2nd Circuit Establishes What “Inappropriate Legal Conclusions” From A Banking Expert Witness Look Like

ByExpert Institute

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Published on February 13, 2019

Banking Expert

Court – United States Court of Appeals for Second Circuit
Jurisdiction
– Federal
Daubert Factor Involved
– Legal Conclusion
Case Stage
– Appeal
Ruling Type
– Appellate Decision
Case Name
Sparta Commer. Servs. v. DZ Bank
Citation
– 680 Fed. Appx. 17

Facts

Sparta Commercial Services Inc. (Sparta), DZ bank, and many other third parties, entered into a Revolving Credit Agreement(RCA) to provide Sparta a $25 million line of credit to finance consumer’s purchases and lease motorcycles. Under the RCA, certain preconditions were incorporated, which included financial covenants Sparta had to fulfill in order to qualify for the funding.

The RCA also had provisions for extensions if certain precondition criteria were fulfilled. In case the automatic extension was not granted, Sparta could submit a request in writing. The decision to grant the extension was the sole right of DZ bank. Sparta failed to meet the precondition by the due date and hence formally requested for a one-year extension. The normal practice for granting an extension involved ASG group considering the request and, if satisfied, preparing a credit application to DZ’s Banks New York Credit Department (KRY).

In this case, the request was denied and RCA expired on the pre-fixed date. Subsequently, Sparta sued DZ for breach of the implied covenant of good faith and fair dealing.

Discussion

Sparta claimed that the misleading statements and actions of the defendant’s officer, Christopher Tucker, prevented it from qualifying, causing Sparta to draw down on its revolving credit agreement with the defendant and suffer losses.

The district court dismissed the complaint, stating that DZ Bank had the authority to reject the extension application and held that DZ Bank employees did not breach the covenant of good faith and fair dealing. Sparta appealed.

On appeal, Sparta claimed that the district court abused its discretion by precluding its banking practices expert witness, Gregory Gac, from testifying.

At trial, Sparta wanted to introduce Gac as an expert to testify to banking industry standards and practices with respect to communications regarding the RCA and the extension request. The district court had concluded that no part of the report represented appropriate expert testimony, as “an expert’s opinions that are without factual basis and are based on speculation or conjecture” should be excluded from consideration at summary judgment or trial. It also noted that a district court can reject an expert’s testimony when the testimony involves qualitative opinions about an area outside the expert’s field of expertise, or when the expert opinion is based on witnesses’ credibility or inappropriately draws any legal conclusions. [Morse/Diesel, Inc. v. Trinity Indus., Inc., 67 F.3d 435, 444 (2d Cir. 2005)]

Held

Gac’s proffered report was replete with legal conclusions, inappropriate opinions on credibility, and assertions that did not depend on expert knowledge. Sparta had not identified any portions for which their expert’s exclusion would have been an abuse of the district court’s discretion.

The district court’s decision to exclude Gac’s testimony, as well as the final judgment of the district court, was affirmed.

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