Harris v. Koenig

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
______________________________
WILLIAM S. HARRIS, et al., )
)
)
Plaintiffs, )
)
v. ) Civil Action No. 02-618 (GK)
)
JAMES E. KOENIG, et. al., )
)
Defendants. )
______________________________)

MEMORANDUM OPINION

The Waste Management Defendants1 have filed, pursuant to

Federal Rule of Evidence 702 (Defs.’ Mot.) (March 30, 2011) [Dkt.

No. 444], a Motion to Exclude the Opinion Testimony of Saul Solomon

Upon consideration of the Motion, the Opposition, the Reply, and

the applicable case law, the Court concludes that the Motion will

be denied for the following reasons.

Under Rule 702, a trial court may only admit expert testimony

that is both relevant and reliable. Kumho Tire Co. v. Carmichael,

526 U.S. 137, 141, 119 S. Ct. 1167 (1999); Daubert v. Merrell Dow

Pharmaceuticals, Inc., 509 U.S. 579, 589, 113 S. Ct. 2786 (1993).

In considering Rule 702 motions, the court assumes only a “limited

gate-keep[ing] role” directed at excluding expert testimony that is

1
The term “Waste Management Defendants” refers to Defendants
Waste Management Holdings, Inc., Waste Management Retirement
Savings Plan, Waste Management Inc. Profit Sharing and Savings Plan
Investment Committee, Waste Management Inc. Profit Sharing and
Savings Plan Administrative Committee, and Investment Committee of
the Waste Management Retirement Savings Plan.
based upon “subjective belief” or “unsupported speculation.”

Ambrosini v. Labarraque, 101 F.3d 129, 135-36 (D.C. Cir. 1996).

Courts take a flexible approach to deciding Rule 702 motions,

Daubert, 509 U.S. at 594, and have “broad discretion in determining

whether to admit or exclude expert testimony.” U.S. ex rel. Miller

v. Bill Harbert Int’l Constr., Inc., 608 F.3d 871, 895 (D.C. Cir.

2010) (internal quotations and citation omitted). The party seeking

to introduce expert testimony must demonstrate its admissibility by

a preponderance of the evidence. Daubert, 509 U.S. at 592 n.10.

In bringing this Motion, Defendants argue that the Declaration

of Saul Solomon (“Solomon Report”), which calculates losses to the

Waste Management Profit Sharing and Savings Plan (“Old Waste

Plan”), by comparing the value of the Waste Management Stock and

that of two alternative investments at the end of the loss period,

is both unreliable and irrelevant. See Declaration of Saul Solomon

(Mar. 30, 2011) [Dkt. No. 435-9]. For the following reasons, the

Court concludes that the Solomon Report is reliable, relevant, and

admissible under Rule 702.

A. The Solomon Report Is Reliable

Under Rule 702, expert testimony is reliable if (1) it is

“based upon sufficient facts or data;” (2) it is “the product of

reliable principles and methods,” and (3) “the witness has applied

the principles and methods reliably to the facts of the case.”

Here, Defendants argue that the Report is unreliable because its

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calculations are based on the alternative-investment method, which

has “uniformly [been] held by courts to be improper under the

circumstances of this case.” Defs.’ Mot. 1. This argument fails for

several reasons.2

First, Defendants make the flat out statement that although

Solomon has used the alternative-investment methodology for

calculating losses in many other ERISA cases, “his calculations

have never been passed on, much less accepted, by any court.” Id.

at 4. Either Defendants have purposefully made an extremely

misleading assertion, or they are just plain wrong. There is no

question that the alternative-investment test has been recognized

as a reliable means of calculating damages in ERISA cases that

involve breaches of fiduciary duty for failures to prudently invest

and manage an employee retirement plan. Evans v. Akers,3 534 F.3d

65 (1st Cir. 2008); Donovan v. Bierwirth,4 754 F.2d 1049, 1056 (2d

Cir. 1985); Graden v. Conexant Systems, Inc.,5 496 F.3d 291, 301

2
Defendants do not challenge Solomon’s qualifications.
3
Although Defendants argue that Evans was a standing case and
therefore should not be relied on, it is clear that the court was
accepting it as one form of measuring damages. Evans 534 F.3d at
74.
4
While Donovan accepted the legitimacy of the alternative-
investment methodology it did, in dicta, suggest that it might not
be the best measure of damages in all types of situations.
5
As to Graden, Defendants again argue that because it was a
standing case, it should not be relied on. However, the Graden
court specifically ruled that “the measure of damages is the amount
(continued...)

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(3d Cir. 2007); Chao v. Trust Fund Advisors,02-cv-559, 2004 WL

444029 (D.D.C. Jan. 20, 2004).

Second, Defendants’ real argument is that the alternative-

investment test is not the most appropriate method to be applied in

this ERISA case, where Defendants have been accused of imprudently

investing in stocks they knew to be artificially-inflated by

accounting improprieties. Defs.’ Mot. 11-14. In presenting this

argument, Defendants fail to address the key issues to be

considered in ruling on a Rule 702 motion, namely, whether the

Report is based on sufficient facts and data, and whether the

alternative-investment test has been reliably applied. FED . R. EVID .

702 (1),(3). Instead, Defendants’ effort to strike Solomon’s

testimony is actually a challenge to the merits of Plaintiffs’

underlying action, including the nature of their allegations, as

well as the appropriate damages calculation for those claims.

Finally, as a review of the Report shows, Solomon’s analysis

relies on a host of relevant facts and figures, methodically and

carefully applies the alternative-investment test to those facts,

and provides damages calculations whose mathematical accuracy is

undisputed.

Thus, for the foregoing reasons, the Court concludes that

Plaintiffs have demonstrated, by a preponderance of the evidence,

5
(...continued)
that affected accounts would have earned if prudently invested.”
496 F.3d at 301.

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that the Report is “the product of reliable principles and

methods.”

B. The Solomon Expert Report Is Relevant

An expert report is relevant if it will “assist the trier of

fact to understand the evidence or to determine a fact in issue.”

Daubert, 509 U.S. at 591 (internal quotations and citation

omitted). Claiming the Solomon Report does not meet this standard,

Defendants raise the following arguments: (1) Solomon erroneously

made the “overarching assumption” that “the alternative-investment

methodology is a proper approach for calculating losses in this

case;” (2) Solomon “avoided having to do any real analysis that

would assist the Court in assessing whether or to what extent the

[“Old Waste”] Plan actually suffered any losses attributable to

Plaintiffs’ First Period Claims;” and (3) Solomon’s methodology

contradicts the method used by Plaintiffs’ other experts Alan

Madian and Bente Villadesen. See Defs.’ Mot. 5-9, 15-18;

Defendants’ Reply Brief in Support of Their Motion to Exclude

Opinion Testimony of Saul Solomon, 6-10 (“Defs.’ Reply”) (Apr. 20,

2011) [Dkt. No. 458].

In assessing relevance or “fit,” “once an expert has explained

his or her methodology, and has withstood . . . evidence suggesting

that the methodology is not derived from the scientific method, the

expert’s testimony, so long as it ‘fits’ an issue in the case, is

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admissible under Rule 702 for the trier of fact to weigh.”

Ambrosini, 101 F.3d at 134.

1. Solomon’s Use of the Alternative-Investment Test
Was Not Unreasonable

The Solomon Report does not purport to opine on what the

proper damages formula is for this case. It merely provides a

series of calculations based on Plaintiffs’ view that the

alternative-investment test is the most appropriate to apply to

calculation of their ERISA damages. Consequently, Solomon’s use of

this formula is not an “unreasonable assumption,” but rather

comports with Plaintiffs’ theory of the case. While Defendants may

disagree with that legal theory, resolution of this disagreement

will occur at the merits stage of the litigation and not pursuant

to a Rule 702 motion. See Donovan, 754 F. 2d at 1052 (holding that

“[m]easuring damages involves the application of law to fact; the

proper formula for calculating damages is essentially a question of

law”).

2. Solomon’s Calculations Involved “Real Analysis”

Defendants claim that Solomon did not conduct any “real

analysis” because his calculations are based on a number of

“unreasonable assumptions” that were “supplied to him by

Plaintiff’s [sic] counsel.” Defs.’ Mot. 5-6, 15-16; Defs.’ Reply 6-

9. He assumed (1) “that Waste Management stock was an ‘imprudent

investment’ throughout the First Claim Period;” (2) “that Plan

fiduciaries would have eliminated Waste Management stock as an

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investment option throughout the First claim Period and would not

have allowed the Plan participants to invest in Waste Management

stock at all during that time;” (3) “that all of the money that

Plan participants invested in Waste Management stock during the

First Claim Period would have been invested instead in one of two

alternative investments: either the Vanguard 500 Index Investor

Fund or the Vanguard Wellington Income Fund;” and (4) that “[t]he

time period for measuring the loss was January 1, 1990 through

February 24, 1998.” Defs.’ Mot. 5-6, 15-16; Defs.’ Reply 8-9.

Briefing on the Motion makes clear that Solomon’s testimony

will unquestionably “assist the trier of fact,” namely, the Court.

Whether or not it is based on “unreasonable assumptions” will be

determined at trial after full cross-examination. Defendants’

objections go to the weight, not the admissibility of his Report.

As to the claim that the Report contains no “real analysis,”

that is simply not true. First, in keeping with the alternative-

investment method, Solomon calculated damages based upon “the

greater profits [an employee investment plan] might have earned if

the Trustees had invested in other Plan assets, rather than [in the

imprudent stock].” Donovan, 754 F.2d at 1054 (emphasis added).

Second, in calculating losses to the Old Waste Plan, Solomon used

the Vanguard 500 Index Investor Fund and the Vanguard Wellington

Income Fund, two investments that were actually available to

employees in the Old Waste Plan, as his “alternative-investments.”

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Solomon Report 7-8.6 While Plaintiffs instructed Solomon to use

these two funds, the Report provided a number of justifications for

treating them as prudent investment alternatives. Id. Finally, the

Report also provides the Court with two different scenarios for

calculating damages to the Old Waste Plan under the alternative-

investment test.

This kind of report is among the types of expert testimony

admissible under Rule 702. See, e.g., Capitol Justice LLC v.

Wachovia Bank, N.A., 706 F. Supp. 2d 34 (D.D.C. 2009). It provides

complex mathematical calculations under a number of different

scenarios and is, therefore, clearly useful for helping this Court

understand one of the possible loss formulas applicable to this

litigation. See Evans, 534 F.3d at 74 (“Losses to a plan from

breaches of the duty of prudence may be ascertained, with the help

of expert analysis, by comparing the performance of the imprudent

investments with the performance of a prudently invested

portfolio.”)(emphasis added).

6
Defendants correctly point out that the Report measures
losses to the Old Waste plan from January 1, 1990 through February
24, 1998, which is the loss period claimed by Plaintiffs. Although
Defendants describe this as an “unreasonable assumption,” the
Report expressly states that it provides no opinion about the
appropriate loss period. Solomon Report 6 n. 9.

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 3. The Solomon Report Does Not Conflict with the
Report of Plaintiffs’ Experts Alan Madian and Bente
Villadesen

Based on the excerpts provided by Plaintiffs and Defendants,

the Report of Experts Alan Madian and Bente Villadesen focuses only

on the extent to which Waste Management stock was artificially-

inflated during the claim period. See Plaintiffs’ Ex. 7 (Apr. 13,

2011) [Dkt. No. 452-1]; Defendants’ Ex. 1 (Mar. 30, 2011) [Dkt. No.

444-3]. In fact, their Report specifically states that “[c]ounsel

informed us that other experts would be providing expert reports

and testimony regarding ERISA losses and accounting issues.”

Plaintiffs’ Ex. 7, 5. Thus, the two Reports address distinctly

different issues, and therefore there is no conflict between them.

For these reasons, the Court concludes that Plaintiffs have

demonstrated by a preponderance of the evidence that the Solomon

Report is relevant under Rule 702.

C. Conclusion

The Court concludes with two observations. First, many of the

criticisms of the Solomon Report raised by Defendants -- such as

the unreasonableness of its assumptions -- are properly addressed

by cross-examination at trial. Second, it is premature to decide

at this time, in the context of a Rule 702 Motion, the legal

question of which damages test is appropriate, especially since the

factual presentation of this case has not yet been made.

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 For the foregoing reasons, Defendants’ Motion to Exclude the

Testimony of Saul Solomon is denied. An Order will accompany this

Memorandum Opinion.

/s/
June_27, 2011 Gladys Kessler
United States District Judge

Copies via ECF to all counsel of record
.

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