Commercial Litigation and Arbitration

Where Testifying Expert Is Salaried Employee, Compensation Disclosure Requirement of Rule 26(a)(2)(B) Does Not Apply unless Salary Is Tied to or Dependent on Opinions — Full-Time Employee Status Alone Sufficient to Show Bias

Securities and Exchange Commission v. Nadel, , 2012 U.S. Dist. LEXIS 53173 (E.D.N.Y. April 16, 2012):

Dr. Porter is an Assistant Professor of Finance at Iowa State University who is currently serving at the SEC's Division of Risk, Strategy and Financial Innovation pursuant to an Intergovernmental Personnel Act agreement awarded in June 2010. DE 46-1. Pursuant to the agreement, the SEC states that Dr. Porter receives his regular compensation from Iowa State University and there is no agreement between the SEC and Dr. Porter regarding any additional compensation. ***

On January 23, 2012, Defendants moved to compel the production of Dr. Porter's employment agreement and related compensation information. ***

The SEC objects to the disclosure of Dr. Porter's compensation information because such disclosure would "constitute an invasion of Dr. Porter's legitimate privacy concerns." DE 46-1 at 2. Defendants maintain that information such as the renewability of Dr. Porter's contract with the SEC and the possibility of continued employment or additional compensation may demonstrate bias and is relevant to Dr. Porter's credibility.

Federal Rule of Civil Procedure 26(a)(2) creates a distinction between experts who must provide a written report and those who need only provide a summary of their facts and opinions. An expert witness must provide a report if the witness is "retained or specially employed to provide expert testimony in the case or one whose duties as the party's employee regularly involve giving expert testimony." Fed. R. Civ. P. 26(a)(2)(B) (emphasis supplied). If an expert falls within these parameters, then the expert must include in his or her report "a statement of the compensation to be paid for the study and testimony in the case." Fed. R. Civ. P. 26(a)(2)(B)(iv).

The SEC does not contest the applicability of this section. As such, Dr. Porter would typically be required to provide a statement of the compensation paid for his study and testimony in the case. The Court accepts the representation that Dr. Porter is an "employee" faculty member of Iowa State University who provides services to the SEC via the intergovernmental agreement. Dr. Porter stated that he provided his opinion in this case "'as part of [his] regular employment with the SEC'" and received no compensation other than his "'regular salary.'" DE 45 at 1-2 (quoting Porter Nov. 10, 2011 Report at 2).

Several courts in other federal districts have ruled that in similar cases, where the expert is also an employee, Rule 26 does not require the disclosure of specific salary or benefit information. For example, in Morrow v. Greensouth Equip., Inc., No. 10-CV-137, 2010 WL 5094304, at *1-2 (N.D. Fl. Dec. 7, 2010), the Court explained its rationale as follows:

. . . [A] party is not required to disclose the annual employee compensation of an employee-expert where, as here, the compensation is not tied to nor dependent upon the opinions offered. There is a simple and pragmatic reason for this. The reason a party is obligated under Rule 26(a)(2)(B) to disclose "the compensation to be paid for the study and testimony" of the expert is to allow the opposing party to demonstrate and explore the bias of the expert. For example, if the expert was paid an hourly rate well above the prevailing rate for an expert a party would be able to argue to the jury that the compensation should be taken into account in assessing the credibility of the expert.

On the other hand, where the expert is a full time salaried employee of the party offering the opinion of the expert . . . the amount of the expert-employee's salary — as opposed to the mere fact the expert is an employee — would make no difference regarding bias so long as the salary and benefits are not tied in any way to the opinions offered by the employee-expert.

The court went on to note that "any bias [the employee] may have because he serves as an employee and expert can be explored adequately by [opposing] counsel on cross-examination without the need to know the annual salary of the [employee]." Id. at *2.

Likewise, in Porter v. Hamilton Beach/Proctor Silex, Inc., No. 01-CV-2970, 2003 WL 22385679, at *1 (W.D. Tenn. Aug. 27, 2003), the court refused to compel the expert who was an employee of the defendant to produce his salary and 401(k) information even though the Court concluded that his duties as an employee regularly involved giving expert testimony. The Court held that the expert's status as a "full-time, salaried employee of [the defendant] is sufficient to demonstrate bias" and the plaintiff had not made a sufficient showing of the need for the amount of his salary or the value of his 401(k) plan. Id. at *2. Therefore, the court in Porter directed that the expert report need not include the expert's compensation information and the motion to compel the expert to answer deposition questions about his compensation was denied. Id. Similarly, in Wisconsin Electric Power Co. v. Union Pacific Railroad Co., No. 06-CV-515, 2008 WL 934431, at *1 (E.D. Wis. March 31, 2008), the court refused to require production of compensation information for two employee experts and noted that the "fact that both witnesses receive bonus compensation, which amount may or may not be influenced by the outcome of the instant litigation, is too speculative to require disclosure of personal information, especially where the fact of employment is equally sufficient to demonstrate bias." See also Haynes v. Shoney's Inc., No. 89-CV-30093, 1991 WL 354933, at *5 (N.D. Fl. Sept. 27, 1991) (holding that party was not required to produce compensation documents for non-expert employee witnesses because their employment with the party alone was sufficient to demonstrate bias).

Although not binding in this district, the Court finds the reasoning of the courts in Morrow, Porter, Wisconsin Electric, and Haynes to be persuasive. Here, the fact that Dr. Porter is a full-time salaried faculty member of Iowa State University, essentially "on loan" to a specific division of the SEC is sufficient to demonstrate bias. Porter, 2003 WL 22385679, at *2. This Court agrees that no purpose would be served by requiring Dr. Porter to disclose further salary and benefit information and concludes that Dr. Porter has fulfilled his obligations under Rule 26. Dr. Porter did not receive any separate compensation for his work on this particular case and by conveying this information to Defendants, he has stated "the compensation for the study and testimony in the case." See Fed. R. Civ. P. 26(a)(2)(B)(iv).

Defendants do not rest their argument entirely on the language of Rule 26, however, and argue that the details of Dr. Porter's compensation arrangement should be disclosed as it may demonstrate bias and it is relevant to his credibility. On this point, Carey Oil Co. v. MG Refining & Marketing, Inc., 257 F. Supp. 2d 751 (S.D.N.Y. 2003) is instructive. In that case, the plaintiffs sought compensation information regarding two of the defendants' experts in order to assess whether the compensation they received motivated them to change their opinions from reports they issued for a 1995 arbitration to the 2011 reports they had produced for the litigation then before the court. The court in Carey Oil ruled that a party seeking such information in order to demonstrate bias must demonstrate a reasonable suspicion that the compensation paid to the expert may have affected his or her opinion. The court ruled that the defendants had not satisfied this standard and therefore denied the plaintiffs' motion. Id. at 756-58.

Here, Defendants have not pointed to any specific circumstance raising suspicion that the particular compensation paid to Dr. Porter affected his opinions. As noted in the cases described above, Defendants may call attention to the fact of Dr. Porter's employment with the SEC in order to attempt to demonstrate bias, but they have made no showing that his salary or other compensation information is necessary. The amount of Dr. Porter's salary would not affect a jury's determination of credibility or bias because Dr. Porter's full-time salaried position itself indicates that he has an interest in the outcome. See Porter, 2003 WL 22385679, at *2.

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