Harris v. Koenig

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
______________________________
WILLIAM S. HARRIS, et al., )
)
)
Plaintiffs, )
)
v. ) Civil Action No. 02-618 (GK)
)
JAMES E. KOENIG, et. al., )
)
Defendants. )
______________________________)
MEMORANDUM OPINION
The Waste Management Defendants1 have filed, pursuant to
Federal Rule of Evidence 702 (Defs.’ Mot.) (March 30, 2011) [Dkt.
No. 444], a Motion to Exclude the Opinion Testimony of Saul Solomon
Upon consideration of the Motion, the Opposition, the Reply, and
the applicable case law, the Court concludes that the Motion will
be denied for the following reasons.
Under Rule 702, a trial court may only admit expert testimony
that is both relevant and reliable. Kumho Tire Co. v. Carmichael,
526 U.S. 137, 141, 119 S. Ct. 1167 (1999); Daubert v. Merrell Dow
Pharmaceuticals, Inc., 509 U.S. 579, 589, 113 S. Ct. 2786 (1993).
In considering Rule 702 motions, the court assumes only a “limited
gate-keep[ing] role” directed at excluding expert testimony that is
1
The term “Waste Management Defendants” refers to Defendants
Waste Management Holdings, Inc., Waste Management Retirement
Savings Plan, Waste Management Inc. Profit Sharing and Savings Plan
Investment Committee, Waste Management Inc. Profit Sharing and
Savings Plan Administrative Committee, and Investment Committee of
the Waste Management Retirement Savings Plan.
based upon “subjective belief” or “unsupported speculation.”
Ambrosini v. Labarraque, 101 F.3d 129, 135-36 (D.C. Cir. 1996).
Courts take a flexible approach to deciding Rule 702 motions,
Daubert, 509 U.S. at 594, and have “broad discretion in determining
whether to admit or exclude expert testimony.” U.S. ex rel. Miller
v. Bill Harbert Int’l Constr., Inc., 608 F.3d 871, 895 (D.C. Cir.
2010) (internal quotations and citation omitted). The party seeking
to introduce expert testimony must demonstrate its admissibility by
a preponderance of the evidence. Daubert, 509 U.S. at 592 n.10.
In bringing this Motion, Defendants argue that the Declaration
of Saul Solomon (“Solomon Report”), which calculates losses to the
Waste Management Profit Sharing and Savings Plan (“Old Waste
Plan”), by comparing the value of the Waste Management Stock and
that of two alternative investments at the end of the loss period,
is both unreliable and irrelevant. See Declaration of Saul Solomon
(Mar. 30, 2011) [Dkt. No. 435-9]. For the following reasons, the
Court concludes that the Solomon Report is reliable, relevant, and
admissible under Rule 702.
A. The Solomon Report Is Reliable
Under Rule 702, expert testimony is reliable if (1) it is
“based upon sufficient facts or data;” (2) it is “the product of
reliable principles and methods,” and (3) “the witness has applied
the principles and methods reliably to the facts of the case.”
Here, Defendants argue that the Report is unreliable because its
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calculations are based on the alternative-investment method, which
has “uniformly [been] held by courts to be improper under the
circumstances of this case.” Defs.’ Mot. 1. This argument fails for
several reasons.2
First, Defendants make the flat out statement that although
Solomon has used the alternative-investment methodology for
calculating losses in many other ERISA cases, “his calculations
have never been passed on, much less accepted, by any court.” Id.
at 4. Either Defendants have purposefully made an extremely
misleading assertion, or they are just plain wrong. There is no
question that the alternative-investment test has been recognized
as a reliable means of calculating damages in ERISA cases that
involve breaches of fiduciary duty for failures to prudently invest
and manage an employee retirement plan. Evans v. Akers,3 534 F.3d
65 (1st Cir. 2008); Donovan v. Bierwirth,4 754 F.2d 1049, 1056 (2d
Cir. 1985); Graden v. Conexant Systems, Inc.,5 496 F.3d 291, 301
2
Defendants do not challenge Solomon’s qualifications.
3
Although Defendants argue that Evans was a standing case and
therefore should not be relied on, it is clear that the court was
accepting it as one form of measuring damages. Evans 534 F.3d at
74.
4
While Donovan accepted the legitimacy of the alternative-
investment methodology it did, in dicta, suggest that it might not
be the best measure of damages in all types of situations.
5
As to Graden, Defendants again argue that because it was a
standing case, it should not be relied on. However, the Graden
court specifically ruled that “the measure of damages is the amount
(continued...)
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(3d Cir. 2007); Chao v. Trust Fund Advisors,02-cv-559, 2004 WL
444029 (D.D.C. Jan. 20, 2004).
Second, Defendants’ real argument is that the alternative-
investment test is not the most appropriate method to be applied in
this ERISA case, where Defendants have been accused of imprudently
investing in stocks they knew to be artificially-inflated by
accounting improprieties. Defs.’ Mot. 11-14. In presenting this
argument, Defendants fail to address the key issues to be
considered in ruling on a Rule 702 motion, namely, whether the
Report is based on sufficient facts and data, and whether the
alternative-investment test has been reliably applied. FED . R. EVID .
702 (1),(3). Instead, Defendants’ effort to strike Solomon’s
testimony is actually a challenge to the merits of Plaintiffs’
underlying action, including the nature of their allegations, as
well as the appropriate damages calculation for those claims.
Finally, as a review of the Report shows, Solomon’s analysis
relies on a host of relevant facts and figures, methodically and
carefully applies the alternative-investment test to those facts,
and provides damages calculations whose mathematical accuracy is
undisputed.
Thus, for the foregoing reasons, the Court concludes that
Plaintiffs have demonstrated, by a preponderance of the evidence,
5
(...continued)
that affected accounts would have earned if prudently invested.”
496 F.3d at 301.
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that the Report is “the product of reliable principles and
methods.”
B. The Solomon Expert Report Is Relevant
An expert report is relevant if it will “assist the trier of
fact to understand the evidence or to determine a fact in issue.”
Daubert, 509 U.S. at 591 (internal quotations and citation
omitted). Claiming the Solomon Report does not meet this standard,
Defendants raise the following arguments: (1) Solomon erroneously
made the “overarching assumption” that “the alternative-investment
methodology is a proper approach for calculating losses in this
case;” (2) Solomon “avoided having to do any real analysis that
would assist the Court in assessing whether or to what extent the
[“Old Waste”] Plan actually suffered any losses attributable to
Plaintiffs’ First Period Claims;” and (3) Solomon’s methodology
contradicts the method used by Plaintiffs’ other experts Alan
Madian and Bente Villadesen. See Defs.’ Mot. 5-9, 15-18;
Defendants’ Reply Brief in Support of Their Motion to Exclude
Opinion Testimony of Saul Solomon, 6-10 (“Defs.’ Reply”) (Apr. 20,
2011) [Dkt. No. 458].
In assessing relevance or “fit,” “once an expert has explained
his or her methodology, and has withstood . . . evidence suggesting
that the methodology is not derived from the scientific method, the
expert’s testimony, so long as it ‘fits’ an issue in the case, is
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admissible under Rule 702 for the trier of fact to weigh.”
Ambrosini, 101 F.3d at 134.
1. Solomon’s Use of the Alternative-Investment Test
Was Not Unreasonable
The Solomon Report does not purport to opine on what the
proper damages formula is for this case. It merely provides a
series of calculations based on Plaintiffs’ view that the
alternative-investment test is the most appropriate to apply to
calculation of their ERISA damages. Consequently, Solomon’s use of
this formula is not an “unreasonable assumption,” but rather
comports with Plaintiffs’ theory of the case. While Defendants may
disagree with that legal theory, resolution of this disagreement
will occur at the merits stage of the litigation and not pursuant
to a Rule 702 motion. See Donovan, 754 F. 2d at 1052 (holding that
“[m]easuring damages involves the application of law to fact; the
proper formula for calculating damages is essentially a question of
law”).
2. Solomon’s Calculations Involved “Real Analysis”
Defendants claim that Solomon did not conduct any “real
analysis” because his calculations are based on a number of
“unreasonable assumptions” that were “supplied to him by
Plaintiff’s [sic] counsel.” Defs.’ Mot. 5-6, 15-16; Defs.’ Reply 6-
9. He assumed (1) “that Waste Management stock was an ‘imprudent
investment’ throughout the First Claim Period;” (2) “that Plan
fiduciaries would have eliminated Waste Management stock as an
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investment option throughout the First claim Period and would not
have allowed the Plan participants to invest in Waste Management
stock at all during that time;” (3) “that all of the money that
Plan participants invested in Waste Management stock during the
First Claim Period would have been invested instead in one of two
alternative investments: either the Vanguard 500 Index Investor
Fund or the Vanguard Wellington Income Fund;” and (4) that “[t]he
time period for measuring the loss was January 1, 1990 through
February 24, 1998.” Defs.’ Mot. 5-6, 15-16; Defs.’ Reply 8-9.
Briefing on the Motion makes clear that Solomon’s testimony
will unquestionably “assist the trier of fact,” namely, the Court.
Whether or not it is based on “unreasonable assumptions” will be
determined at trial after full cross-examination. Defendants’
objections go to the weight, not the admissibility of his Report.
As to the claim that the Report contains no “real analysis,”
that is simply not true. First, in keeping with the alternative-
investment method, Solomon calculated damages based upon “the
greater profits [an employee investment plan] might have earned if
the Trustees had invested in other Plan assets, rather than [in the
imprudent stock].” Donovan, 754 F.2d at 1054 (emphasis added).
Second, in calculating losses to the Old Waste Plan, Solomon used
the Vanguard 500 Index Investor Fund and the Vanguard Wellington
Income Fund, two investments that were actually available to
employees in the Old Waste Plan, as his “alternative-investments.”
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Solomon Report 7-8.6 While Plaintiffs instructed Solomon to use
these two funds, the Report provided a number of justifications for
treating them as prudent investment alternatives. Id. Finally, the
Report also provides the Court with two different scenarios for
calculating damages to the Old Waste Plan under the alternative-
investment test.
This kind of report is among the types of expert testimony
admissible under Rule 702. See, e.g., Capitol Justice LLC v.
Wachovia Bank, N.A., 706 F. Supp. 2d 34 (D.D.C. 2009). It provides
complex mathematical calculations under a number of different
scenarios and is, therefore, clearly useful for helping this Court
understand one of the possible loss formulas applicable to this
litigation. See Evans, 534 F.3d at 74 (“Losses to a plan from
breaches of the duty of prudence may be ascertained, with the help
of expert analysis, by comparing the performance of the imprudent
investments with the performance of a prudently invested
portfolio.”)(emphasis added).
6
Defendants correctly point out that the Report measures
losses to the Old Waste plan from January 1, 1990 through February
24, 1998, which is the loss period claimed by Plaintiffs. Although
Defendants describe this as an “unreasonable assumption,” the
Report expressly states that it provides no opinion about the
appropriate loss period. Solomon Report 6 n. 9.
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3. The Solomon Report Does Not Conflict with the
Report of Plaintiffs’ Experts Alan Madian and Bente
Villadesen
Based on the excerpts provided by Plaintiffs and Defendants,
the Report of Experts Alan Madian and Bente Villadesen focuses only
on the extent to which Waste Management stock was artificially-
inflated during the claim period. See Plaintiffs’ Ex. 7 (Apr. 13,
2011) [Dkt. No. 452-1]; Defendants’ Ex. 1 (Mar. 30, 2011) [Dkt. No.
444-3]. In fact, their Report specifically states that “[c]ounsel
informed us that other experts would be providing expert reports
and testimony regarding ERISA losses and accounting issues.”
Plaintiffs’ Ex. 7, 5. Thus, the two Reports address distinctly
different issues, and therefore there is no conflict between them.
For these reasons, the Court concludes that Plaintiffs have
demonstrated by a preponderance of the evidence that the Solomon
Report is relevant under Rule 702.
C. Conclusion
The Court concludes with two observations. First, many of the
criticisms of the Solomon Report raised by Defendants -- such as
the unreasonableness of its assumptions -- are properly addressed
by cross-examination at trial. Second, it is premature to decide
at this time, in the context of a Rule 702 Motion, the legal
question of which damages test is appropriate, especially since the
factual presentation of this case has not yet been made.
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For the foregoing reasons, Defendants’ Motion to Exclude the
Testimony of Saul Solomon is denied. An Order will accompany this
Memorandum Opinion.
/s/
June_27, 2011 Gladys Kessler
United States District Judge
Copies via ECF to all counsel of record
.
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