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Feduniak v. Old Republic National Title Co.

United States District Court, N.D. California, San Jose Division

May 1, 2015




On April 24, 2015, the Court held a Daubert [1] hearing to address Defendant's Motion in Limine No. 3 to Exclude Plaintiffs' Proposed Expert, Terry Lloyd. The Court has considered the written submissions of the parties, the testimony of Terry Lloyd ("Lloyd"), and the oral argument of counsel presented at the hearing. For the reasons discussed below, the motion is GRANTED.


Federal Rule of Evidence 702 provides that a qualified expert may testify if "(a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; (b) the testimony is based on sufficient facts or data; (c) the testimony is the product of reliable principles and methods; and (d) the expert has reliably applied the principles and methods to the facts of the case." Fed.R.Evid. 702. In Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 589 (1993), the Supreme Court held that Rule 702 requires the district court to act as a gatekeeper to "ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable."

In Daubert, the Supreme Court discussed four factors that may be used to determine reliability: (1) whether the theory or technique used by the expert "can be (and has been) tested"; Page 2> (2) "whether the theory or technique has been subjected to peer review and publication"; (3) "the known or potential rate of error"; and (4) whether there is "general acceptance" of the theory or technique in the "relevant scientific community." Daubert, 509 U.S. at 593-94; see also Estate of Barabin v. AstenJohnson, Inc., 740 F.3d 457, 463 (9th Cir. 2014) (reciting factors).

In Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 147 (1999), the Supreme Court clarified that the "basic gatekeeping obligation" articulated in Daubert applies not only to scientific testimony but to all expert testimony. The Supreme Court also made clear that the four factors discussed in Daubert "do not constitute a definitive checklist or test" for reliability. Id. at 150 (internal quotation marks and citation omitted). The reliability inquiry is a flexible one, and "whether Daubert's specific factors are, or are not, reasonable measures of reliability in a particular case is a matter that the law grants the trial judge broad latitude to determine." Id. at 153. The Ninth Circuit has held that another "very significant fact to be considered is whether the experts are proposing to testify about matters growing naturally and directly out of research they have conducted independent of the litigation, or whether they have developed their opinions expressly for purposes of testifying." Daubert v. Merrell Dow Pharmaceuticals, Inc., 43 F.3d 1311, 1317 (9th Cir. 1995). While opinions developed expressly for litigation are not necessarily unreliable, the district court "may not ignore the fact that a scientist's normal workplace is the lab or the field, not the courtroom or the lawyer's office." Id.

The district court "also has broad latitude in determining the appropriate form of the inquiry." Barabin, 740 F.3d at 463. Pretrial Daubert hearings are commonly used but they are not required. Id. However, the district court must make explicit findings with respect to relevance and reliability. See id. at 464; United States v. Jawara, 474 F.3d 565, 583 (9th Cir. 2007). In making those findings, the district court must address the soundness of the expert's methodology, not the correctness of his or her conclusions. See Barabin, 740 F.3d at 463. "The duty falls squarely upon the district court to act as a gatekeeper to exclude junk science that does not meet Federal Rule of Evidence 702's reliability standards." Id. (internal quotation marks and citation omitted). The district court must take care not to act as a fact finder. Primiano v. Cook, 598 F.3d 558, 564-65 (9th Cir. 2010) ("[T]he district judge is a gatekeeper, not a fact finder.") (internal quotation marks and citation omitted). "When an expert meets the threshold established by Rule 702 as explained in Daubert, the expert may testify and the jury decides how much weight to give that testimony." Id. at 565.


The parties agree that under the title insurance policy issued by Defendant, Plaintiffs are entitled to recover the diminution in value of the property caused by the undisclosed easement, measured as of the date the easement was discovered, August 31, 2001. See Overholtzer v. Northern Counties Title Ins. Co., 116 Cal.App.2d 113, 130 (1953) ("liability should be measured by diminution in the value of the property caused by the defect in title as of the date of the discovery of the defect"). Plaintiffs offer Lloyd's testimony on this point. Defendant challenges both the relevance and the reliability of Lloyd's testimony.

Evidence is relevant if it will "assist the trier of fact to understand the evidence or to determine a fact in issue.'" Daubert, 509 U.S. at 591 (quoting Fed.R.Evid. 702). "Expert testimony which does not relate to any issue in the case is not relevant and, ergo, non-helpful." Id. (internal quotation marks and citation omitted). This consideration has been described as one of "fit" - "whether expert testimony proffered in the case is sufficiently tied to the facts of the case that it will aid the jury in resolving a factual dispute." Id. (internal quotation marks and citation omitted). Lloyd proposes to testify that the diminution in value caused by the easement, measured in August 2001, was approximately $6.8 million. Defendant argues that Lloyd does not offer a sufficient basis for opining that the asserted diminution in value was caused by the easement, and thus that his opinion is not relevant. Based on Lloyd's testimony and report, it appears that he opines that his index was designed to incorporate all market forces that bear on valuation such that only the easement would be identified as the cause for the diminution in value. Thus, Defendant's challenge more properly goes to the reliability of Lloyd's opinion rather than its relevancy. Because Lloyd's testimony addresses the precise issue that the jury must determine, it is relevant.

The more troubling question is the testimony's reliability. Lloyd is not a real estate appraiser. He testified that he is a certified public accountant and a chartered financial analyst. His practice has focused on valuing closely held assets in the context of transactions, tax, financing, and disputes. He has no experience in the appraisal of real property.

Lloyd acknowledged that he did not use the preferred means of determining real property value, the sales comparison approach. See United States v. 33.5 Acres of Land, More or Less, Okanogan County, State of Wash., 789 F.2d 1396, 1400 (9th Cir. 1986) ("The preferred means of determining that value is by referring to sales of comparable property."). He testified that for the purposes of rendering an expert opinion regarding diminution in value caused by the easement, he created an index for measuring changes over time in prices of high-end real estate in Pebble Beach. To construct his index, which he calls the "Pebble Beach Index, " he used real estate sales data maintained by a broker and consultant in the Pebble Beach area. That data base included all sales in Pebble Beach from 1985 to the present. Of the approximately 1900 sales transactions listed, Lloyd applied certain filters to extract 171 transactions that involved comparable properties, although he testified that he was not personally familiar with any of those properties. The filters used included limitations to sales no earlier than 1999, square footage of at least 3, 000 feet, lot size of more than one-half acre, and sales price of at least $3 million. The filters did not identify properties with similar easement restrictions.

The data base was further refined by eliminating the outlying sales, which reduced the total number of transactions selected for Lloyd's Pebble Beach Index to 163. Lloyd next created a price per square foot index for each year for the period 1999 through 2014. All values in each calendar year were averaged to determine a "Unit Price Index Value." Those index values were then used to calculate the percentage change in the selected sample over time. Lloyd acknowledged that year to year the index utilized data from sales of different properties, rather than charting the sales of the same properties year to year. Thus the index calculated the average rate of change in value based upon distinct groups of 10-12 properties for each year. See Lloyd Report, Oct. 22, 2014, ΒΆΒΆ 21-24.

Once Lloyd derived the average yearly percentage change in value, he applied the model to determine the specific value of Plaintiffs' property on August 31, 2001 both with and without the easement. To obtain the value without the easement, Lloyd assumed that the $13 million price that Plaintiffs paid for the property was the fair market value ("FMV") in November 2000. He then applied his Pebble Beach Index to that $13 ...

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