The role of experts in breach of fiduciary duty cases is an emerging and unsettled area of law.  Of course there will always be questions about whether an expert is qualified to offer an opinion.  But there are additional quirks when a state codifies the standard of care required of a trustee thereby creating a statutory standard of care.  Does a plaintiff need expert testimony establishing that the trustee breached the statutory standard of care?  Perhaps.  But does that testimony necessarily result in an expert impermissibly testifying on the ultimate issue of liability?  Again, perhaps.

It’s questions like these that cause us to pay close attention when one of the rare ‘expert opinion’ decisions gets issued in a breach of fiduciary duty case.  Just this week in Sierra v. Williamson (2013 WL 228333), the United States District Court for the Western District of Kentucky gave us some insight on expert testimony in a trust case involving allegations of undue influence and breach of fiduciary duty.  So, what clues did the federal court give us on how to qualify – or disqualify – experts in these cases?

First, let’s look at the background, which the court admittedly said may change as discovery is completed.  Sara Loving Sutherland created the Sara Loving Sutherland Revocable Trust.  Although Sara amended the trust on a number of occasions, she kept her granddaughter, Conchi Sierra, as primary beneficiary of the trust until 2004.  In 2004, Sara resigned as trustee and appointed her nephew, Craig Williamson and Morgan Stanley Trust National Association to serve as co-trustees.  Sara also executed a power of attorney naming Craig as her attorney-in-fact.

Long story (somewhat) short: Sara amended the trust reducing Conchi’s share and naming Craig and his siblings as beneficiaries of 60 percent of the trust; throughout the years factions of the family moved Sara between Florida and Kentucky; and multiple powers of attorney were created or revoked.  In the last trust amendment, Sara named Craig and his siblings as beneficiaries of 100 percent of the trust and other portions of Sara’s estate save for two specific bequests, one of which was a $200,000 bequest to Conchi.

Conchi sued Craig claiming he unduly influenced Sara and violated multiple fiduciary duties he owed to the trust beneficiaries.  Corporate fiduciaries serving as co-trustees with individuals may want to pay attention to Conchi’s claims against Morgan Stanley:  Conchi also sued Morgan Stanley claiming that it breached its fiduciary duties by either approving of or acquiescing to Craig’s actions.

For the breach of fiduciary duty claims, Conchi retained two expert witnesses: W. Gregg Noble and Homer Parrent.

Conchi retained Noble to review the underlying facts and to determine whether Craig or Morgan Stanley breached any fiduciary duties.  Noble concluded that Craig and Morgan Stanley breached their fiduciary duties.

Conchi retained Parrent for two purposes.  First, Parrent was asked to review the trust documents and powers of attorney to determine whether Craig was granted authority to direct Morgan Stanley to make certain disbursements from the trust.  Second, Parrent was asked to evaluate whether Morgan Stanley was liable for breaches of trust committed or induced by Craig.  Again, corporate fiduciaries may want to pay attention to this part: Parrent concluded that Craig had no authority to direct Morgan Stanley to make the requested distributions and that by not exercising its power as co-trustee to prohibit Craig’s actions, Morgan Stanley was liable for the loss of trust assets.

Craig and Morgan Stanley sought to exclude Noble and Parrent as expert witnesses pursuant to Daubert v. Merrill Dow Pharm., Inc. and Federal Rule of Evidence 702.  First, they claimed that the proposed experts were unqualified to render the opinions offered mainly based on the fact that neither ever served as a trust officer within a corporate trustee’s trust department.  Second, they claimed that, even if qualified, the experts’ opinions were inadmissible legal conclusions that would not aid the trier of fact.

Qualification of Experts in Breach of Fiduciary Duty Cases

The court determined that the experts were qualified.

Noble is a CPA who previously served in the trust department of Florida National Bank.  The defendants claimed that Noble was unqualified because he did not have any experience as a corporate trust officer or administering a trust on behalf of a corporate trustee.  The court was unpersuaded by this argument for three reasons: (1) at Florida National Bank, Noble helped oversee the administration of trusts and estates albeit as a tax expert; (2) as a CPA, he advised clients serving as trustees; and (3) most importantly, Noble, himself, served as a trustee of a number of trusts.

Parrent is a Louisville attorney who has practiced in the area of wills, trusts and estates, and probate matters for over forty years.  The defendants claimed that Parrent was unqualified because he practices primarily in the “niche area of estate probate and will contests.”  They also argued that Parrent never served as a trustee or trust officer and had no experience working for a trust company.  Again, the court was unpersuaded.  The court stated that the defendants ignored the experience and expertise that Parrent gained litigating claims similar to those asserted in this action and representing corporate trustees during his career.

Testimony of Experts on “Ultimate Issue” that Trustees Breached Their Fiduciary Duties

Here’s the more interesting question and here’s where the court punted.  The defendants argued that the experts’ opinions were inadmissible legal conclusions.  Under Federal Rule of Evidence 704, opinions that merely tell the jury what result to reach or state a legal conclusion in a way that says nothing about the facts are objectionable because such opinions are not helpful to the trier of fact.  Although Rule 704 abolished the “ultimate issue” rule that prohibited witnesses from offering opinions as to the ultimate issue to be adjudicated in a case, if the ultimate issue is embraced by an expert’s opinion it must be a factual one.

The court reviewed the experts’ reports and concluded that those reports may contain inadmissible legal conclusions.  But, since the experts hadn’t yet been deposed, the court determined that it would be better able to determine whether the opinions the experts intend to offer are impermissible after the experts’ depositions.  In deposition, careful phrasing of questions can help turn an improper legal conclusion into an answer based on fact.  In short, the defendants brought this question to the court too soon.

Expect Craig and Morgan Stanley to bring another challenge after the experts’ depositions.  We’ll keep a lookout in the event they do and there’s another reported decision.