D.C. Adopts Rule 702 Daubert Standard for Expert Testimony; Displaces Frye

In Motorola, Inc. v. Murray, in a rare en banc interlocutory appeal, the D.C. Court of Appeals expressly adopted the Daubert Standard for the admissibility of expert testimony, pursuant to Federal Rule of Evidence 702.  

The Court concluded that “Rule 702, with its expanded focus on whether reliable principles and methods have been reliably applied,” states a rule that is preferable to the prior “general acceptance” standard.  Op. at 15.   The Court indicated that such standard would apply to all criminal and civil matters, for which a trial has not yet begun.

A copy of the opinion is available here.

Discussion

In adopting Federal Rule of Evidence 702, which reflects the U.S. Supreme Court’s construction in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 587 (1993), and its progeny, the D.C. Court of Appeals undertook a review of its prior standard for the admission of expert testimony, and the evolution of the federal rule.

Previously, in matters tried before the D.C. Superior Court, the admission of expert testimony has been governed by the legal principles set forth in Frye v. United States, 293 F. 1013 (D.C. Cir. 1923), under which scientific testimony is admissible only if the theory or methodology on which it is based has gained general acceptance in the relevant scientific community.  Op. at 6.  The benefit of such standard is that, "[g]eneral acceptance means just that; the answer cannot vary from case to case . . . . If the technique has gained such general acceptance, we will accept it as presumptively reliable and thus generally admissible into evidence."  Op. at 6.

However, in the federal system, the ‘general acceptance’ test had been superseded by the Federal Rules of Evidence, which under Rule 702 provide:

A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if:  (a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;  (b) the testimony is based on sufficient facts or data;  (c) the testimony is the product of reliable principles and methods; and(d) the expert has reliably applied the principles and methods to the facts of the case.

Fed. R. Evid. 702.

Thus, in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 587 (1993), the U.S. Supreme Court explained:  

‘General acceptance’ is not a necessary precondition to the admissibility of scientific evidence under the Federal Rules of Evidence, but the Rules of Evidence—especially Rule 702—do assign to the trial judge the task of ensuring that an expert's testimony both rests on a reliable foundation and is relevant to the task at hand. Pertinent evidence based on scientifically valid principles will satisfy those demands.

Op. at 10 (citing Daubert, 509 U.S. at 597).

Under Rule 702, as interpreted by Daubert and its progeny, the trial judge performs an initial gatekeeper function:   “[W]hen a party proffers expert scientific testimony, the trial court must make ‘a preliminary assessment of whether the reasoning or methodology underlying the testimony is scientifically valid and of whether that reasoning or methodology properly can be applied to the facts in issue.’"  Op. at 7-8 (citing Daubert, 509 U.S. at 592-93).

Noting that the Supreme Court has eschewed a definitive checklist or test, the D.C. Court observed that several factors to be considered include:  “whether the theory or technique has been tested, whether it ‘has been subjected to peer review and publication,’ ‘the known or potential rate of error,’ and ‘the existence and maintenance of standards controlling the technique's operation.’ . . . ‘Finally, 'general acceptance' can yet have a bearing on the inquiry.”  Op. at 8.  (quoting Daubert, 509. U.S. at 594).  The inquiry is “a flexible one.”  Op. at 8.  "The focus . . . must be solely on principles and methodology, not on the conclusions that they generate."  Op. at 8 (quoting Daubert, 509. U.S. at 595). 

The Court shared the Supreme Court’s intent that the trial judge's more refined gatekeeping role would not displace the normal tools of the adversary system.  “‘Vigorous cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof are the traditional and appropriate means of attacking shaky but admissible evidence . . . [I]n practice,’ however, ‘a gatekeeping role for the judge, no matter how flexible, inevitably on occasion will prevent the jury from learning of authentic insights and innovations.’"  Op. at 8 (quoting Daubert at 596, 597).

The Court also agreed that Rule 702 does not operate in isolation, noting that other evidentiary rules operate in the application of the gatekeeping function, including those concerning the qualifications of the witness, the bases of the expert’s opinion (Rule 703), and whether the probative value of such evidence is substantially outweighed by a danger of one or more of the following: unfair prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence (Rule 403).  Op. at 9.  The Court highlighted the Supreme Court’s concerns regarding unfair prejudice, noting that "Expert evidence can be both powerful and quite misleading because of the difficulty in evaluating it. Because of this risk, the judge in weighing possible prejudice against probative force under Rule 403 of the present rules exercises more control over experts than over lay witnesses." Op. at 9 (quoting Daubert, 509 U.S. at 595 (internal quotations omitted)).

The Court concluded that, in adopting the Rule 702 standard, there are substantial benefits to be gained from adopting a test that is widely used . . ., noting that “[w]e can learn from the decisions of other courts which apply Rule 702 or its state counterparts.”  Op. at 16.

D.C. Court of Appeals Holds Seller is Estopped From Unwinding Real Estate Transaction Due to Failure to Read Settlement Documents

In Moore v. Deutsche Bank Nat'l Trust Co., the District of Columbia Court of Appeals rejected a Seller’s title challenge to a post-foreclosure eviction, where she claimed that she had been defrauded into selling the property.  Although Seller claimed that the Purchaser misled her to believe that she was refinancing her prior mortgage loan, the Court of Appeals rejected her claim, determining that she failed to prove her fraud and forgery allegations by clear and convincing evidence.  Rather, the evidence suggested that her alleged misunderstanding was due to her own negligence in failing to read the documents before signing them.  Accordingly, the Court determined she has no interest in the property.

A copy of this opinion is available here.

Background

Seller claimed that she sought to refinance her mortgage to obtain $300,000 to make improvements to the property.  She contacted a loan officer, who informed her that she would need a co-signer, and introduced her to Purchaser who would be willing to co-sign the loan for a $100,000 fee.   During her first meeting with Purchaser, Seller signed several documents handed to her by a notary, including many that she did not read completely, and others without reading them at all.  Op. at 3.

Following the meeting, Seller received $78,435.45.  Because this was far less than the $300,000 she expected, she contacting the loan officer, who informed her that there was no record of her loan.  Seller contacted Purchaser, who told her that she had sold him the property and that he had a sales contract bearing her signature.  Appellant sued Purchaser for fraud, which was settled between the parties, whereby Seller agreed to assist Purchaser in paying the mortgage until 2008, when he would transfer the property back to Seller provided she pay-off the balance of the loan.

Despite such agreement, Purchaser defaulted on his own mortgage on the property.  At the foreclosure sale, Bank credit bid its debt, and purchased the property.  Bank thereafter filed a complaint for possession in the Superior Court, to which Seller filed a plea of title and counterclaim asserting that Purchaser and Bank had no interest in the property because she was defrauded into selling it.

Following a trial, the Superior Court ruled in favor of Bank, determining that Seller had not met her evidentiary burden to prove by clear and convincing evidence that the deed was forged or that the transaction was fraudulent.   Seller thereafter filed the present appeal.

Discussion

On appeal, Seller argued that the deed recorded in the land records was an altered forgery; that the transaction conveying the property to Purchaser was fraudulent and void ab initio; and that Bank’s interest in the property was therefore invalid.  Op. at 7.  She also claimed Bank was not a bona-fide lender for value without notice.

Rejecting her challenge, the Court of Appeals affirmed the trial court’s findings that “[t]he evidence indicating [that Seller] knew that the transaction was a sale of her property is overwhelming.”  Op. at 13.  The Court observed that the documents signed by the Seller included an a HUD-1 settlement statement, a “Correction Agreement, Limited Power of Attorney,” and two disbursement authorizations, all of which referred to sale of the property and which Seller signed over lines marked “seller.”  Op. at 4-5.  Seller also admitted that the signature on the recorded deed “looks like my signature,” but claimed that she didn’t remember signing it.  Op. at 6.

The Court also rejected Seller’s claim that the recorded deed was forged, explaining that “[t]here is a presumption that a deed is what it purports to be on its face, and one who seeks to establish the contrary has the burden of doing so by clear and convincing evidence.”  Op. at 8.  The Court held that Seller’s possession of an unsigned deed with different terms was insufficient because it could not compel an inference that she was given that version to sign.  Op. at 8.  Nor did a mistake in the notary block referencing the Purchaser instead of the Seller suggest that the deed was forged.  Op. at 8.  Rather, the trial court deemed such irregularity a “clerical error.”  Op. at 8.

Seller also claimed that she proved fraud in the factum, i.e., fraud which “procures a party’s signature to an instrument without knowledge of its true nature or contents.”  Op. at 9.   However, the Court noted that such a claim must be proved by clear and convincing evidence, and that the claimant would be estopped from making such claim if as a “literate and reasonably intelligent” person they fail to read the instrument.   Op. at 9.

Here, the Court agreed with the trial court that “the weight of the evidence did not support [Seller]’s claim that she signed the closing documents believing that they were refinancing documents.” Op. at 10. 

Moreover, the Court observed that Seller was a college graduate, had experience in property transactions, and had the opportunity to read the documents before signing.  Op. at 10.  Even assuming that Seller did not understand them, such a misunderstanding was due to her own negligence, negating any fraud-in-the-factum defense.   Op. at 10-11.

Finally, the Court rejected Seller’s fraudulent inducement claim, noting that “the evidence indicating that [Seller] knew that the transaction was a sale of her property is overwhelming.”  Op. at 12.  In addition to signing the documents, Seller could not give information she would be expected to know if she intended a mortgage refinancing, such as the amount of her new monthly payments.  Op. at 12.

The Court echoed the trial court’s suspicions as to whether the transaction as a whole was legitimate, but nevertheless agreed with the findings of the trial court, which was unable to accept as true Seller’s claim that she believed the transaction was a refinancing.  Accordingly, as Seller failed to meet her evidentiary burden, the Court affirmed the trial court’s judgment in favor of Bank.   Op. at 11-12.    In doing so, the Court determined that it need not address Seller’s challenge to the Bank’s status as a bona-fide purchaser for value.  Op. at 2, n.1.

D.C. Circuit Holds Lender Entitled to Equitable Subrogration Despite Its Actual Knowledge That Co-Owner Refused To Sign Mortgage

In Smith v. First American Title Insurance Company, the U.S. Court of Appeals for the District of Columbia held that, under D.C. law, a lender (New Lender) was entitled to equitable subrogation for amounts paid off by its loan against a co-owner’s (Co-Owner) interest in property jointly owned with Borrower, even though New Lender had actual knowledge that Co-Owner had refused to sign its refinance loan documents.  Consequently, equitable subrogation enabled New Lender to assert the same rights against Co-Owner and Borrower’s house that their prior lender held under the paid-off mortgage.  See Op. at 3.

A copy of the opinion is available here.

Background

Co-Owner and his mother, Borrower, jointly owned a house in the District of Columbia, which was subject to a $115,000 mortgage bearing a 6.5% interest rate (the “Prior Mortgage”), which they both signed.  Thereafter, a new lender (“New Lender”) offered Borrower a $135,000 mortgage, with a 9.65% interest rate (the “New Mortgage”), which allowed for Borrower to obtain $6,000 in cash at settlement.  Co-Owner refused to sign the paperwork because he thought the rate was too high. 

Nevertheless, New Lender proceeded to make the loan without Co-Owner’s signature on the New Mortgage, and such loan was used to satisfy and release the Prior Mortgage.  The Court noted that, technically, although the New Mortgage gave New Lender rights to Borrower’s half-interest in the Property, it did not give New Lender any rights to Co-Owner’s half-interest in the Property.  “As a result, without paying a cent, [Co-Owner] ended up with a half-interest in the house free of both the [Prior] Mortgage and the [New] Mortgage” Op. at 3.

Borrower later declared bankruptcy.  Because New Lender could not foreclose against the Property as a whole, New Lender filed suit in Bankruptcy Court seeking equitable subrogation against Co-Owner’s interest, which was permitted by the Bankruptcy Court and District Court.  Co-Owner and Borrower thereafter appealed to the U.S. Court of Appeals for the D.C. Circuit, which affirmed the application of equitable subrogation. 

Discussion

“The doctrine of equitable subrogation permits courts to declare that the owner of a mortgage (New Lender) has the same rights as an earlier-in-time owner of another mortgage (Prior Lender) on the same property, if certain conditions are met.  The purpose of equitable subrogation is ‘to prevent forfeiture and unjust enrichment.’”  Op. at 3 (citing Eastern Savings Bank, FSB v. Pappas, 829 A.2d 953, 957 (D.C. 2003) (internal quotation marks omitted)).

Under D.C. law, New Lender is entitled to equitable subrogation if it meets each prong of a five-part test: (1) New Lender paid off the Prior Mortgage to protect New Lender’s “own interest”; (2) New Lender has not “acted as a volunteer”; (3) New Lender “was not primarily liable” for the Prior Mortgage; (4) New Lender paid off the entire Prior Mortgage; and (5) subrogation would “not work any injustice to the rights of others.” Id. at 4-5 (quoting Eastern Savings Bank, FSB v. Pappas, 829 A.2d 953, 961 (D.C. 2003) (internal quotation marks omitted)).

The Court of Appeals determined that the first four prongs of the test for equitable subrogation were straightforward.  See Op. at 5.  As to the fifth prong, the Court concluded that equitable subrogation would not work an injustice.  “To begin with, equitable subrogation does not in any way affect [Borrower]’s rights. And equitable subrogation likewise does not work an injustice on [Co-Owner]. The Bankruptcy Court held that [New Lender] is entitled to equitable subrogation on the same terms as the [Prior Mortgage]. So, [Co-Owner] is obligated to [New Lender] only for the balance of the [Prior Mortgage], and only at the lower interest rate of the [Prior Mortgage].  Equitable subrogation simply prevents [Co-Owner] from enjoying a windfall.  It does not work an injustice because it makes him no worse off than he would have been under the [Prior Mortgage] had [Borrower] never agreed to the mortgage with [New Lender].” Op. at 5-6 (citations omitted).

Although the Court acknowledged that “[u]nder D.C. law, it is unsettled whether ‘actual knowledge bars equitable subrogation,’” Op. at 6, it predicted that the D.C. Court of Appeals (i.e., the state court) would allow for its application, noting that that the D.C. Court “endorsed an approach in which ‘no attention should be paid to technicalities which are not of an insuperable character, but the broad equities should always be sought out so far as possible. . . .,”  and therefore adopted a “rule requiring liberal application of the doctrine of subrogation.” Op. at 7 (quoting Burgoon v. Lavezzo, 92 F.2d 726 (D.C. Cir. 1937)).  Further, the federal appellate court noted that the D.C. Court of Appeals looks to the Restatement for guidance on questions of law involving equitable subrogation, which “has adopted the more liberal approach to equitable subrogation, under which actual knowledge does not bar application of the doctrine.” Op. at 7-8 (citing Restatement (Third) of Property: Mortgages § 7.6 cmt. e (1997)).

Moreover, the Court noted that “[i]n Burgoon, the court determined that equitable subrogation was appropriate because the lender could have achieved the same result by taking an assignment of the original loan.”  Op. at 8 (citing Burgoon, 92 F.2d at 736).  Likewise, here, “[i]nstead of taking out a new mortgage on the house, New Lender could have asked [Prior Lender] to assign [the Prior Mortgage [ to [New Lender]. Through assignment, [New Lender] would have obtained [Prior Lender]’s rights to [Co-Owner]’s half-interest in the house.” Op. at 8.

Consequently, the Court determined that New Lender was entitled to equitable subrogation under D.C. law.