the methods which need to be reliable. Daubert, 509 U.S. at 595. Horstman stated he has used
the cash to expenditure ratio and the consistency of revenue stream techniques for the past 25
years when working for local governments, thus his methods “adhere to the same standards of
intellectual rigor that are demanded in [his] professional work.” Rosen v. Ciba-Geigy Corp., 78
F.3d 316, 318 (7th Cir, 1996). Taking data from an audit, identifying the revenue sources, and
calculating the cash to expenditure ratio appears to be a reliable method to determine if an
organization can meet its expenses.

Horstman’s report and testimony regarding the financial condition of the Township will
also assist the trier of fact in understanding the evidence and determining a fact at issue. The
Township claims that Valentino’s position was eliminated due to financial restraints; Valentino
alleges she was terminated in retaliation for filing a sexual harassment claim. Thus, the financial
condition of the Township is a fact at issue. As a CPA and auditor of local governments,
Horstman’s calculations, analysis, and conclusion that the Township had adequate cash and
investments and financial resources to conduct its affairs will assist the trier of fact. Therefore,

Horstman’s first conclusion meets the Daubert standards.

Second Expert Conclusion

In coming to Horstman’s second conclusion that the Township’s ability to borrow short-
term and long term, at will, has not been impaired, Horstman analyzed the borrowing history of
the Township. Horstman’s report included a timeline of the loan activity of the Township
including when each loan was borrowed and paid off and the loan balance over time. From the
loan activity, Horstman concluded the Township could still borrow using assets and collections

on real estate taxes as collateral. Horstman stated he thought this analysis was widespread


Horstman’s responses biased his report. A review of the letter shows that the attorneys’
comments and questions only asked for clarification. The comments included such things as
suggesting the identification of the dates of the Township’s fiscal year and asking what caused
the Township’s $467,517 increase in expenditures. Nothing in the letter or Horstman’s response
suggests any bias.

The Township’s motion to strike and exclude Horstman’s expert report and testimony is
GRANTED in part and DENIED in part.' The report and testimony referring to Horstman’s first
conclusion, that the township had adequate cash and investments and financial resources to
conduct its affairs, is allowed. Any portion of the report or testimony referring to Horstman’s
second conclusion, that the Township’s ability to borrow short-term and long term, at will, has
not been impaired, or third conclusion, that the Township’s financial condition did not warrant
the termination of any staff, is barred.

ENTERED:

Saemee

es B. Zagel
Inited States District J

DATE: / 7 (ie 2 mz,

' This ruling hinges on the assumption that the Township’s defense is based on its financial
inability to spend money (i.e., that it had inadequate funding at the time Valentino’s position was
eliminated) and not based on the Township’s unwillingness to spend money (i.e., that the
Township changed its policies to build a rainy-day fund or to reduce taxes).


consistency and quality of the Township’s revenue stream. The cash to expenditure ratio is
simply the ratio of cash on hand to expenditures. The review of the consistency and quality of
the revenue stream analysis evaluates the Township’s revenue stream, such as real estate taxes,
to determine if it is consistent and if the Township can rely on this revenue to meet its
expenditures.

Horstman’s report contains no mention of any outside sources. However, Horstman’s
affidavit explained he did not need to consult any accounting books or publications when
preparing the report because the two techniques he used were elementary accounting techniques
that he had used often over the past 25 years and thus, he did not need to refer to any accounting
publications. Horstman also claims familiarity with What you Should Know About Your Local
Government's Finances, A Guide to Financial Statements, published by the Governmental
Accounting Standards Board, and which discusses cash ratio analyses. Valentino argues that the
Township has not presented any evidence that these principles are not generally accepted;
however, the party seeking to admit the evidence bears the burden to establish its admissibility.
In re Bridgestone/Firestone, Inc., 2002 WL 31907241, at *2 (S.D. Ind. Dec. 19, 2002) (citing
Daubert, 509 U.S. 579 (1993); Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137 (1999)).

Valentino claims that Horstman’s conclusions are easily verifiable as Horstman only
condensed the information that was already in the Township’s own audit reports and then
performed simple math calculations to reach his conclusions. The math calculations themselves
are accounting, not science. Tuf Racing Products, Inc. v. Am. Suzuki Motor Corp., 223 F.3d 585,
591 (7th Cir. 2000) (holding that an accountant’s calculation of the discounted present value of
lost future earnings, based on financial information and assumptions given by counsel, was

accounting, not science, and was a calculation within the competence of a CPA). However, it is


knowledge; however, neither Valentino’s response to the motion nor Horstman’s subsequent
affidavit makes mention of anything to support his assertion that this borrowing history analysis
is widespread knowledge or a reliable method to determine the borrowing ability of a Township.
“(Nothing in either Daubert or the Federal Rules of Evidence requires a district court to admit
opinion evidence which is connected to existing data only by the ipse dixit of the expert.” Clark
v. Takata Corp., 192 F.3d 750, 758 (7th Cir. 1999) (quoting General Electric Co. v. Joinder, 522
U.S. 136 (1997)). Because Valentino has not met the burden required by Daubert to prove the

analysis is reliable, Horstman’s second conclusion is stricken.

Third Expert Conclusion

Valentino claims Horstman’s third conclusion, that the Township’s financial condition
did not warrant the termination of any staff, is within his field of expertise. Valentino relies on
the fact that Horstman has advised local governments for 25 years on whether or not their
finances allow them to support all of their employment positions by using general accounting
techniques. Horstman’s experience alone is not necessarily enough; I must determine “whether
the evidence is genuinely scientific, as distinct from being unscientific speculation offered by a
genuine scientist.” Rosen, 78 F.3d at 318. Horstman stated his third conclusion “hinges on those
other two opinions.” Because his third conclusion is at least partly based on his second

conclusion that I found unreliable above, the third conclusion is also unreliable and therefore

stricken.

Allegation of Bias


Minute Order Form (06/97)

. United States District Court, Northern District of Illinois
Name of Assigned Judge Sittin, se i er
oe Magistrate Judge James B. Zagel “ina asied Dude
CASE NUMBER 01 C557 DATE 6/27/2003
CASE VALENTINO vs. PROVISO TOWNSHIP, ET AL
TITLE

[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
of the motion being presented]

MOTION:

DOCKET ENTRY;

qd) Oo Filed motion of [ use listing in “Motion” box above.]

(2) im} Brief in support of motion due

(3) oO Answer brief to motion due___. Reply to answer briefdue_

(4) Q Ruling/Hearing on setfor at

(5) QO Status hearing[held/continued to} [set for/re-set for]on__set for___—_att

(6) im Pretrial conference[held/continued to] [set for/re-set for]on_____—ssetfor_ saat

(7) oO Trial[set for/re-set for] on___—__aat

(8) oO {Bench/Jury trial] [Hearing] held/continuedto__—at_—

(9) o This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OFRCP4(m) OLocal Rule 41,1 COFRCP41(a)(1) OO FRCP41(a)(2).

ao) =o [Other docket entry] Motion to bar testimony and strike expert report is granted/denied in

part. Enter memorandum opinion and order.

(1) ff [For further detail see order attached to the original minute order.]

v¥ | No notices required, advised in open court. Document

Number

No notices required.

naraber of notices

Notices mailed by judge’s staff.

Notified counsel by telephone.

Docketing to mail notices.

Mail AO 450 form,

Copy to judge/magistrate judge.

date mailed notice
courtroom

Dw deputy’s
initials

Datertime received int, =. 1 ; ;
central Clerk’s Office anaiting deputy initials



The Township claims that Horstman’s report is biased because Horstman believed that
the method of payment for his services was, in effect, a contingent fee. The Township relies
upon First National Bank of Springfield v. Malpractice Research, Inc., where the Illinois
Supreme Court held that a contingent fee contract with an expert witness finder was void against
public policy. 688 N.E.2d 1179, 1182-83 (Ill. 1997). However, Malpractice Research only
“Gnvolved the invalidation of a contract as against public policy, not the disqualification of a
witness for bias ....” People v. McNeill, 736 N.E.2d 703, 705 (Ill. App. Ct. 2000).

The Township also relies on Rule 3.3(a)(15) of the Rules of Professional Conduct which
states that while a lawyer may pay a reasonable fee for an expert witness, “a lawyer shall not...
pay, offer to pay, or acquiesce in the payment of compensation to a witness contingent upon the
content of the witness’ testimony or the outcome of the case... .” IL CS S Ct Rules of Prof.
Conduct, RPC Rule 3.3(a)(15). However, the Seventh Circuit held that the “rule against
employing expert witnesses on a contingent-fee basis . . . . is a rule of professional conduct rather
than of admissibility of evidence . . . . [and] it does not follow that evidence obtained in violation
of the rule is inadmissible.” Yagatz v. Marquette Univ., 861 F.2d 1040, 1042 (7th Cir. 1988).
While the Rules of Professional Conduct have been promulgated by the Northern District of
Illinois, a local rule may not require the exclusion of evidence. United States v. Condon, 170
F.3d 687, 690 (7th Cir. 1999). Thus, the issue of Horstman’s compensation and his beliefs about
his compensation only affect Horstman’s credibility as a witness, not the admissibility of his
report and testimony.

The Township also argues that Horstman’s report is biased because Valentino’s attorneys
wrote a letter with comments regarding Horstman’s report. After responding to the comments,

Horstman “changed or clarified” his report. The Township does not identify how the letter or


UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

TINA VALENTINO,
Plaintiff,
v. No. 01 C 557
Judge James B. Zagel
PROVISO TOWNSHIP,

ROBERT GRACE, JR, individually and as D
the Supervisor of Proviso Township, and

JEFFREY ALLEN, ARNIE BRYANT, 0 CKET ED
MARIANNE LASKI AND DONALD YUL 7
SLOAN, individually and in their capacities 20
as PROVISO TOWNSHIP TRUSTEES,

Defendants.

MEMORANDUM OPINION AND ORDER

This dispute arises out of the elimination of the Public Relations position in Defendant
Proviso Township (“Township”). Plaintiff, Tina Valentino, held the eliminated position and
claims that she was discharged in retaliation for filing a sexual harassment complaint against the
Township. The Township responded that Valentino was discharged due to financial restraints
and that the Public Relations position was eliminated to save money.

The Township has moved to bar the testimony and strike the report of Valentino’s expert,
Robert E. Horstman, an accountant and auditor of local governments. Horstman concluded that
1) the Township had adequate cask and investments and financial resources to conduct its affairs;
2) the Township’s ability to borrow short term and long term, at will, has not been impaired; and
3) the Township’s financial condition did not warrant the termination of not just Valentino, but
of any staff. The Township claims that Horstman’s testimony and report fails to meet the

standard for admissibility of expert testimony under Federal Rule of Evidence Rule 702 and

0


Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). The Township also claims
that Horstman’s report is biased because Horstman believed that he would only be paid his

expert witness fee if Valentino prevailed.

Admission of Expert Testimony and Report

Under Federal Rule Evidence 702, social science expert testimony “must be tested to be
sure that the person possesses genuine expertise in a field and that her court testimony ‘adheres
to the same standards of intellectual rigor that are demanded in [her] professional work.’” Tyus
yv. Urban Search Mgmt., 102 F.3d 256, 263 (7th Cir. 1996) (citations omitted). The expert
opinion must be more than simply a “subjective belief or unsupported speculation.” Daubert,
509 U.S. at 590. The focus, however, “must be solely on principles and methodology, not on the
conclusions that they generate.” Jd. at 595. First, I must determine whether Horstman’s report
and testimony is reliable. Cummins v. Lyle Industries, 93 F.3d 362, 367 (7th Cir. 1996). Second,
I must decide “whether evidence or testimony assists the trier of fact in understanding the
evidence or in determining a fact in issue.” Jd. at 368 (citations omitted).

The Township claims Horstman’s report and testimony do not meet the Daubert
standards because Horstman used no accounting theory or technique, his conclusions are not

based on his expertise, and his conclusions will not assist the trier of fact.

First Expert Conclusion
Horstman based his first conclusion, that the township had adequate cash and investments
and financial resources to conduct its affairs, on (1) his experience as an auditor of local

governments for 25 years; (2) on a cash to expenditure ratio analysis; and (3) on a review of the