Free Motion to Strike - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS FIRST ANNAPOLIS BANCORP, INC., Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) )

No. 94-522C (Judge Williams)

DEFENDANT'S MOTION TO STRIKE PLAINTIFF'S SUPPLEMENTAL EXPERT WITNESS IDENTIFICATION Pursuant to Rules 1 and 7 of the Rules of the Court of Federal Claims ("RCFC"), defendant, the United States, respectfully requests that the Court strike the supplemental expert witness identification filed by plaintiff, First Annapolis Bancorp, Inc. ("Bancorp") on November 17, 2007. Our motion is based upon the following. BACKGROUND Expert discovery commenced in this case in August 1999. In accordance with the Court's procedural order governing discovery in the Winstar-related cases, on August 25, 1999, Bancorp filed its identification of expert witnesses naming Edward Heiden as its sole expert. Ex. A ("Plaintiff identifies Edward Heiden . . . as its expert regarding damages suffered herein"). Similarly, on August 31, 1999, plaintiff-intervenor FDIC, then a party to the litigation, filed its identification of expert witnesses naming Robert E. Litan, Ph.D. as its sole expert. Ex. B. In the months that followed, Mr. Heiden prepared a report regarding Bancorp's alleged damages and Dr. Litan prepared a report regarding the alleged damages sustained by the thrift, First Annapolis Savings Bank, F.S.B. ("First Annapolis"). As indicated in his report, Dr. Litan was retained by

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the FDIC to determine the damages First Annapolis allegedly suffered as the result of the Government's breach of the agreements between the FHLBB and First Annapolis. Ex. C at 1. At no time during the expert discovery period did Bancorp identify Dr. Litan as one of its experts. Indeed, during expert discovery, we deposed each of the two experts regarding the damages opinions contained in their respective reports. At no time did Dr. Litan ever express any opinions regarding the damages allegedly sustained by Bancorp. His opinions were limited to those damages allegedly suffered by the thrift, First Annapolis. Bancorp's counsel attended the deposition of Dr. Litan by telephone and did not ask any questions; however, Bancorp's counsel specifically reserved the right to depose Dr. Litan at a later date. Ex. D (Litan Dep. at 121-22). To date, Bancorp has not deposed Dr. Litan. I. Bancorp Failed To Comply With The Court's Orders Regarding The Designation Of Dr. Litan As An Expert This Court should not consider the opinions of the FDIC's expert, Dr. Litan, because Bancorp failed to identify Dr. Litan as one of its experts in accordance with the Court's procedural orders for the Winstar-related cases. Moreover, Dr. Litan has not prepared an expert report regarding the alleged damages suffered by Bancorp, nor did he opine on such damages in the report that he prepared for the FDIC. As indicated above, Bancorp identified a single damages expert, Mr. Heiden, during the expert discovery period in 1999. Now, after a delay of more than seven years, Bancorp has identified Dr. Litan as one of its experts in this case; however, Bancorp failed to submit an expert report for Dr. Litan. Indeed, Bancorp has provided us with only one expert report in this case ­ that of Dr. Heiden ­ and it was produced during the expert discovery period in 1999-2000. Bancorp has failed to provide us with any expert report from Dr. Litan. As such, Bancorp has -2-

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effectively denied us the right to prepare a defense on an issue that is critical to the outcome of this case by failing to abide by the Court's discovery orders. While Bancorp did identify Dr. Litan as one of its experts on November 17, 2006, more than seven years after it was required to disclose him, Bancorp did not provide a report prepared by him explaining what opinions, if any, he has regarding Bancorp's alleged damages. Bancorp can not deny that it failed to comply with the Court's procedural orders regarding expert discovery in this case. Specifically, part V, paragraph A.2. of Procedural Order No. 2 for Winstar-related cases provides: 2. Absent agreement of the parties, each plaintiff shall deliver to defendant a final written report prepared and signed by each witness identified pursuant to Paragraph V.A.I. within 60 days after identification. The written report shall contain: (a) a complete statement of all opinions to be expressed by the witness and basis and reasons for all opinions; (b) the data or other information considered by the witness in forming the opinions; and (c) all exhibits to be used as a summary of or in support for the opinions of the witness. Ex. E (emphasis added). The Court's order further provides that: "If a plaintiff fails to comply with the provisions of this section with regard to any expert witness it proposes to call, no opinion testimony will be received from that witness on behalf of that plaintiff." Id. at 9 (emphasis added). The Court's order is plain and succinct. Equally plain is Bancorp's knowing failure to comply with that order. Bancorp's belated attempt to piggy-back upon the efforts of the FDIC does not satisfy its obligations under the rules of this Court or Procedural Order No. 2 for Winstar-related cases. Additionally, the impropriety of Bancorp's reliance upon Dr. Litan's opinions is demonstrated by his own deposition testimony:

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Q:

Who does the FDIC represent in this case, the shareholders or the creditors? * * *

A:

My understanding is that the FDIC is in the shoes or is standing in the shoes of the institution, and it took over these institutions as a result of the demise of the RTC, and the RTC took over the institution when they shut it down. Okay. So it's acting as the representative of the institution and it's the institution that lost the goodwill and the forbearances and so forth that I value. Okay. And did the shareholders also use [sic] the value or the ­ lose the goodwill and the forbearances over those ­ the institutions? Well, to my knowledge, the FDIC represents the institution. The split between the ­ if there is any ­ between the FDIC and the shareholders is none of my business.

Q: A:

Q:

A:

Ex. D (Litan Dep. at 95). It is readily apparent from Dr. Litan's expert report and his deposition testimony that (1) he was retained only by the FDIC, (2) that his damages opinions relate only to the thrift, not the holding company, and (3) he has articulated no opinions concerning the damages suffered by Bancorp as a result of the alleged breach. Moreover, counsel for the FDIC has informed us that the FDIC was not aware of Bancorp's belated designation of Dr. Litan as one of its purported expert witnesses. Aside from the inappropriateness of Bancorp's designation of another party's expert, the prejudice flowing from Bancorp's conduct is obvious. Although Dr. Litan was deposed at length concerning the basis of his opinions as to the alleged damages suffered by First Annapolis, and therefore, the FDIC, we were unable to question him concerning how and to what extent Bancorp suffered any damages because he expressly stated it was "none of his business." Thus,

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it would be fundamentally unfair to allow Bancorp to identify Dr. Litan at this stage of the litigation and call him to testify at trial when he has yet to opine on the damages allegedly suffered by Bancorp. The Federal Circuit has concluded that it is appropriate to exclude expert testimony when a party has failed to comply with orders of the court concerning discovery, or failed to make timely disclosure of experts and their opinions. Trilogy Communications, Inc., v. Times Fiber Communications, Inc., 109 F.3d 739, 744 (Fed. Cir. 1997). Accordingly, because Bancorp failed to comply with the Court's procedural orders regarding expert discovery, it is appropriate for the Court to exclude the opinion testimony of Dr. Litan in relation to Bancorp's claim for damages. Any opinions expressed by Dr. Litan concerning any damages suffered as a result of the alleged breach is relevant, if at all, to the FDIC, and should not be considered as evidence of any damages allegedly suffered by Bancorp. To the extent that Dr. Litan had any opinions regarding Bancorp's alleged damages, he should have issued a written report containing those opinions and we should have had the opportunity to depose him regarding those opinions. The time for the production of expert reports and depositions of the expert witnesses has long since passed. As indicated above, the Court's Procedural Order No. 2 for Winstar-related cases specifically provides that: "If a plaintiff fails to comply with the provisions of this section with regard to any expert witness it proposes to call [i.e., providing a final written report prepared and signed by each witness], no opinion testimony will be received from that witness on behalf of that plaintiff." Ex. E at 9 (emphasis added). Accordingly, Dr. Litan may not offer any expert testimony at trial.

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II.

Permitting Dr. Litan To Testify At Trial Would Be Futile As The Federal Circuit Has Repeatedly Denied Recovery Based Upon Similar Damage Models The Court should also grant our motion to strike because the opinions articulated by Dr.

Litan in the expert report he prepared for the FDIC have been repeatedly rejected by the Federal Circuit. Granite Mgt. Corp. v. United States, 416 F.3d 1373, 1381-82 (Fed. Cir. 2005); Fifth Third of Western Ohio v. United States, 402 F.3d 1221, 1236-37 (Fed. Cir. 2005). The model espoused by Dr. Litan is a hypothetical cost of replacement model and is similar to those that have been proffered, and rejected, in numerous other Winstar cases. In both Granite and Fifth Third the Federal Circuit upheld decisions of this Court granting our summary judgment motions as to the respective plaintiffs' damages claims. In both cases, an expert proffered a model where he attempted to calculate the hypothetical cost of replacing the goodwill capital with tangible capital in the form of preferred stock. The Federal Circuit found that neither thrift had actually raised capital and thus, the damages models were purely hypothetical. Additionally, the Federal Circuit found that such models were "speculative" and therefore upheld this Court's decisions granting our motions for summary judgment as to those damages claims. Granite, 416 F.3d at 1382; Fifth Third, 402 F.3d at 1237. This is exactly what Dr. Litan did in his report for the FDIC. In his report Dr. Litan explains that he attempted to value the goodwill and capital ratio forbearances by "determining the present value of the net cash flows to First Annapolis from issuing a hypothetical security to the FSLIC, such as preferred stock . . . ." Ex. C at 5. His model then produced damages of either $25.8 million or $27.9 million depending on the date of the calculation. Id. at 4. However, his model is no less hypothetical or less speculative than those models rejected by the Federal Circuit in both Granite and Fifth Third. Accordingly, this Court should not permit -6-

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Bancorp to call the FDIC's expert, Dr. Litan, at trial to opine upon a damages model that has been squarely rejected by the Federal Circuit. CONCLUSION For the foregoing reasons, we respectfully request that the Court grant our motion to strike and bar Bancorp from calling Dr. Litan as a damages expert at trial. Respectfully submitted, STUART E. SCHIFFER Deputy Assistant Attorney General JEANNE E. DAVIDSON Deputy Director s/William F. Ryan WILLIAM F. RYAN Assistant Director s/Richard B. Evans OF COUNSEL: TIMOTHY ABRAHAM MELINDA HART MARK PITTMAN DELISA M. SANCHEZ Trial Attorneys RICHARD B. EVANS Trial Attorney Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit, 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Telephone: (202) 353-7760 Facsimile: (202) 305-7643 Attorneys for Defendant

December 6, 2006

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CERTIFICATE OF FILING I hereby certify that on December 6, 2006, a copy of the foregoing "DEFENDANT'S MOTION TO STRIKE PLAINTIFF'S SUPPLEMENTAL EXPERT WITNESS IDENTIFICATION " was filed electronically. I understand that notice of this filing will be sent to all parties by operation of the Court's electronic filing system. Parties may access this filing through the Court's system.

s/Richard B. Evans