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Securities and Exchange Commission v. Mapp

United States District Court, E.D. Texas, Sherman Division

November 14, 2017




         Pending before the Court is Defendant William E. Mapp, III's Corrected Motion to Strike Plaintiff's Expert (Dkt. #111). After reviewing the relevant pleadings, the Court finds that Defendant's motion should be granted in part and denied in part.


         Servergy, Inc. (“Servergy”) is a computer hardware company that develops secure, cloud-based data storage servers. From November 2009 to September 2013, Servergy raised approximately $26 million in private securities offerings to develop what it claimed was a revolutionary new server, the CTS-1000. William E. Mapp, III (“Mapp”), Servergy's co-founder and then-CEO, was responsible for the fundraising campaign. The Securities and Exchange Commission (“SEC”) claims that Mapp violated Sections 5(a) and 5(c), 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, based, in part, on representations made to potential investors in Servergy's offering materials.

         On March 28, 2017, the SEC served Mapp with its designation of Charles Marler as a non-retained expert witness pursuant to Rule 26(a)(2)(C), stating the subject matter on which Marler would testify and a summary of the facts and opinions to which he would testify (Dkt. #111, Exhibit A).

         On September 13, 2017, Mapp filed his Motion to Strike Plaintiff's Expert (Dkt. #110). On September 15, 2017, the motion was found to be deficient and required refiling. The same day, Mapp filed his Corrected Motion to Strike Plaintiff's Expert (Dkt. #111). In his motion, Mapp argued that Marler is a retained expert and the SEC's designation was insufficient because Marler's designation did not contain a written expert report required by Rule 26(a)(2)(B).

         On September 29, 2017, the SEC filed its response (Dkt. #115). In its response, the SEC conceded that Marler is a retained expert and, thus, was required to provide an expert report pursuant to Rule 26(a)(2)(B). The SEC attached a Supplemental Expert's Report as an exhibit to its response (Dkt. #115, Exhibit 1). Contemporaneously with its response, the SEC filed an Unopposed Motion for Leave to Supplement Marler's Expert Report (Dkt. #114). The Court granted the motion on October 2, 2017 (Dkt. #117). Accordingly, Mapp's argument regarding the timeliness of Marler's disclosure is moot, and the Court need only address the admissibility and scope of Marler's testimony.

         On October 27, 2017, Mapp filed his reply (Dkt. #127). On November 3, 2017, the SEC filed its sur-reply (Dkt. #138).


         Federal Rule of Evidence 702 provides for the admission of expert testimony that assists the trier of fact to understand the evidence or to determine a fact in issue. Fed.R.Evid. 702. A district court must make a preliminary determination, when requested, as to whether the requirements of Rule 702 are satisfied with regard to a particular expert's proposed testimony. See Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 592-93 (1993). Courts act as gatekeepers of expert testimony “to make certain that an expert, whether basing testimony upon professional studies or personal experience, employs in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in the relevant field.” Kumho Tire Co. v. Carmichael, 526 U.S. 137, 152 (1999).

         The party offering the expert's testimony has the burden to prove by a preponderance of the evidence that: (1) the expert is qualified; (2) the testimony is relevant to an issue in the case; and (3) the testimony is reliable. Daubert, 509 U.S. at 590-91. A proffered expert witness is qualified to testify by virtue of his or her “knowledge, skill, experience, training, or education.” Fed.R.Evid. 702. Moreover, in order to be admissible, expert testimony must be “not only relevant, but reliable.” Daubert, 509 U.S. at 589. “This gate-keeping obligation applies to all types of expert testimony, not just scientific testimony.” Pipitone v. Biomatrix, Inc., 288 F.3d 239, 244 (5th Cir. 2002) (citing Kuhmo, 526 U.S. at 147).

         In deciding whether to admit or exclude expert testimony, the Court should consider numerous factors. Daubert, 590 U.S. at 594. In Daubert, the Supreme Court offered the following, non-exhaustive list of factors that courts may use in evaluating the reliability of expert testimony: (1) whether the expert's theory or technique can be or has been tested; (2) whether the theory or technique has been subjected to peer review and publication; (3) the known or potential rate of error of the challenged method; and (4) whether the theory or technique is generally accepted in the relevant scientific community. Id. at 593-94; Pipitone, 228 F.3d at 244. When evaluating Daubert challenges, courts focus “on [the experts'] principles and methodology, not on the conclusions that [the experts] generate.” Daubert, 509 at 594.

         The Daubert factors are not “a definitive checklist or test.” Id. at 593. As the Court has emphasized, the Daubert framework is “a flexible one.” Id. at 594. Accordingly, the decision to allow or exclude experts from testifying under Daubert is committed to the sound discretion of the district ...

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