufficient qualifications in the form of
knowledge, skills, and training. Additionally, the court must
find that the testimony of the expert will be reliable and
that the testimony will "fit," that is, assist the trier of fact.
In re Paoli R.R. Yard Litig., 35 F.3d 717, 741-43 (3d Cir.
1994). While it may be arguable that the "fit" prescribed in
_________________________________________________________________
13. Meinhardt's expert Tsetsekos was qualified to testify and did testify
on the issue of damages caused by Unisys's alleged breaches of its
duties of diversification and disclosure. However, the District Court held
that his testimony was insufficient to prove that any alleged failure to
diversify or disclose information caused Meinhardt and the other class
plaintiffs to suffer losses. We agree. See infra Parts VII and VIII.
19
In re Paoli is a "fit" reflecting on the substance of the
witness' testimony, we think it just as relevant to the "fit"
reflecting on the witness' credibility. Indeed, in the recent
Supreme Court decision discussing the standard of review
applicable to the admission and exclusion of expert
evidence, the Supreme Court refers to the District Court's
"gatekeeper" role of screening such evidence to ensure that
it is not only relevant but reliable. The Court goes on to
write, "A court of appeals applying `abuse of discretion'
review to [expert testimony] rulings may not categorically
distinguish between rulings allowing expert testimony and
rulings which disallow it." General Elec. Co. v. Joiner, 118
S. Ct. 512, 517 (1997). Thus in our view, the Court's
emphasis on reliability as well as on relevancy embraces
within its standard the credibility of the witness proffering
expert opinion. This is particularly true where, as here, it is
the district court judge sitting as a finder of fact who must
rule on issues of evidence. See Goodman v. Highlands Ins.
Co., 607 F.2d 665, 668 (5th Cir. 1979) ("[A] trial judge
sitting without a jury is entitled to even greater latitude
concerning the admission or exclusion of evidence.").
While we could understand issue being taken with the
Goodman precept, it appears to us after Joiner that the
Goodman standard has been given increased viability.
Although Joiner was a summary judgment decision, it
nevertheless emphasized that Daubert did not alter the
general rule announced in Spring Co. v. Edgar, 99 U.S. 645(1978). In Edgar, the Court stated, " `cases arise where it is
very much a matter of discretion with the court whether to
receive or exclude the evidence; but the appellate court will
not reverse in such a case, unless the ruling is manifestly
erroneous.' " Joiner, 118 S. Ct. at 517 (quoting Edgar, 99
U.S. at 658). After so stating, the Court rejected any
alteration of this rule and in the context of expert testimony
said, "But Daubert [v. Merrell Dow Pharmaceuticals, Inc.,
509 U.S. 579 (1993)] did not address the standard of
appellate review for evidentiary rulings at all. . .." Id. The
Court then repeated that under Daubert " `the trial judge
must ensure that any and all scientific testimony or
evidence admitted is not only relevant, but reliable.' " Id.(quoting Daubert, 509 U.S. at 589).
20
The Court went on to hold in Joiner that the Eleventh
Circuit had erred in reviewing the exclusion of Joiner's
experts' testimony because it failed to give the trial court
the deference that is the hallmark of abuse of discretion
review. Id. (citing Koon v. United States, 518 U.S. 81, 97-99
(1996)). The Court further held that the studies upon which
Joiner's experts relied were not sufficient whether
individually or in combination, to support their conclusions
that Joiner's exposure to PCBs contributed to Joiner's
cancer, and that the District Court therefore did not abuse
its discretion in excluding their testimony.14
In the instant case, the District Court ruled that Dr.
Gottheimer's testimony would not be admissible for three
reasons. First, the court found that Dr. Gottheimer's
educational credentials were not of the highest caliber.15
Second, during Dr. Gottheimer's voir dire, the District Court
found Dr. Gottheimer not to be credible because he had
made statements about his credentials that were
inconsistent with his deposition testimony. Finally, the
District Court found that Dr. Gottheimer's expertise was in
property casualty insurance, not life insurance, and that
Gottheimer had admitted in his deposition that there are
"fundamental" differences in evaluating the two types of
insurance. FF PP 101-05; CL PP 17-19.
These three reasons coincide with the three requirements
articulated in Paoli II: qualifications, reliability, and fit. The
record discloses that Dr. Gottheimer's qualifications were
less than stellar. Because he had testified untruthfully at
voir dire, his testimony could well have been held
unreliable. Finally, Dr. Gottheimer's alleged expertise,
limited in any event to methods of investing with respect to
property casualty insurance, did not fit with or meet the
need of the District Court for expert testimony in life
insurance investing. See Surace v. Caterpillar, Inc., 111
F.3d 1039, 1055-56 (3d Cir. 1997). The District Court
determined that Dr. Gottheimer could not be a credible
_________________________________________________________________
14. Ultimately, the Court, on another issue, reversed the judgment and
remanded the proceedings as to whether a material dispute of fact
existed as to Joiner's alleged exposure to other elements.
15. Dr. Gottheimer received his Ph. D. from a correspondence school.
21
witness based on admissions secured through the use of
his prior sworn testimony. See FF PP 102-104. Because the
District Court, as fact-finder, listened to the testimony and
assessed the credibility of the witness, these findings are
entitled to great deference by this Court. See Anderson v.
City of Bessemer City, N.C., 470 U.S. 564 (1985).
Judge Becker, in his thoughtful and comprehensive
dissent, while focusing almost exclusively on the standards
for admissibility of scientific expert testimony, nevertheless
acknowledges that "the factfinder is ordinarily the arbiter of
general credibility," Dissent at 40, and that "the power to
evaluate the credibility of witnesses and give testimony its
proper weight primarily resides with the trier of fact."
Dissent at 41. He also properly acknowledges that the
decision to admit or to exclude expert testimony is reviewed
for abuse of discretion.
Judge Becker, however, fails to recognize or credit in his
dissent two significant and controlling issues. First, Dr.
Gottheimer's testimony does not fall within the scope of
scientific testimony, and accordingly, it should not be tested
by the particular standards required for testimony based on
a particular scientific ethic.16 See Carmichael v. Samyang
Tire, Inc., 131 F.3d 1433 (11th Cir. 1997), cert. granted sub
nom. Kumho Tire Co. v. Carmichael, 118 S. Ct. 2339 (1998).
It is true of course that we have referred to the Paoli
requirements of qualifications, reliability and fit -- but we
have done so only to emphasize that, measured by any
standard, scientific or non-scientific, the District Court did
not abuse its discretion in excluding Dr. Gottheimer's
testimony.
Second, and more important, the dissent, while
acknowledging that it is the fact finder that determines
weight and credibility of an expert's testimony, apparently
overlooks the distinguishing circumstance here: the fact
finder was the District Court judge himself, and not a jury.
Judge Hutton made the critical credibility determination
that he could not believe the testimony of Dr. Gottheimer,
and that being so, no reason has been put forward as to
_________________________________________________________________
16. See Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993); In re
Paoli R.R. Yard Litig., 35 F.3d 717, 741-43 (3d Cir. 1994).
22
why we should not credit and defer to the District Court's
finding. Even if we might have made a different
determination regarding Dr. Gottheimer's credibility, we are
not at liberty to impose our opinion on the District Court.17
We would be hard pressed to require a District Court
judge sitting in a non-jury case who credibly and with
reason found that he could not believe a witness to
nevertheless hear the witness's direct examination, cross-
examination, and rebuttal examination in an extended trial
when he knew that he would only reject it as unbelievable.
All the instances and cases cited by the dissent, see, e.g.,
Dissent at 32 n.1, 46 n.13, are those in which it was for the
jury as fact finder to determine credibility and weight of the
expert testimony. Thus, those cases are wholly inapplicable
to the facts of this case. When the role of the gatekeeper to
admit or exclude evidence (the judge) and the role of the
factfinder to assess and weigh the evidence that was
admitted (the jury) are one and the same, the judge who
becomes the factfinder as well as the gatekeeper must be
given great deference by this Court, and, as we note below,
should not be required to waste judicial time. See Fed. R.
Evid. 403. Therefore, we cannot say on this record that it
was an abuse of the District Court's discretion to exclude
Dr. Gottheimer's testimony.
Even if the District Court had abused its discretion, and
we hold that it did not, the error must be deemed harmless
in light of the District Court's finding that Dr. Gottheimer
was not credible. The District Court concluded, "If given the
chance to testify, I could not find [Dr. Gottheimer] to be a
_________________________________________________________________
17. As the Supreme Court of Maine stated:
We have previously stated that the determination of the
qualifications of expert witnesses is reserved to the sound
discretion
of the trial judge. It follows, therefore, that appellate decisions
affirming the trial court do not necessarily stand for the
proposition
that the opposite ruling would constitute error.
Hanson v. Baker, 534 A.2d 665, 667 (Me. 1987) (citation omitted); see
also Seese v. Volkswagenwerk A.G., 648 F.2d 833, 844 (3d Cir. 1981)
("[W]e recognize that the admission of expert testimony rests within the
sound discretion of the district court and that the district court will be
reversed only for an abuse of that discretion.").
23
credible witness given his evasiveness, if not his propensity
to state falsehoods." CL P 18. Obviously, hearing testimony
from a witness who was given no credence at all by the
District Court judge presiding at a bench trial would have
resulted in the "waste of time" proscribed by Federal Rule
of Evidence 403, particularly where the false statements
identified by the judge were material to the purported
expert's qualifications.
VII.
ERISA requires a fiduciary to "diversify[ ] the investments
of the plan so as to minimize the risk of large losses, unless
under the circumstances it is clearly not prudent to do so."
29 U.S.C. S 1104(a)(1)(C). Meinhardt complains that Unisys
invested an excessive amount of Fund investments in
Executive Life GICs. As discussed in Unisys I, Congress did
not try to quantify diversity with percentages, leaving that
determination to the facts and circumstances as found by
the courts. Unisys I, 74 F.3d at 438-40.
The District Court determined that Meinhardt had not
introduced evidence by way of expert testimony as to what
would have constituted a properly diversified fund. At the
time Executive Life went into receivership, the Fund had
20% of its assets in Executive Life investments, and the
court held this level of diversification to be proper.18
CL PP 32-33.
Nor did Meinhardt prove his case with respect to the duty
to diversity because he did not show that the Fund suffered
"large losses" as a result of any failure to diversify. This was
an issue that the Court of Appeals specifically held was not
known at the summary judgment stage. See Unisys I, 74
F.3d at 440. Meinhardt presented no evidence of
investments that would have constituted proper
diversification in order to prove that Unisys did not properly
_________________________________________________________________
18. The District Court combined the FIF and the ICF for purposes of
diversification because the funds "worked together;" that is, the FIF was
being phased out in favor of the ICF. Proceeds from matured FIF
contracts were invested in the ICF, and no new investments were made
in the FIF. FF P 79; App. 1510-12, 4450.
24
diversify the investments in the Fund or to enable the
District Court to assess losses, if any, to Meinhardt for the
difference. FF P 90.
The duty to diversify and resulting damages from a
breach of that duty could not be determined from the
summary judgment record in Unisys I. Now that the trial
has concluded, it is evident to us, as it was to the District
Court, that Meinhardt's failure of proof did not lead to any
determination that Unisys breached its duty to diversify or
that damages resulted.
VIII.
Meinhardt claims that Unisys did not fulfill its obligation
of making necessary disclosures under ERISA.
In Unisys I, we stated that "a fiduciary may not materially
mislead those to which section 1104(a)'s duties of loyalty
and prudence are owed." Unisys I, 74 F.3d at 440-41. A
fiduciary must make disclosures if silence would be
harmful. Bixler v. Central Pa. Teamsters Health & Welfare
Fund, 12 F.3d 1292, 1300 (3d Cir. 1993). ERISA also
requires plaintiffs to prove losses for any breach of fiduciary
duty claim:
Any person who is a fiduciary with respect to a plan
who breaches any of the responsibilities, obligations, or
duties imposed upon fiduciaries by this subchapter
shall be personally liable to make good to such plan
any losses to the plan resulting from each such
breach.
29 U.S.C. S 1109(a) (emphasis added). As Meinhardt and
the other class plaintiffs were seeking individual relief
under 29 U.S.C. S 1132(a)(3) (in contrast to S 1132(a)(2),
which only allows relief on behalf of the Plan), Meinhardt
was required to prove individual losses. Varity Corp. v.
Howe, 516 U.S. 489, 507-15 (1996).
Although the District Court's discussion of Meinhardt's
claims that Unisys breached its duty to disclose
information about Executive Life spans 18 pages, we can
dispose of this issue on appeal briefly. Essentially,
Meinhardt complains that Unisys received reports about
25
Executive Life's financial troubles in early 1990. Meinhardt
claims that Unisys (1) did not warn the Fund participants,
(2) drafted misleading letters in order to dispel participants'
concern, (3) did not disclose the fact that a high-level
Unisys executive had purged his own portfolio of Executive
Life securities, and (4) entered into an agreement with
Executive Life not to disclose information to participants
that would cause participants to change their investments.19
The District Court held that Meinhardt did not prove that
the alleged failures to disclose were material. CL PP 22-23.
We need not address the question of whether the alleged
nondisclosures were material, however, because it is clear
that Meinhardt did not prove that any alleged failures to
disclose caused the participants to suffer damages.
CL PP 29-30. The District Court found that Meinhardt and
the other class plaintiffs (1) already had actual knowledge
of much of the information it is claimed that Unisys failed
to disclose, (2) did not read the Plan documents, and (3)
testified that they would not have withdrawn or transferred
their money from the Fund even if they had known about
Executive Life's problems. FF PP 70-71; CL P 28; App. 1681-
82, 1688-89.
Moreover, Meinhardt's expert, Tsetsekos, offered
testimony on losses suffered as a result of the alleged
failures to disclose, but referred only to those losses
incurred by the Fund and not to any losses incurred by
individual participants named as plaintiffs. FF PP 76-77;
CL PP 29-31. Meinhardt also failed to prove individual
damages suffered by each participant as ERISA requires. 29
U.S.C. S 1132(a)(3).
We hold that these factual findings of the District Court
are not clearly erroneous and that they support the
conclusion reached by the District Court that Meinhardt
failed to prove his claim that Unisys breached its duty of
disclosure.
_________________________________________________________________
19. The agreement did not prevent Unisys from disclosing information
required by law. App. 1702.
26
IX.
A final word should be said about Meinhardt's claim for
damages. First and foremost, in the absence of proof of a
breach of fiduciary duty, no relief in the way of damages or
losses could accrue to Meinhardt. We have held that Unisys
satisfied ERISA's prudence standard and that accordingly,
no breach of fiduciary duty occurred. This being so, no
claim for increased interest, i.e., the promised interest
minus the actual amount of interest received, or any other
damages, can be sustained. As we have noted earlier,
Meinhardt had received the return of the entire principal
invested as well as some interest.20
It is therefore irrelevant as to whether any losses
sustained by the Fund from GIC investments could have
been offset by any gains derived from other Fund
investments. While we acknowledge that a trustee, when he
is imprudent and breaches his trust, is liable for all gains
and may not offset losses against them,21 in the instant
case, the Unisys fiduciaries were neither imprudent nor did
they breach their fiduciary duties.22
Additionally, Meinhardt and the Department of Labor as
amicus also argued that the burden of proving causation of
damages shifts to the defendant after the plaintiff has
proved that the defendant breached a fiduciary duty. Here,
the District Court assigned the burden of proof to the
plaintiff Meinhardt. Because we have held that Unisys did
not breach its fiduciary duties, we have no need to address
the issue of which party bears the burden of proving
causation of damages resulting from a breach offiduciary
duty. While we recognize that our sister circuits have
_________________________________________________________________
20. Even without offsetting the losses with the gains, the three contracts
each returned principal with minimal (3-5%) interest. FF P 80.
21. See Donovan v. Bierwirth, 754 F.2d 1049, 1056 (2d Cir. 1985);
Restatement (Second) of Trusts S 213.
22. In light of our decision in favor of Unisys, we have no need to
address Unisys's affirmative defense under 29 U.S.C. S 1104(c), which
relieves a trustee of liability if the loss results from the participant's
exercise of control.
27
divided in deciding this question,23 we have yet to express
ourselves on this issue.24
X.
In sum, we have held that:
(1) The District Court's findings of fact issued after
hearing evidence on Meinhardt's ERISA claims will be
affirmed as not clearly erroneous.
(2) The District Court's conclusions of law that the Unisys
fiduciaries were prudent, and in the alternative, that a
hypothetical prudent fiduciary would have made the
same investments in Executive Life GICs, also will be
affirmed.
(3) Although we do not agree with the District Court's
additional discussion of an arbitrary and capricious
standard in reviewing the investments made by the
ERISA fiduciaries, this discussion was superfluous,
constitutes no more than harmless error, and does not
affect our judgment.
(4) The District Court did not abuse its discretion in
excluding the testimony of Meinhardt's proposed expert
witness on the issue of Unisys's prudence, and in any
event, that action was harmless in light of the District
Court's finding that the expert was not credible.
_________________________________________________________________
23. Compare Silverman v. Mutual Benefit Life Ins. Co., 138 F.3d 98, 105-
06 (2d Cir. 1998), cert. denied, ___ S. Ct. ___, 1998 WL 440027 (Oct. 5,
1998) and Kuper v. Iovenko, 66 F.3d 1447, 1459-60 (6th Cir. 1995)
(burden of proof on plaintiff) with McDonald v. Provident Indemnity Life
Ins. Co., 60 F.3d 234, 237 (5th Cir. 1995); Roth v. Sawyer-Cleator
Lumber Co., 16 F.3d 915, 917 (8th Cir. 1994) (burden of proof on
fiduciary defendant).
24. Cf. Kemmerer v. ICI Americas, Inc., 70 F.3d 281, 290 (3d Cir. 1995)
(citing Roth for the proposition that burden of disproving damages shifts
to the trustee, but finding no need to shift the burden because the case
before the court did not involve a situation where plaintiff had proved a
breach of duty and a definite loss); Nedd v. United Mine Workers of Am.,
556 F.2d 190, 211 (3d Cir. 1977) (holding that shifting the burden of
causation to the fiduciary is an appropriate rule in an LMRA case).
28
(5) The District Court did not err in denying relief to
Meinhardt inasmuch as no losses or damages could be
sustained. As a consequence, we have found it
unnecessary to address the disputed issue of which
party bears the burden of proving causation of
damages that result from a breach of fiduciary duty.
(6) The District Court did not err in holding that
Meinhardt's other ERISA claims, failure to diversify
and failure to disclose information, were not proved.
Thus, we will affirm the District Court's orders of November
24, 1997, and January 9, 1998, in favor of Unisys and
against Meinhardt.
Each party shall bear its own costs.
29
BECKER, Chief Judge, dissenting
Although I join in Parts I through V and VII through IX
of the majority's opinion, I believe that the majority has
made a significant error regarding expert testimony, and I
dissent on this point. Because I believe that this error is
not harmless, I believe we should vacate the judgment and
remand this case for a new trial.
In concluding that the District Court properly excluded
the testimony of Dr. Gottheimer, the majority seriously
misconceives the proper approach to the admission of
expert opinion testimony under Federal Rule of Evidence
702. As an initial point, the majority overstates the degree
to which we owe deference to the District Court's decision
in a case, such as this, tried to the court. The District
Court's decision deserves no additional deference simply
because the court sat as both evidentiary gate-keeper and
fact-finder. If anything, the practicalities of the matter
suggest that the trial court in such a situation should be
more reluctant than usual to exclude evidence, although I
do not suggest that we should apply a correspondingly
more stringent standard of review.
The District Court and the majority also make three
important errors in analyzing the substantive requirements
of Rule 702. First, the majority confuses the reliability of an
expert witness -- a matter for the jury -- with the reliability
of his or her methodology -- a matter initially for the trial
judge -- and therefore erroneously concludes that
questions about an expert witness's general credibility are
a proper basis for excluding his or her testimony. The
question for the judge under Rule 702 is not whether the
witness is reliable but whether the methodology the expert
uses in reaching his conclusions is reliable. As to this latter
point, the witness's general credibility is simply irrelevant;
the relevant issues in determining the reliability of an
expert's principles and methods are of the sort set forth
with respect to scientific testimony in Daubert v. Merrell
Dow Pharms., Inc., 509 U.S. 579, 593-95 (1993).
Second, the majority misconstrues the nature of the
requirement of "fit" between the expert's testimony and the
facts at issue. The majority concludes that the District
30
Court correctly found that no fit exists in this case because
Dr. Gottheimer's experience, in the area of property-
casualty insurance, on which his testimony is based, is not
in the specific area -- life insurance -- with which the facts
in this case deal. But the majority's focus on the connection
between Dr. Gottheimer's claimed basis for being an expert
and the facts at issue, as opposed to the connection
between the substance of his testimony and the facts, is
irrelevant to the question of fit. Their concern about his
background should more appropriately be directed at Dr.
Gottheimer's qualifications, not the fit between his
testimony and the facts.
Third, the majority permits the District Court to set the
qualifications bar for expert testimony too high. It approves
the District Court's rejection of the expert's testimony
simply because his qualifications are not of the"highest
caliber." This conclusion is inconsistent with our
longstanding liberal approach to the matter of expert
witness qualifications. Also, the connection between Dr.
Gottheimer's expertise and the issues in this case-- which
the majority discusses in the context of fit -- are not too
remote for him to qualify as an expert under Rule 702.
Finally, I think that the majority wrongly concludes that
any error in the exclusion of Dr. Gottheimer's testimony
was harmless. While improper admission of evidence is
usually harmless error in a bench trial, the improper
exclusion of an expert witness who would have offered a
party's sole expert testimony on an element of its case
ordinarily is not harmless. The fact that the District Court
found some inconsistencies in Dr. Gottheimer's voir dire
testimony was not a sufficient basis for changing the
ordinary rule. Such inconsistencies are not enough to
convince me that it is highly probable that Dr. Gottheimer's
testimony, if admitted, would not have changed the
outcome. This is especially true in light of the fact that the
inconsistencies the District Court discusses were at worst
minor.
I. Overview of Rule 702
Under Rule 702, "[i]f scientific, technical, or other
31
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." Fed. R. Evid. 702. The
Supreme Court has recognized that Rule 702 , although it
limits the scope of permissible evidence, is part of "the
`liberal thrust' of the Federal Rules and their `general
approach of relaxing the traditional barriers to "opinion"
testimony.' " Daubert, 509 U.S. at 588 (quoting Beech
Aircraft Corp. v. Rainey, 488 U.S. 153, 169 (1988)). We have
recognized that this "principle of liberal admission of expert
testimony is found in Rule 702 itself, in the advisory
committee note to the rule, and in our case law."1
To these ends, Rule 702 embodies three distinct
substantive restrictions on the admission of expert
testimony: qualifications, reliability and fit. See In re Paoli
R.R. Yard PCB Litig. ("Paoli II"), 35 F.3d 717, 741-43 (3d
Cir. 1994). First, an expert witness must be qualified by
virtue of specialized expertise. See Fed. R. Evid. 702
(permitting expert testimony of a witness "qualified as an
expert by knowledge, skill, experience, training, or
education"); Paoli II, 35 F.3d at 741. Second, "an expert's
testimony is admissible so long as the process or technique
the expert used in formulating the opinion is reliable." Paoli
II, 35 F.3d at 742 (citing Daubert, 509 U.S. at 589-90).
Third, "[e]xpert testimony which does not relate to any
issue in the case is not relevant and, ergo, non-helpful."
Daubert, 509 U.S. at 591 (citations omitted).2
_________________________________________________________________
1. Habecker v. Copperloy Corp., 893 F.2d 49, 51 (3d Cir. 1990); accord
Waldorf v. Shuta, 142 F.3d 601, 625 (3d Cir. 1998) (citing the "policy of
liberal admissibility of expert testimony"); Holbrook v. Lykes Bros. S.S.
Co., 80 F.3d 777, 782 (3d Cir. 1996) (citing"our liberal approach to
admitting expert testimony"); United States v. Downing, 753 F.2d 1224,
1230 (3d Cir. 1985) (citing "the liberal standard of admissibility
mandated by Rule 702"); Knight v. Otis Elevator Co., 596 F.2d 84, 88 (3d
Cir. 1979).
2. It is not a settled question in this Circuit whether the Daubert
requirements apply to nonscientific testimony such as may be at issue
here. See Lauria v. National R.R. Passenger Corp., 145 F.3d 593, 599 n.7
(3d Cir. 1998) (questioning, but not resolving, whether Daubert analysis
32
II. Standard of Review
As an initial matter, I think the majority errs in its
analysis of the applicable standard of review and the extent
to which we owe deference to the District Court's decision.
Of course, the decision whether to admit or exclude expert
testimony is largely within the hands of the trial judge. We
review such a decision for abuse of discretion. See General
Elec. Co. v. Joiner, 118 S. Ct. 512, 517 (1997) ("We have
held that abuse of discretion is the proper standard of
review of a district court's evidentiary rulings." (citations
omitted)); In re Paoli R.R. Yard PCB Litig. ("Paoli I"), 916
F.2d 829, 856 & n.33 (3d Cir. 1990). The standard does not
change when we are reviewing a court's decision to exclude,
as opposed to admit, expert testimony, in spite of the liberal
_________________________________________________________________
should apply to testimony of expert in train track maintenance); United
States v. Velasquez, 64 F.3d 844, 850 (3d Cir. 1995) (questioning the
propriety of applying Daubert to handwriting analysis, but applying it in
an exercise of caution). This question is currently before the Supreme
Court. See Carmichael v. Samyang Tire, Inc., 131 F.3d 1433 (11th Cir.
1997), cert. granted sub nom. Kumho Tire Co. v. Carmichael, 118 S. Ct.
2339 (1998). The current proposed amendment to Rule 702 would apply
a distillation of the Daubert analysis to all expert testimony. See Fed.
R.
Evid. 702 (proposed amendment 1998) (further limiting admissibility of
expert testimony to where "(1) the testimony is sufficiently based upon
reliable 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").
The majority contends that I have erred by focusing on Daubert
analysis in a case in which it might not apply. See Slip Op. at 23. But
even to the extent the majority turns out to be correct that a strict
Daubert analysis does not apply, my conclusions would not change.
First, I do not believe that the result would be any different if we were
to apply the principles of Rule 702 sans Daubert. In fact, since Daubert
imposes additional requirements for scientific testimony beyond the
usual requirements for expert testimony, not applying Daubert would
provide even greater reason to believe that Dr. Gottheimer's testimony
should have been admitted. Thus, the majority's criticism supports my
contention. Second, even if the Supreme Court in Kumho decides that
strict Daubert analysis should not apply to non-scientific testimony, I
still think that the basic principles of reliability and fit would be
relevant
in determining the admissibility of expert testimony under Rule 702.
33
standard for the admission of such testimony. See Joiner,
118 S. Ct. at 517.
Even though we apply an abuse of discretion standard of
review, however, "to the extent the district court's ruling
turns on an interpretation of a Federal Rule of Evidence our
review is plenary."3 Furthermore, although our review is
highly deferential, it is not a complete bar to reversing a
district court's decision even where the court does not
commit purely legal error. See, e.g., Paoli I, 916 F.2d at
855-56 (rejecting as an abuse of discretion the trial court's
insistence on certain credentials as expert qualifications); 4
Weinstein's Federal Evidence S 702.02(2) n.9 (2d ed. Nov.
1998) (collecting cases).
The majority concludes that the fact that this case
involved a bench trial requires additional deference to the
District Court's evidentiary exclusion decision. In reaching
this conclusion, the majority relies on Goodman v.
Highlands Insurance Co., 607 F.2d 665 (5th Cir. 1979),
which states that "a trial judge sitting without a jury is
entitled to even greater latitude concerning the admission
or exclusion of evidence." Goodman, 607 F.2d at 668. The
majority asserts that, after Joiner -- in which the Supreme
Court held that the same abuse of discretion standard of
review applies to an evidentiary ruling on expert testimony
regardless of whether the trial court admits or excludes the
evidence -- the "Goodman" rule "has been given increased
viability." Slip Op. at 20. For a variety of reasons, I cannot
agree with the majority's conclusion that our review is
affected by the fact that this case was tried to the court.
As an initial matter, Goodman does not support the
meaning the majority draws from it. The statement in
Goodman upon which the majority relies refers not to the
trial court's decision on admissibility but to whether the
trial court's decision, if erroneous, was a harmless error.
_________________________________________________________________
3. DeLuca v. Merrell Dow Pharms., Inc., 911 F.2d 941, 944 (3d Cir. 1990)
(citing In re Japanese Elec. Prods. Antitrust Litig., 723 F.2d 238, 277 &
n.43 (3d Cir. 1983), revd. on other grounds sub. nom. Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986)); accord Barker v.
Deere & Co., 60 F.3d 158, 161 (3d Cir. 1995).
34
This reading is made manifest by an examination of the
sentence following that quoted above:
In a non-jury case, the admission of incompetent
evidence will not warrant reversal unless all of the
competent evidence is insufficient to support the
judgment, or unless it affirmatively appears that the
incompetent evidence induced the court to make an
essential finding which would otherwise not have been
made.
Goodman, 607 F.2d at 668 (citations omitted). This is
simply a restatement of the familiar harmless error test for
review of decisions admitting evidence in bench trials.4 It is,
however, irrelevant to our determination of whether the
district court's decision to exclude expert testimony from
evidence is reversible error.5
Furthermore, even assuming the majority correctly states
the Fifth Circuit's Goodman rule, I think that rule is not a
proper one and would not follow it. The Federal Rules of
Evidence apply with full force to bench trials. See Fed. R.
Evid. 1101(b); 9 Charles Alan Wright & Arthur R. Miller,
_________________________________________________________________
4. As we have stated:
[I]t is well settled that in a nonjury case, an appellate court
will not
reverse on the basis of an erroneous admission of evidence unless
(1) there is insufficient evidence other than the challenged
evidence
to support the district court's conclusion, or (2) the district
court is
induced by the challenged evidence to make an essential finding
that it would not have made otherwise.
United States v. Local 560, Intl. Bhd. of Teamsters, 780 F.2d 267, 278
(3d Cir. 1985) (alteration in original) (quoting De Laval Turbine, Inc. v.
West India Indus., Inc., 502 F.2d 259, 263-64 (3d Cir. 1974)); accord 12
Rya W. Zobel, Moore's Federal Practice S 61.06(2) (3d ed. 1998). This is
a sensible rule based on the assumption that judges are more capable
of ignoring prejudicial or irrelevant evidence than juries. See 1
Weinstein's, supra, S 103.41(4)(a) ("At one end of the scale is the non-
jury trial in which the judge is often assumed, even in a criminal case,
to have disregarded inadmissible evidence in arriving at a decision.").
5. Recent cases from the same court reveal that the quoted portion of
Goodman in fact refers to harmless error analysis. See, e.g., Southern
Pac. Transp. Co. v. Chabert, 973 F.2d 441, 448 (5th Cir. 1992) (quoting
Goodman and citing it in support of the harmless error standard).
35
Federal Practice & Procedure S 2411, at 587 (2d ed. 1995)
("In theory, the Federal Rules of Evidence apply equally in
court trials and jury trials."). After all, a trial is a trial. To
me, the proposition that we owe more deference to trial
court decisions excluding evidence in bench trials is
inconsistent with the Federal Rules and encourages sloppy
district court decisionmaking.6
If anything, trial courts should be more chary of
excluding evidence in bench trials than in jury trials. See
Builders Steel Co. v. Commissioner, 179 F.2d 377, 379 (8th
Cir. 1950) ("[A] trial judge who, in the trial of a nonjury
case, attempts to make strict rulings on the admissibility of
evidence, can easily get his decision reversed by excluding
evidence which is objected to, but which, on review, the
appellate court believes should have been admitted."),
quoted in 9 Wright & Miller, supra, S 2411, at 587. The
better course is to admit the evidence and then take factors
that otherwise might affect its admissibility into
consideration in determining its weight, rather than waste
time debating the propriety of admitting the evidence.7 I
_________________________________________________________________
6. The majority suggests that I have failed to recognize the critical fact
in
this case: that the judge was the fact-finder as well as the Rule 702
gatekeeper. The majority is incorrect. Of course I recognize this fact,
but
think that it should make no difference in our analysis. The majority
essentially contends that, once the trial judge in a bench trial makes up
his or her mind during an in limine hearing that a witness is not
credible, that decision is cast in concrete and the judge will close his
or
her ears to any further (trial) testimony from the witness. Concomitantly,
the majority suggests that, with any witness, the court proceeding to a
bench trial may exclude a prospective witness's testimony based not on
its admissibility but on the witness's credibility. See Slip Op. at 23
("We
would be hard pressed to require a District Court judge sitting in a non-
jury case who credibly and with reason found that he could not believe
a witness to nevertheless hear the witness's direct examination, cross-
examination, and rebuttal examination in an extended trial when he
knew that he would only reject it as unbelievable."). I, to the contrary,
think it would be preferable for the trial judge to listen to the witness
and keep his or her mind open to the possibility that the entirety of the
witness's trial testimony could change his or her view of the witness's
credibility. Listening, after all, is a major part of the judge's job.
7. See Builders Steel, 179 F.2d at 379 (quoting Donnelly Garment Co. v.
NLRB, 123 F.2d 215, 224 (8th Cir. 1941)). In Donnelly Garment, the
court noted that it is usually more efficient in a bench trial for the
court
to simply admit questionable evidence, and then take such questions
into consideration in determining the weight it should be given. See 123
F.2d at 224.
36
believe the majority's approach grants undue deference to
trial court's decisions excluding evidence in bench trials.
III. Rule 702 Requirements
I now turn to the substantive requirements of Rule 702.
Under Rule 702, expert testimony is admissible only if it
meets the requirements of Rule 702: qualifications,
reliability and fit. The majority concludes that the District
Court properly found that Dr. Gottheimer's testimony met
none of these requirements. I disagree, and discuss each of
these factors, although not in the usual order.
A. Reliability
The majority begins with the indisputable premise that
reliability is a key factor in determining the admissibility of
expert testimony. "[U]nder the Rules the trial judge must
ensure that any and all scientific testimony or evidence
admitted is not only relevant, but reliable." Joiner, 118 S.
Ct. at 517 (quoting Daubert, 509 U.S. at 589). From this,
the majority concludes that, as part of the reliability
analysis, a trial court may consider the general credibility
of a witness in determining whether his or her testimony is
appropriately admitted as expert witness testimony. See
Slip Op. at 20 ("Thus in our view, the Court's emphasis on
reliability as well as on relevancy embraces within its
standard the credibility of the witness proffering expert
opinion."). Accordingly, the majority holds that, since the
District Court found that Dr. Gottheimer was not a credible
witness it could properly exclude his expert testimony
under Rule 702. The majority misconceives the
fundamental nature of the reliability inquiry under Daubert.
The reliability inquiry focuses not on the witness's
reliability in an evidentiary sense, but on the reliability of
the methodology that the expert applies in arriving at an
opinion.
[I]n order to qualify as "scientific knowledge," an
inference or assertion must be derived by the scientific
method. Proposed testimony must be supported by
appropriate validation -- i.e., "good grounds," based on
what is known. In short, the requirement that an
37
expert's testimony pertain to "scientific knowledge"
establishes a standard of evidentiary reliability.
Daubert, 509 U.S. at 590 (footnote omitted). This inquiry
focuses on the expert's principles and methodology, not his
results.
The inquiry envisioned by Rule 702 is, we emphasize,
a flexible one. Its overarching subject is the scientific
validity -- and thus the evidentiary relevance and
reliability -- of the principles that underlie the
proposed submission. The focus, of course, must be
solely on principles and methodology, not on the
conclusions that they generate.
Daubert, 509 U.S. at 594-95. Under Rule 702, the trial
court's preliminary reliability analysis in making an
admissibility determination must focus on the witness's
methods, not his or her testimony as a whole.8 A current
proposed amendment to Rule 702 reemphasizes this focus
on the reliability of the methodology, as opposed to the
witness.9
_________________________________________________________________
8. Even the broadest understandings of the Daubert reliability inquiry
recognize that such reliability determinations are limited to the
witness's
methods and related matters. "The broadest reading of Daubert is that it
applies to all reliability issues presented by all expert testimony. Under
this interpretation, all reliability issues raised by an expert's
application,
methodology, reasoning, or underlying theories are admissibility
questions to be resolved by the gatekeeper-judge." 29 Charles Alan
Wright & Victor James Gold, Federal Practice & Procedure S 6266, at 290
(1997).
9. The Judicial Conference of the United States's Standing Committee on
Rules of Practice and Procedure is currently considering an amendment
to Rule 702 proposed by its Advisory Committee on Rules of Evidence
that would permit the admission of expert testimony if "(1) the testimony
is sufficiently based upon reliable 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." Fed. R. Evid.
702 (proposed amendment 1998). Under the proposed rule, the trial
judge must determine whether the proposed testimony"is properly
grounded, well-reasoned and not speculative before it can be admitted."
Fed. R. Evid. 702 advisory committee's note (proposed amendment
1998). "If there is a well-accepted body of learning and experience in the
expert's field, then the expert's testimony must be grounded in that
learning and experience to be reliable, and the expert must explain how
the conclusion is so grounded." Id.38
Credibility plays no appropriate part in the analysis of
the reliability of a proposed expert's methodology. The
Court in Daubert recognized a number of factors pertinent
to the reliability inquiry, including testability, peer review or
publication, potential rate of error, existence of standards
and controls, and general acceptance. See 509 U.S. at 593-
94. We, as well as others, have suggested numerous
additional factors relevant to reliability as set forth in the
margin.10 The key point is that none of these factors
requires consideration of the proffered expert's credibility in
general. "[E]valuating the reliability of scientific
methodologies and data does not generally involve
assessing the truthfulness of the expert witnesses . . . ."
Paoli II, 35 F.3d at 749.11 Of course, a particular witness
_________________________________________________________________
10. See, e.g., Downing, 753 F.2d at 1238-39 (listing additional factors:
novelty, specialized literature, and non-judicial uses of techniques);
Joiner, 118 S. Ct. at 519 (whether the expert has unjustifiably
extrapolated from an accepted premise to an unfounded conclusion);
Sheehan v. Daily Racing Form, Inc., 104 F.3d 940, 942 (7th Cir.)
(whether "the expert is being as careful as he would be in his regular
professional work outside his paid litigation consulting"), cert. denied,
117 S. Ct. 2480 (1997); Daubert v. Merrell Dow Pharms., Inc., 43 F.3d
1311, 1317 (9th Cir. 1995) ("whether the experts are proposing to testify
about matters growing naturally and directly out of research they have
conducted independent of the litigation, or whether they have developed
their opinions expressly for purposes of testifying"); Claar v. Burlington
N.R.R. Co., 29 F.3d 499, 502 (9th Cir. 1994) (whether the expert has
adequately accounted for obvious alternative explanations).
11. Courts have held in numerous other cases that credibility is
irrelevant to determining whether a proposed expert witness's testimony
is admissible under Rule 702, and particularly whether it is based on
reliable methodology. See, e.g., Breidor v. Sears, Roebuck & Co., 722
F.2d 1134, 1138-39 (3d Cir. 1983) ("Where there is a logical basis for an
expert's opinion testimony, the credibility and weight of that testimony
is
to be determined by the jury, not the trial judge."); see also Kannankeril
v. Terminix Intl., Inc., 128 F.3d 802, 809 (3d Cir. 1997) ("If the expert
meets liberal minimum qualifications [under Rule 702], then the level of
the expert's expertise goes to credibility and weight, not
admissibility.").
For example, expert witnesses cannot be excluded on the basis of bias.
See, e.g., Marshall v. Perez Arzuaga, 828 F.2d 845, 851-52 (1st Cir.
1987); Gideon v. Johns-Manville Sales Corp., 761 F.2d 1129, 1135-36
(5th Cir. 1985). Similarly, factual errors in a witness's testimony are
not
grounds for excluding the witness from testifying as an expert. See Paoli
II, 35 F.3d at 753-54. Finally, general attacks on credibility based on a
lack of personal knowledge are not a proper basis for excluding expert
testimony. See Dixon v. International Harvester Co., 754 F.2d 573, 580
(5th Cir. 1985).
39
can lie about whether one of the factors mentioned above is
present. But the witness's general credibility -- i.e.,
credibility based on matters not directly related to these
factors, such as bias or unrelated prior inconsistent
statements -- is not relevant to a trial court's preliminary
determination that these factors are present. These factors
are relatively objective matters that the court can generally
analyze independent of the witness's testimony about them.
For example, a court is fully capable of determining
whether a theory or method is testable.
Furthermore, permitting the trial court to consider the
general credibility of an expert witness in its analysis of the
reliability of proposed expert opinion testimony improperly
trenches on the province of the fact-finder. The fact-finder
is ordinarily the arbiter of general credibility. Rule 702 is
intended not to impinge on the authority of the fact-finder
in making credibility determinations, but rather to ensure
that the fact-finders' ability to find facts independently is
not overwhelmed by complex and authoritative-seeming
expert testimony. See 29 Wright & Gold , supra, S 6262, at
179 ("If the trier of fact is unable or disinclined to question
the expert's opinion, it surrenders its central function to an
expert whose testimony may be unreliable."). In order to
avoid this eventuality, Rule 702 provides for a preliminary
inquiry into whether proposed expert testimony is the kind
that is appropriately admitted into evidence, i.e., that the
method is reliable and based on expertise. See id. at 183-
84. But this inquiry cannot extend into matters that are the
proper province of the fact-finder, such as general
credibility. See id. at 184 ("Importantly, however, Rule 702
on its face creates no general power in the trial judge to
exclude expert testimony on the grounds that it is
unreliable.").
This limitation on the power of the trial court to admit
and exclude expert testimony rests on sound policy
considerations. First, it is emblematic of the Rules'
generally liberal approach to the admissibility of evidence,
discussed above. See supra Part I. Second, it reflects the
fact that the power to evaluate witness's credibility lies
traditionally with the fact-finder, not the trial court making
evidentiary rulings. See 29 Wright & Gold, supra, S 6262, at
40
185 ("[T]he power to evaluate the credibility of witnesses
and give testimony its proper weight primarily resides with
the trier of fact.").
Finally, it rests on the general assumption underlying the
Federal Rules of Evidence as a whole: the fact-finder is best
situated to determine the credibility of witnesses. See id. at
185 ("[J]uries generally have the ability to accurately weight
and evaluate witness credibility."). "Accordingly, the most
common judicial response to attacks on the reliability of
expert testimony is that such matters go to weight, not
admissibility." Id. at 185-86. The Court in Daubert
recognized the importance of leaving such matters to the
fact-finder, and not determining them on evidentiary
grounds:
Respondent expresses apprehension that abandonment
of "general acceptance" as the exclusive requirement
for admission will result in a "free-for-all" in which
befuddled juries are confounded by absurd and
irrational pseudoscientific assertions. In this regard
respondent seems to us to be overly pessimistic about
the capabilities of the jury and of the adversary system
generally. 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.
Daubert, 509 U.S. at 595-96 (citation omitted; emphasis
added).
Accordingly, I conclude that the District Court erred to
the extent that it considered Dr. Gottheimer's general
credibility as a factor in determining whether the principles
and methodology underlying his proposed expert testimony
were reliable under Rule 702. This result is unaffected by
the fact that the District Court -- post hoc -- went ahead
and made credibility findings that arguably would have
resulted in his rejection of Dr. Gottheimer's testimony in its
role as fact-finder. I deal with this aspect of the matter in
my discussion of harmless error. See infra Part IV.
Questions about Dr. Gottheimer's credibility should have
been left for substantive fact-finding, not evidentiary
rulings. Since the District Court and Unisys suggest no
41
other concerns about the reliability requirement, I would
conclude that Dr. Gottheimer's proposed testimony satisfies
it.
B. Fit
The majority also concludes that the District Court
properly found that Dr. Gottheimer's testimony did not fit
with the question in issue at the trial. In particular, the
majority concludes that Dr. Gottheimer's experience and
knowledge lay in a field not sufficiently connected with the
question at issue to meet the requirement of fit."Dr.
Gottheimer's alleged expertise, limited in any event to
methods of investing with respect to property casualty
insurance, did not fit with or meet the need of the District
Court for expert testimony in life insurance investing." Slip
Op. at 21. The majority misconceives the requirement of fit
under Rule 702.
The requirement of fit is essentially a relevance
requirement. Under Rule 702, expert testimony is
admissible if it "will assist the trier of fact." Fed. R. Evid.
702. "This condition goes primarily to relevance." Daubert,
509 U.S. at 591. "[A]dmission depends upon the `fit,' i.e.,
upon a specific proffer showing that scientific research has
established" some point relevant to the facts of the case.
United States v. Downing, 753 F.2d 1224, 1226 (3d Cir.
1985). We have further clarified this point:
An additional consideration under Rule 702 -- and
another aspect of relevancy -- is whether expert
testimony proffered in the case is sufficiently tied to the
facts of the case that it will aid the jury in resolving a
factual dispute. In this regard, we hold that a
defendant who seeks the admission of expert testimony
must make an on-the-record detailed proffer to the
court, including an explanation of precisely how the
expert's testimony is relevant to the [factual issue]
under consideration. The offer of proof should establish
the presence of factors . . . which have been found by
researchers to [provide a basis for the proffered
opinion]. Failure to make such a detailed proffer is
sufficient grounds to exclude the expert's testimony.
42
753 F.2d at 1242 (citations omitted); see also Lauria v.
National R.R. Passenger Corp., 145 F.3d 593, 600 (3d Cir.
1998); United States v. Velasquez, 64 F.3d 844, 850 (3d Cir.
1995).
The majority errs in concluding that Dr. Gottheimer's
field of expertise has any relevance to the fit inquiry. As the
foregoing discussion of the fit requirement shows, it is
satisfied if the proffered expert opinion is relevant to a
factual issue before the fact-finder. The expert'sfield of
expertise is irrelevant to an inquiry into the connection
between the opinion itself and the issues in the case. A
simple example shows this. In Lauria, a railroad worker
slipped and was injured when he stepped on a loose
railroad tie that was sitting between some tracks. "The
primary issue [was] whether Amtrak was negligent in failing
to remove a [railroad] tie from Lauria's workplace." Lauria,
145 F.3d at 600. An expert opinion "that the tie was a
dangerous obstruction that should have been discovered
and removed and, . . . that Amtrak's negligence made the
workplace unsafe" clearly satisfies the requirement of fit.
145 F.3d at 600.
But the expertise of the proponent of the opinion is
irrelevant to this inquiry. This is true even if the witness
proposing to testify to the above opinion is a medical doctor
who has no experience with train tracks. Under the
majority's reasoning, however, the doctor's testimony would
not meet the fit requirement. Clearly, a medical doctor with
no experience working with train tracks has no expertise
with regard to the placement of loose railroad ties. If Dr.
Gottheimer's testimony would not meet the fit requirement
because his expertise lay in a different field of insurance
than that in issue in the case, clearly the hypothetical
doctor cannot provide testimony that meets the fit
requirement. But the doctor's testimony should be excluded
because of his lack of qualifications, not because of a
supposed lack of fit. The proposed expert's expertise is
simply irrelevant to determining whether the proffered
expert opinion is relevant to issues in the case.
As this example shows, the majority's and the District
Court's concerns about the connection between Dr.
Gottheimer's expertise and the issues in the case are
43
actually relevant to the step of the Rule 702 inquiry which
I consider infra: qualifications. Under Rule 702, a witness
can offer an expert opinion if he or she is "qualified as an
expert by knowledge, skill, experience, training, or
education." Fed. R. Evid. 702. The nature of a witness's
specific field of expertise is part of the expert's background
that is considered in determining whether a witness is
qualified. See Paoli II, 35 F.3d at 741. 12
I think a proper fit inquiry would show that Dr.
Gottheimer's testimony meets the fit requirement. Plaintiffs'
counsel said that Dr. Gottheimer would have testified that
certain standard tests exist in the insurance industry to
analyze the financial condition of insurance companies, and
that he was familiar with those tests. He would have
further testified that he performed these tests on Executive
Life data, and concluded "that the tests set up certain red
flags that should have caused a person familiar with the
tests and performing the tests, to ask further questions
about the solvency and the credit worthiness of Executive
Life." I think this is the kind of "on-the-record detailed
proffer" that we required in Downing, "including an
explanation of precisely how the expert's testimony is
relevant to" determining whether Unisys acted prudently.
Downing, 753 F.2d at 1242. Accordingly, I would conclude
that Dr. Gottheimer's proposed testimony meets thefit
requirement. The nature of Dr. Gottheimer's expertise, and
its connection with the factual issues in this case, are
relevant only to the Rule 702 inquiry into qualifications, to
which I now turn.
_________________________________________________________________
12. In fact, the case the majority cites in support of its conclusion that
Dr. Gottheimer's testimony does not meet the fit requirement involved an
inquiry into the witness's qualifications, not thefit between his proposed
testimony and the issues in that case. See Surace v. Caterpillar, Inc.,
111
F.3d 1039 (3d Cir. 1997). In Surace, the plaintiff offered the testimony
of
an electromechanical engineer concerning workers' habituation to
auditory warning devices. The district court excluded Brink's testimony
and we affirmed, noting that the expert's experience was limited to
mechanical, as opposed to human, factors in design, and he therefore
was not qualified to testify about the latter. See 111 F.3d at 1055-56.
44
C. Qualifications
The majority also concludes that the District Court
properly excluded Dr. Gottheimer's testimony because he
was not qualified as an expert with respect to the issues in
this case. Specifically, the majority adopts the District
Court's conclusion that Dr. Gottheimer was not qualified
because his "qualifications were less than stellar." Slip Op.
at 21. The District Court noted that "Dr. Gottheimer claims
a doctoral degree from a correspondence school, an
additional ground for my refusal to qualify him as an
expert." In re Unisys Sav. Plan Litig., No. 91-3067, 1997 WL
732473, at *26 (E.D. Pa. Nov. 24, 1997). In addition, as
discussed above, see supra section III.B, the majority
concludes that the District Court properly rejected Dr.
Gottheimer's testimony because his field of expertise was
not sufficiently connected to the issues in the case. "Dr.
Gottheimer's experience in the insurance area was limited
to property casualty insurance and not life insurance."
Unisys, 1997 WL 732473, at *22. Neither of these are
appropriate grounds for excluding an expert witness for
lack of qualifications.
The requirement that an expert witness be qualified is
well established. A witness may only provide expert
testimony to the extent that he or she is "qualified as an
expert by knowledge, skill, experience, training, or
education." Fed. R. Evid. 702. The bases for concluding
that a witness is qualified are flexible. "[I]nsistence on a
certain kind of degree or background is inconsistent with
our jurisprudence in this area." Paoli I, 916 F.2d at 855;
accord Waldorf v. Shuta, 142 F.3d 601, 626 (3d Cir. 1998)
("[I]n considering the qualification of witnesses as experts,
we stress that ordinarily an otherwise qualified witness is
not disqualified merely because of a lack of academic
training."); Paoli II, 35 F.3d at 741 ("We have eschewed
imposing overly rigorous requirements of expertise and
have been satisfied with more generalized qualifications.").
A particular educational background is unnecessary;
practical experience is sufficient to conclude that a witness
is qualified as an expert. See Lauria, 145 F.3d at 599 (citing
American Tech. Resources v. United States, 893 F.2d 651,
656 (3d Cir. 1990)). "Following this logic, it is an abuse of
45
discretion to exclude testimony simply because the trial
court does not deem the proposed expert to be the best
qualified or because the proposed expert does not have the
specialization that the court considers most appropriate."13
Although, as always with evidentiary questions, we apply
a deferential standard of review to a trial court's
determination of whether a proposed expert is qualified, we
have on numerous occasions found that a district court
abused its discretion in excluding a proffered expert
because of his or her qualifications. Some of these cases
are summarized in the margin.14
_________________________________________________________________
13. Holbrook, 80 F.3d at 782 (citing Paoli I, 916 F.2d at 856); accord
Kannankeril, 128 F.3d at 809 ("Whether the appellants' expert might
have done a better job is not the test."); Paoli II, 35 F.3d at 741("[E]xclusion was not the proper remedy `simply because the experts did
not have the degree or training which the district court apparently
thought would be most appropriate.' " (quoting Paoli I, 916 F.2d at 856)).
14. See Lauria, 145 F.3d at 599 ("Slavin's twenty years of experience
with track equipment, maintenance, and safety procedures qualified him
as an expert who could testify as to Amtrak's responsibility to inspect
and maintain the track in a safe condition," even though he did not have
particularized training other than that which anyone who had done such
work for twenty years would have); Holbrook, 80 F.3d at 781-82
(reversing exclusion of treating physician's testimony as to whether
plaintiff 's cancer was mesothelioma; district court had reasoned that
doctor was not qualified because he was not an oncologist; stating that
trial court erroneously "restricted Dr. Carpenter's testimony based on a
requirement that the witness practice a particular specialty to testify
concerning certain matters"); Paoli I, 916 F.2d at 856 (district court
excluded witnesses who would have testified about gas chromatography
tests and differential diagnoses, because they lacked degrees in
chemistry and medicine respectively: "In light of the liberal Rule 702
expert qualification standard, we hold that the district court abused its
discretion in excluding portions of [the experts'] testimony simply
because the experts did not have the degree or training which the
district court apparently thought would be most appropriate." (footnote
omitted)); Habecker, 893 F.2d at 52-53 (concluding that district court
abused its discretion when it excluded expert testimony concerning
connection between lack of operator restraints and plaintiff's injury,
where plaintiff was injured when he was thrown from the cab of a fork-
lift; district court's sole reason for finding expert was not qualified
was
because he lacked an engineering degree); Knight, 596 F.2d at 88
46
Supported by these cases, I believe that Dr. Gottheimer
was in fact qualified to offer the expert testimony proffered,
and that the District Court's conclusion to the contrary was
an abuse of discretion. The District Court found that Dr.
Gottheimer was not qualified on two grounds: the nature of
his educational credentials and the distinction between his
experience in property-casualty insurance companies and
the issues in the case involving life insurance companies. In
light of the case law discussed in the margin above, both of
these findings are inconsistent with the exercise of sound
discretion.
The District Court concluded that Dr. Gottheimer could
not be qualified because his doctorate was awarded by a
correspondence school. If this were plaintiffs' sole basis for
claiming that Dr. Gottheimer was qualified, I would
probably agree with the District Court. It was not, however.
Rather, the record discloses numerous grounds on which to
conclude that Dr. Gottheimer was qualified as an expert.
Dr. Gottheimer's resume demonstrates his expertise
through three distinct areas: experience, education and
teaching. First, he has worked for a dozen years as a
consultant in the insurance industry, following thirty years
of employment by various insurance companies. His
consulting work has included analyses of both property-
casualty and life insurance companies.15 Second, he has
_________________________________________________________________
(finding error in district court's exclusion of expert testimony
concerning
whether unguarded elevator control buttons were a design defect
"because it believed that such expertise would require some background
in the design and manufacture of elevators," which proposed expert
lacked; noting our "reluctance to require highly particularized, sub-
specialization on the part of experts").
15. The District Court held that Dr. Gottheimer was not qualified
because his experience lay largely in the area of property-casualty
insurance, not life insurance, noting that Dr. Gottheimer testified that
there were "fundamental differences" between the two. See 1997 WL
732473, at *22. This conclusion contradicts our holdings in Knight and
Holbrook, in which we reversed district courts' exclusions of experts
whose expertise the trial courts concluded was not sufficiently
specialized. As we emphasized in those cases, we are reluctant "to
require highly particularized, sub-specialization on the part of experts."
Knight, 596 F.2d at 88; accord Holbrook, 80 F.3d at 782. Any differences
between the two areas "should go to the weight, and not the
admissibility, of [the expert's] opinion." Knight, 596 F.2d at 88.
47
bachelor's and master's degrees in insurance-relatedfields,
as well as the a doctorate from a correspondence school.16
He also possesses several professional affiliations in
insurance professionals' organizations. Finally, Dr.
Gottheimer has taught for over twenty-five years at the
College of Insurance. The College of Insurance is an
accredited, industry-sponsored school that offers classes in
all aspects of insurance business. He is now on the full-
time faculty there, and has taught courses in a variety of
fields, including insurance company management.
In light of these extensive qualifications, I have no doubt
that Dr. Gottheimer was qualified and should have been
permitted to testify as an expert under Rule 702. The
District Court's decision to the contrary was an abuse of
discretion. As the majority points out, the District Court
refused to qualify Dr. Gottheimer because his qualifications
"were not of the highest caliber." Slip Op. at 21. But in light
of our longstanding jurisprudence, this is not an
appropriate basis for excluding a proffered expert witness.
See Kannankeril v. Terminix Intl., Inc., 128 F.3d 802, 809
(3d Cir. 1997); Holbrook, 80 F.3d at 782; Paoli II, 35 F.3d
at 741. Accordingly, I must conclude that the District Court
abused its discretion in excluding his testimony on this
basis.
_________________________________________________________________
16. The District Court's focus on the nature of Dr. Gottheimer's doctorate
and its consequent implicit dismissal of his other qualifications is also
inconsistent with the exercise of sound discretion. If the district courts
abused their discretion in Habecker, Paoli I and Lauria by insisting that
the expert have a particular type of degree, the District Court in this
case erred in insisting that the expert have not just a particular degree,
but a degree from a particular kind of school. Cf. Lauria, 145 F.3d at
599; Paoli I, 916 F.2d at 856.
Furthermore, the District Court's reliance on Van Blargan v. Williams
Hospitality Corp., 754 F. Supp. 246 (D.P.R. 1991), in discounting Dr.
Gottheimer's degree is misplaced. In that case, the district court
excluded an expert because, in addition to discounting his doctorate
from a correspondence school, the court found that he had no other
satisfactory qualifications. See Van Blargan, 754 F. Supp. at 248-49.
Here, by contrast, Dr. Gottheimer has numerous other qualifications in
addition to his doctorate.
48
For all these reasons, I think that Dr. Gottheimer should
have been permitted to testify as an expert witness under
Rule 702. As discussed above, Dr. Gottheimer fully met all
three of the Rule 702 requirements: qualifications,
reliability and fit. The only remaining question is whether
that error was reversible or harmless error.
IV. Harmless Error
In the closing paragraph of its discussion of the Rule 702
evidentiary issue, the majority concludes that, even if the
District Court did commit an error in excluding Dr.
Gottheimer's testimony, the error was harmless. In
reaching this conclusion, it relies on the District Court's
statement that it "could not find [Dr. Gottheimer] to be a
credible witness given his evasiveness if not his propensity
to state falsehoods." 1997 WL 732473, at * 26. The District
Court pointed to a few alleged inconsistencies in Dr.
Gottheimer's deposition and trial testimony in support of
this conclusion. The majority concludes that, since the
District Court would not have believed Dr. Gottheimer's
testimony, his testimony could not have been given any
weight if admitted. Thus its exclusion did not have a
substantial effect on the outcome and any error in
excluding it was harmless. Once again, I must disagree.
Under the Federal Rules of Evidence, an evidentiary error
to which a party has raised a proper objection is not a
grounds for reversal "unless a substantial right of the party
is affected." Fed. R. Evid. 103(a); see also 28 U.S.C. S 2111;
Fed. R. Civ. P. 61. An error is harmless, i.e., it does not
affect a substantial right, only if "it is highly probable that
the error did not contribute to the judgment." Murray v.
United of Omaha Life Ins. Co., 145 F.3d 143, 156 (3d Cir.
1998) (citing McQueeney v. Wilmington Trust Co., 779 F.2d
916, 923-27 (3d Cir. 1985)). Although, as discussed above,
the improper admission of evidence is usually harmless
error in a bench trial, see supra Part II, the erroneous
exclusion of evidence in a bench trial can be reversible error
just as in a jury trial. See 11 Charles Alan Wright et al.,
Federal Practice & Procedure S 2885, at 454 (2d ed. 1995)
("In nonjury cases the district court can commit reversible
error by excluding evidence but it is almost impossible for
49
it to do so by admitting evidence." (footnote omitted)). Error
is especially likely not to be harmless where the excluded
expert was the only one a party offered to prove an
essential element of its case.17
In this case, Dr. Gottheimer was the only expert witness
plaintiffs offered to prove that Unisys acted imprudently.
His proffered testimony, set forth in the margin, was strong.18
By excluding Dr. Gottheimer's testimony, the District Court
deprived plaintiffs of their best evidence that Unisys
breached its duty of prudence, a key element of his case. In
light of our conclusion in Lauria and Holbrook, I cannot say
that it is highly probable that the exclusion of Dr.
Gottheimer did not affect the outcome of the trial. This is
especially true in light of the other evidence admitted at
_________________________________________________________________
17. See Lauria, 145 F.3d at 600 ("Finally, we note that because Slavin
was the only witness originally offered to prove Amtrak's negligence with
respect to the base tie, his exclusion from the trial did not constitute
harmless error."); Holbrook, 80 F.3d at 787 (finding that the error in
excluding plaintiff 's two doctors who were his only evidence regarding
the type of cancer from which he suffered was not harmless); see also
Habecker, 893 F.2d at 53 (finding that the error in excluding one of
plaintiff 's two expert witnesses was not harmless where defendant
proffered three experts on the same point).
18. In particular, plaintiffs' attorney stated that, if he had been
permitted
to testify, Dr. Gottheimer's testimony would have been as follows:
We have offered [Dr. Gottheimer's] testimony to establish . . .
that
in the insurance industry, there are some standard tools of tests
that are performed in conducting an analysis of thefinancial
condition of insurance companies, both life and health, and
property
and casualty, in terms of ratios that are generated from the annual
statement, tests prescribed by the National Association of
Insurance
Commissioners, and the Best leverage and liquidity and
profitability
ratios.
The witness has performed these tests in his own capacity in the
past. He has performed them with respect to Executive Life, based
upon information that was available prior to the time of the three
bids in question. He is able to interpret the tests. He is familiar
with
the tests. And his testimony would establish that the tests set up
certain red flags that should have caused a person familiar with
the
tests and performing the tests to ask further questions about the
solvency and the credit worthiness of Executive Life.
50
trial, set forth in the margin.19 The District Court essentially
decided all questions the evidence raised in favor of Unisys
and concluded that Unisys acted prudently. Although I
agree with the majority that, based on the admitted
evidence, this conclusion was not clearly erroneous, this is
to me an exceedingly close question. Accordingly, Dr.
Gottheimer's testimony, if admitted, stood a good chance of
changing this balance and consequently changing the
decision of the District Court.
That the District Court had questions about Dr.
Gottheimer's credibility should not affect our harmless
error analysis. The District Court's conclusion that it would
not have found Dr. Gottheimer's testimony credible, based
only on his voir dire testimony, is not sufficient grounds for
concluding that exclusion of his testimony was harmless. I
believe that there is a reasonable chance that, if the District
Court had given Dr. Gottheimer the opportunity to present
his testimony in full, it would have found him to be a
credible witness.
Our decisions in Lauria and Holbrook at least implicitly
support this conclusion. In each of those cases, we reversed
a district court decision excluding expert testimony on the
grounds that the expert witness lacked the necessary
qualifications. Such evidence goes to the weight, not the
admissibility, of the expert testimony. See Kannankeril, 128
_________________________________________________________________
19. The evidence on Unisys's prudence admitted at trial included
primarily the testimony of White and Level, two Unisys executives
charged with responsibility for the Funds, and Becker, an advisor whose
services White and Level engaged. The evidence before the District Court
concerned several questions which, although the court decided them in
Unisys's favor, raised serious questions about Unisys's prudence. (1)
Whether Unisys conducted an adequate independent investigation into
Becker's recommendation? (2) Whether Unisys conducted an adequate
investigation of its own after it ceased use of Becker's services? (3)
Whether credit ratings were sufficient to prove that Unisys acted
prudently? (4) Whether the Unisys trustees adequately considered and
debated the advantages and disadvantages of the Executive Life GICs?
(5) Whether the fact that the Executive Life GICs bore a higher interest
rate was sufficient to suggest that they were not prudent investments?
(6) Whether it was imprudent for Unisys not to maintain written
investment guidelines?
51
F.3d at 809. In neither Lauria nor Holbrook did the effect of
the expert's particular qualifications on the weight properly
accorded to his testimony play any part in our harmless
error analysis. See Lauria, 145 F.3d at 600 (discussing
harmless error without mentioning the quality of the
improperly excluded expert's qualifications); Holbrook, 80
F.3d at 787 (same). Similarly, the impact of questions about
Dr. Gottheimer's credibility on the weight due his testimony
should not play a part in our harmless error analysis in
this case.
I find further support for this conclusion in an
examination of what the District Court identified as
"impeachment" of Dr. Gottheimer. The District Court stated
that "Dr. Gottheimer was impeached no fewer than four
times on the relatively straight forward questions on his
qualifications." 1997 WL 732473, at *26; see also 1997 WL
732473, at *21-*22. But this so-called "impeachment"
involved at most minor inconsistencies. First, Dr.
Gottheimer testified at trial that he could not recall having
testified in court in a case involving a life insurance
company, although he stated at his deposition three years
earlier that twenty-four out of the twenty-five times he had
testified in court involved property-casualty insurance
companies. See 1997 WL 732473, at *21. Second, although
at his deposition he could not recall having done consulting
work involving life insurance company solvency, he testified
that he had been retained once before his deposition and
several times after his deposition to do such consulting. See
1997 WL 732473, at *21-*22. Third, while he testified at
trial that there were "some differences and there are also
some similarities in the way" one analyzes life insurance as
opposed to property-casualty insurance company solvency,
in his deposition he agreed with Unisys's attorney that
there were "fundamental differences." See 1997 WL 732473,
at *22.
I cannot see how these answers, under any reasonable
reading, suggest that Dr. Gottheimer is a completely
incredible witness. At most, they suggest that he could
remember some things at his deposition that he could not
at trial, and vice versa. Certainly, Dr. Gottheimer's
statements at trial were not directly inconsistent with those
52
in his deposition. A comparison of the statements does not
raise an inference that Dr. Gottheimer was being evasive,
let alone lying. Thus, I cannot agree with the majority that
the at worst minor inconsistencies in Dr. Gottheimer's
testimony make it highly probable that his testimony would
not have affected the District Court's judgment.
Accordingly, I do not think that the District Court's
erroneous exclusion of Dr. Gottheimer's expert witness
testimony was harmless. Therefore, I would remand this
case for a new trial in which Dr. Gottheimer's testimony
could be presented; hence, I dissent.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
53