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

Filing 130

REPLY MEMORANDUM OF LAW in Support re: 82 MOTION to Strike the Expert Report and Testimony of John Maine.. Document filed by Irving H. Picard. (Sheehan, David)

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
of Bernard L. Madoff Investment Securities LLC,

(Substantively Consolidated)
Adv. Pro. No. 10-5287 (BRL)

Plaintiff,
v.
SAUL B. KATZ, et al.,

Case No. 11-Civ-03605 (JSR)
Defendants.

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

TABLE OF CONTENTS
Page
ARGUMENT ................................................................................................................................. 2
I.

MAINE’S PROPOSED TESTIMONY IS UNRELIABLE ................................... 2
A.
B.

II.

Maine’s Experience Does Not Make His Unsupported Testimony
Reliable ...................................................................................................... 2
Maine’s Failure to Connect His Experience to His Conclusions Is
Fatal............................................................................................................ 3

MAINE’S PROPOSED TESTIMONY IS NOT HELPFUL ................................. 4
A.

Maine’s Testimony Will Not Help the Jury Understand the Actual
Evidence ..................................................................................................... 4

B.

The Reports Are Not Probative of the Defendants’ Good Faith or
Lack Thereof .............................................................................................. 5

CONCLUSION .............................................................................................................................. 7

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TABLE OF AUTHORITIES
Page(s)

CASES
Arista Records LLC v. Lime Group LLC,
06-CV-5936 (KMW), 2011 WL 1674796 (S.D.N.Y. May 2, 2011) .........................................5
Auto. Ins. Co. of Hartford v. Electrolux Home Prods., Inc.,
08-CV-00623 (A)(M), 2010 WL 3655743 (W.D.N.Y. Sept. 15, 2010) ....................................4
Boucher v. U.S. Suzuki Motor Corp.,
73 F.3d 18 (2d Cir. 1996) ..........................................................................................................5
Bourjaily v. U.S.,
483 U.S. 171 (1987) ...................................................................................................................2
Daubert v. Merrell Dow Pharms., Inc.,
509 U.S. 579 (1993) ...........................................................................................................2, 3, 6
Dibella v. Hopkins,
01 Civ. 11779 (DC), 2002 WL 31427362 (S.D.N.Y. Oct. 30, 2002) ........................................6
E.E.O.C. v. Bloomberg L.P.,
07 Civ. 8383 (LAP), 2010 WL 3466370 (S.D.N.Y. Aug. 31, 2010) .........................................6
Gen. Elec. Co. v. Joiner,
522 U.S. 136 (1997) ...................................................................................................................4
Highland Cap. Mgmt., L.P. v. Schneider,
379 F. Supp. 2d 461 (S.D.N.Y. 2005)........................................................................................4
Kumho Tire Co., Ltd. v. Carmichael,
526 U.S. 137 (1999) ...............................................................................................................2, 3
LinkCo, Inc. v. Fujitsu Ltd.,
00 Civ. 7242 (SAS), 2002 WL 1585551 (S.D.N.Y. July 16, 2002) ......................................4, 5
Lippe v. Bairnco Corp.,
288 B.R. 678 (S.D.N.Y. 2003) aff’d, 99 F. App’x 274 (2d Cir. 2004) ..................................2, 4
Media Sport & Arts s.r.l. v. Kinney Shoe Corp.,
95 Civ 390 (PKL), 1999 WL 946354 (S.D.N.Y. Oct. 19, 1999) ...............................................4
Nimely v. City of New York,
414 F.3d 381 (2d Cir. 2005)...................................................................................................2, 4

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TABLE OF AUTHORITIES
(continued)
Page(s)
Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Amer. Secs., LLC,
691 F. Supp. 2d 448 (S.D.N.Y. 2010)........................................................................................5
Picard v. Katz,
--- B.R. ---- Civ. 3605 (JSR), 2011 WL 4448638 (S.D.N.Y. Sept. 27, 2011) ...........................6
Primavera Familienstifung v. Askin,
130 F. Supp. 2d 450 (S.D.N.Y. 2001) modified on reh’g, 137 F. Supp. 2d 438
(S.D.N.Y. 2001) .....................................................................................................................3, 5
S.E.C. v. Badian,
--- F. Supp. 2d ----, 2011 WL 4526104 (S.D.N.Y. Sept. 29, 2011) ...........................................2
STATUTES
15 U.S.C. §§ 78aaa et seq. ...............................................................................................................1
RULES
Fed. R. Evid. 702 .....................................................................................................................2, 3, 4

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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 (“SIPA”), 15 U.S.C. §§ 78aaa et seq., and the estate of Bernard L.
Madoff (“Madoff”), by and through his undersigned counsel, hereby submits this Reply
Memorandum of Law in Support of the Trustee’s Motion to Strike the Expert Reports
(“Reports”) and Testimony of John Maine (“Maine”), dated Jan. 26, 2012.
PRELIMINARY STATEMENT
Nothing set forth by the Defendants in their Memorandum of Law in Opposition to the
Trustee’s Motion to Strike the Expert Reports and Testimony of John Maine1 cures the fatal
flaws in Maine’s Reports and proposed testimony. The Defendants cannot navigate around wellsettled precedent excluding, as unreliable, ipse dixit opinions such as those proffered by Maine.
The Defendants also fail to show how Maine’s testimony helps the jury understand, or resolve,
the factual disputes in this case.

Additionally, the Defendants ignore that Maine makes

impermissible state of mind opinions. Ultimately, no matter how the Defendants self-servingly
try to frame their willful failure to investigate red flags of Madoff’s fraud, Maine’s Reports and
testimony do not pass evidentiary muster. As gatekeeper over experts, this Court should exclude
Maine.2
1

Hereinafter, “Defs. Br. at __.”

2

The Defendants’ assertion that several issues in the case are not in dispute, when they
obviously are, is ultimately of no moment here. (Defs. Br. at 1). To be sure, however, in dispute
are the Defendants’: (i) business and financial investment sophistication; (ii) capabilities to
conduct due diligence; (iii) willful blindness to red flags that they saw and of which they had
actual knowledge; and (iv) understanding of Madoff as an Investment Advisor (Answer ¶¶ 30,
985) and as “one of the top hedge fund investors in the world.” (Fred Wilpon Rule 2004
Deposition Transcript 144:8-10, dated July 20, 2010) (attached hereto as Exhibit 1 to the
Declaration of David J. Sheehan in Support of the Trustee’s Reply Memorandum of Law in
Support of the Motion to Strike the Expert Reports and Testimony of John Maine, dated
February 16, 2012).
1

ARGUMENT
The Defendants have not met their burden under Federal Rule of Evidence 702 (“Rule
702”). See, e.g., Bourjaily v. U.S., 483 U.S. 171, 175-76 (1987) (proponent of testimony bears
the burden of establishing, by a preponderance of the evidence, that the testimony is admissible);
S.E.C. v. Badian, --- F. Supp. 2d ----, 2011 WL 4526104, at *2 (S.D.N.Y. Sept. 29, 2011) (same).
As set out more fully below, Maine’s Reports and proposed testimony should therefore be
excluded in toto.
I.

MAINE’S PROPOSED TESTIMONY IS UNRELIABLE
A.

Maine’s Experience Does Not Make His Unsupported Testimony Reliable

The Defendants conflate the admissibility requirements under Rule 702. They suggest
that Maine’s experience, alone, makes his testimony reliable.3 (Defs. Br. at 12-14). Maine’s
“qualifications” and the reliability of his testimony are, however, two separate admissibility
requirements. See Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 597 (1993) (expert
testimony consisting of specialized knowledge must still be reliable and relevant); Kumho Tire
Co., Ltd. v. Carmichael, 526 U.S. 137, 149 (1999) (same); see also Nimely v. City of New York,
414 F.3d 381, 396 n.11 (2d Cir. 2005) (“[T]he relevance and reliability inquiries . . . are separate
from the threshold question of whether a witness is qualified[.]”) (internal citation omitted).
The fact that Maine is a non-scientific expert does not, as Defendants suggest, lessen
“Daubert’s scrutiny.” (Defs. Br. at 12). To the contrary, Kumho’s seminal holding makes clear

3

Maine’s administrative experience in the retail brokerage industry during the 1970s and
1980s does not qualify him to serve as an expert here. Trustee’s Memorandum of Law in
Support of Motion to Strike the Reports and Testimony of John Maine at 6 (hereinafter, “Tr. Br.
at __”). The fact that the Defendants rely almost exclusively on Maine’s dated experience
further cuts against his reliability. (Defs. Br. at 12); see Lippe v. Bairnco Corp., 288 B.R. 678,
690 (S.D.N.Y. 2003) aff’d, 99 F. App’x 274 (2d Cir. 2004) (expert testimony was unreliable and
inadmissible, in part, because expert’s specialized knowledge was outdated and misplaced).

2

that this Court’s gatekeeping obligation under Daubert applies equally to all experts. Kumho,
526 U.S. at 149 (the district court must “assure that the specialized testimony is reliable . . .
whether [it] reflects scientific, technical, or other specialized knowledge”). Maine, like all
experts, must demonstrate that his testimony is predicated upon reliable principles and methods.
See Fed. R. Evid. 702 advisory committee’s note (2000 amendments) (“While the terms
‘principles’ and ‘methods’ may convey a certain impression when applied to scientific
knowledge, they remain relevant when applied to testimony based on . . . other specialized
knowledge.”). This he utterly fails to do.
Further, this Court should not rubber-stamp Maine’s non-scientific Reports and testimony
simply because the Defendants claim he has “extensive industry experience.” (Defs. Br. at 8).
To the contrary, the Advisory Committee makes plain that:
If the witness is relying solely or primarily on experience, then the witness must
explain how that experience leads to the conclusion reached, why that experience
is a sufficient basis for the opinion, and how that experience is reliably applied to
the facts. The trial court’s gatekeeping function requires more than simply taking
the expert’s word for it.4
See also Primavera Familienstifung v. Askin, 130 F. Supp. 2d 450, 530 (S.D.N.Y. 2001)
modified on reh’g, 137 F. Supp. 2d 438 (S.D.N.Y. 2001) (expert can rely on experience but
“must do more than aver conclusorily that his experience led to his opinion,” and he must do
more than “propound a particular interpretation of [a party’s] conduct”).
B.

Maine’s Failure to Connect His Experience to His Conclusions Is Fatal

Having pushed “all in” on their bet that Maine’s dated experience can, alone, get his
Reports and testimony admitted, the Defendants fail to show how any part of Maine’s proposed
testimony is reliably applied to his opinions. (See Defs. Br. at 12-14). First, Maine’s Reports
4

Fed. R. Evid. 702 advisory committee’s note (2000 amendments) (internal citation
omitted).

3

and testimony are devoid of any specific explanation of how his experience reliably led him to
his conclusions here. Second, as is undisputed, Maine never sources facts in the record or
objective materials to support his conclusions. (Id. at 12-13). This is precisely the type of ipse
dixit testimony that simply cannot suffice under Rule 702. Gen. Elec. Co. v. Joiner, 522 U.S.
136, 146 (1997); Nimely, 414 F.3d at 399; see also Tr. Br. at 8. This is true even if Maine’s
testimony is non-scientific. See, e.g., Auto. Ins. Co. of Hartford v. Electrolux Home Prods., Inc.,
08-CV-00623 (A)(M), 2010 WL 3655743, at *7 (W.D.N.Y. Sept. 15, 2010); Highland Cap.
Mgmt., L.P. v. Schneider, 379 F. Supp. 2d 461, 473 n.2 (S.D.N.Y. 2005); Lippe v. Bairnco Corp.,
288 B.R. 678, 689 (S.D.N.Y. 2003) aff’d, 99 F. App’x 274 (2d Cir. 2004); LinkCo, Inc. v. Fujitsu
Ltd., 00 Civ. 7242 (SAS), 2002 WL 1585551, at *4 (S.D.N.Y. July 16, 2002).
II.

MAINE’S PROPOSED TESTIMONY IS NOT HELPFUL
This Court should also strike Maine’s Reports and proposed testimony for the

independent reason that they will not assist the jury.5 Maine’s testimony neither helps the jury
understand the relevant evidence nor makes any disputed issue more or less probable.
A.

Maine’s Testimony Will Not Help the Jury Understand the Actual Evidence

Maine routinely offers commentary beyond his specialized knowledge, as well as
“opinions” which do not require any specialized knowledge, much less his. Maine is, for
example, clearly not qualified to opine about red flags or due diligence practices. (Tr. Br. at 7
nn. 6-8). He nevertheless opines about the adequacy of certain red flags associated with, and the

5

The Defendants do not contest that Maine impermissibly opines about the states of mind
of certain Defendants. (See Tr. Br. at 4, 12-13); (Maine Rebuttal at 3, 4, 7; Maine Deposition
79:14-20, 87:13-19). Moreover, their assurance that Maine’s conclusions about the Defendants’
legal duties are based on his experience is of no moment. (Maine Report at 10-11); see Media
Sport & Arts s.r.l. v. Kinney Shoe Corp., 95 Civ 390 (PKL), 1999 WL 946354, at *3 (S.D.N.Y.
Oct. 19, 1999) (“Even if [the expert’s] testimony is couched in terms of industry practices, the
expert still may not, under any circumstances, opine on the ultimate legal issue in the case.”).

4

Defendants’ capabilities to conduct due diligence on, the Defendants’ investment accounts at
BLMIS. (Maine Rebuttal at 1, 5-7). Additionally, Maine’s proffered expertise as “a retail
broker” will not help the jury understand the red flags here and what would have been revealed
had the Defendants conducted any due diligence. Arista Records LLC v. Lime Group LLC, 06CV-5936 (KMW), 2011 WL 1674796, at *5-6 (S.D.N.Y. May 2, 2011) (excluding expert
testimony because expert went beyond the scope of his expertise when he opined upon issues
outside his sole area of expertise); Pension Comm. of the Univ. of Montreal Pension Plan v.
Banc of Amer. Secs., LLC, 691 F. Supp. 2d 448, 470 n.129 (S.D.N.Y. 2010) (same). This line of
testimony must be stricken.6
B.

The Reports Are Not Probative of the Defendants’ Good Faith or Lack
Thereof

Maine’s proposed testimony is divorced from the facts of this case. The Maine Report
largely speaks to the relationship of hypothetical, run-of-the-mill retail brokerage investors with
a hypothetical, run-of-the-mill broker-dealer, but sheds no light on the Defendants’ actual
relationship with Madoff and BLMIS. (Maine Report at 1-10). He is rightly excluded.7 See
Askin, 130 F. Supp. 2d at 529 (because the expert’s testimony was vague and he did not apply his
opinions to the facts of the case, his testimony was not helpful to the jury and, thus,
inadmissible).

6

The Defendants offer no insight as to how Maine’s conclusory opinions about wealthy
people, generally, are “the types of issues that are ripe for educational expertise.” (Defs. Br. at
7); (see Maine Report at 3, 4, 10-11). This line of testimony is not helpful. See LinkCo, 2002
WL 1585551, at *2 (testimony containing “conclusory statements” that lack technical expertise
will not help the jury and is inadmissible).
7

Maine offers the kind of “speculative” testimony that is so divorced from the facts of this
case that it is “in essence an apples and oranges comparison” and must be excluded. (See Defs.
Br. at 14) (citing Boucher v. U.S. Suzuki Motor Corp., 73 F.3d 18, 21 (2d Cir. 1996)).

5

The limited portions of Maine’s Reports and testimony that reference the Defendants’
investment relationship with Madoff also disregard material facts prevalent in the record.8
E.E.O.C. v. Bloomberg L.P., 07 Civ. 8383 (LAP), 2010 WL 3466370, at *16-17 (S.D.N.Y. Aug.
31, 2010) (expert excluded, in part, because his testimony ignored material contradictory
evidence); Dibella v. Hopkins, 01 Civ. 11779 (DC), 2002 WL 31427362, at *4 (S.D.N.Y. Oct.
30, 2002) (same). Only where the expert testimony is tied to the facts of a particular case can it
aid the jury in resolving a factual dispute. Daubert, 509 U.S. at 591. It is dispositive that Maine
does not consider any evidence about red flags tied to the Defendants’ investment accounts at
BLMIS. As this Court has held—and contrary to the Defendants’ styling of the issues for trial—
the jury will examine direct and inferential evidence as to whether the Defendants knew or
willfully blinded themselves to red flags suggesting a high probability of fraud at BLMIS.9
Picard v. Katz, --- B.R. ----, 11 Civ. 3605 (JSR), 2011 WL 4448638, at *5 (S.D.N.Y. Sept. 27,
2011). Maine’s conclusions that BLMIS acted for these Defendants as a broker-dealer,10 that
Madoff was supposedly highly regarded in the securities industry,11 and that BLMIS was subject
to regulation,12 are ultimately of no moment because, by this Court’s definition, they are not
probative of the Defendants’ good faith or lack thereof. Id. The Defendants’ conclusory

8

See Tr. Br. at 8-9.

9

The Defendants are wrong when they claim that “this Court’s prior rulings firmly
establish” that this case is not about red flags. Compare (Defs. Br. at 5-6) with Katz, 2011 WL
4448638, at *5 (“If an investor . . . intentionally chooses to blind himself to the ‘red flags’ that
suggest a high probability of fraud, his ‘willful blindness’ to the truth is tantamount to a lack of
good faith.”).

10

Maine Report at 11.

11

Id. at 13.

12

Id.

6

arguments to the contrary do not satisfy their burden to show that Maine’s testimony is relevant
to the issue at bar.
CONCLUSION
For the foregoing reasons, the Trustee respectfully asks this Court to exclude Maine’s
proposed testimony in its entirety.
Dated: New York, New York
February 16, 2012

BAKER & HOSTETLER LLP
/s/ David J. Sheehan
Baker & Hostetler LLP
David J. Sheehan
Fernando A. Bohorquez
Mark A. Kornfeld
Stacey Bell
Marco Molina
45 Rockefeller Plaza
New York, New York 10111
Telephone: [phone]
Facsimile: [phone]
Attorneys for Irving H. Picard, Trustee for
the Substantively Consolidated SIPA
Liquidation of Bernard L. Madoff Investment
Securities LLC and Bernard L. Madoff

7