Dominguez v. Wallick and Volk Incorporated

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Alfredo Dominguez, et al., No. CV-22-00768-PHX-MTL

10 Plaintiffs, ORDER

11 v.

12 Wallick and Volk Incorporated, et al.,

13 Defendants. 14 15 Defendant The Money Source, Inc. (“TMS”) moves to exclude Plaintiffs Alfredo 16 Dominguez and Chelsie Dominguez’s (“Plaintiffs”) expert Curtis Novy’s expert reports 17 and testimony (Doc. 212). Plaintiffs proffer Mr. Novy as a mortgage loan expert who will 18 opine in part on whether TMS properly maintained homeowners’ insurance. (Doc. 212-1 19 at 14.) The motion is fully briefed and neither party requested oral argument. (Docs. 212, 20 227, 235.) The Court rules as follows. 21 I. LEGAL STANDARD 22 A party offering expert testimony must establish that the testimony satisfies Rule 23 702 of the Federal Rules of Evidence. 24 A witness who is qualified as an expert by knowledge, skill, 25 experience, training, or education may testify in the form of an opinion or otherwise if the proponent demonstrates to the court 26 that it is more likely than not that:

27 (a) the expert’s scientific, technical, or other specialized 28 knowledge will help the trier of fact to understand the evidence 1 or to determine a fact in issue;

2 (b) the testimony is based on sufficient facts or data; 3 (c) the testimony is the product of reliable principles and 4 methods; and 5 (d) the expert’s opinion reflects a reliable application of the 6 principles and methods to the facts of the case. 7 8 Fed. R. Evid. 702. 9 As gatekeepers, trial judges make a preliminary assessment about the admissibility 10 of expert testimony. Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 589, 597 (1993). 11 “[T]he trial judge must ensure that any and all scientific testimony or evidence admitted is 12 not only relevant, but reliable.” Id. at 589. To meet the requirements of Rule 702, an expert 13 must be qualified, his opinion must be based on sufficient facts or data and be the product 14 of reliable principles and methods, and his testimony must fit the case such that his opinion 15 is relevant. Id. at 589-95. 16 The Rule 702 inquiry is “flexible.” Id. at 594. The focus “must be solely on 17 principles and methodology, not on the conclusions that they generate.” Id. at 595. Because 18 the requirements of Rule 702 are conditions for determining whether expert testimony is 19 admissible, a party offering expert testimony must show by a preponderance of the 20 evidence that the expert’s testimony satisfies Rule 702. Fed. R. Evid. 104(a); see also Lust 21 v. Merrell Dow Pharms., Inc., 89 F.3d 594, 598 (9th Cir. 1996). 22 II. ANALYSIS 23 A. Qualifications 24 TMS first argues that Mr. Novy is unqualified to offer mortgage servicing opinions 25 because his expertise is in mortgage fraud investigations and underwriting. (Doc. 212 at 26 3-5.) 27 An expert must be qualified by “knowledge, skill, experience, training, or 28 education.” Fed. R. Evid. 702. “The qualification standard is meant to be broad and to seek 1 a ‘minimal foundation’ justifying the expert’s role as an expert.” Allen v. Am. Capital Ltd., 2 287 F. Supp. 3d. 763, 776 (D. Ariz. 2017) (citing Hangarter v. Provident Life & Accident 3 Ins. Co., 373 F.3d 998, 1015-16 (9th Cir. 2004)). “Rule 702 is broadly phrased and intended 4 to embrace more than a narrow definition of qualified expert.” Hargarter, 373 F.3d at 1015 5 (quoting Thomas v. Newton Int’l Enters., 42 F.3d 1266, 1269 (9th Cir. 1994)). 6 As TMS identifies, Mr. Novy’s expertise predominantly includes mortgage fraud 7 and underwriting. (Doc. 212-1 at 9-12.) Mr. Novy, however, has over 30 years of 8 experience in commercial and residential lending, which includes “loan servicing 9 compliance.” (Doc. 212-1 at 15.) Since 1997, Mr. Novy has served in various capacities in 10 the mortgage industry—his expertise includes lending operations, mortgage banking 11 standards and practices, and ensuring loans meet industry standards. (Id. at 10-11.) 12 Furthermore, since 1997, Mr. Novy has been retained as a subject matter expert and 13 consultant, where his areas of testimony included mortgage lending for both commercial 14 and residential mortgages. (Id.) Mr. Novy also testified that he received Housing and Urban 15 Development (“HUD”) training as to loan servicing matters and he has reviewed loan 16 servicing records as part of his role in compliance and auditing. (Doc. 212-2 at 7-8, 11.) 17 The Court therefore finds that Mr. Novy’s qualifications meet the knowledge and 18 experience of an expert to discuss the mortgage servicing industry. 19 In their response, Plaintiffs attach a declaration from Mr. Novy expounding upon 20 his expertise and expert conclusions. (Doc. 227-1 at 2-8.) This declaration amounts to an 21 untimely supplemental expert report. The deadline to disclose supplement expert witness 22 opinions was April 26, 2024. (Doc. 115.) Thus, the Court will strike Mr. Novy’s 23 declaration. (Doc. 227-1 at 2-8.) 24 B. Reliability 25 TMS argues that Mr. Novy’s opinion lacks reliability, calling it speculative and full 26 of legal conclusions. (Doc. 212 at 6-9.) TMS takes issue with five of Mr. Novy’s opinions. 27 (Id.) 28 Reliability of an expert’s opinion is “determined almost exclusively by looking at 1 [the expert’s] decision-making process.” Allen, 287 F. Supp. 3d at 777 (citing Daubert, 509 2 U.S. at 593-94.) When the testimony is non-scientific, as it is here, the Daubert factors are 3 not applicable. See Hangarter, 373 F.3d at 1017. Instead, “reliability depends heavily on 4 the knowledge and experience of the expert, rather than the methodology or theory behind 5 it.” Id. (quoting United States v. Hankey, 203 F.3d 1160, 1069 (9th Cir. 2000)). 6 “[E]xpert testimony may not be admitted unless the proponent demonstrates to the 7 court that it is more likely than not that the proffered testimony meets the admissibility 8 requirements set forth in the rule.” Fed. R. Evid. 702 advisory committee’s note to 2023 9 amendment (citing Fed. R. Evid. 104(a)); see also Bourjaily v. United States, 483 U.S. 171, 10 175 (1987) (“The preponderance standard ensures that before admitting evidence, the court 11 will have found it more likely than not that the technical issues and policy concerns 12 addressed by the Federal Rules of Evidence have been afforded due consideration.”). This 13 means that “if the court finds it more likely than not that an expert has a sufficient basis to 14 support an opinion, the fact that the expert has not read every single study that exists will 15 raise a question of weight and not admissibility.” Fed. R. Evid. 702 advisory committee’s 16 note to 2023 amendment. 17 In addition, expert witnesses cannot offer legal conclusions because “instructing the 18 jury as to the applicable law is the distinct and exclusive province of the court.” Nationwide 19 Transp. Fin. v. Cass Info. Sys. Inc., 523 F.3d 1051, 1058 (9th Cir. 2008) (quoting 20 Hangarter, 373 F.3d at 1016). Courts typically prohibit experts from interpreting the law 21 and advising how the law should apply to the facts of a case because this testimony can 22 circumvent the fact-finder’s decision-making capability. Pinal Creek Grp. v. Newmont 23 Mining Corp., 352 F. Supp. 2d 1037, 1042 (D. Ariz. 2005). 24 1. Preliminary Report Opinion No. 4 25 TMS argues that opinion number 4 in Mr. Novy’s preliminary report improperly 26 opines that “TMS failed to properly audit the loan file from Wallick & Volk and therefore 27 accepted all liability and risks.” (Docs. 212 at 6, 212-1 at 7.) Mr. Novy relied on HUD 28 regulations to reach this conclusion. (Doc. 212-1 at 7.) TMS also argues that Mr. Novy 1 does not identify the correct HUD regulations in his deposition testimony. (Doc. 212 at 6.) 2 The Court finds that this statement is an improper legal conclusion because Mr. 3 Novy concludes that TMS violated HUD standards and accepted liability. (Doc. 212-1 at 4 7.) As an expert, Mr. Novy may address the factual question of whether TMS deviated 5 from the customs, practices, and standards of the mortgage industry, but not the ultimate 6 legal issue of whether TMS is liable. See Hangarter, 373 F.3d at 1016-17 (concluding that 7 an expert witness may testify about insurance industry standards but not directly about 8 legal conclusions). The Court also finds that Mr. Novy’s overall conclusion with respect to 9 TMS in the preliminary report is unreliable because he did not have complete facts when 10 writing his analysis. Mr. Novy did not have the TMS employee depositions or loan records. 11 (Doc. 212-1 at 7.) 12 TMS also argues that Mr. Novy improperly testified that Chelsie Dominguez “had 13 no obligation to provide TMS with the Perkin Insurance Policy” because he “had not 14 reviewed the Deed of Trust” to verify who was required to provide proof of insurance. 15 (Doc. 212 at 6.) In fact, Mr. Novy’s report explained that he did review the Deed of Trust. 16 (Doc. 212-1 at 4.) He testified at this deposition that he did so but could not “recollect the 17 exact wording in there.” (Doc. 212-3 at 8-11.) Therefore, the Court finds this testimony 18 reliable. TMS can address its concerns with the weight of the testimony specific to 19 Plaintiffs and their responsibilities regarding the Perkin Insurance Policy through cross- 20 examination. See Daubert, 509 U.S. at 596. 21 2. Supplemental Report Opinion No. 5 22 TMS argues that Mr. Novy’s opinion number 5, concluding that TMS failed to 23 service the loan to HUD standards, is unreliable. TMS fails to develop this argument. (Doc. 24 212 at 7.) The Court finds that Mr. Novy’s conclusion is reliable because he had “a 25 sufficient basis to support an opinion.” See Fed. R. Evid. 702 advisory committee’s note to 26 2023 amendment. Mr. Novy relied on TMS procedures, loan servicing records, deposition 27 testimony, HUD QC Audit Checklist, and his knowledge of industry standards and 28 practices. (Doc. 212-1 at 15-16, 21-23.) 1 The Court reserves the question of whether Mr. Novy’s opinion that TMS did not 2 service the loan to HUD standards as an improper legal conclusion for trial. 3 3. Supplemental Report Opinion No. 6 4 TMS argues that Mr. Novy’s opinion number 6, which concludes that TMS failed 5 to properly monitor its subcontractor work, is unreliable because he never managed or 6 oversaw an insurance vendor. (Doc. 212 at 7.) 7 The Court finds that Mr. Novy’s opinion is reliable. Mr. Novy testified that he relied 8 on the deposition testimony of Linda Case, who was responsible for managing Assurant, 9 TMS’s servicing vendor. (Doc. 212-3 at 30-31.) Mr. Novy also relied on HUD regulations 10 and “QC plan standards.” (Doc. 212-1 at 25.) TMS’s concern whether Mr. Novy has 11 specialized experience managing vendors goes to the weight of the testimony, not 12 admissibility. 13 4. Supplemental Report Opinion No. 7 14 TMS argues that Mr. Novy’s opinion number 7, which concludes that it was 15 improper of TMS to place Plaintiffs’ loan in default status, is unreliable because Mr. Novy 16 testified that he did not know the reason the loan was put in default status. (Doc. 212 at 7.) 17 The Court finds Mr. Novy’s opinion reliable because he had “a sufficient basis to 18 support [the] opinion.” See Fed. R. Evid. 702 advisory committee’s note to 2023 19 amendment. Mr. Novy reviewed TMS procedures, loan servicing records, deposition 20 testimony, and HUD QC Audit Checklist, which includes property insurance verification. 21 (Doc. 212-1 at 21-23.) Using these materials and his expertise, Mr. Novy concluded that it 22 was improper to put the loan in default status. TMS’s concern that Mr. Novy did not know 23 the reasoning goes to the weight of the testimony, which can be resolved through cross- 24 examination. 25 5. Supplemental Report Opinion No. 8 26 TMS argues that Mr. Novy’s opinion number 8, concluding that TMS did not follow 27 FHA Guidelines to ensure that hazard insurance is filed and settled “expeditiously,” is 28 unreliable because Mr. Novy testified that he had no opinion as to the industry standard timing. (Doc. 212 at 6-7; Doc. 212-3 at 35.) 2 The Court finds Mr. Novy’s opinion reliable because his conclusion is based on his || knowledge and experience from the industry. Mr. Novy testified that HUD does not set a 4|| timeline but that “based on [his] 30-plus years of experience” the timing should be between 5 || 30 days to 90 days. (Doc. 212-3 at 35.) 6] I. CONCLUSION 7 Accordingly, 8 IT IS ORDERED granting in part and denying in part Defendant The Money Source, Inc.’s motion to exclude expert Curtis Novy’s expert reports and testimony || (Doc. 212), as described herein. 11 IT IS FURTHER ORDERED striking Curtis Novy’s declaration (Doc. 227-1 at 2-8). 13 Dated this 23rd day of August, 2024. 14 Micha T. Sihurde Michael T, Liburdi 17 United States District Judge 18 19 20 21 22 23 24 25 26 27 28

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