Court Denies Motion to Exclude Economics Expert Witness at Class Certification Stage of Residential Mortgage-Backed Securities Case

Court – United States District Court for the Southern District of New YorkJurisdiction – FederalDaubert Factor Involved – QualificationCase Stage – Pre-TrialRuling Type – Daubert Ruling/ Class CertificationCase Name – Royal Park Invs. v. U.S. Bank Nat’l Ass’nCitation – 324 F. Supp. 3d 387

This case involves a dispute between an investor, Royal Park, and a trustee, U.S. Bank, wherein Royal Park alleged that U.S. Bank failed to perform its duties under the governing agreements and that these failures led to an “unprecedented numbers of defaults, delinquencies, foreclosures, liquidations, and losses” that resulted in billions of dollars of losses for investors.

Royal Park sought to certify as a class all persons and entities who held certificates in the covered trusts and who suffered damages as a result of U.S. Bank’s alleged conduct. In support of the certification motion, Royal Park submitted the testimony of an expert economist. U.S. Bank moved to exclude the economics expert’s testimony.

The Economics Expert

The expert specialized in quantitative valuation, econometrics, statistics, securities analysis, antitrust, financial markets, and intellectual property. He provided a report with background information about the residential mortgage-backed securities (RMBS) market and securitization process. He also offered opinions about the relationship between the certificates in the different covered trusts, the impact of U.S. Bank’s alleged breach on such certificates, the size of the class, and that damages were calculable on a class-wide basis.

U.S. Bank argued that the report’s proposed damages calculation methodology was unreliable because it did not address whether the alleged breaches caused any losses. It was also argued that the report’s methodology was irrelevant because it aggravated damages on a certificate basis, rather than class member basis.

Held

The district court found the expert to be adequately qualified to testify as an economic expert witness. It also noted that the issues of damages and causation did not require determination at the stage of class certification. Hence, the court need not rule on the admissibility of such opinions from the expert. As for the rest of the report, the court found no flaws and decided to admit it for the purpose of class certification.