Knudsen v. University of Montana: 2025 MT 125 – Clarifying the Use of Regulatory Compliance Experts and the Scope of a University’s Fiduciary Duty

1. Introduction

Knudsen v. University of Montana (2025 MT 125) arose from a class-action challenge to the way the University of Montana (UM) disbursed excess federal student-loan funds between 2010 and 2015. After a seven-day trial, a Missoula County jury found in favour of the University on all claims. The appellants — former students and class representatives — asked the Montana Supreme Court to set the verdict aside, claiming multiple trial-court errors.

Although the Court ultimately affirmed the trial court in full, its opinion articulates two important procedural-evidence rules for Montana civil litigation:

1. Expert testimony explaining a complex federal regulatory regime constitutes permissible “standard-of-care” evidence even when it edges close to the ultimate legal issue, so long as it does not pronounce the party’s liability in conclusory terms.
2. When a certified class definition expressly excludes persons whose own conduct caused their financial loss, defendants may present evidence of that conduct without running afoul of the ban on comparative-negligence defences in fiduciary cases.

The decision therefore serves as a new, detailed guideline on (i) drawing the line between expert legal conclusions and factual “standard-of-care” testimony, and (ii) the admissibility of “careless banking practices” evidence in fiduciary-duty class actions.

2. Summary of the Judgment

The Supreme Court addressed five appellate issues:

1. Admissibility of evidence/argument on students’ careless banking practices.
2. Whether the University’s expert gave impermissible legal conclusions.
3. Allegedly prejudicial statements in closing argument.
4. Admission of a fee-comparison chart created by a University witness.
5. Rejection of a proffered “burden-shifting” damages instruction.

Justice Beth Baker, writing for a unanimous Court, held:

• The District Court acted within its discretion in allowing evidence of overdraft and other self-incurred fees, because the certified class excluded those losses (Issue 1).
• The University’s expert, Dennis Cariello, properly explained federal Title IV regulations as the relevant standard of care; his single, stricken statement that compliance equalled fulfillment of fiduciary duty did not prejudice the trial (Issue 2).
• Closing-argument references to the absence of “illegal conduct” did not violate any in-limine order nor deny a fair trial (Issue 3).
• The fee-comparison chart, even if hearsay, was cumulative of live testimony and therefore harmless (Issue 4).
• Because the jury found no breach, it never reached damages; any instructional error on burden-shifting was moot (Issue 5).

3. Analysis

3.1 Precedents Cited

• Knudsen v. Univ. of Mont., 2019 MT 175 (“Knudsen I”) – affirmed class certification for fee-payers but expressly excluded students whose own banking errors produced overdraft charges; critical to Issue 1.
• Commissioner of Political Practices v. Wittich, 2017 MT 210 – held that expert testimony may approach ultimate issues if it aids the jury; key template for analysing Cariello’s testimony.
• Mickelson v. Montana Rail Link, 2000 MT 111; Heltborg v. Modern Machinery, 244 Mont. 24 – contrasting examples of permissible vs. impermissible expert legal conclusions.
• Anderson v. BNSF Ry., 2015 MT 240; Harne v. Deadmond, 1998 MT 22; Workman v. McIntyre, 190 Mont. 5 – provide standards for reversal based on improper closing arguments. The Court distinguished these to uphold Issue 3.
• Maier v. Wilson, 2017 MT 316 – harmless-error benchmark for evidentiary rulings (used in Issue 4).
• Restatement (Third) of Trusts § 100 – invoked by Students for burden-shifting on damages (Issue 5); rejected as moot.

3.2 Legal Reasoning

1. Class definition controls admissibility. Because Knudsen I limited the class to students who paid unauthorised fees not attributable to their own overdrafts, the trial court correctly allowed evidence showing that some fees were self-inflicted, thereby excluding those students from the class and negating a comparative-negligence concern.
2. Standard-of-care expert vs. legal conclusions. The Court reiterated the Rule 704 framework: an expert may speak to an ultimate factual issue (e.g., whether conduct met industry standards) but may not tell the jury how to decide the legal question (breach of fiduciary duty). Cariello’s testimony traced the evolving Title IV regulations (2007 vs 2016), audit history, and FDIC actions to ground his opinion that UM’s conduct “materially met” industry standards. His single over-reach (“the University met its fiduciary duty”) was immediately objected to and struck, so no prejudice.
3. Closing argument latitude. Unlike cases where counsel violated explicit gag orders, UM’s lawyer’s statements that “nothing illegal occurred” merely echoed trial evidence and did not misstate the law or introduce excluded facts. The jury, properly instructed that fiduciary duty extends “beyond mere regulatory compliance,” could evaluate counsel’s rhetoric.
4. Harmless admission of documentary evidence. Even assuming the fee-comparison chart was hearsay, it was cumulative of admissible witness testimony (and unmentioned in closing), so it could not have “affected the result of the case.” The Court also noted that § 25-7-404, MCA expressly authorises jurors to review admitted exhibits during deliberation.
5. Mootness of damages instructions. Because the jury returned a defence verdict on liability, any arguments about burden-shifting on damages were irrelevant under the harmless-error doctrine.

3.3 Impact of the Decision

• Expert Evidence Gatekeeping: Montana trial judges now have a concrete blueprint for admitting expert testimony that intertwines regulatory frameworks with fiduciary-duty claims. Practitioners should carefully draft direct examinations to anchor opinions in “standard-of-care” rather than “ultimate legal duty.”
• University-Student Litigation: The opinion underscores that while Montana recognises a fiduciary duty when a university disburses federal loan refunds, plaintiffs must still prove that the institution’s conduct — not independent banking choices — caused their loss.
• Class-Action Management: The Court’s reliance on its earlier class-definition language illustrates how appellate pronouncements can later govern the admissibility of trial evidence.
• Comparative Negligence in Fiduciary Contexts: The ruling implicitly narrows the categorical statement in Bear Medicine (comparative negligence unavailable in fiduciary cases) by allowing defendants to show that some losses are wholly outside the fiduciary ambit.

4. Complex Concepts Simplified

• Fiduciary Duty: A special obligation to act with utmost good faith for another’s benefit. Here, UM became a fiduciary because it held federal funds on behalf of students and controlled how those funds reached them.
• Standard of Care vs. Ultimate Issue: “Standard of care” refers to the benchmark conduct expected under rules or industry practice. The “ultimate issue” is the jury’s legal verdict (e.g., breach of fiduciary duty). Experts may opine on the former but not direct the jury on the latter.
• Third-Party Servicer: A private company (e.g., Higher One) hired by a school to perform functions — such as refund disbursements — that the school could do itself.
• Title IV Credit Balance: Leftover student-loan money after tuition/fees are paid; must be released promptly to the student.
• Harmless Error: Even if a judge makes a mistake (e.g., admitting hearsay), the appellate court will not reverse unless the mistake reasonably could have changed the verdict.

5. Conclusion

Knudsen v. University of Montana does not radically reshape fiduciary-duty law, but it supplies crucial procedural guidance on how fiduciary cases involving complex federal regulations should be tried. The Court reaffirmed broad trial-court discretion in:

• Admitting expert testimony that explicates regulatory standards;
• Allowing evidence necessary to implement precise class definitions;
• Policing — yet not over-policing — closing argument rhetoric; and
• Determining when evidentiary errors are harmless.

Future litigants, especially in higher-education finance and other heavily regulated arenas, must heed this decision when structuring both class definitions and evidentiary presentations. The ruling strikes a pragmatic balance: compliance evidence is relevant, but it is not dispositive of fiduciary duty; expert witnesses may educate, but not adjudicate; and trial errors warrant reversal only when they demonstrably influence the verdict.