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Klein v. TD Ameritrade Holding Corpo.

United States District Court, D. Nebraska

March 7, 2018

GERALD J. KLEIN, on behalf of himself and all similarly situated; Plaintiff,
v.
TD AMERITRADE HOLDING CORPORATION, TD AMERITRADE, INC., and FREDRIC TOMCZYK, Defendants.

          MEMORANDUM AND ORDER

          Joseph F. Bataillon Senior United States District Judge

         This matter is before the court on the defendants' motion in limine to exclude the testimony of the plaintiff's experts Haim Bodek and Shane Corwin under Daubert v. Merrell Dow Pharms., 509 U.S. 579, 589 (1993), Filing No. 195. This is a purported class action alleging wrongdoing in connection with stock trades. In this action, the lead plaintiff[1] alleges violations of federal securities laws in TD Ameritrade's alleged failure to route its clients' equity orders for “best execution.”

         I. BACKGROUND

         The defendants seek an order precluding consideration of the opinions of plaintiff's experts Haim Bodek, a securities consultant and former trader, and Shane Corwin, a finance professor, in connection with the defendants' pending motion for class certification, and barring the experts from testifying at the class certification hearing which is presently scheduled for March 27, 2018, before United States Magistrate Judge Susan Bazis.

         Haim Bodek was retained to perform a data analysis of the trading history of two representative TD Ameritrade clients and to identify issues of economic harm. He will testify to a method of proving economic loss by common proof that does not vary by class member. He has created an algorithm and refined it to provide a method to be applied across the class. Professor Shane Corwin was retained to opine on whether Mr. Bodek's analysis is capable of identifying economic harm arising from a failure of best execution in line with academic and regulatory standards.[2]

         Defendants argue that Bodek's methodology is novel and untested and fails to meet the “peer review” and “general acceptance” factors set forth by the Supreme Court in Daubert. They next argue that Professor Corwin's opinions should be excluded because he did not conduct his own analyses, his opinions are duplicative, and he is nothing more than a “mouthpiece” for Bodek. Further, the defendants attempt to exclude any opinions proffered by the two experts that go to the merits of the plaintiff's case-that is, the best execution issue. They also argue that Corwin offers improper legal opinions.

         In opposition, the plaintiff argues that Bodek uses industry-standard metrics that have been used by the Securities Exchange Commission to identify economic harm, the metrics are simple equations with discrete data as input, are generally accepted in the industry, and have been used in peer reviewed papers. Further, he argues that Bodek uses an order book analysis to analyze depth of available liquidity and has proposed exclusion of certain categories to avoid any doubt concerning the harm attributable to defendant TD Ameritrade. The plaintiff also disputes the defendants' argument that Bodek has “changed” his methodology in his rebuttal report, stating that Bodek employed a limited order book analysis with certain exclusions in his initial report and expanded on the analysis in his rebuttal report.

         II. LAW

         Federal Rule of Evidence 702 governs the admissibility of expert testimony and requires that: (1) the evidence must be based on scientific, technical or other specialized knowledge that is useful to the finder of fact in deciding the ultimate issue of fact; (2) the witness must have sufficient expertise to assist the trier of fact; and (3) the evidence must be reliable or trustworthy. Kudabeck v. Kroger Co., 338 F.3d 856, 859 (8th Cir. 2003). Expert testimony assists the trier of fact when it provides information beyond the common knowledge of the trier of fact. Id. at 860. When faced with a proffer of expert testimony, trial judges are charged with the “gatekeeping” responsibility of ensuring that all expert evidence admitted is both relevant and reliable. Kumho Tire Co. v. Carmichael, 526 U.S. 137, 147 (1999); Daubert v. Merrell Dow Pharms., 509 U.S. 579, 589 (1993); United States v. Wintermute, 443 F.3d 993, 1000 (8th Cir. 2006). A trial court is given wide latitude in determining whether an expert's testimony is reliable. See Kumho Tire, 526 U.S. at 152.

         Proposed expert testimony must meet three prerequisites in order to be admitted under Rule 702: First, evidence based on scientific, technical, or other specialized knowledge must be useful to the finder of fact in deciding the ultimate issue of fact; second, the proposed witness must be qualified to assist the finder of fact; and third, the proposed evidence must be reliable or trustworthy in an evidentiary sense. Lauzon v. Senco Prods., Inc., 270 F.3d 681, 686 (8th Cir. 2001). Expert testimony assists the trier of fact when it provides information beyond the common knowledge of the trier of fact. Kudabeck, 338 F.3d at 860. The district court's gatekeeper function applies to all expert testimony, not just testimony based in science. Id.

         Under Daubert, district courts apply a number of nonexclusive factors in performing this role. Lauzon, 270 F.3d at 686-87. These are: whether the theory or technique can be and has been tested; whether the theory or technique has been subjected to peer review and publication; the known or potential rate of error; whether the theory has been generally accepted; whether the expertise was developed for litigation or naturally flowed from the expert's research; whether the proposed expert ruled out other alternative explanations; and whether the proposed expert sufficiently connected the proposed testimony with the facts of the case. Id. at 686-87. "This evidentiary inquiry is meant to be flexible and fact specific, and a court should use, adapt, or reject Daubert factors as the particular case demands." Unrein v. Timesavers, Inc., 394 F.3d 1008, 1011 (8th Cir. 2005).

         The proponent of expert testimony bears the burden of providing admissibility by a preponderance of the evidence. Lauzon, 270 F.3d at 686. When the application of a scientific methodology is challenged as unreliable under Daubert and the methodology itself is otherwise sufficiently reliable, outright exclusion of the evidence is "warranted only if the methodology was so altered by a deficient application as to skew the methodology itself." United States v. Gipson, 383 F.3d 689, 697 (8th Cir. 2004) (brackets omitted) (quoting United States v. Martinez, 3 F.3d 1191, 1198 (8th Cir. 1993)).

         In the Eighth Circuit, "cases are legion that, correctly under Daubert, call for the liberal admission of expert testimony." Johnson v. Mead Johnson & Co., LLC, 754 F.3d 557, 562 (8th Cir. 2014). District courts are admonished "not to weigh or assess the correctness of competing expert opinions." Id. Rather, expert testimony should generally "be tested by the adversary process with competing expert testimony and cross-examination, rather than excluded by the court at the outset." Id. Any doubts regarding expert testimony “should generally be resolved in favor of admissibility.” United States v. Finch, 630 F.3d 1057, 1062 (8th Cir. 2011) (quoting Sphere Drake Ins. PLC v. Trisko, 226 F.3d 951, 954 (8th Cir. 2000)).

         Courts apply the more lenient “focused Daubert” inquiry at the class certification stage. In re Zurn Pex Plumbing Prod. Liab. Litig., 644 F.3d 604, 612 (8th Cir. 2011). “Expert disputes ‘concerning the factual setting of the case' should be resolved at the class certification stage only to the extent ‘necessary to determine the nature of the evidence that would be sufficient, if the plaintiff's general allegations were true, to make out a prima facie case for the class.'” Id. at 611 (quoting Blades v. Monsanto Co.,400 F.3d 562, 567 (8th Cir. 2005). ...


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