Schoenmann v. Salevouris et al

Filing 55

ORDER RE: MOTIONS IN LIMINE. Signed by Magistrate Judge Jacqueline Scott Corley on 10/24/2016. (ahm, COURT STAFF) (Filed on 10/24/2016)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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E. LYNN SCHOENMANN,
Plaintiff,

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Re: Dkt. Nos. 21, 23, 24, 25, 26, 27, 29
BILLIE Z. SALEVOURIS, et al.,
Defendants.

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United States District Court
Northern District of California

ORDER RE: MOTIONS IN LIMINE

v.

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Case No. 15-cv-05193-JSC

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Plaintiff E. Lynn Schoenmann (“Plaintiff”), trustee for the bankruptcy estate of Debtor

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Frank E. Lembi (“Lembi”), brings this action against Defendants Billie Z. Salevouris and David

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Raynal (collectively, “Defendants”) to recover approximately $1.8 million in funds that Plaintiff

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alleges Lembi fraudulently transferred to Defendants. The Court held a hearing on the parties’

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respective motions in limine on October 19, 2016. As set forth on the record at the hearing, the

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Court rules as set forth below.

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I.

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Plaintiff’s MIL No. 1 and Defendants’ MIL No. 4 re: Alter Ego (Dkt. Nos. 24, 29)
Plaintiff’s MIL No. 1 is DENIED and Defendants’ MIL No. 4 is GRANTED. The Court

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concludes that Plaintiff’s First Amended Complaint does not sufficiently allege any alter ego

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theory—traditional, reverse, or otherwise—and thus she is not permitted to argue any such theory

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at trial, either to the Court or to the jury.

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“The equitable alter ego doctrine governs whether two separate entities may be treated as

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the same entity.” Sandoval v. Ali, 34 F. Supp. 3d 1031, 1040 (N.D. Cal. 2014) (citation omitted).

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“The alter ego doctrine applies where (1) such a unity of interest and ownership exists that the

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personalities of the corporation and individual are no longer separate, and (2) an inequitable result

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will follow if the acts are treated as those of the corporation alone.” RRX Indus., Inc. v. Lab-Con,

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Inc., 772 F.2d 543, 545 (9th Cir. 1985) (citations omitted). “Conclusory allegations of ‘alter ego’

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status are insufficient to state a claim. Rather, a plaintiff must allege specifically both of the

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elements of alter ego liability, as well as facts supporting each.” Neilson v. Union Bank of

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California, N.A., 290 F. Supp. 2d 1101, 1116 (C.D. Cal. 2003). “In assessing alter ego, courts

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consider the commingling of funds and other assets of the entities, the holding out by one entity

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that it is liable for the debts of the other, identical equitable ownership of the entities, use of the

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same offices and employees, use of one as a mere shell or conduit for the affairs of the other,

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inadequate capitalization, disregard of corporate formalities, lack of segregation of corporate

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records, and identical directors and officers.” Sandoval, 34 F. Supp. 3d at 1040.
The First Amended Complaint does not state a claim for alter ego liability. Indeed,

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United States District Court
Northern District of California

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Defendants could not have even moved to dismiss an alter ego theory for failure to state a claim

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because the First Amended Complaint does not suggest any such theory. Instead, Plaintiffs’

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theory is that Lembi owned the funds at issue and First Apartment Rentals, Inc. served merely as

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Lembi’s agent or conduit in distributing the funds to Defendants.

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II.

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Plaintiff’s MIL No. 2 re: Audio and Transcripts from 341 Meeting of Creditors in the
Event the Debtor is Unavailable as a Witness (Dkt. No. 25)
DENIED without prejudice. While Plaintiff has identified audio recordings and transcripts

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from 11 different days of 341 Meetings of Creditors that she may want to introduce at trial, she

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has not identified the specific portions of the recordings or transcripts that she may seek to

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introduce. Without this information, the Court is unable to determine whether the requirements of

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the Residual Hearsay Exception are satisfied. See Fed. R. Evid. 807. For example, the Court

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cannot determine that the transcript portion offered “is more probative on the point for which it is

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offered than any other evidence that the proponent can obtain through reasonable efforts,” Fed. R.

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Evid. 807(a)(3), without knowing more particularly what portions of the transcripts Plaintiff seeks

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to offer. On or before November 16, 2016 Plaintiff shall provide Defendants and the Court with

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copies of the recordings or transcripts with the portions that Plaintiff may seek to admit under

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Rule 807 highlighted or otherwise identified. The parties should be prepared to discuss the

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admissibility of the highlighted portions at the pretrial conference.
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III.

Plaintiff’s MIL No. 3 and Defendants’ MIL No. 1 re: Testimony of Trustee’s
Accountant Jay Crom (Dkt. Nos. 21, 26)
Plaintiff’s MIL No. 3 is DENIED IN PART and GRANTED IN PART provisionally, and

Defendants’ MIL No. 1 is GRANTED to the extent Plaintiff seeks to introduce expert testimony
through her accountant Jay Crom (“Crom”).

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Plaintiff concedes she did not disclose Crom as an expert witness pursuant to Federal Rule
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of Civil Procedure 26(a)(2); he therefore cannot provide expert testimony at trial. Crom is also not
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permitted to testify as a percipient witness pursuant to Federal Rule of Evidence 602 as to the
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operations and records of First Apartment Rentals, Inc. Crom was never employed by or present
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at FAR; he therefore does not have personal knowledge of FAR’s corporate structure or the
financial transactions that it engaged in. Crom’s review of FAR’s business records after the fact

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United States District Court
Northern District of California

does not, as Plaintiff argues, make him a percipient witness. See E. Point Sys., Inc. v. Maxim, No.
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3:13-CV-00215 (VAB), 2015 WL 8023569, at *2 (D. Conn. Dec. 4, 2015).
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Plaintiff is provisionally permitted to have Crom testify as a summary witness pursuant to
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Federal Rule of Evidence 1006 provided that Plaintiff can lay a proper foundation for the records
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or data underlying the summary evidence. With respect to the ownership information discussed in
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Crom’s summary chart (see Dkt. No. 26-1 at 3 (note A)), Plaintiff must identify the underlying

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documentary evidence to establish that Crom is summarizing the evidence of record as opposed to
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providing an expert opinion. Plaintiff shall provide a written submission with her supporting
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evidence no later than November 16, 2016. Defendants may file a written response no later than
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November 23, 2016 addressing whether Crom’s discussion of ownership information is in fact

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proper summary evidence. Finally, Defendants may, at the appropriate time, seek a limiting
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instruction to the jury regarding the use of summary evidence. See, e.g., United States v. Olano,
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62 F.3d 1180, 1204 (9th Cir. 1995) (finding district court did not abuse its discretion in admitting
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summary evidence through a certified public accountant where “[t]he district court examined the
government’s summary charts prior to their admission to the jury, the defendants had an

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opportunity to review the charts, and the court gave a limiting instruction informing the jury that
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the summaries were not being admitted as substantive evidence” and where the defendants had an
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opportunity to cross-examine the witness).

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IV.

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Defendants’ MIL No. 2 re: Exclusion of Undisclosed Documentary Evidence (Dkt.
No. 23)
DENIED. Federal Rule of Civil Procedure 26(a)(1)(A) requires a party, without awaiting a

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discovery request, to provide, among other things, “a copy—or a description by category and

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location—of all documents, electronically stored information, and tangible things that the

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disclosing party has in its possession, custody, or control and may use to support its claims or

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defenses, unless the use would be solely for impeachment.” Plaintiff complied with this Rule 26

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obligation when she served Initial Disclosures that identified categories of documents that she may
use to support her claims or defenses. (Dkt. No. 23-7 at 4.) That Defendants thereafter failed to

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United States District Court
Northern District of California

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request copies of the identified documents does not change this fact. Further, there is no prejudice

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to Defendants given that the parties have now exchanged trial exhibit lists. (Dkt. No. 44 at 7-9.)

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As discussed at the hearing, Defendants are permitted to file a further motion in limine

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regarding the exclusion from evidence of a consent order from related state court proceedings.

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Defendants shall file their motion, if any, no later than November 16, 2016. Plaintiff shall file her

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response no later than November 23, 2016.

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V.

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Defendants’ MIL No. 3 re: Exclusion of Evidence of Non-Party Frank E. Lembi’s
Invocation of Fifth Amendment Privilege (Dkt. No. 27)
DENIED. While the Ninth Circuit has not ruled on the admissibility of a non-party’s

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invocation of his Fifth Amendment privilege, Defendants note that the Second Circuit in LiButti v.

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United States, 107 F.3d 110, 123-24 (2d Cir. 1997), articulated several non-exclusive factors that

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courts can consider in determining whether to admit such evidence—specifically, (1) the nature of

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the relevant relationships, (2) the degree of control of the party over the non-party witness, (3) the

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compatibility of the interests of the party and non-party witness in the outcome of the litigation,

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and (4) the role of the non-party witness in the litigation. “Whether these or other circumstances

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unique to a particular case are considered by the trial court, the overarching concern is

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fundamentally whether the adverse inference is trustworthy under all of the circumstances and will

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advance the search for the truth.” Id. at 124. At least one court in this District has discussed the
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LiButti factors. See Cotton v. City of Eureka, No. C-08-04386 SBA (EDL), 2010 WL 2889498, at

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*4 (N.D. Cal. July 22, 2010).

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Under the specific circumstances of this case, the probative value of Lembi’s invocation of

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his Fifth Amendment privilege outweighs any danger of unfair prejudice, confusing the issues,

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misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence. See

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Fed. R. Evid. 403. LiButti factors (1) and (4) are particularly relevant to the Court’s

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determination. With respect to factor (1), both parties agree that there is a close relationship

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between Lembi and Defendants. (See Dkt. No. 27 at 4 (“Here, there is indeed a historically close

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relationship among Mr. Lembi and the Defendants.”); (Dkt. No. 32 at 4 (“The Debtor has a close,

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very close, relationship with both Defendants.”).)

United States District Court
Northern District of California

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As to factor (4), the Court considers “[w]hether the non-party witness was a key figure in

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the litigation and played a controlling role in respect to any of its underlying aspects[.]” LiButti,

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107 F.3d at 123-24. Contrary to Defendants’ assertions (see Dkt. No. 27 at 4-5), Lembi is the key

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figure in this case; it is his state of mind and his actions—not those of Defendants—that form the

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basis of Plaintiff’s claims for fraudulent and preferential transfer. As Plaintiff notes, “[w]ere the

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Debtor not invoking the Fifth Amendment, nearly all of the evidence required to prove the claims

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in this action could be elicited from him.” (Dkt. No. 32 at 4.) Plaintiff should thus be permitted to

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introduce evidence of Lembi’s prior invocation of the Fifth Amendment and/or call Lembi at trial

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so the jury can hear him invoke the Fifth Amendment. Otherwise, the jury may be left to wonder

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why Plaintiff did not call Lembi to establish the facts of the case. See, e.g., Cerro Gordo Charity

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v. Fireman’s Fund Am. Life Ins. Co., 819 F.2d 1471, 1482 (8th Cir. 1987) (“Richards is also a key

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figure in this case. His actions form the very basis of the affirmative defense of fraud. If anyone

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knew whether there was an intent to commit a fraud, it was Richards. Hearing Richards invoke

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the privilege informed the jury why the parties with the burden of proof, i.e., the insurance

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companies, resorted to less direct and more circumstantial evidence than Richards’ own account of

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what had occurred. Otherwise, the jury might have inferred that the companies did not call

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Richards to testify because his testimony would have damaged their case.”) (internal citations

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omitted); Pac. Gas & Elec. Co. v. Howard P. Foley Co., No. CIV. 85-2922 SW, 1993 WL
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299219, at *10 (N.D. Cal. July 27, 1993) (granting plaintiff permission for issuance of trial

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subpoena to non-party witness despite his indication that he would invoke the Fifth Amendment,

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noting that the plaintiff faced a problem similar to Cerro Gordo).

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This Order disposes of Docket Nos. 21, 23, 24, 25, 26, 27, and 29.

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IT IS SO ORDERED.

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Dated: October 24, 2016

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JACQUELINE SCOTT CORLEY
United States Magistrate Judge

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United States District Court
Northern District of California

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