Federal Insurance Company et al v. Mertz, Jr. et al

Filing 217

OPINION & ORDER re: 196 MOTION in Limine to Preclude Admission of Certain Underwriting Records filed by Great Northern Insurance Company, Federal Insurance Company, Pacific Indemnity Company, 195 MOTION in Limine filed by Dennis Sorge. For the foregoing reasons, Plaintiffs' motion is DENIED, and Defendant Sarge's motion is GRANTED in part and DENIED in part. In so holding, the Court rules: (1) Defendants may introduce the COC Reports, as they are relevant and admissible; (2) Whether Sorge was acting as an adverse agent is a factual question for trial; (3) Plaintiffs may admit evidence of Sarge's financial records, as it is relevant and not unduly prejudicial; (4) Plaintiffs may present a witness to provide an objective summary of Sorge's financial records, but the witness may not opine on or analyze such records; (5) Plaintiffs may not introduce extrinsic evidence of Sarge's prior inconsistent statements regarding Midlant ic Restoration; and (6) Plaintiffs may not introduce evidence concerning the FBI's investigation of Lou Cordasco or Sorge's participation in the investigation. The Court respectfully directs the Clerk to terminate the motions at ECF Nos. 195 and 196. SO ORDERED. (Signed by Judge Nelson Stephen Roman on 4/18/2016) (mml)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
FEDERAL INSURANCE CO., GREAT
NORTHERN INSURANCE COMPANY, and
PACIFIC INDEMNITY COMPANY,
Plaintiffs,

12-cv-1597-NSR-JCM
OPINION & ORDER

-againstPAUL H. MERTZ, JR., THE MERTZ
COMPANY, and DENNIS SORGE,
Defendants.
NELSONS. ROMAN, United States District Judge

Federal Insurance Company, Great Northern Insurance Company, and Pacific Indemnity
Company (collectively, "Plaintiffs" or "Chubb") bring this action against Paul H. Mertz, Jr., The
Mertz Company, and Dennis Sorge ("Defendants") for fraud, breach of fiduciary duty, and
violation of Connecticut General Statutes § 42-11 Og (the "Connecticut Unfair Trade Practices
Act" or "CUTPA"). Trial in this action is scheduled to begin on April 25, 2016. In anticipation of
trial, Plaintiffs, as well as Defendant Dennis Sorge, now move in limine. Plaintiffs' motion
requests an order precluding the admission of ce1tain underwriting documents into evidence.
Sarge's motion requests an order precluding the introduction of testimony, evidence, or
argument relating to (I) Sorge's financial records, including wealth, financial, and economic
status; (2) Midlantic Restoration doing work on Sorge's home; and (3) the investigation of Lou

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Cordasco for unrelated insurance frauds, including the Federal Bureau of Investigation’s (“FBI”)
interview of Sorge. 1
For the following reasons, Plaintiffs’ motion is DENIED, and Sorge’s motion is
GRANTED in part and DENIED in part.
LEGAL STANDARD
“The purpose of an in limine motion is to aid the trial process by enabling the Court to
rule in advance of trial on the relevance of certain forecasted evidence, as to issues that are
definitely set for trial, without lengthy argument at, or interruption of, the trial.” Palmieri v.
Defaria, 88 F.3d 136, 141 (2d Cir. 1996) (internal citation and quotation marks omitted); see
generally Luce v. United States, 469 U.S. 38 (1984). “Courts may [additionally] entertain in
limine motions to make pre-trial rulings allocating burdens of proof in order to avoid uncertainty
at trial.” Bd. of Trustees of AFTRA Ret. Fund v. JPMorgan Chase Bank, N.A., 860 F. Supp. 2d
251, 259 (S.D.N.Y. 2012) (citing Reale Int'l, Inc. v. Federal Republic of Nigeria, No. 78 Civ. 23,
1984 WL 837, at *2–4 (S.D.N.Y. Sept. 11, 1984) (considering and denying “Plaintiff's motion
for a ruling in limine reducing or modifying its burden of proof”). Where a motion seeks to limit
damages, however, it must be treated as a motion for partial summary judgment. See Point
Prods. A.G. v. Sony Music Entm't, Inc., 215 F. Supp. 2d 336, 340 (S.D.N.Y. 2002) opinion
amended on reconsideration, No. 93 CIV. 4001 (NRB), 2002 WL 31856951 (S.D.N.Y. Dec. 19,
2002) (citing Barnes Group v. United States, 872 F.2d 528, 532 (2d Cir. 1989)).

1

A complete factual background is provided in the parties’ prior summary judgment motion. See Fed. Ins.
Co. v. Mertz, No. 12-CV-1597-NSR-JCM, 2015 WL 5769945 (S.D.N.Y. Sept. 29, 2015).

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DISCUSSION
Plaintiffs’ and Sorge’s motions will be addressed in turn.
I.

Chubb’s Motion
A. Course of Construction Report

At trial, the Mertz Defendants intend to use certain underwriting documents to argue that
Chubb had knowledge that the Mertz Defendants were the insureds' general contractor, which
could constitute consent to the dual capacity, or perhaps a waiver of any conflict. To support this
argument, the Mertz Defendants seek to admit Course of Construction Worksheets (“COC
Reports”) prepared by Chubb’s underwriting department. Specifically, these COC Reports
identify the Mertz Defendants as the general contractor for many of the insured homes, and the
Mertz Defendants contend that the documents demonstrate that Chubb was aware that The Mertz
Company was the insureds’ general contractor on the homes. Chubb, on the other hand, contends
that the documents are irrelevant and have no foundation because the Mertz Defendants cannot
prove that anyone in the Claims Department at Chubb, as opposed to the appraisers, had this
knowledge. (Plaintiffs' Motion in Limine to Preclude Admission of Certain Underwriting
Records, ECF No. 197, at 1: “Absent such proof, what [Chubb’s] appraisers knew is irrelevant to
any claim or defense asserted in this action.”)
Chubb’s argument, however, does not concern the relevance of the evidence. The
“standard of relevance established by the Federal Rules of Evidence is not high.” United States v.
Southland Corp., 760 F.2d 1366, 1375 (2d Cir. 1985) (citation omitted); see also United States v.
Al–Moayad, 545 F.3d 139, 176 (2d Cir. 2008) (calling the relevance threshold “very low”).
3

Under Rule 401, “[e]vidence is relevant when ‘it has any tendency to make a fact more or less
probable than it would be without the evidence.’” United States v. White, 692 F.3d 235, 246 (2d
Cir. 2012), as amended (Sept. 28, 2012) (quoting Fed. R. Evid. 401) (footnote omitted). The
COC Reports make it more probable that Chubb was aware of the Mertz Company working as
the contractor on the insured homes. Chubb is free to dispute that fact with relevant testimony
and evidence at trial, but the COC reports are clearly relevant, and the Court cannot preclude
their admission based on what is essentially a credibility argument—i.e., how much weight
should the jury afford the COC Reports.
B. Adverse Agent Rule
Next, Chubb argues that although Sorge knew that the Mertz Defendants were the
insureds' general contractor, that knowledge is not imputed to Chubb because of the adverse
agent rule. Specifically, though an employee's knowledge is "presumptively imputed" to its
corporate employer, this presumption does not apply where the employee is "entirely opposed
(i.e., 'adverse') to the corporation's own interests." See Kirschner v. KPMG LLP, 15 N.Y.3d 446,

466-67 (2010). On the other hand, Defendants contend that the adverse agent exception is narrow
and does not apply in the instant case where the agent did not “totally abandon” the corporate
interests. Id. at 466. To fall within this exception, the fraud must be committed “against the
corporation” and may not mutually benefit both the adverse agent and the corporation. Id. at 46667 (emphasis added). Whether Sorge was acting as an adverse agent and the extent to which his
actions harmed the Plaintiffs are questions of fact for trial and therefore may not be resolved on a
motion in limine. Summit Properties Int'l, LLC v. Ladies Prof'l Golf Ass'n, No. 07 CIV 10407
4

LBS, 2010 WL 4983179, at *2 (S.D.N.Y. Dec. 6, 2010) (citing Hamblin v. British Airways PLC,
717 F.Supp.2d 303, 307 (E.D.N.Y.2010)) (“Motions in limine are appropriate for evidentiary or
‘purely legal ... non-record dependent legal issues, like those that could just as easily be raised in
the Rule 12 context.’”).
II.

Sorge’s Motion
A. Evidence Concerning Financial Records

Sorge seeks to preclude evidence concerning his wealth on the basis that it is irrelevant
or, in the alternative, unduly prejudicial. (Memorandum of Law in Support of Defendant Sorge’s
Motion in Limine to Exclude Certain Evidence (“Sorge’s Memo”), ECF No. 199, at 6.) Pursuant
to Federal Rules of Evidence 401 and 402, Sorge argues that his accumulation of wealth is
irrelevant to the issue of whether he received money from the Mertz Defendants. However, as
Plaintiffs point out, “[i]t is settled that evidence of unexplained wealth is relevant to create an
inference of illicit gain.” United States v. Fenton, 165 F.3d 15 (2d Cir. 1998) (citing United
States v. Cruz, 797 F.2d 90, 95 (2d Cir. 1986); United States v. Amuso, 21 F.3d 1251, 1263 (2d
Cir. 1994)). Under Rules 401 and 402, evidence is relevant and admissible if “it has any
tendency to make a fact more or less probable than it would be without the evidence ... and the
fact is of consequence in determining the action.” Fed. R. Evid. 401, 402. As this Court has
previously held, evidence of Sorge’s financial records “suggests that Sorge received large sums
of unexplained income,” therefore creating the possible inference that the Mertz Defendants paid
Sorge for his role in the alleged scheme. (Memorandum Order, ECF No. 54, at 22.) Therefore,
the evidence is relevant and cannot be excluded under Rules 401 and 402.
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Next, Sorge argues that the evidence must be excluded because it has the potential to
unduly prejudice the jury and “invite [the jury] to conclude that there must have been some
payment by the Mertz Defendants simply because of the total value of his accounts.” (Sorge’s
Memo, at 7.) The Court notes, however, that it is not the “total value of his accounts” but rather
the allegedly inconsistent income and withdrawals that could convince a jury to make this
conclusion. Nevertheless, the Second Circuit has held that evidence of wealth can unfairly
prejudice a jury. See United States v. Quattrone, 441 F.3d 153, 187 (2d Cir. 2006) (holding that
evidence of compensation, wealth, or lack thereof can unduly prejudice jury deliberation but
nevertheless admitting evidence regarding defendant's wealth as not unduly prejudicial because
evidence was probative of facts relating to elements of the crimes charged). Any risk of
prejudice, however, can be reduced by Sorge’s explanation for income and withdrawals. See,
e.g., United States v. Cruz, 797 F.2d 90, 96 (2d Cir. 1986). In addition, the Court will instruct the
jury to consider this evidence only in deciding whether Sorge benefited from the allegedly
fraudulent scheme in order to further reduce the risk of undue prejudice. 2
Finally, Sorge argues that Plaintiffs should not be permitted to present a witness to
discuss evidence of his financial records because the witness was not disclosed under Federal
Rule of Civil Procedure 26(a). Fed. R. Civ. P. 26(a). Rule 37(c)(1) of the Federal Rules of Civil
Procedure provides that any “party that without substantial justification fails to disclose
information required by Rule 26(a) ... is not, unless such failure is harmless, permitted to use as

2

The Court additionally notes that the relevance of this evidence is not outweighed by its risk of confusing
the jury because of its voluminous nature. The Court does, however, urge the parties to present the evidence in a
summarized format.

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evidence at a trial ... any witness...not so disclosed.” Fed. R. Civ. P. 37(c)(1). Thus, the witness
should not be permitted to testify unless the Plaintiffs have substantial justification for their
failure to disclose the witness or their failure is harmless. In response, Plaintiffs argue that,
because Sorge was aware of the Plaintiffs’ intention to present the evidence of his financial
records at trial, no prejudice, and therefore no harm, exists. More specifically, Plaintiffs propose
that their witness will not provide any analysis or opinion but will instead only summarize the
information that Sorge was already aware of and had access to. Sorge, on the other hand, claims
to be prejudiced by his inability to depose the witness or retain his own witness or expert. 3 To
the extent Plaintiffs seek to present testimony of this witness’s opinions and analysis of the
transactions, such testimony is prohibited, as Sorge has not been given an opportunity to depose
the witness or seek additional discovery with regards to his or her opinions. However, testimony
comprising an objective summary of true and accurate financial records will be permitted as no
harm has resulted or will result to Sorge. See Fed. R. Civ. P. 37(c)(1).
B. Midlantic Restoration
Next, Sorge seeks to preclude admission of extrinsic evidence regarding his use of
Midlantic Restoration. (Sorge’s Memo, 9.) Plaintiffs seek to introduce prior inconsistent
statements that Sorge allegedly made with regards to Midlantic Restoration’s work on his home
in order to impeach Sorge’s credibility as a witness. (Plaintiffs' Memorandum of Law in
Opposition to Defendant Sorge's Motion in Limine to Exclude Certain Evidence, ECF No. 203,
at 6-7.) Specifically, Sorge allegedly made contradicting statements as to whether, by using
3

The fact that the identity of Plaintiffs’ financial records’ witness was not disclosed did not prevent Sorge
from seeking to present his own witness on the topic.

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Midlantic—a contractor of Chubb—Sorge knew he violated Chubb’s policy. The issue of
whether Sorge violated this Chubb policy regarding personal use of Chubb’s vendors is unrelated
to the alleged violations in this case and is therefore a collateral issue. The Second Circuit has
made clear that “[a] witness may be impeached by extrinsic proof of a prior inconsistent
statement only as to matters which are not collateral, i.e., as to those matters which are relevant
to the issues in the case and could be independently proven.” United States v. Rivera, 273 F.
App'x 55, 58 (2d Cir. 2008) (citing United States v. Blackwood, 456 F.2d 526, 531 (2d Cir.
1972)) (emphasis added). Thus, Plaintiffs may not introduce extrinsic evidence of Sorge’s prior
inconsistent statements.
C. FBI Investigation
Finally, Sorge seeks to preclude any testimony or evidence concerning a criminal
investigation by the FBI into insurance frauds committed by Lou Cordasco, which involved
claims adjusted by Sorge. Though Sorge was interviewed by the FBI, the FBI did not consider
Sorge a suspect, and Sorge was never implicated in the fraud. Moreover, the Cordasco fraud is
completely unrelated to the allegations in the instant case. Therefore, the Court agrees that this
matter is irrelevant and will not be admitted pursuant to Federal Rules of Evidence 401 and 402.
Even if relevant, the probative value of the testimony would be significantly outweighed by the
danger of unfair prejudice in that it risks the jury concluding that Sorge has a propensity to be
involved in fraudulent conduct. See Fed. R. Civ. P. 403.

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CONCLUSION

For the foregoing reasons, Plaintiffs' motion is DENIED, and Defendant Sarge's motion
is GRANTED in part and DENIED in part. In so holding, the Comt rules:
(1) Defendants may introduce the COC Reports, as they are relevant and admissible;
(2) Whether Sorge was acting as an adverse agent is a factual question for trial;
(3) Plaintiffs may admit evidence of Sarge's financial records, as it is relevant and not
unduly prejudicial;
(4) Plaintiffs may present a witness to provide an objective summary ofSorge's financial
records, but the witness may not opine on or analyze such records;
(5) Plaintiffs may not introduce extrinsic evidence of Sarge's prior inconsistent
statements regarding Midlantic Restoration; and
(6) Plaintiffs may not introduce evidence concerning the FBI's investigation of Lou
Cordasco or Sarge's participation in the investigation.
The Court respectfully directs the Clerk to terminate the motions at ECF Nos. 195 and 196.

Dated:

April 18', 2016
White Plains, New York

SO ORDERED:

NE~

United States District Judge

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