Blackjewel, LLC v. United Bank (In re Blackjewel, LLC)

In re: Blackjewel L.L.C., et al., Debtors.

Blackjewel, L.L.C., et al., Plaintiffs, v. United Bank, Defendant.

No. 3:19-bk-30289

Adv. Pro. No. 20-ap-03007

United States Bankruptcy Court, S.D. West Virginia, Huntington Division

September 2, 2022

NOT FOR PUBLICATION

Chapter 11

MEMORANDUM OPINION PARTIALLY GRANTING UNITED BANK'S MOTION TO EXCLUDE TESTIMONY

BENJAMIN A. KAHN UNITED STATE BANKRUPTCY JUDGE

This adversary proceeding is before the Court on United Bank's ("Defendant") Motion to Exclude Trust's Expert. ECF No. 134 ("Expert Motion"). Defendant moves to exclude the Blackjewel Liquidation Trust's ("Plaintiff") expert, John Weiss ("Weiss") from offering expert testimony. Defendant asserts that (1) Weiss is not qualified to offer testimony regarding purported damages, and (2) his opinions are neither based on sufficient data nor the product of reliable principles and methods. For the reasons set forth herein, the Court finds that Weiss is qualified to offer expert testimony, but his opinions on damages are not based on any reliable methodology and will be excluded, subject to an opportunity to file an amended report.

I. Jurisdiction and Authority

The Court has jurisdiction over the subject matter of this proceeding under 28 U.S.C. § 1334. Under 28 U.S.C. § 155(a), the Honorable Roger L. Gregory, Chief Judge of the United States Court of Appeals for the Fourth Circuit, assigned and designated Benjamin A. Kahn, United States Bankruptcy Judge, to this Court and to the captioned, jointly administered cases, together with all associated adversary proceedings. Case No. 19-30289l, ECF No. 2011. Thereafter, the Honorable Joseph R. Goodwin entered an Order referring these cases and all related proceedings to the above signed as contemplated by the order entered by the Honorable Roger L. Gregory and under 28 U.S.C. § 157. ECF No. 2014. The parties consented to the Court's determining the matters set forth herein, and this Court has constitutional authority to enter final judgment. See Wellness Int'l. Network, Ltd. v. Sharif, 575 U.S. 665, 684 (2015); and Wiswall v. Campbell, 93 U.S. 347, 350-51 (1876). Venue of these cases and this proceeding is proper pursuant to 28 U.S.C. §§ 1408 and 1409.

II. Procedural Background

Debtors^[1] filed a complaint on June 1, 2020, alleging, among other things, that Defendant improperly interfered with its emergency debtor in possession ("DIP") financing efforts. Specifically, Debtors alleged that Defendant improperly interfered with Debtors' proposed DIP financing from Clearwater Investment Holdings, and that the interference led to layoffs and a disorderly liquidation of many of its assets, lost proceeds, profits, and damages. Debtors alleged four different claims for relief: (1) Tortious Interference with Business Relations, (2) Aiding and Abetting Breach of Fiduciary Duty and Tortious Conduct, (3) Unjust Enrichment, and (4) Equitable Subordination of Defendant's Proof of Claim.

At the request of the parties, the Court modified the scheduling orders in this case multiple times. As of the time of the Motion, the applicable scheduling order requires Plaintiff to have made initial expert disclosures by August 31, 2021, and Defendant by September 14, 2021. ECF Nos. 75 & 103. The deadline to have filed dispositive motions was November 30, 2021. ECF No. 75. Plaintiff's expert disclosures list Weiss as the only expert to testify and state that he will testify "regarding the cash consideration obtained during the forced liquidation of selected assets of the Blackjewel LLC estate, Coal and Mineral Valuation, and other opinions (including reasonable inferences arising therefrom) and subject matter referenced in Mr. Weiss' report[.]" ECF No. 134, Ex. 1, at p. 3. His report is attached to the disclosure and makes ten conclusions, along with listing various value metrics, and over 200 documents that Weiss was provided or relied upon. ECF No. 134, Ex. 1, at pp. 8-37 ("Expert Report").

On November 30, 2021, Defendant filed the Expert Motion, a Motion to Exclude Trust's Untimely Disclosed Fact and Expert Witnesses, ECF No. 135 ("Witness Motion"), and a Motion for Summary Judgment, ECF No. 136. Plaintiff filed its own Motion for Partial Summary Judgment as to Liability on Count One for Tortious Interference. ECF No. 138.

The Expert Motion asks the Court to exclude Weiss's testimony on three grounds: Weiss is not qualified, his opinion is not reliable because the financial data on which it is based is unreliable, and he used improper methods in reaching his conclusions. ECF No. 134. Plaintiff filed an Opposition to Defendant's Motion to Exclude Trust's Expert on December 21, 2021, arguing that Weiss is a qualified expert who can "opine on the bids and consideration that the Debtors would have received", that Weiss may properly rely on financial data from the company, and that Weiss may properly rely on his knowledge and experience in determining the range of prices that Debtors would have received. ECF No. 150, at pp. 3-4. Plaintiff attached a Declaration of John L. Weiss that explains his report and decisions in further detail. ECF No. 150-1 ("Weiss Affidavit").

Defendant filed its Reply to Opposition to Exclude Trust's Expert. ECF No. 151 ("Reply"). Defendant's Reply argues that the new Affidavit contradicts Weiss' testimony and the attached declaration is inappropriate because it originates from David Beckman, a previously undisclosed expert who is supporting the underlying financial data used by Weiss. Id. Defendant argues that this is a prohibited "'ambush' approach to rehabilitating an expert subjected to a Daubert motion" and violates Defendant's right to due process. Id., at p. 1.

III. Burden of Proof^[2]

"A trial court has discretion to conduct the reliability and helpfulness analysis that Daubert and [Fed. R. Evid.] 702 require in the context of a summary judgment motion, and to exclude expert testimony found wanting from its consideration in ruling on the motion." 4 Weinstein's Federal Evidence § 702.05(4) (2022) (citing Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 589 (1993)); see United States v. Parks, 849 Fed.Appx. 400, 403-04 (4th Cir. 2021). On the other hand, a trial court may also decide to "credit proffered expert testimony at the summary judgment stage on the basis of its reliability assessment, and either to deny summary judgment on the ground that the testimony presents a genuine issue of material fact," or the court may "grant summary judgment on the basis of reliable and undisputed expert testimony." 4 Weinstein's Federal Evidence § 702.05(4); see Crummett v. Bunn-O-Matic Corp., No. 3:21cv120, 2021 U.S. Dist. LEXIS 227088 (E.D. Va. Nov. 24, 2021) (conducting Daubert analysis of expert testimony at the summary judgment stage); Cooper v. Smith & Nephew, Inc., 259 F.3d 194 (4th Cir. 2001) (affirming the decision to dismiss claims at the summary judgment stage based on a Daubert analysis).

The Daubert analysis is no different at the summary judgment stage than at trial. Small v. WellDyne, Inc., 927 F.3d 169, 176- 77 (4th Cir. 2019) (stating that district court appropriately conducted a Daubert analysis in a remand for summary judgment); Peters-Martin v. Navistar Int'l Transp. Corp., 410 Fed.Appx. 612, 617 (4th Cir. 2011) (affirming district court decision to exclude expert testimony from summary judgment motions based on Daubert analysis); 4 Weinstein's Federal Evidence § 702.05(4) ("[I]f the trial court is going to hold an in limine evidentiary hearing in any event, it should make little difference whether the hearing occurs at the summary judgment stage or during the course of ordinary pretrial proceedings.").

"The trial court's analysis under the standards listed in Rule 702 must focus on the admissibility of the proffered testimony, not its correctness." 4 Weinstein's Federal Evidence § 702.05(2)(a); see also Md. Cas. Co. v. Therm-O-Disc, Inc., 137 F.3d 780, 783 (4th Cir. 1998) (noting that "[a]ll Daubert demands is that the trial judge make a 'preliminary assessment' of whether the proffered testimony is both reliable . . . and helpful").

The proponent has the burden of establishing that the pertinent admissibility requirements are met by a preponderance of proof. Cooper v. Smith & Nephew, Inc., 259 F.3d 194, 199 (4th Cir. 2001). Although not absent, the concerns raised by Daubert and admissibility of expert testimony are diminished in a bench trial. See, e.g., United States v. Wood, 741 F.3d 417, 425 (4th Cir. 2013) (quoting United States v. Brown, 415 F.3d 1257, 1269 (11th Cir. 2005))("There is less need for the gatekeeper to keep the gate when the gatekeeper is keeping the gate only for himself."); LaRosa v. Pecora, No. 1:07CV78, 2009 U.S. Dist. LEXIS 106627, at *9 (N.D. W.Va. Mar. 2, 2009) (quoting Gibbs v. Gibbs, 210 F.3d 491, 500 (5^th Cir. 2000) ("[M]ost of the safeguards provided for in Daubert are not as essential in a case such as this where a district judge sits as the trier of fact in place of a jury."); City of Huntington v. AmerisourceBergen Drug Corp., No. 3:17-01362, 2021 U.S. Dist. LEXIS 77078, at *13-14 (S.D. W.Va. Apr. 22, 2021) (quoting Kansas City S. Ry. . Co. v. SNY Island Levee Drainage Dist., 831 F.3d 892, 900 (7th Cir. 2016) ("Where a trial judge conducts a bench trial, the judge need not conduct a Daubert (or Rule 702) analysis before presentation of the evidence, even though he must determine admissibility at some point.").^[3]

IV. Findings of Fact and Conclusions of Law

Defendant makes three arguments in support of its motion to exclude Weiss' testimony. First, Weiss does not have the appropriate expertise; second, Weiss relies on unverified information; and third, Weiss did not employ any reliable methodology.

A Wei...