Irving H. Picard v. Saul B. Katz et al
Filing
114
FILING ERROR - DEFICIENT DOCKET ENTRY (SEE DOCUMENT #116) - DECLARATION of David J. Sheehan in Opposition re: 80 MOTION to Strike THE EXPERT REPORTS AND TESTIMONY OF STEVE POMERANTZ AND HARRISON J. GOLDIN.. Document filed by Irving H. Picard. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3, # 4 Exhibit 4)(Sheehan, David) Modified on 2/10/2012 (ldi).
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
Adv. Pro. No. 08-01789 (BRL)
BERNARD L. MADOFF,
SIPA LIQUIDATION
Debtor.
IRVING H. PICARD, Trustee for the Liquidation
(Substantively Consolidated)
Adv. Pro. No. 10-5287 (BRL)
of Bernard L. Madoff Investment Securities LLC,
Plaintiff,
v.
SAUL B. KATZ, et al.,
Case No. 11-Civ-03605 (JSR)
Defendants.
TRUSTEE’S MEMORANDUM OF LAW IN OPPOSITION TO THE DEFENDANTS’
MOTION TO STRIKE THE EXPERT REPORT AND TESTIMONY OF
HARRISON J. GOLDIN
TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT ................................................................................................... 1
ARGUMENT ................................................................................................................................. 2
I.
GOLDIN’S TESTIMONY IS NECESSARY........................................................ 3
II.
GOLDIN’S TESTIMONY IS RELEVANT .......................................................... 4
CONCLUSION .............................................................................................................................. 6
-i-
TABLE OF AUTHORITIES
Page(s)
CASES
Bd. of Trs. of AFTRA Ret. Fund v. JPMorgan Chase Bank,
09-Civ-686, 2011 WL 6288415 (S.D.N.Y. Dec. 15, 2011) .......................................................3
Daubert v. Merrell Dow Pharms., Inc.,
509 U.S. 579, 591 (1993) ...........................................................................................................5
Degelman Indus. Ltd. v. Pro-Tech Welding & Fabrication, Inc.,
06-CV_6346, 2011 WL 6754051 (W.D.N.Y. May 27, 2011) ...................................................4
Gebhart v. S.E.C.,
595 F.3d 1034 (9th Cir. 2010) ...................................................................................................6
In re Blech Sec. Litig.,
94-Civ-7695, 2003 WL 1610775 (S.D.N.Y. March 26, 2003) ..................................................3
In re Reliant Energy ERISA Litig.,
H-02-2051, 2005 WL 5989791 (S.D. Tex. Aug. 19, 2005) .......................................................4
Kearney v. Auto-Owners Ins. Co.,
8:06-CV-595, 2009 WL 3712343 (M.D. Fla. Nov. 5, 2009) .....................................................6
PFS Distrib. Co. v. Raduechel,
574 F.3d 580 (8th Cir. 2009) .....................................................................................................5
Stuart Park Assoc. Ltd. P’ship v. Ameritech Pension Tr.,
51 F.3d 1319 (7th Cir. 1995) .....................................................................................................4
U.S. v. Duncan,
42 F.3d 97 (2d Cir. 1994) ..........................................................................................................3
U.S. v. Fauls,
65 F.3d 592 (7th Cir. 1995) .......................................................................................................6
U.S. v. Jacques Dessange, Inc.,
S2 99 CR. 1182, 2000 WL 294849 (S.D.N.Y. March 21, 2000) ...............................................3
U.S. v. Blizerian,
926 F.2d 1285, 1295 (2d Cir. 1991)...........................................................................................3
Vernazza v. S.E.C.,
327 F.3d 851 (9th Cir. 2003) .....................................................................................................5
-i-
TABLE OF AUTHORITIES
(continued)
Page(s)
STATUTES
Securities Investor Protection Act, 15 U.S.C. §§ 78aaa et seq. .......................................................1
OTHER AUTHORITIES
Fed.R.Evid. 702 .......................................................................................................................2, 3, 4
-ii-
Irving H. Picard, as trustee (“Trustee”) for the substantively consolidated liquidation
proceedings of Bernard L. Madoff Investment Securities LLC (“BLMIS”) under the Securities
Investor Protection Act, 15 U.S.C. §§ 78aaa et seq., and the estate of Bernard L. Madoff
(“Madoff”), by and through his undersigned counsel, hereby submits this Memorandum of Law
in Opposition to the Defendants’ Motion to Strike the Expert Reports and Testimony of Dr.
Steve Pomerantz and Harrison J. Goldin (“Goldin”), dated Jan. 26, 2012 (hereinafter, the
“Motion”).1
PRELIMINARY STATEMENT
Goldin’s Report and expected testimony are both necessary and relevant in aiding the
jury with understanding what conduct is expected of a sponsor, administrator, trustee, and
fiduciary of a retirement plan in accordance with industry standards. Here, the Defendants
included and endorsed BLMIS as a fund option in the Sterling Equities Associates’ Retirement
Plan (the “Plan”). At the time of BLMIS’s collapse, well over 90% of money in the Plan was
allocated to BLMIS. Goldin will assist the trier of fact by explaining how Defendants were
expected to perform with regard to safeguarding their employee’s retirement funds. Goldin’s
specialized knowledge is probative as to how the Defendants’ actions and omissions, with regard
to discharging their obligations under the Plan, demonstrate a conscious decision by the
Defendants to not investigate and not conduct due diligence into Madoff and his investment
performance.
1
Citations to the Defendants’ Memorandum of Law in Support of the Motion to Strike the
Expert Reports and Testimony of Dr. Steve Pomerantz and Harrison J. Goldin, dated Jan. 26,
2012 (hereinafter “Defs. Br. at __”), at 10-11. The Trustee opposes the Motion, as it relates to
Dr. Steve Pomerantz, via a separate memorandum of law.
1
In connection with his retention, Goldin prepared and signed an Expert Report, dated
November 22, 2011 (“Goldin Rep.”).2 The Trustee offers Goldin to: (i) outline the standards,
protocols and guidelines that are generally accepted among those responsible for administering
third-party retirement plans (“Standards”); and (ii) determine whether the “Sterling Fiduciaries,”
identified as Defendants Sterling Equities Associates,3 Arthur Friedman, and Michael Katz,
departed from the Standards in administering the Plan. Goldin has opined that:
The Sterling Fiduciaries departed from industry Standards by failing to conduct
diligence on BLMIS. (Goldin Rep. at 13-14.);
The Sterling Fiduciaries departed from industry Standards by failing to act in the
face of warning signs. (Id. at 15-16.);
The Sterling Fiduciaries departed from industry Standards in the documentation
and disclosure of the Sterling Plan’s structure, administration and performance.
(Id. at 17-23.);
The Sterling Fiduciaries departed from industry Standards by compromising their
independence and failing to make appropriate disclosure. (Id. at 24-25.); and
The Sterling Fiduciaries departed from industry Standards by failing to promote
the diversification of Sterling Plan assets. (Id. at 25-26.)
Because Goldin’s testimony is both necessary and relevant, the Motion should be denied.
ARGUMENT
Rule 702 of the Federal Rules of Evidence provides that an expert may testify if: (a) the
expert’s scientific, technical, or other specialized knowledge will help the trier of fact to
2
Declaration of David J. Sheehan in Opposition to the Defendants’ Motion to Strike the Expert
Reports and Testimony of Harrison J. Goldin, dated February 09, 2012 (hereinafter “Sheehan
Decl.”), Exhibit 1. Goldin prepared and signed an Errata Sheet to his report on January 10, 2012,
which is attached as Sheehan Decl., Exhibit 2.
3
Sterling Equities Associates is a general partnership formed under the laws of the state of New
York. (Answer to the Am. Compl. at ¶ 384). The general partners of Sterling Equities
Associates are Fred Wilpon, Saul Katz, Richard Wilpon, Michael Katz, David Katz, Arthur
Friedman, Marvin Tepper, Gregory Katz, Thomas Osterman, and Jeffrey Wilpon. (Id. at ¶ 385).
2
understand the evidence or to determine a fact in issue; (b) the testimony is based on sufficient
facts or data; (c) the testimony is the product of reliable principles and methods; and (d) the
expert has reliably applied the principles and methods to the facts of the case.” Fed.R.Evid. 702.
(2000). Here, Defendants have raised no objections to Goldin’s qualifications, the sufficiency of
the facts and data he relied upon, or his methodology.4 Goldin’s report and expected testimony
consist of his specialized knowledge of the retirement plan industry.
I.
GOLDIN’S TESTIMONY IS NECESSARY
Goldin’s expected testimony will assist the jury in understanding, among other things, the
retirement plan industry, the highly unusual nature of the Plan, and the Sterling Fiduciaries’
actions and inactions related to the administration of the Plan. “Expert witnesses are often
uniquely qualified in guiding the trier of fact through a complicated morass of obscure terms and
concepts.” U.S. v. Duncan, 42 F.3d 97, 101 (2d Cir. 1994). Testimony regarding industry
practice is routinely admitted and “is appropriate if it helps a jury evaluate a defendant’s conduct
against ‘the standards of accepted practice.’” U.S. v. Jacques Dessange, Inc., S2 99 CR. 1182,
2000 WL 294849, at *2 (S.D.N.Y. March 21, 2000) (citing U.S. v. Blizerian, 926 F.2d 1285,
1295 (2d Cir. 1991)); see also In re Blech Sec. Litig., 94-Civ-7695, 2003 WL 1610775, at *19
(S.D.N.Y. March 26, 2003) (finding that experts could testify that particular practices deviated
from the norm and that “it is proper for an expert to testify as to the customs and standards of an
industry, and to opine as to how a party’s conduct measured up against such standards”) (internal
citations omitted).
Most recently, this Court recognized that expert testimony on the retirement plan industry
assists the trier of fact. Bd. of Trs. of AFTRA Ret. Fund v. JPMorgan Chase Bank, 09-Civ-686,
4
Defendants’ conclusory statement that Goldin’s opinions are “unfounded” lacks any
substantiation and should be disregarded. (Defs. Br. at 10).
3
2011 WL 6288415, at * 1 (S.D.N.Y. Dec. 15, 2011) (expert testimony admitted on whether
pension plan fiduciary met standards of care when he failed to understand investment risk, failed
to conduct sufficient due diligence, and failed to follow up on “red flags”). So too here.5
Defendants misstate the purpose and relevance of Goldin’s testimony and erroneously
argue that the Trustee is using Goldin to advocate for a different legal standard- the “prudent
man” standard under ERISA - rather than the willful blindness standard established by this
Court. (Def. Br. at 10-11). Contrary to this bald assertion, Goldin’s expected testimony is
necessary to explain to the jury certain specialized tenets of the retirement plan industry (e.g., the
roles of a trustee, a plan sponsor, a custodian, and the role of due diligence). (Goldin Rep. at 1112). Goldin’s report and testimony are also necessary to explain to the jury why the inclusion of
an investment option like BLMIS in a 401(k) plan, as well as the unusual manner in which the
BLMIS option was administered, was highly irregular and further heightened the need for
independent due diligence by the Sterling Fiduciaries. (Goldin Rep. at 13-23).
Because Goldin’s testimony will assist the jury here, it is properly admitted.
II.
GOLDIN’S TESTIMONY IS RELEVANT
Goldin’s testimony is relevant as to whether the Defendants consciously avoided
confirming their suspicions of Madoff. Rule 702’s relevancy standard requires the court to
assess the “fit of the proposed testimony; i.e., whether the expert testimony is ‘sufficiently tied to
the facts of the case that it will aid the jury in resolving a factual dispute.’” Degelman Indus.
Ltd. v. Pro-Tech Welding & Fabrication, Inc., 06-CV-6346, 2011 WL 6754051, at *2 (W.D.N.Y.
5
See also, Stuart Park Assoc. Ltd. P’ship v. Ameritech Pension Tr., 51 F.3d 1319, 1327-28 (7th
Cir. 1995) (admitting expert testimony concerning fiduciary obligations under ERISA which
would establish reasonableness of defendants’ motives and not invented for the purposes of
trial); In re Reliant Energy ERISA Litig., H-02-2051, 2005 WL 5989791, at * 2 (S.D. Tex. Aug.
19, 2005) (finding expert testimony on complex legal issues under ERISA, “such as whether
Defendants were ERISA fiduciaries for certain relevant purposes,” helpful).
4
May 27, 2011) (internal citations omitted) (citing Daubert v. Merrell Dow Pharms., Inc., 509
U.S. 579, 591 (1993)).
Defendants argue that Goldin’s expected testimony is irrelevant as to how the Defendants
chose to invest their own funds. (Defs. Br. at 5). This argument is a red herring and ignores why
Goldin’s testimony should be admitted. Since 1997, Defendants were undoubtedly responsible
for the safeguarding of tens of millions of dollars in Plan assets. Defendants chose not only to
include Madoff as a fund “option,” but also chose to endorse Madoff to their Plan participants in
derogation of industry standards. (Goldin Rep. at 24). Goldin opines that a “fiduciary is
responsible for exercising due diligence to ensure that a plan makes reasonable investments,” and
“that those investments are properly managed, reported on and safeguarded.” (Id. at 6). He
further opines that the Defendants’ reliance on their personal investment history with Madoff
was insufficient in discharging their due diligence obligations. (Id. at 16).
Defendants’ extreme departure from industry standards concerning due diligence goes
right to the heart of the Trustee’s allegations that the Defendants willfully blinded themselves to
Madoff’s fraud.6 See PFS Distrib. Co. v. Raduechel, 574 F.3d 580, 597 (8th Cir. 2009) (holding
that testimonies of accounting expert who opined that accountant acted in compliance with
professional accounting standards, and bank expert, who testified that bank correctly handled
relevant file under banking standards, were relevant to knowledge and state of mind); Vernazza
6
Arthur Friedman and Michael Katz admit that they conducted no due diligence on BLMIS in
connection with creating the 401(k) plan. (Michael Katz Tr. 244:7-20; Friedman Tr. 570:5-15).
The relevant excerpts from the Deposition of Michael Katz, dated December 9, 2011 (“Michael
Katz Tr.”) are attached as Sheehan Decl, Exhibit 3. The relevant excerpts from the Rule 2004
Examination of Arthur Friedman, June 24, 2010 (“Friedman Tr.”) are attached as Sheehan Decl.,
Exhibit 4. Michael Katz testified that he understood his responsibility as a trustee to the Plan
participants “was to make sure that their monies were protected… in a manner that as if it was
my money, or better.” (Michael Katz Tr. 227:22- 228:3). Yet, he acknowledged that the 401(k)
account was treated just like any other Madoff account. (Id. at 230:20-23).
5
v. S.E.C., 327 F.3d 851, 862 (9th Cir. 2003); U.S. v. Fauls, 65 F.3d 592, 598 (7th Cir. 1995);
Kearney v. Auto-Owners Ins. Co., 8:06-CV-595, 2009 WL 3712343, at *10 (M.D. Fla. Nov. 5,
2009); Gebhart v. S.E.C., 595 F.3d 1034, 1042 (9th Cir. 2010).
Goldin’s opinions and expected testimony concerning the Sterling Fiduciaries’ failure to
investigate and conduct due diligence, in contravention of industry standards (Goldin Rep. at 13),
is probative of whether or not they willfully blinded themselves to Madoff’s fraud. Similarly,
Goldin’s opinions and expected testimony regarding the Sterling Fiduciaries failure to both
understand and accurately disclose Madoff’s strategy, its risks, fees and returns to their plan
participants (Id. at 17-23) is equally probative.
CONCLUSION
For the foregoing reasons, the Trustee respectfully asks this Court to deny Defendants’
Motion.
Dated: New York, New York
February 9, 2012
BAKER & HOSTETLER LLP
/s/ David J. Sheehan
Baker & Hostetler LLP
David J. Sheehan
Fernando A. Bohorquez
Mark A. Kornfeld
Timothy S. Susanin
Brian W. Song
45 Rockefeller Plaza
New York, New York 10111
Telephone: (212) 589-4200
Facsimile: (212) 589-4201
Attorneys for Irving H. Picard, Trustee for
the Substantively Consolidated SIPA
Liquidation of Bernard L. Madoff Investment
Securities LLC and Bernard L. Madoff
6
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