A district judge in Florida limited the testimony of a Business Valuation Expert Witness because he did not identify how exactly the CFO breached his unidentified standard of care.
This case arises out of Nextplat’s termination of its former Chief Financial Officer (“CFO”), Thomas Seifert. Nextplat contended in its Second Amended Complaint (among other things) that Seifert breached his employment contract with Nextplat and sought damages as a result. Specifically, Nextplat claimed that Seifert’s errant administration of a $45,000.00 wire in response to a phishing scam breached the section of the employment agreement that required him to act “with such duties, responsibilities and authority as are commensurate and consistent with his position, as may be, from time to time, assigned to him by the [Nextplat board of directors].”
The bulk of Nextplat’s breach of contract claim, then, hinged on whether Seifert adequately complied with that subsection of the employment agreement. To support its case, Nextplat sought to elicit testimony from Gary Moll, CPA, MSA, to opine on Seifert’s duties and responsibilities as CFO and whether Seifert’s adequately performed those duties and responsibilities. Seifert, of course, disputed that he breached the employment agreement and disputed that he acted beneath the CFO standard of care incorporated by the employment agreement.
Seifert filed a motion to strike the testimony of Gary Moll on February 3, 2023.
Business Valuation Expert Witness
Gary A. Moll is the Director of Forensic & Valuation Services at Fiske & Company, a CPA firm specializing in business valuation and litigation support services. He joined Fiske & Company in 2022 and has provided business valuation and litigation support services to manufacturers, wholesalers, retailers, medical practices, restaurants, service entities, and family limited partnerships, including valuing intangibles and intellectual property. He is a frequent speaker on topics such as business valuation, economic damages, and forensic accounting and has written articles on these topics. Additionally, he is a member of the American Institute of Certified Public Accountants (“AICPA”) Forensic & Valuation Section (“FVS”).
Discussion by the Court
A. Plaintiff’s Untimely Expert Disclosure
The Court first addressed Seifert’s argument that Moll should be excluded because he was not timely disclosed as an expert.
After both parties moved for deadline extensions, the Court extended the deadline for disclosing expert witness summaries and reports to November 11, 2022. Subsequently, the Court ordered that the parties disclose their expert reports on or before December 19, 2022. Seifert argued that, while Moll’s expert report was filed on December 19, 2022, Moll’s expert summary was not disclosed before November 11, 2022, nor was he even disclosed as an expert witness. Essentially, then, Seifert had no idea that Moll was going to be an expert witness—despite the November 11 deadline to disclose expert summaries—until on December 19 when his full expert report was disclosed. The proper remedy for this failure to disclose, argued Seifert, was to strike Moll as an expert witness.
Even if a disclosure is untimely, there must be resulting harm. The Court observed that Seifert still had (and will have) adequate time to prepare for Moll’s testimony.
The Court acknowledged Nextplat’s failure to adequately and timely disclose its expert witness. But Seifert suffered no prejudice and thus had no remedy under Rule 37(c)(1) since that failure was promptly cured.
B. Whether Moll is qualified
Seifert argued that Moll’s undisputed experience as a Certified Public Accountant (“CPA”), CFO, and financial analyst did not qualify him to render opinions in this case. Specifically, Seifert argued that Moll had not served as a CFO for a publicly traded company, and that his curriculum vitae failed to specify the amount of time for which he served in his roles. Further, Seifert took issue with the fact that Moll had never written internal accounting controls.
Moll’s testimony and expert report indicated that he had experience as a financial analyst for a company that underwent the IPO process, had served as a CFO, and had CPA experience relevant to internal control issues. Given Moll’s experience serving in positions and in factual situations relevant to this case, the Court found that Moll is at the very least “minimally qualified” to serve as an expert witness in this case.
C. Whether Moll’s methodology is reliable
In Moll’s expert report, he rendered two expert opinions still relevant to this case: (1) that the “CFO is tasked with creating systems and controls to ensure the safeguarding of company assets” and ensuring compliance with those controls; and (2) that Seifert’s administration of the errant $45,000.00 phishing scam wire fell “far short of proper conduct of a CFO.”
Seifert argued that Moll, in reaching his expert opinions, employed no accepted method or analysis; rather, he just offered his personal, unsubstantiated judgment as to what the CFO should have done. As Seifert characterized it, Moll’s report was primarily “based on his review of various articles, internet searches, and the allegations provided by Nextplat’s counsel.”
Seifert bolstered this argument with the fact that Moll largely inherited the file from two of his associates, and relied substantially on their research and investigation to draw his conclusions.
Seifert argued that Moll’s experience did not carry the burden of rendering his opinion reliable—this was in fact his first time researching the “niche area of cyber security and the CFO’s role.”
1. Moll’s opinion as to the responsibilities of a CFO
Moll concluded that “the CFO is tasked with creating systems and controls to ensure the safeguarding of company assets on a company-wide basis, and additionally, has responsibility for following those controls and safeguards in place.”
The Court noted that Moll has experience as a CFO; as a financial analyst working closely with a CFO for a company who was undergoing the IPO process; and as a CPA and auditor. His experience in this arena is coupled with his review of relevant SEC guidelines and other scholarly articles on the topic.
While Moll did not employ a peer-reviewed methodology to conclude that CFOs are responsible for implementing and ensuring compliance with certain internal controls, Seifert did not suggest a method that should have been used instead, nor did he point the Court even to the existence of such a method for this niche, non-scientific request.
The Court held that Moll’s testimony—based on his review of scholarly articles, the materials in this case, and Nextplat’s policies (or lack thereof); and his professional judgment—passed the threshold of reliable testimony under Daubert. If Seifert finds his testimony to be “shaky” or wishes to attack the factual underpinnings of Moll’s opinion, he can do so before the jury.
2. Moll’s opinion as to whether Seifert fell short of the proper conduct of a CFO
Moll concluded that Seifert’s errant administration of the Phishing Wire fell “far short of proper conduct of a CFO.”
The Court acknowledged Moll’s general qualifications but held that Moll’s experience and methodology were not sufficient to produce reliable findings.
Moll admitted that assessing whether Seifert’s actions conformed with a CFO’s standard conduct was more of a “one off” than it is a “typical type project” for which he is engaged as an expert. In fact, Moll had never assessed whether a CFO has complied with his duties.
Moreover, Moll’s auditing experience did not include “an audit of internal controls,” and did not include “cybersecurity risk assessment measures.” Additionally, Moll’s audit experience involved private—not public—companies, and involved audits that he did not “run or manage.”
Moll concluded that it is the CFO’s job to “develop internal controls to prevent or to preserve the security of the assets of the company.” Moll plainly admitted that he did not know what internal controls Seifert should have put in place.
The Court held that the lack of relevant experience and expertise could not be overcome on a reliability analysis, especially when Moll concluded with certainty that Seifert’s actions fell “far short” of proper conduct. Also, a pivotal area of this case is cybersecurity—i.e., the area in which Moll believed Seifert acted below standard. Moll conceded in his deposition that this case represented his first time researching the “niche area of cyber security and the CFO’s role.”
Moll did not explain how he arrived at his conclusion that Moll breached his standard of conduct as CFO, leaving the Court to infer that, simply, Moll made a judgment call.
D. Whether Moll’s testimony will assist the trier of fact
For this analysis, the Court addressed only the portion of Moll’s proffered testimony that was deem reliable; i.e, that “the CFO is tasked with creating systems and controls to ensure the safeguarding of company assets on a company-wide basis, and additionally, has responsibility for following those controls and safeguards in place.”
Seifert’s argument as to this prong was primarily aimed at the portion of Moll’s testimony that the Court held to be unreliable (i.e., the Seifert fell short of the proper conduct of a CFO). But to the extent Seifert may argue that the reliable portion of Moll’s testimony is unhelpful, the Court disagreed. Here, it would certainly aid a jury to hear from a proffered expert that the SEC requires internal controls, the burden to implement those controls falls on the CFOs of publicly-traded companies, and those controls should include cybersecurity measures. The nature of Moll’s testimony (i.e., the duties and expectations of a CFO in publicly-traded companies in the context of cybersecurity) clearly goes beyond the “understanding and experience of the average citizen.”
Additionally, much, if not all, of Seifert’s argument in this area attacked the implications of the factual underpinnings of Moll’s testimony. But it is well established that Seifert can attack those factual underpinnings at trial.
E. Whether Moll’s Limited Testimony is Misleading Under Rule 403
As for Seifert’s argument that Moll’s testimony is likely to mislead, confuse, and persuade the jury to follow his opinions, the Court addressed only the portion of Moll’s proffered testimony about the CFO being tasked with creating systems and controls to ensure the safeguarding of company assets.
To this point, Seifert’s only argument concerned the portion of Moll’s testimony that was already deemed unreliable; i.e., that Seifert breached the proper conduct of a CFO. And specifically, at the heart of that argument was Seifert’s viewpoint that Moll would offer an impermissible legal conclusion as to Seifert’s conduct. Seifert advanced no argument that the other, reliable portion of Moll’s testimony violated 403—especially because his legal conclusion concerns did not extend to Moll’s standard-based testimony. Accordingly, this issue was effectively moot.
Held
The Court granted the Defendant’s motion to exclude Moll’s opinion and testimony as to whether Seifert’s conduct here fell “far short of proper conduct of a CFO.” The Court denied the Defendant’s motion in all other respects.
Key Takeaway:
Moll never assessed whether a CFO had performed within his standard of care; had never researched cybersecurity; had not suggested what internal controls Seifert should have put in place; had not analyzed how Seifert breached his un-identified standard of care; had not identified the methodology he used to conclude that Seifert breached that standard of care; and did not, it appears, complete the bulk of the relevant research in his report. Moll’s invalidating testimony, lack of methodology, and dearth of direct experience undermine the reliability of his opinion that Seifert acted beneath the proper standard of conduct for a CFO.
Yet, Moll’s opinion about the responsibilities of a CFO —based on his experience as CFO, financial analyst, and CPA of similarly-situated companies; his review of scholarly articles, the materials in this case, and Nextplat’s policies (or lack thereof); and his professional judgment—passed the threshold of reliable testimony under Daubert.
Case Details:
| Case Caption: | Nextplat Corporation v. Seifert |
| Docket Number: | 1:21cv22436 |
| Court Name: | United States District Court, Florida Southern |
| Date: | March 07, 2024 |
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