Alternative Damages Calculation Included in the Fraud Investigation Expert Witness’ Supplemental Report Excluded
Posted on February 19, 2025 by Expert Witness Profiler
Plaintiff Aaron Edwards filed this lawsuit against his former employer,
Defendant First Trust, alleging that he was terminated in retaliation for engaging in purported whistleblowing activities. He asserted claims under the anti-retaliation and whistleblower protection provisions provide under the Sarbanes-Oxley Act (“SOX”), the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), and the Consumer Financial Protection Act (“CFPA”).
Michael Spindler is Plaintiff Aaron Edwards’ retained damages expert. He
was designated on August 22, 2024, and produced his expert report on October 3, 2024 (the “Original Report”), which was the deadline for Edwards to serve his expert reports.
The Court set a November 14, 2024, deadline for the parties to complete
discovery. And this case is set for trial on February 24, 2025.
In his original report, Spindler opined that Edwards was entitled to
$5,920,897 in lost earnings (after subtracting the value of his mitigating earnings). Spindler forecasted the value of Edwards’ lost earnings
through his projected retirement at age 67 using a “conservative” compound annual growth rate (“CAGR”) of one percent.
Edwards provided First Trust with an addendum to Spindler’s original
report for mediation purposes on October 25, 2024 (the “Mediation Report”). In his Mediation Report, Spindler opined that Edwards was entitled
to $15,133,349 using a 7.6 percent CAGR.
First Trust timely served its rebuttal expert report on November 13, 2024.
On February 11, 2025, Edwards produced Spindler’s supplemental report.
The supplemental report provided an “alternative damages calculation,” which opined that Edwards is entitled to $11,052,917 using a 5.4 percent CAGR.
First Trust filed a motion to strike Spindler’s supplemental report as untimely under Federal Rules of Civil Procedure 26 and 37.
Fraud Investigation Expert Witness
Michael Spindler is a CPA and Certified Fraud Examiner who brings over 40 years of experience to complex disputes including matters related to forensic accounting and business fraud investigations across a wide range of industries. He has provided expert testimony on dozens of occasions in bench trials, jury trials and arbitration proceedings. He has provided Foreign Corrupt Practices Act investigations and training services in various countries around the world, including China, Russia, India and Saudi Arabia.
Discussion by the Court
Supplemental Report
Specifically, First Trust objected to Spindler’s opinion regarding Edwards’ alleged entitlement to monies from First Trust’s discretionary bonus program known as the “Jerries Bonus,” which served as a basis for applying a 5.4 percent CAGR to calculate Edwards’ lost earnings of $11,052,917 (after subtracting the value of his mitigating earnings).
Spindler’s original report opined that Edwards was entitled to $5,920,897 using a CAGR of one percent. Edwards contended that the methodology applied in the original report and supplemental report was the same. And, Edwards said, “for all practical purposes, the only difference in the damages calculation set forth in the original report and the alternative damages calculation set forth in the supplemental report is changing one number (i.e., the CAGR percentage) in the same equation.”
However, the Court disagreed with this characterization of Spindler’s supplemental report. Moreover, Edwards’ distinction between a “methodology” and “calculation” in attempting to justify the contents of his supplemental report was not persuasive.
The result is materially different, regardless of how CAGR is classified, considering that the increase in CAGR from one to 5.4 percent almost doubles Spindler’s damages approximation in his original report. And Edwards did not point to any newly produced information that Spindler relied on to develop his supplemental report calculation. And, so, Spindler’s supplemental report consisted of an untimely expert opinion that is based on information available before the deadline for expert disclosures and that departs from his original report in material respects.
Basically, Edwards offers no explanation regarding the timing of his supplemental disclosure – less than two weeks before the start of trial. But he contended that First Trust is not prejudiced by the supplemental report.
Mediation Report
Edwards asserts that any alleged surprise or prejudice was belied by Spindler’s mediation report, which was provided to First Trust on October 24, 2024, before First Trust’s rebuttal expert disclosed his report.
In his mediation report, Spindler opined that Edwards was entitled to
$15,133,349 using a 7.6 percent CAGR. And, so, Edwards asserted that “First Trust and its rebuttal expert knew Spindler developed an alternative damages calculation using a higher CAGR percentage months ago.”
The mediation report may have provided First Trust with notice of Edwards’ intent to use a greater CAGR percentage to calculate damages. But, when Edwards did not timely supplement Spindler’s expert report for Rule 26 purposes, First Trust had reason to believe that Edwards would not rely on this “alternative damages calculation” for trial. Also, Edwards himself characterized the mediation report as “for mediation purposes only.”
And he further admitted that the CAGR used in the supplemental report (5.4%) lies between the original report (1%) and the mediation report (7.6%).
Therefore, the Court is not persuaded by Edwards’ argument that the “alternative damages calculation” disclosed in the mediation report – prepared only for mediation – absolves him of his failure to timely disclose the Supplemental Report.
And, even insofar as First Trust provided the mediation report to its rebuttal expert, it would still be prejudicial to allow a new damages calculation two weeks before the start of trial.
As noted above, the Court is not persuaded by Edwards’ argument that the supplemental report uses the same “methodology” generally – especially because the “methodology” involving a higher CAGR is based on the mediation-only report of several months ago. Edwards could have disclosed the supplemental expert report for purposes of trial at that time but did not.
Held
In conclusion, the Court granted Defendant First Trust’s motion to strike the supplemental report of Plaintiff’s retained expert Michael Spindler.
Key Takeaway:
Even if an allegedly supplemental report is untimely, to assess whether to permit testimony based on an untimely supplemental expert report, the Court, in exercising its discretion, considers (1) the explanation for making the supplemental disclosure at the time it is made; (2) the importance of the supplemental information to the proposed testimony of the expert, and the expert’s importance to the litigation; (3) potential prejudice to an opposing party; and (4) the availability of a continuance to mitigate any prejudice.
However, Edwards offers no explanation regarding the timing of his supplemental disclosure – less than two weeks before the start of trial.
Case Details:
| Case Caption: | Edwards V. First Trust Portfolios L.P. |
| Docket Number: | 3:23cv2239 |
| Court: | United States District Court, Texas Northern |
| Order Date: | February 18, 2025 |
