This case involved a dispute between Plaintiffs Toa Trading LLC and MunshiBari LLC and Defendants Mullen Automotive, Inc. and Mullen Technologies, Inc. over an alleged breach of contract. The Plaintiffs claimed that the Defendants failed to pay them a finder’s fee as required by an agreement between the parties. The Defendants argued that they were not required to pay the fee because the Plaintiffs had acted as unlicensed broker/dealers in violation of Securities and Exchange Commission (SEC) regulations, rendering the contract null and void. To support their argument, the Defendants intended to offer expert testimony from Lauren Cohen. They disclosed Cohen as a “hybrid non reporting expert witness” who would testify about SEC regulations, specifically Section 3(a)(4) and Section 15(a) related to the brokers and whether the Plaintiffs acted as unlicensed broker/dealers.
On April 7, 2023, the Judge issued a scheduling order outlining key deadlines for the legal proceedings. The order mandated that by June 23, 2023, the involved parties were required to disclose their experts, along with summaries and reports related to expert witnesses. Subsequently, on August 4, 2023, a deadline was set for the exchange of rebuttal expert witness summaries and reports. All discovery, including expert discovery, was slated to conclude by August 25, 2023. Finally, a trial date of February 12, 2024, was entered.
On June 23, 2023, the Defendants initially disclosed Cohen as a “retained expert” in accordance with Federal Rules of Civil Procedure 26(a)(2)(B) and 26(a)(2)(C). In this disclosure, Cohen’s anticipated expert testimony was outlined, focusing on findings, observations, opinions, and discussions related to Securities and Exchange Commission regulations and the legality of the contracts in question, along with any associated fair market value. The Defendants affirmed that the attached exhibit, including Cohen’s CV, publication list, relevant testimony, and credentials, adhered to the requirements of Rule 26(a)(2)(B). Notably, the June 23 disclosure did not include a report prepared by Cohen.
On June 27, 2023, the Plaintiffs communicated via email to the Defendants, expressing their belief that the initial disclosures made by the Defendants were deemed “procedurally and substantively insufficient” and urged for a discussion to address these concerns before considering the filing of a motion to strike.
On July 10, 2023, the Defendants made amendments to their expert witness disclosures, referred to as “Amended Disclosures.” Notably, these revised disclosures still did not include an expert report prepared by Cohen. Instead, Cohen was re-categorized as a “hybrid” witness, blending both factual and expert roles under Fed. R. Civ. P. 26(a)(2)(C). The previous concise summary of Cohen’s expected testimony was omitted, and a new description was provided. In this updated information, Cohen was said to be expected to provide both factual testimony and opinion, permitted by FRCP 26(a)(2)(C) as a hybrid witness, specifically regarding Securities and Exchange Commission regulations. The focus areas included Section 3(a)(4) and Section 15(a), addressing conduct that the SEC may deem indicative of individuals acting as brokers. The testimony would also cover agreements involving transaction-based compensation and specific conduct relevant to determining whether TOA TRADING’s and MUNSHIBARI’s principals and agents acted as unlicensed broker/dealers in connection with the reverse triangular merger outlined in the Complaint.
Days later, during the July 12 conferral, the Plaintiffs once again contested the adequacy of the Defendants’ Amended Disclosures. Their arguments centered around several key points: (1) the Defendants’ failure to provide an expert report, as mandated by FRCP 26(a)(2)(B); (2) the absence of evidence supporting Cohen’s classification as a ‘hybrid’ fact and expert witness, as required by FRCP 26(a)(2)(C); (3) even if FRCP 26(a)(2)(C) applied, deficiencies in the Amended Disclosures for not specifying Cohen’s opinions and their bases; and (4) concerns that the Amended Disclosures hinted at improper expert testimony on the applicability of SEC regulations, deeming it unnecessary for an expert to educate the Court on these legal matters. Notably, the Defendants’ Amended Disclosures did not reveal any involvement by Cohen in the facts of the case that would appropriately categorize him as a fact witness, nor did they disclose any statement regarding Cohen’s compensation as a witness.
In response to the Defendants’ refusal to withdraw Cohen’s testimony, the Plaintiffs took action and, on July 26, 2023, filed a motion to strike the proposed testimony.
Business Administration and Management Expert Witness
Lauren H. Cohen is the L.E. Simmons Professor in the Finance & Entrepreneurial Management Units at Harvard Business School and a Research Associate at the National Bureau of Economic Research. Cohen teaches in the MBA Program, Executive Education Program, Doctoral Program, and Special Custom Programs at the Harvard Business School, teaching across Family Enterprise, Investment Management, and Innovation Course Offerings. He is an award-winning researcher, and best-selling case writer, with works published in the top journals in Finance and Economics. His work is frequently profiled in various media outlets including The Wall Street Journal, The New York Times, The Washington Post, The Economist, and Forbes. Cohen frequently advises government organizations in the U.S. and abroad, including the United States Securities and Exchange Commission and United States Patent & Trademark Office.
Discussions by the Court
The exclusion of Cohen’s testimony in this case was warranted for three main reasons. Firstly, the Defendants neglected to submit the expert report mandated by Fed. R. Civ. P. 26(a)(2)(B) within the specified deadline. Secondly, the Defendants’ non-compliance with Fed. R. Civ. P. 26(a)(2) was found to lack substantial justification and was not deemed harmless to the Plaintiffs. Lastly, it was argued that Cohen’s proposed testimony ran afoul of Eleventh Circuit law and was considered improper.
The Defendants were unable to substantiate that Cohen played any role other than that of a retained expert in this case. The available evidence in the record did not indicate any first hand involvement by Cohen in the relevant facts or transactions under consideration. Specifically, during the October 31 hearing on the case, the Defendants acknowledged that Cohen had no prior knowledge of the case before being engaged as a paid expert by the Defendants’ counsel to offer testimony in this matter.
In accordance with Rule 26(a)(2)(B), when a witness is retained or specifically employed to provide expert testimony in a case, the disclosure must be accompanied by a written report. This report, which must be “prepared and signed by the expert witness,” and is required to include the following:
(i) A comprehensive statement outlining all opinions the witness will express and the basis and reasons supporting those opinions.
(ii) Details regarding the facts or data considered by the witness in forming their opinions.
(iii) Any exhibits that will be used to summarize or support the opinions.
(iv) The witness’s qualifications, including a list of all publications authored within the preceding 10 years.
(v) A list of all other cases in which the witness testified as an expert, either at trial or through deposition, within the preceding 4 years.
(vi) A statement indicating the compensation to be paid for the study and testimony in the case.
In the case of Cedant v. United States, 75 F.4th 1314, 1321 (11th Cir. 2023), as of 2023, the Eleventh Circuit clarified that the classification of an expert witness as “retained” or “non-retained” depends on the nature of the relationship between the expert and the party for whom the expert is intended to testify, rather than the actual content of the expert’s testimony. This interpretation, outlined in Cedant, emphasizes the importance of examining the initial reason and timing of the expert’s retention by a party, specifically assessing whether the retention was for the purpose of providing expert testimony in the case or for some other objective. The Court instructed that a textual reading of Rule 26(a)(2)(B) indicates that an expert’s status as a retained witness hinges on the original purpose of their retention (For instance, in the context of medical expert testimony, the determination of whether a doctor is retained or not depends on whether they were hired to testify or to provide treatment).
Following the plain language of Rule 26(a)(2) and the guidance from the Cedant decision, it was determined that Cohen was unequivocally a retained expert. Throughout the litigation, his sole association with the case was as a paid witness hired by the defense counsel to provide expert testimony. This conclusion aligns with the Court’s assertion in Cedant that an expert is considered retained “if his connection to the litigation was, from the beginning, as a paid expert witness.” Cohen lacked any “first-hand factual awareness of the subject matter of the suit,” as per Cedant, and the Defendants did not dispute this fact. Rather, Cohen’s involvement with the Defendants commenced specifically when he was retained to testify in the litigation, with no other purpose or connection to the case beyond potentially offering expert testimony after the fact.
As Cohen was correctly identified as a “retained” expert witness, the Defendants were obligated, in accordance with Fed. R. Civ. P. 26(a)(2)(B) and Judge’s scheduling order, to furnish the Plaintiffs with a comprehensive expert report for him by the specified deadline of June 23, 2023. However, the Defendants failed to fulfill this requirement. Despite being alerted to this issue by the Plaintiffs, and despite the passage of several months, the Defendants did not take corrective measures to address their failure and provide the Plaintiffs with the necessary expert report and information.
Cohen’s testimony and opinions were rightfully excluded in this case due to the Defendants’ failure to furnish the necessary expert report by the deadline specified in the scheduling order. The Defendants did not demonstrate that this failure was substantially justified or harmless, leading to the appropriate exclusion of Cohen’s testimony and opinions from consideration in the case.
Violations of Rule 26(a)(2)(B)’s disclosure requirements necessitate the exclusion of undisclosed information or witnesses unless the violation is justified or deemed harmless, citing Fed. R. Civ. P. 37(c)(1). This is something held by the Court, that substantial justification, in this context, requires a level of justification that could reasonably convince a person that parties may differ on whether compliance with the disclosure request was necessary. The proponent’s position must have a reasonable basis in law and fact, quoting Chapple v. Alabama, 174 F.R.D. 698, 701 (M.D. Ala. 1997). Assessing whether there was substantial justification or harmlessness in failing to disclose involves considering four factors: (1) the significance of the excluded testimony; (2) the party’s explanation for the failure to comply with the disclosure requirement; (3) the potential prejudice resulting from allowing the testimony; and (4) the availability of a continuance to provide remedy for such prejudice, as outlined in Chappell.
In addressing the substantial justification factors outlined in Chappell, the Defendants were unsuccessful in demonstrating the significance of Cohen’s proposed testimony. The Defendants asserted that the testimony’s sole purpose was to educate the jury about relevant securities laws. However, this proposed testimony was considered improper and inadmissible because it appeared to go beyond presenting factual information and delved into expressing Cohen’s opinion on the ultimate legal conclusion of whether the Defendants qualified as brokers under applicable securities laws and regulations. Citing, Montgomery v. Aetna Cas. & Sur. Co., 898 F.2d 1537, 1541 (11th Cir. 1990), which stipulates that a witness is not permitted to testify about the legal implications of conduct, as the Court must be the sole source of law for the jury. Despite the Defendants’ assertion that Cohen’s testimony would refrain from providing ultimate legal conclusions and would solely instruct the jury about applicable securities law, such proposed testimony was deemed inadequate. This alone justified the exclusion of Cohen’s testimony. Furthermore, even if we overlook the inappropriateness of the proposed expert testimony concerning domestic securities law, any attempt by the Defendants to present Cohen’s testimony to educate the jury about pertinent securities laws was deemed unnecessary. This is because the Judge would provide instructions to the jury at the trial regarding the relevant law.
The Defendants failed to provide a satisfactory explanation for their failure to disclose expert testimony appropriately. Despite the Plaintiffs’ objections and the clear language of Rule 26(a)(2), the Defendants consistently asserted, contrary to the rules, that they were not obligated to produce an expert report under Rule 26(a)(2)(B) for Cohen. Refusing to acknowledge the plain language of Rule 26(a)(2) and the inapplicability of Rule 26(a)(2)(C) to an expert with no connection to the case except for compensated retention for trial testimony, the Defendants chose not to rectify their expert disclosure violations by submitting an expert report or requesting an extension of the deadlines set by the Judge. Instead, they opted to risk violating the Judge’s scheduling order, the Federal Rules of Civil Procedure, and Local Rule 16.1(b)(6), persisting in their unjustified interpretation of Rule 26(a)(2) even after the Plaintiffs filed their motion to strike. Even at the hearing on the Plaintiffs’ motion, the Defendants still lacked a report for Cohen, and they could not articulate Cohen’s opinions on the pertinent securities laws, beyond stating that he would testify about them.
Due to the Defendants’ inadequacies in disclosing information about Cohen, admitting his testimony at trial would have severely prejudiced the Plaintiffs. Apart from the previously discussed improprieties in Cohen’s proposed testimony, there was a significant risk that his testimony could confuse or mislead the jury by serving as a competing source of law, potentially conflicting with the Judge’s instructions and creating confusion about the applicable law. The absence of an expert report that adequately presented Cohen’s opinions and their basis prevented the Plaintiffs and the Court from mitigating these prejudicial possibilities. Furthermore, the lack of a requisite report detailing Cohen’s opinions and their basis denied the Plaintiffs the opportunity to identify and retain a possible rebuttal expert, as they had no information about the opinions Cohen might express that would necessitate a rebuttal. The actual opinions held by Cohen regarding the relevant securities laws remained unknown. Moreover, the Plaintiffs were deprived of a realistic chance to depose Cohen within the discovery period due to insufficient and denied information, impeding the ability to conduct a meaningful deposition. Consequently, the Plaintiffs were also denied the capacity to prepare for and conduct a meaningful cross-examination of Cohen at trial if he were allowed to testify.
Finally, the Defendants failed to demonstrate how a continuance could rectify the prejudice faced by the Plaintiffs. Addressing the prejudice resulting from the Defendants’ expert disclosure violations would necessitate more than a mere continuance in this case. If the Defendants were to eventually produce the required expert report for Cohen, the Plaintiffs would then need time to locate and retain a rebuttal expert, and expert discovery in the case would need to be reopened to address the competing opinions of the experts. Moreover, a continuance would not remedy the fact that Cohen’s proposed testimony was improper and inadmissible. In these circumstances, a continuance would not alleviate the prejudice caused by the Defendants’ violations of their expert disclosure obligation; instead, it would result in undue delay, exacerbating the prejudice to the Plaintiffs. The Defendants were well aware of the issues surrounding Cohen’s proposed testimony and had ample opportunities to provide a timely expert report and take steps to remedy their disclosure violations in a manner that would minimize the prejudice to the Plaintiffs. However, the Defendants persistently defended their unwarranted Rule 26(a)(2) arguments and refused to take corrective actions to address their noncompliance with the required expert disclosure requirements or mitigate the resulting prejudice.
Held
The Plaintiffs’ Motion to Strike was granted, and the Defendants’ expert witness, Lauren Cohen, was precluded from testifying at trial.
The Court has not arrived on an outcome for this case since the remaining issues involved in this case still await resolution.
Key Takeaways
This case demonstrates the importance of properly disclosing expert witnesses under Rule 26(a)(2) and providing expert reports by Court-ordered deadlines. The Defendants failed to classify their expert, Cohen, appropriately or provide the required report. As a retained expert hired to provide testimony, Cohen was subject to Rule 26(a)(2)(B), not the less stringent “hybrid witness” disclosures under Rule 26(a)(2)(C). By missing the deadline to submit Cohen’s report, the Defendants violated the Court’s scheduling order.
The magistrate judge excluded Cohen’s testimony as a sanction for these disclosure violations under Rule 37(c). Key factors were the Defendants’ lack of justification for noncompliance and the resulting prejudice to the Plaintiffs. Without a proper report, the Plaintiffs could not prepare to cross-examine Cohen or retain rebuttal witnesses.
Courts have broad discretion to exclude expert testimony for failure to satisfy disclosure requirements. Here, exclusion was appropriate despite the importance of Cohen’s testimony to the defense. This case demonstrates Courts may impose exclusion even when it impacts a core defense, if discovery violations are unjustified and incurable. Attorneys should ensure meticulous compliance with Rule 26 procedures to avoid exclusion of retained experts.
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