MEMORANDUM DECISION REGARDING MOTIONS IN LIMINE
SIPA LIQUIDATION (Substantively Consolidated)
STUART M. BERNSTEIN, Bankruptcy Judge.
Irving H. Picard (the "Trustee"), the trustee for the liquidation of Bernard L. Madoff Investment Securities LLC ("BLMIS") under the Securities Investor Protection Act, 15 U.S.C. §§ 78aaa, et seq. ("SIPA") filed motions in limine (1) to preclude certain claimants represented by Chaitman LLP (the "Chaitman Claimants") from calling him as a trial witness (the "Picard Motion"),
A. Determining Customer Net Equity
The circumstances surrounding the massive Ponzi scheme orchestrated by Madoff and the demise of BLMIS have been recounted in numerous reported decisions. See, e.g., Picard v. Ida Fishman Revocable Trust (In re BLMIS), 773 F.3d 411, 414-15 (2d Cir. 2014), cert. denied, 135 S.Ct. 2859 (2015); Picard v. JPMorgan Chase & Co. (In re BLMIS), 721 F.3d 54, 58-59 (2d Cir. 2013), cert. denied, 134 S.Ct. 2895 (2014); SIPC v. BLMIS (In re BLMIS), 424 B.R. 122, 125-32 (Bankr. S.D.N.Y. 2010), aff'd, 654 F.3d 229 (2d Cir. 2011), cert. denied, 133 S.Ct. 25 (2012). The Court assumes familiarity and limits the facts to those germane to this dispute.
The issues raised by the motions relate to whether admittedly ambiguous notations in BLMIS' books and records reflect actual withdrawals of cash by BLMIS customers. SIPA establishes a "customer property" estate for priority distribution to former customers, and each customer shares ratably in the pool of customer property "to the extent of their respective net equities. . . ." SIPA § 78fff-2(c)(1)(B). "Net Equity" is defined as the dollar amount of the account or accounts of a customer, to be determined by:
SIPA § 78lll(11).
SIPA directs the Trustee to determine and pay each customer's net equity claim "insofar as such obligations are ascertainable from the books and records of the debtor or are otherwise established to the satisfaction of the trustee." SIPA § 78fff-2(b). In light of the fraudulent nature of most of the entries in BLMIS' books and records, the proper method for computing net equity in this case became a hotly contested subject. The Trustee determined that each customer's net equity should be calculated by crediting the amount of cash deposited by the customer into his BLMIS account, less the amounts withdrawn from it (the "Net Investment Method"). Conversely, BLMIS customers argued that their net equity was equal to the market value of securities listed on their final BLMIS account statements ("Last Statement Method").
The Second Circuit agreed with the Trustee. It ruled that the Net Investment Method was "more consistent with the statutory definition of `net equity' than any other method advocated by the parties," while the use of the Last Statement Method would have the "absurd effect of treating fictitious and arbitrarily assigned paper profits as real and would give legal effect to Madoff's machinations." In re BLMIS, 654 F.3d 229, 235 (2d Cir. 2011) ("Net Equity Decision"), cert. denied, 133 S.Ct. 25 (2012).
B. Treatment of Profit Withdrawals
BLMIS customer statements identified several different "transaction types," and one of them was a "profit withdrawal" identified by a "PW" notation. For purposes of determining net equity, the Trustee treated profit withdrawals as cash withdrawals that reduced a customer's net equity claim. (See Amended Motion for Order Establishing Schedule for Limited Discovery and Briefing on Profit Withdrawal Issue, dated May 19, 2015, ¶ 4 (ECF Doc. # 10017).) Several BLMIS customers objected to the reduction of their net equity claims based on profit withdrawals, and some contradicted the conclusion based on their personal knowledge of their own account histories. Accordingly, the Court established a procedure for parties to present evidence about how profit withdrawals should be treated for purpose of determining a customer's net equity. (See Order Establishing Schedule for Limited Discovery and Briefing on Profit Withdrawal Issue, dated June 24, 2015 ("PW Procedures Order") (ECF Doc. # 10266).)
The Trustee intends to rely on two experts—Matthew B. Greenblatt
In accordance with the PW Procedures Order, the Trustee moved to affirm his treatment of profit withdrawal transactions, (see ECF Doc. ## 10660, 10661, 13876), and objections were filed by the Chaitman Claimants, represented by Helen Chaitman, Esq. ("Chaitman"),
The Chaitman Claimants intend to call the Trustee as a witness at the PW trial. (See Participating Claimants' Prehearing Disclosures, dated Sept. 30, 2016, Part I (ECF Doc. # 14359-6).) Through the Picard Motion, the Trustee seeks to preclude Chaitman from calling him as a trial witness. He argues that he is relying on his experts, Lisa Collura and Matthew Greenblatt—who analyzed and reconciled BLMIS' book and records—to testify about the meaning of the PW notations. The Trustee himself lacks personal knowledge regarding BLMIS' books and records, and any testimony he could provide at the evidentiary hearing would not be probative of the meaning of PW, or would be duplicative of the testimony of his experts. (Picard Motion at 5-10.) Instead, the Trustee argues that Chaitman included him on the witness list to harass him. (Id. at 10-14.)
The Chaitman Claimants respond
(See id. at 1-2 (emphasis added).)
"The purpose of an in limine motion is to aid the trial process by enabling the Court to rule in advance of trial on the relevance of certain forecasted evidence, as to issues that are definitely set for trial, without lengthy argument at, or interruption of, the trial." Palmieri v. Defaria, 88 F.3d 136, 141 (2d Cir. 1996) (quotation omitted). A trial court may reserve decision on an in limine motion until trial, so that the motion is reviewed in the "appropriate factual context." Nat'l Union Fire Ins. Co. of Pittsburgh, PA v. L.E. Myers Co. Grp., 937 F.Supp. 276, 287 (S.D.N.Y. 1996). A court's ruling on a motion in limine "is subject to change when the case unfolds," Luce v. United States, 469 U.S. 38, 41 (1984); even if nothing changes, a trial court may alter a prior in limine ruling in the exercise of sound judicial discretion. Id. at 41-42.
The usefulness of in limine motions is largely negated in bench trials. As the Ninth Circuit Court of Appeals explained:
United States v. Heller, 551 F.3d 1108, 1112 (9th Cir.), cert. denied, 556 U.S. 1252 (2009); accord Official Comm. of Unsecured Creditors v. Isr. Disc. Bank of New York (In re Oak Rock Fin., LLC), 560 B.R. 635, 638 (Bankr. E.D.N.Y. 2016) ("As this is a bench trial without a jury, the need for an advance ruling to exclude evidence has been deemed by some courts as superfluous and unnecessary.").
The PW evidentiary hearing will be heard by the Court without a jury. Although this Court agrees that the usefulness of in limine motions in a bench trial is limited, it concludes that the Picard Motion should be granted as explained immediately below.
Relevant evidence is generally admissible, FED. R. EVID. 402, and evidence is relevant if: "(a) it has any tendency to make a fact more or less probable than it would be without the evidence; and (b) the fact is of consequence in determining the action," FED. R. EVID. 401, i.e., the fact is material. The bar for relevancy under Federal Evidence Rule 401 is "very low," United States v. White, 692 F.3d 235, 246 (2d Cir. 2012) (quotation omitted), and "[e]vidence should not be excluded on a motion in limine unless such evidence is `clearly inadmissible on all potential grounds.'" Hart v. RCI Hospitality Holdings, Inc., 90 F.Supp.3d 250, 257 (S.D.N.Y. 2015) (Engelmayer, J.) (quoting Nat'l Union Fire Ins. Co., 937 F. Supp. at 287). Nevertheless, the "court may exclude relevant evidence if its probative value is substantially outweighed by a danger of one or more of the following: unfair prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence," FED. R. EVID. 403, and similarly, may exercise reasonable control over the mode of presenting evidence so as to effectively determine the truth, avoid wasting time and protect witnesses from harassment or undue embarrassment. FED. R. EVID. 611.
A trial court is afforded broad discretion in its evidentiary rulings, including those made in connection with a motion in limine. See Sprint/United Mgmt. Co. v. Mendelsohn, 552 U.S. 379, 384 (2008). As one treatise explained, "[Federal Evidence Rule 611] imposes on the trial court the duty of balancing the trial's primary function of ascertaining the truth concerning the dispute between the parties against the needs of the courts to conserve their time and to protect witnesses from harassment or undue embarrassment at the hands of overzealous advocates." 4 MARK S. BRODIN ET AL., WEINSTEIN'S FEDERAL EVIDENCE § 611.02[a] at 611-6 (2d ed. 2017). "Restrictions on examination and exclusion of testimony are within the discretion granted the district court by Rule 611. To avoid repetition and irrelevant testimony, the court may limit testimony or exclude it altogether." Id. § 611.02[b][i] at 611-28.3 to 611-29. The trial court has "wide latitude" under Federal Evidence Rule 611 in controlling the presentation of evidence. SR Int'l Bus. Ins. Co. Ltd. v. World Trade Ctr. Props., LLC, 467 F.3d 107, 119 (2d Cir. 2006) (quotation omitted).
The testimony that Chaitman seeks to adduce regarding the Trustee's subjective reason in 2009 to treat PW transactions as cash withdrawals is immaterial. The question for trial is whether the "PW" notation refers to an actual cash withdrawal, and not whether the Trustee had a reasonable basis in 2009 to treat PW notations as withdrawals. If the Trustee had a reasonable basis in 2009 to treat PW notations as withdrawals but his conclusion proves incorrect based on the trial evidence, he will lose. Conversely, if he did not have a reasonable basis in 2009 but the evidence shows that he was nevertheless correct, he will prevail.
As to the issue that is before the Court, the Trustee lacks personal knowledge relating to the appropriate treatment of the PW notations. (Picard Motion at 8.) Whatever he knows is based on what his experts told him (which is presumably work product). (Id. at 5, 9.) It was Greenblatt and his team that reviewed each deposit and withdrawal for each BLMIS account from 1981 to the filing date, and identified a subset of 91,138 profit withdrawal transactions that are relevant to this proceeding. (Greenblatt Report at ¶ 13.) It was Collura and her team that reconciled 51,758 of the 91,138 profit withdrawals with third-party bank records or other documentation. (Collura Report at ¶ 17.) The Chaitman Claimants do not seriously suggest that the Trustee was part of either team or conducted his own forensic investigation and drew his own conclusions — and they have not even bothered to take his deposition. Like most court-appointed trustees, the Trustee lacks personal knowledge about the events that preceded his appointment, a point the Chaitman Claimants do no dispute.
Finally, although the Chaitman Claimants' protest that they do not intend to harass the Trustee, the history of this case suggests otherwise. Based on a litany of unsupported assumptions, they hope to prove that the Trustee's position is the result of a conspiracy with SIPC to take meritless legal and factual positions hostile to BLMIS customers to reduce the amount of statutory payments SIPC has had to make to customers under SIPA § 78fff-3(a).
Chaitman has advanced variations of this theory on multiple occasions to show that the Trustee is hopelessly conflicted and/or in cahoots with SIPC. For instance, Chaitman objected to the Trustee's and his counsel's first interim fee application accusing the Trustee and his attorneys of "misrepresent[ing] the law to destitute Customers who cannot afford to retain their own counsel, with the clear intent of inducing Customers to accept less in SIPC insurance than they are entitled to receive." (See ECF Doc. # 351 at ¶ 10.) Judge Lifland (who then presided over the BLMIS SIPA liquidation) overruled the objection finding that "there has been nothing shown that this Trustee is not acting in good faith. That is clear. There is nothing that has been shown that this Trustee is guilty of any kind of fraud or dereliction of duty . . . ." (Tr. of Aug. 6, 2009 Hr'g at 35:5-9 (ECF Doc. # 381).) Chaitman moved in the District Court for leave to appeal the Bankruptcy Court's fee order, advancing theories about the Trustee's purported conflict of interest. District Judge Daniels denied Chaitman's motion, and observed that her arguments all stem from her disagreement with the Trustee about the method to be utilized to compute net equity. See SIPC v. BLMIS, No. M 47 (GBD), 2010 WL 185102, at *1 (S.D.N.Y. Jan. 11, 2010) ("Objectants essentially argue that the Trustee is applying an incorrect methodology for net equity and is therefore underpaying some of the SIPC customers.").
Chaitman again objected, this time to the Trustee's and his counsel's second interim fee application, citing the same purported conflict of interest. (See ECF Doc. # 1055 at ¶ 6 ("SIPC, as the insurer of Customer accounts, is in a direct adversarial position to the Customers, putting the Trustee and [his counsel] in an untenable conflict of interest.").) Once again, Bankruptcy Judge Lifland overruled Chaitman's objection "on basically the same ground that I have done previously. . . ." (Tr. of Dec. 17, 2009 Hr'g at 33:25-34:1 (ECF Doc. # 1438).)
Undaunted, Chaitman objected anew to the Trustee's and his counsel's third interim fee application asserting his conflict of interests. (See ECF Doc. # 2233 at 10 ("The Trustee and [his counsel] are disabled from serving because, as they have demonstrated repeatedly in the first 16 months of their service, they have a fundamental conflict of interest and are working solely to enrich SIPC at the expense of the Customers to whom they owe a fiduciary duty.").) The Court overruled the objection for a third time, stating that there was "no basis for finding that the Trustee should be found to have an appearance of a conflict of interest." (Tr. of May 5, 2010 Hr'g at 97:23-25 (ECF Doc. # 2267).) Chaitman moved for leave to appeal, but District Judge Scheindlin denied the motion, SIPC v. BLMIS (In re BLMIS), 2010 WL 3260074, at *5 (S.D.N.Y. Aug. 6, 2010), pointing out that the Trustee and his counsel were deemed to be disinterested under applicable SIPA provisions by the Bankruptcy Court in January 2009. Id., at *4; see also Order of Disinterestedness of Trustee and Counsel to Trustee, dated Feb. 4, 2009 at 2 ("ORDERED, DECREED, AND ADJUDGED that the Trustee and Baker & Hostetler LLP are disinterested pursuant to the provisions of Section 78eee(b)(6) of SIPA, Bankruptcy Code Section 327(a) and Federal Rule of Bankruptcy Procedure 2014(a).") (ECF Doc. # 69). Chaitman nevertheless pressed the same objection to the Trustee's fourth interim fee application, (see ECF Doc. # 2943 at 10), fifth interim fee application, (see ECF Doc. # 3308, ¶ 18), and sixth interim fee application (see ECF Doc. # 4088, ¶¶ 4-9; see also Letter, dated May 31, 2011 (ECF Doc. # 4116)), all without success.
Fee application objections were not the only vehicle that Chaitman used to drive home her speculative narrative. In the Picard v. Greiff case, she argued that the District Court should withdraw the reference under 28 U.S.C. § 157(d) to decide whether the Trustee's receipt of compensation for liquidating BLMIS violated the defendant's due process rights under the United States Constitution. According to Chaitman, the Trustee, as a fiduciary appointed by SIPC, was acting as a judge in the cases he was commencing. (See Defendants Memorandum of Law In Support of Motion for Mandatory Withdrawal of the Reference, dated June 2, 2011 at 15-17 (ECF Dist. Ct. Case No. 11-cv-03775 Doc. # 1).) During the oral argument, District Judge Rakoff asked Chaitman about the basis for her allegations:
(Tr. of July 28, 2011 Hr'g at 12:2-22 (ECF Dist. Ct. Case No. 11-cv-03775 Doc. # 17).) The District Court denied Chaitman's motion on the due process issue, but granted it on others. (See Order, dated Sept. 15, 2011 (ECF Dist. Ct. Case No. 11-cv-03775 Doc. # 19).)
Chaitman next asserted in motions to dismiss that the Trustee's compensation arrangement denied her clients due process. According to Chaitman, the Trustee's receipt of a share of his firm's legal fees constituted an improper financial stake in the fraudulent transfer cases he commenced in the BLMIS liquidation. (See Defendants' Omnibus Memorandum of Law In Support of Motions to Dismiss, dated Nov. 1, 2013 at 5-7 (ECF Adv. P. No. 10-04292 Doc. # 36).) The Court dismissed the argument as a matter of law and held that the Trustee's and his counsel's receipt of compensation was not a due process violation:
SIPC v. BLMIS (In re BLMIS), 531 B.R. 439, 460 (Bankr. S.D.N.Y. 2015) ("Omnibus Decision"). Chaitman then moved for leave to appeal, but District Judge Daniels denied her motion because the factual sources she cited failed to support her assertion about the Trustee's fees. In addition, Judge Daniels noted that District Judge Rakoff had previously expressed doubts about Chaitman's sources. In re BLMIS, No. 15 Civ. 06564 (GBD), 2016 WL 690834, at *2, *2 n. 1 (S.D.N.Y. Feb. 11, 2016).
Chaitman persisted. After her motion for leave to appeal was denied, she served requests for interrogatories on the Trustee to obtain discovery regarding the Trustee's compensation. At a discovery conference, the Court explained that its ruling in the Omnibus Decision resolved the due process issue as a matter of law and discovery on the topic was therefore improper. (Tr. of Mar. 17, 2016 Hr'g at 9:12-10:20 (ECF Adv. P. No. 10-04658 Doc. # 52).) Accordingly, the Court issued a protective order consistent with its bench ruling. (See ECF Doc. # 12912.) Chaitman moved for leave to appeal but her motion was denied by District Judge Pauley, ruling that she had failed to establish a "substantial ground for difference of opinion on the question of whether a SIPA [t]rustee, proceeding as a litigant in filing avoidance actions, attains a state-actor status analogous to that of a judge or prosecutor." In re BLMIS, Nos. 16cv2792, 16cv2804, 16cv2806, 16cv2807 (WHP), 2016 WL 3892765, at *4 (S.D.N.Y. July 14, 2016).
Chaitman has never pointed to any facts to overcome the finding of the Trustee's disinterestedness or the good faith performance of his duties, and Chaitman's baseless "assumptions" are no substitute for facts. Her line of inquiry is immaterial, will, at best, duplicate the experts' testimony, and if permitted, unnecessarily prolong the trial and harass the Trustee. Since Chaitman has not identified any other purpose for the Trustee's testimony, the Picard Motion is granted.
The Blums' BLMIS accounts received inter-account transfers from the accounts of their now deceased parents. Their parents' account statements showed numerous PW transactions, but the Blums asserted that their parents never received profit withdrawals. (See, e.g., Deposition of Norman Blum, M.D., dated May 13, 2016 at 60:2-61:23 (ECF Doc. # 14359-4) & Deposition of Joel Alan Blum, dated May 16, 2016 at 77:20-79:5 (ECF Doc. # 14359-5).)
The crux of the Blums Motion, which focused on the Blums' deposition testimony, was that the Blums should not be permitted to testify as to their parents' BLMIS accounts because they lacked personal knowledge as required by FED. R. EVID. 602. (Blums Motion at 4-9.) The Blums countered that they would be able to lay a foundation for the testimony about their parents' accounts based on their knowledge of their father's financial and estate planning. (Blums Opposition at 7-10.) Alternatively, they asserted that the testimony was admissible under FED. R. EVID. 406 as evidence of their father's habits. (Blums Opposition at 21.)
After the April 18, 2017 hearing, counsel for the Blums informed the Court that the Blums would testify in person. (See Letter, dated May 4, 2017 (EDF Doc. # 15957).) Accordingly, the Court will defer ruling on the Blums Motion. Nat'l Union Fire Ins. Co., 937 F. Supp. at 287.
For the reasons stated, the Picard Motion is granted, and a ruling on the Blums Motion is deferred until trial. Settle order on notice.