Federal Deposit Insurance Corporation v. Bank of America, N.A.

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
FEDERAL DEPOSIT INSURANCE
COROPORATION,
Plaintiff/Counterclaim Defendant, Civil Action No.
17-cv-36-LLA-MAU
v.
BANK OF AMERICA, N.A.,
Defendant/Counterclaim Plaintiff.
MEMORANDUM OPINION1
After the 2008 financial crisis, Plaintiff the Federal Deposit Insurance Corporation
(“FDIC” or “the Agency”) promulgated a rule (“2011 Rule”) which changed the formula for the
nation’s largest banks to assess and report their risk to the Agency. Those reports, in turn, served
as the basis for the calculation of the banks’ assessments due to the Deposit Insurance Fund (“the
Fund” or “DIF”), which Congress created ninety years ago to insure depositors.
The FDIC contends that Defendant Bank of America, N.A. (“BANA” or “the Bank”)
intentionally failed to report information to the FDIC under the 2011 Rule so as to appear less
risky, thereby reducing the Bank’s insurance premiums by $1.12 billion from 2012 to 2014. The
FDIC sues under the Federal Deposit Insurance Act (“FDIA” or the “Act”), 12 U.S.C. § 1817, and
a common law theory of unjust enrichment. ECF No. 8–1 at 19–21.2 BANA raises a number of
1
On March 1, 2024, the Court issued this Memorandum Opinion under seal in light of the
fact that certain materials referenced in the Parties’ respective briefs were filed under seal. See
ECF Nos. 258 & 264. The Parties have met and conferred and represented to the Court that no
redactions to this Memorandum Opinion are necessary. See ECF No. 341.
2
When citing electronic filings throughout this Opinion, this Court cites to the ECF page
number, not the page number of the filed document. Moreover, although the Court may have cited
portions of the Reports or the record that are under seal, when citing to the Parties’ briefs, the
1
defenses to the FDIC’s claims, including challenges to the 2011 Rule itself under the
Administrative Procedure Act (“APA”).
On April 10, 2023, this Court issued a Report and Recommendation on the Parties’ cross
motions for summary judgment, recommending that the motions be granted in part and denied in
part. ECF No. 315 at 2, 71–72. Before the Court are the FDIC’s Motions to Strike two expert
reports BANA submitted in support of its dispositive motion. ECF Nos. 258–4, 256–12, 264, 265.
For the reasons set forth below, the Court GRANTS the FDIC’s Motions to Strike the Expert
Reports of Scott Carnahan and Paul Kupiec (collectively “the Experts” or “the Reports”).
FACTUAL BACKGROUND
The FDIC and the Deposit Insurance Fund
The Court assumes the Parties are familiar with the facts and arguments in this case and
will not repeat the entire detailed factual background set forth in the Report and Recommendation
except to provide some background. ECF No. 315 at 2–12.
In 1933, Congress created the FDIC to, among other things, “insure . . . the deposits of all
banks . . . entitled to the benefits of insurance.” National Banking Act, Pub. L. No. 73–66, § 8, 48
Stat. 162, 168 (1933). Today, the “FDIC insures deposits; examines and supervises financial
institutions for safety, soundness, and consumer protection; makes large and complex financial
institutions resolvable; and manages receiverships.” About the FDIC, Fed. Deposit Corp.,
https://www.fdic.gov/ (last visited February 25, 2024).
The Agency insures deposits by requiring insured depository institutions (“IDIs”) to pay
assessments into the DIF. ECF No. 248–4, [hereinafter “Cain Decl.”] ¶ 4–5. If an IDI fails and
the bank does not have sufficient assets to return to its consumers, the FDIC pays the balance of
Court has cited to the unsealed versions, as those were the versions the Parties provided to the
Court as courtesy copies.
2
up to $250,000 per depositor from the Fund. Id. ¶ 4; 12 U.S.C. § 1821(a)(1)(E). The system for
calculating an institution’s assessment due to the Fund varies depending on whether it is classified
as a small bank, large bank, or highly complex institution (“HCI”).3 12 C.F.R. § 327.16(a)–(b).
Common to all, however, is the FDIA’s mandate that the assessment systems be “risk-based.” 12
U.S.C. § 1817(b)(1)(A). BANA is an HCI that pays quarterly assessments into the Fund, which
provides its consumers the security of insurance from the FDIC. ECF No. 257–3 ¶¶ 114–15, 120.
This Lawsuit
This case is largely about the meaning of one phrase in the 2011 Rule: “consolidated entity
level.” The FDIC promulgated the 2011 Rule to revise the deposit insurance assessment system
for HCIs such as BANA. 76 Fed. Reg. 10672 (Feb. 25, 2011) (codified at 12 C.F.R. § 327.9(b)(2)).
The 2011 Rule sought to measure more accurately an HCI’s risk based on recent experience that
“show[ed] that the concentration of [an HCI’s] exposures to a small number of counterparties . . .
significantly increases [an HCI’s] vulnerability to unexpected market events.” 75 Fed. Reg. 72612,
72621 (Nov. 24, 2010). The 2011 Rule required HCIs to calculate exposures to their counterparties
at the “consolidated entity level.” 76 Fed. Reg. at 10721.
The FDIC alleges that, in 2016, it discovered that BANA’s reporting was inconsistent with
the 2011 Rule’s “consolidated entity level” reporting requirement. ECF No. 248–2 at 32–41. As
such, the FDIC invoiced BANA for $1.12 billion, the amount the FDIC claims BANA should have
paid in deposit insurance had BANA been reporting according to the FDIC’s interpretation during
3
An HCI is “(i) an insured depository institution (excluding a credit card bank) that has had
$50 billion or more in total assets for at least four consecutive quarters . . . that is controlled by a
U.S. parent holding company that has had $500 billion or more in total assets for four consecutive
quarters, or controlled by one or more intermediate U.S. parent holding companies that are
controlled by a U.S. holding company that has had $500 billion or more in assets for four
consecutive quarters; or (ii) A processing bank or trust company.” 12 C.F.R. § 327.8(g). During
the relevant time period, there were only nine HCIs in the United States. Cain Decl. ¶ 12.
3
the period in question. Id. at 31. The Parties disagree over a number of issues, including whether
BANA intentionally failed to comply with the new formula under the 2011 Rule and whether the
FDIC was aware of BANA’s reporting method before 2016. ECF No. 315 at 39–45.
Not surprisingly, the Parties have different views of what the 2011 Rule required when it
instructed HCIs to report counterparty exposures at the “consolidated entity level.” Each party has
offered legal arguments in support of its respective interpretation and, as set forth below, BANA
has sought to bolster its argument with expert testimony.
STANDARD OF REVIEW
Federal Rule of Evidence 702 governs the admissibility of expert testimony. Rule 702
provides that an expert may testify if: (1) “the expert’s scientific, technical, or other specialized
knowledge will help the trier of fact to understand the evidence or to determinate a fact in issue”;
(2) “the testimony is based on sufficient facts or data”; (3) “the testimony is the product of reliable
principles and methods”; and (4) “the expert’s opinion reflects a reliable application of the
principles and methods to the facts of the case.” Fed. R. Evid. 702.
In Daubert v. Merrell Dow Pharmaceuticals, the Supreme Court established the reviewing
court’s role as gatekeeper, requiring that expert testimony be both relevant and reliable. 509 U.S.
579, 589 (1993). In this role, the Court first asks whether the expert’s testimony is based on
“scientific knowledge.” Id. at 592–93. Next, the Court asks whether the testimony “will assist the
trier of fact to understand or determine a fact in issue.” Id. at 592. The Court’s gatekeeper role
applies to all expert testimony, not just testimony based in science, Kumho Tire Co. v. Carmichael,
526 U.S. 137, 147 (1999), and “[a] district court has broad discretion regarding the admission or
exclusion of expert testimony.” United States v. Day, 524 F.3d 1361, 1367 (D.C. Cir. 2008)
(quoting Joy v. Bell Helicopter Textron, Inc., 999 F.2d 549, 567 (D.C. Cir. 1993)).
4
ANALYSIS
I. The FDIC’s Motions to Strike are Ripe.
BANA urges the Court to reserve ruling on the FDIC’s Motions to Strike the Reports until
after the summary judgment stage, arguing that resolving the motions now is premature. ECF No.
298 at 11, 19–20; ECF No. 275 at 23–24. The FDIC argues that deferring the motions would be
needlessly inefficient and that Federal Rule of Civil Procedure 56(c)(2) “expressly permits
challenges to the admissibility of evidence used to support an adverse party’s motion for summary
judgment.” ECF No. 278 at 16-20; ECF No. 279 at 14. The Court agrees with the FDIC.
It is clear that the FDIC may raise objections to the Reports at this stage, and it is BANA’s
burden to show the proposed testimony is admissible. As set forth in Federal Rule of Civil
Procedure Rule 56(c)(2), “[a] party may object that the material cited to support or dispute a fact
cannot be presented in a form that would be admissible in evidence.” Fed. R. Civ. P. 56(c)(2); see
also Fed. R. Civ. P. 56(c)(2) advisory committee’s note on 2010 amendment (“The objection
functions much as an objection at trial, adjusted for the pretrial setting. The burden is on the
proponent to show that the material is admissible as presented or to explain the admissible form
that is anticipated.”) (emphasis added). Moreover, a trial court is well-positioned to “exercis[e] its
prerogative to manage its docket, and its discretion to determine how best to accomplish [that]
goal.” See Jackson v. Finnegan, Henderson, Farabow, Garrett & Dunner, 101 F.3d 145, 151
(D.C. Cir. 1996) (citing Wienco, Inc. v. Katahn Assoc., Inc., 965 F.2d 565, 567–68 (7th Cir. 1992)).
Indeed, courts in this District have often decided Daubert motions at the summary
judgment stage. See, e.g., Davenport v. Safeway, Inc., No. 20-cv-1207, 2022 WL 4379016 (D.D.C.
Sept. 22, 2022) (simultaneously deciding motion for summary judgment and motion to exclude
expert testimony); Harris v. Bowser, No. 18-cv-768, 2021 WL 4502069 (D.D.C. Oct. 1, 2021)
(same); Robinson v. Panera, LLC, No. 1:17-cv-2071, 2019 WL 5216265 (D.D.C. Oct. 16, 2019)
5
(same); West v. Bayer HealthCare Pharm. Inc., 293 F. Supp. 3d 82 (D.D.C. 2018) (same);
Sacchetti v. Gallaudet University, 344 F. Supp. 3d 233 (D.D.C. 2018) (same).
BANA relies principally on Williams v. United States Dep’t of Veterans Affs., No. 16-cv-
2062, 2020 WL 1323305 (D.D.C. Mar. 20, 2020), for the broad proposition that “motions to
exclude expert testimony are more amenable for consideration after the summary judgment stage.”
ECF No. 298 at 19. In that case, the plaintiff brought a claim against the Department of Veterans
Affairs (“VA”) for medical malpractice under the Federal Tort Claims Act (“FTCA”) and engaged
a medical expert to opine on the applicable standard of care. 2020 WL 1323305, at *1. During
the dispositive motions phase, the defendants simultaneously moved for summary judgment and
to exclude the plaintiff’s medical expert on the basis that the expert was not qualified to offer
testimony about the standard of care. Id. at *3–4. The plaintiff’s expert, however, had not yet
offered any opinions or declaration on summary judgment. Id. In response to the defendants’
motion to preclude the plaintiff’s expert, the plaintiff moved for leave to reopen discovery to either
amend his expert’s opinions or substitute his medical expert. Id. at *4.
The court granted plaintiff’s request and declined to entertain the defendants’ motions until
after the close of the reopened limited expert discovery. Id. In so ruling, the court noted that
demonstrating the applicable standard of care through expert testimony is an “essential element”
of plaintiff’s FTCA claim. Id. at *1. The court also noted it was guided by the principle that it
had “wide latitude to receive evidence as it sees fit” and to “exercise considerable discretion in
handling discovery matters, including deciding whether to reopen or extend discovery.” Id. at *10(quoting United States v. Microsoft Corp., 253 F.3d 34, 101 (D.C. Cir. 2001) and United States v.
Kellogg Brown & Root Servs., Inc., 285 F.R.D. 133, 137 (D.D.C. 2012)) (internal quotations
omitted).
6
Williams is inapposite for a number of reasons. First, neither party has requested the
reopening of discovery for purposes of developing further expert testimony. Moreover, as
discussed below, neither one of BANA’s experts provides opinions on an essential element of the
case that must be established through expert testimony, such as whether a doctor departed from
the standard of care in a malpractice case. Nor has the FDIC sought to preemptively strike the
expert reports at issue. Here, BANA relied on and put its two experts at issue in its Cross Motion
for Summary Judgment. ECF No. 257–2. The FDIC’s motions to strike are triggered by BANA’s
reliance on those experts. ECF Nos. 264, 265.
Finally, unlike in Williams, the FDIC does not challenge the qualifications of the experts
to offer the proffered testimony, but rather challenges the opinions themselves as inadmissible. As
such, this is not the Williams situation where a more-developed record or Daubert hearing could
potentially change the opponent’s arguments. Discovery has closed and the experts’ opinions will
presumably remain unchanged. Given this, and the authority outlined above, there is no reason in
this case to defer ruling on the motions to strike.4
II. Scott Carnahan
The FDIC first challenges BANA’s expert Scott Carnahan, a CPA who formerly worked
for one of the big four accounting firms with a stated background in auditing and consulting for
4
None of the other cases upon which BANA relies require the Court to defer a decision on
the pending motions to strike until trial. See Carmichael v. West, No. 12-cv-1969, 2015 WL
10568893, at *7 (D.D.C. Aug. 31, 2015) (quoting Cortes-Irizarry v. Corporación Insular de
Seguros, 111 F.3d 184, 188 (1st Cir. 1997)) (explaining that excluding expert testimony “can play
a role during the summary judgment phase of civil litigation,” even if courts “must be cautious” in
doing so). But cf. Landmark Health Solutions, LLC v. Not for Profit Hosp. Corp., 950 F. Supp. 2d
130 (D.D.C. 2013) (deferring evaluation of plaintiff’s challenge to defendant’s experts in part
because defendant had not yet put experts at issue); Sloan v. Urban Tile Servs., 770 F. Supp. 2d
227 (D.D.C. 2011) (deferring evaluation of defendant’s challenge to plaintiff’s experts in part
because defendants filed only a summary judgment motion and failed to file a standalone Daubert
motion).
7
financial institutions. ECF No. 258–4 at 4–5. According to Mr. Carnahan, BANA asked him to
“opine on whether the 2011 Rule and the Call Report Instructions provided a clear directive for
reporting counterparty exposures that would have been understood by employees of highly
complex institutions . . . to require aggregation of counterparty exposures at the top-tier parent
level of the counterparty . . . .” ECF No. 258–4 at 4, ¶ 1.
The FDIC challenges two of Mr. Carnahan’s overarching opinions: (1) his view about the
meaning and interpretation of the 2011 Rule, including that the 2011 Rule and the Call Report
Instructions are “unclear”; and (2) his opinion about the factual inferences to be drawn from the
interactions between the Parties, including that the “FDIC’s failure to note any objections to
[BANA’s] quarterly filings in a timely manner, despite its awareness of BANA’s reporting
methodology, could have reasonably been construed as confirmation of BANA’s methodology.”
Id. at 7–22, 29.
A. Mr. Carnahan’s Opinion About the 2011 Rule and Call Report Instructions is
a Legal Opinion.
The FDIC argues that Mr. Carnahan’s opinion about the meaning of the 2011 Rule is an
inadmissible legal opinion disguised as an accounting report. ECF No. 264 at 10–12. BANA
disagrees, claiming that everything about Mr. Carnahan’s Report “is about accounting” and that
he opines on the meaning of the 2011 Rule by explaining specialized accounting terms that the
Rule allegedly implicates. ECF No. 298 at 11–15. BANA maintains that Mr. Carnahan’s opinions
about accounting will assist the trier of fact in understanding the evidence. Id. This Court agrees
with the FDIC.
“Expert testimony that consists of legal conclusions cannot properly assist the trier of fact”
in either “understand[ing] the evidence or . . . determin[ing] a fact in issue.” See Burkhart v. Wash.
Metro. Area Transit Auth., 112 F.3d 1207, 1212 (D.C. Cir. 1997) (quoting Fed. R. Evid. 702). An
8
expert’s testimony is likely to constitute a legal conclusion where “it track[s] the language of the
applicable statute” and uses terms that “ha[ve] a specialized legal meaning that [are] more precise
than the lay understanding of the term.” Id. at 1212. Although an expert may offer an opinion “as
to facts that, if found, would support a conclusion that the legal standard at issue was satisfied,”
an expert “may not testify as to whether the legal standard has been satisfied.” Id. at 1212–13
(holding expert testimony constituted impermissible legal conclusion when expert invoked “legal
term of art” “lifted directly from the text [of a] . . . regulation[]”).
Mr. Carnahan opines that the 2011 Rule and Call Report instructions—the meaning of
which BANA concedes “form[] the heart of this dispute”—are “unclear and suggest that
accounting interpretations are required to calculate counterparty exposures.” ECF No. 298 at 5;
ECF No. 258–4 at 7. Throughout his report, Mr. Carnahan repeatedly offers his opinion on the
purported ambiguity in the 2011 Rule and other related Agency documents. See ECF No. 258–4
(including repeated use of words and phrases such as “unclear,” “even less clear,” “failed to
provide any clarity,” and “underscores the lack of clarity”). BANA does not shy away from this,
conceding that part of Mr. Carnahan’s opinion is that the key phrase at issue in this case “is
susceptible to multiple interpretations, and the interpretation employed by BANA was a
reasonable one.” ECF No. 298 at 12.
Mr. Carnahan’s opinion that the Rule is “unclear” or “susceptible to multiple
interpretations” is simply another way to claim that the Rule is ambiguous. An opinion that the
Rule is ambiguous, however, is a legal opinion squarely in the Court’s domain. See Weston v.
Wash. Metro. Area Transit Auth., 78 F.3d 682, 684 n.4 (D.C. Cir. 1996) (“An expert witness may
not deliver legal conclusions on domestic law, for legal principles are outside the witness’ area of
expertise . . . .”); see also Ill. Pub. Telecomms. Ass’n v. FCC, 752 F.3d 1018, 1023 (D.C. Cir. 2014)
9
(holding that court first determines whether statute is silent or ambiguous and then moves on to
determine whether agency’s interpretation of statute is reasonable). The Carnahan opinion would
purport to tell the decisionmaker “exactly what result to reach on this contested issue in this
particular case.” See United States ex rel. Morsell v. Symantec Corp., No. 12–800, 2020 WL
1508904, at *6 (D.D.C. Mar. 30, 2020); see also Fed. R. Evid. 704 advisory committee’s note on
1972 proposed rules (explaining that experts may not offer opinions “phrased in terms of
inadequately explored legal criteria”).
As stated above, both Parties agree that the meaning of “consolidated entity level” forms
the crux of this case. Compare ECF No. 248–2 at 16 (referencing the meaning of “consolidated
entity level” and stating that the phrase is well understood), with ECF No. 257–2 at 43, 48, 58, 61
(repeatedly describing “consolidated entity level” as “opaque”). Although the Parties offer
different interpretations of this key phrase, what is clear is that “[d]etermining the meaning of a .
. . regulation . . . presents a classic legal question.” See Kisor v. Wilkie, 139 S. Ct. 2400, 2432
(2019) (Gorsuch, J., concurring) (highlighting that the APA directs courts to “determine the
meaning” of any relevant “agency action,” including agency-promulgated rules) (quoting 5 U.S.C.
§ 706) (citing 5 U.S.C § 551(13)). Allowing Mr. Carnahan to opine on the meaning or even
ambiguity of the 2011 Rule and related Agency documents would usurp the role of the Court.
Although BANA relies on several cases from other district courts for the proposition that
“experts may opine on considerations relevant to how to interpret [] regulations,” those cases are
inapposite. ECF No. 298 at 14–15. Three of the cases deal with Food and Drug Administration
(“FDA”) regulations, which are treated uniquely for the purpose of expert testimony, as reflected
in each of the cited cases. See, e.g., In re Mirena IUD Prods. Liab. Litig., 169 F. Supp. 3d 396,
467 (S.D.N.Y 2016) (“Admitting expert testimony in this context makes sense given the
10
complicated nature of FDA regulations . . . .”); Deutsch v. Novartis Pharms. Corp., 768 F. Supp.
2d 420, 465 (E.D.N.Y. 2011) (citing cases that hold a lay juror “cannot be expected to understand
the complex regulatory framework that informs the standard of care in the pharmaceutical
industry”) (quoting In re Fosamax Prods. Liab. Litig., 645 F. Supp. 2d 164, 191 (S.D.N.Y. 2009));
In re Yasmin & YAZ (Drospirenone) Mktg., Sales Pracs. & Prods. Liab. Litig., No. 3:9–md–02100,
2011 WL 6302287, at *20 (S.D. Ill. Dec. 16, 2011) (holding that, to the extent the expert does
offer legal conclusions, the expert’s testimony is permissible because of the “complex regulatory
framework that informs the standard of care in the pharmaceutical industry”).
BANA’s other cases are likewise unavailing, particularly where none of them stand for the
proposition that the expert was allowed to provide an opinion about the meaning or ambiguity of
a law or regulation. See Trinidad v. Moore, No. 2:15-cv-323, 2016 WL 5239866, at *2, 5–6 (M.D.
Ala. Sept. 20, 2016) (allowing expert to testify as a “technical expert concerning the safety
standards of the tractor-trailer industry” and to “rely upon federal regulations as a basis for opining
on the standard of care” in that industry, while finding some of the expert’s opinions inadmissible
as legal conclusions). Even cases BANA cites appear to respect the distinction that it is the Court,
not the expert witness, that will interpret the law and determine whether it is ambiguous. Compare
United States v. Duncan, 42 F.3d 97, 101 (2d Cir. 1994) (admitting expert testimony in part
because expert “did not couch his opinions in terms that derived their definitions from judicial
interpretations”), with ECF No. 258–4 (repeatedly using terms such as “unclear,” “clarity,” and
“meaning” to opine on the meaning of the phrase “consolidated entity level”).
B. Mr. Carnahan’s Opinions About Factual Inferences that Can be Drawn from
the Parties’ Interactions are Inadmissible and Invade the Province of the Jury.
The FDIC argues that Mr. Carnahan’s opinion in which he draws factual inferences from
the record is inadmissible as it is within the ken of the jury and not appropriate grounds for expert
11
testimony. ECF No. 264 at 12–15. Specifically, the FDIC challenges Mr. Carnahan’s opinions,
among other things, that the “FDIC’s failure to note any objections to the quarterly filings in a
timely manner . . . could have reasonably been construed as confirmation of BANA’s
methodology.” No. 258–4 at 8–9. Mr. Carnahan also opines that the FDIC’s “[s]ilence . . . given
the obviousness of the reporting methodology from the face of the spreadsheet as admitted by the
FDIC’s witnesses, could easily be inferred as acceptance of BANA’s methodology.” Id. at 29.
BANA, on the other hand, argues that Mr. Carnahan’s opinion is relevant not only to the
interpretation of the 2011 Rule, but also to BANA’s affirmative defenses of fair notice, waiver and
estoppel, and that his opinion would assist the trier of fact in the evaluation of those defenses. ECF
No. 298 at 16.5 This Court agrees with the FDIC.
Expert testimony must assist jurors in understanding an issue “beyond the ken of the
average juror.” United States ex rel. Landis v. Tailwind Sports Corp., No. 10-cv-00976, 2017 WL
5905509, at *15 (D.D.C. Nov. 28, 2017) (finding “the average juror is entirely capable of”
reviewing testimony and drawing conclusions as to what parties knew or should have known)
(citing United States v. Mitchell, 49 F.3d 769, 780 (D.C. Cir. 1995)). It is for the jury, not an
expert, to review the testimony presented and “determine what factual conclusions to draw from
that testimony.” Tailwind Sports Corp., 2017 WL 5905509, at *15. Juries are presumed fit to
make such determinations based on their “natural intelligence and . . . practical knowledge of men
and the ways of men.” Aetna Life Ins. Co. v. Ward, 140 U.S. 76, 88 (1891).
5
BANA also argues that it “did not rely on this section of Mr. Carnahan’s report in its
Opening Brief,” and, accordingly, the Court need not address this portion of the opinion now. ECF
No. 298 at 16. Even if BANA did not rely on this particular opinion in its opening summary
judgment brief, the FDIC has moved to strike Mr. Carnahan’s report based on the inadmissible
opinion. The Court sees no reason to defer ruling on this portion of the Motion, particularly where
there appears to be no change in circumstances between now and trial which would convert Mr.
Carnahan’s opinion into an admissible one.
12
Mr. Carnahan’s opinions about what inferences one could draw from the FDIC’s
interactions with BANA are within the “natural intelligence” of an average factfinder. See id; see
also United States v. Boney, 977 F.2d 624, 628, (D.C. Cir. 1992) (“[Expert] testimony should
ordinarily not extend to matters within the knowledge of laymen.”). BANA contends that a jury
“is unlikely to be equipped to understand . . . the process that employees at an HCI with accounting
backgrounds would engage in for interpreting a financial regulation . . .” ECF No. 298 at 16. Yet,
Mr. Carnahan’s opinion fails to elucidate that process in accounting terms that would be helpful
to the factfinder. Instead, Mr. Carnahan offers several opinions—some of which briefly mention
accounting principles—that ultimately lead to his conclusions about what actions and
interpretations were “reasonable” and what could be “inferred” from the same. See ECF No. 258–
4 at 24, ¶ 59 (“. . . where reporting requirements or accounting standards are susceptible to more
than one reasonable interpretation, it is common for experienced professionals to interpret those
requirements or standards differently.”). Such conclusions do not invoke Mr. Carnahan’s “special
or peculiar training” and are, thus, a function of the jury. See Salem v. United States Lines Co.,
370 U.S. 31, 35 (1962) (explaining that “if all the primary facts can be accurately and intelligibly
described to the jury, and if they, as men of common understanding, are as capable of
comprehending the primary facts and of drawing conclusions from them as are” expert witnesses,
expert testimony may be properly excluded) (citation and quotations omitted).
Bazarian Int’l Fin. Assocs., LLC v. Desarrollos Aerohotelco, C.A. is instructive. 315 F.
Supp. 3d 101 (D.D.C. 2018). In Bazarian, the defendants filed a Daubert motion to exclude the
plaintiff’s expert testimony and report, arguing in part that the expert’s opinions went to matters
of common understanding. Id. at 110. The court granted the defendants’ motion in part, holding
that an expert cannot simply restate the facts and opine as to how the jury should interpret them.
13
Id. at 122–23 (emphasizing that the expert’s testimony amounted to a “recitation of what occurred
in the relationship” among the parties, “relying largely on the plaintiff’s version of the facts, rather
than offering much in the way of expert testimony about the function of [such] relationships within
the industry.”). Moreover, where “the jury is just as competent to consider and weigh the evidence
as is an expert witness and just as well qualified to draw the necessary conclusions therefrom, it is
improper to use opinion evidence for the purpose.” See Gilmore v. Palestinian Interim Self-Gov’t
Auth., 843 F.3d 958, 973 (D.C. Cir. 2016) (quoting Henkel v. Varner, 138 F.2d 934, 935, (D.C.
Cir. 1943)).
This Court has no doubt that Mr. Carnahan’s credentials and experience are impressive.
That is why, however, there is danger in allowing him to use the imprimatur of expert testimony
to draw inferences and make findings on hotly-contested factual issues the jury is fully capable of
making for itself. These issues include, as even BANA concedes, the factual elements of its
affirmative defenses. Moreover, this Court has found that BANA has raised genuine issues of
material fact warranting a trial regarding, among other things, BANA’s “intent to comply with the
Rule and whether the FDIC knew or should have known of BANA’s reporting method.” ECF No.
315 at 43–45. The jury is fully capable of determining whether and to what effect, if any, the
FDIC’s alleged failure to object to BANA’s methodology in a timely manner resulted in consent
or led any particular BANA witness to believe the methodology was correct. As such, the Court
grants the FDIC’s motion to strike the Carnahan report.
III. Paul Kupiec
The FDIC also seeks to strike the expert report of Dr. Paul Kupiec. ECF No. 265. Having
previously worked for the FDIC’s Division of Insurance and Research, Dr. Kupiec is a resident
scholar at the American Enterprise Institute (“AEI”) and studies the regulation of banks and
14
financial markets, particularly risk measurement and management. ECF No. 256–12 at 5. BANA
hired Dr. Kupiec to opine on: (1) “whether the FDIC’s assessment system for HCIs such as BANA
under the 2011/2012 Final Rule is risk-based and accurately reflects the risk of losses to the DIF”;
and (2) “whether aggregating exposures to counterparties that are affiliated to one other through a
common parent for purposes of calculating counterparty exposure accurately reflects counterparty
risk.” Id. at 8. As BANA concedes, it relies on the Kupiec Report on summary judgment solely
to support its counterclaim under the APA, specifically its Section 5536 challenge to the 2011 and
2012 Rules. ECF No. 275 at 10.
Dr. Kupiec offers six overall opinions. ECF No. 256–12 at 9–14. First, he describes the
purpose of the FDIC Improvement Act and concludes that the 2011 Rule “is not risk-based.” Id.
at 9–10. Second, he distinguishes HCIs such as BANA from other IDIs, noting that HCIs “have
certain attributes that minimize the probability that a failure will occur.” Id. at 10. Third, Dr.
Kupiec discusses the “regulatory tools available to the FDIC,” explaining that “even if an HCI
failure were to occur,” the FDIC could limit losses to the Fund. Id. at 10–11. Fourth, Dr. Kupiec
opines that, given the “unique attributes of HCIs, as well as the regulatory tools available to the
FDIC,” the 2011 Rule is flawed and not risk-based. Id. at 11.7 Fifth, Dr. Kupiec states that the
2011 Rule’s assessment system “does not accurately reflect the risk posed by HCIs to the DIF.”
6
The FDIC argues that BANA has failed to plead a Section 553 counterclaim. ECF No. 278
at 6-8. This Court need not resolve that question at this time because Dr. Kupiec’s opinion is
inadmissible even if BANA had pled the claim. See discussion infra pp. 16–22.
7
Dr. Kupiec opines on five flaws he sees with the 2011 Rule: (1) the FDIC failed to apprise
interested parties of “the details necessary to independently validate the models and assumptions”
underlying the assessment system; (2) the FDIC “arbitrarily capped” the loss severity measure in
the scorecards HCIs used to report exposures; (3) the 2011 Rule failed to reflect the “risk-
mitigating attributes of HCIs”; (4) the 2011 Rule failed to “reflect the regulatory tools available to
the FDIC” to combat an HCI’s failure; (5) the counterparty exposure measure in the 2011 Rule
failed to “reflect the risk of such counterparty exposure to the HCI, and thus, the risk of potential
losses to the DIF.” ECF No. 256–12 at 11–14.
15
Id. at 14. Finally, after questioning whether the assessments the FDIC imposed are “fair and
equitable,” Dr. Kupiec concludes that the “FDIC’s method for determining assessments for HCIs
systematically overstates the risk that HCIs posed to the DIF.” Id. Notably, each of Dr. Kupiec’s
opinions focuses on risk, whether it be the risk that HCIs will fail or the FDIC’s assessment of the
same.
A. Dr. Kupiec’s Report is Not Admissible to Establish Prejudice in Support of
BANA’s Counterclaims.
The FDIC first argues that the Court cannot consider Dr. Kupiec’s Report on summary
judgment because doing so would violate the whole record rule. ECF No. 265 at 10–11; ECF No.
278 at 7. Under this rule, it “is black-letter administrative law that in an APA case, a reviewing
court ‘should have before it neither more nor less information than did the agency when it made
its decision.’” Hill Dermaceuticals, Inc. v. FDA, 709 F.3d 44, 47 (D.C. Cir. 2013 (quoting Walter
O. Boswell Mem’l Hosp. v. Heckler, 749 F.2d 788, 792 (D.C. Cir. 1984)).
BANA does not dispute that the Report is not part of the administrative record, nor that the
whole record rule generally applies in APA cases. ECF No. 275 at 15, 16. Instead, BANA argues
that this Circuit allows a party such as BANA to raise new arguments and introduce new evidence
for the purpose of satisfying the prejudice prong of a Section 553 claim. ECF No. 275 at 15. In
so arguing, BANA relies almost exclusively on Chamber of Com. of the U.S. v. SEC, 443 F.3d
890, 905 (D.C. Cir. 2006) (“Chamber II”) (allowing a party to supply extra-record evidence to
show it was prejudiced by the agency’s allegedly defective rulemaking).
BANA has failed to dispute FDIC’s argument that Dr. Kupiec’s Report is not part of the
administrative record. See Hopkins v. Women’s Div., General Bd. of Global Ministries, 284 F.
Supp. 2d 15, 25 (D.D.C. 2003) aff’d 98 Fed.Appx. 8 (D.C. Cir. 2004) (“It is well understood in
this Circuit that when a plaintiff files an opposition to a dispositive motion and addresses only
16
certain arguments raised by the defendant, a court may treat those arguments that the plaintiff
failed to address as conceded.”). Accordingly, because a “a reviewing court cannot consider
information that was unavailable to the agency when it made its decision,” Dr. Kupiec’s Report
should be excluded unless BANA’s arguments prevail. See Del. Dep’t of Nat. Res. & Envtl.
Control v. EPA, 895 F.3d 90, 102 (D.C. Cir. 2018) (internal citations omitted). Because BANA’s
argument that it is entitled to introduce Dr. Kupiec’s opinions for the purpose of satisfying the
prejudice prong of a Section 553 claim fails, this Court agrees with the FDIC.
The APA requires that a notice of proposed rulemaking include “either the terms or
substance of the proposed rule or a description of the subjects and issues involved,” 5 U.S.C. §
553(b)(3), and that the agency “give interested persons an opportunity to participate in the rule
making through submission of written data, views, or arguments.” § 553(c); see Air Transp. Ass’n
v. CAB, 732 F.2d 219, 224 (D.C. Cir. 1984). It is also “[i]ntegral” that the agency “identify and
make available technical studies and data that it has employed in reaching the decisions to propose
particular rules.” See Owner-Operator Indep. Drivers Ass’n v. Fed. Motor Carrier Safety Admin.,
494 F.3d 188, 199 (D.C. Cir. 2007) (quoting Solite Corp. v. EPA, 952 F.2d 473, 484 (D.C. Cir.
1991)). A Section 553 claim is subject, however, to the rule of prejudicial error in Section 706, and
a court will not set aside a rule unless the challenger meets its burden to show “that [it] suffered
prejudice from the agency’s failure to provide an opportunity for public comment.” See Gerber v.
Norton, 294 F.3d 173, 182 (D.C. Cir. 2002) (emphasizing that courts must take “due account” of
“the rule of prejudicial error”) (quoting 5 U.S.C. § 706).
To show that an agency’s procedural error was prejudicial, challengers may: (1) “point to
inaccuracies in the [supplemental] data,” Solite, 952 F.2d at 484; (2) show that the agency “hid or
disguised the information it used, or otherwise conducted the rulemaking in bad faith,” id.; or (3)
17
“. . . indicate with ‘reasonable specificity’ what portions of the [data] it objects to and how it might
have responded if given the opportunity,” Air Transp. Ass’n of Am. v. FAA, 169 F.3d 1, 8 (D.C.
Cir. 1999) (citing Air Transport Ass’n. v. CAB, 732 F.2d 219, 224 n. 11 (D.C. Cir. 1984))
(emphasis added). Put plainly, the challenger must demonstrate that it “had something useful to
say” about the undisclosed data that could have impacted the agency’s decision making. Chamber
II, 443 F.3d at 905. In determining prejudice, courts need not rely on “mandatory presumptions
and rigid rules,” rather, the Supreme Court has encouraged a “case-specific application of
judgment” that prevents courts from becoming “impregnable citadels of technicality.” Shinseki v.
Sanders, 556 U.S. 396, 407–08 (2009) (quoting Kotteakos v. United States, 328 U.S. 750, 759
(1946)) (confirming that there is no distinction between civil and administrative cases when
applying the prejudicial error rule).
BANA relies almost exclusively on Chamber II for its proposition that the Kupiec Report
can be admitted to show prejudice, but that case establishes a limited exception to the whole record
rule that does not apply here. In Chamber II, the Securities Exchange Commission (SEC) refused
to reopen the rulemaking record on remand even though it relied on extra-record evidence to affirm
its regulation. 443 F.3d at 901–02. The Chamber of Commerce challenged the SEC’s decision,
in part under Section 553. Id. at 894. The D.C. Circuit agreed with the Chamber of Commerce,
noting the SEC’s “extensive reliance upon extra-record materials,” id. at 901, in particular, “extra-
record bulletins and [a] summarized survey.” Id. at 905. As such, the court allowed the Chamber
of Commerce to admit its own extra-record objections and studies to show prejudice. Id. at 904.
In so holding, the Chamber II court noted that “the Chamber’s failure to critique the [extra-
record evidence] until this appeal indicates that it had no reason to anticipate the Commission’s
ultimate reliance on those materials.” Id. at 905. The same cannot be said here. It is worth
18
emphasizing again that it took BANA nine years after the 2011 Rule’s promulgation and three
years after the FDIC brought suit to produce the Report it now wishes to rely upon to establish
prejudice. In contrast, in Chamber II, the Chamber of Commerce immediately challenged the
SEC’s failure to reopen the rulemaking record on remand and simultaneously sought to admit its
own extra-record materials to establish prejudice. Compare Release No. 26,985, 70 Fed. Reg.
39,390, 39,398 (July 7, 2005) (SEC affirms its regulation and relies on extra-record evidence),
with Chamber II, 443 F.3d at 894 (Chamber of Commerce immediately sues, and the lower court
stays the SEC’s regulation on August 10, 2005).
Moreover, BANA cannot use Dr. Kupiec’s Report to demonstrate, for purposes of the
prejudice requirement, that it “had something useful to say” about the data it alleges the FDIC
failed to properly explain while promulgating the 2011 Rule. ECF No. 275 at 14. Although BANA
may have met its burden to “indicate with reasonable specificity what portions” of the rulemaking
record to which it objects, id. at 13, BANA cannot use Dr. Kupiec’s Report to show “how it might
have responded if given the opportunity” when his opinions derive largely from information and
data that post-date the 2011 Rule. See, e.g., Troy Chem. Corp. v. EPA, 837 Fed. Appx. 1, 5–6
(D.C. Cir. 2020) (holding that challenger failed to show prejudice because he did not sufficiently
identify how he would have responded to the missing material, to which he had access “for over
five years”). It would have been impossible for BANA to respond with much of the information
in Dr. Kupiec’s Report during the 2011 notice and comment period given that his Report is largely
based on data and information that did not exist at that time. See generally ECF No. 256–12 at
142–48 (listing a variety of publicly available sources upon which Dr. Kupiec relied in drafting
his Report, including 2018 articles from the Congressional Research Service and the Department
of Treasury, and 2019 publications from the FDIC and the Federal Reserve System).
19
Dr. Kupiec wrote his Report in the summer of 2020, nine years after the 2011 Rule’s notice
and comment period closed and three years after BANA initiated this lawsuit. ECF No. 256–12
at 2. The FDIC argues that there is no justification to consider the Report which was created nine
years after the administrative record closed, ECF No. 265 at 13, but BANA fails to address this
issue of timing. A cursory review of the publicly-available materials upon which Dr. Kupiec relies
in his Report shows sources as recent as 2019, eight years after the 2011 Rule’s promulgation. See
ECF No. 256–12 at 142–48. Moreover, in his deposition, Dr. Kupiec himself acknowledged that
the FDIC could not have considered some of the materials upon which he relied in his Report
because those materials did not yet exist. See ECF No. 265–1 at 8, 168:19–169:10 (Dr. Kupiec
conceding that FDIC could not have considered liquidity coverage ratio rule during 2011 Rule
promulgation while simultaneously citing to that rule in his Report).
As the Chamber II court expressly warns, its holding “does not mean parties can withhold
relevant data and blindside the agency on appeal.” 443 F.3d at 904. Although the Chamber of
Commerce acted promptly in challenging the SEC’s decision—as reflected in its immediate
lawsuit and production of evidence to show prejudice—the same cannot be said for BANA here.
Allowing BANA to rely on the Kupiec Report to establish prejudice would expand the limited
exception the court created in Chamber II. See id. (outlining limitations to the exception created
and urging that “[a] contrary rule would provide a perverse incentive for parties opposing a rule to
withhold data in order to seek vacation of the rule on appeal”).
B. Even if Dr. Kupiec’s Opinions were Admissible to Establish Prejudice, they
are Inadmissible as Legal Opinions.
The FDIC also argues that Dr. Kupiec’s Report is inadmissible because it offers legal
conclusions. ECF No. 265 at 18. BANA disagrees, arguing that his opinions “fall within the
province of testimony long permitted under the Federal Rules of Evidence—testimony on an
20
‘ultimate issue to be decided by the trier of fact.’” ECF No. 275 at 22.8 The Court agrees with the
FDIC, and the same legal standards outlined with regard to the Carnahan Report apply here. See
supra pp. 8–11.
Dr. Kupiec himself concedes that his opinion is about “whether the 2011 Rule is risk-
based within the meaning of the 1991 [A]ct.” See ECF No. 265–1 at 5, 102:13–17 (FDIC Counsel:
“[Is] it fair to say that the opinion you’re offering in this case focuses on whether the 2011 [R]ule
is risk-based within the meaning of the 1991 [A]ct?” Dr. Kupiec: “Yes, I think so.”). Dr. Kupiec
also confirms that aside from this issue, he offers no other opinions. See id. at 5, 103:10–14 (FDIC
Counsel: “Aside from the issue of whether the 2011 [R]ule is risk-based and all of the various
reasons why you have that opinion, are you offering any other opinions in this case?” Dr. Kupiec:
“No, I don’t think so.”). As discussed above, “[d]etermining the meaning of a . . . regulation, of
course, presents a classic legal question.” Kisor v. Wilkie, 139 S. Ct. 2400, 2432 (2019) (Gorsuch,
J., concurring); see also Montana v. Clark, 749 F.2d 740, 744 (D.C. Cir. 1984) (court “is uniquely
responsible for the final determination of the meaning of statutes.”). It is for the court, not an
expert witness, no matter how qualified, to determine this ultimate legal issue.
BANA’s attempt at distinguishing between what it characterizes as the “legal issue—
whether the 2011 Rule violates the [FDIC Act]”—and the “factual issue—whether the 2011 Rule
actually captures the risk that HCIs pose to the Fund in the real world”—fails. ECF No. 275 at
22–23. Although it is true that an expert may testify “as to facts that, if found, would support a
8
As alternative to its Section 553 argument, BANA argues that the Report is relevant to the
interpretation of the 2011 Rule and the FDIA’s tolling exception, as well as the FDIC’s unjust
enrichment claim. ECF No. 275 at 19–21. The Court need not address whether the Report is
relevant to these issues because relevance is not the standard in determining admissibility in this
instance, as noted above. Even if it were relevant, the Report is inadmissible as a legal opinion.
See discussion infra pp. 21–22.
21
conclusion that the legal standard at issue was [or was not] satisfied,” an expert “may not testify
as to whether the legal standard has been satisfied.” Morsell, 2020 WL 1508904, at *4 (quoting
Burkhart, 112 F.3d at 1212–13). “[T]he line between an inadmissible legal conclusion and
admissible assistance to the trier of fact in understanding the evidence or determining a fact in
issue is not always bright.” Burkhart, 112 F.3d at 1212. It is likely that an expert’s testimony is a
legal conclusion where “it track[s] the language of the applicable statute” and uses terms that
“ha[ve] a specialized legal meaning that [are] more precise than the lay understanding of the term.”
Morsell, 2020 WL 1508904, at *4 (quoting Burkhart, 112 F.3d at 1212). Similar to Mr. Carnahan,
that is what Dr. Kupiec does in his Report. See, e.g., ECF No. 256–12 at 10 (“[A]s I explain in
this report, the assessment system for HCIs such as BANA under the 2011/2012 Final Rule does
not accurately reflect many aspects that lower the risk of failure of HCIs, or potential losses to the
DIF, if any, in the event of the failure of such institutions, and thus is not risk-based.”) (emphasis
added). As even BANA argues, Dr. Kupiec’s “Report is relevant to the proper interpretation of
the 2011 Rule and the FDIC’s unjust enrichment claim.” ECF No. 275 at 19. Because Dr. Kupiec’s
testimony invades the Court’s role in determining as a matter of law whether the FDIC acted in
accordance with its statutory obligations, his opinions are inadmissible.
CONCLUSION
For the foregoing reasons, the Court GRANTS the FDIC’s Motions to Strike the Expert
Reports of Scott Carnahan and Paul Kupiec.
SO ORDERED.
Date: March 8, 2024
_______________________________
MOXILA A. UPADHYAYA
United States Magistrate Judge
22