MEMORANDUM OPINION
Opinion By Justice O'NEILL.
Appellant Raffaele M. Pandozy, Ph.D has filed a notice of restricted appeal from a judgment granted in favor of the City of Dallas. The judgment that Pandozy attempts to appeal is against Dallas Texas' Rose Garden, Inc. The judgment requires Rose Garden, who owns a residential building in the City of Dallas, to repair numerous code violations and obtain a valid certificate of occupancy or cease operating as a multi-family dwelling. The judgment also assesses civil penalties against Rose Garden. Rose Garden did not appeal the trial court's judgment. Acting pro se, Pandozy filed a notice of restricted appeal seeking reversal of the judgment. According to his brief, Pandozy is the "acting treasurer and the secretary" of Rose Garden.
Generally, only parties to an action have standing to appeal. Continental Cas. Co. v. Huizar, 740 S.W.2d 429, 430 (Tex. 1987); Bell v. Sharif-Munir-Davidson Dev. Corp., 738 S.W.2d 326, 332 (Tex. App.-Dallas 1987, writ denied); Johnson v. Johnson, 841 S.W.2d 114, 115 (Tex. App.-Houston [14th] 1992, no writ). An exception to this general rule exists under the doctrine of virtual representation. Johnson, 841 S.W.2d at 115. To demonstrate standing as a party under this doctrine, the person attempting to appeal must show that he is bound as a privy to the judgment. Benson v. Anderson, 899 S.W.2d 272, 275 (Tex. App.-Houston [14th] 1995, writ denied). Pandozy's evidence showing that he was the corporate representative in the litigation below does not establish Pandozy is bound as a privy to the judgment. Cf. Hassler v. Texas Gypsum Co., Inc., 525 S.W.2d 53, 54 (Tex. Civ. App.-Dallas 1975, no writ) (corporate officer not liable for debts of corporation). Pandozy was not a party to the judgment and has not established he is bound by the judgment. Further, Pandozy, acting pro se, cannot represent Rose Garden's interest. Because Pandozy was not a party below, he has no standing to bring this appeal. See Tri-State Salvage Co. v. City of El Paso, 08-08-00250-CV, 2009 WL 641300 * 1 (Tex. App.-El Paso Mar. 12, 2009, no pet.) (memorandum opinion). Therefore, we dismiss this appeal for want of jurisdiction.
case, Bank One argues, are more appropriately denominated as financial guarantees than as lease bonds. Moreover, Bank One contends, Lembke's testimony is offered not strictly as to surety issues, but as to broader topics, including (1) custom and practice regarding coverage; (2) underwriting; (3) accounting and claims handling; and (4) the duties of an insurer to its principals, obligees and assignees. With respect to these areas, Bank One asserts, Lembke's qualifications are unchallenged.
According to Bank One, Safeco's attempt to limit the scope of appropriate expertise in this matter to the area of "lease bonds" is an artificial construct based upon the unique facts of this case, and is aimed at excluding well-qualified bank experts. Bank One maintains that Sixth Circuit law prohibits the imposition of an overly narrow test of expert qualifications, see United States v. Barker, 553 F.2d 1013, 1024 (6th Cir. 1977), and argues that this Court should refrain from applying such an excessively restrictive standard here.
Bank One argues that Safeco's motion does not raise grounds for exclusion under Daubert, but rather raises only issues appropriate for cross-examination. Bank One contends that Safeco challenges only a few limited opinions in Lembke's report, most of which are taken out of context. To the extent that Safeco contests Lembke's opinion based on Lembke's alleged failure to consider the testimony of certain Safeco witnesses, Bank One asserts that such a challenge bears only on the weight of Lembke's testimony, not its admissibility. Bank One further asserts that, rather than offer impermissible legal opinions, Lembke's expert report does no more than describe industry standards and customs. Bank One cites numerous cases in
To support this assertion, Bank One relies on various excerpts of Lembke's deposition testimony, in which Lembke stated that his opinions were based upon industry standards rather than legal definitions.
which courts have admitted opinions as to industry standards and practices. See, e.g., Shepherd v. Unumprovident Corp., 381 F. Supp. 2d 608, 611 (E.D. Ky. 2005); ID Sec. Sys. Canada, Inc. v. Checkpoint Sys., Inc., 198 F. Supp. 2d 598, 620-21 (E.D. Pa. 2002). While the application of industry standards may touch upon ultimate issues in the litigation, Bank One asserts that this does not render Lembke's opinions per se inadmissible. See Fed.R.Evid. 704(a).
Finally, Bank One argues that Lembke's testimony is not per se excludable merely because limited portions of Lembke's expert report discuss his belief as to Safeco's state of mind. Bank One relies on the relatively liberal standards of the Federal Rules of Evidence, and reminds the Court that the "rejection of expert testimony is the exception rather than the rule. . . ." Fed.R.Evid. 702, Adv. Comm. Notes (2000).
3. Analysis
Lembke is one of the few experts challenged by the Sureties on "qualification" grounds, rather than merely the "reliability" prong of Daubert. Safeco has argued that Lembke's background and experience are focused on the insurance and reinsurance industries, and that Lembke has insufficient knowledge of the surety law issues underlying these actions. For the reasons set forth herein, Safeco's motion to exclude Lembke's testimony in its entirety pursuant to Daubert is denied.
Initially, the Court notes that Lembke has been proffered only by Bank One to testify in Case No. 02-16014, a case that was not part of this Court's bench trial proceedings. Accordingly, this case is unaffected by the Court's Bench Trial Opinion, and the Court has issued no findings in this case as to the transactional structure or the intended obligee.
As a threshold matter, the Court finds that Lembke is adequately qualified within his discipline, and has knowledge and expertise sufficiently relevant to provide testimony that would be helpful to the trier of fact as to certain issues. Upon review of the parties' arguments and Lembke's curriculum vitae, it appears that Lembke has significant experience in insurance claims handling, as well as some degree of underwriting experience, particularly in the area of financial guarantee bonds. Lembke's experience in claims handling, moreover, appears to be relevant to Bank One's claims under the SSAs, as Bank One has alleged that certain provisions of the SSAs established relevant standards for the processing of bank claims upon the bonds.
In addition, Lembke's testimony may be relevant to the bad faith claims raised by Bank One. Although the Court has granted Safeco summary judgment as to Bank One's bad faith claims in tort (see Doc. 2214), Bank One argues in its brief that it retains contractual claims based upon Safeco's improper handling of Bank One's bond claims.
Particularly in the absence of findings as to the parties' intended transactional structure, or the obligee in the Bank One transactions, the Court is unable to disqualify Lembke at this point on the basis of his education and/or experience. While the Sureties assert that Lembke has limited experience with "surety bonds" or "lease bonds," the Banks correctly point out that this Court has not determined the nature of the underlying transaction in this case. The Sureties have not disputed that Lembke has ample experience with claims handling and/or underwriting with respect to financial guarantee instruments. Therefore, as with several other experts proffered by the Banks, the admissibility and/or scope of Lembke's testimony may be dependent, to some extent, on a determination by this Court on the threshold issues of (1) the structure of these transactions; and (2) the Banks' obligee status.
The Sureties' arguments, however, as to the legal conclusions and personal opinions offered by Lembke stand upon a different footing, and are largely well taken. Upon the Court's review of the expert report authored by Lembke, it is apparent that the scope of the opinions offered by Lembke is broad, encompassing issues ranging from underwriting to bond interpretation to claims handling. A large number of statements and conclusions within Lembke's report involve (1) legal conclusions offered by Lembke; (2) impermissible "weighing" of the evidence; or (3) conclusions as to ultimate issues of fact, which improperly invade the province of the fact-finder. Testimony falling into any of these categories is outside the scope of permissible expert testimony and will be excluded.
Lembke will be permitted to testify as to the content of industry standards governing claims handling and underwriting, to the extent that Bank One can lay sufficient foundation for Lembke's opinions in these areas. As explained previously in this Opinion, however, the Court will not permit testimony by any expert as to ultimate issues of fact — including breach by Safeco of any applicable standards. Lembke will be precluded, therefore, from offering any opinion as to (1) the structure of these transactions as financial guarantees; or (2) the identity of the "obligee" in the Bank One transactions.
For the same reasons, the Court will not allow Lembke to step outside his expert role and render factual findings not based upon any expertise held by Lembke. The Court will, accordingly, preclude testimony as to any of the following matters: (1) statements as to Safeco's intent or state of mind; (2) conclusions as to factual issues such as the fraud of CMC; (3) any purported "interpretations" of the language of the transaction documents; or (4) any determinations that Safeco violated certain statutes or committed fraud as against the Banks.
As previously noted in this Opinion, the expert report submitted by Lembke is extensive, and the Court cannot anticipate every opinion that Lembke may seek to offer, nor every objection that the Sureties may raise. The Court will, however, apply the standards set forth in this opinion to restrict the breadth of Lembke's testimony as proffered by Bank One in the context of a trial.
Safeco's motion to exclude Lembke's testimony in its entirety pursuant to Daubert is denied. As set forth herein, however, the Court establishes certain limitations on the testimony of this expert.
E. Royal Motion re: Testimony of Rolf Neuschaefer [Michael Anthony and Anthony Morgan, Case Nos. 02-16012, 02-16019, 02-16022] (Doc. 2252)
Royal has moved, pursuant to Daubert, to exclude the testimony of Rolf Neuschaefer ("Neuschaefer"), an expert proffered by Michael Anthony and Anthony Morgan Surety Insurance Services, Inc. (collectively, "A M"), in cases 02-16012, 02-16019, and 02-16022. A M has designated Neuschaefer to testify as to two primary issues: (1) the role and responsibilities of a surety agent/broker to his/her client; and (2) compensation to the agent/broker.
As an initial note, during the Daubert hearings conducted on July 17, 2009, this Court heard oral argument with respect to Royal's motion to exclude the testimony of Neuschaefer. At that time, the Court conducted a discussion on the record with counsel for both Royal and A M. A M's counsel agreed that there were certain statements within Mr. Neuschaefer's expert report that exceeded the scope of Mr. Neuschaefer's expertise and constituted impermissible legal conclusions. The Court then directed counsel for Royal and A M to confer and provide the Court with an annotated expert report indicating (1) the opinions that A M would agree to withdraw; and (2) the remaining opinions to which Royal continued to object.
Despite the parties' apparent agreement as to some issues during the July 17, 2009 proceedings, on October 19, 2009, Royal filed an annotated expert report of Rolf Neuschaefer (Doc. 2429), which highlighted the portions of Neuschaefer's expert report to which Royal objected. In that submission, Royal indicated that it had been unable to reach agreement with A M to withdraw any portion of Neuschaefer's expert report. Accordingly, the Court considers Royal's motion as originally filed, and as clarified by Royal's filing of an annotated expert report.
For the reasons set forth herein, Royal's motion to exclude the testimony of Neuschaefer pursuant to Daubert is denied, although the Court establishes certain limits on the testimony of Mr. Neuschaefer.
1. Summary of Expert Testimony
A M has proffered Mr. Neuschaefer to opine as to the role and responsibilities of an agent or insurance broker to his or her client (the insured or principal), as well as to the insurance carrier. Mr. Neuschaefer also seeks to opine as to the compensation to be paid to such agents and brokers in the form of commission and fees, and the applicable industry requirements regarding disclosure of such fees.
Neuschaefer's expert report includes a background, or "summary," discussion of the respective role of a surety vis-à-vis its agent, including the duty of the surety underwriter as "gatekeeper" and decisionmaker with respect to the bonds authorized. Within this summary, Neuschaefer also makes statements as to (1) a surety's inability to assert defenses, including fraud defenses, against its obligee; (2) an obligee's reasonable expectation that it may rely upon the bonds; and (3) the duties imposed upon the underwriter to obtain all necessary information.
Neuschaefer's expert report contains certain statements which appear to (1) contain legal conclusions; or (2) reflect a weighing of the evidence by A M's expert. For example, Royal objects to the following statements (stated below in summary form):
(1) Based upon a review of the transaction documents, there was "no evidence" that A M breached any fiduciary obligations;
(2) Based upon a review of the depositions, A M was given no underwriting authority;
(3) There was "no evidence" that A M was ever informed that it had violated the Sureties' trust;
(4) The commission paid to A M by the Sureties was in the normal or standard range for the surety industry;
(5) Based upon a review of the depositions, A M did not receive profit sharing on the CMC bonds;
(6) Based upon a review of the agency agreements, A M was not prohibited from billing fees to, and receiving
payment from, its client, CMC; and
(7) Based upon a review of all evidence, A M's conduct did not fall below the standard of care applicable to an agent or broker.
2. Parties' Arguments
a. Royal
Apparently, Royal does not challenge Neuschaefer's education or experience, nor does it challenge the general thrust of the testimony that Neuschaefer seeks to offer. Royal argues, however, that Neuschaefer's report deviates significantly from the topics for which Neuschaefer was designated and sets forth numerous irrelevant opinions that are impermissible under Rule 702.
First, Royal objects to virtually the entirety of Neuschaefer's general "background" discussion as to underwriting, including the discussion of appropriate surety underwriting. Royal contends that Neuschaefer impermissibly opines as to issues including (1) the absence of defenses where a surety has failed to properly underwrite an account; and (2) a surety's unconditional obligation to an obligee despite fraud in the application process. According to Royal, this commentary is outside the scope of Neuschaefer's designated testimony and irrelevant to Royal's case against A M. While Royal does not dispute that an expert may offer opinions as to duties imposed by custom and practice, Royal contends that Neuschaefer's discussion of industry practice is simply not pertinent to the issues involved in Royal's claims against A M. Moreover, Royal argues, these statements represent impermissible legal conclusions by Neuschaefer.
Based upon Fed.R.Evid. 702 and applicable case law, Royal also objects to certain other statements that allegedly constitute legal conclusions, including Neuschaefer's statements that (1) A M did not breach any fiduciary duties; and (2) certain agency agreements did not prohibit the receipt of certain undisclosed fees by Michael Anthony.
Finally, Royal challenges certain opinions by Neuschaefer that allegedly are based upon a weighing of the evidence or invade the province of the fact finder, including Neuschaefer's conclusions that (1) A M was given no underwriting authority by the Sureties with respect to the CMC account; (2) A M did not receive profit sharing on the CMC bonds; and (3) the range of commissions paid to A M on the CMC account was "normal." Royal asserts that such statements merely summarize Neuschaefer's own view of the evidence and thus are unhelpful to a fact finder.
b. A M
In opposition to Royal's motion, A M argues that Neuschaefer is appropriately qualified to opine on the issues addressed in his expert report, and that the opinions offered are both relevant and helpful to the fact finder in determining the issues involved in Royal's claims against A M. A M points to Neuschaefer's three decades of experience in the insurance industry, as well as his possession of a CPCU designation and other professional certifications. A M further notes that Neuschaefer has published several articles relating to agent/broker rights, responsibilities and standards of care, and has qualified as an expert in two prior cases.
Moreover, A M argues, the opinions offered by Neuschaefer go directly to the issues of agent/broker rights, responsibilities to client and carrier, compensation, standards of care and duties — matters that are directly at issue in the context of Royal's claims against A M. A M contends that Neuschaefer's report is directed to the scope of an agent's duties to an insurance carrier, and thus that it will aid in determining whether A M violated relevant agency standards — a question that is directly relevant to Royal's claims of fraud and breach of fiduciary duty. A M contends that, even where an expert testifies as to a party's compliance with legal standards within a given industry, such testimony is permissible where it is relevant and based upon the customs and practices of a given industry. See, e.g., Calusinski v. Kruger, 24 F.3d 931, 937 (7th Cir. 1994); Haley v. Gross, 86 F.3d 630, 645 (7th Cir. 1996).
c. Analysis
As with many of the other motions filed in these actions, Royal's motion to exclude the testimony of Neuschaefer challenges only the relevance and reliability of the opinions to be offered by Neuschaefer. As such, this motion is more akin to a motion in limine than to a Daubert motion. The Court finds generally that Mr. Neuschaefer is adequately qualified within his discipline, and has knowledge and expertise sufficiently relevant to provide testimony that would be helpful to the trier of fact as to certain matters at issue. Accordingly, Royal's motion to exclude Neuschaefer's testimony in its entirety pursuant to Daubert isdenied.
The proffered testimony is relevant, in a general sense, to Royal's claims against A M and A M's defenses to those claims. Royal has alleged breach of fiduciary duty, fraud and conspiracy to defraud. Presumably, A M seeks to offer the testimony of Neuschaefer to support its assertions that (1) A M dealt with the carriers in a manner consistent with the requirements imposed on agents/brokers by the insurance industry; and (2) A M did not violate any duties to the Sureties. A M also apparently seeks to offer Neuschaefer's testimony that an agent has no underwriting duties to demonstrate that A M had no knowledge of fraud or any other misconduct by CMC, and did not participate in any fraud committed by CMC against the Sureties.
Upon a careful review of the expert report authored by Neuschaefer, the Court finds that, while the opinions expressed by Neuschaefer in his expert report are relevant to the issues described above, portions of the Neuschaefer report do contain statements that stray beyond the permissible scope of expert testimony. In the areas where this occurs, Neuschaefer's testimony either (1) usurps the role of the fact-finder in weighing evidence; or (2) offers legal conclusions that are both inappropriate and unhelpful to the fact-finder. Testimony by Neuschaefer that falls into either of these two categories will be precluded.
Initially, while there is some utility to Neuschaefer's background description of the expected "division of labor" between a surety and its agent/broker, the Court finds that Neuschaefer's testimony in this area must be limited, in order to weed out inappropriate legal conclusions and avoid jury confusion. Thus, while Neuschaefer will be permitted to testify as to the typical division of functions between the surety underwriter and the broker, Neuschaefer will not be permitted to testify as to (1) any legal "duties" allegedly imposed on the underwriter; (2) the reasonableness of a hypothetical obligee's reliance on the underwriting performed by a surety; or (3) a surety's ability to assert fraud defenses in the context of a surety bond or other instrument.
Additionally, Neuschaefer will not be permitted to express any conclusions to the extent that those conclusions are predicated upon Neuschaefer's own evaluation of the evidence, rather than upon any special expertise possessed by Mr. Neuschaefer. Thus, Mr. Neuschaefer may not testify as to his view of the facts in this action (including the amount of commissions received by A M or the underwriting authority given to A M), where the basis for Mr. Neuschaefer's opinions is his "review of the depositions," "review of the transaction documents," or "review of the evidence."
With respect to the legal conclusions allegedly contained in Mr. Neuschaefer's report, this Court has already held that it will not permit any expert to testify to legal standards, or to a party's compliance with those standards. Nor will this Court permit an expert to testify to the requirements imposed upon a party merely by interpreting the governing agreement. Thus, to the extent that Neuschaefer seeks to testify as to (1) the duties imposed upon A M by the agency agreement; or (2) A M's breach of any fiduciary duties or of applicable standards of care, such testimony will not be permitted. Further, Mr. Neuschaefer may not testify as to the legal requirements imposed on A M by California law relating to compensation or disclosure of commissions.
To the extent, however, that Neuschaefer seeks to opine only as to the content of industry standards — including (1) prevailing rates of commission for surety brokers; (2) standard practice as to compensation and disclosure of compensation; (3) the custom and practice in the surety industry relating to the standard of care applicable to brokers; or (4) the fact that the scope of certain duties generally is governed by or memorialized in an agency agreement — Neuschaefer will be permitted to so testify.
Again, while the Court cannot anticipate every opinion that Neuschaefer may seek to offer, nor every objection that the Sureties may raise, the Court intends that the restrictions and limitations set forth in this opinion will govern the testimony of Neuschaefer in future proceedings in these actions.
For the reasons set forth herein, Royal's motion to exclude Neuschaefer's testimony pursuant to Daubert is denied, although the Court establishes certain limits on the testimony of Mr. Neuschaefer.
III. Conclusions
For the reasons set forth herein,
(1) Safeco's Motion to exclude the testimony of Paul Palmer, Charles Kerner and Jerry Hudspeth (Doc. 2254) is denied, although the Court establishes certain limitations on the testimony of these experts.
(2) Royal's Motion to exclude the testimony of Paul Palmer, Charles Kerner, and Thomas Davis (Doc. 2246) is denied. Royal's motion to exclude the testimony of Palmer and Kerner is denied, although the Court establishes certain limitations on the testimony of these experts. Royal's motion to exclude the testimony of Davis is also denied, and the Court finds that the imposition of limitations on Davis's testimony is inappropriate at this point in time.
(3) Safeco's Motion to exclude the testimony of Michael P. Larrick (Doc. 2245) is denied, although the Court establishes certain limitations on the testimony of Larrick.
(4) Safeco's Motion to exclude the testimony of Daniel Cadle (Doc. 2249) is granted.
(5) Royal's Motion to exclude the testimony of Daniel Cadle (Doc. 2248) is granted.
(6) Safeco's Motion to exclude the testimony of Robert Lembke (Doc. 2251) is denied, although the Court establishes certain limitations on the testimony of Lembke.
(7) Royal's Motion to exclude the testimony of Rolf Neuschaefer (Doc. 2252) is denied, although the Court establishes certain limitations on the testimony of Neuschaefer.
IT IS SO ORDERED.