To What Extent Are Daubert "Safeguards" Applicable To Bench Trials?

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On appeal of a Chapter 11 bankruptcy plan's confirmation, Fifth Circuit notes that "most of the safeguards provided for in Daubert are not as essential in a case ... where a district judge sits as the trier of fact...," in In re: Texas Grand Prairie Hotel Realty, L.L.C.,__ F.3d __ (5th Cir. March 1, 2013) (No 11-11109)

As previously noted in the Federal Evidence Blog, the careful assessment a trial judge undertakes in screening expert testimony under FRE 702 is less stringently applied in a bench trial rather than a jury trial. This issue has been highlighted in past posts, noting the more limited application of the Daubert standards when the judge is the fact-finder. Some examples include:

In a recent case, the Fifth Circuit has noted again that the expert screening process may differ in the context of a bench trial than in a jury trial. The Fifth Circuit case involved creditor Wells Fargo, who had acquired an interest in a $50 million mortgage owed by debtor Texas Grand Prairie Hotel for renovations and other purposes. With the 2009 economic downturn, the debtor filed for Chapter 11 bankruptcy reorganization. It eventually proposed a Chapter 11 plan that would involve a "cramdown" of the interest-debt owing to Wells Fargo, meaning that the effective rate of interest the debtor would pay would be adjusted down. Both the debtor and creditor stipulated that the rate of interest applicable to this cramdown would be calculated through use of the “prime-plus” formula approved by a plurality of the U.S. Supreme Court in Till v. SCS Credit Corp., 541 U.S. 465, 478-79 (2004) (prime-plus standard "look[s] to the national prime rate, reported daily in the press, which reflects the financial market's estimate of the amount a commercial bank should charge a creditworthy commercial borrower to compensate for the opportunity costs of the loan, the risk of inflation, and the relatively slight risk of default.") (per Justice Stevens, in which three Justices concurred, and one Justice concurred in the judgment).

At the bankruptcy court hearing, the debtor presented its expert witness (Robichaux) testimony on the prime-plus calculation. He determined that application of the prime-plus formula resulted in an interest rate of 5%. In contrast, the creditor's expert (Ferrell) testified, using the same formulation as the debtor's expert. However, his calculation reached a higher interest rate -- "at least 8.8%". The creditor sought to exclude the debtor's expert's calculation and opinion as to the applicability of a 5% rate. The creditor argued that the debtor's expert had not correctly applied the "prime-plus" method. However, the bankruptcy judge denied this motion and adopted the analysis of debtor Texas Grand's expert 5% rate. Both the admission of the debtor's expert testimony and adoption of the expert's calculation at to the rate were appealed to the district court. After the district judge affirmed the bankruptcy court, creditor Wells Fargo sought relief at the Circuit. Texas Grand Prairie,__ F.3d at __.

The Fifth Circuit affirmed the admission of the debtor expert's testimony as well as the application of the prime-plus method employed and conclusion reached by the debtor's expert -- which rendered a rate of 5%. In its consideration of the cram down rate, the bankruptcy court had "deferred" a Daubert analysis until "the confirmation hearing instead of deciding it before the hearing," noted the circuit. The circuit then summarized why this approach was consistent with FRE 702:

As read by Daubert, Rule 702 requires trial courts to ensure that proffered expert testimony is “not only relevant, but reliable.” To determine reliability, the trial court must make a “preliminary assessment of whether the reasoning or methodology underlying the testimony is scientifically valid and of whether that reasoning or methodology can properly be applied to the facts in issue.” Two cautions signify: the trial court ought not “transform a Daubert hearing into a trial on the merits,” and “most of the safeguards provided for in Daubert are not as essential in a case ... where a district judge sits as the trier of fact in place of a jury.”
Here, Wells Fargo does not challenge [debtor expert] Robichaux's factual findings, calculations, or financial projections, but rather argues that Robichaux's analysis as a whole rested on a flawed understanding of Till. As we read it, Wells Fargo's Daubert motion is indistinguishable from its argument on the merits. It follows that the bankruptcy judge reasonably deferred Wells Fargo's Daubert argument to the confirmation hearing instead of deciding it before the hearing.
Texas Grand Prairie,__ F.3d at __(citing Pipitone v. Biomatrix Inc., 288 F.3d 239, 250 (5th Cir. 2002); Gibbs v. Gibbs, 210 F.3d 491, 500 (5th Cir. 2000)).

In noting this last point regarding the application of FRE 702 in bench trials, two cases cited by the circuit were particularly instructive:

  • Daubert Hearing Should Not Focus On the Merits: Pipitone v. Biomatrix Inc., 288 F.3d 239, 250 (5th Cir. 2002) ("It bears reminding that “the trial court's role as gatekeeper [under Daubert] is not intended to serve as a replacement for the adversary system.” Rather, as Daubert makes clear, “[v]igorous cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof are the traditional and appropriate means of attacking shaky but admissible evidence.” Thus, while exercising its role as a gate-keeper, a trial court must take care not to transform a Daubert hearing into a trial on the merits.") (citations omitted)
  • Daubert Safeguards Not Mandated At Bench Trial: Gibbs v. Gibbs, 210 F.3d 491, 500 (5th Cir. 2000) ("Most of the safeguards provided for in Daubert are not as essential in a case such as this where a district judge sits as the trier of fact in place of a jury. In this case, the district court was satisfied with the testimony of ... the polygraph examiner for the Texas Department of Public Safety, who testified in detail regarding the factors and analysis involved in the examination process at issue, and the district court concluded that the examination results of Appellant's test were scientifically valid. We conclude that the polygraph evidence in this bench trial was properly admitted without error by the district court").

Ironically one implication of the Fifth Circuit's review of the case was that it touched on a question that echoes one under review at the Supreme Court regarding the application of Daubert. In a case that went to argument in November, the Court is expected to address how the requirements in FRE 702 and Daubert are reconciled in the showing necessary for certification of a proposed class under Fed. R. Civ. P. 23. In the case, the Court specified its particular interest in whether a trial judge should require a plaintiff’s expert (for example, on damages) to satisfy FRE 702 and the Daubert requirements of reliability, acceptance in the relevant scientific community, and fitness or relevance of the expert's evidence to resolving whether standards, such as commonality among the class members exist. As the Fifth Circuit encountered in the Texas Prairie case, what is the interplay between resolving a Daubert issue that may also serve as a determination of the merits of the dispute.

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Photo Description: The John Minor Wisdom Court Of Appeals Building, Fifth Circuit Court of Appeals, New Orleans, LA.

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