Preview
FILED
DALLAS COUNTY
2/10/2017 9:33:59 PM
FELICIA PITRE
DISTRICT CLERK
CAUSE NO. DC-16-00270
VICTOR BERNAL, INDIVIDUALLY, AND ON § IN THE DISTRICT COURT
BEHALF OF HBT JV, LLC, A TEXAS §
LIMITED LIABILITY COMPANY §
§
PLAINTIFFS, §
§
V. §
§ DALLAS COUNTY, TEXAS
DK8, LLC; HBT LAND, LLC; AND §
KENNETH L. SCHNITZER, JR., AN §
INDIVIDUAL; AND HBT JV, LLC, A §
TEXAS LIMITED LIABILITY COMPANY (AS §
A NOMINAL DEFENDANT) §
§
DEFENDANTS. § 95TH JUDICIAL DISTRICT
DEFENDANTS’ MOTION TO EXCLUDE EXPERT REPORTS AND TESTIMONY
Defendants DK8, LLC, HBT Land, LLC, and Kenneth L. Schnitzer, Jr. (“Defendants”)
move to exclude the opinions of the following expert witnesses of Plaintiff Victor Bernal
(“Plaintiff” or “Bernal”): Brian Feldman, Steven Hastings, Nick Nicholas, David Robertson,
Jack Schmidt, Lewis Sifford, and Scott Hakala.1 As set forth herein, these witnesses’ opinions
fail to meet the admissibility standards and, therefore, should be excluded.
I. FACTUAL BACKGROUND
HBT JV, LLC operates the Honda of Burleson car dealership (“Dealership”), and is co-
owned by Bernal and Defendant DK8, LLC (“DK8”). Defendant Kenneth L. Schnitzer, Jr.
(“Schnitzer”) manages DK8. Bernal alleges that he is contractually entitled to purchase the
Dealership. He has sued Defendants for breach of contract, promissory fraud, specific
performance, breach of fiduciary duty, usurpation of corporate opportunity, gross negligence,
1
A true and correct copy of Plaintiff’s Supplemental Response to Defendants’ Rule 194 Request for
Disclosure is attached hereto as Exhibit A. All Exhibits are being filed in camera.
DEFENDANTS’ MOTION TO EXCLUDE EXPERT REPORTS AND TESTIMONY PAGE 1
declaratory relief, and injunctive relief. Defendants have counterclaimed for breach of contract,
tortious interference, negligence, the commission of ultra vires act, breach of fiduciary duty, and
fraudulent inducement, alleging that Bernal acted contrary to his contractual and fiduciary
obligations by undermining the Dealership’s negotiations with John-Eagle Lincoln Mercury,
LLP (“John Eagle”), among other wrongs.
II. LEGAL STANDARD
If a motion to exclude expert testimony is filed, the party offering the expert testimony
bears the burden of showing that the testimony is admissible. E.I. du Pont de Nemours & Co. v.
Robinson, 923 S.W.2d 549, 557 (Tex. 1995). Thus, Plaintiff must show that the experts “possess
special knowledge as to the very matter on which he proposes to give an opinion.” Id. at 152-53
(internal quotations omitted). An expert may testify about scientific, technical, or other
specialized knowledge only if (1) the expert is qualified, (2) the probative value of the testimony
is not outweighed by the prejudice, and (3) the opinion is relevant and based on a reliable
foundation. TEX. R. EVID. 401-403, 702; Transcon. Ins. co. v. Crump, 330 S.W.3d 211, 215
(Tex. 2010).
A court must exclude the opinion testimony of an expert if it is not relevant. See TEX. R.
EVID. 401, 402. To be relevant, opinion testimony must be “sufficiently tied to the facts of the
case that itwill aid the jury in resolving a factual dispute.” Robinson, 923 S.W.2d at 556. A
court must also exclude the opinion testimony of an expert if it is not reliable. Whirlpool Corp.
v. Camacho, 298 S.W.3d 631, 637 (Tex. 2009); Robinson, 923 S.W.2d at 557. Unreliable
evidence does not assist the trier of fact and is therefore inadmissible under Texas Rule of
Evidence 702. Cooper Tire & Rubber Co. v. Mendez, 204 S.W.3d 797, 801 (Tex. 2006);
Robinson, 923 S.W.2d at 557. In determining whether expert testimony is reliable, a court
should consider the Daubert-Robinson factors and whether the analytical gap between the
DEFENDANTS’ MOTION TO EXCLUDE EXPERT REPORTS AND TESTIMONY PAGE 2
expert’s methodology and the opinion offered is too great. Transcon., 330 S.W.3d at 215-16; see
also Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 593-94 (1993); Gharda USA, Inc. v.
Control Sols., Inc., 464 S.W.3d 338, 349 (Tex. 2015); Robinson, 923 S.W.2d at 557.
III. ARGUMENT AND AUTHORITIES
The expert opinions of Brian Feldman, Steven Hastings, Nick Nicholas, David
Robertson, Jack Schmidt, Lewis Sifford, and Scott Hakala should be excluded because they fail
to meet the threshold standards for admissibility.
A. Brian Feldman
Plaintiff designated Brian Feldman (“Feldman”) to opine on whether Bernal was harmed
because he did not receive profits from reinsurance products. A true and correct copy of
Feldman’s report is attached as Exhibit B. His opinions should be excluded and he should not be
allowed to testify because his opinions are not based on reliable foundational facts are based on
arbitrary and speculative methodology.
Feldman unilaterally asserts that the typical industry practice is for car-dealership owners
to share profits from F&I products sold through the dealership. Feldman offers no quantitative
basis on what typical means. Do 60% of dealerships operate this way? 70? 80? Feldman does not
indicate that he knows or to what he is even opining. Regardless, Feldman offers no criteria for
how to determine when it is acceptable for a dealership to not split the profits of F&I products
among owners. Feldman offers no framework despite acknowledging that such structures exist
amongst the thousands of dealerships nationwide. This opinion cannot assist the trier of fact,
because it offers the trier no assistance.
Each of Feldman’s resulting opinions regarding the propriety of Bernal not receiving
reinsurance profits is unreliable and not based on anything other than Feldman’s arbitrary
opinion. Feldman does not explain why he believes it is “unconscionable and not in good faith”
DEFENDANTS’ MOTION TO EXCLUDE EXPERT REPORTS AND TESTIMONY PAGE 3
for Bernal not to receive his profits. Feldman purports to base this opinion on his lengthy work
experience, but offers the trier of fact no insight as to what this lengthy work experience has
taught him regarding when it is appropriate or inappropriate to not share reinsurance profits
amongst dealership owners. Moreover, Feldman at no point cites to the HBT JV Company
Agreement, which in Section 6.9 provides that Bernal entered into the agreement with full
knowledge that he would not participate in the reinsurance companies. The gap between
Feldman’s opinion and both his unexplained methodology and also the facts is too great.
Transcon., 330 S.W.3d at 215-16.
For the same reasons, Feldman’s opinion about Schnitzer’s personal knowledge wholly
speculative. These opinions must be excluded as unreliable.
Feldman’s calculation of Bernal’s damages is not based on any accepted methodology,
nor does Feldman explain why he chose the averages and numbers he used in his calculations.
Without this basic explanation, the trier of fact cannot assess the reliability of Feldman’s opinion.
Feldman’s damage opinion should, therefore, be excluded.
Feldman’s rebuttal report is attached hereto as Exhibit C. The opinion should be
excluded because it continues to rely on nothing more than Feldman’s arbitrary opinion and fails
Although Feldman’s opinion continues to acknowledge that it can be appropriate to not share
F&I profits amongst car-dealership owners, Feldman continues to not offer the trier of fact any
basis to ascertain when such situations are appropriate. His refusal to offer basic analysis renders
his opinion incapable of assisting the trier of fact, and therefore, his rebuttal opinion should be
excluded.
DEFENDANTS’ MOTION TO EXCLUDE EXPERT REPORTS AND TESTIMONY PAGE 4
B. Steven Hastings
Plaintiff designated Steven Hastings (“Hastings”) to opine regarding his analysis of the
economic losses sustained by Bernal due to the actions of the Defendants, as well as his forecast
of the financial performance of Honda of Burleson (“the Dealership”) from October 2016
through March 2017. A true and correct copy of Hastings’ report is attached as Exhibit D. His
opinions should be excluded and he should not be allowed to testify, his opinions are unreliable,
not replicable, and not based on either accepted methodologies or the facts he purports to base it
on as set forth more full below.
Hastings does not disclose many of the variables used in his calculation and does not
provide or disclose most of the calculations that support his conclusions. Instead, Hastings
provides tables such as the one in Section 8.1 of his report on page 49. These tables provide no
explanation for the calculations performed, nor do the tables allow for any analysis of the
variables used. Other than Hastings’s representations that the appropriate calculations were
performed, there is nothing else for the trier of fact to assess the reliability of Hastings’s opinion.
Hastings’s report is rife with inconsistencies. Hastings’s summary table in Section 8.1
does not include numbers (also sourced from summary tables) elsewhere in his report—raising
questions about how Hastings reached his totals given the internal inconsistency of his report.
Aside from the tables’ inconsistency, Hastings’s calculations are inconsistent with the facts and
data as he presented them. For example, Hastings claims that the Dealership suffered lost profits
due to Schnitzer implementing an advertising budget lower than what Bernal desired. Hastings
states that this cut to Bernal’s desired budget occurred in October 2015, resulting in a monthly
loss moving forward. Nevertheless, Hastings calculates the loss that began in 2012. This is just
one of many examples of Hastings relating facts but then ignoring them to inflate his opinion.
DEFENDANTS’ MOTION TO EXCLUDE EXPERT REPORTS AND TESTIMONY PAGE 5
Hastings’s calculations appear to ignore two critical facts: (1) the date on which Bernal
received an ownership interest in the Dealership and (2) Bernal’s ownership interest in the
Dealership. At a minimum, these errors result in Hastings overstating lost profits by 52%
because Bernal is only entitled to 48% of the Dealership’s profits. Correcting for the months
during which Bernal did not have any ownership interest in the Dealership reduces the amount
even further. That Hastings erred in these foundational facts shows the unreliability of his
opinion.
Hastings does not explain why he rejects the widely accepted method of calculating lost
profits known as the “Before-and-After Method.” The other accepted method is the “Yardstick
Method.” Hastings does not purport to use either. Instead, Hastings uses what he describes as the
“market approach,” which is nowhere to be found in the relevant literature. Hastings is thus not
using a accepted and tested methodology. Even crediting Hastings with using the Yardstick
Approach, Hastings does not analyze the appropriate benchmark group. Instead of looking at a
targeted peer group in the Fort Worth area, Hastings looks to national and statewide benchmarks,
which are not appropriate or consistent with the Yardstick Method. What’s more, Hastings does
not provide any explanation as to why he selected broader peer groups. Without such analysis,
Hastings’s opinion is wholly speculative and, therefore, unreliable.
Hastings purports to establish a relationship between incremental advertising expenses
and additional cars sold. He does so without disclosing his method; there is simply a table. The
premise Hastings does explain belies several faults. First, Hastings contends that general
economic factors suggest that the Dealership missed out car sales. But comparing the
Dealership’s performance to its most relevant peer group indicate that the Dealership
outperformed dealers in the area. Second, Hastings assumes that advertising dollars neatly
DEFENDANTS’ MOTION TO EXCLUDE EXPERT REPORTS AND TESTIMONY PAGE 6
correlate with sales volume, but the data do not bear that out. Third, the tool Hastings claims to
have used to perform his regression analysis (Microsoft Excel) does not have the functionality to
perform it.2 Fourth, Hastings myopically focuses his regression analysis on only advertising
dollars. Yet Hastings admits that numerous factors drive car sales—not just advertising. Thus,
Hastings’s analysis suffers from Omitted Variable Bias. Fifth, a comparison of the Dealership’
most relevant peer group shows that the Dealership spends more on advertising as a percentage
of its sales than its peer group. In all, Hastings opinion is unreliable, unverifiable, unrepeatable,
not based on accepted methodology, and will not assist the trier of fact.
Hastings claims that in 2014, Gary Venner reduced used car inventories which translated
into lost profits. Hastings does not analyze the financial effect of maintaining a smaller used car
inventory. All Hastings’s opinion on this subject does is identify a change in the ratio of new to
used cars, without demonstration how this one factor leads to lost profits. It does not account for
other variables. This myopic analysis is misleading and not tied to an accepted methodology that
is repeatable and, therefore, must be excluded.
Hastings attempts to establish that the Dealership’s management fees were unreasonably
high, causing lost profits. Hastings does this by calculating management fees as a percentage of
operating expenses. The Dealership’s operating income is low, so any expense calculated as a
percentage of it will be high. Hastings offers no justification for his decision to calculate a
percentage of operating income, and doing so is inconsistent with basic accounting and financial
analysis principles. Hastings acknowledges that the relevant analysis would require a market
2
In Hastings’s rebuttal report, attached hereto as Exhibit E, he claims to have performed a statistical analysis
outside of Excel. It appears that he did not perform the analysis, but instead relied on Scott Hakala to do so. See
Part G below. Hakala’s opinions and methodology have not actually been disclosed as described below, so there
is no way to test their reliability and methodology. Moreover, Hastings cannot simply (and undisclosed initially)
shoehorn one expert’s opinion—as he apparently does—for his own. Southland Lloyds Ins. Co. v. Cantu, 399
S.W.3d 558, 566 (Tex. App.—San Antonio 2011, pet. denied) (discussing the impropriety of allowing an expert
to parrot another expert’s opinion).
DEFENDANTS’ MOTION TO EXCLUDE EXPERT REPORTS AND TESTIMONY PAGE 7
study to determine if the levels are appropriate. Hastings did not perform such a study. His
opinions are admittedly unreliable, not based on accepted methodology, and cannot assist the
trier of fact.
As to Hastings’s opinion that Mr. Schintzer’s preventing the Dealership’s attendance at
used car actions led to a loss in profits, it is pure ipse dixit. Hastings offers no analysis or facts to
support his assumption that attendance at an auction is necessary to acquire wholesale inventory
at auction and runs contrary to a third-party report indicating local auctions and online actions
are preferable to in-person attendance at faraway auctions. Without an actual basis to support
Hastings’s opinion, it should be excluded.
Hastings’s opinion regarding the impact of Robert LaPenna is purely arbitrary, contrary
to the data available to Hastings, and designed solely to create a claim of damages. Hastings
looks at the first weeks of LaPenna’s tenure as sales manager and assumes that performance will
carry through to extrapolate damages. Moreover, Hastings ignores the basic fact that after the
previous sales manager was fired for cause, a new sales manager would have to come in.
Hastings opinion also ignores that the sales manager most recently hired on Bernal’s
recommendation had lower sales over the same time period than LaPenna. As with all of
Hastings’s opinions, it is impossible to test the calculations and variables his table reports
because it is just a table. In total, this opinion is unmoored from the facts and wholly speculative.
It should be excluded.
Hastings opines that firing Mr. Blackwood for engaging in unethical and deceptive
practices resulted in a loss to the Dealership. Hastings does not identify any accepted basis for
using an employee’s unethical and deceptive past practices as a basis to extrapolate lost profits
going forward. Indeed, such an opinion runs counter to basic public policy considerations. Even
DEFENDANTS’ MOTION TO EXCLUDE EXPERT REPORTS AND TESTIMONY PAGE 8
if it were proper to do so, the data do not support Hastings. Hastings cherry picks sales
attributable to Blackwood with higher margins than low or negative margin sales attributed to the
House Sales Manager. Hastings’s failure to account for these sales distorts Blackwood’s
performance. Hastings’s opinion is not based on accepted methodology, violates public policy,
and is not consistent with the data.
Hastings’s opinion regarding the courtesy car program is another example of his report’s
internal inconsistency. Although this is described as an economic loss as described in Section 7.1
of Hastings’s report, there is no corresponding line item in the Concluded Economic Loss in
Section 8.1 of his report. There is no quantification of what economic loss the Dealership
incurred, therefore this opinion should be excluded as being wholly incapable of assisting the
trier of fact. To the extent the opinion should be credited notwithstanding its lack of
quantification, it lacks a basis in accepted methodology. Simply put, Hastings does not perform
an actual cost/benefit analysis because he has no access to the data necessary to conduct such an
analysis. His opinion is unverifiable and unreliable.
Hastings opines that Bernal suffered a loss from not being included in reinsurance
proceeds. He offers no analytical basis for the opinion. It is based on the report of another of
Bernal’s experts, Feldman. This is improper in and of itself. Southland Lloyds Ins. Co. v. Cantu,
399 S.W.3d 558, 566 (Tex. App.—San Antonio 2011, pet. denied) (discussing the impropriety of
allowing an expert to parrot another expert’s opinion). Moreover, Feldman’s opinion is that is
unreliable for the reasons stated in this above. Therefore the foundation of Hastings’s opinion is
unreliable and does not accord with accepted methodology. It cannot assist the trier of fact in
anyway.
DEFENDANTS’ MOTION TO EXCLUDE EXPERT REPORTS AND TESTIMONY PAGE 9
Hastings incorporates another problematic “expert” report and appraisal regarding land
values to conclude the Dealership suffered lost profits due to high rents. Hastings again parrots
another opinion. See id. at 566. Further, as explained below, the basis of the opinion Hastings
parrots is flawed and should be excluded. As always, Hastings’s opinion is contained in a table
that summarily asserts the proper calculations were and variables included. There is no way to
verify the reliability or accuracy of this opinion, whosever it actually is.
Finally, Hastings opines that Bernal is capable of closing the transaction because
SunTrust Bank agreed to fund 100% of DK8’s interest in HBT JV and HBT Land. Hastings does
not base this opinion on any documentation to that effect. Thus, his opinion is not based on a
reliable foundation and should be excluded.
Hastings’s rebuttal report, attached hereto as Exhibit E. Hastings’s rebuttal report
doubles down the flaws and inaccuracies highlighted above. Hastings additionally claims that
Defendants and their experts have the full native of his model to access the reliability of it.
Defendants have asked Plaintiff to provide the native model, which their records do not reflect
possessions of. Plaintiff’s failure to abide by basic disclosure obligations warrants excluding
Hastings opinion and his rebuttal opinion. Tex. R. Civ. P. 195.2.
Moreover, Hastings uses his rebuttal opinion to introduce several new opinions and
evidence not timely furnished, including tests he claims to have someone other than himself
performed and were not previously disclosed. Ex. E. at 15-16. Hastings also concedes that he has
made legally unsupportable assumptions about causation and the availability of damages to
Bernal. Ex. E. at 6, 22. There is no justification for such opinions to be presented to the jury as
they cannot possibly aid the fact finder.
DEFENDANTS’ MOTION TO EXCLUDE EXPERT REPORTS AND TESTIMONY PAGE 10
Hastings’s rebuttal of Sandeep Prabhakar’s opinion should be excluded, as well. Hastings
attempts to contend that EFG’s balance sheet is not an appropriate basis to ascertain a company’s
lending and borrowing capacity. Hastings offers no justification for that assertion, and cannot
because it defies basic accounting and financial analysis principles. Hastings also asserts that
Prabhakar does not offer a market analysis of loan-to-value ratios (“LTV”). Prabhakar bases his
opinions on his extensive commercial underwriting experience. On the other hand, the basis of
Hastings’s opinion that a 70-80% LTV would not be required is not disclosed in either his
affirmative or rebuttal reports. Therefore, it should be excluded.
Indeed, the only section of Hastings’s rebuttal of Prabhakar’s opinion discloses any
factual or methodological basis is the “Guarantee of Financing” in section 14.2. For every other
rebuttal opinion, Hastings simply asserts—with no explanation or apparent basis—that
Prabhakar’s opinion is not correct. In section 14.2, Hastings relies on deposition testimony that
in no way guarantees that Sun Trust would close the transaction for Bernal on terms actually
consistent with the mere expression of interest Bernal obtained. Hastings rebuttal opinions are
untethered from any fact, analysis, or accepted methodology and should be excluded.
C. Nick Nicholas
Plaintiff designated Nick Nicholas (“Nicholas”) to opine on the rental value of 632 North
Burleson Boulevard in Burleson, Texas (the Dealership Land). A true and correct copy of
Nicholas’s report is attached as Exhibit F. His opinions should be excluded and he should not be
allowed to testify because Nicholas’s estimated land value as of the June 1, 2011 is unreliable
because it does not have adequate support and is based on an arbitrary and subjective
methodology. Specifically, Nicholas’s opinion is unreliable because he inexplicably excludes the
purchase of the Dealership Land itself from his analysis. The properties he actually uses in his
DEFENDANTS’ MOTION TO EXCLUDE EXPERT REPORTS AND TESTIMONY PAGE 11
analysis are two cherry-picked comparable properties, the values of which he subjectively
adjusts to support his conclusions.
In Weingarten Realty Inv'rs v. Harris County Appraisal Dist., 93 S.W.3d 280, 285 (Tex.
App.—Houston [14th Dist.] 2002, no pet.), the trial court excluded the expert testimony of a real
estate appraiser when the movant demonstrated the “comparable properties” the expert used to
perform his valuation analysis were questionably “comparable.” Specifically, “the expert used
only ten ‘comparable properties’ even though there were 191 retail centers existing in the
northwest quadrant of the county in which the appraised property was located. Id. at 286.
On page 83 of Exhibit F, Nicholas states that he only analyzed the comparable value of
three properties in estimating the underlying property value of the Subject Property as of the
Valuation Date. He later subsequently excludes one of the land sales from consideration because
he considers it to be an “outlier.” Ultimately, Nicholas estimates the value of the underlying land
at the Dealership property based on only two land sales. This is improper. Therefore, Nicholas
appears to be exclusively relying on only two land sales in estimating the value of the underlying
land at the Dealership Property as of June 1, 2011.
Nicholas’s two comparable properties fall well short of the nine comparable properties
the court deemed deficient in Weingarten. Id. At the very least, Mr. Nicholas should have
expanded his search parameters for additional comparable land sales. For this reason alone Mr.
Nicholas’s testimony is not based upon a “reliable foundation.” Robinson, 923 S.W.2d at 556.
In addition to cherry-picking only two properties for his analysis, Mr. Nicholas’s
testimony is unreliable because he applied significant total gross adjustments to these two sales.
He adjusted the July 2011 land sale by 50% and the October 2008 land sale by 30%. The
appraiser should have expanded—but did not—his search parameters for additional comparable
DEFENDANTS’ MOTION TO EXCLUDE EXPERT REPORTS AND TESTIMONY PAGE 12
land sales. In Weingarten, the movant established that, “the amount of the percentage adjustment
for each characteristic of the ‘comparable properties’ that differed from [the property at issue]
was subjective.” The court of appeals agreed with this reasoning and held that the appraiser’s
testimony was properly excluded on this basis. Nicholas’s adjustments are similarly subjective as
he provides no objective basis for the adjustments. Moreover, if necessary, the appraiser could
have held conversations with market participants (e.g., real estate brokers, developers, etc.) in
order to thoroughly support his estimated land value.
Because the analysis Nicholas uses to reach his conclusions is far from reliable and
because there is too great an analytical gap between the data upon which Nicholas relies and the
opinion Bernal would have him offer, the Court should exclude Nicholas’s testimony. Harris
County Appraisal Dist., 186 S.W.3d at 159 (citng Gammill, 972 S.W.2d at 728.).
D. David Robertson
Plaintiff designated David Robertson (“Robertson”) to opine on whether the sale
practices at the Dealership contained evidence of payment packing. A true and correct copy of
Robertson’s report is attached as Exhibit G. Robertson’s opinions are unreliable, not replicable,
and not based on either accepted methodologies or the facts he purports to base it on. Therefore,
Robertson’s opinion should be excluded as set forth more fully below.
Robertson failed to review the deal jackets for the transactions that potentially constitute
payment packing. There is no dispute that some of the transactions at the Dealership were
legitimate, above-the-board transactions. Robertson’s opinion is unreliable because he reviewed
the undisputed legitimate transactions in lieu of the transactions that contained evidence of
payment packing.
DEFENDANTS’ MOTION TO EXCLUDE EXPERT REPORTS AND TESTIMONY PAGE 13
Robertson did not evaluate the very negotiations that should be the basis of his opinion.
Robertson opines, without any attribution to supporting evidence, that the objective of the
Dealership was “to sell vehicles using a process in which customers who purchased new Hondas
and used vehicles were treated fairly.” Robertson Report at 2. In support of his conclusory
argument, he states “the negotiating machinations aside, for those who financed their vehicles,
did the binding legal documents accurately reflect a meeting of the minds?” Id. Thus, Robertson
sets aside the negotiating machinations—but it is the negotiations where payment packing
occurred.
Robertson’s opinion is limited to the disclosure requirements of the Truth in Lending Act.
The essence of payment packing is the unrealistic overstatement of monthly payments early in
the negotiation process, which Robertson failed to consider.
Robertson's conclusions are further skewed by an inaccurate understanding of what
constitutes payment packing. He defines the term as "an artificially high rate established in
excess of a known APR based on an individual customer's credit worthiness and specific
transaction parameters." Robertson Report, p. 8. Robertson failed to acknowledge that payment
packing can occur even before an appropriate APR is known. Thus, Robertson’s opinion is
unreliable because he failed to consider whether presenting an unrealistically high APR and
resultant monthly payment in order to facilitate the sale of F&I products constitutes payment
packing.
Robertson’s opinion is biased. Robertson attempts to blame Schnitzer, for the payment
packing practices at the Dealership. Robertson, however, failed to consider that Bernal, was in
the best position to detect and stop payment packing at the Dealership. Thus, Robertson’s
DEFENDANTS’ MOTION TO EXCLUDE EXPERT REPORTS AND TESTIMONY PAGE 14
conclusory opinion that Schnitzer is to blame for the payment packing practices at the Dealership
is unreliable and unsupported by any evidence.
Robertson failed to interview all appropriate witnesses, including Schnitzer. Instead,
Robertson’s opinion appears to be based on a biased interview he conducted with Bernal.
Robertson’s opinion fails to address the specific findings of James Ganther with respect
to payment packing, nor does he seem to have reviewed the underlying evidence in support of
Ganther’s opinion. Thus, Robertson’s conclusory opinion that he “found no evidence that Bernal
or any employee of the Honda of Burleson team deceived or defrauded any customer of Honda
of Burleson” is unsupported by any evidence.
Robertson’s opinion is further flawed because his definition of payment packing is
limited to “how the practice manifests itself in the information recorded on a Truth in Lending
Act-governed retail installment sale agreement...” Robertson Report at 7. Robertson failed to
consider the more expansive definition of payment packing, which has been adopted by the
National Association of Attorneys General. Under that definition, payment packing is the
deceptive practice of misrepresenting monthly payments to consumers during negotiations in
order to facilitate the sale of products and services. Robertson failed to apply the more
expansive, and more commonly accepted, definition of payment packing.
Robertson’s limited definition of payment packing is even undermined by his own prior
published opinions. In an article published in 2007 titled The Seven Deadly Sins of F&I,
Robertson stated:
The payment quoted to a customer during the purchase process
must be limited to the agreed-to cash price of the vehicle — as
well as any applicable taxes and fees — at a representative APR
and term. The California Car Buyer's Bill of Rights specifically
addresses the practice of payment packing. If the payment quoted
is an estimate before checking a customer's credit, it must be
DEFENDANTS’ MOTION TO EXCLUDE EXPERT REPORTS AND TESTIMONY PAGE 15
clearly stated that it is an estimate. In such instances, it is
recommended that the APR be based on the average retail rate
charged for that class of buyer (new or used, prime or nonprime)
over the past 90 days. This gives the dealer a good basis for the
quoted rate. The term should also reflect the repayment conditions
for most deals.
Robertson acknowledges in this prior opinion that the essence of payment packing is quoting
unrealistically high monthly payments, not matters of disclosure on the ultimate contract forms.
Robertson, however, abandons this earlier opinion without justification or explanation.
Robertson is the Executive Director of the Association of Finance & Insurance
Professionals (“AFIP”). His opinion is further undermined by the publications by AFIP, namely
AFIP’s Certification manual which states:
Still, the payment quoted may not post the exact rate of interest,
which will be determined (in large part) by the lender that accepts
the deal. In all cases, the base for establishing the payment cannot
include anything other than the trade difference (with any
applicable downpayment, negative equity, rebate, taxes and fees).
The payment cannot include a "leg" (non-disclosed money to fund
aftermarket products).
Robertson failed to evaluate the existence of a “leg” in transactions at the Dealership.
Despite acknowledging that the APRs the Dealership used in its first pencil quotes were
“not in sync with the prevailing cost of credit” Robertson failed to evaluate whether the F&I
professionals at the Dealership were aware of prevailing interest rates.
Robertson's commentary on the first pencil methodology currently in use at the
Dealership is not relevant to the analysis, confusing, and likely to confuse the issues for the jury.
Robertson's report focuses on too small of a sample size. Robertson’s opinion is also
based on transactions that occurred after the payment packing practices were discovered and
substantial changes to the payment quoting methodology were made at the Dealership. Thus,
Robertson’s opinion is based on transactions that are not at issue.
DEFENDANTS’ MOTION TO EXCLUDE EXPERT REPORTS AND TESTIMONY PAGE 16
In the transactions he reviewed, Robertson fails to identify or acknowledge the existence
of a “leg”, which calls into question his methodology and his biases.
Robertson did not interview the affected customers personally to determine whether they
were in fact deceived by the payment quoting practices at the Dealership. Instead, Robertson
relies upon the interviews conducted by the very managers who participated in the deceptive
payment quoting practices, which again calls into question his biases.
Robertson’s opinion relies on the fact that the Dealership hasn't seen high levels of
chargebacks with respect to F&I products, been sued for payment packing, or suffered low CSI
scores. Robertson Report at 14. Robertson’s opinion is thus based on the fact that payment
packing practices have yet to be discovered, and therefore must not have occurred. Robertson
failed to consider the best evidence for potential payment packing, which would be contained in
the transaction documents as a whole — not merely the final RISC.
Robertson’s opinion is unreliable because he failed to consider the very evidence he
needed to properly evaluate payment packing, namely the deal worksheets, F&I menu, credit
decision documentation and book-out sheets.
E. Jack Schmidt
Plaintiff designated Jack Schmidt (“Schmidt”) to “opine on the treatment of Victor
Bernal as the Minority Owner and Dealership Manager of the Dealership.” See Exhibit H. A
true and correct copy of Schmidt’s report is attached as Exhibit H. His opinions should be
excluded and he should not be allowed to testify because Schmidt makes broad, unsupported
statements and his opinions