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United States District Court, N.D. Illinois, Eastern Division

August 18, 2004.

GENE H. SWENSON, Plaintiff,

The opinion of the court was delivered by: JAMES ZAGEL, District Judge


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, ΒΆ 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 letter.

  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 DENIED.


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