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

Filing 169

MEMORANDUM OF LAW in Opposition re: 162 FIFTH MOTION in Limine To Deem Statements By Sterling Stamos Employees In The Course Of And In Connection With Their Employment By Sterling Stamos As Admissions of The Sterling Defendants.. 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
----------------------------------- 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 IN LIMINE NO. 5 TO DEEM STATEMENTS BY CERTAIN
STERLING STAMOS PARTNERS AND EMPLOYEES AS ADMISSIONS
OF THE STERLING PARTNERS

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

TABLE OF AUTHORITIES
PAGE
CASES
Fisk Ventures, LLC v. Segal, C.A. No. 3017-CC,
2008 Del. Ch. LEXIS 158 (Del. Ch. May 7, 2008) ...................................................... 4
In re Shulman Transp. Enters., Inc., 744 F.2d 293 (2d Cir. 1984) ..................................... 6
JN Realty LLC v. Estate of Marvin, 268 F. Supp. 2d 231 (S.D.N.Y. 2003) ....................... 3
Marine Midland Bank v. John E. Russo Produce Co., 50 N.Y.2d 31, 44 (1980)............... 7
Nat’l Commc’n Ass’n, Inc. v. Am. Tel. & Tel. Co., No. 92 Civ. 1735,
1998 U.S. Dist. LEXIS 3198 (S.D.N.Y. Mar. 16, 1998) .............................................. 6
Nat’l Union Fire Ins. Co. of Pittsburgh v. Eaton,
701 F. Supp. 1031 (S.D.N.Y. 1998).............................................................................. 6
United States v. Clark, 613 F. 2d 391, 403-04 (2d Cir. 1979)............................................ 4
United States v. Heffner, 916 F. Supp. 1010 (S.D. Cal. 1996) ....................................... 3, 4
United States v. Kelley, 305 F. App’x 705 (2d Cir. 2009).................................................. 4
United States v. Saks, 964 F.2d 1514 (5th Cir. 1992)......................................................... 4
Zaken v. Boerer, 964 F.2d 1319, 1322 (2d Cir. 1992)........................................................ 6
STATUTES & RULES
6 Del. Code § 17-101 et seq................................................................................................ 5
6 Del. Code § 17-303(b)(2)................................................................................................. 5
6 Del. Code § 17-303(b)(4)................................................................................................. 5
Fed. R. Evid. 801(d)(2)(D) ................................................................................................. 1
OTHER AUTHORITIES
Restatement (Second) of Agency § 1.03, cmt. c................................................................. 4

ii

Defendants respectfully submit this memorandum of law in opposition to the
Trustee’s motion in limine to deem statements by certain partners and employees of
Sterling Stamos Partners (“Sterling Stamos”) as admissions of the partners of Sterling
Equities (“Sterling Partners”).
PRELIMINARY STATEMENT
Each of Defendants and the Trustee has sought a ruling from this Court as to the
admissibility, or inadmissibility, of the same Sterling Stamos evidence against
Defendants. Defendants have moved for an order precluding the Trustee from offering
this evidence because it is neither a party admission nor a business record. (See Defs.’
Mem. of Law in Supp. of Mot. In Limine to Exclude Sterling Stamos Documents, dated
Mar. 5, 2012 (“Defs. SSP Mem.”).) In their motion, which Defendants incorporate
herein by reference, Defendants demonstrate that Sterling Stamos documents are not
party admissions of the Sterling Partners. Sterling Stamos is not a party to this litigation,
the Sterling Partners and Sterling Stamos are not one and the same, and neither Sterling
Stamos nor any employee of Sterling Stamos was an agent for or an alter ego of any
Defendant.
The Trustee nevertheless seeks a ruling from this Court that statements of
employees of Sterling Stamos are admissible as party admissions against the Sterling
Partners under Rule 801(d)(2)(D) of the Federal Rules of Evidence. In so doing, the
Trustee confuses admissibility against Sterling Stamos with admissibility against the
Sterling Partners, misapplies limited partnership law, and advocates an unrecognizable
theory of agency. At best, the Trustee has argued for the admission of the statements of
Sterling Stamos and certain of its employees against Sterling Stamos. He has made no

showing, nor can he, for the admission of such statements against any Defendant,
including against any Sterling Partner.
ARGUMENT
The Trustee’s entire argument for admission of Sterling Stamos “statements”
against the Sterling Partners is predicated on the conduct of Peter Stamos and Sterling
Stamos employees undertaken on behalf of the Sterling Stamos partnership. He
concedes that Peter Stamos was the sole general partner of Sterling Stamos and that he
was granted exclusive authority to make all investment and operational decisions for the
Sterling Stamos partnership. As a result of this breadth of expressly delegated authority
to act for Sterling Stamos, the Trustee contends that “virtually any act undertaken by
[Peter Stamos] or anyone he employed or engaged on behalf of Sterling Stamos was
within the scope of his agency” for the Sterling Partners. (Tr. Limine Mot. No. 5 at 8.)
But Sterling Stamos and the Sterling Partners are not one and the same, as demonstrated
by Sterling Stamos’ partnership structure and the relationship between the Sterling
Partners, Sterling Stamos, and its employees.
As set forth in Defendants’ motion, no Sterling Partner was a general partner of
Sterling Stamos. (See Defs. SSP Mem. at 4-5; Seshens Decl. Exs. F, G, H.) Peter
Stamos was the sole general partner, and Defendants were limited partners only. The
governing documents vested all control over all components of Sterling Stamos’ business
exclusively with Peter Stamos. For example, the Limited Partnership Agreement
governing the Sterling Partners’ limited partnership interest in Sterling Stamos provides,
except as otherwise indicated:

2

“[T]he business and affairs of the Partnership shall be carried on and
managed exclusively by the General Partner, or such other Partners or
officers as from time to time may hereafter be designated by the General
Partner, who shall have full control thereof, and no other Partner shall take
any part whatsoever in the management, operation or control of the
business of the Partnership.” (LP Agmt. § 2.01 (Seshens Decl., Ex. F).)
Indeed, to the extent any of the limited partners of Sterling Stamos have any role in the
operations of the business, that role can only be assigned by the General Partner. (See id.
§ 2.04(a).)
The agreement governing Stamos Partners Associates, LLC similarly provides:
“[T]he power to make investment decisions with regard to the assets and
liabilities of the Company and to make decisions with regard to the
management of the Company shall be vested exclusively in the Managing
Member [Peter Stamos], or such other Members or officers as may from
time to time hereafter be designated by the Managing Member. Except as
authorized by the Managing Member or as otherwise provided herein, the
other Members shall have no right or authority to act on behalf of the
Company in connection with any matter.” (LLC Agmt. § 2.01 (Seshens
Decl., Ex. H).)
Limited partner status is quite distinct from general partner status and does not
give limited partners any of the actual or apparent authority attributed to general
partners.1 “The principal-agent relationship which exists between the partners of an
ordinary partnership is not present between the limited and general partners of a limited
partnership.” JN Realty LLC v. Estate of Marvin, 268 F. Supp. 2d 231, 236 (S.D.N.Y.
2003) (internal quotation marks omitted); United States v. Heffner, 916 F. Supp. 1010,
1012 n.2 (S.D. Cal. 1996) (“Generally, in a partnership each partner has the legal ability

1

The limited partner status of the Sterling Partners is established by the relevant
partnership documents. It is not altered because an inadmissible Sterling Stamos
promotional fund offering document, never reviewed or approved by any Sterling Partner,
wrongly described a Sterling Partner as a general partner. (See Tr. Limine Mot. No. 5 at
5-7.)
3

to assert control over the partnership. By contrast, in a ‘limited partnership’ the general
partner controls the business of the limited partnership to the exclusion of the limited
partners.” (citations omitted)); cf. Restatement (Second) of Agency § 1.03, cmt. c. (“In a
limited partnership, a statutorily authorized form in which partners’ roles are
differentiated, only the general partner or general partners under ordinary circumstances
have authority to bind the partnership because the limited partners occupy only a passive
investment role.”).
Similarly, under Delaware law, which governs Stamos Partners Associates, LLC,
the Sterling Partners’ non-managing membership gave them no control. Limited liability
companies are “creatures not of the state but of contract,” and, thus, the duties and
obligations of the parties “must be found in the LLC Agreement or some other contract.”
Fisk Ventures, LLC v. Segal, C.A No. 3017-CC, 2008 Del. Ch. LEXIS 158, at *28 & n.34
(Del. Ch. May 7, 2008). Here, the relevant LLC agreement gave total and exclusive
management control to Peter Stamos.
The Trustee supports his claim of control and agency by citing to cases involving
the rights and liabilities of general partners. But those cases have no application to the
rights and liabilities of limited partners. See, e.g., United States v. Kelley, 305 F. App’x
705, 707-08 (2d Cir. 2009) (statements of managing partner admissible against other
partners in a traditional partnership); United States v. Saks, 964 F.2d 1514, 1516, 1523-24
(5th Cir. 1992) (declarations of a general partner in a limited partnership were admissible
against another general partner); see also United States v. Clark, 613 F.2d 391, 403-04
(2d Cir. 1979) (addressing admissibility of statements of co-conspirators and joint
venturers). The Trustee’s reference to the Delaware Revised Uniform Partnership Act is

4

similarly irrelevant. (See Tr. Limine Mot. No. 5 at 8 n.4.) Delaware’s Revised Uniform
Limited Partnership Act, 6 Del. Code § 17-101 et seq., governs the Sterling Stamos
limited partnership.
Recognizing that Sterling Stamos’ partnership structure does not support his claim,
the Trustee argues that the interactions of Saul Katz and David Katz with Peter Stamos
and Sterling Stamos evidence the requisite control to support an agency relationship.
(See Tr. Limine Mot. No. 5 at 4-5.) But that Peter Stamos sought Saul Katz’s advice and
counsel in the formative stages of Sterling Stamos, or that both Saul and David Katz sat
on the board of Sterling Stamos, does not establish that either of them controlled Peter
Stamos or Sterling Stamos, let alone any Sterling Stamos employee.2 Cf. 6 Del. Code
§ 17-303(b)(2), (4) (a limited partner does not control the business of a limited
partnership even though it consults with and advises the general partner or attends and
participates in meetings with the general partner).
Similarly, the fact that the Sterling Partners provided much of the seed money for
the establishment of Sterling Stamos, had significant amounts invested with Sterling
Stamos funds, or reaped the benefit of their investment in Sterling Stamos when Merrill
Lynch purchased fifty percent of the company is equally irrelevant. Peter Stamos was the
general partner of Sterling Stamos, ran Sterling Stamos, and made all decisions for
Sterling Stamos. His statements may very well be admissible, therefore, against Sterling
Stamos, but there is no basis to admit them against the Sterling Partners. As limited
2

The Trustee refers to an “anecdote” in which Fred Wilpon praised Peter Stamos
after being told that Sterling Stamos had redeemed an investment with a manager who
was friends with Mr. Wilpon and Saul Katz. (Tr. Limine Mot. No. 5 at 8.) But this
exchange demonstrates Peter Stamos’ complete control of Sterling Stamos, not control by
any Sterling Partner.
5

partners in Sterling Stamos, they had no control over Sterling Stamos, and there is no
evidence to the contrary. As a result, the Trustee cannot establish the “critical element”
of control necessary to demonstrate that Peter Stamos, or any other Sterling Stamos
employee, was an agent of the Sterling Partners. See Nat’l Commc’n Ass’n, Inc. v. Am.
Tel. & Tel. Co., No. 92 Civ. 1735, 1998 U.S. Dist. LEXIS 3198, at *130 (S.D.N.Y. Mar.
16, 1998); Nat’l Union Fire Ins. Co. of Pittsburgh v. Eaton, 701 F. Supp. 1031, 1035
(S.D.N.Y. 1988) (“It is basic to an agency relationship that the agent acts subject to the
principal’s direction and control” (citing In re Shulman Transp. Enters., Inc., 744 F.2d
293, 295 (2d Cir. 1984))).
The Trustee further has no evidence to suggest that any Sterling Partner deemed,
assigned, or otherwise appointed Peter Stamos, or any other Sterling Stamos employee,
as his agent for the purpose of making statements about anything at all, let alone about
their thoughts regarding Madoff following his arrest. Whether or not statements made by
Sterling Stamos employees in hearsay emails after December 11, 2008 fell within the
scope of the employment obligations of Sterling Stamos employees to Sterling Stamos at
that time, which seems rather unlikely, the statements in those emails certainly were not
made within the scope of any agency relationship between those Sterling Stamos
employees and the Sterling Partners. Cf. Zaken v. Boerer, 964 F.2d 1319, 1322 (2d Cir.
1992) (observing that whether statements made by a corporate employee are admissible
as admissions of another employee rather than of the corporation depends on the agency
relationship between the two employees).
Finally, in the absence of any evidence of an agency relationship, the Trustee’s
claim that the Sterling Partners “cannot disavow the existence of an agency relationship”

6

because they have monetarily benefitted from their limited partnership interest in Sterling
Stamos is absurd, and the case he relies upon as support stands for no such proposition.
(Tr. Limine Mot. No. 5 at 9.) See Marine Midland Bank v. John E. Russo Produce Co.,
50 N.Y.2d 31, 44 (1980) (holding that a principal is estopped from denying knowledge of
its agent where it has been unjustly enriched by the agent’s wrongdoing).
CONCLUSION
For the reasons set forth above and in Defendants’ motion in limine to exclude
Sterling Stamos documents, Defendants respectfully request that the Court deny the
Trustee’s motion in limine to deem statements by certain Sterling Stamos partners and
employees as admissions of the Sterling Partners.
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

7