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By John W. Ralls
Howrey LLP
A contractor built a custom home for a husband and wife. Relations between the parties broke down, and the homeowners sued the contractor in federal court, seeking reimbursement for what the homeowners claimed to be "drastic overcharging."
The homeowners designated an expert to testify on the standard of the construction industry regarding price markups and other "standards" for residential construction. The homeowners' expert proposed to testify that an appropriate markup for overhead and profit was 12 percent. The contractor's markup averaged 29 percent, an amount the expert concluded was "beyond reasonable and customary industry practice." This testimony was proffered in support of the conclusion that the homeowners were entitled to recover any "excess" markup. The expert also offered to testify that the contractor mismanaged the project, failed to abide by contractual billing and procurement procedures, and billed excessively for rebar work, scaffolding units and building stone.
Before trial, the contractor filed a motion to exclude the expert's testimony, objecting to the testimony as unreliable, unhelpful and fraught with legal conclusions. The trial court granted the motion in part and denied it in part. Hartzler v. Wiley, 277 F.Supp.2d 1114 (D. Kan. 2003).
The trial court began by reciting the standard set forth in Rule 702 of Federal Rules of Evidence and noting that "Rule 702 imposes on the trial court an important gate keeping function with regard to the admissibility of expert opinions." Rule 702 allows expert testimony if it will "assist the trier of fact to understand the evidence or to determine a fact in issue" and if "the witness is qualified as an expert." Rule 702 requires that the testimony be "based upon sufficient facts or data," be "the product of reliable principles and methods," and provide the reliable application of such principles and methods to the facts of the case.
Generally, the court found that the proffered expert was qualified to testify as an expert, noting that he "had worked for decades as a construction manager. [and] has published articles and given presentations on the construction industry."
Regarding the contractor's contention that the expert's testimony constituted impermissible legal conclusions, the court held that "an expert witness may testify in the form of an opinion or inference, even if the opinion or inference embraces an ultimate fact issue.. An expert, however, may not apply the law to the facts of the case to form legal conclusions."
Applying this standard, the court held that the expert's opinions regarding contract interpretation may be admissible but only to the extent the court determined the construction agreement to be ambiguous. Because the court had not yet reviewed the contract for ambiguities, the court did not strike the testimony regarding contract interpretation but left the door open to doing so in the future.
The court rejected other portions of the expert's testimony as impermissible legal conclusions. On this ground, the court struck the expert's conclusions that the homeowners "are entitled to recover excess markups. [and are] entitled to payment for excess billings."
The contractor also contested the expert's conclusions regarding excessive price markups as unhelpful to the jury. The court found that testimony concerning the custom and practice in the industry for price markups may be helpful to the jury but would be permitted only if the contract proved to be ambiguous.
Finally, the contractor objected that the expert had failed to rely on any studies or industry data to form his opinion, which is a factor that trial courts should consider under Daubert v. Merrell Dow Pharmaceutical, Inc., 509 U.S. 579, 593 94 (1993). The court rejected this argument. "[W]hile a trial court should consider the specific factors identified in Daubert where they are a reasonable measure of the reliability of expert testimony. the law does not require an expert to back his or her opinion with independent tests that unequivocally support his or her conclusions." Here, the court found that that the expert was well-qualified to render the opinions at issue "based on his experience in the construction business in Missouri."
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For more information about the issues covered in this report, please contact John Ralls in our San Francisco office at 415-848-3362 or at rallsj@howrey.com or contact your Howrey attorney. For more information about Howrey's Construction Practice Group, click here.
©2004 Howrey LLP
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