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

Filing 149

MEMORANDUM OF LAW in Support re: 147 FIRST MOTION in Limine To Exclude All Evidence And References To The Fees Paid To The Trustee And His Counsel... 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 INVESTMENT
SECURITIES LLC,
Debtor,

SIPA LIQUIDATION
(Substantively Consolidated)

IRVING H. PICARD, Trustee for the Liquidation of Adv. Pro. No. 10-05287 (BRL)
Bernard L. Madoff Investment Securities LLC,
Plaintiff,
v.

11 Civ. 03605 (JSR) (HBP)

SAUL B. KATZ, et al.,
Defendants.

TRUSTEE’S MEMORANDUM OF LAW IN SUPPORT OF MOTION IN LIMINE
NO. 1 TO EXCLUDE ALL EVIDENCE AND REFERENCES RELATING TO
THE FEES PAID TO THE TRUSTEE AND HIS COUNSEL

TABLE OF AUTHORITIES
Page(s)

CASES
Arlio v. Lively,
474 F.3d 46 (2d Cir. 2007).....................................................................................................4, 5
Barbarian Rugby Wear, Inc. v. PRL USA Holdings, Inc.,
No. 06 Civ. 2652 (JGK), 2009 WL 884515 (S.D.N.Y. Mar. 31, 2009) ................................6, 7
Beth Israel Med. Ctr. v. Horizon Blue Cross & Blue Shield of N.J., Inc.,
448 F.3d 573 (2d Cir. 2006).......................................................................................................5
Brough v. Imperial Sterling Ltd.,
297 F.3d 1172 (11th Cir. 2002) .................................................................................................6
City of Cleveland v. Peter Kiewit Sons Co.,
624 F.2d 749 (6th Cir. 1980) .....................................................................................................7
Gonzales v. Barret Bus. Servs., Inc.,
No. CV-05-0104-EFS, 2006 WL 1582380 (E.D. Wash. June 6, 2006).....................................6
Loussier v. Universal Music Grp., Inc.,
No. 02 Civ. 2447 (KMW), 2005 WL 564421 (S.D.N.Y. July 14, 2005)...............................6, 7
PRL USA Holdings, Inc. v. United States Polo Ass’n, Inc.,
520 F.3d 109 (2d Cir. 2008)...................................................................................................5, 6
Secs. and Exch. Comm. v. Madoff,
No. Civ. 08-10791 (S.D.N.Y. Dec. 15, 2008), Dkt. No. 4 .........................................................2
Secs. Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC,
No. 11 Misc. 285, 2011 U.S. Dist. LEXIS 139812 (S.D.N.Y. Dec. 6, 2011) (RPP) .................2
Secs. Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC,
No. M-47, 2010 U.S. Dist. LEXIS 3037 (S.D.N.Y. Jan. 11, 2010) (GBD)...............................2
Secs. Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC,
No. M-47, 2010 U.S. Dist. LEXIS 81492 (S.D.N.Y. Aug. 6, 2010) (SAS) ..............................2
U.S. v. Al Kassar,
582 F. Supp. 2d 498 (S.D.N.Y. 2008)........................................................................................5
U.S. v. Purdy,
144 F.3d 241 (2d Cir. 1998).......................................................................................................5

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TABLE OF AUTHORITIES
(continued)
Page(s)
RULES
Fed. R. Evid. 401 .....................................................................................................................4, 5, 6
Fed. R. Evid. 402 .....................................................................................................................4, 5, 6
Fed. R. Evid. 403 .....................................................................................................................4, 5, 7
OTHER AUTHORITIES
Timothy J. Conner, What You May Not Say to the Jury, 27 No. 3 LITIG 36 (Spring 2001) ..........6
Weinstein’s Federal Evidence § 401.04[2][a](2d ed. 2006) ............................................................5

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Irving H. Picard (the “Trustee”), as Trustee for the substantively consolidated liquidation
of the business of Bernard L. Madoff Investment Securities LLC (“BLMIS”) and Bernard L.
Madoff (“Madoff”), under the Securities Investor Protection Act (“SIPA”) 78aa et seq., by and
through his undersigned counsel, hereby respectfully submits this Memorandum of Law in
Support of Motion in Limine No. 1 to Exclude Evidence or References Concerning the Fees Paid
to the Trustee and His Counsel and Supporting March 5, 2012 Declaration of David Sheehan,
attached hereto as Exhibit 1 (the “Motion”). For the reasons set forth below, any such evidence
or references to the fees paid to the Trustee and his counsel should be excluded from the trial of
this matter.
PRELIMINARY STATEMENT
The Trustee anticipates that the Defendants will seek to introduce evidence relating to, or
otherwise make comments concerning, the fees paid to the Trustee and his counsel in an attempt
to distract the jury from the trial and otherwise imply that the Trustee’s action is driven solely by
his fees and those of his counsel. All such evidence and any references thereto should be
excluded because the fees paid to the Trustee and his counsel are not relevant to any issue at
trial. Indeed, this Court rejected the Defendants’ attempt to depose the Trustee on the fees paid
to him, among other matters, because of lack of relevance. Even if such evidence were somehow
relevant, any theoretical “probative value” would be substantially outweighed by the danger of
unfairly prejudicing the Trustee and misleading and confusing the jury about the central issue at
trial—the Defendants’ willful blindness to Madoff’s fraud.
I.

BACKGROUND
A.

The SIPA Framework for the Fees Paid to the Trustee and His Counsel

The fees paid to the Trustee and his counsel in the BLMIS liquidation are dictated by
SIPA. Because of SIPA’s customer protection goals, the fund of money that a trustee has

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recovered is first used to satisfy customer claims. Until all claims are satisfied, the
administrative expenses such as fees for a trustee and counsel are paid out of funds advanced by
SIPC. SIPA §78fff-3(b)(2).
In this case, all administrative expenses are being paid with funds advanced by SIPC, and
are not paid out of any recoveries obtained by the Trustee for the benefit of BLMIS customers.
One hundred percent of all recoveries achieved by the Trustee shall be distributed ratably to
customers with valid customer claims in accordance with SIPA. The fees paid to the Trustee and
his counsel over the past 38 months1 are unaffected by the results of this or any other litigation.
Certain claimants (other than the Defendants here) have objected in the Bankruptcy Court
to the fees paid to the Trustee and his counsel, notwithstanding the compensation framework
mandated by SIPA.

Those objections have been overruled by the Bankruptcy Court, and

attempts to seek leave to appeal the orders of the Bankruptcy Court approving interim fee awards
to the Trustee and his counsel have been denied by three judges of this Court.2 No controversy
exists with regard to the Trustee’s compensation, much less one that is relevant to this case. Any
attempt by the Defendants to create a sideshow should be prohibited.

1

The Trustee and his counsel were appointed pursuant to an order entered by Judge Stanton,
dated December 15, 2008. Order, Secs. and Exch. Comm. v. Madoff, No. Civ. 08-10791
(S.D.N.Y. Dec. 15, 2008), Dkt. No. 4.
2

The District Court denied the motions for leave to appeal the First, Third, and Fifth Orders of
the Bankruptcy Court. Secs. Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, No. M-47,
2010 U.S. Dist. LEXIS 3037 (S.D.N.Y. Jan. 11, 2010) (GBD); Secs. Investor Prot. Corp. v.
Bernard L. Madoff Inv. Sec. LLC, No. M-47, 2010 U.S. Dist. LEXIS 81492 (S.D.N.Y. Aug. 6,
2010) (SAS); Secs. Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, No. 11 Misc. 285,
2011 U.S. Dist. LEXIS 139812 (S.D.N.Y. Dec. 6, 2011) (RPP). The motions for leave to appeal
the Second and Sixth Orders remain pending before the District Court. Nos. M47-b (DAB) and
11 Misc. 265, respectively.

2

B.

The Defendants Have Improperly Attempted to Raise the Issue of the Fees
Paid to the Trustee and His Counsel

Throughout this litigation, the Defendants have periodically injected the Trustee’s
compensation into their narrative. For example, the Defendants previously attempted to depose
the Trustee regarding his fees and retention of his counsel. The pretext cited by the Defendants
was a need to understand the “motivations” in bringing suit against the Defendants, and in
particular “any pecuniary incentive tied specifically to this litigation.” See Nov. 29, 2011 email
correspondence between Dana M. Seshens and Fernando Bohorquez, Jr., copy attached as Ex. 1
to the Declaration of David J. Sheehan dated March 5, 2012. When raised in a telephonic
conference on December 1, 2011, this Court rejected the assertion that the Trustee’s fees were
relevant to this matter and denied the Defendants’ request to depose the Trustee.
The Defendants then raised the issue of the fees paid to the Trustee and his counsel
during the deposition of the former Comptroller for the City of New York, Harrison J. Goldin, an
expert proffered by the Trustee regarding the Defendants’ willful blindness to fraud in the face of
their 401(k) responsibilities to employees. Goldin Dep. Tr. at 8:19-22, Jan. 12, 2012 (“Let me
ask a preliminary question. Are you aware of how much the Trustee and his counsel have billed
in legal fees in connection with the Madoff liquidation proceedings?”). Throughout this litigation
the Defendants have peppered their briefs with gratuitous comments concerning the Trustee’s
compensation. Some examples include:


Describing Madoff’s fraud as “a fraud so complex that the Trustee and his
counsel have charged SIPC hundreds of millions of dollars so far to unravel it…”
(Reply Mem. of Law in Further Support of the Sterling Defs.’ Mot. to Dismiss the
Am. Compl. or, in the Alternative, for Summary Judgment at 45, filed July 7,
2011, Dkt. No. 26).



Asserting that the Trustee “has an unlimited budget and has spent tens of millions
of dollars trying to find support for his baseless allegations.” (Mem. of Law in
Support of Defs.’ Mot. for Summary Judgment at 6, filed July 7, 2011, Dkt. No.
20).
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

Stating that “[t]he Trustee has spent literally hundreds of millions of dollars to
document the extreme steps taken by Madoff and his band of co-conspirators.”
(Reply Mem. of Law in Further Support of Defs.’ Mot. for Summary Judgment at
11, filed February 16, 2012, Dkt. No. 134).

The issues for trial relate to the Defendants’ knowledge and conduct regarding their two
decade-plus investment relationship with Madoff. Any comments or evidence about fees paid to
the Trustee and his counsel will distract the jury from the relevant evidence to be introduced at
trial.3
II.

ARGUMENT
Evidence or references concerning the fees paid to the Trustee and his counsel is

irrelevant and creates a substantial risk of a verdict influenced by a jury’s passion or its view of
the Trustee generally, as opposed to the actual merits of the specific claims against the
Defendants. An order excluding evidence or references to the fees is warranted under Federal
Rules of Evidence (“Rules”) 401, 402 and 403.
A.

Evidentiary Standards Under Rules 401, 402 and 403

Consistent with Federal Rule of Evidence (“Rule”) 401, “[i]f an item of evidence tends to
prove a fact that is of consequence to the determination of the action, it is relevant. If it does not
tend to prove a material fact, it is irrelevant.” Arlio v. Lively, 474 F.3d 46, 52 (2d Cir. 2007)
(citing Weinstein’s Federal Evidence § 401.04[2][a] at 401-19 (2d ed. 2006)). “A material fact is
one that would affect the outcome of the suit under governing law.” Id. (citing Beth Israel Med.
Ctr. v. Horizon Blue Cross & Blue Shield of N.J., Inc., 448 F.3d 573, 579 (2d Cir. 2006)). Rule
3

The failure of the Defendants to ever avail themselves of the established process for
challenging the fees paid to the Trustee and his counsel reveals their efforts here as nothing more
than a litigation tactic, as opposed to a legitimate principled position. If the Defendants or their
counsel had a real objection to the fees paid to the Trustee and his counsel, they could have
raised it during the established fee approval process.

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402 of the Federal Rules of Evidence establishes that “[e]vidence which is not relevant is not
admissible.” Id.; see also Arlio, 474 F.3d at 52 (same) (citing Fed. R. Evid. 402). Rule 403 of
the Federal Rules of Evidence provides that although relevant, evidence may be excluded if “its
probative value is substantially outweighed by the danger of unfair prejudice, confusion of the
issues, or misleading the jury,” among other reasons. Id. As this Court has recognized, evidence
should be excluded under Rule 403 when it has no probative value and is “only likely to inject
irrelevancy and confusion into this case if allowed into evidence.” U.S. v. Al Kassar, 582 F.
Supp. 2d 498, 500 (S.D.N.Y. 2008).
Judges are “accorded ‘wide latitude’ in excluding evidence that poses an undue risk of
harassment, prejudice or confusion of the issues or evidence that is repetitive or only marginally
relevant.” U.S. v. Purdy, 144 F.3d 241, 246 (2d Cir. 1998) (Rakoff, J.) (citation and internal
quotations omitted); see also PRL USA Holdings, Inc. v. United States Polo Ass’n, Inc., 520 F.3d
109, 119 (2d Cir. 2008) (noting the “considerable discretion” afforded the trial court). Under
these well-established standards, the Court should exercise its discretion to exclude any evidence
concerning the fees paid to the Trustee and his counsel from the trial of this matter.
B.

Evidence of Fees Paid to the Trustee and His Counsel Are Irrelevant to Any
Issue in this Case and In any Event are Unfairly Prejudicial

Any evidence or references concerning the Trustee’s fees, the manner in which they are
determined, or any objections to the Trustee’s fee applications is irrelevant to this action and
should be excluded. Fed. R. Evid. 401; U.S. v. Al Kassar, 582 F. Supp. 2d at 500. Such
evidence would not tend to prove or disprove any facts that are of consequence to the
determination of this action as it has no bearing on any of the disputed issues, which involve only
the good faith or lack thereof of the Defendants. Moreover, as set forth above, the fees paid to
the Trustee and his counsel are paid pursuant to SIPA and have no correlation to this or any other

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avoidance action. All evidence or references to the fees paid to the Trustee and his counsel
should therefore be excluded. See Barbarian Rugby Wear, Inc. v. PRL USA Holdings, Inc., No.
06 Civ. 2652 (JGK), 2009 WL 884515, at *8 (S.D.N.Y. Mar. 31, 2009) (“[U]nless Barbarian is
able to demonstrate that the amount of its attorneys’ fees is independently relevant to some other
claim or defense in this case, it should be precluded from informing the jury of the amount of
those fees”); Loussier v. Universal Music Grp., Inc., No. 02 Civ. 2447 (KMW), 2005 WL
564421, at *2 (S.D.N.Y. July 14, 2005) (excluding evidence of wealth, financial condition, and
unrelated revenues under Rule 401 and 402 as not relevant to either liability or damages at
issue); Gonzales v. Barret Bus. Servs., Inc., No. CV-05-0104-EFS, 2006 WL 1582380, at *22
(E.D. Wash. June 6, 2006) (excluding evidence concerning counsel’s fee arrangement under
Rules 401 and 402).
Alluding to the fees paid to the Trustee and his counsel in the presence of the jury would
create danger of prejudice against the Trustee. See PRL USA Holdings, Inc., 520 F.3d at 119
(excluding evidence with high capacity for prejudice). The Defendants’ references to “unlimited
budgets” and “millions spent” are tantamount to improper and prohibited commentary on the
parties’ relative financial conditions. See Brough v. Imperial Sterling Ltd., 297 F.3d 1172, 1178
(11th Cir. 2002) (“The general rule is that, during trial, no reference should be made to the
wealth or poverty of a party, nor should the financial status of one party be contrasted with the
other’s.”); Timothy J. Conner, What You May Not Say to the Jury, 27 No. 3 LITIG 36 (Spring
2001) (“[C]ourts have found comments regarding the wealth or size of a party, and questions
designed to elicit evidence related to that issue (where it is clearly irrelevant), to fall outside the
scope of legitimate advocacy.”) (citing City of Cleveland v. Peter Kiewit Sons Co., 624 F.2d 749
(6th Cir. 1980)).

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Comments or evidence concerning the fees paid to the Trustee and his counsel would
further confuse and mislead the jury by creating the impression that such fees were somehow all
related to this case, or otherwise tied to its outcome, which of course they are not. These are the
precise circumstances where the Court should exercise its discretion under Federal Rule of
Evidence 403 to exclude evidence that will be unfairly prejudicial to the Trustee, and which will
result in misleading and confusing the jury. See Barbarian Rugby Wear, 2009 WL 884515, at *8
(finding evidence of the amount spent on counsel would create the danger of unfair prejudice
that would outweigh any probative value of such evidence). Cf. Loussier, 2005 WL 564421, at
*2 (excluding evidence under Rule 403 because any probative value of evidence of wealth or
financial condition “is substantially outweighed by the danger of unfair prejudice that might
result from jurors basing their conclusions on the relative wealth of the parties.”).

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CONCLUSION
For the foregoing reasons, the Court should issue an order in limine excluding any
evidence concerning the fees paid to the Trustee and his counsel.
Dated: New York, New York
March 5, 2012

Respectfully submitted,

By: /s/ David J. Sheehan
BAKER & HOSTETLER LLP
45 Rockefeller Plaza
New York, New York 10111
Telephone: [phone]
Facsimile: [phone]
David J. Sheehan
Email: [e-mail]
Fernando A. Bohorquez, Jr.
Email: [e-mail]
Regina L. Griffin
Email: [e-mail]
Attorneys for Irving H. Picard, Trustee for the
Substantively Consolidated SIPA Liquidation
of Bernard L. Madoff Investment Securities
LLC and Bernard L. Madoff

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