Joshua David Mellberg LLC v. Will
4:14-cv-02025
| D. Ariz. | Apr 16, 2019Background
- JDM, a financial advisory firm, alleged former employees misappropriated trade secrets and sought significant damages; initial August 2015 disclosure asserted > $85 million but provided limited computations.
- Plaintiffs timely disclosed damages expert Lynton Kotzin (May 2017 deadline); Kotzin’s report estimated $16.34 million for lost profits and diminished company value.
- In September 2018 (after the expert deadline), Plaintiffs produced a supplemental damages disclosure by interim CFO Paul Crooks estimating $107.31 million based largely on a cost/unjust-enrichment methodology.
- Defendants moved to exclude Crooks’s untimely damages evidence, arguing Crooks is effectively an expert improperly presented as a lay witness and that the late disclosure prejudiced Defendants.
- The court evaluated whether Crooks’s testimony qualified as lay opinion under Fed. R. Evid. 701 (personal knowledge and lack of specialized knowledge), found his methods relied on specialized financial techniques, and concluded his testimony was expert in nature and late.
- Given prejudice to Defendants, the absence of a satisfactory explanation for the delay, and Plaintiffs’ repeated discovery violations, the court excluded Crooks’s September 2018 disclosure and barred him from testifying as a lay or expert witness.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Crooks's damages testimony is admissible as lay opinion under Fed. R. Evid. 701 | Crooks may testify as a lay witness based on his role as interim CFO and review of company records | Crooks is an expert in lay's clothing; his analysis uses specialized methods and was untimely disclosed | Crooks's opinions are expert in nature (not Rule 701 lay) because they rely on specialized financial methodologies |
| Whether Crooks meets the Rule 701 personal-knowledge requirement | Crooks has particularized knowledge of JDM finances from his CFO/consultant role | Much of Crooks's analysis relies on documents predating his tenure and on industry experience rather than firsthand knowledge | Crooks lacked the requisite particularized firsthand knowledge for lay testimony; much of his work relied on others' documents and assumptions |
| Whether Crooks's analysis uses specialized knowledge within scope of Rule 702 | Plaintiffs: calculations are straightforward arithmetic from financials and thus lay-admissible | Defendants: Crooks used learning curves, break-even analyses, cost allocation—specialized techniques | The court found Crooks employed sophisticated financial concepts (learning curves, fully-trained rates, cost allocation) within Rule 702 scope and not permissible under Rule 701 |
| Appropriate sanction for late disclosure of expert-level damages analysis | Plaintiffs: late disclosure harmless and Crooks is a lay witness so no rebuttal expert needed | Defendants: late disclosure prevented rebuttal expert, follow-up discovery, and deprived them of fair opportunity to test assumptions | Court excluded Crooks's September 2018 disclosure and barred him from testifying (lay or expert) due to prejudice, extreme untimeliness, lack of explanation, and prior discovery misconduct |
Key Cases Cited
- United States v. Gadson, 763 F.3d 1189 (9th Cir. 2014) (permitting witness testimony based on case knowledge, including information from others, for personal-knowledge purposes)
- Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153 (3d Cir. 1993) (business owner permitted to give lay opinion testimony on damages based on particularized company knowledge)
- Hot Stuff Foods, LLC v. Houston Cas. Co., 771 F.3d 1071 (8th Cir. 2014) (company president/CFO’s lay testimony on damages permissible due to intimate knowledge of operations)
- Meaux Surface Prot., Inc. v. Fogleman, 607 F.3d 161 (5th Cir. 2010) (CFO allowed to testify about lost profits as lay witness when familiar with company finances)
- Texas A&M Research Found. v. Magna Transp., Inc., 338 F.3d 394 (5th Cir. 2003) (corporate officer may testify on industry practices and pricing without expert qualification)
- United States v. Aubrey, 800 F.3d 1115 (9th Cir. 2015) (district court may limit non-expert witness to areas of personal knowledge and exclude technical accounting analysis)
- LifeWise Master Funding v. Telebank, 374 F.3d 917 (10th Cir. 2004) (disallowing lay testimony that depended on technical damages models like moving averages and S-curves)