Free Motion for Ruling - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 01-cv-1644-REB-CBS CARTEL ASSET MANAGEMENT, a Colorado corporation, Plaintiff, v. OCWEN FINANCIAL CORPORATION, a Florida corporation; OCWEN FEDERAL BANK FSB, a subsidiary of OCWEN FINANCIAL CORPORATION, and, OCWEN LOAN SERVICING, in its capacity as successor-in-interest to OCWEN FEDERAL BANK, FSB, Defendants.

DEFENDANTS' MOTION FOR RULING LIMITING SCOPE OF SECOND TRIAL Defendants, Ocwen Financial Corporation ("OFC"), Ocwen Federal Bank FSB (the "Bank"), and Ocwen Loan Servicing ("OLS") (collectively, "Defendants"), respectfully request that this Court enter an order barring the parties from introducing at the second trial of this matter any evidence, or presenting any legal theories, not disclosed in the June 4, 2004 Amended Final Pretrial Order (docket no. 281) (the "Final Pretrial Order"), for the reasons explained below. CERTIFICATION PURSUANT TO D.C.COLO.LCIVR 7.1(A) Counsel for the Bank conferred with Glenn Merrick, counsel for plaintiff, Cartel Asset Management ("Cartel"), regarding this motion through the exchange of telephone messages on June 13 and 14, 2008. This motion is opposed.

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INTRODUCTION The Magistrate Judge advised the parties that this case cannot be set for trial until this Court circumscribes the scope of the second trial. In this motion, Defendants request that the Court limit the scope of the second trial to the evidence and legal theories disclosed in the Final Pretrial Order. With the benefit of post-trial and post-appeal hindsight, Cartel improperly seeks to reopen the Final Pretrial Order so that it may designate new evidence and adopt a new theory of damages in advance of the second trial. Cartel, however, cannot establish that "manifest injustice" would result if the Court did not permit Cartel to rewrite the Final Pretrial Order. (Defendants recognize that the form of the Final Pretrial Order will need to be modified to comply with REB Civ. Practice Standard IV.A.2.) Defendants respectfully request that the scope of the second trial be limited as set forth herein. Because the procedural history of this case is crucial in analyzing the proper scope of the second trial, a brief description of the history of this matter follows. PROCEDURAL HISTORY I. THE SECOND TRIAL IN THIS CASE WILL BE A "REDO" OF THE DAMAGES COMPONENT OF THE FIRST TRIAL. This case has been pending for nearly seven years. Cartel sells to financial institutions informal property valuations known as broker price opinions ("BPOs"). See Cartel Asset Mgmt. v. Ocwen Fin. Corp., Nos. 04-1502 & 04-1517 at 4 (10th Cir. Sept. 18, 2007) (the "Tenth Circuit Decision"). Cartel pleaded a multitude of claims, including one against the Bank for the alleged misappropriation of a trade secret. Id. at 1-2. The purported trade secret consists of the names of approximately 1,320 real

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estate brokers whose contact information appears both in Cartel's real estate broker database and in the Bank's broker database. Id. at 17, 21. Cartel alleged that the Bank wrongfully copied these broker names from BPOs that Cartel sold to the Bank, so the Bank could avoid the time and expense of creating its own national database using publicly available information. Id. at 19. As the Court of Appeals stated in its November 21, 2007 Order (the "Nov. 21, 2007 Order"), this Court needs to determine on remand "the amount of actual damages (if any) and the amount of punitive damages (if actuals are proved)" awardable on Cartel's trade secret claim. See Nov. 21, 2007 Order at 1. The other issues in the case have been resolved. See Tenth Circuit Decision at 38. II. THIS COURT SET ASIDE THE JURY'S AWARD OF TRADE SECRET DAMAGES BECAUSE CARTEL'S PROOF RESTED ON SPECULATIVE OPINION TESTIMONY. The late Judge Philip R. Figa presided at the first trial in this matter from June 30 to July 9, 2004. Cartel's case rested on the opinion testimony of James TenBrook ("TenBrook"), who presented the jury with a four-year model for calculating Cartel's alleged damages. Id. at 28, 31-34. Cartel contended it was entitled to the profits the Bank allegedly earned from its BPO business from 2001 to 2004. Id. at 27. Cartel and TenBrook claimed the four-year term represented the time it would have taken the Bank to build a national broker database had the Bank not allegedly misappropriated the broker names. Id. TenBrook relied exclusively on information supplied by Walter Coats ("Coats"), the President of Cartel, in concluding that creation of a national broker database is a

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four-year task. Id. at 27, 32-33. TenBrook stated in his May 6, 2004 Rule 26(a)(2) report (the "TenBrook Report"): Walter Coats estimates that had the Ocwen Defendants not misappropriated Cartel's broker names and contact information it would have taken the Ocwen Defendants approximately four years to produce a minimal broker data base that would have provided the Ocwen Defendants with national coverage, albeit not as complete as the data base Cartel had developed and owned. We have, therefore, used the period through 2004 (i.e. four years after the elimination of Cartel by the Ocwen Defendants), as the period over which the economic profits realized by the Ocwen Defendants should be calculated. The profits realized by Ocwen during this period of time would not have been possible but for the misappropriation of Cartel's broker names and contact information. TenBrook Report at 8. (Cartel's Supplemental Disclosure of Expert Testimony dated May 7, 2004, to which the Tenbrook Report is attached, is submitted herewith as Exhibit A.) During his deposition, TenBrook conceded that his damages model relied exclusively on Coats's estimate of the length of time required to build a national broker database: Q. And the four years was simply based on the four years that Mr. Coats provided to you, correct? A. Well, it was based on that, yes.

Q. So if he had said it was seven years, Table 4 [of the TenBrook Report] would have included seven years; if he had said two, it would have been two? A. Again, based upon his judgment.

Q. The only basis for including four years was Mr. Coats' testimony, correct?

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MR. OERTLI: I think you misspoke. Q. (By Mr. Lipinsky) Was Mr. Coats' statement to you, correct? A. That's correct.

Q. And you relied implicitly on what Mr. Coats said, right? A. With regard to the four years, yes.

TenBrook dep. at 307:1-16. (Relevant pages from the transcript of TenBrook's deposition are submitted herewith as Exhibit B.) At no time did Cartel or TenBrook contend that the 2001-04 window Cartel used to calculate its damages was premised on the scope of the Bank's or any other defendant's discovery responses. TenBrook testified at trial: Q. To put this in context, did you ­ is it not true you didn't conduct any independent investigation to test the information you received from Mr. Coats that it would have taken the Ocwen defendants four years to produce [a] minimal brokerage database. A. Yes, that's true. I did not conduct an independent review. Q. So you did take the information he gave you at face value? A. Yes. Again, with the substantiating things I talked about. Q. But the information he gave you was the only basis for your inclusion of the four-year basis in your calculation; right? A. Yes. Q. You have no independent knowledge, correct, as to how long it takes to develop a minimal broker database? A. No.

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Tenth Circuit Decision at 32 (quoting R. Vol. 7 at 2583). At the conclusion of the trial, the jury returned a verdict for Cartel and against the Bank on the trade secret claim for $4.9 million in actual damages and $3.9 million in punitive damages. Id. at 2. On July 16, 2004, however, Judge Figa set aside the damages verdict, on the grounds it was premised on speculative opinion testimony. See Order Granting New Trial on Damages at 10 (docket no. 328). The Court found that TenBrook's analysis was fundamentally flawed because "he did not use reliable methodology to arrive at the amount of damages he claimed appropriate . . . ." See id. at 3-4. The Court held: [T]he four-year term for replicating a viable BPO database is highly questionable and speculative. Indeed, it is flat-out wrong. The TenBrook report simply failed to take into account the advent of technology and the development of BPO business and the advertising of broker availability for doing BPO work online. Developing a database of what may have taken Mr. Coats a long period of time to develop in the 1990s, even discounting the allegedly dubious origins of the Cartel BPO database, would have taken a fraction of the time in the 21st century through the widespread use of the internet in the real estate business and all its wide ranging permutations . . . . Id. at 8 (emphasis added). After requesting briefing on the evidence in the record that would support a possible alternative award of trade secrets damages to Cartel, see id. at 10, on November 3, 2004, the Court entered a judgment for two dollars in favor of Cartel on the trade secret claim. See Order on Pending Motions (docket no. 379) at 15-16. The Court reasoned that a new trial would be futile given the absence of credible evidence supporting Cartel's theory of damages:

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Cartel attempts to respond to the Court's order directing the parties to set forth what evidence there is in the trial record to support an alternative damages award for misappropriation for purposes of a new trial. However, it does not put forth any other theories, just other trial evidence it claims supports the verdict. Id. at 8. The Court added: Given the Court's previous ruling rejecting the testimony of Mr. TenBrook, the deficiencies referenced therein are not cured by using a shorter time period and making the other proposed adjustments . . . . In the absence of credible evidence of misappropriation damages, the Court hereby enters nominal damages of $1.00 on the trade secrets claim. Punitive damages of an equivalent amount ($1.00) is [sic] hereby awarded pursuant to C.R.S.§ 13-21-102(1). Id. at 9. III. THE COURT OF APPEALS AFFIRMED THE DISTRICT COURT'S DETERMINATION THAT THE JURY'S DAMAGE AWARD ON CARTEL'S TRADE SECRET CLAIM WAS INVALID AND REMANDED THE CASE FOR A NEW TRIAL ON DAMAGES. Cartel appealed the decision to set aside the damage award on the trade secret claim. The Court of Appeals, however, affirmed the invalidation of the award: "[W]e find no abuse of discretion in the district court's determination that TenBrook's testimony was speculative and inadmissible. Removing TenBrook's testimony leaves Cartel without evidentiary support for the jury's award of $4,900,000 in actual damages and, in turn, eliminates a basis for the proper amount of punitive damages." Tenth Circuit Decision at 34. The Court of Appeals remanded the case for a new trial on damages: "we decline to find, as a matter of law, that Cartel would fail to present any evidence of damages should this case be retried." Id. at 36. The appellate court further explained:

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[o]ur remand does not, however, disturb the discretion of the district court to determine the extent it would be appropriate to re-open the record or to consider motions for summary judgment. See Cleveland v. Piper Aircraft Corp., 985 F.2d 1438, 1450 (10th Cir. 1993) ("The trial court is much more familiar with the conduct of the original trial, the needs for judicial management and the requirements of basic fairness to the parties in a new trial . . . . [I]f a party makes a timely motion to produce new and material evidence which was not otherwise readily accessible and known, the court should, within the exercise of discretion, consider whether denial of the new evidence would create a manifest injustice . . . [C]ommon sense should control."). Id. at 38-39 (emphasis added). On November 21, 2007, the Court of Appeals clarified its decision: "[T]he amount of actual damages (if any) and the amount of punitive damages (if actuals are proved) are proper issues for consideration on remand." Nov. 21, 2007 Order at 1. IV. THE MAGISTRATE JUDGE STATED AFTER THE REMAND THAT THIS CASE CANNOT BE SET FOR RETRIAL UNTIL THE DISTRICT COURT DETERMINES THE PROPER EVIDENTIARY SCOPE OF THE SECOND TRIAL. Following the remand, Cartel filed two motions to reopen discovery, see Motion to: (i) Conduct Limited Additional Discovery, (ii) Require Defendants to Supplement Disclosures and Discovery Responses, and (iii) Reserve the Right to Produce Different and/or Additional Evidence at Retrial (docket no. 456) (the "First Discovery Motion"); and Revised and Renewed Motion to Conduct Additional Discovery (docket no. 466) (the "Second Discovery Motion"), both of which the Magistrate Judge denied, without

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prejudice. See Courtroom Mins./Min. Order (docket no. 465) at 2; Am. Courtroom Mins./Min. Order (docket no. 482) at 1.1 In the First Discovery Motion, Cartel sought, among other relief, "leave of this Court to deviate from the prior Final Pretrial Order . . . , and to reserve the right to introduce additional and/or different evidence (lay and expert testimony and trial exhibits) on the remaining damage issue before the Court on retrial." See First Discovery Motion at 6. The District Court referred the First Discovery Motion to the Magistrate Judge for adjudication. See Mem. (docket no. 457) at 1. The Magistrate Judge, however, declined to determine the proper scope of the second trial: Now, with respect to document to 456, . . . the caption reads literally plaintiff's motion to reserve the right to introduce different and/or additional evidence at retrial, I'm going to deny that motion without prejudice. I would assume, although I have not discussed this with Judge Blackburn, I'm assuming Judge Blackburn is going to want to meet with you -- want you to meet with me in advance of a trial. I mean, lawyers reserve rights all the time and, frankly, I think that's form over substance. At this point, I'm going to deny the motion because I don't know what this different evidence is . . . and I'm not going to rule on that question in a vacuum. So that portion of document 456 is denied without prejudice. Tr. of Mar. 24, 2008 hearing at 50-21:51:10. (Relevant pages from the transcript of the March 24, 2008 hearing are submitted herewith as Exhibit C.) Later during the March 24, 2008 hearing, in response to Defendants' counsel's request that the case be

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On May 27, 2008, Cartel filed Rule 72(a) objections to the Magistrate Judge's ruling on the Second Discovery Motion. See Mot. for Direction from District Judge Respecting Pl.'s Request to Conduct Additional Disc. Relating to the Period Following the Initial Trial (docket no. 483). Defendants are submitting on June 16, 2008 their response to such Rule 72(a) objections. See Defs.' Resp. to Pl.'s Mot. for Direction.

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set for trial, the Magistrate Judge stated that the second trial could not be scheduled until the District Court Judge determined the proper evidentiary scope of the retrial: I'm a little reluctant right now to contact Judge Blackburn and say: Judge Blackburn, I want you to block off . . . X number of days. . . . . . . . Now, I think -- and I'm just throwing this out as a suggestion -- if you want my honest opinion, folks, perhaps the first thing that you should have filed is trial briefs that are specifically limited to this issue. What do you -- how do you believe or what do you believe is the permissible scope of a retrial. . . . And I agree with you, Mr. Lipinsky, fundamentally, Judge Blackburn is going to have to give you some guidance as to how he reads the Tenth Circuit decision, and how he intends to act upon whatever guidance the Tenth Circuit is giving him. . . . But what I would suggest is that what you should both do is file simultaneous briefs, trial briefs, if you will, articulating for Judge Blackburn what you think is the triable issue and what you think is the permissible scope of evidence at that retrial. And then he's in a better position to look at your trial briefs, analyze those trial briefs in light of whatever guidance the Tenth Circuit is giving him, and he will then say: I agree with one side, or I agree with the other side, or I agree that you're both a little bit right and a little bit wrong. And this is how I see the retrial. . . . . It would seem to me the efficient thing to do is first get some ruling from Judge Blackburn on the scope of the retrial, because won't that govern everything else? . . . . Id. at 57:15-18; 58:2-7, 11-15; 58:19-59:4; 59:16-18 (emphases added). At the May 16, 2008 hearing on the Second Discovery Motion, the Magistrate Judge again recommended that the parties obtain a ruling from the District Court regarding the time period relevant to the second trial. See tr. of May 16, 2008 hearing 10

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at 48:2-15; 50:14-22. (Relevant pages from the transcript of the May 16, 2008 hearing are submitted herewith as Exhibit D.) ARGUMENT As more fully explained in Defendants' Response to Plaintiff's Motion for Direction (the "Response"), which Defendants are filing on June 16, 2008, Cartel is bound by the evidence and legal theories identified in the Final Pretrial Order, because Cartel cannot prove that "manifest injustice" would result if the Final Pretrial Order is not modified. See Response at 8 (citing Fed. R. Civ. P. 16(e); Final Pretrial Order at 24). Cartel is not entitled to take additional discovery or to pursue a new litigation strategy with the benefit of hindsight following remand, because it had a full and fair opportunity to prepare for the first trial. The mere passage of time since the first trial is insufficient grounds to allow Cartel to reopen discovery and to change its legal theories. Cartel may not amend the Final Pretrial Order, four years after the first trial, to plug the evidentiary holes that became apparent to Cartel following its failures of proof at trial. "[R]emand for a new trial [is] not an invitation to reopen discovery for newly retained expert witnesses [or] to enlarge trial time unnecessarily through the addition of totally new exhibits and testimony." Cleveland v. Piper Aircraft Corp., 985 F.2d 1438, 1449 (10th Cir. 1993). The Tenth Circuit specifically prohibits amendments to a final pretrial order to serve "a lawyer's theory of how to `plug the holes' of a case." Id. at 1450. It is always easy in hindsight for counsel to realize there may be a better way to try a case the second time around. Hindsight advantage necessarily inures to both sides, but this does not mean a court [. . .] must allow either side to

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introduce totally new expert witnesses to bolster or impeach earlier evidence. Id. at 1449-50 (emphasis in original); see also Kennedy v. Joy Techs., Inc., No. 2:05CV00030, 2008 WL 1985231, at *2 (W.D. Va. May 7, 2008) (denying plaintiff's postremand request to reopen the record and to disclose additional expert opinions); William A. Graham Co., v. Haughey, No. 05-612, 2007 U.S. Dist. LEXIS 86060, at *1-4 (E.D. Pa. Nov. 21, 2007) (precluding defendants from introducing testimony of three witnesses and an expert witness in damages trial, because the additional testimony would simply bolster defendants' case and lead to additional discovery "with no quick end in sight"); Whitehead v. K Mart Corp., 173 F. Supp. 2d 553, 564-65 (S.D. Miss. 2000) (refusing to allow defendant to designate new expert on the issue of damages because this was a matter "which easily could have been pursued prior to the first trial"); Clark v. R.E.L. Prods., No. 90-4121, 1993 U.S. Dist. LEXIS 4788, at *2-7 (D. Kan. Mar. 4, 1993) (magistrate judge properly barred plaintiff's attempt to designate additional expert witnesses in the second trial for the sole purpose of rebutting testimony by defendant's expert witnesses in the first trial). Cartel had thirty-four months between the filing of its Complaint and the commencement of the first trial within which to take discovery, to hone its legal theories, to muster its evidence, and to prepare for trial. Moreover, the Court granted Cartel every opportunity to obtain the discovery it sought prior to the first trial. Although the original discovery cut-off date was November 30, 2002, see Scheduling Order at 7 (docket no. 35), the Court extended the discovery deadline several times. See, e.g., Order Granting Unopposed Stipulation and Joint Mot. to Extend Time to Answer Disc.

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(docket no. 85); Minute Order (docket no. 94); Courtroom Mins. (docket no. 137). Only four months before the first trial, the Court, over the Bank's objections, granted Cartel leave to take preservation depositions of three Cartel witnesses and a Rule 30(b)(6) deposition of the Bank. See Order (docket no. 235). This Court further obliged Cartel by allowing Cartel to amend the pretrial order less than one month before trial, see Minute Order (docket no. 274), and by permitting TenBrook to submit a third expert report on the eve of trial. See Order Den. Defs.' Mot. to Strike Pl.'s Untimely Third Expert Report on Damages and Defs.' Mot. in Limine to Strike Irrelevant Test. of Cartel's Expert Witness Christine Teahan at 1-3 (docket no. 277). The Final Pretrial Order contains no indication that Cartel believed it had been denied any discovery Cartel deemed necessary to prepare for trial. To the contrary, in the Final Pretrial Order, Cartel described its claims in detail and listed three "will call" witnesses, see Final Pretrial Order at 12-13; eight "may call" witnesses, see id. at 13-16; two expert witnesses, see id. at 21-22; and twenty-two pages of exhibits, identified in single-spaced text. See id., Ex. 1. Only with the benefit of hindsight does Cartel now seek to take new discovery and to expand the scope of the case. The second trial must be limited to the evidence and the theories set forth in the Final Pretrial Order because Cartel cannot prove "manifest injustice." Finally, Cartel's efforts to change its legal strategy and to present new evidence run afoul of Cartel's own theory of damages. As explained above, TenBrook testified that the relevant damages period extended only through 2004. Cartel pursued the 2001-04 damages model at the first trial. See pages 3-6 supra. Reopening the

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evidentiary scope of the second trial is therefore unwarranted under the damages model Cartel adopted before the first trial. CONCLUSION As explained above, Cartel cannot prove that "manifest injustice" would result if Cartel is not permitted at the second trial to expand the evidentiary scope of the case or to present new legal theories. Cartel had ample opportunity to take discovery and to prepare for the first trial. Cartel may not now, with the benefit of hindsight, designate new witnesses and exhibits, and identify new legal theories for the second trial. The parties must be bound by the evidence and theories disclosed in the Final Pretrial Order. WHEREFORE, Defendants respectfully request that this Court order that the parties are bound by the witnesses, exhibits, and legal theories identified in the Final Pretrial Order, and that the Final Pretrial Order may be modified solely to conform to the requirements set forth in REB Civ. Practice Standard IV.A.2.

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Respectfully submitted this 16th day of June, 2008.

/s/ Lino S. Lipinsky de Orlov Lino S. Lipinsky de Orlov Sandra B. Wick Mulvany MCKENNA LONG & ALDRIDGE LLP 1875 Lawrence Street, Suite 200 Denver, Colorado 80202 Tel: (303) 634-4000 Fax: (303) 634-4400 ATTORNEYS FOR DEFENDANTS, OCWEN FINANCIAL CORPORATION, OCWEN FEDERAL BANK FSB, AND OCWEN LOAN SERVICING, LLC

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CERTIFICATE OF SERVICE I hereby certify that on this 16th of June, 2008, a true and correct copy of the foregoing DEFENDANTS' MOTION FOR RULING LIMITING SCOPE OF SECOND TRIAL was electronically filed with the clerk of court using the CM/ECF System, which will send notification of such filing to the following: Glenn W. Merrick, Esq. G.W. Merrick & Associates, LLC 5445 DTC Parkway, Suite 912 Greenwood Village, CO 80111 [email protected]

/s/ Lino S. Lipinsky de Orlov_________

DN:32138903.3

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