Delaware Business Litigation Report

Federal Court Excludes Expert Testimony Dealing With The Law Of The Case

Cantor v. Perelman, Civil Action No. 97-586-KAJ, 2006 WL 3462596 (D. Del. Nov. 30, 2006).

Plaintiff and defendants filed motions to exclude the testimony and reports of several experts. The Court granted the motions to exclude the entire proposed testimony of one expert from both parties. The motions were denied with respect to all other experts in all other respects.

This action originates from a plan of reorganization in bankruptcy litigation involving Marvel Entertainment Group, Inc. (“Marvel”) and the Trustees of the MAFCO Litigation Trust (“Trust”) created as part of the Reorganization Plan. The Trust was created to pursue breach of fiduciary duty and unjust enrichment claims against defendants comprising Perelman, a controlling stockholder and chairman of Marvel, and other directors of the Marvel companies. The instant opinion is connected to the issue of three tranches of notes (“Notes”) issued in 1993 and 1994 by Marvel, raising $553.5 million by using Marvel stock as collateral. Plaintiffs alleged that the defendants breached their fiduciary duties by using Marvel resources to sell the Notes and including restrictions on the issue of debt or dilution of Perelman’s shareholding in those Notes.

 

In this Memorandum Opinion, the Court examines Fed.R.Evid. 702 and Delaware and Third Circuit case law governing admissibility of expert opinions. Defendants argued that their expert – Prof. Hamermesh - merely proposed to testify on whether Delaware law would permit the Marvel board to dilute the position of a majority shareholder and that that issue merely served as a fact in the case at hand because it was necessary to “construct the hypothetical bargaining described by the Third Circuit.” Plaintiffs similarly argued that their expert – Justice Joseph T. Walsh - merely offered a legal opinion regarding the proper interpretation of Delaware corporate law. The Court observed that because the experts proposed to testify on the law of the case, their opinions would not be admissible under Third Circuit precedent. The Court also dismissed as in apposite the defendants’ argument that their expert’s testimony served as a fact in this case.

The Court drew a distinction between testimony that merely explained the law and opinion testimony that provided an outcome-scenario based on factual assumptions. The Court also denied attempts of both parties to exclude further expert testimony: (1) on damages on relevancy grounds because the defendants’ expert’s testimony was relevant to the issue of causation at trial; (2) on the customs and practices of directors of Delaware corporations; (3) based entirely on the personal experience and the judgment of the expert so long as that expert refrained from testifying on what was required under the law or whether the defendant had complied with the law; (4) even if the reports lacked an identifiable methodology; and (5) based on broad allegations and an alleged admission of lack of expertise.

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