If you have any doubt as to how important a federal appellate court considers the gatekeeping responsibility with which a district court is charged under Federal Rule of Evidence 702 and Daubert, look no further than a recent ruling by the U.S. Court of Appeals for the First Circuit.
In an October 15, 2013 opinion, the First Circuit had quite a lot to say about a number of expert related issues, including a district court’s gatekeeping function under Daubert, the erroneous admission of certain damages testimony under Federal Rule of Evidence 702, and reliability of methodologies for calculating hedonic damages (including whether such damages are compensable at all in such a case).
In this post we focus on the court’s decision as to admissibility of expert testimony where the lower court’s record does not adequately demonstrate its Daubert analysis.
A Case of Alleged Overreaching
The decision was rendered in a case involving somewhat startling allegations of overreaching brought by a plaintiff who claimedly suffered from a number of problems. According to the opinion, “The circumstances of this case are truly exceptional,” noting that an enormous disparity of knowledge existed among the parties.
Plaintiff claimed he was induced into acting as a “straw buyer” in connection with an alleged fraudulent real estate mortgage scheme involving the purchase and subsequent resale of certain overvalued residential real properties in Massachusetts, resulting in a lawsuit against various parties plaintiff claimed were involved.
After a trial on the issues of fraud and breach of fiduciary duty, the jury returned a verdict in plaintiff’s favor and awarded damages. The district court doubled and tripled certain damages awarded to plaintiff in accordance with the state’s consumer protection statute.
As part of the appeal, the court reviewed a decision made by the lower court to deny two pretrial motions brought by a defendant in the case regarding the admissibility of plaintiff’s damages expert, a forensics economist. The motions consisted of a motion to preclude the expert’s testimony and a motion to strike.
In short, the First Circuit vacated and remanded as to the damages issue, in large part, not because the trial court abused its discretion in admitting the expert’s testimony, but for its apparent lack of exercise of any discretion – in that it essentially passed its gatekeeping buck to the jury.
Although the First Circuit stopped short of suggesting that the trial judge ignored Daubert, in essence it perhaps took the lower court to task, seizing on the opportunity to emphasize the importance of a district court’s role in carrying out its Daubert gatekeeper role.
What Went Wrong at the Pre-trial, Daubert Stage
As we have written about often, a district court’s decision to admit or exclude expert testimony pursuant to its gatekeeper function under Daubert is reviewed under an abuse of discretion standard (see Kumho).
However, the initial admissibility question in this appeal wasn’t whether lower court had abused its discretion with respect to admitting the expert’s testimony, but whether the lower court dropped the ball in performing its gatekeeping function altogether – essentially whether the circuit court had abdicated performing its gatekeeper function to the jury.
Here the circuit court took an opportunity to hone in on an important distinction: Whether a district court performed its gatekeeping function at all is a separate question – subject to a different standard of review on appeal – from whether a district court abused its discretion regarding admissibility.
Although perhaps a seemingly subtle distinction, the difference here resulted in a potentially case-altering decision on appeal – an order from the circuit court vacating the award of damages in favor of the plaintiff and ordering a redo in the form of a new trial as to damages.
A Look at the Court’s Analysis – Gatekeeping and De Novo Review
As the First Circuit explained, “The question of whether the district court actually performed its gatekeeping function in the first place is subject to de novo review,” citing decisions from both the 10th and 7th Circuits.
The court reviewed a district court’s gatekeeping charge under Daubert and Rule 702 of the Federal Rules of Evidence. Citing Daubert, the court noted, “Federal Rule of Evidence 702 assigns to the district court ‘the task of ensuring that an expert’s testimony both rests on a reliable foundation and is relevant to the task at hand.’”
The court then noted, citing another First Circuit opinion, “[T]here is no particular procedure that the trial court is required to follow in executing its gatekeeping function under Daubert. However,” continued the court, “the gatekeeper function must be performed.”
The court, (referencing Justice Scalia’s concurring opinion in Kumho), stated that, under this precept, “trial court discretion in choosing the manner of testing expert reliability is not discretion to abandon the gatekeeping function.”
The First Circuit continued, “Although the court need not make explicit findings on the admissibility criteria sua sponte, … ‘[w]ithout specific findings or discussion on the record, it is impossible on appeal to determine whether the district court carefully and meticulously reviewed the proffered . . . evidence or simply made an off-the-cuff decision to admit the expert testimony.’”
The First Circuit’s message here was loud and clear – a trial judge cannot abdicate its gatekeeping responsibilities. Where insufficient evidence exists in the record that the district court judge adequately fulfilled its gatekeeping role, a decision that the expert testimony is admissible could very well be vulnerable on appeal.
Even under a “Sub Silentio” Analysis, Much of the Expert’s Testimony Failed
The First Circuit noted that even if a sub silentio analysis had been undertaken by the district court (meaning silent or without notice), much of the testimony of plaintiff’s damages expert fell short of admissibility under Federal Rule of Evidence 702 and Daubert regardless.
The court found that two categories in particular were inadmissible: that of hedonic – otherwise known as “loss of enjoyment of life” damages, and damages as to “loss of credit expectancy.”
As to the hedonic damages, the methodology utilized by the expert – what the court termed a “willingness-to-pay” methodology – was found either unreliable or not helpful to the jury.
As to loss of credit expectancy damages, that issue suffered a similar fate, with the court finding that a “disconnect” between the methodology utilized by the expert and the facts rendered the testimony not useful in this particular case.
The opinion serves as a recent reminder: A district court’s ruling regarding admissibility of expert testimony may not be allowed to stand if the appellate court determines the lower court fell short fulfilling its gatekeeping function in the first place.
Such turned out to be the case here. A paucity of evidence on the record regarding the lower court’s expert testimony Daubert analysis contributed to a ruling by the First Circuit to vacate the damages award made in favor of the plaintiff in this case, and to remand the case for a new trial on the issue of damages.
The First Circuit opinion is Smith v. Dorchester Real Estate, Inc. (1st Cir. Oct. 15, 2013).
Tell us your thoughts: Do you think the First Circuit’s decision was too harsh?