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State ex rel. French v. Card Compliant, LLC

Superior Court of Delaware

August 29, 2018

THE STATE OF DELAWARE, Plaintiff, ex rel. WILLIAM SEAN FRENCH, Plaintiff-Relator,
CARD COMPLIANT, LLC, et al., Defendants.

          Submitted: June 5, 2018

         Upon Plaintiffs' Daubert Motion to Exclude the Opinions of Defendants' Expert Jennifer Borden, DENIED.

         Upon Plaintiffs' Daubert Motion to Exclude the Opinions of Defendants' Expert James Ryan, DENIED.

         Upon Defendants' Motion to Exclude or Limit Testimony of Plaintiffs' Expert Brian Duffy, DENIED in part, GRANTED in part.

          Thomas E. Brown, Esquire, Edward K. Black, Esquire (argued), Stephen G. MacDonald, Esquire, Deputy Attorneys General, Delaware Department of Justice, Wilmington, Delaware, Attorneys for the State of Delaware.

          Stuart M. Grant, Esquire, Mary S. Thomas, Esquire (argued), Laina M. Herbert, Esquire, Vivek Upadhya, Esquire, Grant & Eisenhofer P.A., Wilmington, Delaware, Attorneys for Plaintiff-Relator William Sean French.

          Kenneth J. Nachbar, Esquire, Michael Houghton, Esquire, Matthew R. Clark, Esquire, Barnaby Grzaslewicz, Esquire, Morris, Nichols, Arsht & Tunnell LLP, Wilmington, DE, Ethan D. Millar, Esquire, Of Counsel (pro hac vice), J. Andrew Howard, Esquire, Of Counsel (pro hac vice), Alston & Bird LLP, Los Angeles, CA, William R. Mitchelson, Jr., Esquire, Of Counsel (pro hac v/cej(argued), Jason D. Popp, Esquire, Of Counsel (pro hac vice), Alston & Bird LLP, Atlanta, GA, Attorneys for Defendants Apple American Group LLC, CBC Restaurant Corp., II Fornaio (America) Corporation, Noodles & Company, and Shutterfly, Inc.

          Stephen E. Jenkins, Esquire, Catherine A. Gaul, Esquire, Ashby & Geddes, Wilmington, Delaware, Richard M. Zuckerman, Esquire, Of Counsel (pro hac Wce)(argued), Sean Cenawood, Esquire, Of Counsel (pro hac vice), Kiran Patel, Esquire, Of Counsel (pro hac vice), Catharine Luo, Esquire, Of Counsel (pro hac vice), Dentons U.S. LLP, New York, NY, Attorneys for Defendants Card Compliant, LLC, Cardfact I, Inc., Cardfact II, Inc., Cardfact III, Inc., Cardfact IV, Inc., Cardfact V, Inc., Cardfact VI, Inc., Cardfact VII, Inc., Cardfact VIII, Inc., Cardfact IX, Inc., Cardfact X, Inc., Cardfact XI, Inc., Cardfact XII, Inc., Cardfact XIII, Inc., Cardfact XIV, Inc., Cardfact XV, Inc., Cardfact XVI, Inc., Cardfact XVII, Inc., Cardfact XVIII, Inc., Cardfact XIX, Inc., Cardfact XXI, Inc., Cardfact XXVI, Inc., Cardfact XXVII, Inc., Cardfact XXIX, Inc., Cardfact XXX, Inc., Cardfact XXXI, Inc., Cardfact XXXII, Inc., Cardfact XXXIII, Inc., Cardfact XXXIV, Inc., Cardfact XXXV, Inc., Cardfact XXXVI, Inc., Cardfact XXXVII, Inc., CARDCO Holding, Inc., CARDCO CI, Inc., CARDCO CV, Inc., CARDCO CVIII, Inc., CARDCO CXI, Inc., CARDCO CXII, Inc., CARDCO CXV, Inc., CARDCO CXVI, Inc., CARDCO CXVII, Inc., CARDCO CXIX, Inc., CARDCO CXX, Inc., CARDCO CXXI, Inc., CARDCO CXXII, Inc., Darden SV, Inc., as successor by merger to CARDCO CXXIV, Inc., CARDCO CXXV, Inc., CARDCO CXXVI, Inc., CARDCO CXXVII, Inc., CARDCO CXXVIII, Inc., CARDCO CXXXII, Inc., CARDCO CXXXII1, Inc., CARDCO CXXXIV, Inc., CARDCO CCCIII, Inc., CARDCO CCCIV, Inc., CARDCO CCCVI, Inc., CARDCO CX, Inc., and CARDCO DI, Inc.

          Colm F. Connolly, Esquire, Jody C. Barillare, Esquire, Morgan, Lewis & Bockius LLP, Wilmington, Delaware, Gregory T. Parks, Esquire, Of Counsel (pro hac vice), Ezra D. Church, Esquire, Of Counsel (pro hac vice), Courtney McCormick, Esquire, Of Counsel (pro hac vice), Morgan Lewis & Bockius LLP, Philadelphia, PA, Attorneys for Defendants Hanna Anderson, LLC, Nash-Finch Company, Pamida Stores Operating Co., LLC and Shopko Stores Operating Co., LLC.

          David S. Eagle, Esquire, Michael W. Yurkewicz, Esquire, Klehr, Harrison Harvey Branzburg LLP, Wilmington, Delaware, Martin I. Einstein, Esquire, Of Counsel (pro hac vice), David Swetnam-Burland, Esquire, Of Counsel (pro hac vice), Stacy O. Stitham, Esquire, Of Counsel (pro hac vice), Brann & Isaacson, Lewiston, ME, Attorneys for Defendant, Inc.

          Brian M. Rostocki, Esquire, Benjamin P. Chappie, Esquire, Reed Smith LLP, Wilmington, Delaware, Michael J. Wynne, Esquire, Of Counsel (pro hac vice), David A. Rammelt, Esquire, Of Counsel (pro hac vice), Reed Smith LLP, Chicago, IL, Attorneys for Defendant Einstein Noah Restaurant Group, Inc.

          Brian E. Farnan, Esquire, Farnan LLP, Wilmington, Delaware, Shawn J. Organ, Esquire, Of Counsel (pro hac vice), Joshua M. Feasel, Esquire, Of Counsel (pro hac vice), Organ Cole LLP, Columbus, OH, Attorneys for Defendant Vacation Properties United Ltd.


          Paul R. Wallace, Judge.

         I. Introduction

         This Court discussed the background of this case extensively in an earlier opinion.[1] In summary, Plaintiff-Relator William Sean French and the State of Delaware ("Delaware") bring suit under Delaware's False Claims and Reporting Act, alleging that CardFact, Ltd. ("CardFact"), its successor-in-interest Card Compliant LLC ("Card Compliant"), and several retailer parties entered into a contractual scheme designed to deprive Delaware of millions of dollars in unclaimed gift card balances to which it was lawfully entitled under Delaware's Abandoned and Unclaimed Property Law (the "Escheat Law").

         This omnibus opinion addresses three motions seeking to exclude certain expert testimony on the grounds of lack of qualification, reliability, and relevancy.

         II. Daubert Analysis

         Delaware Rule of Evidence 702 governs the admission of expert testimony:

[i]f scientific, technical or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training or education may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimony 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.

         D.R.E. 702 is substantially similar to Rule 702 of the Federal Rules of Evidence, which is governed by Daubert v. Merrell Dow Pharmaceaticals, Inc., [2] and Kumho Tire Co., Ltd. v. Carmichael[3] The Delaware Supreme Court has expressly adopted the holdings in Daubert and Kumho.[4]

         When its admission is challenged, a trial judge must ensure that expert testimony is both reliable and relevant.[5] Expert testimony is relevant if it assists the fact finder in "understanding] the evidence or . . . determin[ing] a fact in issue."[6]Reliable expert testimony is premised on technical or specialized knowledge, which requires the testimony to be grounded in reliable methods and procedures and "supported by appropriate validation-i.e., 'good grounds,' based on what is known."[7]

         The trial judge functions as a gatekeeper for relevant and reliable testimony by inquiring, where the testimony is scientific: (1) whether the theory or technique has or can be tested; (2) whether the theory or technique has been subjected to peer review and publication; (3) whether the technique has a rate of error and what that rate of error is; and (4) whether the theory or technique has gained a general acceptance within the relevant scientific community.[8] These four factors are not meant to be a "definitive checklist."[9] Instead, a trial judge enjoys broad latitude in determining whether expert testimony is both reliable and relevant.[10] The goal of this inquiry is not "wholesale exclusion" of testimony because it has not been "generally accepted;" rather, "cross examination, presentation of contrary evidence, and careful instruction on the burden of proof are, more often, the appropriate methods of attacking scientific, technical, or other testimony based on specialized knowledge.[11]

         Consistent with Daubert, Delaware requires the trial judge to engage a five-step test to determine the admissibility of expert testimony.[12] The trial judge must determine that:

(1) the witness is qualified as an expert by knowledge, skill experience, training or education;
(2) the evidence is relevant;
(3) the expert's opinion is based upon information reasonably relied upon by experts in the particular field;
(4) the expert testimony will assist the trier of fact to understand the evidence or to determine a fact in issue; and
(5) the expert testimony will not create unfair prejudice or confuse or mislead the jury.[13]

         It is the burden of the party seeking to introduce the expert testimony to establish its admissibility by a preponderance of the evidence.[14] But as our Supreme Court has again very recently observed, "[a] strong preference exists" for admitting expert opinions "when they will assist the trier of fact in understanding the relevant facts or the evidence." [15]

         At the outset, the Court notes that a rigid application of the Daubert factors simply cannot be engaged to determine testimonial reliability in every field of expertise.[16] For example, many scientific, technical, or specialized fields are not subject to peer review and publication. That is why the test of reliability is "flexible," and the trial court has "broad latitude when it decides how to determine reliability."[17]

         III. Plaintiffs' Daubert Motions to Exclude or Limit Expert Opinions

         A. Testimony of Jennifer C. Borden

         The Defendants offer Jennifer C. Borden as an expert in the area of unclaimed property consulting. Ms. Borden offered numerous opinions on the unclaimed property issues in this case, including a report and deposition testimony, as well as anticipated trial testimony.

         Plaintiffs seek to exclude these opinions for the following reasons: (1) Ms. Borden's opinions on the voluntary disclosure agreement ("VDA") program are temporally irrelevant, as the program was enacted after the Retailer Defendants entered into Card Services Agreements ("CSAs"); (2) Ms. Borden's opinions lack sufficient indicia of reliability; (3) Ms. Borden's opinions are premised on inadmissible hearsay; and (4) Ms. Borden's invocation of attorney-client privilege precludes Plaintiffs from testing the conclusions drawn in her testimony.

         1. Ms. Borden's Qualifications

         Ms. Borden is a Massachusetts attorney with twenty-two years of experience in the field of unclaimed property.[18] Ms. Borden served as General Counsel to the Unclaimed Property Fund of the Massachusetts Office of the Treasurer for five years before transitioning to private practice in unclaimed property.[19] The law firm of Ernst & Young, LLP employed Ms. Borden as the Regional Director of its Unclaimed Property Practice for six years, and the law firm of Holland & Knight, LLP later employed Ms. Borden as a partner for five years.[20] Ms. Borden has represented holders in connection with more than one hundred unclaimed property audits and VDAs, forty-five of which were conducted by or on behalf of the State of Delaware.[21]

         2. Ms. Borden's Opinions are Relevant

         The Defendants seek to prove, through Ms. Borden's testimony, that there are no salient differences between the transactions that were the subject of the Delaware audits/VDAs and the transactions at issue in this case.[22] Plaintiffs counter that Borden's opinions regarding the VDA program are temporally irrelevant, because the program was not adopted until 2012, and did not become active until 2013: and the Retailer Defendants entered into the CSAs between 2005 and 2008, five years before the VDA program was enacted, and therefore could not have relied on the positions held by Delaware in the VDAs.[23]

         Defendants contend that while the VDA program became active in 2013, Ms. Borden will opine that Delaware consistently maintained the same position from before 2005 until 2015, "show[ing] that Delaware itself never wavered in its approach and that Delaware itself believed Defendants' interpretation to be reasonable."[24]

         Under the Delaware Rules of Evidence, relevant evidence is any evidence having any tendency to make the existence of a fact in question more or less likely to be true.[25] All relevant evidence is admissible, unless it is excluded by another evidentiary rule or statute, and all irrelevant evidence is inadmissible.[26] And the Court must exclude even relevant evidence where its "probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues or misleading the jury, or by considerations of undue delay, waste of time or needless presentation of cumulative evidence."[27]

         The Court finds that Ms. Borden's opinions are relevant to Delaware's historic posture on unclaimed property issues, given her experience in the area of unclaimed property law and knowledge of prior Delaware audits. Thus, Plaintiffs' motion to preclude Ms. Borden's testimony as to its temporal relevancy is denied.

         3. Ms. Borden's Opinions are Proper Subjects for Expert Opinion

         Plaintiffs next argue that Ms. Borden's opinions regarding an industry perspective of Delaware's position toward unused gift card balances are not proper subjects for expert opinion, as they are not sufficiently grounded in science.[28]Plaintiffs argue that Ms. Borden's failure to perform a scientific survey of the industry, or to define the industry itself, render her opinions insufficiently technical.[29] Further, Plaintiffs argue, Ms. Borden cannot opine on the economic substance and business purpose of Defendants' relationship with CardFact, because the relationship between the companies is fact testimony.[30] Ms. Borden's opinions on the "industry's" views, Plaintiffs contend, are premised on impermissible hearsay.[31]

         Defendants assert that Ms. Borden's opinions are based on specialized knowledge gleaned from her extensive experience in the unclaimed property field, as well as communications with other experts in the field regarding Delaware's position on unclaimed property issues.[32] Defendants contest Plaintiffs' argument that hearsay cannot form a basis for expert testimony.

         Delaware case law provides that experts may rely on hearsay while forming their opinions, as long as that hearsay evidence is reasonably relied upon by experts in the field.[33] But, experts are not to serve as a "conduit" for otherwise inadmissible hearsay statements.[34]

         Ms. Borden's opinions on common practice in the unclaimed property industry are not scientific in nature, but specialized knowledge appropriate for expert testimony.[35] Ms. Borden's reliance on the opinions of other industry professionals in forming her understanding of industry perspective falls within Delaware Rule of Evidence 703's parameters.[36] Plaintiffs fail to show that her reliance on communications with other professionals renders Ms. Borden little more than a mouthpiece.

         4. Ms. Borden's Opinions are Sufficiently Reliable

         Plaintiffs next argue that Ms. Borden failed to consult with anyone who had asked the State how it would apply unclaimed property laws to CardFact, and so Ms. Borden lacks a basis for concluding that her sources were reliable, rendering her own opinions unreliable.[37]

         Given Ms. Borden's extensive experience in the area of unclaimed property, the Court finds her qualified to form an informed opinion on the reliability of the experts with whom she has communicated. Challenges to the factual bases for Ms. Borden's opinions go to their credibility, not their admissibility, and may be explored by Defendants' cross examination at trial.[38]

         Plaintiffs also contend that Ms. Borden's practice of referring clients to CardFact and vice versa makes her opinions biased and unreliable.[39] Defendants counter that there is no evidence that Ms. Borden ever referred a client to CardFact, nor was she ever hired on the basis of one of CardFact's referrals.[40] Plaintiffs' arguments go toward weight and credibility of Ms. Borden's evidence, issues best left for cross examination and the presentation of contrary evidence.[41]

         5. Ms. Borden's Invocation of Attorney-Client Privilege Does Not Preclude Her Testimony

         Finally, Plaintiffs assert that Ms. Borden's invocation of the attorney-client privilege during discovery prevented them learning the identity of her clients and, therefore, from testing her conclusions.[42] Defendants contest the validity of this assertion, arguing that Ms. Borden was forthright about the identity of her clients but refused to disclose privileged information pertaining to those clients.[43]

         Plaintiffs do not challenge the propriety of Ms. Borden's assertion of privilege, but only that it impeded their ability to fully test her opinions. Plaintiffs concede that Ms. Borden identified clients during her expert deposition.[44] To the extent that Ms. Borden asserted privilege regarding some aspects of her relationship with ...

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