Opposition To Defendants Mil 4OppositionCal. Super. - 4th Dist.September 13, 2017© o o J Oo Oot Bx Ww Nd DN DN DN DD DD DN DN DN DN DN =H H H H H Hl E e ww J Oo O t kx WwW ND H O © o N Oo O k s . w Nd = Oo Pierce Bainbridge Beck Price & Hecht LLP John M. Pierce (SBN 250443) jpierce@piercebainbridge.com Dan Terzian (SBN 283835) dterzian@piercebainbridge.com 600 Wilshire Blvd., Suite 500 Los Angeles, CA 90017-3212 (213) 262-9333 Douglas S. Curran (admitted pro hac vice) dcurran@piercebainbridge.com Jeffrey R. Alexander (admitted pro hac vice) jalexander@piercebainbridge.com Andrew Lorin (pro hac vice pending) alorin@piercebainbridge.com Cassie Black (pro hac vice pending) cblack@piercebainbridge.com 20 W. 23rd Street, Fifth Floor New York, NY 10010 Attorneys for Plaintiff Adam DeVone ELECTROMICALLY FILED Superior Court of Califarnia, County of Orange 02/08/2019 at 10:17:00 AM Clerk of the Superior Court By & Clerk, Deputy Clerk SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF ORANGE ADAM DEVONE, an individual, Plaintiff, V. RONALD JOY, and individual; EDGEWOOD PARTNERS INSURANCE CENTER, INC., a corporation; JOHN CONNELL, an individual; and DOES 3 TO 20, inclusive; Defendants -1- Case No. 30-2017-00943321-CU-DF-CJC Assigned to the Hon. Derek Hunt Dept. C23 PLAINTIFF ADAM DEVONE’S OPPOSITION TO DEFENDANTS’ MOTION IN LIMINE NO. 4, FOR AN ORDER EXCLUDING TESTIMONY BY PETER WROBEL Date: February 11, 2019 Time: 9:00 a.m. Compl. filed: September 13, 2017 MSC: January 18, 2019 Trial date: February 11, 2019 PLAINTIFF'S OPP TO DEFENDANTS’ MIL 4 EXCLUDING TESTIMONY BY WROBEL © o o J Oo Oot Bx Ww Nd DN DN DN DD DD DN DN DN DN DN =H H H H H Hl E e ww J Oo O t kx WwW ND H O © o N Oo O k s . w Nd = Oo II. III. IV. TABLE OF CONTENTS INTRODUCTION cursesmmmasmmmosmmassmumsmsmsmmumonsmsss sams 1 PETER WROBEL’S QUALIFICATIONS......cocoitiiteieieeieceeneeie ee 1 PETER WROBEL’S OPINIONS AND ANALYSES......ccocviiiiiiiieneen 2 ARGUMENT otitis etcetera eee see sae 9 A. The Legal Standard for Admissibility Focuses on Relevancy and Reliability, Not Factual Issues in Dispute..........cccevevveeienieninieneeiennne. 9 B. Defendants’ Challenges Regarding Certain Model Variables Are Appropriate Subjects for Cross Examination, Not a § 801 Motion........ 12 CONCLUSION .......ooitiiintiitetit cites eesti eater sree ene 14 _i_ PLAINTIFF'S OPP TO DEFENDANTS’ MIL 4 EXCLUDING TESTIMONY BY WROBEL © o o J Oo Oot Bx Ww Nd DN DN DN DD DD DN DN DN DN DN =H H H H H Hl E e ww J Oo O t kx WwW ND H O © o N Oo O k s . w Nd = Oo TABLE OF AUTHORITIES Page(s) Cases Asahi Kasei Pharma Corp. v. Actelion Ltd., 222 Cal.APP.4th 945 (2013) eee ects eee eee seas eevee ee eaae ns 11 Buckwalter v. Airline Training Ctr., 134: Cal. App. 3d S47 (ChE: APP 1982) swsmmsmeesammmenssmmsssmses a sesses u ma 13 Gee v. Timineri, 248 Cal. App. 2d 139 (Ct. APP. 1967) eee eee 11 Grupe v. Glick 26 Cal. 2d 680 (1945) neice eee eee este sbeebs sree sere e ee erae ns 10 Hose v. Chicago Northwestern Transp. Co., 70 F.3d 968 (8th Cir. 1995) w.eoiiieiieiieie ects eers eee 13 Kannankeril v. Terminix Int’l, Inc., 128 F.3d 802 (BA Cir. 1997).ucieeiieeie tic 13 Korsak v. Atlas Hotels, Inc., 2. Call. App AER: 15 TE TODD msm mens. sms 5505555000055 575508555.5 550805 5 FA 55.5 S555 55 11 Maatuk v. Guttman, 173 Cal. App. 4th T1971 (2009) ..cvvieiiieiieiieee te eeeee ee eee ee eeeeee se e ee eesaaeeee 11 Mammoth Lakes Land Acquisition, LLC v. Town of Mammoth Lakes, 191 Cal. App.4th 435 (2010) weeeeieeeieeiiieeieee eects eee eee sees eases seas 10 People v. Pollack, ok Cal Ah, 1 188 [CHIEN] mmosunosasoen cososomsomoniosossenmessissssns sss sims ss damm MAA RE TRA 11 Sargon Enterprises, Inc. v. Univ. of S. California, 55 Cal. 4th 747 (2012) eee ects erases sree eevee 9,10,11,13 Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134 (Oth Cir. 1997) weet eee eee 12,13 Statutes ENA CTER CTOUNE 5 TZUN msn sss so som 8:50 9005085.5 5050085085050 955 FHT 05 RH A HFA 5055 2 Evidence Code § 804()......uiiiuiiieiie cies cesta eee eet eerste ee eaae ans 13 =A] - PLAINTIFF'S OPP TO DEFENDANTS’ MIL 4 EXCLUDING TESTIMONY BY WROBEL © o o J Oo Oot Bx Ww Nd DN DN DN DD DD DN DN DN DN DN =H H H H H Hl E e ww J Oo O t kx WwW ND H O © o N Oo O k s . w Nd = Oo MEMORANDUM OF POINTS AND AUTHORITIES I. INTRODUCTION Defendants have moved to entirely exclude Plaintiffs’ economic damages expert, Peter Wrobel, from testifying regarding the lost profits caused by Defendants’ misconduct. Defendants’ challenge is twofold. First, as explained below, they distort the record and misrepresent the nature of Mr. Wrobel’s analysis and scope of work. Defendants repeatedly cherry-pick a portion of Mr. Wrobel’s deposition testimony and attempt to misconstrue the testimony to fit their erroneous claims. Contrary to their claims, Mr. Wrobel used all available data (that was supported by the record) in connection with his own independent investigation and his years of knowledge, experience, and expertise to form his opinion regarding the appropriate measure of lost profits. Second, Defendants’ motion is predicated on their objections to the factual foundation of Mr. Wrobel’s opinions, including Defendants’ primary argument that certain data on which he bases his opinion is flawed. However, nothing in Sections 801 or 803 of the Evidence Code, or the cases interpreting those sections, change the fundamental rule that the factual basis of an expert opinion goes to the credibility of the testimony, not the admissibility. Itis up to Defendants to scrutinize the factual basis for Mr. Wrobel’s opinion - which they misrepresent in their motion - in cross-examination. At bottom, Defendants simply disagree with Mr. Wrobel’s conclusions, which is not the proper focus of a Section 801 or 803 inquiry. Defendants’ motion fails to demonstrate or even suggest that Mr. Wrobel’s work is somehow the result of an inappropriate leap of logic, nor do they show that his opinions are the product of speculation. Because Defendants do not (and cannot) establish any basis for excluding Mr. Wrobel’s testimony from trial, the motion should be denied. II. PETER WROBEL’S QUALIFICATIONS Peter Wrobel is an expert in the field of forensic accounting and business valuation. He holds an MBA, with an emphasis in Professional Accounting, from the University of Southern California (“USC”) and a B.A., M.A., and C.Phil. in History from UCLA. Mr. -1- PLAINTIFFS OPP TO DEFENDANTS’ MIL 4 EXCLUDING TESTIMONY BY WROBEL © o o J Oo Oot Bx Ww Nd DN DN DN DD DD DN DN DN DN DN =H H H H H Hl E e ww J Oo O t kx WwW ND H O © o N Oo O k s . w Nd = Oo Wrobel has more than 30 years of forensic accounting and business valuation experience. He specializes in damage determination, statistical, economic and cost analysis, and mathematical modeling and database development. He is a Certified Public Accountant and a Certified Fraud Examiner. Mr. Wrobel holds the American Institute of Certified Public Accountants’ (“AICPA”) Accreditation in Business Valuation (“ABV”) and has taught classes at the USC Gould School of Law and at conferences organized by the AICPA and the California Society of CPAs. He is currently a Managing Director of Berkeley Research Group, LLC and has previously held the positions of, inter alia, Director at LECG, LLC; Director at Navigant Consulting, Inc.; Managing Director at FTI Consulting; Senior Partner at Simpson LLP; and Senior Manager, Litigation Services at Coopers & Lyband (now PricewaterhouseCoopers LLP). Mr. Wrobel has testified as an expert in hundreds of damages cases, including dozens regarding lost profits. Evidence Code § 720 provides that “[a] person is qualified to testify as an expert if he has special knowledge, skill, experience, training or education sufficient to qualify him as an expert on the subject to which his testimony relates.” Under this (or any) measure, Mr. Wrobel is qualified to testify as an expert in this matter. III.PETER WROBEL’S OPINIONS AND ANALYSES There is no question that Mr. Wrobel’s opinions are relevant to the disputed issues in the case and probative on those issues. Using the record available, and conducting independent research to independently examine certain variables, Mr. Wrobel provides economic analysis and opinions regarding the lost profits that would have been realized but for Defendants’ misconduct. There is nothing methodologically exotic about this: it is what economists do in every lost profits case. See Exhibit A to Declaration of Douglas Curran, Transcript of Deposition of Peter Wrobel at 21:12-16 (“Well, what I've done is I've -9_ PLAINTIFFS OPP TO DEFENDANTS’ MIL 4 EXCLUDING TESTIMONY BY WROBEL © o o J Oo Oot Bx Ww Nd DN DN DN DD DD DN DN DN DN DN =H H H H H Hl E e ww J Oo O t kx WwW ND H O © o N Oo O k s . w Nd = Oo calculated the amount of [] the delta of the commission pool that Mr. DeVone would be entitled to participate in with and without the participation of Kaiser as an option in the Acrisure business model.”). Specifically, Mr. Wrobel determined how much revenue would have been generated if Defendants had not disrupted Mr. DeVone’s advanced negotiations with Kaiser Permanente (“Kaiser”) by defaming Mr. DeVone. For purposes of his opinion, Mr. Wrobel has assumed causation. Id. at 21:5-7. In a desperate attempt to block Mr. Wrobel from testifying, Defendants make several outright false claims about Mr. Wrobel and his work in connection with this matter. As an initial matter, it is worth clarifying the scope of Mr. Wrobel’s analysis and his work performed in order to reach his opinions. The two categories of Defendants’ false statements as to Mr. Wrobel in their motion in limine are addressed in turn below. First, Defendants wrongly claim that “Mr. Wrobel does not have even a vague understanding of how the model works or the machinations involved in its preparation of the number that constitutes his opinion.” Def. MIL No. 4 at 3. Defendants repeat this theme throughout their motion. See id. at 3 (“Mr. Wrobel’s sole function is to plug DeVone’s unfounded assumptions into a computer model about which he knows nothing and then offer an ‘opinion’ that the resulting number constitutes DeVone’s damages.”); id. at 6-7 (“Mr. Wrobel cannot explain how the model was created, how it works, or verify that it produces accurate calculations.”); id. at 4 (Defendants claim that the model was simply “provided to Mr. Wrobel, who testified he relied on it wholesale to prepare his opinions.”). Repeating this false claim does not make it true. To the contrary, Mr. Wrobel testified at length specifically regarding the operation of the model: _3_ PLAINTIFF'S OPP TO DEFENDANTS’ MIL 4 EXCLUDING TESTIMONY BY WROBEL © o o J Oo Oot Bx Ww Nd DN DN DN DD DD DN DN DN DN DN =H H H H H Hl E e ww J Oo O t kx WwW ND H O © o N Oo O k s . w Nd = Oo Q. I want you to explain to me first, generally speaking, the methodology to come up with these numbers and then we'll go into the five years and then the one that's the permanent number. A. Well, essentially what I've done is, using the underlying data including Tab 30, I've took Tab 30, the model, and modified it to reflect what the impact would be if Kaiser was part of the platform. Once I've done that, it's -- the numbers flowed through to schedules that I created trying to determine what the commission pool was. And that involved -- well, the first step was based on the model without Kaiser was to determine what the commission pool would be. And the commission pool is based on both renewals and new customers. There's a different formula depending on if it's a new renewal. So the first step was to break out the FTE, which is the term they use, full- time employees, that participate in the program, break them out between new and renewals. And once I was able to do that, then I calculated what the amount of the commission pool was. There was a third step, though, was to take a look at whether or not the expense threshold of 70 percent was -- wait -- that the expenses did not exceed 30 percent to see whether or not the commission pool would actually come into play on an annual basis. So, and in all cases that happened. So what I did is the first step was figure out, okay, what would be the commission pool without Kaiser. Then I performed essentially an identical calculation but with Kaiser, and then looked at the delta between the two. That's the measure of the lost commissions. Then I, for the first five years, discounted those amounts to present value. And then the final step would be to take the year five differential, calculate -- figure out what it would be for year six and then capitalize that number to determine the permanent impairment after year five and then added the two numbers together. Id. at 70.17-72:5. This one answer, like many others, reveals the deception in Defendants’ motion: Mr. Wrobel in fact testified at length about the specific procedures he followed to calculate Mr. DeVone’s lost profits and the role the model served in that process. Mr. Wrobel’s deposition testimony also reveals that he undertook a robust effort to not only “understand” the fundamental mechanics of the model underlying his opinions, but to pressure test and vet that model to ensure that it was sound and generated reliable calculations. See id. at 79:7-11 (“we looked through the model to see if it was correct, if -4- PLAINTIFFS OPP TO DEFENDANTS’ MIL 4 EXCLUDING TESTIMONY BY WROBEL © o o J Oo Oot Bx Ww Nd DN DN DN DD DD DN DN DN DN DN =H H H H H Hl E e ww J Oo O t kx WwW ND H O © o N Oo O k s . w Nd = Oo the math worked, and it does. It's a very sophisticated model. And we checked to see whether or not that the numbers made sense, you know, mathematically.”); id. at 98:20- 99:11; 111:4-112:11 (testifying regarding the calculations for retention and renewal of employees in the model); id. at 114:3-24 (testifying regarding the appropriate calculations for the commission pool, generally); id. at 117:20-120:10 (testifying regarding the calculations and assumptions underlying the permanent impairment calculation). Defendants’ contention that Mr. Wrobel was handed this model and merely uncritically relied on it to generate his opinion is not just baseless - it is false. As explained further below, Mr. Wrobel testified at length regarding his efforts to verify all the underlying assumptions in the model. He also testified extensively regarding his knowledge of the source material. See id. at 17:11-17 (“the original model [] is a spreadsheet that was prepared to determine [] Mr. Anderson and Mr. DeVone’s understanding of how the business model would work with respect to revenues and expenses over time and the generation of profit into a commission pool or the generation of a commission pool.”); id. at19:13-14 (“They did a projection without the Kaiser contract in July of 2018.”); id. at 22:9-14 (“what I've done is calculate what the amount of the commission pool would be with and without Kaiser and to the extent - well, it's higher if he was able to offer - BMM was - excuse me - Acrisure was able to offer Kaiser and I've measured what that number would be.”); id. at 16:6-11 (“what I did was I took Mr. Anderson and DeVone's spreadsheet and modified it slightly to reflect what would happen if Kaiser revenue was included. So it's essentially the same type of - it's essentially the same spreadsheet with some modifications that myself and my office made.”). Mr. Wrobel’s testimony shows that he not only understood and vetted the model, but he then modified it to make it capable of performing the calculations that, in his expert opinion, were relevant to the valuation. Mr. Wrobel also explained why he chose his specific approach to the lost profits calculations. See id. at 45:21-24 (“I believe the method that I used, which was to compare _5- PLAINTIFFS OPP TO DEFENDANTS’ MIL 4 EXCLUDING TESTIMONY BY WROBEL © o o J Oo Oot Bx Ww Nd DN DN DN DD DD DN DN DN DN DN =H H H H H Hl E e ww J Oo O t kx WwW ND H O © o N Oo O k s . w Nd = Oo the business model with and without Kaiser, is more appropriate and will derive a much more accurate number than a yardstick approach.”); id. at 46:3-6 (“It can be called, like, a before and after or a but-for type model where you're taking a look at something with and without a particular variable. And that's what I did.”). Finally, and notably, at his deposition, Defendants’ own damages expert, Brian Bergmark, took no issue with the mechanics of the lost profits model selected by Mr. Wrobel. Rather, Mr. Bergmark testified only that running a different set of assumptions through the model utilized by Mr. Wrobel would have led to a different conclusion. See Exhibit B to Declaration of Douglas Curran, Transcript of Deposition of Brian Bergmark, at 52:12-25. Thus even Defendants’ own damages expert undermines the position Defendants now take. The bottom line is that there is no support in the record for Defendants’ manufactured contention that Mr. Wrobel does not know “how the model works.” The motion should be denied for this reason alone. Second, Defendants wrongly claim that “Mr. Wrobel made no effort to verify the veracity or reasonableness of this information. Rather, Mr. Wrobel simply took the word of DeVone . ...” Def. MIL No. 4. at 3. As with their first series of misrepresentations, Defendants similarly falsely claim throughout their motion that Mr. Wrobel did not verify the assumptions he utilized. See id. at 6 (“Mr. Wrobel had no involvement in preparing the model and did not investigate its accuracy or ability to adequately calculate the required outcome.”); id. at 7 (“Mr. Wrobel did not investigate or perform due diligence to verify these data points.”); id. at 8 (“Not one of the data points Mr. Wrobel used to perform his calculation were verified by any source other than DeVone himself.”). But, as before, Defendants’ repetition that Mr. Wrobel did not verify the assumptions underlying his opinions does not make it so. To the contrary, Mr. Wrobel testified extensively regarding the dozens of documents in the record that he relied on to form the bases for his opinion: - PLAINTIFFS OPP TO DEFENDANTS’ MIL 4 EXCLUDING TESTIMONY BY WROBEL © o o J Oo Oot Bx Ww Nd DN DN DN DD DD DN DN DN DN DN =H H H H H Hl E e ww J Oo O t kx WwW ND H O © o N Oo O k s . w Nd = Oo Q. What information did you obtain and apply to the Tab 30 model in order to come up with your Tab 20 model that leads to your opinion? A. Well, there's various documents that I utilized to look at that that’s contained within this binder. The employment agreement, the book purchase agreement, some information that was utilized to create a capitalization rate, information that's been produced. I'm looking at, for example, the -- an ASK letter from BMM to Kaiser, January 11th, 2018 ... Well, I have a packet of information that I utilized to make an adjustment from Tab 30 to the Tab 20. There's some information relating to bswift . . . There's some information about Kaiser that we talked about that I do not believe was produced, the Employer Health Benefit. There's some other information about Kaiser that has been produced . . There's some information about Acrisure. . . . So these are documents that help provide the basis for the assumptions that I used to convert Tab 30 to Tab 20. See id. at 19:22-20:22. Also, contrary to Defendants’ repeated statements, Mr. Wrobel specifically testified about the analysis he undertook as to each of the variables in the model. For example, he testified regarding his independent analysis of a document from the “Kaiser Family Foundation” in order to review “background information about premium, what annual premiums cost.” Id. at 9:1-15." He also testified regarding his independent analysis of Kaiser’s market share in the relevant market (id. at 46:24-47:5) and his review of documents reflecting that analysis. See, e.g., Ex. C (DeVone0000167). Mr. Wrobel further testified regarding his review of specific cost inputs. See id. at 27:12-15 (“There were - for example, there were direct expenses related to the bswift software system. I reviewed the documents that supported that.”); see also id. at 80:7-13. He testified regarding his verification of the various insurance carrier “override 4 See also id. at 10:16-11:12 (“Q. Is there anything specific from this employer health benefits document dated 2018 that you relied on in preparation of your [report]? A. ... 1 just wanted to see what Kaiser's average annual cost of healthcare plan was just to see if it was consistent with the information I received from Mr. DeVone and his staff. . . . [I]n the model, that was one of the things I used for the basis for my report. There is a... variable that has to do with the annual cost of a healthcare plan, and myself and my staff, we talked with Miles [Anderson].”); id. at 90:2-12 (“that came from a review of what the actual overall national averages were at Kaiser . . . from the Kaiser document we looked at earlier.”). 7 PLAINTIFF'S OPP TO DEFENDANTS’ MIL 4 EXCLUDING TESTIMONY BY WROBEL © o o J Oo Oot Bx Ww Nd DN DN DN DD DD DN DN DN DN DN =H H H H H Hl E e ww J Oo O t kx WwW ND H O © o N Oo O k s . w Nd = Oo percentages” and commission rates, including his review of emails reflecting negotiations between DeVone and Kaiser. Id. at 79:18-80:6; 92:1-25; 93:13-23; 95:11-20. He testified regarding his evaluation of various business cost assumptions. Id. at 80:24-85:6. He testified regarding his verification of the number of Acrisure offices. Id. at 81:9-10. Mr. Wrobel also testified regarding his reliance on email communications between Messrs. Anderson and DeVone and Acrisure’s Chief Operating Officer, which specifically addressed certain assumptions utilized the model. See id. at 81:15-22. Mr. Wrobel also testified (and provided documentation) regarding the limited instances where his conversations with Plaintiff or Plaintiff’s team provided the basis for his opinion. See, e.g., id.at 103:14-105:15; 105-25-106:8. At his deposition, Mr. Wrobel explained why it was reasonable to rely on certain assumptions where no benchmark exists: Q. And so to that extent, these are a best guess or an estimate of what the appropriate staff salaries would be? A. Yeah, I don't believe it's a guess. I believe this is the estimate of what they would be. Q. Without a comparable benchmark, though? A. Yes, I mean, in cases - you know, in certain cases, if comparable benchmarks exist, it's a useful tool for the individual, such as myself, evaluating damages to use. Where there is no comparable benchmark, particularly in a case like this where there just isn't one, there's nothing to compare. Id. at 108:1-12. Mr. Wrobel reviewed hundreds of pages of record evidence and produced hundreds : Mr. Wrobel testified that he took comfort in learning that certain of the assumptions in the relevant model had been reviewed by the third party insurance company that eventually acquired Mr. DeVone’s business. Id. at 47:15-22 (“So this is not a startup business. This is a company that was purchased by another company that is - that provides the same sort of services. So that always acts as a check on my analysis that there were other people that - you know, that participated in this, looked at these numbers, or looked at other numbers, looked at something that thought that this was a business model that would be successful.”). 8 PLAINTIFF'S OPP TO DEFENDANTS’ MIL 4 EXCLUDING TESTIMONY BY WROBEL © o o J Oo Oot Bx Ww Nd DN DN DN DD DD DN DN DN DN DN =H H H H H Hl E e ww J Oo O t kx WwW ND H O © o N Oo O k s . w Nd = Oo of pages of additional documents - including emails, business contracts, employment contracts, insurance data, industry research, company information, and financial information - which reflected the bases he relied on in formulating his opinions. Together, these documents create an extraordinarily robust foundation on which Mr. Wrobel’s opinion rests. Defendants’ baseless contentions to the contrary are, by any measure, without merit. IV. ARGUMENT A. The Legal Standard for Admissibility Focuses on Relevancy and Reliability, Not Factual Issues in Dispute Defendants cite a litany of cases in arguing that an expert’s opinion should be excluded where that expert has no reasonable basis for the particular opinion offered. These cases are inapposite, though - as explained above, Defendants’ arguments regarding Mr. Wrobel’s bases are wrong as a matter of fact. In essence, Defendants move to exclude Mr. Wrobel’s testimony not because it is legally insufficient, but because they do not agree with his opinions and certain documents underlying those opinions. Sargon Enterprises, Inc. v. Univ. of S. California, 55 Cal. 4th 747, 772 (2012), which Defendants cite in support of this contention, is notable. In that case, the California Supreme Court specifically cautioned against rash exclusions of expert testimony, stating: “Courts must also be cautious in excluding expert testimony. The trial court's gatekeeping role does not involve choosing between competing expert opinions. The high court warned that the gatekeeper’s focus must be solely on principles and methodology, not on the conclusions that they generate.” Rather than exclude competing opinions, the Sargon court noted that “the goal of the trial court is simply to exclude clearly invalid and unreliable expert opinion.” Id. (emphasis added). The Sargon court continued: The trial court’s preliminary determination whether the expert opinion is founded on sound logic is not a decision on its persuasiveness. The court must not weigh an opinion's probative value or substitute its own opinion for the expert's opinion. Rather, the court must simply determine whether the matter relied on can provide a reasonable basis for the opinion or -9_ PLAINTIFF’S OPP TO DEFENDANTS’ MIL 4 EXCLUDING TESTIMONY BY WROBEL © o o J Oo Oot Bx Ww Nd DN DN DN DD DD DN DN DN DN DN =H H H H H Hl E e ww J Oo O t kx WwW ND H O © o N Oo O k s . w Nd = Oo whether that opinion is based on a leap of logic or conjecture. The court does not resolve scientific controversies. Rather, it conducts a circumscribed inquiry to determine whether, as a matter of logic, the studies and other information cited by experts adequately support the conclusion that the expert’s general theory or technique is valid. Id. (emphasis added). The Sargon court itself specifically held that the expert’s opinion at issue was “not based on matter that was of a type that reasonably could be relied upon by an expert in forming an opinion upon the subject.” Here, although Defendants make several conclusory statements regarding the work performed by Mr. Wrobel, they wholly fail to demonstrate how the opinions produced are the product of unreliable methods. It is insufficient for Defendants to merely hope that the Court will find issue with certain of the data utilized; Defendants must instead demonstrate, as the Defendants did in Sargon, how such data necessarily produced unreliable opinions. In the instant case, Mr. Wrobel opined as to the reasonable profits that have would accrued to Plaintiff based on an analysis of a contemporaneously created model that he thoroughly and independently evaluated. His opinions in this case rest on economic methodologies over which there is no serious dispute. See Grupe v. Glick 26 Cal.2d 680, 693 (1945) (“damages for the loss of prospective profits are recoverable where the evidence makes reasonably certain their occurrence and extent.”). “[A]nticipated profits dependent upon future events are allowed where their nature and occurrence can be shown by evidence of reasonable reliability.” Id. at 692-93; see also Mammoth Lakes Land Acquisition, LLC v. Town of Mammoth Lakes, 191 Cal. App.4th 435, 448-57 (2010) (lost 3 In Sargon, the Supreme Court found that the trial court had acted within its discretion in excluding a manufacturer’s expert’s testimony on lost profit damages where plaintiff’s expert opined that plaintiffs “market share would have increased spectacularly over time to levels far above anything it had ever reached.” 55 Cal.4th at 776 (Sargon’s expert opined that Sargon, a small company (0.5 percent market share) would have grown to the size of the largest implant companies (the “Big Six”)). In the expert’s most optimistic scenario, Sargon would have increased its profits 157,000 percent over ten years. Id. at 762. Sargon’s expert had assumed that if a company had a significant innovation, no matter how small it was, it would soon join the industry leaders. The trial court found that this assumption had no factual basis and ignored other factors affecting company success. The expert assumed without foundation that Sargon would have become a market leader within 10 years, replacing one of the Big Six” manufacturers. Id. at 774-76. ~10-- PLAINTIFF'S OPP TO DEFENDANTS’ MIL 4 EXCLUDING TESTIMONY BY WROBEL © o o J Oo Oot Bx Ww Nd DN DN DN DD DD DN DN DN DN DN =H H H H H Hl E e ww J Oo O t kx WwW ND H O © o N Oo O k s . w Nd = Oo profits recoverable on hotel/condominium project never built after town, which was party to development agreement, withdrew support despite fact that regulatory approvals were conditions precedent to completion of project).* It is for the jury to determine the probabilities as to whether damages are reasonably certain to occur in any particular case. Asahi Kasei Pharma Corp. v. Actelion Ltd., 222 Cal. App.4th 945, 972 (2013) (internal citation omitted). This case is therefore unlike Sargon in every meaningful way. The other cases Defendants cite on pages 5 and 6 of their motion are similarly inapposite. Those cases together stand for the unremarkable proposition that an expert must have a reasonable basis for the particular opinion offered. None reflect at all circumstances like those here: e In People v. Pollack, 32 Cal.4th 1153, 1172 (2004), the Court allowed a physician to testify as an expert in the guilt phase of a criminal trial, but required that one specific question be framed as a hypothetical because the expert was not the treating physician. e In Korsak v. Atlas Hotels, Inc., 2 Cal. App. 4th 1516, 1522 (1992), a mechanical engineer was prevented from testifying after “he admitted he was testifying outside the realm of his expertise when he gave an account of his communications with several unnamed Los Angeles-area hotels about their usual plumbing maintenance practices, in connection with explaining his opinion on the need for such prescribed maintenance.” e The decision in Gee v. Timineri, 248 Cal. App. 2d 139, 145 (Ct. App. 1967) does not even concern expert testimony. Plaintiff, himself, sought to testify about a calculation created in anticipation of litigation, outside of the “normal course of the general operation of his business.” eo In Lockheed Litig. Cases, 115 Cal. App. 4th 558, 564-65 (2004), plaintiff’s causation expert’s opinion was excluded after he acknowledged that the study he relied on “did not indicate whether any single chemical contributed to an increased risk of cancer.” o In Maatuk v. Guttman, 173 Cal. App. 4th 1191, 1199 (2009), the Appellate Court determined that plaintiff’s expert’s opinion regarding damages was “irrelevant” where the plaintiff inventor “had nothing to sell” and was “still seeking to develop a product.” -11- PLAINTIFFS OPP TO DEFENDANTS’ MIL 4 EXCLUDING TESTIMONY BY WROBEL © o o J Oo Oot Bx Ww Nd DN DN DN DD DD DN DN DN DN DN =H H H H H Hl E e ww J Oo O t kx WwW ND H O © o N Oo O k s . w Nd = Oo Here, as set forth at length above - and Defendants’ conclusory statements notwithstanding - Mr. Wrobel has appropriately detailed the bases for his conclusions. A contemporaneously created financial business model, based on the historical results of an existing and profitable business, is precisely the type of concrete evidence that a damages expert like Mr. Wrobel routinely relies on to calculate lost-profits. The motion should be denied. B. Defendants’ Challenges Regarding Certain Model Variables Are Appropriate Subjects for Cross Examination, Not a § 801 Motion The Section 801/803 analysis is about the admissibility of an expert’s testimony, not the weight that testimony should carry with the trier of fact. See Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1143 (9th Cir. 1997) (in response to criticisms about questionable assumptions regarding an economist’s damages model, the Ninth Circuit wrote: “These asserted defects, however, go to the weight, and not the admissibility, of [the expert’s] testimony.”). Here, Defendants dress up what appears to be their forthcoming cross-examination of Mr. Wrobel as an expert-exclusion motion, in an effort to preclude testimony that would otherwise be helpful to the jury. As set forth above, Mr. Wrobel has explained at length: (i) why he used the data he used, (i1) what that data included, and (iii) how he independently evaluated the assumptions underlying that data, and he then (iv) provided a robust model that detailed all the assumptions on which he relied. It is unremarkable that Mr. Wrobel relied on the data that was available to him and that he made necessary approximations to calculate lost profits. This is done in virtually every lost profits analysis ever performed: opinions regarding profits that did not materialize must be based on existing data because the but-for world does not exist. Reasonable approximations are the rule, not the exception. As the Supreme Court of California explained: The lost profit inquiry is always speculative to some degree. Inevitably, there will always be an element of uncertainty. Courts must not be too quick to exclude expert evidence as speculative merely because the expert cannot say with absolute certainty what the profits would have been. Courts must -12- PLAINTIFFS OPP TO DEFENDANTS’ MIL 4 EXCLUDING TESTIMONY BY WROBEL © o o J Oo Oot Bx Ww Nd DN DN DN DD DD DN DN DN DN DN =H H H H H Hl E e ww J Oo O t kx WwW ND H O © o N Oo O k s . w Nd = Oo not eviscerate the possibility of recovering lost profits by too broadly defining what is too speculative. Sargon, 55 Cal.4th at 775. To the extent that Defendants’ motion is based on objections to the factual Joundation of Mr. Wrobel’s opinions, including Defendants’ primary argument that his data set is supposedly flawed, nothing in the law alters the fundamental rule that the factual basis of an expert opinion “goes to the credibility of the testimony, not the admissibility, and it is up to the opposing party to examine the factual basis for the opinion in cross- examination.” Hose v. Chicago Northwestern Transp. Co., 70 F.3d 968, 974 (8th Cir. 1995); accord Southland, 108 F.3d at 1143 (“Technical unreliability goes to the weight accorded a survey, not its admissibility”) (citations omitted); Kannankeril v. Terminix Int'l, Inc., 128 F.3d 802, 807, 809 (3d Cir. 1997) (reversing exclusion of expert based on “insufficient factual foundation” and cautioning that the “trial judge must be careful not to mistake credibility questions for admissibility questions”). Of course, cross-examination on the reasonableness of the approximations is appropriate, as are competing calculations from Defendants’ expert, Brian Bergmark. On cross-examination, Defendants are free to try and show how any of the flaws it alleges would bias the results in favor of the Plaintiffs. See Evidence Code § 804(a) (“If a witness testifying as an expert testifies that his opinion is based in whole or in part upon the opinion or statement of another person, such other person may be called and examined by any adverse party as if under cross-examination concerning the opinion or statement.”); Buckwalter v. Airline Training Ctr., 134 Cal. App.3d 547, 553-54, (Ct. App. 1982) (“The reasonableness of an expert’s reliance is a question of degree, and may well vary with the circumstances. Where, as here, there is little or no direct evidence upon which the expert can base an opinion, the expert may have to turn to forms of circumstantial evidence on which he might not otherwise rely. In such circumstances, the necessity for the information dictates that courts accord to experts somewhat greater latitude in sources of information than might otherwise be the case.”). -13- PLAINTIFFS OPP TO DEFENDANTS’ MIL 4 EXCLUDING TESTIMONY BY WROBEL © o o J Oo Oot kx Ww Nd DN DN DN DD DD ND D N D N DN H H H H H el ww J Oo O t kr WwW ND H O © o N Oo O x Ww Nd = Oo Defendants are free to explore their purported objections to Mr. Wrobel’s testimony on cross-examination and can try in whatever ways permitted under the Evidence Code to convince the jury to disregard his conclusions. But they cannot convert that cross- examination into an exclusion motion that would entirely, and wrongly, deny the jury the benefit of Mr. Wrobel’s expertise. Accordingly, the motion should be denied. V. CONCLUSION For all of the foregoing reasons, Defendants’ motion should be denied. Dated: February 8, 2019 Respectfully submitted, Pierce Bainbridge Beck Price & Hecht LLP By: L, A- Douglas/S. Cufran ) Jeffrey R. Alexander Andrew Lorin Dan Terzian Cassie Black Attorneys for Plaintiff Adam DeVone -14- PLAINTIFF'S OPP TO DEFENDANTS’ MIL 4 EXCLUDING TESTIMONY BY WROBEL © o o J Oo Oot kx Ww Nd DN DN DN DD DD ND D N D N DN H H H H H el ww 9 Oo O t kr WwW NDM H O © 0 0 S , U x W d +H Oo DECLARATION OF DOUGLAS CURRAN I, Douglas S. Curran, declare as follows: I. I am counsel of record for Plaintiff Adam DeVone in this action. I make this declaration based upon my own personal knowledge. 2 Attached as Exhibit A is a true and correct copy of an excerpt of the January 17,2019 deposition of Peter Wrobel in this action. 3. Attached as Exhibit B is a true and correct copy of an excerpt of the January 25, 2019 deposition of Brian Bergmark in this action. 4. Attached as Exhibit C is a true and correct copy of the independent analysis regarding Kaiser’s market share (DeVone0000167). I swear under penalty of perjury under the law of the state of California that the | A / Douglas g Curran foregoing is true and correct. Dated: February 8, 2019 -1- PLAINTIFF'S OPP TO DEFENDANTS’ MIL 4 EXCLUDING TESTIMONY BY WROBEL EXHIBIT A 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 23 Confidential Peter Wrobel DeVone vs. J oy SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF ORANGE, CENTRAL JUSTICE CENTER ADAM DEVONE, an individual Plaintiff, VS. C 0 RONALD JOY, an individual and DOES 1 to 20, inclusive, Defendants. DEPOSITION OF PETER WROBEL Confidential Costa Mesa, California January 17, 2019 Reported by: Allison Adams CSR No. 13743 Job No.: 10050925 www.aptusCR.com Page 1 [© E E E N T ] 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Confidential Peter Wrobel DeVone vs. J oy Costa Mesa, California; Thursday, January 17, 2019 10:06 a.m - 1:53 p.m PETER WROBEL, a witness herein, having been sworn, testifies as follows: EXAMI NATI ON BY MR. CHAPIN: Q Would you state and spell your name for the record, please. A Peter David Wrobel, W-R-0-B-E-L. Q Okay. How many times have you testified in deposition? A About 300 times Q Well, we're going to forego the introductory comments. If you have any questions along the way, let me know but | suspect you're familiar with the process. Let me just ask you, are there any reasons you see that we should not proceed this morning? A No. Q Okay. You're not on any medications or anything that would impact your ability to provide your best testimony? A No. Page 5 www.aptusCR.com SH U T B A W O N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Confidential Peter Wrobel DeVone vs. J oy And there's no significance to 10, 20, 30 other than internal reference at your office? A Correct. Q What would you -- this first tab 10 is called analysis. Would you consider this to be the substance of your opinions that you're offering? A Well, yeah, that's the substance of it and then the other documents would be the basis of it, among other things, Q Very good. And we'll get into this in a bit. But is it fair to call this 10 analysis, would this be your report? A Yes, you could call it that, yes Q Okay. And then the support for the report is tabs 20 through 110? A Correct; although Tab 110 is actually a batch of documents that was produced earlier this week and it includes some correspondence and things like that. Q Very good. A Invoice and stuff [ike that. Q So just for clarification, Tab 10 would be your report and then Tabs 20 through 100 would be the support and backup for your report? A Correct. Q ls that fair? Page 9 www.aptusCR.com Confidential Peter Wrobel DeVone vs. J oy A That's correct. Oh, actually, | realize there was one document that may not have been produced. And it was -- it's in Tab 90. And it's a document from the Kaiser Family Foundation that just talks about health benefits. This is something that we pulled fromthe Internet and | believe | inadvertently did not send it to Mr. Alexander to be produced. Q What is the significance of this document under Tab 90, the premium support? A I't just provides background information about premium, what annual premiums cost. It's not used for anything other than just background information. In other words, a number from here is not pulled forward into the damage model. This is -- again, just provides some information, Q Is there anything specific from this employer health benefits document dated 2018 that you relied on in preparation of your Tab 10 report? A Well, I''m not sure | relied on it as much as it's something | considered for background information, And there's nothing in this report that's actually utilized within any report. In other words, there's not a number that's pulled in the analysis. | just wanted to see what Kaiser's average annual cost of healthcare plan was just to see if it was consistent with the information Page 10 www.aptusCR.com Confidential Peter Wrobel DeVone vs. J oy | received from Mr. DeVone and his staff. Q There is a handwritten note on the first page of this document, Employer Health Benefits, that says, in part used A used a Va , per Miles to be conservative, 10,000 per year was for the model. What does that reference? Well, in the model, that was one of the things for the basis for my report. There is a -- there's riable that has to do with the annual cost of a healthcare plan, and myself and my staff, we talked with Mile Mr. Q A In f Ss. Miles is an individual that worked for DeVone. What's his last name? | don't recall. It may be in there somewhere. act, it's in the -- there's some e-mail reference. | can tell if you I looked at it at what his [ast name was. In f Q A Q what Acri A BXA. that act, | think it may be there. Anderson? Miles Anderson, yeah, Before you go on, and | do want to finish, but is Miles Anderson's role with Mr. DeVone or BXA or sure, if you know? My understanding is, is that Miles works for | don't know his job title but he is an individua performs the financial modeling and the individual Page 11 www.aptusCR.com Confidential Peter Wrobel DeVone vs. ) oy 1263? A | did, Q And that's in the red at the top of the sheet? A Yes. Q Why did you add that? A Because the -- what | did was | took Mr. Anderson and DeVone's spreadsheet and modified it slightly to reflect what would happen if Kaiser revenue was included. So it's essentially the same type of it's essentially the same spreadsheet with some modifications that myself and my office made. Q What other modifications did you make other than adding "with Kaiser revenue"? A Well, there's some adjustments to the medica override and there's an add -- | mean, there's a line added under override by medical carrier, percentage of premium | think it's also in yellow on your document So those there are the two changes that | made. So | added a line here for Kaiser. And the medica override then changed once you added Kaiser to it. Q Ot her than that, the entirety of DeVone 1263 was prepared by Mr. Anderson? A Well, to some extent it's a spreadsheet model If you make a modification like I did, that flows through the entire model. So it's not the same numbers. In the Page 16 www.aptusCR.com No oOo WOW 0 N N oO o T B= o w R O PR O RN N N N F F F FP F P P E e o r E w N D P O © 0 0 N N o Y U T P E W N Y Confidential Peter Wrobel DeVone vs. J oy most cases, the numbers are very different once you make those modifications. But the -- | guess the, you know the infrastructure -- the structure of the spreadsheet is identical. Q Who prepared this model originally? A | believe Mr. Anderson and Mr. DeVone. Q What is the purpose of this model, as you understand it? A The original model? Q Correct. A Oh, it's -- the original model is a -- is a spreadsheet that was prepared to determine the projected -- the -- Mr. Anderson and Mr. DeVone's understanding of how the business model would work with respect to revenues and expenses over time and the generation of profit into a commission pool or the generation of a commission pool. Yeah, that's what it Was. MR. CHAPIN: So first of all, I -- Counsel, | need to know if the original spreadsheet was produced because that appears to be a source document for Mr Wrobel's actual model that he finalized by his own inputs, and if it was, | can't find it in the packet either from Mr. Wrobel, and if it wasn't, then I'd [ike to have a copy of that. Page 17 www.aptusCR.com c o ~~ o O U r B a w 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Confidential Peter Wrobel DeVone vs. J oy of documents. I'm just saying that what was produced -- what | sent to Mr. Alexander was Tab 20. Q Got it. Now if we go to Tab 30, go to the second page of Tab 30, will the original that you were provided -- well, let me back up. Tab 30 is what you were provided from Mr. Alexander, Mr. Anderson and Mr. DeVone; correct? A Yes. Q They did a model to figure out what they thought the commission pool revenues would be had the Kaiser contract been secured; is that fair? A Well, no, no. They did a projection without the Kaiser contract in July of 2018. That's the note Tab 30 is. Q So 30 is a projection without Kaiser? A Correct. Q You then took their model and included Kaiser to come up with the damages opinion you're offering in this case? A In part, that's what | did, yes. Q What information did you obtain and apply to the Tab 30 model in order to come up with your Tab 20 model that leads to your opinion? A Well, there's various documents that | utilized Page 19 www.aptusCR.com Confidential Peter Wrobel DeVone vs. J oy to look at that that's contained within this binder. The employment agreement, the book purchase agreement, some information that was utilized to create a capitalization rate, information that's been produced. I'm looking at, for example, the -- an ASK letter from BMM to Kaiser, January 11th, 2018, that has a Bates number of DeVone 335. Well, | have a packet of information that | utilized to make an adjustment from Tab 30 to the Tab 20. There's some information relating to bswift that's Tab 80. It's DeVone 762 through 767. There's some information about Kaiser that we talked about that | do not believe was produced, the Employer Health Benefit. There's some other information about Kaiser that has been produced at DeVone 167 through -- well, it's DeVone 167. There was an e-mail that was produced, DeVone 742. There's some information about Acrisure. | know this was produced. | sent this to Mr. Alexander So these are documents that help provide the basis for the assumptions that | used to convert Tab 30 to Tab 20. Q At any point in time in the preparation of your opinions in this case, did you speak with anybody at Kaiser? Page 20 www.aptusCR.com 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Confidential Peter Wrobel DeVone vs. J oy A No. Q Are you offering any opinions related to liability in this case? A No. Q Are you offering any opinions in this case related to causation? A No. Q If you could briefly summarize the scope of the opinions -- not the opinions themselves, but the scope of the opinions that you're offering in this case, how would you describe it? A amo u Mr. wi th Acr Q Well, what I've done is I've calculated the nt of the -- the delta of the commission pool that DeVone would be entitled to participate in with and out the participation of Kaiser as an option in the sure business model Do you have any understanding as to why you were asked to do that? conc ther out | Mr. on t MR. ALEXANDER: Objection. Calls for a legal lusion. THE WITNESS: My only understanding is that e is a dispute between Mr. DeVone and Mr. Joy that is ined in the complaint, and there are allegations that DeVone is not able to offer Kaiser because of actions he part of Mr. Joy and other defendants. Page 21 www.aptusCR.com Confidential Peter Wrobel DeVone vs. J oy BY MR. CHAPIN: Q When you say offer Kaiser, what do you mean? A Well, the -- what Acrisure -- what BMM does is it allows participants in medical plans to select different options; one of those options Mr. DeVone was planning to do was to offer Kaiser. He's not able to do that. The reasons why he's not able to do that are, however, what |'ve believe, the subject of the lawsuit; done is calculate what the amount of the commission poo would be with and without Kaiser and to the extent well, it's higher if he was able to offer BMM was -- excuse me -- Acrisure was able to offer Kaiser and I've measured what that number would be. Q Couple of times you've said BMM and then Acrisure. Who is it that you understand would be offering Kaiser under your description you just provided? A Well, legally, again, I'mnot quite sure how it but | Acrisure, but don't still it acquired BMM. Q Well, works out, believe BMM has been acquired by |'m assuming BMM is still in existence. | know. So it would be BMM or Acrisure after BMM, it doesn't is that fair? whether it's Acrisure or matter for purposes of your calculation; MR. ALEXANDER: Objection. Mischaracterizes the Page 22 www.aptusCR.com 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Confidential Peter Wrobel DeVone vs. J oy Mr. DeVone. Q A Where did the costs from come? l'm sorry. Where did they come from? What type of costs are they? Q |'m sorry. Where did you get the cost information? A Q A Q Well, in part, fromthe Tab 30. The model they prepared? Correct. What did you do to independently verify the cost information they provided in model 30, if anything? A Well, some of the costs -- no. There were -- for example, there were direct expenses related to the hswift software system | reviewed the documents that supported that. | also had discussions with Mr. Anderson and Mr. DeVone about the direct operating expenses. And, those in my opinion, were reasonable costs associated -- direct Q costs associated with it. Where is the direct cost allocation on -- let's go to exhibit or Tab 20. And this is DeVone 1263 that we tal ked about earlier. Where on this spreadsheet is the cost allocation for the commission pool? A Well, the direct costs are at the bottom Page 27 www.aptusCR.com C o O ~ ~ o O U r B a w 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Confidential Peter Wrobel DeVone vs. J oy though, BY MR. CHAPIN; Q Okay. The reason | ask is | want to understand, did you have some comparable platformto go out and say here's a company that has a similar platform and this is the revenues they're generating so you can cross-check the work that you were doing on the BMM model? A | did not do that. Q Were you asked to do that? A No. Q Did you think to do that and not do it for some reason? A No. | mean, that's certainly an approach that could be taken; however, | don't believe it was necessary or appropriate in this particular case Q Why wouldn't it be appropriate? A Because the model that | utilized, which is -- the model you're describing is typically called a yardstick model. That's appropriate in certain circumstances. | believe the method that | used, which was to compare the business model with and without Kaiser, is more appropriate and will derive a much more accurate number than a yardstick approach. Q With respect to the model that you used, you Page 45 www.aptusCR.com = ww N e oOo WwW 0 N N oO o u i 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Confidential Peter Wrobel DeVone vs. J oy don't call it a yardstick. What was the name for your model ? A There's no term of art. It can be called, like, a before and after or a but-for type model where you're taking a look at something with and without a particular variable. And that's what | did Q And the information that you used to determine what the model would look like without Kaiser was provided to you entirely by Mr. DeVone and Mr. Anderson; is that right? A Yes, although | was also provided with documentation that supported some of the assumptions in that model Q And you were provided that information from Mr. DeVone and Mr. Anderson? A And -- by Mr. DeVone, Mr. Anderson and also for example, the documentation about bswift, cost, that sort of thing. Q Did you do any independent -- or anybody at your office do any independent analysis to determine what participation level there would be across the country at these Acrisure offices if BMM actually had this platform up and going? A Well, | was provided with information about Kaiser, the relative size of and importance of Kaiser Page 46 www.aptusCR.com [ © E E E - §' | oOo WwW 0 ~ N oOo 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Confidential Peter Wrobel DeVone vs. J oy relative to other insurance companies. And |'m aware that Kaiser is a very significant player in this market. | did rely on discussions | had with Mr. DeVone about what the participation rates would be if Kaiser in fact was going to be offered by the platform Q Setting aside Kaiser, did you do anything to independently verify the participation of anyone, any quantifiable number of participants in the BMM platform, actual users? A Well, no. But other than in a general sense that, in my opinion, the fact that BMM had been purchased by Acrisure is an indication that a -- that the under that there is a value associated with BMM and its projections about expected revenue. So this is not a startup business. This is a company that was purchased by another company that is -- that provides the same sort of services. So that always acts as a check on my analysis that there were other people that -- you know, that participated in this looked at these numbers, or looked at other numbers, looked at something that thought that this was a business model that would be successful. Q That BMM was the business model that would be successful? A Yes. Page 47 www.aptusCR.com c o ~ ~ o o o r B a Ww 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Confidential Peter Wrobel DeVone vs. J oy materially different than what I've calculated. The only difference has to do with the discount rates and the capitalization rate. Q Since the break we took this morning when | had asked you about whether or not the BMM platform has begun, have you got an answer to that question as to whether or not there is a BMM platform in place now? A No. Q So explain to me -- I'm looking at now a mirror image except mine's not in color of what's in your hinder behind Tab 10 so I'm on page 1, schedule one and this is page 10.1, This shows a summary of how you got to the 3.5 million number; right? A Well, it shows what the numbers are. It doesn't really show how we got to it. Q Right. So that -- | want you to explain to me first, generally speaking, the methodology to come up with these numbers and then we'll go into the five years and then the one that's the permanent number. A Well, essentially what I've done is, using the underlying data including Tab 30, ['ve took Tab 30, the model, and modified it to reflect what the impact would be if Kaiser was part of the platform Once I've done that, it's -- the numbers flowed Page 70 www.aptusCR.com =~ o w w u n Confidential Peter Wrobel DeVone vs. J oy through to schedules that | created trying to determine what the commission pool was. And that involved -- well the first step was based on the model without Kaiser was to determine what the commission pool would be. And the commission pool is based on both renewals and new customers. There's a different formula depending on if it's a new renewal So the first step was to break out the FTE, which is the term they use, full-time employees, that participate in the program break them out between new and renewals. And once | was able to do that, then | calculated what the amount of the commission pool was. There was a third step, though, was to take a look at whether or not the expense threshold of 70 percent was -- wait -- that the expenses did not exceed 30 percent to see whether or not the commission pool would actually come into play on an annual basis. So, and in all cases that happened. So what | did is the first step was figure out, okay, what would be the commission pool without Kaiser. Then | performed essentially an identical calculation but with Kaiser, and then looked at the delta between the two. That's the measure of the lost commissions. Then |, for the first five years, discounted those amounts to present value. Page 71 www.aptusCR.com o r B w oOo WwW 0 ~ N oO 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Confidential Peter Wrobel DeVone vs. J oy And then the final step would be to take the year five differential, calculate -- figure out what it would be for year six and then capitalize that number to determine the permanent impairment after year five and then added the two numbers together Q If you have an understanding, under Mr. DeVone's employment agreement, which is where you get the commission pool concept, when does the commission pool does that begin in year one of his employment, year two, or is there a certain time period that it gets triggered? A Well, it gets triggered when the -- if, on an annual basis, the direct expenses are less than 30 percent. Q And that's from year one? A Yeah, could be year one, whenever it happens. But | don't believe it -- again, ['mnot a lawyer, ['m not interpreting the agreement. But that's my understanding of the way the commission pool would be funded is when and if that condition is met. They cal it the margin. Q |'m going to hand you [Exhibit 116 which is Mr. DeVone's employment agreement with Acrisure of California. (Exhibit 116 was marked for identification by the court reporter and is attached hereto.) Page 72 www.aptusCR.com o O U T BE W N Confidential Peter Wrobel DeVone vs. J oy Q | guess what I'm trying to understand is to what extent you relied on his expertise in preparing this model or if you did anything to verify that the manne preparing this model by Mr. Anderson was appropriate, appropriate enough for to you rely on as an expert? A | guess I'm not quite sure | understand your request. If you're asking me, we looked through the model to see if it was correct, if the math worked, a it does. It's a very sophisticated model. And we checked to see whether or not that the numbers made sense, you know, mathematically. | already testified about the certain portions of it, you know, to the extent that | could verify or appeared reasonable on my basis. | looked at that. guess I'm not quite sure of your question, Q Okay. Let's take a look at the model under Tab 30 that was provided to you by Mr. Anderson. Which portions of this model were you able to verify? A Well, the override percentages. Q Where is that? A If you -- Q On the right side? A On the right side where it says override by medical carrier and by ancillary carrier and then the r of nd www.aptusCR.com Page 79 = Ww O W 0 N N o o u n 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Confidential Peter Wrobel DeVone vs. J oy text subsidies, | believe those were all verified from third-party documents, Q What does override mean in this context? A That's the percentage that goes into the commission pool subject to the conditions of paragraph 2 of Exhibit B. Q Okay. So aside from that, what else were you able to verify in terms of the inputs either by category or number on this model? A The bswift numbers, | think we talked about also at the bottom of paragraphs -- or I'm sorry -- the left-hand column, the 350 and the 1.50, | believe, or at least the 1.50 Q Okay. Just to he clear, so you were able to verify the 1.50 per user on a monthly basis charged by bswift? A Oh, that was verified through a -- oh, an e-mai from Mr. Anderson to an individual an at Acrisure, Mr. Vatikiotis Q What Bates number document are you looking at? A Oh, I'm sorry. 742, DeVone 742 So that number is consistent with numbers within that e-mail And | did look at the operating expenses and the salaries that are at the top -- sort of the top of the Page 80 www.aptusCR.com = o w Co O ~ N o o wu 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Confidential Peter Wrobel DeVone vs. J oy left column and the right column. And based upon the discussions | had with Mr. Anderson and Mr. DeVone about the operations, those are certainly consistent with my experience [ooking at insurance, general agencies and professional service companies as to what those expenses would be. Q Okay. And we covered earlier the Acrisure offices. Did you confirm that there was 114 offices? A Yes Q Okay. But as far as the participation rate, you got that information from Mr. Anderson or Mr. DeVone; correct? A Correct. Q And that's not verified by anybody in an e-mail from Acrisure in your documents? A The e-mail, this is DeVone 742, verifies a lot of the information. It talks about how -- from Mr. Anderson's perspective how the model works and the assumptions they were using. So there's a lot of information in this one particular e-mail that talks about how the model works Q Can you hand that to me out of the binder just so | can look at it. A Sure. www.aptusCR.com Page 81 S h U r BA B wW w N D = 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Confidential Peter Wrobel DeVone vs. J oy Q We didn't get that far in our copying just now. So you've handed me DeVone Bates-numbered 742. It looks like all three pages are labeled DeVone 742. But in your binder, it's 100.1, 100.2 and 100.3. And this e-mail exchange is between Mr. Anderson and a Sozon. Do you know how to pronounce this last name? A | don't. Q Okay. For the record it's V-A-T-1-K-1-0-T-1-8, And you never spoke with that person; correct? A Correct. Q This e-mail is from July 2018 in which he's providing information to Mr. Anderson? A That is correct. Well, it's between those two individuals. Q So where is it that Mr. -- that -- | see, So the e-mail that you were referring to is verifying all of this information, or a lot of the information, is the July 25th 7:45 e-mail from Miles Anderson to Sozon? A Correct. That particular document is an e-mai chain. So | think it goes fromthe 25th of July to the 28th maybe. Q Do you know whether or not Sozon actually ever confirmed that all of the information in Mr. Anderson's July 25th, 2018, e-mail was correct in his view? Page 82 www.aptusCR.com oO o O W 0 NN o Y U T B A E w W w N y N O N D N D N D N N N N = p = p = p = = a = = o r BE Ww N D E O WwW 0 0 N N SOY U T E W N D E Confidential Peter Wrobel DeVone vs. J oy A | don't know if he did or not Q Okay. | just wanted to be clear, because earlier | thought you had testified that the information had been verified by Sozon in this e-mail exchange, but it seems to me that there's an exchange going on and the information's provided by Mr. Anderson. So | just want to make sure | understand your testimony. MR. ALEXANDER: Objection. Mischaracterizes the testimony. THE WITNESS: I'm sorry. | misspoke if | said that Sozon verified it. | think this speaks for itself. This is Mr. Anderson providing information to Mr. Sozon. BY MR. CHAPIN: Q Okay. So going back to Tab 30 and Document 30.1 in your binder. Aside from the operating expenses, salaries, the override numbers and the bswift monthly amounts that you were able to verify, or that you believe was consistent with practices when it came to the operating expenses and salaries, was there any other information or inputs on this model that you were able to verify? A Yeah, other than what I've already testified to, no Q So with respect to the projected new companies per year, you didn't do anything to independently verify Page 83 www.aptusCR.com Confidential Peter Wrobel DeVone vs. J oy the numbers for each of the five years; is that fair? A Well, yes. They're projections. | mean, it's based upon a ten percent growth in Acrisure offices through the model. But that hasn't happened yet so -- that's my understanding of what is expected but there's nothing to verify because it hasn't actually happened yet. Q Who is the person that came up with that projection? A Well, I'mnot sure who came up with it. | was told by Mr. DeVone and Mr. Anderson that that's what they expected to happen. Q When you say "they," what Mr. DeVone and Mr. Anderson expected? A Well, yeah, those two individuals. Maybe other people did too. | don't know But that's who told me that they believed that there was going to be a ten percent increase of Acrisure offices. Q And that was as of July of 2018? A Correct. Q Did you do anything to check as of December 2018 if there had been any growth in the Acrisure offices that was consistent with a ten percent estimate on an annual basis? Page 84 www.aptusCR.com 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Confidential Peter Wrobel DeVone vs. J oy A No. Q Let's go on to projected new FTE users per year. These numbers, again, were provided by Mr. DeVone and Mr. Anderson and the ten percent increase was what they told you they expected? A Yeah, | mean, the numbers were provided, but they're a function of the -- you start with the 114 offices and two companies per year and a ten percent growth rate, then it all flows through with the number of companies and number of users. Q Did you do anything to go back and determine the Acrisure growth rate at any time leading up to July 2018? A No. Q Do you know whether or not they were growing at a ten percent rate? A No. Q Do you know if they were growing at all? A No. The ten percent is based on the expectation with the BMM platform, what the growth would be after that is implemented. Q What if the growth was five percent, would it impact your opinions in this case? MR. ALEXANDER: Objection. Incomplete hypothetical. THE WITNESS: Yes. Page 85 www.aptusCR.com B= ww N e Peter Wrobel Confidential DeVone vs. J oy office, you talked about that earlier. But where did that number come from? A Well, that came froma review of what the actua overall national averages were at Kaiser and then further discussions with Mr. Anderson and Mr. DeVone about what they -- they believe that the range was between 10- and $12,000, but at a minimum it would be at least $10,000. Q Where did you get the national average? A That was from the Kaiser document that we looked at earlier. Q Who provided that to you? A |'m pretty sure we found it ourselves. | don't know whether or not Miles had it. | just don't remember if we got it from them or they told us about it or we found it Q was from the ASK? A Q Mr. DeVone and sent to Kaiser? testimony. The $10,000 per year premium average, | think on our own. The Kaiser 1.5 percent override, you said that The ASK, That's a document that was prepared by MR. ALEXANDER: Objection. Mischaracterizes the THE WITNESS: It's the document that's DeVone Page 90 www.aptusCR.com = ww N e o n Confidential Peter Wrobel DeVone vs. J oy Q Where did the Blue Shield .75 percent number come from that's right under it? A That comes from a document which is 70.27. That is DeVone 428. And that -- well, that's a document involving Blue Shield. It looks [ike it's DeVone 407 through, it looks like, 34. Well, it's DeVone 407 through DeVone 435 and numbered 70.6 through 70.34 in my binder. It's entitled Blue Shield of California Genera Agent Agreement. Q Do you know what that document is? A It's a general agent agreement. Q Have you read it? A "ve looked through it. Q You're using that document to come up with the . 15 percent override? A That's correct. Q Are you the one that determined that based on that document, that .75 was the appropriate number? A Well, no. The .75 was in the model. | then asked what was the source of the .75 and was provided -- was told it was the Blue Shield of California Genera Agent Agreement. I've looked at that and | noticed that Attachment 3.1 of that agreement, that every number is 75 and I've been told that is the source of where the 15 came from Page 92 www.aptusCR.com o r B B E W w W N D c o ~ ~ oO 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Confidential Peter Wrobel DeVone vs. J oy Q that A date it's Q Mr. by B A Q A Q make if t Aetn A bene amen prov ente assu Q Aetn do you know? In other words, is that an actual override Is that an agreement that's actually in place, is being paid by Blue Shield? | don't know. It's the -- it is an agreement d June Ist, 2017. I'm assuming it's in place because signed. |'m sorry. Did you ask either Mr. Anderson or DeVone if that's the effective rate that's being paid | ue Shield? No, | did not ask that question, Okay. But did you make that assumption? Yes. Okay. There's also an Aetna number and this s reference -- or there's a reference point of 70.5, hat helps you find. My question is where did the .75 come from for a? That comes froma document DeVone 339. It is a fits matchmaking LLC small group key producer dment to an Aetna producer agreement, and | was ided with this one page that was -- looks like it was red into in January 31st. Well, it says 2008. I'm mong that's 2018 and February 5th, 2018, by Aetna. Are you aware specifically of whether or not a is paying an override of .75? Page 93 www.aptusCR.com 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Confidential Peter Wrobel DeVone vs. J oy A | don't recall if I did or not. Q Do you know why Kaiser did not enter into the agreement that Mr. DeVone was asking for? MR. ALEXANDER: Objection. Outside the scope of the representation. THE WITNESS: Well, I know that the -- there are allegations of defamation, which is what this case is about. | don't -- again, | don't have an opinion as to causation or liability. BY MR. CHAPIN: Q And other than what you understand to he the allegations, you don't have an understanding and have never been told why Kaiser didn't enter an agreement that Mr. DeVone was asking for? A That is correct. | was provided with a series of e-mails which were produced earlier indicating an ongoing conversation between Mr. DeVone and Kaiser that ultimately -- that -- well, at the end result was that Kai ser ended up not going into -- participating in the platform Q You weren't ever provided a copy of deposition transcript for Thad Roake, were you? A No. Q Do you know who Thad Roake is? A No. | may have at some point come across his Page 95 www.aptusCR.com = ww N = o n Confidential Peter Wrobel DeVone vs. J oy For purposes of what fit under subsection B, renewal, was that again information that was provided by counsel and Mr, DeVone for purposes of your assumptions? MR. ALEXANDER: Objection. Mischaracterizes the testimony. THE WITNESS: Yeah, if | understand your question, the interpretation of the contract -- which again, | believe that the 30 percent applies to renewal -- was provided by counsel and Mr. DeVone, but, again, | think it's obvious that's what it means but, again, | don't have an opinion about that. The renewal percentages are based upon an attrition rate that was provided to me of ten percent. So in other words, if you have new customers the first year, the assumption is that you're going to retain 90 percent of those customers the second year. And in fact, the math doesn't quite work out but it's roughly about ten percent decline is what's going to happen. BY MR. CHAPIN: Q And as far as the numbers that you put in for new business and renewal business, that's information that you obtained from either counsel or Mr. DeVone or Mr. Anderson? MR. ALEXANDER: Objection. Mischaracterizes the testimony. Page 98 www.aptusCR.com Confidential Peter Wrobel DeVone vs. J oy THE WITNESS: Yes, in a sense that the numbers of new FTE users are based upon some of the assumptions that we already talked about, about the number of Acrisure offices, the number of company -- the number of customers under the platform, the number of FTEs under for a company. So once you do that, then you can multiply what the FTE is for the first year. And then you can -- you just run through the calculation as to based upon the new FTEs coming in and the renewals based on the attrition rate what the 40/30 split is. BY MR. CHAPIN; Q Do you know whether or not the platform existed hefore BMM was acquired by Acrisure? MR. ALEXANDER: Objection. Vague THE WITNESS: The BMM platform? BY MR. CHAPIN: Q Yes. A | don't know. Q When | use the word platform |'mtrying to adopt the words that you've been using today. And so I'm stopping here 'cause | want to make sure we're on the same page. For purposes of determining the commissions that go into the commission pool, you're assuming that Kaiser Page 99 www.aptusCR.com c o ~ N o o o r B B W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Confidential Peter Wrobel DeVone vs. J oy A There is a document, | believe, that was produced. Q City is fine. If you remember. Well, Acrisure is all over the place Right. | mean around the country. A Q A Q Right. That's what I'm trying to figure out. A Q m, Oh. He's referencing here "vetted by the operating tea and I'm wondering who that operating teamis, if you know? A | don't know Q All right. Number three? A Let's see. That refers to the projected new companies per year and FTE users per year "Per Miles Anderson, these amounts were reviewed and analyzed by BXA vice president and principa John Gregory for reasonableness,” and then see 100.4, which -- oh, that also just has some general information about Acrisure. Q Did you talk to Mr. Anderson about number three? This seems to be some pretty critical information in the report in terms of the projected growth and the numbers and that information appears to have come from Mr. Anderson. Page 103 www.aptusCR.com [ © E E E - §' | c o ~ ~ o O 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Confidential Peter Wrobel DeVone vs. J oy MR. ALEXANDER: Objection. Vague. THE WITNESS: Well, actually, what the footnote says is it came from discussions with -- Mr. Anderson's discussions with Mr. Gregory. BY MR. CHAPIN: Q So the footnote says "these amounts were reviewed and analyzed by BXA vice president and principal John Gregory for reasonableness.” Is it your understanding that Mr. Gregory actually came up with these figures or, as the note says, he simply reviewed them for reasonableness? Do you know? A Well, that's what we were told, that he reviewed them | don't know whether he came up with them and then reviewed them subsequently to that or he did not come up with it and then reviewed them after somebody else had. Q Do you know, as you sit here today, who came up with these numbers, whether or not it was Mr. Anderson or Mr. Gregory? A My understanding, again, is that these were -- this spreadsheet was created by Mr. Anderson in conjunction with Mr. DeVone. So my assumption is that Mr. DeVone -- or Mr. DeVone helped develop them but that's all | know, Q Other than the assumption you just testified to, you don't know who actually came up with these numbers; Page 104 www.aptusCR.com Co O ~~ o O o r B a w 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Confidential Peter Wrobel DeVone vs. J oy is that fair? A Correct. Q Were you ever shown any backup data or any source documents to support the figures under the projected new companies or projected new FTE users? A | don't believe so. Q Are you -- A Other than what |'ve already talked about. Q Are you aware of anybody at your staff as -- I'm sorry. Strike that. Are you aware of any of your staff ever being provided source documents or backup data to support the information under projected new companies and projected new FTE users? l'm not aware of that. Where is number four salaries? Salaries What does that note tell us? = oOo rr oO o x= "Estimates based on BXA operations using bswift, The programis reportedly very automated and does not require significant manpower for day-to-day operations, per Miles Anderson. No market benchmark was available for comparison.” Q What do you understand this to mean? A Well, again, the description of how this mode Page 105 www.aptusCR.com Confidential Peter Wrobel DeVone vs. J oy would -- or how the business would work, because it's so heavily automated would -- you know, based on my experience, | think these salaries appear reasonable. Miles Anderson also said that he believes this is what the amounts would be or the model -- Miles Anderson and Adam DeVone believe these were reasonable amounts as what the monthly salary of staff people would be under the BMM model Q Is Mr. Anderson an Acrisure employee? A | believe he is a BXA employee. |'m not positive about that but | believe | was told that Q Do you know whether or not Acrisure owns BXA? A | may have known at some point. | don't know though, Q Do you know what his title is? A Again, | may have known at some point. | don't know. | don't recall. Q Do you know what Mr. Anderson's background is? A No. Q | take it that since you're offering an opinion in this case based largely on information provided by Mr. Anderson, you are confident that he has the capabilities and the background to provide you the type of data that you're relying on; is that fair? MR. ALEXANDER: Objection. Vague. Calls for Page 106 www.aptusCR.com = W N Confidential Peter Wrobel DeVone vs. J oy Q And so to that extent, these are a best guess or an estimate of what the appropriate staff salaries would he? A Yeah, | don't believe it's a guess. | believe this is the estimate of what they would be Q Without a comparable benchmark, though? A Yes, | mean, in cases -- you know, in certain cases, if comparable benchmarks exist, it's a useful too for the individual, such as myself, evaluating damages to use. Where there is no comparable benchmark, particularly in a case like this where there just isn't one, there's nothing to compare. Q Okay. Note five? A Note five deals with the incremental marketing and administrative expenses at the bottom of the left-hand column. It says "BMM marketing would be to captive Acrisure offices that would be encouraged or required to use the BMM platform" Q Who provided this information? A Mr. DeVone and Mr. Anderson. Q Who at Acrisure confirmed, if you know, that Acrisure offices would be encouraged or required to use the BMM platform? A | don"t know. Q Do you know how many employees Acrisure has? Page 108 www.aptusCR.com Confidential Peter Wrobel DeVone vs. J oy Q What page is that? A Oh, I'"msorry. 10.8. Q Got it. A What this does is it calculates new and existing FTE users, and the purpose of all of this is because of the 30, 40 split, it's necessary to -- we know with the new FTE users, it's important to figure out how much -- after an FTE user is there, how many renew And so the first -- for year one, which comes from 20.2 which is the second page of Tab 20, the -- it says year one and it talks about the total FTE users, the final column, 13,070. So there's actually a number of new users but there's an attrition factor built in to it so you end up with 13,070, Q While you're on that page, who prepared this spreadsheet? A Mr. Anderson. Q Okay. Go on. A Okay. So that is the first year, the 13,070 flows into page 10.8. Q Who prepared 10.8? A Mr. Pohlot from my office under my direction. So figuring out the net FTE -- existing net FTE users, which it has to do with the renewal calculation, Page 111 www.aptusCR.com Confidential Peter Wrobel DeVone vs. J oy you subtract column A from B. Now, in the first year everybody is new so there's no renewals. The second year, if you go back to 20.2, if you look at year two, this is done on a monthly basis and then the final column is totaled. So it shows what the new users are, 15,000. You're losing ten percent or a little -- it's around ten percent on a monthly basis. And then you have new users of 13,124. And you add those together, you get 26,286. And that number flows forward to 10.8. It's on year two. The 26 -- Q All right. So it looks like, if we follow down 20.2, we can follow how these numbers are populated on 10. 8? A Correct. Q Now, for all of the data input into 20.2, all of this data was input by Mr. Anderson? A Correct. Q Did you look at any source documents or ask for any source documents for where he came up with these figures? A Well, no, there wouldn't be any. This, again, is based upon the projections that are incorporated in the assumptions and variables on 20.1. So the way the numbers on 20.2 are calculated is based upon -- it's just Page 112 www.aptusCR.com =~ o w w u n Confidential Peter Wrobel DeVone vs. J oy A Yes, Tab 30 entirely was prepared by Mr. Anderson and Mr. DeVone But if you look at the 30.25, this shows the consolidated profit and loss projected income statements, and key numbers are the total income from operations and the total cost of goods sold. Those numbers from 30.25 are carried forward to 10.7. And then that's column E. Then what you do is you -- actually, I'msorry. The cost of goods sold are not. It's just the revenue right now. So what we've done is we've multiplied column E by the percentages on C and D and the reason is that we know what the gross revenue is. This is breaking it out between new and existing -- new and renewal customers So that's what we've done here. Schedule six is also an analysis without Kaiser and the purpose here is to figure out two things: One, what is the commission pool, and number two, whether or not that commission pool is going to be paid to -- it's -- well, you calculate the commission pool and then whether or not that commission pool will be paid to Mr. DeVone. They're subject to the amount that Mr. DeVone is entitled to. Q When you say that, you're assuming that he's Page 114 www.aptusCR.com o r E w w NN OO WOW oO o ~ N oO 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Confidential Peter Wrobel DeVone vs. J oy A Correct. Q Where did these -- these were all estimates; correct? A Yeah, they're projections on what's expected to be made. Q Who are the carriers that are involved in these projections since Kaiser is not? A lt would be Blue Shield and Aetna. Q Did you do anything to verify the projections for Blue Shield and Aetna that are included in 10.6? A No. Other than what ['ve already testified to. They're all based upon the models constructed by Mr. Anderson and Mr. DeVone Q And as of today as you sit here, you're not aware if Aetna or Blue Shield has ever paid any money that would end up in the commission pool; is that fair? A Correct. Q All right. So we've now covered how you got to the five-year analysis. Can you walk me through what you did for the permanent impairment? A Sure. It's two steps. The first step is on schedule two. Is so -- well, actually, you have to go to page -- schedules nine and ten. And what |'ve done is, again, the Tabs 20 and 30 only show projections through Page 117 www.aptusCR.com o r B w oO © c o ~N oO 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Confidential Peter Wrobel DeVone vs. J oy years one through five. They don't show any additional -- anything beyond that | had discussions with Mr. DeVone, and | bel it was Mr. Gregory, that if Kaiser is not -- without Kaiser, there is a permanent impairment in his busine model . Q Did they explain why? A Yeah, because they make more money with Kaise If Kaiser is out of the picture, you can see the impa years one through five. That impact is going to cont in the future. Although they're under the -- even un gve SS r, ct inue der the Tab 30 model, they're going to make money, they would just make more money if Kaiser participated. Q | don't mean to interrupt. | just want to understand when you say permanent -- ‘cause we're goi to get into how you calculated this -- permanent is i perpetuity, forever? A Yeah, | mean, for all intents and purposes, is; however, the selection of the capitalization rate essentially limits it to a finite period of time. | mean, there's different ways of looking at it, but essentially, if you use a -- for example, a 25 percen cap rate, that's four years of whatever it is you're looking at, four times of the number that you're capitalizing. A 20 percent cap rate is five times. ng n t t www.aptusCR.com Page 118 Confidential Peter Wrobel DeVone vs. J oy Q Uh-huh. A So froma finance perspective, even though you can look at it as going out in perpetuity, essentially cap rates are limited based upon what they are. And so a 20 percent cap rate is essentially five additional years. Q What cap rate did you use here? A 19.62 percent. Q And you are looking at 10,2? A 10.2. Q How did you arrive at 19.62 for your cap rate? A That's shown on schedule three. This is a typical -- well, it's called different things. But it can be called a build-up rate where you're looking at the risk associated with certain types of investments and then -- that are sort of in a generic investments and then you make some adjustments for the fact that that information is primarily on an after-tax basis So you have to make a tax impact effect and you also need to consider the specifics of the transaction as to whether or not there should be some sort of specific adjustment for the company itself and that's what schedule three does. The source of the first three numbers, it was provided to you. That's a publication called Duff & Phelps. That provides the percentages. Page 119 www.aptusCR.com c o ~ N o o u i BA Ww 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Confidential Peter Wrobel DeVone vs. J oy And then if you flow through the formula, you end up with 19.62 percent. So essentially, it's very close to a 20 percent cap rate Q Okay. So for the permanent calculation, you went into year six using similar models that took you from year one to two to three to four to five, and then from year six, you applied a cap rate to come up with your opinion that the permanent number is in the $2.2 million range? A Correct. Q Okay. Let's go off the record. (Brief recess was taken.) BY MR. CHAPIN: Q When did you finalize your opinions for this case? A Boy, they were probably finalized last night or yesterday. Q What were you still working on yesterday? A No. I'msorry. My opinions were finalized earlier in the week when | provided the set of the documents to Mr. Alexander. So probably what Monday night, | think. Q So what were you referring to yesterday that you were still working on? A No, nothing. | just -- that was -- | misspoke Page 120 www.aptusCR.com 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 23 Confidential Peter Wrobel DeVone vs. J oy |, the undersigned, a Certified Shorthand Reporter of the State of California, do hereby certify: That the foregoing proceedings were taken before me at the time and place herein set forth; that any witnesses in the foregoing proceedings, prior to testifying, were duly sworn; that a record of the proceedings was made by me using machine shorthand, which was thereafter transcribed under my direction; that the foregoing transcript is a true record of the testimony given. Further, that if the foregoing pertains to the original transcript of a deposition in a federal case, before completion of the proceedings, review of the transcript [ X ] was [ J] was not requested | further certify | am nneither financially interested in the action nor a relative or employee of any attorney or party to this action IN WITNESS WHEREOF, | have this date subscribed my name Dated: January 29, 2019 SOO gor HRS Allison Adam CSR No. 1374 ww » ; Page 128 www.aptusCR.com EXHIBIT B BRIAN BERGMARK - 01/25/2019 1 SUPERIOR COURT OF THE STATE OF CALIFORNIA 2 FOR THE COUNTY OF ORANGE 3 4 5 ADAM DEVONE, an individual, ) No. 30-2017-00943321- 6 Plaintiff, ) CU-DF-CJ C 1 VS. ) 8 RONALD JOY, an individual; ) 9 EDGEWOOD PARTNERS INSURANCE ) 10 CENTER, INC., a corporation; ) Pages 1-64 11 J] OHN CONNELL, an individual; ) 12 and DOES 3 to 20, inclusive, ) 13 Defendants. ) | ) 15 16 17 VI DEQOTAPED DEPOSITION OF: 18 BRI AN BERGMARK 19 FRI DAY, JANUARY 25, 2019 20 10:16 A.M 21 22 23 24 Reported by: LINDA NICKERSON 25 CSR No. 8746 Epig Court Reporting Solutions - Woodland Hills 1-800-826-0277 www. deposition.com BRIAN BERGMARK - 01/25/2019 Page 7 1 BRI AN BERGMARK, 2 having been first duly sworn, was 3 exam ned and testified as follows: 4 5 EXAMI NATI ON 6 BY MR. ALEXANDER: 1 Q Good morning, Brian. 10:17:36 8 A Good morning. 10:17:38 9 Q Would you state and spell your name for the [10:17:38 10 record, please. 10:17: 40 11 A Brian Bergmark. First name is B-r-i-a-n. 10:17: 40 12 Last name is B-e-r-g-m-a-r-Kk. 10:17: 43 13 Q How many times have you been deposed 10:17: 48 14 before? 10:17:50 15 A Well over a hundred. 10:17:50 16 Q Okay. So I will forgo with the 10:17:51 17 introductory comments. 10:17:53 18 |'s there any reason why we shouldn't 10:17:59 19 proceed this morning? 10:17:57 20 A Not that ['m aware of. 10:17:57 21 Q Are you taking any medication that would 10:17:59 22 impact your ability to tell the truth today? 10:18:01 23 A No. 10:18:03 24 Q If you have any questions along the way, 10:18:03 25 please ask me. | want to make sure the record is 10:18:07 Epig Court Reporting Solutions - Woodland Hills 1-800-826-0277 www. deposition.com BRIAN BERGMARK - 01/25/2019 Page 52 - o O OW 0 0 uN o o U l P B E W 12 13 14 15 16 17 18 19 20 21 22 23 24 23 Q What does Exhibit 131 reflect? A So as | said, actually this is an analysis that's supportive of what was on page 2 of Exhibit 130 and included in page 2 -- so it's 2-B-i-4, so the very last comment in that section that if Kaiser -- if Kaiser should -- if Kaiser wouldn't have been at a 1.2 -- a 1.5 percent rate, if they were consistent with the Aetna and the Blue Shield rate, that one change to Mr. Wrobel's analysis would result in having no damages in Mr. Wrobel's analysis So if you make that one change, the analysis results in a conclusion that there are no damages, and so all this -- these calculations are just supporting that contention, Q So Exhibit 131 in total, the conclusion is that if -- please correct me if ['m wrong here -- if Kaiser's commission rate is assumed to be 0.75 percent and everything else is held constant, the damages would be zero in this case? A Everything else is held constant in Mr. Wrobel's analysis. So if | just make that one change to Mr. Wrobel's analysis, then the damages -- the indicated damages from his analysis would be ZEIT 0. Epig Court Reporting Solutions - Woodland Hills 1-800-826-0277 www. deposition.com (21040 21:42 121: 46 121050 121056 122: 04 22:10 22:14 122: 18 i 11] 20:1) 10:11 112: 19 11:31 111:3) 122: 36 110: 4) 20:4] 111 51 122:54 122:56 122:58 123:00 123:02 123:05 BRIAN BERGMARK - 01/25/2019 Page 64 1 STATE OF CALIFORNIA ) 2 J ss 3 COUNTY OF ORANGE ) 4 5 |, LINDA NICKERSON, CSR #8746, in and for 6 the State of California do hereby certify: ] That, prior to being exam ned, the witness 8 named in the foregoing deposition was by me duly 9 sworn to testify the truth, the whole truth, and 10 nothing but the truth; 11 That said deposition was taken down by me in 12 shorthand at the time and place therein named, and 13 thereafter reduced to typewritten form and the same 14 is a true, correct, and complete transcript of the 15 testimony at said proceedings. 16 | further certify that | am not interested 17 in the event of the action. 18 WITNESS MY HAND this 26th day of January, 19 2019. 20 Vl eleor 21 ee 22 LI NDA NICKERSON, CSR No. 8746 23 24 25 Epig Court Reporting Solutions - Woodland Hills 1-800-826-0277 www. deposition.com Exhibit C Background On October 11, 2015, Governor Brown signed into law Senate Bill 546 (Leno), amending California’s Health and Safety and Insurance laws to require health care service plans (HMOs) and indemnity health insurers to rate information regarding their large group contracts and policies every year. In particular, the law: ¢ Requires large group health plans and health insurers (“insurers”) to file with their respective regulatory agency - either the California Department of Managed Health Care (DMHC) or the California Department of Insurance (CDI) - “the weighted average rate increase for all large group benefit designs” during the previous calendar year; e Requires insurers to disclose information regarding their pricing of large group market products, including: product type; number of enrollees; cost sharing in various benefit designs; geographic regions; age; occupation; industry; experience and community rating; and medical benefit categories (among them, hospital inpatient, hospital outpatient, physician services, prescription drugs, and other ancillary services, laboratory, radiology); and ¢ Mandates that DMHC and CDI conduct an annual public meeting regarding large group rate changes. SB 546 is among the most comprehensive state statutes in the U.S. to require such disclosure 5 inthe large group health insurance market. The California Labor Federation, UNITE HERE, and Figure 1 the Teamsters sponsored the bill because many union trust funds and employers have been experiencing seemingly inexplicable and significant year-over-year rate increases in the market for employer-sponsored health insurance. Since 2002, health insurance premiums in Enrollees by Insurer California have increased 216% - almost six times the rate of inflation. ES - This document analyzes the first year of filings made pursuant to SB 546 for reporting year 2016, focusing on California's seven largest filers (by number of covered lives) in the fully- insured large group market: Kaiser, Anthem Blue Cross, UnitedHealthcare, Blue Shield of California, Health Net, Cigna, and Aetna (“Top 7”). Unless otherwise noted, all data comes from the SB 546 filings. Top companies: The Top 7 covered 8 million of the 8.3 million total enrollees (97%) reported in the filings (see Figure 1) Premiums: The average premium for CA's large group market in 2016 was $438 per member/per month (PMPM); the average increase was 4.1%. Premiums ranged from $122 to $711. Changes in rates ranged from -2.9% to 9.9%. Among the Top 7, average premiums ranged from $396 to $484 PMPM with an average of $439 and an average increase of 4.2%. (See Figure 2 for average monthly premiums, across all large-group products, by company.) Per Figure 3, average premium increases for each of the Top 7 exceeded California's inflation rate (CPI). These average figures obscure the range of premium costs as workers experience them. A group's rate may differ from the average because groups Figure 2 choose different products (e.g., HMO, PPO) and different amounts of coverage, and vary in group characteristics that are used to predict their Average Monthly Premium, Top 7 Insurance Companies in CA health cost (e.g., age, geographic area, past health care costs). Insurers choose Large Group Market, 2016 how to price the products, and decide on the type of coverage offered. Insurers and groups negotiate the premiums. The Figure 3 Average % Premium Increase, Top 7 Insurance Companies in CA Large Group Market, Compared to CPI, 2016 average premium here is not the “self-only” or “single” rate. Rather, it reflects the total premiums collected by an HMO or insurer divided by the total number of covered lives. Employer plan sponsors choose the number and types of tiers (e.g., self-only, Employee+1, Family, etc.), and in some cases, the conversion into tiered rates. Actual premiums vary significantly and depend on a number of factors, including level of coverage; type of product (e.g., HMO vs. PPO); the group's health risk experience; and the insurer’s method of rating the group. Product type and amount of coverage (actuarial value): Premiums for the Top 7 companies were within a $90 range of each other, but reflect enrollment in different product types and different amounts of coverage. The most popular product types were: HMOs with 82% of all enrollment, followed by PPOs with 10%, and HDHPs (high deductible health plans) with 5%. (See Figure 4.) Of the Top 7 companies, Kaiser had 96% of its enrollees in HMO products, the highest share in HMOs of the top seven, and nearly 0% in PPOs. Cigna had the highest PPO enrollment (36% of its enrollees), the highest HDHP enrollment (11% of its enrollees), and the lowest HMO enrollment (51% of its enrollees). Some filers noted that they had included some or all HDHP enrollees in other product types (e.g., an HMO product that also has a high deductible was counted in HMO and not as an HDHP). Others did not explain how they counted enrollees with HDHPs. High deductibles may cause [liens to forgo or delay needed care for fear of the high out-of-pocket costs - in 2015, 31% of all Americans put off some sort of medical treatment ecause of cost. Actuarial Value (AV.) measures the percentage of the health care costs that the insurer will pay on average - the remainder is the patients’ share. In this analysis, the actuarial value tiers in the filing were renamed with metal tiers as follows: 90-100% A.V. as Platinum; 80-89% AV. as Gold; 70-79% as Silver; 60-69% as Bronze; and 0-59% as Tin. Kaiser had the highest percentage (94%) of enrollees with Platinum or Gold plans (the two highest levels of CONFIDENTIAL UNDER PROTECTIVE ORDER DeVone0000167 AV.), while UnitedHealthcare had the lowest percentage (70%) on Gold or Platinum. (See Figure 5.) Figure 4 Top 7 Insurers’ Enrollees by Product Type (enrollees in product as % of insurer's enrollees) Figure 5 100% 90% : Top 7 Insurers’ Enrollees by Actuarial Value 80% (enrollees in AV tier as % of Filer's Enrollees) 0% 100% a 60% 90% i 50% wEFO 80% 40% 82 #POS 70% Ta 30% » HOHP 60% Bronze 20% = PPO 50% = Sher 10% sHVO 40% » Gold 2 134 70% x 30% 58% u Platinum 2 wef cs add we @ a @' n > Ww Ww fe Ny 8 ¥ 1 20% og w % \ 10% ro (insurers appear in order of total enroliees, highesst to lowest) 03 2 * a 5 ag > oo? « Premiums by product type and rating method: The product type with the ** o ¥ highest average premium was Point of Service (POS) ($504 PMPM) and the ai ei hd lowest average premium was Exclusive Provider Organizations (EPO) ($272 PMPM), excluding consideration of indemnity and “other” products, which had very few enrollees (289 enrollees total). Only 3% of all enrollees are in EPO or POS plans. POS and EPO plans combine features of an HMO and a PPO. POS plans typically let enrollees use out-of-network providers, but require referrals to see specialists. EPO plans typically offer a narrowed network of providers, but do not require referrals. Amongst the top seven companies, most enrollees (71%) were in plans that were 100% experience-rated. About half the enrollees covered by smaller insurers (not shown) were in 100% community-rated groups. On average, groups that were 100% experience-rated had lower premiums ($430 PMPM) than groups that were 100% community-rated ($482), while those with a blended rating (a combination of experience and community) fell in between ($449). Some filers described a group-size threshold of as low as 200 and as high as 1,000 as the minimum for 100% experience-rating. (See Figure 6.) Experience-rating refers to the practice of charging customers premiums based on their own past history (“experience”) of health care costs. In experience-rating, groups with Figure 6 lower health risk are typically charged less than higher risk groups, all else being equal. In community-rating, a set of groups is charged the same premium without any Top 7 Insurers’ [nroliees by Rating Method variation for differences (such as age or health status) in each group's characteristics. PPAR es However, the SB 546 filings demonstrate that paying the same rate (i.e., community rating) . = does not necessarily mean paying. a lower rate in comparison with the large group market ¥ a a - averages or the average for experience-rated groups. - » Re - wm Insurers decide which rating method they will use for their large group = = = oo customers. Filers did Figure 7 - not explain, nor were they required to explain, Premiums and Increases by Product Type why the average - - . TTY Change premiums differed. oo (Ave SPMPM, 2016) (%, 2015-2016) y Based on the filings, it is Bs per ie on of aw ewan, Mghenae 3 owes not possible to conclude HMO $433 whether the mix of PPO $502 groups that are HDHP community-rated have 508 $402 higher health risk than those that are experience-rated, whether they chose plans with $504 higher actuarial value, or whether the insurers used another metric to develop EPO | $272 community-rating prices that were, on average, higher than experience-rating. Indemnity $756 2 oy . . Or $872 3% Cost drivers: Prescription drugs represent the fastest-growing category of spending by Average $438 a insurers. All 14 filings submitted by the Top 7 companies in the large group market reported prescription drug costs were expected to rise at a greater rate than overall medical costs in 2016 (see Figure 8). While overall costs were expected to increase between 2.2% and 11.7%, prescription drug cost increases were projected to range from between 8.1% and 18.1%. Again in 2017, all 14 filings submitted by the Top 7 companies projected greater cost increases for prescription drugs (ranging from 6% to 15.6%) than for overall medical costs (which ranged from 4.4% to 11.7%). Highest total spending by medical category: Nine of the 11 filings submitted by the top insurers reported aggregate spending to be greatest for hospital services - inpatient, outpatient and capitated (institutional) combined. Apples to apples comparisons of spending on different medical benefit categories by insurers and HMOs are not entirely possible because different companies filled out the SB 546 filings differently. For example, some filers reported spending in just the two categories “Hospital Inpatient” and “Hospital Outpatient.” However, others also included spending for “Capitation (Institutional),” which also represents hospital services costs. In these cases, it's not clear how much of the capitated spending refers to inpatient versus ttpehisnt services. Five of these 11 filings reported that the benefit category on which they had spent the most was hospital inpatient services specifically. Notably, Kaiser, which represents about half the covered lives in the state's large group market, did not break spending detail down according to the various benefit categories listed in the SB 546 form (e.g., hospital inpatient, hospital outpatient, physician services, and seven other categories). CONFIDENTIAL UNDER PROTECTIVE ORDER DeVone0000167 Figure 8 Expected Rate of Cost Increase for Prescription Drugs vs. Overall Medical Costs, Top 7 Health Insurers in Large Group Market, 2016 and 2017 BW Overall - 2016 WRx-2016 & Overall - 2017 NRX -2017 * » * * * > * S L&D ee 2X SRR fF FEF EEE NE FFE FHP PF CF egy Fras RR * EE -@ A *Indicates filing submitted to CDI. Others were submitted to DMHC. Filers are in descending order of projected Rx cost. notion that Americans use too much health care, in fact, it is high prices that drive excessive health care spending in the U.S. For example, the cost of insulin - a 95 year old drug that has astonishingly remained without generic competition in the U.S. - quadrupled in the seven years between 2006 and 2013, increasing from $190.47 to $736.47 a year per patient. Moreover, while the Organisation for Economic Co-operation and Development (which comprises 35 of the most economically advanced countries in the world, as well as few emerging economies) annual average of doctor visits per capita is 6.8, inthe U.S. that number is just 4. be 5% 3% This finding is in keeping with a growing body of evidence that, contrary to the 3% Because Kaiser's physicians and hospitals are part of two distinct organizations, Kaiser's failure to differentiate between hospital and physician spending is baffling. Price inflation greater than utilization: Of the ten relevant filings submitted by the top HMO and health insurance companies in California’s large group market, all revealed that projected price inflation would have a greater effect than utilization on the increasing cost of medical services in 2017 (see Figure Figure 9 Projected Price Inflation vs. Projected Utilization, Top Health Insurers in CA Large Group Market, 2017 > > * $ * > > > & O) > 3 5 3 & 5 = ¥ oO & 5 oe 4 & © & wr ov ¢ ® o «° o a % 2 $ & o S A & < E & < o> & oF A & F oF = S & & & 5 ¥ + ® Utilization ®Price * Indicates filing submitted to CDI. Profits from large group premiums: The Top 7 filers posted profits of over $9.5 billion in the large group market over the last five years (2011-2015). Profits increased 64% over that period. Each of the seven top companies posted profits each of the five years covered by the filings. Filers were not asked, nor did they disclose, profits on their 2016 premiums. (See Figures 10-12.) Figure 10 Figure 11 Top 7 Insurers: Claims, Administration, Taxes, and Profits, By Year, 2011-2015 (as % of Premiums) : : i ; x ; on 1 o 13 - 01 Top 7 Insurers: Claims, Administration, Taxes, and Profits, S year total by Insurer, 2011-2015 (as 3 % of Premiums) x aor ®asrrmm ta E [=~ Figure 12 7 Insurers: Profits from Premiums $136,213,081 $116,484,49 Anthem S$ 4 $340,6 Blue Shield S$ Health Net 54, 58 46 Kaiser $613,105,262 $862,977,91 UnitedHealthcare $108,563, $142,6 $149, $129,471, $117,457 $93,810, $593,437,3 347,3 19 5 $37,915,1 $37 784, - 05 $46,143,61 $47,429, $197, $1,430,603, 1 $138,682, ; 343,11 Insurance premium pricing: Given that SB 546 does not provide for a prospective rate review process, filers were not required to disclose their base rates, but rather only asked to briefly describe the factors affecting the base rate and the actuarial basis and to note changes in the use of the factors, and the number of enrollee-months affected. Filers noted whether a particular rating factor was used (the SB 546 form includes geographic region, age, industry and eight other factors), but did not provide the base rate or how it was developed, nor did they quantify how much a group would be charged for having certain characteristics. Commonly used factors that filers acknowledged using were: age and gender, geographic area, health status, industry, family tiers, covered benefits beyond basic health services, cost-sharing, rating method, and provider network. Employee share of premiums and occupation were generally not used. Only one filer reported a range and an average for its use of age, geographic, region, and industry (but not the numeric factor for each rating band), and the tiers and factors used for family composition. CONFIDENTIAL UNDER PROTECTIVE ORDER DeVone0000167 Further disclosure from filers is needed to evaluate the appropriateness of their use of industry and gender in insurance pricing. For example, six of the top seven filers reported using industry as a factor, but none stated which industries were charged more or by how much. One filer wrote, “these factors recognize that some industries tend to experience higher claim levels due to greater risk of accident or due to riskier lifestyles of typical industry employees.” Without more information about how the rate was developed, we cannot assess whether this filer’s pricing for industry captures an independent effect that was not already accounted for in health status, or another factor, or workers’ compensation costs. Five of the top seven filers reported age and gender affected their pricing. Without disclosure of the numeric factor and the data on which it was based, we cannot evaluate whether the differences groups are charged for age and gender are based on objective, valid, and up-to-date information. Without a full set of all the numeric factors used, we cannot evaluate the amount of variation in the premiums that is not attributable to an identifiable factor, and may have resulted from the variations in negotiations or at the discretion of the insurer or its sales agents. Moreover, our reading of the California law (Health & Safety Code 1365.5(b)) is that rating based on gender is not allowed. We have contacted the DMHC and are awaiting further guidance. Recommendations The first year of rate filings reviewed in this document provide a new level of detail about large group, fully-insured health insurance products, which was previously unavailable from any one source. These disclosures enable monitoring of the insurers on the changes in premiums, rates of increases, cost projections that are used to set premiums, enrollment by product types and by the richness of benefits, and shares of premiums going towards paying for care and towards profits. Monitoring may discourage insurers from charging unreasonable rates, but a retrospective disclosure process does not give purchasers, workers, and policymakers J ahange to review the construction of rates before they are set. However, the first year of filings suggest the need for the following recommended changes: 1. A prospective rate review process with an active State role would not only fill in the many gaps that reporting summary statistics leave in our understanding of how insurance rates were set, but also create the opportunity to prevent unreasonable rates from taking effect and to hold insurers accountable for their price negotiations with providers and pharmacy benefit managers (PBMs). 2. The filings demonstrate the need for greater action regarding prescription drug prices, which are the fastest growing category of projected spending by California insurers and HMOs in the large group market. Last year, the legislature had the opportunity to enact a prescription drug transparency measure, SB 1010 (Hernandez), but, in the words of the Sacramento Bee's editorial board, “amid a lobbying blitz that was breathtaking by even California standards, 33 trade groups and drug companies from Allergan to Vertex descended to bury SB 1010, which fo just =i sense to become a national model.” This year, the Legislature has the opportunity to reconsider this policy in the form of SB 17 (Hernandez). 3. Ultimately, the filings suggest the need to strongly consider significant legislative and/or regulatory action to address hospital prices, which represent the greatest dollar amount of medical spending in the large group market. Maryland has set hospital prices since the 1970s, and the state has “by far the lowest hospital price markups in the country.” Otherwise, as the first round of filings pursuant to SB 546 suggest, we will continue to flounder in our attempts to bring down health care spending. This report is a collaboration of the California Works Foundation, UNITE HERE and SEIU 1021 research staff. Click here to download a PDF of the Executive Summary findings, complete with sources for content. CONFIDENTIAL UNDER PROTECTIVE ORDER DeVone0000167 © o o J Oo Oot Bx Ww Nd = NN DN DN DN DN DND N DN DN DN ND +H H H Hl el e d co J oH O t kx Ww W DN +H O O © oo JN O6 0 O k Ww hd = Oo PROOF OF SERVICE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES: I am over the age of 18 and not a party to this action. I am employed in the county where the mailing occurred; my business address is 600 Wilshire Boulevard, Suite 500, Los Angeles, California 90017. On February 8, 2019, I caused to be served the following documents described as: PLAINTIFF ADAM DEVONE’S OPPOSITION TO DEFENDANTS’ MOTION IN LIMINE NO. 4, FOR AN ORDER EXCLUDING TESTIMONY BY PETER WROBEL on the interested parties in this action as stated below: Rutan & Tucker Bradley E. Chapin 611 Anton Blvd., 14th Floor Costa Mesa, CA 92626 bchapin@rutan.com Phone: (714) 641-5100 Attorneys for Defendants Ronald Joy and Edgewood Partners Insurance Center [X] ELECTRONIC MAIL: By transmitting the document by electronic mail to the electronic mail address as stated on the attached service list. I declare under penalty of perjury under the laws of the State of California that the above is true and correct. Executed on February 8, 2019, at Los Angeles, California. - - 1 Dan Terzian Proof of Service
