Roditi v. New River Investments Inc.

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 MANUEL RODITI, et al., Case No.: 3:20-cv-01908-RBM-MSB 12 Plaintiffs, ORDER: 13 v. (1) DENYING PLAINTIFFS’ 14 NEW RIVER INVESTMENTS INC., et MOTION TO EXCLUDE EXPERT al., 15 OPINION AND TESTIMONY OF Defendants. DAVID PAULUKAITIS 16 17 (1) DENYING PLAINITFFS’ MOTION TO EXCLUDE EXPERT 18 OPINION AND TESTIMONY OF 19 JULIE JOHNSTONE 20 [Docs. 53, 54] 21 22 On April 1, 2022, Plaintiffs Manuel Roditi and Venice Bejarano (“Plaintiffs”) filed 23 a Motion to Exclude Expert Opinion and Testimony of David Paulukaitis and a Motion to 24 Exclude Expert Opinion and Testimony of Julie Johnstone (“Motions”). (Docs. 53, 54.) 25 Defendants New River Investments, Inc., Roditi & Roditi, LLC,1 Alberto Roditi, and 26 27 1 Defendant Roditi & Roditi, LLC was subsequently dismissed from this action on August 28 1 Guillermo Roditi (“Defendants”) filed oppositions on May 6, 2022. (Docs. 59, 60.) 2 Plaintiffs filed reply briefs on May 27, 2022. (Docs. 62, 63.) 3 For the reasons discussed below, Plaintiffs’ Motions are DENIED. 4 I. BACKGROUND 5 On September 23, 2020, Plaintiffs filed the present action against Defendants and 6 filed a first amended complaint on June 1, 2021. (Docs. 1, 29.) Plaintiffs assert five causes 7 of action against Defendants including: (1) violation of the Securities Exchange Act of 8 1934 (“Exchange Act”) section 10(b) and Rule 10b–5, (2) violation of section 20(a) of the 9 Exchange Act, (3) violation of section 25401 of the California Corporation Code, (4) 10 negligent misrepresentation, and (5) breach of fiduciary duty. (See Doc. 29.) Defendants 11 filed an answer to the amended complaint on June 16, 2022. (Doc. 30) 12 Pursuant to the Court’s scheduling order, Plaintiff and Defendant (collectively, the 13 “Parties”) designated experts on January 14, 2022. (See Doc. 34.) Defendants designated 14 David Paulukaitis to “provide expert opinion testimony on the allegations in the Plaintiffs’ 15 operative complaint in this action related to the investment services provided by 16 Defendants and the regulatory and compliance umbrella under which Defendants operate.” 17 (Doc. 53–1 at 2 (citing Doc. 53–2 at 2).) Defendants also designated Julie Johnstone to 18 “provide expert opinion testimony on the allegations in the Plaintiffs’ operative complaint 19 related to alleged losses related to the investment in this action, Plaintiffs’ alleged damages, 20 and mitigation of damages.” (Doc. 54–1 at 2.) 21 II. LEGAL STANDARD 22 Federal Rule of Evidence 702 provides that expert testimony is admissible if: 23 (a) the expert’s scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; 24 (b) the testimony is based on sufficient facts or data; (c) the testimony is the 25 product of reliable principles and methods; and (d) the expert has reliably applied the principles and methods to the facts of the case. 26 27 FED. R. EVID. 702. For expert testimony to be admitted, it must be useful to the trier of 28 fact, the expert must be qualified to provide the testimony, and the proposed evidence must 1 be reliable or trustworthy. Sterner v. U.S. Drug Enf’t Agency, 467 F. Supp. 2d 1017, 1033 2 (S.D. Cal. 2006). 3 A trial court acts as a gatekeeper in excluding unreliable expert testimony. Cooper 4 v. Takeda Pharms. Am., Inc., 239 Cal. App. 4th 555, 576 (2015); see Daubert v. Merrell 5 Dow Pharms., Inc., 509 U.S. 579, 600 (1993) (“Rule 702 confides to the judge some 6 gatekeeping responsibility in deciding questions of the admissibility of proffered expert 7 testimony”). Moreover, a trial court has broad discretion in deciding whether to admit 8 expert testimony and in determining an expert’s reliability. United States v. Hankey, 203 9 F.3d 1160, 1168 (9th Cir. 2000); see also United States v. Espinosa, 827 F.2d 604, 611 (9th 10 Cir. 1987) (“[t]he decision to admit expert testimony is committed to the discretion of the 11 district court and will not be disturbed unless manifestly erroneous”). 12 Federal Rule of Civil Procedure (“Rule”) 26 requires an expert report contain: 13 (1) a complete statement of the expert’s opinions and their bases, (2) the information relied upon by the expert in forming the opinions, (3) all exhibits 14 to be used to summarize or support the opinions, (4) 15 the expert’s qualifications and list of publications, (5) a list of cases in which the expert testified, and (6) a statement of the expert’s compensation. 16 17 Goodman v. Staples the Off. Superstore, LLC, 644 F.3d 817, 824 (9th Cir. 2011) (citing 18 FED. R. CIV. P. 26). A party who fails to comply with Rule 26 “is not allowed to use that 19 information or witness . . . unless the failure was substantially justified or harmless.” FED. 20 R. CIV. P. 37(c)(1). 21 III. DISCUSSION 22 A. Motion to Exclude Expert Opinion and Testimony of David Paulukaitis 23 Plaintiffs allege that Mr. Paulukaitis’ opinions are unreliable because he is 24 unqualified to offer an expert opinion in this action. (Doc. 53–1 at 2.) Plaintiffs claim Mr. 25 Paulukaitis is unqualified because: (1) he is a registered investment advisor in Georgia, not 26 California, (2) he has only testified in California once, which was in a legal malpractice 27 action, (3) he is not offering any opinion as to whether Defendants breached the fiduciary 28 duty owed to Plaintiff, (4) he did not know the requirements for registered investment 1 advisors in California, and (5) he is not an expert on requirements of a registered investment 2 advisor in California. (Id. at 4.) 3 Defendants counter that, while Mr. Paulukaitis is an investment advisor in Georgia, 4 “[h]e also testified and explained in his deposition that he is a ‘part owner of an investment 5 advisory firm’ that is ‘registered in a number of states including California.’” (Doc. 60 at 6 3.) Defendants argue “Plaintiffs’ [sic] have picked a self-serving line of questions in Mr. 7 Paulukaitis’ deposition with regards to his testimony as an expert witness.” (Id.) While 8 Mr. Paulukaitis did state he only recalled testifying in court in California on one matter, 9 Mr. Paulukaitis has provided “extensive expert witness testimony in [Financial Industry 10 Regulatory Authority] arbitrations, where the vast majority of securities disputes are 11 litigated.” (Id.) 12 Defendants also explain that they “did not ask [Mr. Paulukaitis] to provide an 13 opinion as to whether or not be believed Defendants breached their fiduciary duty” because 14 that is a question of fact reserved for the jury. (Doc. 60 at 4.) Rather, he “was retained to 15 provide expert testimony on the ‘regulatory and compliance umbrella under which 16 Defendants operate’ which includes regulation from the SEC and federal securities laws . 17 . . which is fully explored in Mr. Paulukaitis’ written report.” (Id.) 18 The Court finds that Mr. Paulukaitis’ testimony may be helpful to the trier of fact 19 and shall not be excluded at trial. As an initial matter, “Mr. Paulukaitis has been in the 20 securities industry since 1982 and has been providing expert testimony in this arena since 21 2005.” (Id.) Moreover, he has been frequently retained as an expert witness in securities 22 arbitration and has testified in arbitration hearings, court proceedings, and administrative 23 proceedings approximately 190 times. (Doc. 53–2 at 29.) Plaintiffs contend Mr. 24 Paulukaitis “is not an expert on California law and is not an expert on the requirements for 25 registered investment advisors in California.” (Doc. 62 at 3.) However, as noted above, 26 Defendants confirm they are not presenting his testimony for that specific purpose but to 27 opine as to SEC and federal securities compliance. In reviewing his report, the Court 28 concludes Mr. Paulukaitis is a qualified expert, and his testimony may he helpful to the 1 jury. Plaintiffs’ concerns regarding Mr. Paulukaitis’ opinions may be explored on cross 2 examination. See Daubert, 509 U.S. at 596. 3 Therefore, Plaintiffs’ Motion to Exclude Expert Opinion and Testimony of David 4 Paulukaitis is DENIED. 5 B. Motion to Exclude Expert Opinion and Testimony of Julie Johnstone 6 Plaintiffs argue Julie Johnstone’s expert report fails to comply with Rule 26’s 7 disclosure requirements. (Doc. 54–1 at 4.) Thus, Plaintiffs contend Rule 27 sanctions are 8 warranted, and Ms. Johnstone’s testimony should be excluded. (Id. at 2.) Plaintiffs allege 9 Ms. Johnstone’s initial expert report contains 460 pages of account reconciliations, is 10 unsigned, has zero sentences, and is “completely devoid of a single opinion.” (Id. at 4.) 11 “After being alerted to their failure to comply with Rule 26, Defendants attempted to rectify 12 the initial report with Ms. Johnstone’s amended/supplemental report. However, the 13 amended/supplemental report is equally non-compliant with Rule 26.” (Id.) Plaintiffs 14 explain “Ms. Johnstone appears to be offering an opinion in the amended/supplemental 15 report that Plaintiffs had an overall gain of $284,534.69.” (Id.) However, she “neither 16 offers any explanation for how Plaintiffs supposedly ended in a gain, nor provides any 17 opinion in any discernable form as to how she arrived at that determination.” Thus, her 18 reports cannot be deemed a “complete statement” of her opinions. (Id.) 19 Defendants argue that Ms. Johnstone’s report complies with Rule 26 and that 20 “Plaintiffs may disagree with the quantity of opinion or scope of opinions, but there is no 21 failure as outlined in Rule 26.” (Doc. 59 at 3.) Defendants contend any remedy for Rule 22 26 violations is to allow the report to be supplemented, or conduct a deposition of Ms. 23 Johnstone. (Id. at 4.) Defendants also contend that Ms. Johnstone’s opinions “rest on 24 accounting principals and basic mathematics over which there should not be a serious 25 dispute” and that, as to the factual foundation of Ms. Johnstone’s opinions, “nothing in 26 Daubert changes the general rule that the ‘factual basis of an expert opinion goes to the 27 credibility of the testimony, not the admissibility.’” (Doc. 59 at 4 (quoting Hangarter v. 28 Provident Life & Acc. Ins. Co., 373 F.3d 998, 1017 n.14 (9th Cir. 2004).) Lastly, 1 ||Defendants explain that exclusion of Ms. Johnstone’s testimony would be unduly 2 || prejudicial and would “drastically interfere with Defendants[’] ability to defend this case.” 3 || (Doc. 59 at 5.) 4 On February 18, 2022, Defendants provided Ms. Johnstone’s initial expert report to 5 || Plaintiffs. (Doc. 54-1 at 2; Doc. 54—2 at 2.) On March 8, 2022, Plaintiffs notified 6 || Defendants that Ms. Johnstone’s report was insufficient and noncompliant with Rule 26. 7 On March 10, 2022, Defendants provided a supplemental expert report. Ud.) While 8 ||Ms. Johnstone’s supplemental report is brief, the Court finds that it complies with the 9 || general requirements Rule 26. See Lanard Toys Ltd. v. Novelty, Inc., 375 F. App'x 705, 10 (9th Cir. 2010) (finding that the expert’s violation of Rule 26 did not cause prejudice 11 the opposing party when a timely supplemental report was served). Additionally, the 12 ||Court notes that sanctions are unwarranted because Plaintiffs notified Defendants of the 13 || deficiency in the report, and Defendants diligently cured the defect within two days. Thus, 14 any error is deemed harmless. See Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 15 1101, 1106 (9th Cir. 2001); see also Feb. R. Civ. P. 37(c)(1). 16 Therefore, Plaintiffs’ Motion to Exclude Expert Opinion and Testimony of Julie 17 || Johnstone is DENIED. 18 IV. CONCLUSION 19 For the foregoing reasons, Plaintiffs’ Motions are DENIED. 20 IT IS SO ORDERED. 21 |}DATE: October 13, 2022 22 —