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

Filing 165

MEMORANDUM OF LAW in Opposition re: 154 THIRD MOTION in Limine To Exclude Testimony From Robert Morgenthau, Sandy Koufax, Michael Dowling, and Robert Rosenthal.. 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 OPPOSITION TO TRUSTEE’S MOTION IN
LIMINE NO. 3 TO EXCLUDE TESTIMONY FROM ROBERT MORGENTHAU,
SANDY KOUFAX, MICHAEL DOWLING, AND ROBERT ROSENTHAL

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

TABLE OF CONTENTS
PAGE
PRELIMINARY STATEMENT .........................................................................................1
ARGUMENT.......................................................................................................................3
CONCLUSION....................................................................................................................7

TABLE OF AUTHORITIES
CASES
PAGE
George v. Celotex Corp., 914 F.2d 26 (2d Cir. 1990) .........................................................3
Global-Tech Appliances, Inc. v. SEB, S.A., 131 S. Ct. 2060 (2011)....................................1
Highland Capital Mgmt. v. Schneider, 551 F. Supp. 2d 173 (S.D.N.Y. 2008) ...................3
Lidle v. Cirrus Design Corp.,
No. 08 Cv. 1253, 2011 U.S. Dist. LEXIS 46315 (S.D.N.Y. Apr. 23, 2011) .................6
United States v. Kaplan, 490 F.3d 110 (2d Cir. 2007).........................................................3
United States v. Khan, 787 F.2d 28 (2d Cir. 1986)..............................................................3

STATUTES AND RULES
Fed. R. Evid. 401 .................................................................................................................3

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Defendants respectfully submit this memorandum of law in opposition to the
Trustee’s motion in limine to exclude at trial the testimony of Robert Morgenthau, Sandy
Koufax, Michael Dowling, and Robert Rosenthal.
PRELIMINARY STATEMENT
Defendants do not seek to introduce “character evidence” through these witnesses.
To the contrary, their evidence bears on the matters at issue.
The central issue for trial is willful blindness. To demonstrate willful blindness,
the Trustee must prove that each Defendant subjectively believed that there was a high
probability that Bernard L. Madoff (“Madoff”), through his brokerage, Bernard L.
Madoff Investment Securities LLC (“Madoff Securities”), was not trading securities, but,
rather, was engaged in a Ponzi scheme, and that each such Defendant deliberately
avoided information he, she, or it feared would confirm that subjective belief. See
Global-Tech Appliances, Inc. v. SEB, S.A., 131 S. Ct. 2060, 2070 (2011). There is no
direct evidence of willful blindness. Indeed, at summary judgment, the Trustee did not
even try to challenge the sworn testimony of each Sterling Partner that he never believed
there was a possibility, let alone a high probability, that Madoff was running a Ponzi
scheme and not trading securities. Nor did he challenge the sworn testimony that no
Sterling Partner ever deliberately avoided information concerning Madoff or Madoff
Securities for fear it would confirm Madoff’s fraud.
Because there is no direct evidence to support the Trustee’s claims, he will rely on
circumstantial evidence in his effort to prove that individual Defendants actually believed
there was a high probability of fraud. The jury will thus have to evaluate all of the
circumstances in order to make an inference that Defendants did or did not harbor such a

belief. Defendants’ own conduct at the relevant time is highly probative, and therefore
relevant, to their state of mind, the key question at issue. Conduct inconsistent with such
a belief, such as recommending Madoff to their closest friends or to charities they
supported, is strong circumstantial evidence that they did not believe Madoff was a fraud.
In addition, the motive question, raised by the Court in connection with
Defendants’ motion to dismiss last year, is also central to the circumstantial case: Why
would Defendants continue to invest their money with a securities dealer they believed
was a fraud? It makes no sense. In response, the Trustee has suggested that Defendants
were addicted to the Madoff returns and had become dependent on them to keep their
businesses going. But even if that were true, and the evidence will show that it is not, it
provides no explanation for why Defendants would recommend Madoff to their closest
friends or to charities for investment of their gifts. The jury is entitled to consider
evidence of such conduct when assessing whether the Trustee’s “dependency” argument
makes sense and whether it provides an answer to the motive question.
The proposed testimony of Messrs. Morgenthau, Koufax, and Dowling—far from
“character evidence”—is intended to address these points. Each individual has a close
and longstanding relationship with either Fred Wilpon or Saul Katz. Each had either his
own Madoff Securities account or an account opened to invest a charitable gift. These
accounts were opened on the recommendation of Mr. Wilpon and Mr. Katz during the
same period as when the Trustee claims they were willfully blinding themselves to
Madoff’s fraud. It is entirely inconsistent with willful blindness for Mr. Wilpon, Mr.
Katz, and the other Sterling Partners to have helped their families, trusts, and charitable
foundations to open Madoff Securities accounts. It is equally as inconsistent with willful
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blindness that they would help lifelong friends and charities they supported to do the
same. Such evidence makes it highly improbable that any Sterling Partner held a
subjective belief that Madoff was running a Ponzi scheme.
Although it is true, as the Trustee contends, that these witnesses are “prominent”
and “impressive” (Tr. Limine Mot. No. 3 at 1, 2), that does not disqualify them from
providing relevant evidence. The testimony of these witnesses is entirely proper and
should be admitted.
ARGUMENT
To be relevant, evidence must have “any tendency to make a fact more or less
probable than it would be without the evidence” where “the fact is of consequence in
determining the action.” Fed. R. Evid. 401. The “any tendency” threshold is “minimal.”
See United States v. Khan, 787 F.2d 28, 34 (2d Cir. 1986). Exclusion of evidence under
Rule 403 is only appropriate where the risk of unfair prejudice is significant. See
Highland Capital Mgmt. v. Schneider, 551 F. Supp. 2d 173, 177 (S.D.N.Y. 2008)
(“Because Rule 403 excludes relevant evidence, ‘it is an extraordinary remedy that must
be used sparingly.’” (quoting George v. Celotex Corp., 914 F.2d 26, 31 (2d Cir. 1990))).
“[R]elevant evidence is always prejudicial to one side.” United States v. Kaplan, 490
F.3d 110, 122 (2d Cir. 2007).
The testimony of Robert Morgenthau, Sandy Koufax, and Michael Dowling is
highly probative of Saul Katz’s and Fred Wilpon’s lack of subjective belief that Madoff
was engaged in a Ponzi scheme. The Trustee says these witnesses are unable to testify
about what he deems the relevant “facts” in this case, such as “Defendants’ awareness of
Merrill Lynch’s rejection of Madoff or . . . Noreen Harrington’s warnings that Madoff
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returns were . . . fiction.” (Tr. Limine Mot. No. 3 at 3.) But testimony specifically about
these “facts” is obviously not the only evidence from which a jury could draw an
inference about Defendants’ state of mind.
Mr. Morgenthau will testify that in 2006—three years after Noreen Harrington
allegedly told Saul Katz and others of her speculation that Madoff’s returns might be a
“fiction”—Mr. Wilpon donated $500,000 to the Police Athletic League (“PAL”), a
charity Mr. Morgenthau, then Manhattan District Attorney, chaired. The donation, which
Mr. Wilpon made to support a baseball program and to provide academic scholarships for
PAL participants, was in honor of Mr. Wilpon’s and Mr. Morgenthau’s mutual friend,
Robert McGuire, the former New York City Police Commissioner, who was vicechairman of the PAL board at the time. Mr. Morgenthau will testify that in a discussion
regarding how to invest the donation, at Mr. Wilpon’s suggestion, it was decided that the
bulk of the money would be deposited in a Madoff Securities brokerage account. Mr.
Morgenthau will testify that Mr. Wilpon told them that the money would be “safe” with
Madoff. From such evidence, the jury is entitled to conclude that there is no reason Mr.
Wilpon would have told the Manhattan District Attorney that money donated to the
District Attorney’s favorite charity would be safe with Madoff if he believed there was a
high probability that Madoff was running a Ponzi scheme.
Mr. Dowling will provide similarly relevant testimony. He is the President of the
North Shore-Long Island Jewish Hospital System (“North Shore-LIJ”) and has worked,
and continues to work, closely with Saul Katz, who has been actively involved with and
has devoted an enormous amount of time to the hospital system since 1997, serving as
chairman of the board from 1997 to 2000 and again from 2006 to 2010. Mr. Katz also
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has donated significant funds to North Shore-LIJ. In connection with efforts to create a
new hospital devoted solely to women’s care, North Shore-LIJ opened a Madoff
Securities account at Mr. Katz’s suggestion so that his donated funds could be invested
for safekeeping until they were needed. The jury could certainly conclude that it would
be unthinkable that Mr. Katz would expose millions of charitable dollars earmarked for
the hospital system—with no benefit to Mr. Katz himself—by recommending that it be
safeguarded by an entity he suspected was engaged in a Ponzi scheme.
Mr. Koufax’s testimony is equally relevant. Mr. Koufax and Mr. Wilpon have
been lifelong friends, having played high school baseball together in Brooklyn. At Mr.
Wilpon’s suggestion, Mr. Koufax himself opened a 1KW Madoff Securities account. Mr.
Koufax will testify about how he came to open his account and the positive things Mr.
Wilpon told him about investing with Madoff Securities. From this evidence the jury can
conclude that it strains credulity to think that Mr. Wilpon would expose his oldest and
closest friend to potential financial ruin—for no benefit to Mr. Wilpon himself—if he
subjectively believed that Madoff Securities might be operating a Ponzi scheme.
None of this testimony is “character evidence.” No witness is taking the stand to
testify that Saul Katz and Fred Wilpon are “good guys” or to “distract the jury” into
concluding that Messrs. Wilpon and Katz are just not the kind of people who would
willfully blind themselves to a fraud. (Tr. Limine Mot. No. 3 at 4-5.) To the contrary,
each of these witnesses is being offered to provide evidence showing the conduct of
Messrs. Wilpon and Katz to be the antithesis of willful blindness. The jury is likely to
conclude that Mr. Katz and Mr. Wilpon did not willfully blind themselves to Madoff’s
Ponzi scheme and that Mr. Katz and Mr. Wilpon are “good guys,” but neither conclusion
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will be based on character evidence offered by these witnesses. Thus, no such testimony
runs afoul of Rule 404.
Finally, the evidence offered by Messrs. Morgenthau, Dowling, and Koufax
cannot be excluded under Rule 403 simply because the Trustee does not like it. He
contends that the probative value of the witnesses’ testimony is “substantially
outweighed” by a danger of “unfair prejudice” because the “legendary” witnesses will
“distract[] the jury from ‘the main question of what actually happened.’” (Tr. Limine
Mot. No. 3 at 6.) But the proffered evidence is directly relevant to “what actually
happened.” The only authority cited by the Trustee for the novel proposition that it is
unfairly prejudicial to call “prominent individuals” as witnesses is irrelevant. (See id. at
6-7.) In Lidle v. Cirrus Design Corp., testimony offered to prove the “character, skills as
a baseball player, preparation habits, and desire to continue playing baseball” of deceased
Yankee Cory Lidle was excluded because none of those “minimally relevant” issues was
in dispute. No. 08 Cv. 1253, 2011 U.S. Dist. LEXIS 46315, at *3-5 (S.D.N.Y. Apr. 23,
2011). By contrast, the testimony being offered here is directly relevant to the central
issue in the case—whether any Defendant was willfully blind.1

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Mr. Rosenthal will be presented only if necessary in rebuttal if the Trustee seeks
to introduce evidence that Saul Katz has the expertise of an investment manager. Mr.
Rosenthal, who is an investment manager and who has long served as one for Mr. Katz,
will dispel that false assertion based on his personal knowledge of the level of Mr. Katz’s
investment management sophistication, or lack thereof. In light of the Court’s exclusion
of Dr. Pomerantz, the Trustee’s expert who was prepared to offer an opinion that all
wealthy investors should be held to the standards of institutional investors, Defendants do
not anticipate needing to call Mr. Rosenthal.
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CONCLUSION
For the reasons set forth above, Defendants respectfully request that the Court
deny the Trustee’s motion to exclude the testimony of Messrs. Morgenthau, Koufax,
Dowling, and Rosenthal.
Dated: New York, New York
March 12, 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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