Joshua David Mellberg LLC v. Will
386 F. Supp. 3d 1098
| D. Ariz. | 2019Background
- JDM, a financial advisory firm, alleges former employees misappropriated trade secrets and seeks substantial damages; initial disclosures in Aug 2015 estimated over $85 million without computations.
- Plaintiffs timely disclosed damages expert Lynton Kotzin (May 2017), whose report estimated $16.34 million for two categories (lost profits and diminution in value).
- In Sept 2018 Plaintiffs produced a supplemental disclosure from interim CFO Paul Crooks, presenting a cost-based damages methodology (unjust enrichment) totaling about $107.31 million; Crooks began consulting JDM in Jan 2017 and served part-time as interim CFO through mid-2018.
- Defendants moved to exclude Crooks’ late damages evidence (Oct 2018), arguing Crooks is an expert improperly disguised as a lay witness and was untimely disclosed.
- The Court analyzed whether Crooks’ testimony qualified as lay opinion under Fed. R. Evid. 701, concluded his opinions relied on specialized financial methods (learning curves, break-even analysis, cost-allocation) beyond ordinary lay reasoning, found prejudice from late expert disclosure, and excluded Crooks entirely as a witness.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Crooks' testimony is lay or expert under Rule 701/702 | Crooks is JDM's interim CFO and may testify as a lay corporate representative using company records | Crooks performs specialized financial analyses and is an expert in lay clothing | Crooks' opinions are expert in nature and not admissible as lay testimony |
| Personal-knowledge component of Rule 701 | Crooks' employment with JDM and review of records supplies personal/particularized knowledge | Crooks lacks firsthand knowledge of 2010–2013 data he relies upon | Crooks lacked sufficient particularized firsthand knowledge for lay testimony |
| Specialized-knowledge prohibition under Rule 701 | Corporate officers routinely perform simple arithmetic on records and may testify without expert qualification | Crooks used specialized concepts (learning curves, break-even rates, cost-allocation) requiring expert treatment | Court found Crooks relied on specialized methodologies within Rule 702, so Rule 701 did not apply |
| Prejudice/sanction for untimely disclosure | Plaintiffs contend prior disclosure of $85M gave adequate notice and Crooks is a lay witness (no rebuttal lay reports exist) | Late disclosure prevented subpoenaing, rebuttal expert report, and follow-up discovery; prejudiced Defendants | Court found prejudice, Plaintiffs offered no excuse for delay, and excluded Crooks’ testimony as appropriate sanction |
Key Cases Cited
- Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153 (3d Cir. 1993) (corporate owner permitted to give lay opinion on damages based on particularized business knowledge)
- United States v. Aubrey, 800 F.3d 1115 (9th Cir. 2015) (district court may limit non-expert witness to personal-knowledge areas and preclude in-depth technical accounting analysis)
- LifeWise Master Funding v. Telebank, 374 F.3d 917 (10th Cir. 2004) (technical models like moving averages and S-curves are specialized and not admissible under Rule 701)
- Hot Stuff Foods, LLC v. Houston Cas. Co., 771 F.3d 1071 (8th Cir. 2014) (court did not abuse discretion admitting president/CFO lay testimony on damages where witness had intimate knowledge of operations)
- Meaux Surface Prot., Inc. v. Fogleman, 607 F.3d 161 (5th Cir. 2010) (upholding CFO lay testimony on lost profits where witness was familiar with company finances)