Saturday, July 01, 2006

4th Circuit Upholds Damages Testimony in Breach of Fiduciary Duty Claim

In 1999, a financially unsophisticated widow hired an investment advisor to manage her retirement portfolio, then valued at $729,856. She arranged to withdraw $6000/month to cover her living expenses.

The advisor soon moved her assets into investments with substantially higher risk. At first, this paid off. In early 2000, the value of the widow's portfolio peaked at about $1.1 million. But the advisor did not then move to transfer those gains to lower-risk investments, and by the time the widow terminated the advisor in May 2002, her account stood at $342,105.

Not a totally unprecedented sequence of events in that time period.

The widow sued the advisor on theories including negligence, fraud, and breach of fiduciary duty. At trial, the widow's expert on damages stated his view that it would not fully compensate the widow to measure damages by reference to her opening account value. He also opined that the advisor's most serious breach occurred after the widow's gains, when the advisor failed to consolidate her advances. Noting that the proper measure of loss in such situations is generally disputed, the expert offered estimates ranging from $244,495 to $505,395, under different scenarios in which the widow's investments would have been handled more prudently. The jury found for the widow and awarded compensatory damages of $423,000.

In an unpublished opinion, the Fourth Circuit has now upheld the expert's testimony over the advisor's objections that it was unreliable. The panel's opinion observes that the jury could have found the advisor to have done a good job at first, then squandering the widow's gains. The advisor's argument, presumably, was that the widow's relationship with investment risk was one of fair-weather friendship -- but that's a jury issue, no doubt, and not a Daubert question. See Parmenter v. Rollins Fin. Counseling, Inc., No. 05-1189 (4th Cir. June 29, 2006) (Wilkins, Motz, & King, JJ.).


Post a Comment

<< Home

Fed. R. Evid. 702: If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case.