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Kremsky v. Kremsky

United States District Court, E.D. Pennsylvania

February 17, 2017



          KEARNEY, J.

         Our judicial role as gatekeepers reviewing whether a proffered expert can explain his opinions to the jury, while deferential, requires we ensure some reliable basis for this testimony before we permit admission to the jury. Financial accounting testimony is often offered to explain a variety of financial transactions but we are skeptical of third party opinions which attempt to find motives for the challenged transactions. While we will allow a qualified financial professional to catalog and describe data and bank records, we cannot allow the same professional to leap into unreliable opinions as to the import of the transactions or the motive of the parties engaging in the transactions. While qualified to read bank statements, he is not able to read minds and attribute motives to witnesses. In the accompanying Order, we grant a motion in limine to preclude testimony from a financial professional which reaches beyond demonstrated calculations of bank records could be introduced without the need for a third party assistance.

         I. Background

         Stanton Kremsky ("Uncle") alleges his nephew Kenneth Kremsky ("Nephew") breached fiduciary duties and committed fraudulent and negligent misrepresentation and conversion while managing the Uncle's financial, real estate, and precious metal investments.

         Under our October 5, 2016 Scheduling Order, we required the parties to serve the information necessary to meet their burden of proof for expert reports no later than November 23, 2016.[1] We attached counsel for trial starting March 6, 2017.

         On December 8, 2016, two weeks after our expert deadline, Uncle moved for an "uncontested"[2] thirty day extension of the discovery, settlement conference, and dispositive motion deadlines. We granted Uncle's motion and ordered all fact and expert discovery served, noticed, and completed by January 16, 2017.[3] We ordered summary judgment and Daubert motions filed by February 1, 2017 with all other obligations in our October 15, 2016 Scheduling Order remaining in effect.

         On December 30, 2016, Uncle timely served his proffered expert Brad Ryden's Rule 26 disclosure of his anticipated lay or expert testimony describing the financial records produced in discovery. His report summarized misappropriations, Nephew's "apparent misappropriations" and "other possible misappropriations" into five categories (1) "transfers, checks, and purchases"; (2) "ATM Withdraws"; (3) "rare liquor purchases"; (4) "unknown withdraws, checks, and purchases"; and, (5) "credit cards and ACH payment details."[4] Mr. Ryden then analyzed Nephew's motives to misappropriate Uncle's funds under the Association of Certified Fraud Examiner's "fraud triangle" concept.

         Discovery closed January 16, 2017. The parties did not agree to allow Uncle to produce a supplemental expert report after discovery closed. On January 26, 2017, Nephew moved to exclude Mr. Ryden's December 30, 2016 expert report. On February 1, 2017, Nephew moved for summary judgment based in large part on defects in Mr. Ryden's December 30, 2016 expert report.

         On February 7, 2017, over three weeks after the discovery close and five days after Nephew moved for summary judgment, Uncle produced a post-discovery "supplemental" expert report. Uncle argues Nephew's motion in limine to exclude Mr. Ryden's December 30, 2016 expert report is mooted by Mr. Ryden's February 6, 2017 Supplemental Report.

         A. Analysis

         Today, we address only the admissibility of Mr. Ryden's December 30, 2016 expert disclosures under Daubert. We will address the admissibility of Mr. Ryden's February 6, 2017 supplemental expert report after Uncle timely responds to Nephew's motion in limine to strike it considering the prejudice to the parties.[5]

         Mr. Ryden's December 30, 2016 disclosures, in large part, categorize and add financial transactions but lack an admissible expert opinion. We exclude it under Daubert because Mr. Ryden's mere calculations are not expert opinions and Mr. Ryden's "fraud triangle" method is unreliable. Fed.R.Evid. 702 imposes a "gatekeeping" obligation on us to "ensure that any and all scientific testimony... is not only relevant, but reliable."[6] Our Court of Appeals held Rule 702 "embodies a trilogy of restrictions on expert testimony: qualification, reliability, and fit."[7]

         We focus on the lack of reliable opinions in Mr. Ryden's December 30, 2016 disclosures.[8] Expert disclosures satisfy the reliability prong if the expert's technique in formulating his opinion is reliable.[9] "In contrast, if an expert opinion is based on speculation or conjecture, it may be stricken."[10] An expert's opinion does not rest on good grounds where he simply relies on the data provided by his client without independent verification.[11]

         Mr. Ryden's report never reaches an opinion. Instead he reports on deposition testimony and bank records. While Uncle argues the December 30, 2016 expert testimony is admissible under Daubert, he also concedes when Mr. Ryden later issued his February 6, 2017 supplemental report "he had sufficient data so that his opinions are no longer qualified with words such as 'apparent' or 'possible'... [his] conclusions are stated within a reasonable degree of accounting certainty. This renders a number of Nephew's argument...moot."[12] Today's issue is whether Mr. Ryden can testify based on his qualified accounting conclusions in his December 30, 2016 disclosures. We find he cannot.

         1. Summary of potential misappropriated funds lacks an opinion.

         Mr. Ryden's December 30, 2016 disclosures "summarize the potential misappropriated funds into five categories." Mr. Ryden identifies Nephew's alleged misappropriations in each category but he does not reach an opinion as to any category but rather focuses on partial calculations. His disclosures do not require specialized skill or knowledge beside mathematics which the parties may stipulate or Uncle could testify.

         In the first category, Mr. Ryden discusses transfers, checks, and purchases "related to" Nephew and his family totaling $263, 318. Mr. Ryden summarizes the relevant facts and then hypothesizes Nephew made "multiple transfers with no apparent reason indicat[ing]... [Nephew] was attempting to mislead persons that were reconciling the bank accounts" and "there is a significant quantity of Visa purchases (debit card type) that appear to be for [Nephew]."[13] Mr. Ryden equivocates on his statement the checks written from the Everbank account to [Nephew]...appear to be paying bills" when in the footnote he adds "we cannot completely confirm that [Nephew] was the beneficiary of these expenditures, we are classifying them as unknown as this time."[14] We finish the first category, without a reliable opinion, unsure if Mr. Ryden's opinion is Nephew misappropriated $263, 318 or some lesser number based on the unknown expenditures identified by Mr. Ryden. These are accounting calculations, not expert opinions. We have no ability to find these conclusions are reliable.

         In the second category, "ATM Withdraws", Mr. Ryden cites $37, 917 in "questionable ATM transactions that involve [Nephew]" but does not explain a basis for questioning these transactions other than imputing ill motive. He simply recites data entries and ...

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