District Court Limits Expert Testimony for Rendering Legal Conclusions

A major concern for any expert testifying as to due diligence, proper disclosure, or comportment with industry standards, is having his or her testimony excluded for invading the province of the judge. An expert witness usurps the court's function by defining the applicable law; it is for the judge and not the expert witness to make that determination and to instruct the jury appropriately. However, the line between permissible and impermissible testimony in these cases is often blurred. The United States District Court for the District of New Jersey faced these issues recently in Krys v. Aaron; No. 1:2014-cv-02098, (D.N.J. June 12, 2015).

A central issue in Krys was whether defendants were involved in or knew that a hedge fund's excess cash was not segregated from the defendants' other holdings. The plaintiffs' expert, a law professor, opined on the regulatory requirements and industry practices regarding segregation in general and as applied to this case. In particular, the expert opined first, that certain statutes, regulations, and contract provisions entitled the plaintiff to have its excess cash segregated; and second, that the "[d]efendants' 'many' egregious violations, 'especially when viewed in their totality in the circumstances of this case constitute a knowing fraud, breach of fiduciary duty and trust, and conversion.'" Krys, slip op. at 16.

The court found that the expert had invaded the court's province by making impermissible legal conclusions, including "rendering a legal opinion concerning whether various agents of [defendants] complied with their obligations under federal securities law." Id., slip op. at 14, emphasis removed. However, rather than strike the expert's report in its entirety, the court sought "to better define [sic] the line between permissible testimony on ultimate issues and an impermissible legal opinion." Id., slip op. at 15.

The court began by noting that Federal Rule of Evidence 704(a) specifically permits an expert to proffer testimony that "embraces an ultimate issue to be decided by the trier of fact." Id. Were this not the case, "the factfinder might be left hanging if the witness [could not] cap off the testimony with a conclusion about the ultimate issue to which the expert is testifying." Id. However, this rule (sometimes referred to as "the ultimate issue rule") does not permit an expert to instruct the jury as to what result to reach. As the court noted, the advisory committee's notes to FRE 704(a) provide an example: "[A]n expert may not render any ultimate opinion concerning, for example, whether a specific party had 'capacity to make a will,'" but may offer an opinion concerning whether that party had "sufficient mental capacity to know the nature and extent of his property and the natural objects of his bounty and to formulate a rational scheme of distribution." Id., slip op. at 16. The Krys court further explained:

Taken together, these authorities therefore instruct that any qualified expert … may provide an opinion on whether a party's conduct or actions meet the underlying bases for an ultimate issue in a case (by, for example, testifying concerning whether certain acts would in the abstract be improper and/or inconsistent with a party's legal duties), but may not merely instruct the jury on the result to reach based upon a party's specific conduct or actions (by, for example, stating that a party did indeed violate an applicable duty through certain actions). Id., slip op. at 17.

Applying these rules to the dispute before it, the court excluded the expert's testimony "to the extent he reaches the specific conclusion that any the defendant acted in compliance with and/or in violation of applicable legal duties or segregation requirements." Id. However, rather than excluding the expert's entire report, the court allowed the report "[w]ith appropriate redactions, [because the expert's] proposed testimony will be helpful to the jury in assessing the underlying conduct in this case." Id.

Mark A. Allen is with Cornerstone Research in Menlo Park, California.

Keywords: expert witnesses, litigation, Krys v. Aaron, expert testimony, province of judge, Federal Rule of Evidence 704(a)

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