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RLJCS Enterprises, Inc. v. Professional Benefit Trust

November 8, 2005

RLJCS ENTERPRISES, INC., ET AL., PLAINTIFFS,
v.
PROFESSIONAL BENEFIT TRUST, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: John F. Grady, United States District Judge

MEMORANDUM OPINION

Before the court is defendants' motion to strike plaintiffs' expert reports. For the reasons stated below, the motion is granted in part and denied in part.

BACKGROUND

We will repeat here a brief summary of the alleged facts from an earlier opinion:

Plaintiffs are former employer and employee participants in a multiple-employer benefits trust ("the Trust"). The employers participated in the Trust for the sole purpose of providing death benefits for their participating employees. These death benefits were funded by life insurance policies that were purchased by the Trust with contributions made by the employers. The Trust was designed to be a qualifying trust under section 419A(f)(6) of the Internal Revenue Code, which allows employers to realize a tax deduction for contributions made to certain employee benefit plans. See I.R.C. § 419A(f)(6).

At the heart of this dispute are life insurance policies purchased by the Trust from Canada Life and Sun Life on behalf of participating employees. When these policies were issued, Canada Life and Sun Life were both mutual insurance companies, or, "insurer[s] whose policyholders are its owners, as opposed to a stock insurance company owned by outside shareholders." BLACK'S LAW DICTIONARY 1041 (7th ed. 1999). However, Canada Life and Sun Life, in 1999 and 2000 respectively, "demutualized," which is "[t]he process of converting a mutual insurance company (which is owned by its policyholders) to a stock insurance company (which is owned by outside shareholders). . . ." Id. at 445.

As a result of these demutualizations, the Trust received shares of Canada Life and Sun Life stock (together, "the Demutualized Stock").*fn1 Then, in or around September 2000, the trustee of the Trust liquidated the Demutualized Stock for approximately $5,000,000, which the Trust has retained. Effective December 31, 2002, plaintiffs terminated their participation in the Trust. Upon their withdrawal, the Trust distributed to the participating employees their respective Canada Life and Sun Life insurance policies and their pro rata share of other related Trust assets. The distribution, however, did not include any of the sales proceeds from the Demutualized Stock.

RLJCS Enterprises, Inc. v. Professional Benefit Trust, Inc., No. 03 C 6080, 2004 WL 2033067, at *1 (N.D. Ill. Sept. 2, 2004).

On these alleged facts, plaintiffs filed a 73-page, sixteen count complaint against the Trust and several related entities and individuals alleging violations of RICO, 18 U.S.C. §§ 1961, et seq., and ERISA, 29 U.S.C. §§ 1001, et seq., as well as various state law breach of contract, fiduciary duty and fraud-based claims. The nub of the complaint is that the participating employees had an ownership interest in the Demutualized Stock and that defendants unlawfully deprived the employees of that interest when their pro rata shares of the sales proceeds were not included in their termination distributions.

Defendants filed a counterclaim seeking a declaratory judgment that the Trust is the proper owner of the Demutualized Stock and related sales proceeds.*fn2 Along with the counterclaim, defendants filed a motion to stay all proceedings on the complaint pending decision on the counterclaim. Although we denied defendants' motion, we agreed with its premise -- since much (if not all) of the complaint hinges on the question of stock ownership, isolating that issue for an early resolution was the most efficient way to proceed with the case. See RLJCS Enterprises, 2004 WL 2033067, at *2. So, on September 15, 2004, the court ordered the parties to "conduct limited document and deposition discovery by November 15, 2004 on the question of stock ownership with a view to preparing a summary judgment motion on that issue." (Min. Order, Sept. 15, 2004.) After the court granted plaintiffs' requests to extend the discovery deadline until December 31, 2004, the parties filed cross-motions for summary judgment on the stock ownership question on March 7, 2005. Plaintiffs' motion relies on two expert witness reports. Defendants have filed a motion to strike the expert reports, and we suspended briefing on the summary judgment motions pending a ruling on the motion.

DISCUSSION

Defendants claim that the plaintiffs' expert reports should be stricken for two reasons: the reports were not timely disclosed and, alternatively, the reports contain improper opinions on questions of law.

We first take up the issue of timeliness. Defendants served interrogatories on October 7, 2004, requesting that plaintiffs "[i]dentify each person whom you expect to use as an expert witness, whether by testimony or affidavit, on the issues of ownership, sale or distribution of the Demutualized Stock. . . ." (Defs.' First Interr., No. 2.) Plaintiffs responded on November 8, 2004 as follows:

The Plaintiffs object to the this [sic] Interrogatory to the extent it calls for the disclosure of information (and timing of such disclosure) not required by the Federal Rules of Civil Procedure. The Plaintiffs intend to comply with Fed.R.Civ.P. 26(a)(2). Without waiving this objection, the Plaintiffs state that they intend to use the following persons as expert witnesses on the issues of ownership, sale or distribution of the Demutualized Stock: Fred Reish, Esq. Bruce Ashton, Esq. Reish, Luftman, Reicher and Cohen 11755 Wilshire Blvd. Fl. 10 Los Angeles, CA 90025-1539 (310) 478-5656 All of the above-requested information will be contained in the experts' report once it is prepared. (Pls.' Resp. to Interr., No. 2.) Defendants also served a request for documents on plaintiffs on October 7, 2004, seeking "any reports" from "anyone whom any Plaintiff expects to use as an expert witness on the issues of stock ownership, sale or distribution of the Demutualized Stock." (Defs.' Doc. Req., No. 16.) Plaintiffs' response of November 8, 2004 stated: The Plaintiffs object to this Document Request to the extent it seeks reports provided by consulting experts. The Plaintiffs also object to this Document Request to the extent that it requests the ...


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