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

Filing 144

MEMORANDUM OF LAW in Support re: 143 MOTION in Limine TO BAR USE OF PREJUDICIAL PHRASE.. 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. (Wise, Robert)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
IRVING H. PICARD,
:
:
Plaintiff,
:
:
11-CV-03605 (JSR) (HBP)
- against :
:
SAUL B. KATZ, et al.,
:
:
Defendants.
:
:
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MEMORANDUM OF LAW IN SUPPORT OF DEFENDANTS’
MOTION IN LIMINE TO BAR USE OF PREJUDICIAL PHRASE

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

TABLE OF CONTENTS
PAGE
PRELIMINARY STATEMENT .........................................................................................1
ARGUMENT.......................................................................................................................2
CONCLUSION....................................................................................................................7

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TABLE OF AUTHORITIES
CASES
PAGE
A.I.A. Holdings, S.A. v. Lehman Bros., No. 97 Civ. 4978,
2002 U.S. Dist. LEXIS 22559 (S.D.N.Y. Nov. 21, 2002) .............................................4
Aristocrat Leisure Ltd. v. Deutsche Bank Trust Co. Ams., No. 04 Civ. 10014,
2009 U.S. Dist. LEXIS 89183 (S.D.N.Y. Sept. 28, 2009).........................................3, 4
Faulkner v. Nat’l Geographic Soc’y, 576 F. Supp. 2d 609 (S.D.N.Y. 2008)......................4
Highland Capital Mgmt., L.P. v. Schneider, 551 F. Supp. 2d 173 (S.D.N.Y. 2008).......2, 4
In re Sharp Int’l Corp., 403 F.3d 43 (2d Cir. 2005) ............................................................7
Kinsey v. Cendant Corp., 588 F. Supp. 2d 516 (S.D.N.Y. 2008) ........................................4
Luce v. United States, 469 U.S. 38 (1984)...........................................................................2
Picard v. Katz, No. 11 Civ. 3605 (JSR), 2011 U.S. Dist. LEXIS 109595
(S.D.N.Y. Sept. 27, 2011)..............................................................................................6
Plew v. Limited Brands, Inc., No. 08 Civ. 3741,
2012 U.S. Dist. LEXIS 14966 (S.D.N.Y. Feb. 6, 2012)................................................3
United States v. Beech-Nut Nutrition Corp., 871 F.2d 1181 (2d Cir. 1989)........................2
United States v. Kaplan, 490 F.3d 110 (2d Cir. 2007).........................................................3
STATUTES & RULES
Fed. R. Evid. 401 .................................................................................................................2
Fed. R. Evid. 402 .........................................................................................................1, 2, 7
Fed. R. Evid. 403 .....................................................................................................1, 2, 3, 7
U.C.C. art. 8 .........................................................................................................................6

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Defendants respectfully submit this memorandum of law in support of their
motion in limine, under Federal Rules of Evidence 402 and 403, to bar the Trustee’s
counsel and witnesses from referring to or using the phrase “Other People’s Money,” or
any like wording, to suggest that the Trustee is attempting to recover by this action
money on behalf of other victims of Bernard L. Madoff’s (“Madoff”) fraud. Such
references would be inflammatory, irrelevant and prejudicial.
PRELIMINARY STATEMENT
The Trustee repeatedly referred to “Other People’s Money” throughout the pretrial proceedings when describing the transfers to Defendants that he seeks to recover.
He has asserted that this action is part of an overarching mission to recover money
received by those of Madoff’s customers who received more than they invested, whom he
refers to as the “net winners,” so that it can be redistributed to those who received less,
whom he refers to as the “net losers.” In doing so, the Trustee has attempted to cloak
himself in garb of a later day Robin Hood, taking from the unjustly enriched in order to
give back to the innocent victims. This, however, is not a trial to determine fairness in
some larger moral sense, and even if it were, there will be nothing before the jury on
which they could assess the innocence or lack thereof of the other investors. Where the
money for the transfers at issue came from is entirely irrelevant.
Moreover, the reference to “Other People’s Money” when describing or
discussing before the jury the transfers at issue would be both inaccurate and highly
prejudicial to Defendants. In fact, in light of the Court’s recent ruling on summary
judgment, which granted the Trustee’s motion with respect to the so-called “fictitious
profit” portion of the transfers, even under the Trustee’s theory none of the remaining

transfers at issue involve “Other People’s Money.” It is common ground that what
remains for trial is only whether transfers that represented the return of Defendants’
principal can be avoided because Defendants were allegedly willfully blind to Madoff’s
fraud when they invested. The trial has nothing to do with where or how Madoff got the
money to make the transfers. This is not a case about the other victims of Madoff’s
scheme. It is about Defendants’ own conduct and state of mind. To invite the jurors to
base their decision on sympathy or concern for the other alleged victims, about whom
they will have heard no evidence, would be improper and prejudicial. Consequently,
neither the Trustee’s counsel nor his expert or fact witnesses should be permitted to use
this phrase or any like wording in front of the jury.
ARGUMENT
A district court’s “inherent authority to manage the course of its trials
encompasses the right to rule on motions in limine.” Highland Capital Mgmt., L.P. v.
Schneider, 551 F. Supp. 2d 173, 176 (S.D.N.Y. 2008) (citing Luce v. United States, 469
U.S. 38, 41 n.4 (1984)). Pretrial resolution of motions in limine forecloses the need for
futile attempts to “unring the bell” once jurors have seen or heard inadmissible evidence.
Motions in limine under Rules 402 and 403 of the Federal Rules of Evidence
permit courts to preclude the introduction of evidence that does not tend to make the
existence of any material fact more or less probable, see Fed. R. Evid. 401-402, or that,
even if relevant, its probative value is “substantially outweighed by . . . unfair prejudice,
confusing the issues, misleading the jury, undue delay, wasting time, or needlessly
presenting cumulative evidence,” Fed. R. Evid. 403; see also United States v. Beech-Nut
Nutrition Corp., 871 F.2d 1181, 1193 (2d Cir. 1989) (citing Fed. R. Evid. 403).
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Where language has “an undue tendency to suggest decision on an improper
basis, commonly, though not necessarily an emotional one,” it may be excluded under
Rule 403. Fed. R. Evid. 403 advisory committee’s note; see also United States v.
Kaplan, 490 F.3d 110, 122 (2d Cir. 2007) (the “unfair prejudice” addressed by Rule 403
is “the risk that the jury would draw improper inferences”). Consequently, courts have
directed under Rule 403 that parties or counsel refrain from using prejudicial language
before a jury. For example, in Plew v. Limited Brands, Inc., No. 08 Civ. 3741, 2012 U.S.
Dist. LEXIS 14966, at *6 -7 (S.D.N.Y. Feb. 6, 2012), the Court ruled that the words
“stole” and “stealing” were prejudicial and should not be used before the jury in a patent
infringement case.
“Defendants move to prevent [Plaintiff] from using pejorative terms or
phrases at trial. Specifically, Defendants contend that [Plaintiff] is likely to
repeat allegations she has made in the press that Victoria’s Secret ‘stole’
her bra. Courts may prohibit the use of pejorative terms under Federal
Rule of Evidence 403 ‘when such categorizations [are] inflammatory and
unnecessary to prove a claim.’ The Court agrees that characterizing
Victoria’s Secret actions as ‘stealing’ risks prejudicing the jury and will
not aid in its finding of facts.” Id. (citations omitted).
In Aristocrat Leisure Ltd. v. Deutsche Bank Trust Co. Ams., No. 04 Civ. 10014,
2009 U.S. Dist. LEXIS 89183, at *19-20 (S.D.N.Y. Sept. 28, 2009), the use of certain
language deemed inflammatory in connection with the adjudication of a hedge fund’s
claim was precluded.
“This Court has prohibited the use of pejorative terms when such
categorizations were inflammatory and unnecessary to prove a claim. . . .
The term ‘tax haven,’ . . . when considered in isolation, appears irrelevant
and inflammatory on its face and is precluded. The Court declines to
speculate on all other possible terms that the parties may use during trial
and whether such terms would be inflammatory. Instead, the Court
cautions the parties against using inflammatory terms and making
derogatory statements that do not bear on the issues being tried, including,
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but not limited to, ‘tax haven’ and statements linking the Bondholders, or
hedge funds in general, to the financial crisis.” Id.
See also A.I.A. Holdings, S.A. v. Lehman Bros., No. 97 Civ. 4978, 2002 U.S. Dist. LEXIS
22559, at *2-3 (S.D.N.Y. Nov. 21, 2002) (prohibiting use of the phrase “rat trading” by
plaintiffs, their witnesses, and counsel); Highland Capital Mgmt., 551 F. Supp. 2d at
191-92 (precluding party from using terms such as “securities fraud” to characterize
conduct where the only apparent reason for doing so was convincing the jury “that [the]
defendants are bad people”); cf. Faulkner v. Nat’l Geographic Soc’y, 576 F. Supp. 2d
609, 613 (S.D.N.Y. 2008) (precluding intent evidence in copyright infringement action,
notwithstanding slight possible probative value, because the evidence would unduly
“prejudice the jury’s assessment . . . by portraying defendants in an unflattering light”);
Kinsey v. Cendant Corp., 588 F. Supp. 2d 516, 518-19 (S.D.N.Y. 2008) (“The parties are
not permitted to argue to the fact finder’s potential economic sympathies or prejudices.”).
It is apparent that the Trustee intends to use the term “Other People’s Money” to
prejudice Defendants before the jury by suggesting that the transfers in issue were stolen
from other investors. The phrase “Other People’s Money” appears seventeen times in the
Trustee’s Amended Complaint. His counsel has used it repeatedly in oral argument
before this Court, in his papers, and to the press. See, e.g., Tr. of Feb. 23, 2012 Oral
Argument (doc. no. 139) at 72:25, 74:16, 78:15-16; Teri Thompson, Wayne Coffey &
Nathaniel Vinton, Wilpon Defends Honor, Will Not Make Deal That Sullies Reputation,
N.Y. Daily News, May 22, 2011, at 62 (Declaration of Dana M. Seshens in Support of
Defendants’ Motions In Limine (“Seshens Decl.”), dated Mar. 5, 2012, Ex. O) (“‘Fred
Wilpon, Saul Katz and the Sterling Partners are holding $300 million in fictitious profits

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consisting of ‘other people’s money,’ stolen money that they received from Bernard
Madoff. Yet they refuse to return this stolen money,’ said David J. Sheehan, counsel to
Picard and a partner at Baker & Hostetler LLP, the counsel for the [T]rustee.”)
Further, the Trustee’s forensic accounting expert, Bruce G. Dubinsky, was
apparently told to assume that, because part of Madoff Securities was a Ponzi scheme,
Madoff Securities customers were equity investors who made invalid “redemptions”
using “Other People’s Money.” 1 (See Initial Expert Report of Bruce G. Dubinsky, dated
Nov. 22, 2011, ¶¶ 237, 240, 246, 247, 248, 249, 250, 263, 273, 286, 304 (Declaration of
Bruce G. Dubinsky, dated Jan. 26, 2012, Ex. 1 (doc. no. 107).)
“A Ponzi scheme begins as an investment opportunity—sometimes
legitimate, other times not. The fraudster solicits investors with promises
of returns within a specified time period (e.g., a return of 50% in 6
months). Before the return becomes due, the fraudster will have solicited
investment from other individuals and use that investment to pay the
previously promised return (hereinafter referred to as ‘Other People’s
Money’). In strict accounting terms, money is paid out as a return,
described as income, but is actually a distribution of capital. Instead of
returning profits, the fraudster spends cash reserves.” (Id. ¶ 237 (emphasis
added).)
* * *
“The only source of cash available sufficient enough for House 17 to pay
purported investment profits as well as redemption requests to its
investors was from Other People’s Money.” (Id. ¶ 240 (emphasis added).)
* * *
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When questioned at his deposition about his use of the “Other People’s Money”
mantra, Mr. Dubinsky admitted that the term was “thrown around with counsel as a term
to describe the money that was coming from one investor, so there would be, I think,
across the case a generic term that was being used.” (Deposition Transcript of Bruce G.
Dubinsky, Jan. 11, 2012, 81:4-21 (emphasis added) (Seshens Decl., Ex. P).) He testified,
however, that all customer cash was commingled with other cash, including cash from
legitimate businesses, and conceded that “once cash is co-mingled, it’s fungible.” (Id.
81:22-82:7.)
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“House 17 had no legitimate income-producing activities. Although acting
as an investment adviser, no trades were executed and the entity was
dependent on an increasing supply of investor funds in order to
continually meet investor redemptions.” (Id. ¶ 247 (emphasis added).)
Mr. Dubinsky’s report demonstrates that the Trustee intends to argue that
Defendants received “Other People’s Money.” But there is no evidence that Defendants
received anyone else’s money other than their own when they made withdrawals from
their accounts. “Madoff Securities was a registered securities brokerage firm” and
Defendants were its customers. See Picard v. Katz, No. 11 Civ. 3605 (JSR), 2011 U.S.
Dist. LEXIS 109595, at *8-9 (S.D.N.Y. Sept. 27, 2011). They withdrew from their
brokerage accounts sums to which they were legally entitled under Article 8 of the UCC
and contract law. The only transfers in issue at the trial will be transfers of Defendants’
principal. To permit the Trustee nonetheless to refer to such transfers as “Other People’s
Money” would be highly inaccurate, unfair and prejudicial.
The Trustee must prove willful blindness by putting forth evidence that at the
time of investment a Defendant subjectively believed there was a high probability that
Madoff Securities was engaged in a fraud, and that such Defendant deliberately turned
away from available information he, she, or it feared would confirm that. Invocation of
these terms prejudices Defendants by implying that the high standard of “willful
blindness” is met where a Defendant takes “Other People’s Money.” If a Defendant was
willfully blind at the time of investment, then that investment was not made in good faith
and is subject to avoidance under this Court’s rulings. If not, then the investment was in
good faith and not voidable, regardless of where the money to make the transfer came
from. What ultimately turned out to be the source of the funds Madoff used at a later
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time to make transfers when that Defendant withdraw principal is therefore irrelevant.
See In re Sharp Int’l Corp., 403 F.3d 43, 55 (2d Cir. 2005).
Accordingly, the Trustee’s counsel and witnesses should be precluded under
Rules 402 and 403 of the Federal Rules of Evidence from referring to “Other People’s
Money” or like terms to suggest the source of funds used by Madoff to make the transfers
in issue.
CONCLUSION
For the reasons set forth above, Defendants respectfully request that the Court
preclude the Trustee’s counsel and witnesses from employing the term “Other People’s
Money” or any similarly prejudicial terms, at the trial of this case.
Dated: New York, New York
March 5, 2012
DAVIS POLK & WARDWELL LLP
By: /s/ Robert F. Wise, Jr.
Robert F. Wise, Jr
Karen E. Wagner
Dana M. Seshens
450 Lexington Avenue
New York, New York 10017
Telephone:
[phone]
Facsimile:
[phone]
Attorneys for Defendants

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