De Novo Review Of Conclusory Daubert Findings At Bench Trial

In a bench trial of a diversity breach of contract action, although plaintiff's expert on the "commercial reasonableness" of the plaintiff's performance of the contract was admitted without making Daubert findings no error was found when reviewed de novo because the witness "explained that in the financial sector, as he has seen and experienced it, businesses consider technological innovation satisfactory if it enables them to meet their business financial objective," in Metavante Corp. v. Emigrant Sav. Bank, __ F.3d __ (7th Cir. August 30, 2010) (Nos. 09-3007, 09-3996)

The Federal Evidence Blog has noted a variety of cases from the circuits that suggest that application of the Daubert gatekeeping role for expert evidence is different in a jury trial than at a bench trial. Not only is the application of Daubert different, but the consequences of failing to articulate a Daubert finding in more than conclusory terms, subjects the decision to de novo rather than abuse of discretion review. In a recent case, the Seventh Circuit assessed the admission of expert testimony at a bench trial when the trial judge provided only "conclusory" Daubert findings. Although critical of this, the circuit noted that review of the trial judge's action was subject to de novo review rather than abuse of discretion. In employing the de novo standard, the circuit satisfied itself from the record that the expert testimony was properly admitted under Daubert. The case provides an insightful review of the place of the expert reliability finding at trial.

In the case, plaintiff Metavante, who developed and sold electronic banking products, sued defendant Emigrant Savings Bank for breaching its contract in failing to pay Metavante for developing and implementing electronic banking programs that allowed customers “to access, receive, collect, concentrate, and/or report data and/or initiate transactions” with the defendant bank. The contract required the plaintiff to warrant that it would render its services in a "commercially reasonable manner." The defendant contended that this "commercially reasonable" warranty had been breached by the plaintiff when it delivered a "system... poorly integrated, poorly tested, poorly planned, not scalable and [that] experienced degraded service." In defense of its performance, the plaintiff cited that with implementation of the system, the defendant experienced a "commercial success" in its delivery of electronic banking services and that this was important in determining it the plaintiff's performance of the contract was "commercially reasonable" as required by the contract. Metavante, __ F.3d at __.

The court conducted a bench trial in the case and ultimately entered judgment for the plaintiff. Emigrant appealed, contending in part, that the trial judge improperly admitted testimony by one of the plaintiff's experts (Moffat) in violation of its duties under FRE 702 and Daubert. The plaintiff's expert:

"was "a consultant employed with Huron Consulting Group, [and] is experienced in financial services technology and was tendered as an expert in 'service levels performance and measurements in the financial services industry as well as the performance of financial technology services agreements.' He testified that Metavante had performed its services in a commercially reasonable manner. In reaching that conclusion, he placed particular importance on 'the level of deposits that were achieved on this system, the number of accounts that were opened, transactions that were involved,' as well as Metavante's responsiveness to Emigrant's concerns and issues."
Metavante, __ F.3d at __ (citations from record omitted).

This testimony regarding commercial reasonableness, contended defendant Emigrant on appeal, "should have been excluded under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). Under the rule established in that case, the district court was required to 'ensure that the expert testimony at issue both rests on a reliable foundation and is relevant to the task at hand.'” Metavante, __ F.3d at __ (quoting Trs. of Chicago Painters & Decorators Pension, Health & Welfare, & Deferred Sav. Plan Trust Funds v. Royal Int'l Drywall & Decorating, Inc., 493 F.3d 782, 787 (7th Cir. 2007) (internal quotation marks omitted))

The circuit reviewed the district court's admission of the expert testimony, but the circuit departed from its usual abuse of discretion standard regarding admissibility of expert testimony. Metavante, __ F.3d at __ (citing Gayton v. McCoy, 593 F.3d 610, 616 (7th Cir. 2010) ("We review de novo whether the court correctly applied Daubert's framework, and we review the court's decision to admit or exclude expert testimony for abuse of discretion. ") (citation omitted). But where a trial judge fails to "perform any Daubert analysis" the judge's determination is not entitled to this "usual deference." Instead, where there is a lack of any application of Daubert, the circuit will review the trial judge's determination regarding expert testimony under a de novo standard.") The Seventh Circuit briefly outlined the deficiencies in the trial court's approach to determining that the expert testimony by Moffat was admissible:

"We agree that the district court failed to perform a Daubert analysis. The court, in its oral ruling, stated only that 'I find nothing in Mr. Moffat's opinions to run afoul of either Rule 702 or notice requirements to opposing counsel.' Although we have held that the court in a bench trial need not make reliability determinations before evidence is presented, the determinations must still be made at some point. ... However, the usual concerns of the rule-keeping unreliable expert testimony from the jury-are not present in such a setting [as a bench trial], and our review must take this factor into consideration. Nevertheless, the 'court must provide more than just conclusory statements of admissibility or inadmissibility to show that it adequately performed its gatekeeping function.' ... Here, we must characterize the district court's statement as conclusory. We therefore must review the admissibility of the expert testimony de novo. After our review of the record, we conclude that Moffat's testimony was both relevant and reliable.
Metavante, __ F.3d at __ (citing In re Salem, 465 F.3d 767, 776-77 (7th Cir.2006) ("Where the gatekeeper and the factfinder are one and the same-that is, the judge ... the court can hear the evidence and make its reliability determination during, rather than in advance of, trial. Thus, where the factfinder and the gatekeeper are the same, the court does not err in admitting the evidence subject to the ability later to exclude it or disregard it if it turns out not to meet the standard of reliability established by Rule 702."), Attorney Gen. of Okla. v. Tyson Foods, Inc., 565 F.3d 769, 779 (10th Cir. 2009) ("[W]hile Daubert's standards must still be met, the usual concerns regarding unreliable expert testimony reaching a jury obviously do not arise when a district court is conducting a bench trial."); Gayton v. McCoy, 593 F.3d 610, 616 (7th Cir. 2010))

In passing on whether the standards of Daubert were met in admitting the expert testimony without making Daubert findings, the circuit pointed to two other circuits that "have held that Daubert's requirements of reliability and relevancy continue to apply in a bench trial," even is subject to a deferential standard of review. Those two circuits were:

  • Tenth Circuit: Attorney Gen. of Okla. v. Tyson Foods, Inc., 565 F.3d 769, 779 (10th Cir. 2009) (noting narrow scope of review when in a bench trial the trial judge provides Daubert findings)
  • Federal Circuit: Seaboard Lumber Co. v. United States, 308 F.3d 1283, 1302 (Fed.Cir. 2002) (noting no abuse of discretion in application of Daubert in bench trial, although FRE 702's reliability concerns "are of lesser import in a bench trial, where no screening of the factfinder can take place)

In finding that the trial court had properly admitted the expert witness's testimony, the circuit explained that the record in the case revealed:

"Moffat's testimony cannot be characterized as mere ipse dixit. He did not simply testify that Metavante's performance was commercially reasonable because he said so. Rather, he explained that in the financial sector, as he has seen and experienced it, businesses consider technological innovation satisfactory if it enables them to meet their business financial objective. These explanations were based on Moffat's experience in the industry, which included managing a fifty-person development team. In essence, Moffat testified that he was familiar with the manner in which financial services firms have evaluated technological innovations in the past and suggested that the same perspective was appropriate in the present situation. In his view, because Emigrant had met its business objectives, it should have considered Metavante's performance to have been satisfactory despite various operational problems that had arisen along the way. These 'hiccups,' as the district court referred to them, were to be expected along the way and should be tolerated in that industry as long as the bank's financial objectives were being realized. Therefore, Moffat's testimony based on the usual business practice is reliable."
Metavante, __ F.3d at __ (citations and footnote omitted).

However, the circuit also cautioned that the proffered expert testimony might not be the strongest that a defendant could offer on the issue. But this was not a matter of admissibility but of weight. In the case, the trial judge clearly indicated that while the testimony was admissible, it might not be entitled to much weight:

Emigrant is, of course, critical of the quality of Moffat's testimony and does not believe that it ought to have been credited by the district court. These criticisms do not go to admissibility but to the appropriate weight that should be accorded to the evidence. As we noted in Gayton, '[d]etermination on admissibility should not supplant the adversarial process; shaky expert testimony may be admissible, assailable by its opponents through cross-examination.' The record demonstrates clearly that the district court was very much aware of this distinction and, although it admitted the evidence, it also made it very clear that, in the final analysis, it found it of limited utility in making a final determination in the case."
Metavante, __ F.3d at __ (quoting Gayton v. McCoy, 593 F.3d 610, 616 (7th Cir. 2010) (internal quotation marks omitted)).

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