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Everett Financial Inc. v. Primary Residential Mortgage Inc.

United States District Court, N.D. Texas, Dallas Division

May 14, 2018

EVERETT FINANCIAL, INC. d/b/a SUPREME LENDING, Plaintiff-counterdefendant,
v.
PRIMARY RESIDENTIAL MORTGAGE, INC., Defendant, and BARRY G. JONES, JAMES DURHAM, and SHANNON FORTNER, Defendants-counterplaintiffs. SCOTT EVERETT, individually, Counterdefendant.

         * This memorandum opinion and order was filed under seal on May 14, 2018. Because the parties do not request that any part remain under seal, this public version is now being filed.

          MEMORANDUM OPINION AND ORDER

          SIDNEY A. FITZWATER, UNITED STATES DISTRICT JUDGE.

         Defendants' motion to exclude and strike testimony of plaintiff's designated experts presents the question whether testimony regarding projected profits by a company's founder and president, as well as a company's chief financial officer, constitute lay testimony or expert testimony under the Federal Rules of Civil Procedure. Concluding that the testimony at issue qualifies as lay testimony, the court denies the motion.

         I

         This is an action by plaintiff-counterdefendant Everett Financial, Inc. d/b/a Supreme Lending (“Supreme”) against defendant Primary Residential Mortgage, Inc. (“PRMI”) and defendants-counterplaintiffs Barry G. Jones, James Durham, and Shannon Fortner (collectively, the “Branch Managers”) arising from conduct related to the Branch Managers' resignations from Supreme and moves to PRMI. Supreme's founder and President, Scott Everett (“Everett”), is a counterclaim defendant.[1] Because this case is the subject of prior memorandum opinions and orders-see, e.g., Everett Financial, Inc. v. Primary Residential Mortgage., Inc., 2017 WL 784766, at *1 (N.D. Tex. Feb. 28, 2017) (“Everett III”)-the court recounts only the background facts and procedural history that are pertinent to the pending motion.

         Under Fed.R.Civ.P. 26(a)(1)(A)(iii), Supreme was required to disclose its damages computations. Supreme's initial disclosure, made in August 2014, briefly listed the categories of damages sought, including lost profits. Supreme supplemented this disclosure in November 2015 with the statement that a computation of its lost profits damages was contained in the expert report of Jeffrey Matthews (“Matthews”).

         Supreme designated Matthews as a retained expert on lost profits damages. Supreme also designated Everett, Supreme chief financial officer Tony Schmeck (“Schmeck”), and Supreme executive Rick Hogle (“Hogle”) as nonretained experts on lost profits. Supreme's nonretained experts were deposed in this case, but their depositions did not focus on lost profits damages. Supreme's counsel later agreed to limit the testimony of Schmeck and Hogle, but not Everett, on the subject of lost profits opinions. Discovery in this case closed in December 2015.

         In December 2016 the court excluded Matthews' opinion testimony for lack of reliability under the Daubert[2] standard. In apparent response to the court's ruling, Supreme supplemented its Rule 26(a)(1) disclosures with a different damages calculation and different expert witnesses who would testify about the calculation. The supplemental disclosure computes lost profits by comparing Supreme's Southeast Region financials before and after the actions complained of in this case. It takes the difference between the region's 2013 and 2014 loan volume and multiplies this difference by Supreme's company-wide profit margin, which is its profit per dollar of loan volume. This formula yields a lost profits figure of approximately $5 million.[3] Supreme sought to introduce evidence of these damages through Everett and Schmeck.

         PRMI and the Branch Managers filed motions to exclude evidence of the undisclosed “lost profits” computation. The court denied the motions to exclude, holding that Supreme's lost profits computation had not materially changed because it still computed lost profits by comparing Supreme's Southeast Region loan volumes before and after the Branch Managers' departures. The court also held, however, that because the witnesses testifying to lost profits were completely different, Supreme was required to make its experts, Everett and Schmeck, available for depositions. Supreme was further required to “reimburse PRMI and the Branch Managers for their reasonable attorney's fees, taxable costs, and nontaxable expenses incurred in taking these depositions and obtaining the transcripts.” Everett III, 2017 WL 784766, at *4. PRMI has taken the depositions of Everett and Schmeck.

         PRMI and the Branch Managers now move to exclude and strike Everett and Schmeck as unreliable expert witnesses under Fed.R.Evid. 702.[4] Supreme opposes the motions and objects to the declaration of PRMI's retained damages expert, Scott W. Carnahan (“Carnahan”), in support of PRMI's motion to exclude and strike Everett and Schmeck. PRMI also objects to and moves to strike the declarations of Everett and Schmeck submitted in support of Supreme's response to PRMI's and the Branch Managers' motions to exclude and strike Everett and Schmeck. Supreme opposes the motion to strike.

         II

         Because the court's ruling on PRMI's objection to and motion to strike the declarations of Everett and Schmeck determines the evidence the court considers, the court turns first to that motion. PRMI contends that Supreme is improperly attempting to rehabilitate Everett's and Schmeck's lack of reliability by executing sham declarations explaining a new methodology. PRMI points to a number of alleged contradictions between statements in Everett's and Schmeck's declarations and depositions and moves to strike the declarations filed in support of Supreme's opposition to PRMI's motion to strike experts.

         The court disagrees with PRMI's characterization of the declarations. PRMI cites a non-binding case, Pluck v. BP Oil Pipeline Co., 640 F.3d 671, 681 (6th Cir. 2011), in which the Sixth Circuit affirmed the district court's exclusion of expert witness testimony disclosed after the court-imposed deadline. The panel held that the untimely supplemental declaration was a “transparent attempt to reopen the Daubert inquiry after the weaknesses in the expert's prior testimony have been revealed.” Id. The result and reasoning of Pluck are inapplicable here, however, because the declarations of Everett and Schmeck were timely submitted in support of Supreme's response.

         Other cases that PRMI cites, see, e.g., Kennedy v. Allied Mutual Insurance Co., 952 F.2d 262, 266 (9th Cir. 1991), address questions in the context of motions for summary judgment. These cases generally hold that a party cannot create an issue of material fact and escape summary judgment by submitting an affidavit that contradicts prior deposition testimony. See, e.g., Galvin v. Eli Lilly & Co., 488 F.3d 1026, 1030 (D.C. Cir. 2007) (“Virtually every circuit has adopted a form of the so-called ‘sham affidavit rule, ' which precludes a party from creating an issue of material fact by contradicting prior sworn testimony[.]”). Although the Fifth Circuit has a similar rule, see, e.g., S.W.S. Erectors, Inc. v. Infax, Inc., 72 F.3d 489, 495 (5th Cir. 1996) (“It is well settled that this court does not allow a party to defeat a motion for summary judgment using an affidavit that impeaches, without explanation, sworn testimony.”) (citing Fifth Circuit cases), PRMI has failed to demonstrate that this rule has equal force in the context of a motion such as the instant motion to exclude.

         Accordingly, the court denies PRMI's objections to and motion to strike the declarations of Everett and Schmeck, and it will consider the declarations when deciding PRMI's and the Branch Managers' motions to exclude and strike the expert testimony of Everett and Schmeck.

         III

         The court now addresses PRMI's and the Branch Managers' motions to exclude.

         A

         The parties focus on Everett's calculation of lost profits stemming from the Branch Managers' departure from Supreme. Everett and Schmeck calculated lost profits by multiplying the difference in projected 2014 loan volume and actual 2014 loan volume by a net variable profit margin (“NVPM”). Everett defines “loan volume” as the total dollars lent by Supreme to borrowers through loans originated by Supreme loan originators. In a declaration attached to Supreme's response to PRMI's motion, Everett avers that he determined, based on historical Supreme data, that but for the Branch Managers' departure, the Southeast Region would have generated loan volume in 2014 at least equal to the volume generated in 2013. Everett confirmed this projection by comparing it against the 2013 to 2014 change in loan volume for Supreme nationwide as well as the “Flood Region, ” a neighboring Supreme region.[5] Schmeck ...


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