United States District Court, N.D. Illinois, Eastern Division
August 18, 2004.
GENE H. SWENSON, Plaintiff,
OXFORD BANK & TRUST, Defendant.
The opinion of the court was delivered by: JAMES ZAGEL, District Judge
MEMORANDUM OPINION AND ORDER
In this case, Plaintiff, Gene Swenson, seeks compensatory and
punitive damages from Oxford Bank & Trust ("Oxford") for its
alleged breach of fiduciary duty in recklessly managing the trust
assets in Swenson's IRA account. Both Swenson and Oxford now move
to bar the testimony of the opposing side's expert witness.
I. Oxford's Motion to Bar The Expert Testimony and Report of
Dr. Edward C. Lawrence
In its motion, Oxford argues that the testimony of Dr. Edward
C. Lawrence should be barred because it does not meet the
requirements laid out in Fed.R. Evid. 702, as explained by
Daubert v. Merrell Dow Pharms., 509 U.S. 579 (1993).
Specifically, Oxford claims that Dr. Lawrence does not possess
sufficient expertise in the field of investment management, Dr.
Lawrence's damages calculation is not based on reliable
principles or methods, and Dr. Lawrence's analysis is
inconsistent with his own recommended methodologies.
First, I address Dr. Lawrence's credentials as an expert
witness in investment management. Under Rule 702, an expert may
be qualified to testify in a given field by his "knowledge,
skill, experience, training, or education." Fed.R. Evid. 702.
Dr. Lawrence holds an MBA with a concentration in finance and a
Ph.D in Business Administration. While obtaining these degrees, Dr. Lawrence was educated and trained in
investment management, portfolio management, capital markets,
options and futures, and corporate valuations. Dr. Lawrence is
currently a Professor of Banking and Finance at the University of
Missouri, where he has chaired the Finance Department for the
last ten years. In that position, Dr. Lawrence has taught classes
on investment and portfolio management as well as securities
analysis. Additionally, Dr. Lawrence administered trust assets at
a bank for three years prior to becoming a Professor and has
served as a trustee for three family trusts, managing assets in
excess of those disputed in this case. Taken as whole, Dr.
Lawrence's education, training, and experience clearly qualify
him to serve as an expert witness in this case.
Next, I address the reliability of Dr. Lawrence's damages
calculations. In determining whether the expert witness's
testimony is reliable, the court looks at whether it is based on
reliable methodology. Cummins v. Lyle Indus., 93 F.3d 362, 368
(7th Cir. 1996). To calculate Swenson's damages, Dr. Lawrence
compares the portfolio value obtained through Oxford's investment
strategy to values which may have been obtained using other
investment strategies. In taking this comparative approach, Dr.
Lawrence acknowledges that part of the decline in value of
Swenson's portfolio was the result of a downturn in the market as
a whole. Dr. Lawrence suggests that Oxford's investment
management performance should be compared to the performance of
the investments in Swenson's portfolio when he moved his account
to Oxford had he held them all this time (the "buy and hold"
strategy), the performance of passively managed portfolios, such
as the Dow Jones Industrial Average or the S & P 500, and
actively managed portfolios, such as Vanguard or Fidelity mutual
funds. Oxford argues that Dr. Lawrence's use of the "buy and
hold" strategy is inappropriate because it was not a strategy
that Swenson would have pursued. Swenson's desire to have his
investment managers actively trade his securities does not,
however, affect the "buy and hold" portfolio's usefulness as a
benchmark. As the Report states, Dr. Lawrence is computing
damages using a number of alternative portfolio management
techniques. If the jury determines that Oxford did, in fact,
mismanage Swenson's IRA account, this comparison will certainly
help them determine what damages, if any, are appropriate.
Finally, I address Oxford's assertion that Dr. Lawrence's
analysis in this case is inconsistent with his own recommended
methodologies. To support this claim, Oxford points out that Dr.
Lawrence failed to interview Swenson about his investment goals
despite the recommendation in his Report that investment managers
do just that. Given the circumstances surrounding this
litigation, I do not think Dr. Lawrence's failure to interview
Swenson is fatal to his ability to testify here. Since Dr.
Lawrence could determine Swenson's basic financial needs from his
review of documents provided during discovery, he had no need to
interview Swenson. Accordingly, I find that Dr. Lawrence's
testimony should be allowed.
II. Swenson's Motion to Strike Steven Stern's Expert Report
and to Bar His Testimony
Swenson argues that Oxford's expert witness, Steven Stern,
should be striken from this case, pursuant to Fed.R. Civ. P.
26(a)(2)(B), for failure to provide a complete statement of all
opinions and for failure to identify the bases and reasons for
his opinions. To support its claims that Stern's report is not
complete, Swenson quotes the following sentence from his report:
"in the course of responding to your inquiries, I may refer to
other documents I have reviewed but this report is not meant to
be an exhaustive review of those documents nor meant to be a
complete all inclusive expert's report on the case." (Exh. A, ¶
1). After reviewing Stern's May 4, 2004, letter, which is being submitted here as his expert
report, it is clear to me that Stern considered the letter to be
somewhat preliminary in nature. I draw this conclusion primarily
from the letter's own informal appearance. Stern's expectations
or feelings towards the letter, however, are irrelevant to my
determination here. Rule 26 requires expert reports to be
"detailed and complete" and to "include the substance of the
testimony which an expert is expected to give on direct
examination together with the reasons therefor." Fed.R. Civ. P.
26(a)(2)(B). While Stern's letter may appear to be somewhat
informal, I do think it is incomplete. In the letter, Stern
provides eight points criticizing Dr. Lawrence's assumptions and
opinions. These criticisms clearly outline Stern's opinions
concerning Dr. Lawrence's Report and the basis for those
opinions. Thus, I find that Stern may testify as an expert
witness. It is, however, important to note that I will strictly
limit Stern's testimony to the contents of his May 4, 2004
For the reasons stated herein, Oxford's motion to bar the
testimony and report of Dr. Lawrence is DENIED and Swenson's
motion to strike the testimony and report of Steven Stern is
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