Irving H. Picard v. Saul B. Katz et al

Filing 117

MEMORANDUM OF LAW in Opposition re: 82 MOTION to Strike the Expert Report and Testimony of John Maine.. Document filed by Charles 15 Associates, Charles 15 LLC, Charles Sterling LLC, Charles Sterling Sub LLC, College Place Enterprises LLC, Coney Island Baseball Holding Company LLC, Estate of Leonard Schreier, FFB Aviation LLC, FS Company LLC, Fred Wilpon Family Trust, Arthur Friedman, Ruth Friedman, Iris J. Katz and Saul B. Katz Family Foundation, Inc., Judy and Fred Wilpon Family Foundation, Inc., Amy Beth Katz, David Katz, Dayle Katz, Gregory Katz, Howard Katz, Iris Katz, 157 J.E.S. LLC, Air Sterling LLC, BAS Aircraft LLC, Jason Bacher, Bon Mick Family Partners LP, Bon-Mick, Inc., Brooklyn Baseball Company LLC, C.D.S. Corp., Michael Katz, Saul B. Katz, Todd Katz, Katz 2002 Descendants' Trust, Heather Katz Knopf, Natalie Katz O'Brien, Mets II LLC, Mets Limited Partnership, Mets One LLC, Mets Partners, Inc., Minor 1 (REDACTED), Minor 2 (REDACTED), L. Thomas Osterman, Phyllis Rebell Osterman, Realty Associates Madoff II, Red Valley Partners, Robbinsville Park LLC, Ruskin Garden Apartments LLC, Saul B. Katz Family Trust, Michael Schreier, Deyva Schreier Arthur, See Holdco LLC, See Holdings I, See Holdings II, Sterling 10 LLC, Sterling 15C LLC, Sterling 20 LLC, Sterling Acquisitions LLC, Sterling American Advisors II LP, Sterling American Property III LP, Sterling American Property IV LP, Sterling American Property V LP, Sterling Brunswick Corporation, Sterling Brunswick Seven LLC, Sterling Dist Properties LLC, Sterling Equities, Sterling Equities Associates, Sterling Equities Investors, Sterling Heritage LLC, Sterling Internal V LLC, Sterling Jet II Ltd., Sterling Jet Ltd., Sterling Mets Associates, Sterling Mets Associates II, Sterling Mets LP, Sterling Pathogenesis Company, Sterling Third Associates, Sterling Thirty Venture LLC, Sterling Tracing LLC, Sterling Twenty Five LLC, Sterling VC IV LLC, Sterling VC V LLC, Edward M. Tepper, Elise C. Tepper, Jacqueline G. Tepper, Marvin B. Tepper, Valley Harbor Associates, Kimberly Wachtler, Philip Wachtler, Bruce N. Wilpon, Daniel Wilpon, Debra Wilpon, Fred Wilpon, Jeffrey Wilpon, Jessica Wilpon, Judith Wilpon, Richard Wilpon, Scott Wilpon, Valerie Wilpon, Wilpon 2002 Descendants' Trust, Robin Wilpon Wachtler. (Wagner, Karen)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------- x
:
IRVING H. PICARD,
:
:
Plaintiff,
:
:
11-CV-03605 (JSR) (HBP)
- against :
:
SAUL B. KATZ, et al.,
:
:
Defendants.
:
:
----------------------------------- x

MEMORANDUM OF LAW IN OPPOSITION TO TRUSTEE’S MOTION TO
STRIKE THE EXPERT REPORTS AND TESTIMONY OF JOHN MAINE

DAVIS POLK & WARDWELL LLP
450 Lexington Avenue
New York, New York 10017
[phone]
Attorneys for Defendants

TABLE OF CONTENTS
PAGE
TABLE OF AUTHORITIES .............................................................................................. ii
PRELIMINARY STATEMENT .........................................................................................1
BACKGROUND .................................................................................................................2
ARGUMENT.......................................................................................................................4
I.

MR. MAINE’S TESTIMONY IS RELEVANT......................................................5

II.

MR. MAINE’S TESTIMONY IS HELPFUL TO THE TRIER OF FACT ............6

III.

MR. MAINE’S TESTIMONY IS OTHERWISE
ADMISSIBLE UNDER RULE 702 ........................................................................9
A.

Mr. Maine Is Eminently Qualified to Testify As an Expert
Concerning the Retail Securities Brokerage Business.................................9

B.

Mr. Maine’s Testimony Is More Than Adequately Supported..................12

C.

Mr. Maine’s Testimony Is Entirely Consistent
With and Supported by Record Evidence..................................................14

CONCLUSION..................................................................................................................17

i

TABLE OF AUTHORITIES
PAGE
CASES
Amorgianos v. Nat’l R.R. Passenger Corp., 303 F.3d 256 (2d Cir. 2002) ......................... 8
B.F. Goodrich v. Betkoski, 99 F.3d 505 (2d Cir. 1996) .................................................... 14
Borsack v. Ford Motor Co., No. 04 Civ. 3255,
2009 U.S. Dist. LEXIS 124993 (S.D.N.Y. Feb. 3, 2009)............................................. 8
Boucher v. U.S. Suzuki Motor Corp., 73 F.3d 18 (2d Cir. 1996)...................................... 14
Bragdon v. Abbott, 524 U.S. 624 (1998) .......................................................................... 13
Compania Embotelladora Del Pacifico, S.A. v. Pepsi Cola Co.,
650 F. Supp. 2d 314 (S.D.N.Y. 2009)......................................................................... 13
Fashion Boutique of Short Hills, Inc. v. Fendi USA, Inc.,
314 F.3d 48 (2d Cir. 2002)............................................................................................ 8
First Tenn. Bank Nat’l Ass’n v. Barreto, 268 F.3d 319 (6th Cir. 2001) ........................... 12
Global-Tech Appliances, Inc. v. SEB, S.A., 131 S. Ct. 2060 (2011)................................... 5
Highland Capital Mgmt., L.P. v. Schneider, 551 F. Supp. 2d 173 (S.D.N.Y. 2008)........ 11
Iacobelli Constr., Inc. v. County of Monroe, 32 F.3d 19 (2d Cir. 1994) .......................... 12
In re Blech Sec. Litig., No. 94 Civ. 7696,
2003 U.S. Dist. LEXIS 4650 (S.D.N.Y. Mar. 26, 2003) ............................................ 11
Johnson & Johnson Vision Care, Inc. v. CIBA Vision Corp., No. 04-CV-7369,
2006 U.S. Dist. LEXIS 51869 (S.D.N.Y. July 27, 2006) .................................... 4, 9-10
Keenan v. Mine Safety Appliances Co., No. 03-CV-710,
2006 U.S. Dist. LEXIS 65735 (E.D.N.Y. Aug. 31, 2006)............................................ 4
Li v. Aponte, No. 05 Civ. 6237,
2009 U.S. Dist. LEXIS 59741 (S.D.N.Y. May 5, 2009) ............................................ 13
Lion Oil Trading & Transp. Inc. v. Statoil Mktg. & Trading (US) Inc.,
No. 08 Civ. 11315, 2011 U.S. Dist. LEXIS 24516 (S.D.N.Y. Feb. 28, 2011) ........... 11
Mid-State Fertilizer Co. v. Exch. Nat’l Bank of Chicago,
877 F.2d 1333 (7th Cir. 1989) .................................................................................... 13
ii

Nimely v. City of New York, 414 F.3d 381 (2d Cir. 2005) .................................................. 4
Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Sec., LLC,
716 F. Supp. 2d 220 (S.D.N.Y. 2010)........................................................................... 9
Picard v. Katz, No. 11 Civ. 3605 (JSR),
2011 U.S. Dist. LEXIS 109595 (S.D.N.Y. Sept. 27, 2011).................................. 5, 8, 9
Picard v. Katz, No. 11 Civ. 3605 (JSR),
2012 U.S. Dist. LEXIS 5143 (S.D.N.Y. Jan. 17, 2012) ........................................... 5, 9
Primavera Familienstiftung v. Askin, 130 F. Supp. 2d 450 (S.D.N.Y.),
modified, 137 F. Supp. 2d 438 (S.D.N.Y. 2001)......................................................... 13
Ryan v. Nat’l Union Fire Ins. Co. of Pittsburgh, No. 3:03-CV-1154,
2010 U.S. Dist. LEXIS 53910 (D. Conn. June 2, 2010)............................................. 11
Scott v. Sears, Roebuck & Co., 789 F.2d 1052 (4th Cir. 1986) .......................................... 8
SEC v. Big Apple Consulting USA, Inc., No. 6:09-cv-1963,
2011 U.S. Dist. LEXIS 95292 (M.D. Fla. Aug. 25, 2011) ........................................... 7
SEC v. Johnson, 525 F. Supp. 2d 70 (D.D.C. 2007)........................................................... 7
SEC v. U.S. Envtl., Inc., No. 94 Civ. 6608, 2002 U.S. Dist. LEXIS 19701
(S.D.N.Y. Oct. 16, 2002) ....................................................................................... 11-12
United States v. Bilzerian, 926 F.2d 1285 (2d Cir. 1991)............................................... 4, 7
United States v. Daly, 842 F.2d 1380 (2d Cir. 1988)....................................................... 7-8
United States v. Joseph, 542 F.3d 13 (2d Cir. 2008) .......................................... 4, 6, 12, 14
United States v. Mejia, 545 F.3d 179 (2d Cir. 2008) .......................................................... 8
United States v. Russo, 74 F.3d 1383 (2d Cir. 1996).......................................................... 4
STATUTES & RULES
Fed. R. Evid. 702 ....................................................................................................... passim
OTHER AUTHORITIES
4 Jack B. Weinstein & Margaret A. Berger, Weinstein’s Federal Evidence
§ 702.05[2][a] (2d ed. 1997) ..........................................................................................7

iii

Defendants respectfully submit this memorandum of law in opposition to the
Trustee’s motion to exclude the expert reports and testimony of Defendants’ expert, John
Maine. The Trustee’s motion lacks any merit and must be denied.
PRELIMINARY STATEMENT
The Trustee’s effort to prevent John Maine from testifying at trial—while
simultaneously seeking to present expert testimony by his own litigation consultant—is
predicated on a fundamental misunderstanding of the case and the law that governs it.
This case is not about professional investment managers, hedge funds, or “institutional
investors.” The customs and practices of the investment management industry are not in
issue. It is undisputed that Defendants were not institutional investors; that BLMIS was a
registered broker-dealer, not a hedge fund; and that Defendants were inexperienced in
stock market investing, not part of the “investment management industry.”
Nor is this case about so-called “red flags” for institutional investors, or Sortino
ratios and what analysis of them, if performed, would reveal. It is not a negligence, or
even a recklessness, case. The issue is whether Defendants were willfully blind to the
fraud perpetrated on them and thousands of others by an exceptionally deceptive and
cunning fraudster who managed to fool his regulators and peers for decades.
Unlike the Trustee’s “red flags” expert, Dr. Steve Pomerantz, who addresses all
the wrong issues, Mr. Maine has expertise relevant to this case—expertise in retail
brokerage for high net worth individuals. He is, thus, uniquely well positioned to aid the
trier of fact. Moreover, the Trustee’s complaints about Mr. Maine lack any foundation.
First the Trustee criticizes Mr. Maine for offering no “opinions,” but then devotes the
remainder of his brief to criticizing the “opinions” in Mr. Maine’s reports. Which is it?

Ironically, each of the Trustee’s complaints about Mr. Maine and his testimony applies to
the Trustee’s own proffered “investment management industry” expert, Dr. Pomerantz.
At most the Trustee’s arguments go to the weight, not the admissibility, of the evidence.
Accordingly, there is no basis to exclude Mr. Maine’s testimony and the Trustee’s motion
to strike should be denied.
BACKGROUND
Defendants are the ten individual partners of Sterling Equities, their family
members, trusts, foundations, and affiliated business entities. Bernard L. Madoff
Investment Securities LLC (“BLMIS”) was an SEC-registered broker-dealer with whom
Defendants invested as retail brokerage customers for more than two decades. Bernard
L. Madoff (“Madoff”) was their widely lauded broker, to whom each Defendant gave
discretion to trade securities on his, her, or its behalf. Each Defendant entrusted his own
money to BLMIS. It is undisputed that no Defendant was investing money for other
people or for a fee. None is alleged to have ever worked for a stockbroker or investment
bank, and none is alleged to have had any training in investment management.
Within this framework, Mr. Maine was asked to prepare an expert report pursuant
to Fed. R. Civ. P. 26(a)(2)(B) regarding “private wealth management practices in the
financial industry, how brokers operate with regard to client assets and the customer’s
ability to do due diligence with respect to broker operations, and the nature of securities
brokerage accounts.” (Expert Report of John Maine (“Maine Report”), dated Nov. 22,
2011, at 1 (Sheehan Decl., Ex. 1)1.) Based upon his own extensive experience in the

1

References to the “Sheehan Decl.” and its attached exhibits are to the
Declaration of David J. Sheehan, dated January 26, 2012 and filed in support of the
2

retail brokerage industry and a review of various materials identified, Mr. Maine
provided an initial expert report that, among other things:
•

describes how a broker-dealer differs from a hedge fund or mutual fund and
explains different types of brokerage accounts (id. at 2-3, 5-6);

•

states reasons why, in Mr. Maine’s experience, wealthy individuals often hire
professionals, such as brokers, to invest their assets (id. at 3-5);

•

identifies the types of documents that brokerage customers receive from their
broker-dealers and explains the manner in which customers ordinarily rely on
those documents (id. at 6-11);

•

concludes that BLMIS documents reviewed by Mr. Maine had the appearance
of documents ordinarily issued by legitimate broker-dealers (id. at 11-13); and

•

identifies other information available to BLMIS customers on which investors
ordinarily rely in entrusting their assets to a broker-dealer (id. at 13-14).

Following receipt of Dr. Pomerantz’s initial expert report (“Pomerantz Report”)
on behalf of the Trustee, Mr. Maine reviewed that report and provided his response in a
rebuttal report (“Maine Rebuttal Report”) dated December 13, 2011. Among other
critiques in his Rebuttal Report, Mr. Maine expressed disagreement with Dr. Pomerantz’s
conclusion that high net worth individuals, such as Defendants, “have similar
sophistication levels” as institutional investors. (Maine Rebuttal Report at 2-5 (Sheehan
Decl., Ex. 2); Pomerantz Report ¶ 3 (Newman Decl., Ex. B)2.) Mr. Maine further
disagreed with Dr. Pomerantz’s views concerning some of the supposed “red flags” Dr.

Trustee’s Motion to Strike the Expert Reports and Testimony of John Maine (doc. no.
84).
2

References to the “Newman Decl.” and its attached exhibits are to the
Declaration of David C. Newman, dated January 26, 2012 and filed in support of
Defendants’ Motion to Strike the Expert Reports and Testimony of Steve Pomerantz and
Harrison J. Goldin (doc. no. 105).
3

Pomerantz opined would have caused an institutional investor, consistent with
professional investment management norms and customs, to undertake further due
diligence. (Maine Rebuttal Report at 6-7 (Sheehan Decl., Ex. 2).)
ARGUMENT
A qualified expert “may testify in the form of an opinion or otherwise.” Fed. R.
Evid. 702. Expert testimony is admissible if the “witness is ‘qualified as an expert’ to
testify as to a particular matter,” the expert’s testimony is “reliable,” and “the expert’s
testimony (as to a particular matter) will ‘assist the trier of fact.’” Nimely v. City of New
York, 414 F.3d 381, 397 (2d Cir. 2005).
The qualification requirement is satisfied if an expert possesses specialized
knowledge, Johnson & Johnson Vision Care, Inc. v. CIBA Vision Corp., No. 04-CV7369, 2006 U.S. Dist. LEXIS 51869, at *14-15 (S.D.N.Y. July 27, 2006), and the
“qualifications necessary to testify as an expert are minimal,” Keenan v. Mine Safety
Appliances Co., No. 03-CV-710, 2006 U.S. Dist. LEXIS 65735, at *5 (E.D.N.Y. Aug. 31,
2006). Reliability of testimony relating to areas other than the “hard sciences” “depends
heavily on the knowledge and experience of the expert.” United States v. Joseph, 542
F.3d 13, 21-22 (2d Cir. 2008). Finally, expert testimony assists the jury if it provides, for
example, helpful background information. “‘[P]articularly in complex cases involving
the securities industry, expert testimony may help a jury understand unfamiliar terms and
concepts.’” United States v. Russo, 74 F.3d 1383, 1395 (2d Cir. 1996) (quoting United
States v. Bilzerian, 926 F.2d 1285, 1294 (2d Cir. 1991)).
Mr. Maine and his testimony easily satisfy each of these requirements.

4

I.

MR. MAINE’S TESTIMONY IS RELEVANT
To avoid transfers of principal, this Court has held that the Trustee must show that

each Defendant was willfully blind to Madoff’s fraud. See Picard v. Katz, No. 11 Civ.
3605 (JSR), 2011 U.S. Dist. LEXIS 109595, at *23 (S.D.N.Y. Sept. 27, 2011). This
requires proof that each Defendant (1) “subjectively believe[d]” that there was “a high
probability” that Madoff was running a Ponzi scheme and (2) took “deliberate actions to
avoid learning of that fact.” Global-Tech Appliances, Inc. v. SEB, S.A., 131 S. Ct. 2060,
2070 (2011). The question of any Defendant’s willful blindness does not turn on a theory
of negligence, nor does it turn on the diligence standards applicable to the “investment
management” industry or what “industry” due diligence, if performed, would reveal.
Katz, 2011 U.S. Dist. LEXIS 109595, at *21-23; Picard v. Katz, No. 11 Civ. 3605 (JSR),
2012 U.S. Dist. LEXIS 5143, at *7 (S.D.N.Y. Jan. 17, 2012).
Accordingly, to determine whether any Defendant, let alone all of the dozens of
Defendants, was willfully blind to Madoff’s fraud, the trier of fact will have to
understand each Defendant’s actual relationship with BLMIS and Madoff—not the
relationship that should exist between a hedge fund professional and the third-party
investors to whom that professional owes fiduciary duties. The actual relationship that
each Defendant had with BLMIS is that of retail brokerage customer to registered brokerdealer—the precise area of Mr. Maine’s extensive expertise and the focal point of his
proffered expert testimony. For that reason alone, Mr. Maine’s testimony is relevant and
helpful.
The Trustee challenges Mr. Maine’s testimony as irrelevant because “[t]he bulk”
of the Maine Report “offers a general commentary on broker-dealers and their customers,
5

as well as a broad description on the nature [sic] of securities brokerage accounts” and is
not addressed to “red flags and what due diligence would have revealed.”3 (Tr. Mem. at
17.4) According to the Trustee, such observations about “run-of-the-mill broker-dealers
and their dealings with hypothetical customers with no connection to the actual facts of
this case are wholly irrelevant.” (Id.) Yet, this Court’s prior rulings firmly establish that
this is not a case about what would constitute a “red flag” to an investment industry
professional or what investment management due diligence would reveal if, unlike here,
it were undertaken. Those are essentially issues of professional negligence, or not. The
Trustee cannot demonstrate any Defendant’s “willful blindness” based on either alleged
“red flags” that no Defendant ever saw or due diligence that no Defendant ever
performed. Consequently, it is the expert testimony of Dr. Pomerantz that is “wholly
irrelevant,” not that of Mr. Maine.
II.

MR. MAINE’S TESTIMONY IS HELPFUL TO THE TRIER OF FACT
In his challenge to Mr. Maine, the Trustee ignores the fundamental role experts

play in educating a jury about concepts outside the common experience of lay jurors. See
Joseph, 542 F.3d at 22 (expert testimony assists a jury if it helps “to explain conduct not
normally familiar to most jurors”). The parameters of the retail brokerage industry, how
3

The Trustee’s own forensic and fraud investigation expert, Bruce G. Dubinsky,
provides similar background information concerning how the retail securities brokerage
industry operates. (See, e.g., Expert Report of Bruce G. Dubinsky ¶¶ 28, 37, 62-65, 124,
132-37, 159, 185-90, 204, 215-16, 221, 224, 232 (Decl. of Dana M. Seshens in Supp. of
Defs.’ Mot. for Summ. J., Ex. C) (doc. no. 90).) It surely cannot be the Trustee’s position
that such background information is relevant when offered by his own expert, but not
when offered by Defendants’ expert.
4

Citations to “Tr. Mem.” refer to the Trustee’s Memorandum of Law in Support
of Motion to Strike the Expert Reports and Testimony of John Maine, dated January 26,
2012 (doc. no. 83).
6

it operates as a general matter, and the relationship between brokerage customers—and
even wealthy brokerage customers—and their brokers are precisely the types of issues
that are ripe for educational expert testimony. See, e.g., SEC v. Big Apple Consulting
USA, Inc., No. 6:09-cv-1963, 2011 U.S. Dist. LEXIS 95292, at *11-12 (M.D. Fla. Aug.
25, 2011) (permitting expert testimony regarding brokerage records and related
documents because “[t]he ability to understand and synthesize such records is beyond the
understanding of the average lay person”); see also, e.g., SEC v. Johnson, 525 F. Supp.
2d 70, 77 (D.D.C. 2007) (“[I]n securities cases, expert testimony commonly is admitted
to assist the trier of fact in understanding trading patterns, securities industry practice,
securities industry regulations, and complicated terms and concepts.”) (citing cases). The
Trustee fails to even consider the propriety of Mr. Maine’s testimony as educational with
regard to this highly relevant subject matter.
The Trustee further challenges Mr. Maine’s “opinions” as unhelpful because they
are “broad,” “generic,” “generalized,” or “generalizations” that are “offered in the
abstract.” (Tr. Mem. at 9-12, 17-18.) But Rule 702 does not bar general opinions offered
to help educate the jury. To the contrary, “[i]nstead of offering opinions based on the
facts of the case, expert witnesses may be used by parties to educate the trier of fact about
general principles, without applying those principles to the specific facts of the case.”
4 Jack B. Weinstein & Margaret A. Berger, Weinstein’s Federal Evidence § 702.05[2][a]
(2d ed. 1997); see also Bilzerian, 926 F.2d at 1294-95 (affirming admissibility of expert
testimony consisting of “general background on federal securities regulation and the
filing requirements of Schedule 13D”); United States v. Daly, 842 F.2d 1380, 1388 (2d
Cir. 1988) (affirming admissibility, in racketeering case, of expert testimony that “was,
7

by and large, general insofar as it described organized crime’s infiltration of labor
unions” and provided “background for the events alleged in the indictment”).5
The remaining challenges to Mr. Maine’s testimony as unhelpful lack any basis at
all. For example, the Trustee suggests that Mr. Maine offers a legal “opinion” as to the
duties of investors when he says that they are “‘not required to be concerned’ about the
reliability of broker-dealers.” (Tr. Mem. at 12-13.) Mr. Maine’s views are taken entirely
out of context (compare Maine Report at 10-11 (Sheehan Decl., Ex. 1)), but are
nevertheless based on his experience in the brokerage industry and are entirely consistent
with the applicable law. See Katz, 2011 U.S. Dist. LEXIS 109595, at *22 (“A securities
investor has no inherent duty to inquire about his stockbroker, and SIPA creates no such
duty.”); id. at *22-23 (customer has no duty “to launch an investigation of his broker’s
internal practices—and how could he do so anyway?”).
Moreover, it is ironic that the Trustee attacks Mr. Maine on this ground when his
own expert, Dr. Pomerantz, testified that his opinion was based on his understanding that
Defendants had a duty, imposed by the courts, to perform what he terms “investment
management industry” due diligence in the face of “red flags” that would be obvious to a
5

For these same reasons, the Trustee also is incorrect that an expert’s testimony
is not helpful if it is “not necessary for the resolution of a factual dispute.” (Tr. Mem. at
12; see also id. at 17-18.) By its own terms Rule 702 contemplates that specialized
knowledge may be useful to “help the trier of fact to understand the evidence or to
determine a fact in issue” (emphasis added). None of the Trustee’s authority is to the
contrary. See United States v. Mejia, 545 F.3d 179, 196 (2d Cir. 2008) (expert cannot
testify about a matter within the jury’s common knowledge); Scott v. Sears, Roebuck &
Co., 789 F.2d 1052, 1055 (4th Cir. 1986) (same); Fashion Boutique of Short Hills, Inc. v.
Fendi USA, Inc., 314 F.3d 48, 60 (2d Cir. 2002) (affirming exclusion of testimony based
on expert’s assumption contrary to the evidence); Amorgianos v. Nat’l R.R. Passenger
Corp., 303 F.3d 256, 268-70 (2d Cir. 2002) (affirming exclusion of unreliable scientific
testimony); Borsack v. Ford Motor Co., No. 04 Civ. 3255, 2009 U.S. Dist. LEXIS
124993, at *6-9 (S.D.N.Y. Feb. 3, 2009) (excluding unreliable scientific testimony).
8

professional investment manager. (Pomerantz Report ¶¶ 25-26 (Newman Decl., Ex. B);
Deposition Transcript of Dr. Steve Pomerantz (“Pomerantz Tr.”), Jan. 8, 2012, 177:1178:5 (Newman Decl., Ex. D).) That understanding is directly contrary to this Court’s
ruling that the standard is willful blindness, not negligence. Katz, 2011 U.S. Dist. LEXIS
109595, at *21-23; Katz, 2012 U.S. Dist. LEXIS 5143, at *7.
III.

MR. MAINE’S TESTIMONY IS OTHERWISE
ADMISSIBLE UNDER RULE 702
The Trustee’s remaining challenges to the admissibility of Mr. Maine’s testimony

range from nonsensical to unsubstantiated to frivolous, including that Mr. Maine lacks
the requisite expertise to serve as an expert in this case; that Mr. Maine’s non-scientific
testimony lacks a sufficient, and sufficiently reliable, methodological basis; and that Mr.
Maine’s testimony ignores relevant record evidence. None of the Trustee’s arguments is
valid.
A.

Mr. Maine Is Eminently Qualified to Testify As an Expert
Concerning the Retail Securities Brokerage Business

The Trustee’s attack on Mr. Maine’s qualifications and experience is frivolous
and results from nothing more than the Trustee’s own misunderstanding of the issues that
are relevant in this case. Indeed, the Trustee’s attacks on Mr. Maine’s credentials are
more aptly directed to Dr. Pomerantz.
To provide expert testimony, a witness must be “qualified as an expert by
knowledge, skill, experience, training, or education.” Fed. R. Evid. 702. “Courts within
the Second Circuit have ‘liberally construed expert qualification requirements.’” Pension
Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Sec., LLC, 716 F. Supp. 2d
220, 223 (S.D.N.Y. 2010). “In considering a witness’s practical experience . . . as criteria
9

for qualification, the only matter the court should be concerned with is whether the
expert’s knowledge of the subject is such that his opinion will likely assist the trier of
fact . . . .” Johnson & Johnson, 2006 U.S. Dist. LEXIS 51869, at *15 (internal quotation
marks omitted).
Unlike the Trustee’s expert, Dr. Pomerantz, who has no experience in the retail
brokerage industry, Mr. Maine spent approximately 25 years working as a broker or
supervisor at major brokerage firms. (Deposition Transcript of John D. Maine (“Maine
Tr.”), Jan. 5, 2012, 7:7-13; 8:23-9:8; 13:17-15:1; 28:11-18; 30:10-32:22 (Sheehan Decl.,
Ex. 3).) He worked for two years at Mitchum, Jones & Templeton, a West Coast
financial firm, and spent the majority of his career at Smith Barney. (Id. 8:23-9:2; 10:716; 13:14-25; 28:11-18; 30:10-18.) Between 1982 and 1990, Mr. Maine was the regional
director of Smith Barney’s 1,000-person Philadelphia office. (Id. 30:10-32:22; Maine
Report, Ex. A (Sheehan Decl., Ex. 1).) He was ultimately promoted to executive vice
president of Smith Barney and served on the firm’s board of directors for five years.
(Maine Tr. 32:16-22 (Sheehan Decl., Ex. 3).) His direct experience with the private
wealth management industry includes servicing individual retail and institutional
investment accounts, managing brokers, and addressing client complaints. (Id. 9:9-23;
10:17-11:6; 14:22-15:15; 31:12-32:15.) Mr. Maine has also attained substantial
experience in brokerage operations as an arbitrator, consultant, and witness, testifying in
approximately 700 matters, including approximately 500 NASD arbitrations, numerous
state court cases, and several cases in federal district court. (Id. 33:16-34:9; 38:6-15;
39:16-41:7; Maine Report, Ex. A (Sheehan Decl., Ex. 1).)

10

The Trustee nevertheless contends that Mr. Maine lacks the requisite expertise
and qualifications to testify at trial because he (i) “has no due diligence or ‘red flag’
experience,” (ii) “has never performed qualitative or quantitative analyses,” and (iii)
“does not have significant experience managing client accounts, or dealing with
customers.” (Tr. Mem. at 7.) Putting aside that the Trustee never asked Mr. Maine
whether he had any such experience, neither due diligence nor “red flags” experience is
relevant to this case. And the Trustee’s assertion that Mr. Maine does not have
experience “managing client accounts” or “dealing with customers” is directly contrary to
Mr. Maine’s testimony.6
Experts with qualifications similar to Mr. Maine’s have routinely been permitted
to testify in securities cases. See In re Blech Sec. Litig., No. 94 Civ. 7696, 2003 U.S.
Dist. LEXIS 4650, at *56-61 (S.D.N.Y. Mar. 26, 2003) (qualifying experts with 40 years
of experience in the brokerage industry and 30 years of experience in the securities
industry, including executive positions at securities firms and substantial testifying
background); Highland Capital Mgmt., L.P. v. Schneider, 551 F. Supp. 2d 173, 180
(S.D.N.Y. 2008) (qualifying expert with over 20 years of experience as retail broker and
NASD and NYSE arbitrator); SEC v. U.S. Envtl., Inc., No. 94 Civ. 6608, 2002 U.S. Dist.
6

The Trustee’s further claim that Mr. Maine’s experience is inadequate because
it is outdated is baseless. Since his time spent in the brokerage industry, Mr. Maine has
continued to acquire meaningful and relevant experience as a consultant and expert
witness. That Mr. Maine now testifies regularly “does not mean that his knowledge is
‘stale,’ . . . because . . . he has remained familiar with securities practices and industry
conduct.” Ryan v. Nat’l Union Fire Ins. Co. of Pittsburgh, No. 3:03-CV-1154, 2010 U.S.
Dist. LEXIS 53910, at *8-9 (D. Conn. June 2, 2010); see also Lion Oil Trading &
Transp., Inc. v. Statoil Mktg. & Trading (US) Inc., No. 08 Civ. 11315, 2011 U.S. Dist.
LEXIS 24516, at *6-7 (S.D.N.Y. Feb. 28, 2011) (qualifying expert whose direct industry
experience predated case by fifteen years because he continued to consult in the field).
11

LEXIS 19701, at *1-2, 12-13 (S.D.N.Y. Oct. 16, 2002) (qualifying expert with 30 years
of experience in securities field to testify regarding consistency of documents with
industry practice).
Mr. Maine should be no exception.
B.

Mr. Maine’s Testimony Is More Than Adequately Supported

Without regard for Mr. Maine’s role as a non-technical expert, the Trustee attacks
every one of his “opinions” as unreliable, either because he does not explain his
“methodology” or because his reports “rely upon incomplete, insufficient, and/or
incorrect facts and data.” (Tr. Mem. at 8.) But Mr. Maine is not a technical expert and,
thus, no scientific or methodological basis is required to render his views reliable. All of
his views arise out of his extensive industry experience. (See, e.g., Maine Report at 1, 3,
6, 11 (Sheehan Decl., Ex. 1); Maine Rebuttal Report at 1, 2, 4, 5, 6, 7 (Sheehan Decl., Ex.
2).)
Experts rendering non-scientific or non-technical opinions need not offer methods
for Daubert scrutiny under Rule 702’s reliability prong. That is because the reliability of
evidence that is not from the “hard sciences” “depends heavily on the knowledge and
experience of the expert, rather than the methodology or theory behind it.” Joseph, 542
F.3d at 21-22 (internal quotation marks omitted); see also First Tenn. Bank Nat’l Ass’n v.
Barreto, 268 F.3d 319, 333-35 (6th Cir. 2001) (relying on Daubert to exclude
experience-based testimony would turn Daubert “on its head,” as “the distinction
between scientific and non-scientific expert testimony is a critical one”); Iacobelli
Constr., Inc. v. County of Monroe, 32 F.3d 19, 24-25 (2d Cir. 1994) (deeming improper
reliance on Daubert to reject testimony not based on scientific knowledge); Fed. R. Evid.
12

702 advisory committee’s note (2000 amendments) (“In certain fields, experience is the
predominant, if not sole, basis for a great deal of reliable expert testimony.”).
To try to overcome this mountain of well-established authority, the Trustee relies
exclusively on inapplicable cases that address the reliability of proffered scientific or
technical expertise—none of which supports his argument. See, e.g., Bragdon v. Abbott,
524 U.S. 624, 653 (1998) (“Scientific evidence and expert testimony must have a
traceable, analytical basis in objective fact before it may be considered on summary
judgment.”); Mid-State Fertilizer Co. v. Exch. Nat’l Bank of Chicago, 877 F.2d 1333,
1339-40 (7th Cir. 1989) (declining to give weight on summary judgment to economist’s
“naked” expert opinions); Compania Embotelladora Del Pacifico, S.A. v. Pepsi Cola Co.,
650 F. Supp. 2d 314, 319-20 (S.D.N.Y. 2009) (excluding expert damages calculation
based on concededly “unreliable and inaccurate data, together with a series of
assumptions that have no basis in fact or reality,” and expert “performed no econometric
analysis”); Li v. Aponte, No. 05 Civ. 6237, 2009 U.S. Dist. LEXIS 59741, at *17-25
(S.D.N.Y. May 5, 2009) (excluding chiropractor’s scientific testimony regarding injury’s
cause).7

7

The Trustee further cites Primavera Familienstiftung v. Askin, 130 F. Supp. 2d
450 (S.D.N.Y. 2001), for the proposition that “securities experts cannot opine on customs
and practices of broker-dealers when they do not reveal in their testimony how they have
made use of their expertise by way of a methodology.” (Tr. Mem. at 8.) But Askin
stands for no such thing. There, the expert was excluded because he “was asked to reach
legal conclusions regarding . . . ultimate issues” and his report was “permeated with
inadmissible legal opinions and conclusions directed at telling the jury what result to
reach.” 130 F. Supp. 2d at 528-29. The expert report so completely failed “to articulate
industry customs or standards for consideration by the jury” that it was “not so much
testimony about industry custom or practice as it [was] thoughts on the state of the law
relating to broker-dealers.” Id. at 529.
13

There is, therefore, no basis to exclude Mr. Maine’s testimony as unreliable.
Instead, the proper challenge to the reliability of non-scientific, experience-based
testimony is “on cross examination and goes to [the] testimony’s weight . . . not its
admissibility.” Joseph, 542 F.3d at 21-22 (internal quotation marks omitted); see also
Boucher v. U.S. Suzuki Motor Corp., 73 F.3d 18, 21 (2d Cir. 1996) (expert testimony may
be excluded as unreliable “if it is speculative or conjectural, or if it is based on
assumptions that are so unrealistic and contradictory as to suggest bad faith or to be in
essence an apples and oranges comparison,” but “other contentions that the assumptions
are unfounded go to the weight, not the admissibility of the testimony” (internal citations
and quotation marks omitted)); B.F. Goodrich v. Betkoski, 99 F.3d 505, 526 (2d Cir.
1996) (vigorous cross-examination and the presentation of contrary evidence at trial is
“the traditional and appropriate means of attacking admissible evidence with which one
disagrees”).
C.

Mr. Maine’s Testimony Is Entirely Consistent
With and Supported by Record Evidence

The Trustee further challenges Mr. Maine’s testimony because he purportedly
failed to consider certain record evidence that the Trustee deems “contrary” to his
conclusions. The Trustee’s arguments rely on distortions of Mr. Maine’s testimony and
of the underlying factual record. Even so, the Trustee’s criticisms go to the weight, not
the admissibility, of Mr. Maine’s testimony, see Boucher, 73 F.3d at 21, and the Trustee’s
proper recourse is to challenge the basis of Mr. Maine’s testimony on cross-examination,
see Joseph, 542 F.3d at 21-22.

14

According to the Trustee, several pieces of evidence were “disregarded” by Mr.
Maine that are “at odds” with the views he expressed about the general tendencies of
private wealth management brokerage customers to focus on the “bottom line” when it
comes to their investments as opposed to engaging in extensive due diligence or spending
significant time managing their own investments. (Tr. Mem. at 11.) The Trustee’s
argument makes little sense, particularly where the record evidence supposedly
disregarded by Mr. Maine in fact supports his opinions.
The Trustee contends that Mr. Maine’s views are at odds with:
•

Defendants’ purported admission in their Answer that they “[o]versaw,
facilitated and monitored” hundreds of BLMIS accounts. (Tr. Mem. at 11.)
But Defendants admitted no such thing. All the cited paragraphs of
Defendants’ Answer reflect is that Arthur Friedman provided administrative
assistance in connection with many accounts, including communicating
customer requests to BLMIS, maintaining account paperwork, and monitoring
account balances. Mr. Friedman’s administrative role in no way contradicts
Mr. Maine’s views, and Mr. Maine considered Mr. Friedman’s testimony.
(Maine Rebuttal Report at 4 (Sheehan Decl., Ex. 2); Maine Tr. 73:7-17
(Sheehan Decl., Ex. 3).)

•

Defendants’ purported admission in their Answer that they “[c]losely
monitored their monthly returns” and were “present when investment returns
were discussed and reported at partner meetings.” (Tr. Mem. at 11.) The
Answer does not state that Defendants “closely” monitored returns;
regardless, the monitoring of monthly returns, and the creation and review of
“hell sheets” to track Madoff account balances (id.), are entirely consistent
with Mr. Maine’s views that wealthy investors tend to focus solely on the
bottom line, i.e., on account balances and monthly returns.

•

Defendants’ supposed effort to “recreate Madoff’s split-strike conversion
strategy.” (Tr. Mem. at 11.) In fact, in the 1980s, “Arthur Friedman tried to
replicate Madoff’s strategy on paper and viewed the exercise a success.”
(Answer ¶ 764 (doc. no. 48).) There is no contradiction.

•

Defendants’ employment of “a leverage strategy by borrowing against their
Madoff returns.” (Tr. Mem. at 11.) Borrowing against a securities account,
otherwise known as a margin account, is neither particularly unusual nor
inconsistent with anything Mr. Maine says about retail accounts.
15

•

Defendants’ supposed admission in their Answer that they “[w]ere Fiduciaries
and Plan Sponsors to a 401K plan featuring Madoff as the plan option of
choice.” (Tr. Mem. at 11.) It is unclear what the Trustee means by “the plan
option of choice,” but what the Answer states is that BLMIS was one of the
investment options offered to participants in the Sterling Equities self-directed
401(k) retirement plan. (Answer ¶ 752 (doc. no. 48).) This has nothing to do
with Mr. Maine’s views, and the 401(k) plan, which is not a party to this
action, is entirely irrelevant.

Finally, the Trustee contends that Mr. Maine’s “opinion” that Defendants are not
sophisticated investors lacks foundation. (Tr. Mem. at 15-16.) But Mr. Maine’s
foundation for his views—record evidence, including documents and deposition
testimony—is no different from the foundation for Dr. Pomerantz’s opposite view—
record evidence, including documents and deposition testimony. Moreover, the supposed
contrary record evidence that the Trustee claims Mr. Maine ignored—four Sterling
Stamos documents—amounts to nothing more than inadmissible hearsay. (See id. at 1516 & nn.20-21.) No such document contains any statement by a Defendant, let alone a
statement against interest (id. at 19), and none was written, reviewed, approved, or
adopted by any Defendant.

16

CONCLUSION
For the reasons set forth above, Defendants respectfully request that the Court
deny the Trustee’s motion to strike the expert reports and testimony of John Maine.
Dated: New York, New York
February 9, 2012
DAVIS POLK & WARDWELL LLP
By: /s/ Karen E. Wagner
Karen E. Wagner
Dana M. Seshens
450 Lexington Avenue
New York, New York 10017
Telephone:
[phone]
Facsimile:
[phone]

Of Counsel:
Robert B. Fiske, Jr.
Robert F. Wise, Jr.

Attorneys for Defendants

17