Busher v. Barry, Jr. et al
Filing
329
OPINION & ORDER re: 268 MOTION in Limine / Motion in Limine to Exclude Evidence Inconsistent with New York Law and the Court's Prior Decisions on the Question of Corporate Purpose. filed by Winged Foot Golf Club, Inc., Thomas T. Egan, William M. Kelly, Francis P. Barron, Desmond T. Barry, Jr., John P. Heanue, 265 MOTION in Limine /Defendants' Notice of Motion to Exclude Testimony and Evidence of Damages Based on the Theoretical Development of the Winged Foot Property. filed by Winged Foot Golf Club, Inc., Thomas T. Egan, William M. Kelly, Francis P. Barron, Desmond T. Barry, Jr., John P. Heanue, 278 MOTION in Limine / Notice of Motion In Limine to Exclude Irrelevant Evidence. filed by Winged Foot Golf Club, Inc., Thomas T. Egan, William M. Kelly, Francis P. Barron, Desmond T. Barry, Jr., John P. Heanue, 280 MOTION in Limine Plaintiffs' motions in limine nos. 4-5, to admit party admissions against interest made by George J. Gillespie, III. filed by Meredith Busher, Nancy Tumposky, Ellen Busher, 264 MOTION in Limine /Defendants' Corrected Notice of Motion to Exclude Evidence and Testimony on the Winged Foot Holding Corporation's Clas sification Under Federal Tax Law. filed by Winged Foot Golf Club, Inc., Thomas T. Egan, William M. Kelly, Francis P. Barron, Desmond T. Barry, Jr., John P. Heanue, 286 MOTION in Limine /Defendants' Notice of Motion In Limine to E xclude Evidence Related to Speculative Damages and Unreliable Opinion Testimony. filed by Winged Foot Golf Club, Inc., Thomas T. Egan, William M. Kelly, Francis P. Barron, Desmond T. Barry, Jr., John P. Heanue, 275 MOTION in Limine Pl aintiffs' motions in limine nos. 2-3, to exclude hearsay statements in, or based on, the minutes of the June 8, 1947 meeting of the board. filed by Meredith Busher, Nancy Tumposky, Ellen Busher. For the foregoing reasons, Plaintiffs' ; motions in limine, (ECF Nos. 273, 275, & 280), are GRANTED in part and DENIED in part. Defendants' motions in limine concerning evidence bearing on the question of liability, (ECF Nos. 264, 268, & 278), are GRANTED in part, DENIED in part, and RESERVED in part. Defendants' motion in limine which seeks, in relevant part, dismissal of Plaintiffs' dissolution claim, (ECF No. 286), is granted to the extent that such claim is dismissed without prejudice to Plaintiffs' asser ting the claim in a state court action, and the Court otherwise reserves decision on all other aspects of the motion. The Court likewise reserves decision on Defendants' motion in limine seeking to preclude evidence of the theoretical development of the Winged Foot property, (ECF No. 265). The Clerk of the Court is directed to terminate the motions at ECF Nos. 273,275,280,264, 268, & 278. (Signed by Judge Nelson Stephen Roman on 12/18/2019) (rj)
UNITED STATES DISTRJCT COURT
SOUTHERN DISTRICT OF NEW YORK
MEREDITH BUSHER and ELLEN BUSHER as
Co-Personal Representatives of the Estate of
Eugene L. Busher, and NANCY TUMPOSKY,
-OSDCSDNY.
09,¼UMENT
tLE'CtRON-lCALL y FILED
DOC..#� ..
DATE.Fl�ED: 11. ... I Y> - 19.
·..:;.....,.---------
Plaintiffs,
-against-
l4acv-4322 (NSR)
DESMOND T. BARRY, JR., THOMAS T. EGAN,
JOHN P. HEANUE, WILLIAM M. KELLY,
FRANCIS P. BARRON, and WINGED FOOT
GOLF CLUB, INC.,
OPINION & ORDER
Defendants,
WINGED FOOT HOLDING CORPORATION,
Nominal Defendant.
NELSON S. ROMAN, United States District Judge:
Plaintiffs Meredith and Ellen Busher, as co-personal representatives of the Estate of
Eugene L. Busher, and PlaintiffNancy Tumposky (collectively, "Plaintiffs"), bring this derivative
action against Defendants Desmond T. Barry, Jr., Thomas F. Egan, John P. Heanue, William M.
Kelly, Francis P. Barron ("Director Defendants"), Winged Foot Golf Club, Inc. (the "Club," and
together with Director Defendants, "Defendants"), and, nominally, Winged Foot Holding
Corporation ("WFHC"). Plaintiffs allege violations of New York Business Corporation Law §
720, breach of fiduciary duty, aiding and abetting a breach of fiduciary duty, and unjust
enrichment. 1 They seek dissolution of WFHC, monetary damages to be proved at trial, permanent
1 In its OpiniM and Order issued on March 12, 2019, the Court found that Plaintiffs' claims are limited to those
occurring after June I 6, 2008, six years before this action was initiated. See Busher v. Barry, No. l 4-cv-4322
(NSR), Docket 227 (S.D.N.Y. March 12, 2019). Accordingly, the only event giving rise to any cause of action in
d
this case is a lease renewal entered into by the Club and WFHC in 2013. See i.; Busher v. Barry, No. 14-cv-4322
(NSR), Docket 244 (S.D.N.Y. Oct. 2, 2019).
l
and mandatory injunctions, and repayment to WFHC of the amounts by which the Club has been
unjustly enriched.
Trial is scheduled to begin on January 7, 2020. In anticipation, both Plaintiffs and
Defendants have filed numerous pre-trial motions in limine. (See ECF Nos. 273, 275 & 280
(Plaintiffs); ECF Nos. 264, 265, 268, 278 & 286 (Defendants).) This Opinion and Order addresses
those motions that pertain to the issue of Defendants’ liability, (ECF Nos. 273, 275 & 280
(Plaintiffs); ECF Nos. 264, 268 & 278 (Defendants)), and so much of Defendants’ motion in limine
to preclude evidence of damages as concerns their jurisdictional challenge to Plaintiffs’ claim for
dissolution, (ECF No. 286). 2 For the following reasons, those motions are GRANTED in part,
DENIED in part, and RESERVED in part.
BACKGROUND
The Court assumes familiarity with the facts and allegations in this case, as well as the
procedural background of this case. See, e.g., Busher v. Barry, No. 14-cv-4322 (NSR), 2016 WL
1249612, Docket 61 (S.D.N.Y. March 28, 2016) (addressing Defendants’ first motion for summary
judgment); Busher v. Barry, No. 14-cv-4322 (NSR), Docket 227 (S.D.N.Y. March 12, 2019)
(addressing Plaintiffs’ motion to strike certain affirmative defenses and for partial summary
judgment, and Defendants’ cross-motion for partial summary judgment). Additional factual
information relevant to the parties’ motions in limine is addressed in the applicable section of the
Court’s discussion.
Many of the parties’ motions in limine implicate the scope of the issues remaining for trial
after the Court’s most recent opinions and orders. Accordingly, a brief summary of the Court’s
2
The Court reserves decision on the remainder of Defendants’ motion in limine to preclude evidence of damages,
(ECF No. 286), and Defendants’ motion in limine to preclude evidence of damages based on the theoretical
development of the property at issue in this case, (ECF No. 265).
2
recent jurisprudence is warranted. On March 12, 2019, the Court issued an Opinion and Order
(the “March 2019 Opinion”) disposing of Plaintiffs’ motions to strike certain affirmative defenses,
(ECF No. 200), and for partial summary judgment, (ECF No. 193), and Defendants’ cross-motion
for summary judgment, (ECF No. 189). In its March 2019 Opinion, the Court found that a sixyear statute of limitations applies to Plaintiffs’ claims, such that only those claims occurring after
June 16, 2008, six years before this action was initiated on June 16, 2014, remain actionable.
Busher, Docket 227, at 8, 13. Accordingly, the only event giving rise to any cause of action within
the statutory period in this case is the 2013 renewal of the 1947 lease between WFHC and the Club
(the “2013 lease” or “2013 lease renewal”). Id. at 13.
On October 2, 2019, the Court issued another Opinion and Order (the “October 2019
Opinion”) responding to letters from the parties that indicated a disagreement as to the scope of
Plaintiffs’ remaining claims after the March 2019 Opinion. See Busher v. Barry, No. 14-cv-4322
(NSR), Docket 244, at 5 (S.D.N.Y. Oct. 2, 2019). The Court clarified the effect of the March 2019
Opinion, confirming that any claims arising from events preceding June 16, 2008, are time-barred
and stating that the parties would not be allowed to relitigate that issue. Id. at 2–3. The Court also
clearly defined the remaining issues for trial:
Based on the Court’s March 12, 2019, Opinion and Order and the discussion above,
the primary issue of fact for trial will be identifying WFHC’s corporate purpose at
the time of the lease extension in 2013. If a jury determines that WFHC was indeed
a for-profit business at the time of the 2013 lease extension, the following issues of
fact remain: (1) whether Plaintiffs failed to object to the 2013 lease extension in
such a way that they can be deemed to have acquiesced, ratified, or waived their
right to object to the 2013 lease extension; (2) whether Director Defendants caused
the loss or waste of WFHC’s assets due to neglect of, failure to perform, or another
violation of their duties in connection with their entering into the 2013 lease
extension; (3) whether Defendants breached their fiduciary duties to WFHC’s
shareholders in connection with their entering into the 2013 lease extension and
whether the Club aided and abetted that breach; and (4) whether the Club was
enriched at the expense of WFHC by gaining the benefit of terms of the lease
extension in 2013. Whether to grant Plaintiffs’ request for dissolution of WFHC
3
and whether Plaintiffs are entitled to have the 2013 lease renewal rescinded under
§ 720(a)(2) are questions of law.
Id. at 4–5. The Court warned the parties that their pretrial submissions were to be limited in
accordance with the foregoing, and reminded them that “[e]vents preceding [the 2013] lease
extension and outside of the statutory period are not actionable. Therefore, Parties should not rely
on or attempt to prove such events in their pretrial submissions or at trial.” Id. at 5.
Following the issuance of the October 2019 Opinion, Plaintiffs submitted a letter to the
Court asking the Court to withdraw or stay the October 2019 Opinion and permit the Defendants
to file yet another motion for summary judgment. (ECF No. 247.) The Court denied Plaintiffs’
application and adhered to the October 2019 Opinion. (ECF No. 256.)
The Court now turns to the parties’ motions in limine.
LEGAL STANDARDS
I.
Motions in Limine
“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, 176–77 (S.D.N.Y. 2008) (citing Luce v. United States, 469 U.S. 38, 41 n. 4 (1984)). An in
limine motion is intended “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). “Because a ruling on a motion in limine is ‘subject to change as the case unfolds,’ this
ruling constitutes a preliminary determination in preparation for trial.” United States v. Perez, No.
09–CR–1153 (MEA), 2011 WL 1431985, at *1 (S.D.N.Y. Apr. 12, 2011) (quoting Palmieri, 88
F.3d at 139).
4
The Federal Rules of Evidence provide that only relevant evidence is admissible. Fed. R.
Evid. 402. Evidence is relevant 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(a) – (b). Relevant evidence may still be excluded by the Court “if its probative
value is substantially outweighed by a danger of one or more of the following: unfair prejudice,
confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting
cumulative evidence.” Fed. R. Evid. 403. Though 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), the Court has “broad discretion to balance probative value against possible
prejudice” under Rule 403. United States v. Bermudez, 529 F.3d 158, 161 (2d Cir. 2008).
II.
Expert Testimony
The testimony of an expert, at trial, must be reliable and relevant. The standards governing
the admissibility of expert testimony are set forth in Fed. R. Evid. 702 (“Rule 702”), which
provides that “[a] witness...qualified as an expert by knowledge, skill, experience, training, or
education may testify in the form of an opinion or otherwise if...the expert's scientific, technical,
or other specialized knowledge will help the trier of fact to understand the evidence or to determine
a fact in issue.” Fed. R. Evid. 702.
The standards have been further clarified by the Supreme Court's decisions in Daubert v.
Merrell Dow Pharm., 509 U.S. 579, 113 S. Ct. 2786 (1993) and Kumho Tire Co., Ltd. v.
Carmichael, 526 U.S. 137, 119 S. Ct. 1167 (1999). In Daubert, the Supreme Court defined the
role of the district court as that of a gatekeeper charged with the task of deciding whether an
expert's scientific testimony satisfies Rule 702’s general requirements of reliability and relevance.
5
Daubert, 509 U.S. at 597. Originally intended to screen out “junk science,” Daubert has been
extended to both technical and other specialized expert evidence. See Kumho, 526 U.S. 137.
In addition to screening whether or not a proposed individual qualifies as an expert as
contemplated by Rule 702, the court must assess whether the purported expert’ s testimony is
relevant and reliable to be admissible at trial. In assessing the reliability of potential expert
testimony, the court must, “...make certain that an expert, whether basing testimony upon
professional studies or personal experience, employs in the courtroom the same level of intellectual
rigor that characterizes the practice of an expert in the relevant field.” Id. Hence, the court must
focus on the purported expert’ s principles and methodology, not on the expert’ s conclusions.
Ultimately, admissibility is a question of law that rests within the discretion of the district court.
United States v. Feliciano, 223 F.3d 102, 120 (2d Cir. 2000).
Notably, in December 2000, Rule 702 was amended to reflect the court’ s gatekeeping task.
With regards to assessing expert testimony for admissibility, Rule 702 now instructs district courts
to ensure that: “(1) the testimony is based upon sufficient facts or data, (2) the testimony is the
product of reliable principles and methods, and (3) the witness has applied the principles and
methods reliably to the facts of the case.” Fed. R. Evid. 702. Further, the proponent of the evidence
must establish its admissibility by a preponderance of the proof. See Bourjaily v. United States,
483 U.S. 171, 175–76 (1987).
DISCUSSION
Plaintiffs and Defendants have each filed five motions in limine to preclude certain
testimonial or documentary evidence and/or to confirm the admissibility of certain evidence. Eight
of those motions pertain to the issue of liability. In Plaintiffs’ motions in limine, Plaintiffs seek
(1) to confirm the admissibility of evidence concerning the purpose of WFHC that pre-dates June
6
16, 2008, (Pls.’ Mot. In Limine No. 1 (“Pls. Mot. 1”) (ECF No. 273)); (2) to preclude the admission
of hearsay statements made in the June 8, 1947 minutes of the Club’s board (the “6/8/47 board
minutes,” or “6/8/47 minutes”), and any witness testimony or subsequent documents that repeat
the contested assertions of the 6/8/47 board minutes, (Pls.’ Mots. In Limine Nos. 2–3 (“Pls. Mots.
2–3”) (ECF No. 275)); and (3) to confirm the admissibility of statements made by nonparty George
Gillespie in a June 10, 1975, letter to Joseph DioGuardi and a March 14, 1975, letter to Walter
Kolb, as admissions against interest, (Pls.’ Mots. In Limine Nos. 4–5 (“Pls. Mots. 4–5”) (ECF No.
280)).
In Defendants’ motions in limine addressing evidence of liability, Defendants seek (1) to
preclude the admission of evidence and testimony regarding WFHC’s classification under federal
income tax law, including certain anticipated expert testimony (Defs.’ Mot. In Limine to Exclude
Evid. and Test. on WFHC’s Classification Under Fed. Tax Law (“Defs. Mot. 1”) (ECF No. 264));
(2) to preclude the admission of certain evidence and arguments related to WFHC’s corporate
purpose, including certain anticipated expert testimony, (Defs.’ Mot. In Limine to Exclude Evid.
Inconsistent with N.Y. Law and Court’s Prior Decisions on the Question of Corp. Purpose (“Defs.
Mot. 2”) (ECF No. 268)); and (3) to preclude the admission of certain evidence and testimony
related to liability as irrelevant, (Defs.’ Mot. In Limine to Exclude Irrelevant Evid. (“Defs. Mot.
3”) (ECF No. 278)). Defendants have also filed motions in limine addressing evidence of damages,
seeking (1) to preclude the admission of evidence of monetary damages, (Defs.’ Mot. In Limine to
Exclude Evid. Related to Speculative Damages and Unreliable Op. Test. (“Defs. Mot. 4”) (ECF
No. 286)); and (2) to preclude the admission of testimony and evidence of damages based on the
theoretical development of the property owned by WFHC and leased to the Club, including certain
anticipated expert testimony (Defs.’ Mot. In Limine to Exclude Test. and Evid. of Damages Based
7
on Theoretical Development of Winged Foot Property (“Defs. Mot. 5”) (ECF No. 265)). The
Court addresses so much of the first of these damages motions as concerns Defendants’
jurisdictional challenge to Plaintiffs’ dissolution claim herein. Decision on the remainder of that
motion, and on Defendants’ second damages motion, is reserved.
I.
Plaintiffs’ Motions in Limine
A. Plaintiffs’ First Motion to Confirm Admissibility of Relevant Evidence Preceding June
16, 2008
Plaintiffs’ first motion in limine seeks confirmation that evidence which is otherwise
relevant to WFHC’s corporate purpose may be admissible at trial even if the evidence pre-dates
June 16, 2008. (See Pls.’ Mem. in Supp. of Pls. Mot. 1 (“Pls. Mem. 1”) (ECF No. 274).)
Defendants do not oppose Plaintiffs’ motion. (See ECF No. 292.)
As the Court determined in the March 2019 Opinion, a six-year statute of limitations
applies to Plaintiffs’ claims. See Busher v. Barry, Docket 227, at 8, 13. While it recently became
necessary for the Court to remind the parties that events outside the statute of limitations period
are not actionable, see Busher v. Barry, Docket 244, at 5, the Court has never indicated that all
evidence preceding June 16, 2008, would be categorically excluded at trial. Indeed, the Court has
explicitly recognized that “the primary issue of fact for trial will be identifying WFHC’s corporate
purpose at the time of the lease extension in 2013.” Id. at 4. Thus, it should be clear to all parties
that evidence properly introduced at trial and relevant to WFHC’s corporate purpose at the time of
the lease extension in 2013 3 may be admissible even if such evidence pre-dates the statute of
3
The parties indicate in their submissions that all agree the question of corporate purpose is determined by the
reasonable expectation of the original shareholders of WFHC. (See, e.g., Defs.’ Mem. in Supp. of Defs. Mot. 2
(“Defs. Mem. 2”) (ECF No. 281) at 3 (“Both parties agree that the corporate purpose of [] WFHC is determined by
the expectations of the original shareholders who provided capital to the corporation…”)); Pls.’ Mem. Opp. Defs.
Mot. 2 (“Pls. Opp. 2”) (ECF No. 306) at 15 (describing testimony relevant to corporate purpose as evidence “of the
reasonable expectations of the original shareholders that [WFHC] was established as a for-profit”).) Thus, it is all
but guaranteed that the parties will need to present evidence from the earliest years of WFHC’s existence at trial.
8
limitations period. Plaintiffs’ motion is granted to the extent that relevant evidence properly
introduced at trial will not be precluded solely because it pre-dates June 16, 2008.
B. Plaintiffs’ Second and Third Motions to Preclude Certain Statements in or Based on the
6/8/47 Board Minutes
In their second and third motions in limine, Plaintiffs argue that the Court should preclude
a set of statements in the 6/8/47 board minutes purporting to explain why the Club approved an
amendment to the lease agreement between WFHC and the Club, as well as any witness testimony
or later documents that repeat the same assertions. (See Pls.’ Mem. in Supp. of Pls. Mots. 2–3
(“Pls. Mem. 2–3”) (ECF No. 284).)
Plaintiffs aver that the statements at issue constitute
inadmissible hearsay, and that any repetition of the assertions made in those statements is likely to
be derivative of the inadmissible statements themselves. (Id. at 7–13.) Defendants oppose
Plaintiffs’ motions, stating that the statements contained in the 6/8/47 board minutes are clearly
admissible under the hearsay exceptions for business records and ancient documents, and that there
is no legal basis for Plaintiffs’ proposed categorical exclusion of any assertions repeating those
statements. (See Defs.’ Mem. in Opp. to Pls. Mots. 2–3 (“Defs. Opp. 2–3”) (ECF No. 294).)
For the reasons that follow, Plaintiffs’ second and third motions in limine are denied.
1. The 6/8/47 Board Minutes
The history of the lease between WFHC and the Club at the center of this action dates back
nearly a century. The original lease agreement, executed in 1924, provided that the Club would
pay its entire income to WFHC, as rent, net of certain specified expenses. (Decl. of Adam C.
Mayes in Support of Pls. Mots. 2–3 (“Mayes Decl. 2–3”) (ECF No. 279) Ex. 1 at 11015–16.) On
July 21, 1947, the Club and WFHC entered into an agreement replacing the foregoing provision
with a new provision requiring the Club to pay only a net fixed annual rental to WFHC of
$30,000.00 per year (the “1947 Lease Amendment”). (Id. Ex. 2 at 11801.) On June 8, 1947,
9
shortly before the execution of the 1947 Lease Amendment, the board of the Club, which also
acted as the board of WFHC, met to discuss the lease. (See Pls. Mem. 2–3 Ex. A (“6/8/47
Minutes”).) The board minutes recording the meeting memorialize the board’s adoption of a
resolution authorizing the 1947 Lease Amendment. (Id. at 5809.) The resolution is preceded by
nine paragraphs of recitals (the “recitals” or “6/8/47 recitals”) in which the board set out its
explanation and justification for the 1947 Lease Amendment. (Id. at 5808–09.)
The recitals include statements referring to the purpose of the original lease agreement and
relationship between WFHC and the Club. For example, the first recital reflects in pertinent part
that,
. . . at the time of the formation of [the Club], title to the property of the said
[Club] was taken in the name of [WFHC] for the purpose of facilitating the
conduct of business of [the Club] by providing a vehicle by which the legal title to
the property of the said [Club] could be held for its benefit by [WFHC] . . .”
(Id. at 5808.) Other recitals reiterate the assertion that WFHC was formed with the purpose of
benefitting the Club, adding, inter alia, that “since the incorporation of [WFHC] the said
corporation has transacted no other business by [sic] that of holding title to the property of the
[Club] . . .” (Id.) The 6/8/47 minutes recite that “after full and careful consideration,” the recitals
and resolution amending the original lease agreement were “unanimously adopted by the Board of
Governors of [the Club] and by the Board of Directors of [WFHC], at this joint meeting at which
a quorum of each Board was present and of which due notice had been given.” (Id.)
2. Admissibility of the 6/8/47 Board Minutes and Related Statements
Plaintiffs contend that the recitals contain hearsay statements related to the corporate
purpose of WFHC. Under Federal Rules of Evidence 801 and 802, hearsay is not admissible if
offered to prove the truth of the matter asserted in the statement. However, there are a number of
10
exceptions to this proposition. As relevant here, business records, even if hearsay, are admissible
if the following elements are met:
(A) the record was made at or near the time by— or from information transmitted
by— someone with knowledge; (B) the record was kept in the course of a
regularly conducted activity of a business, organization, occupation, or calling,
whether or not for profit; (C) making the record was a regular practice of that
activity; (D) all these conditions are shown by the testimony of the custodian or
another qualified witness . . . ; and (E) the opponent does not show that the source
of information or the method or circumstances of preparation indicate a lack of
trustworthiness.
Fed. R. Evid. 803(6) (“Rule 803(6)”). The definition of a business record under the Federal Rules
of Evidence includes “a memorandum, report, or data compilation” involving a business activity.
Id. 101(b)(4). “Rule 803(6) favors the admission of evidence rather than its exclusion if it has any
probative value at all.” United States v. Kaiser, 609 F.3d 556, 574 (2d Cir. 2010) (internal
quotation marks omitted). “‘[T]he principal precondition to admission of documents as business
records pursuant to Fed. R. Evid. 803(6) is that the records have sufficient indicia of
trustworthiness to be considered reliable.’” Elsevier B.V. v. UnitedHealth Grp., Inc., 784 F. Supp.
2d 286, 292 (S.D.N.Y. 2011) (quoting Potamkin Cadillac Corp. v. B.R.I. Coverage Corp., 38 F.3d
627, 632–33 (2d Cir. 1994)).
Plaintiffs contend that the recitals are not properly admissible under Rule 803(6) for a
variety of reasons. While most of Plaintiffs’ concerns are unfounded, it is true that the recitals
would not be admissible for the truth of events that took place decades in the past, rather than “at
or near the time” at which the minutes were recorded. However, the 6/8/47 recitals were not made
as historical documentation of WFHC’s founding but as statements that describe the 1947 WFHC
board’s understanding of WFHC’s purpose. Plaintiffs have not demonstrated that the recitals in
the 6/8/47 board minutes could never be admissible to demonstrate this understanding, which was
the basis of its rationale for adopting the 1947 Lease Amendment, under Rule 803(6), provided
11
Defendants lay the proper foundation for their admission at trial through the testimony of a
custodian or qualified witness. The recitals were recorded in the 6/8/47 board minutes at the time
of the board’s meeting, and contain statements adopted by the board members present at that
meeting. The statements are reflective of those board members’ unanimous understanding of the
corporate purpose of WFHC, which they viewed as a substantial consideration in adopting the
1947 Lease Amendment. 4
The 6/8/47 board minutes appear to have been maintained as a regular part of WFHC’s
activities. They are included in one of several bound volumes of WFHC’s board minutes, which
are maintained in chronological order within WFHC’s corporate records. (See Pls. Mem. 2–3 at
8; Defs. Opp. 2–3 at 6; Decl. of Aasiya F. M. Glover in Supp. of Defs. Opp. 2–3 (“Glover Decl.
2–3”) (ECF No. 295) Ex. 22.) While Plaintiffs complain that the minutes are unsigned, they
identify no requirement in applicable caselaw or elsewhere mandating that board minutes be signed
or otherwise “adopted” in subsequent documents in order to be admissible under Rule 803(6).
Rather, as the court has noted, the appropriate prerequisite for admission under Rule 803(6) is that
the minutes have “sufficient indicia of trustworthiness to be considered reliable.” Saks Intern.,
Inc. v. M/V Export Champion, 817 F.2d 1011, 1013 (2d Cir. 1987) (citing cases); see Elsevier B.V.,
784 F. Supp. 2d at 292. The Court finds that the 6/8/47 minutes, maintained as they were within
WFHC’s corporate records, alongside numerous other board meeting minute records, several of
which were unsigned, (see Glover Decl. 2–3 Ex. 22), meet this standard. Plaintiffs’ argument to
the contrary, based on their assertion that the recitals were “highly unusual statements,” (Pls. Reply
4
Contrary to Plaintiffs’ assertions, since the recitals do not rely on any outside source for their understanding of
WFHC’s corporate purpose, this is not a case in which the Court must review multiple layers of hearsay, and the
cases cited by Plaintiffs in this regard are inapplicable. See Rodriguez v. Modern Handling Equip. of NJ, Inc., 604
F. Supp. 2d 612, 622 (S.D.N.Y. 2009) (investigator’s report which relied on statements from non-parties interviewed
by investigator was inadmissible because investigator did not have personal knowledge of the information contained
in his report); Agriculture Ins. Co., Inc. v. Ace Hardware Corp., 214 F. Supp. 2d 413, 416 (S.D.N.Y. 2002) (accident
report that relied on statements of other eyewitnesses to accident was inadmissible hearsay).
12
Mem. in Support of Pls. Mots. 2–3 (“Pls. Reply 2–3”) (ECF No. 312) at 6), is unpersuasive.
Plaintiffs do not provide any evidence or caselaw in support of their proposition that board minute
recitals referencing a corporation’s purpose are irregular. Indeed, it appears that such recitals
would only raise red flags if Plaintiffs’ theory of corporate purpose were accepted. But as the
Court has reiterated time and again, that is a question for the jury.
Furthermore, Plaintiffs have not demonstrated that the source or circumstances of
preparation of the recitals in the 6/8/47 board minutes bear any indicia of untrustworthiness.
Plaintiffs’ proposed theory that the board members present at the 6/8/47 board meeting were
“specifically motivated” to fabricate the recitals “in order to falsify and conceal” WFHC and the
Club’s “conflicting interests in relation to the proposed rent change,” (Pls. Mem. 2–3 at 9), which
the Court takes no position on, is an argument that will be put before the jury at trial. It is not a
basis for excluding a document that does not, on its face, appear to have been created
disingenuously or in anticipation of litigation commenced nearly seventy years later.
To be sure, admitting the 6/8/47 board minutes in their entirety will not restrict the parties
from offering other evidence related to the statements in the minutes, or from suggesting that facts
recited in some of the minutes are not truthful and accurate. See Fed. Hous. Fin. Agency v. Nomura
Holding Am., Inc., No. 11-CV-6201 DLC, 2015 WL 1137572, at *2 (S.D.N.Y. Mar. 13, 2015).
For example, both Plaintiffs and Defendants make much of whether John Kadel, an original
shareholder of WFHC who was present at the 6/8/47 board meeting, possessed accurate knowledge
of the corporate purpose of WFHC at the time of its formation. Whether or not Kadel was
motivated to adopt the assertions in the 6/8/47 board minute recitals based on his proactive role in
the formation of WFHC and its corporate governance for the first 25 years of its existence goes to
the weight that a finder of fact should afford the assertions, rather than the admissibility of the
13
assertions as a business record. Similarly, Plaintiffs’ observation that the other board members
present at the meeting may have lacked personal knowledge sufficient to speak to the corporate
purpose of WFHC because they were not shareholders at the time of WFHC’s founding may
indicate that the recitals are unreliable. However, the recitals themselves, authored by the board
members present at the 6/8/47 board meeting and memorialized in the 6/8/47 board minutes
maintained in the ordinary course of WFHC’s business activities, would be admissible if properly
introduced pursuant to Rule 803(6).
As a secondary argument, Plaintiffs contend that the 6/8/47 recitals should be excluded
under Federal Rule of Evidence 403. Plaintiffs aver that the recitals’ “minimal (at best) probative
value is substantially outweighed by the risk of unfair prejudice, confusing the issues, and
ultimately misleading the jury.” (Pls. Mots. 2–3 at 10.) The Court disagrees. The 6/8/47 board
minute recitals are admissible under Rule 803(6) and directly bear on a central issue in this case:
the corporate purpose of WFHC. Moreover, Plaintiffs’ arguments that the recitals are contradicted
by other terms of the original lease between WFHC and the Club, or are not supported by the
founding documents, are properly addressed to the probative value that should be afforded to the
recitals, not whether they should be admitted. The existence of contradictory evidence creating an
issue of fact does not mean that the evidence should be excluded as confusing or misleading to the
jury, whose very role is to weigh contradictory evidence and make determinations as to its relative
value.
Thus, Plaintiffs have not demonstrated that the 6/8/47 recitals would not be admissible
under Rule 803(6) to show the 1947 board members’ understanding of corporate purpose, provided
Defendants lay the proper foundation for their admission at trial. Since the Court determines that
the 6/8/47 board minutes could be admissible under the business records exception to the hearsay
14
rule, it does not reach the issue of whether the minutes are separately admissible as an ancient
document pursuant to Federal Rule of Evidence 803(16).
In addition, the Court cannot conclude that unspecified “later hearsay statements equivalent
to or based upon” the recitals in the 6/8/47 board minutes are inadmissible. Plaintiffs provide no
authority or rule of evidence for their assertion that any such evidence, defined extremely broadly
as “witness testimony (e.g., by the Director Defendants) or later documents,” should be excluded
because it is “likely to be derivative of the [6/8/47 recitals],” (Pls. Mem. 2–3 at 12). For the Court
to make a pre-trial determination as to whether certain evidence should be excluded, the party
making the application must sufficiently specify what that evidence is, so that the Court can assess
whether it is “clearly inadmissible on all potential grounds.” S.E.C. v. Tourre, 950 F. Supp. 2d
666, 675–76 (S.D.N.Y. 2013) (quotation marks omitted) (quoting Commerce Funding Corp. v.
Comprehensive Habilitation Servs., Inc., No. 01-cv-3796, 2005 WL 1026515, at *3 (S.D.N.Y.
May 2, 2005)); see Weiss v. La Suisse, Societe D’Assurances Sur La Vie, 293 F. Supp. 2d 397, 408
(S.D.N.Y. 2003) (citing Rmed Int’l, Inc. v. Sloan’s Supermarkets, Inc., No. 94-cv-5587, 2002 WL
31780188, at *1 (S.D.N.Y. Dec. 11, 2002)). Plaintiffs recognize this same principle in their
opposition to Defendants’ motions in limine. (See Pls.’ Opp. to Defs.’ Mot. 2 (“Pls. Opp. 2”) (ECF
No. 306) at 17–20.) A categorical prohibition on any evidence supporting the theory of corporate
purpose included in the 6/8/47 recitals, while undoubtedly a boon to Plaintiffs’ case, is
unwarranted on the minimal facts before the Court. Of course, Plaintiffs may raise appropriate
objections to testimony or evidence based on the applicable rules of evidence at trial.
In light of the foregoing, Plaintiffs’ second and third motions in limine are denied.
15
C. Plaintiffs’ Fourth and Fifth Motions to Admit Party Admissions Against Interest Made
by George J. Gillespie III
In their fourth and fifth motions in limine, Plaintiffs seek a preemptive determination from
the Court that two letters written by George J. Gillespie III in 1975 are admissible as admissions
against interest by the Club pursuant to Federal Rules of Evidence 801(d)(2)(B) and 801(d)(2)(D).
(Pls.’ Mem. Supp. Mots. In Limine 4–5 (“Pls. Mem. 4–5”) (ECF No. 282).) Defendants oppose
the motions, contending that each of the letters is irrelevant to the remaining issues in this case,
and that each is inadmissible as an opposing party statement since Plaintiffs do not demonstrate
either that the Club adopted any of Mr. Gillespie’s statements or that Mr. Gillespie was the Club’s
agent. (Defs.’ Mem. Opp. Pls. Mots. 4–5 (“Defs. Opp. 4–5”) (ECF No. 296).) For the reasons
that follow, Plaintiffs’ motions are denied.
1. The DioGuardi and Kolb Letters
George Gillespie served as a member of the Club’s Board of Governors and as its legal
advisor in the early 1970s. (See Decl. of Adam C. Mayes in Support of Pls. Mots. 4–5 (“Mayes
Decl. 4–5”) (ECF No. 283) Exs. 1 (memorandum prepared by Mr. Gillespie for members of Club’s
Board of Governors on November 11, 1970) & 2 at 4489 (report to Club’s membership at annual
meeting dated January 7, 1973, referencing Mr. Gillespie as Chairman of Club’s special Legal
Committee).) Mr. Gillespie was elected President of the Club on January 7, 1973. (See id. Ex. 3
at 4484 (referencing Mr. Gillespie as Club President).) On January 13, 1974, Mr. Gillespie stepped
down as Club President and became WFHC President, a position he held until his retirement from
WFHC’s board on June 8, 2008. (See id. Exs. 4 & 5; Defs. Opp. 4–5 at 2.) Mr. Gillespie died in
2017. (Defs. Opp. 4–5 at 2 n.2.)
In 1975, while Mr. Gillespie was serving as WFHC President, he wrote two letters in
response to Club member Joseph DioGuardi (the “DioGuardi Letter”), and WFHC shareholder
16
and Club board member Walter Kolb (the “Kolb Letter,” and together with the DioGuardi Letter,
the “1975 Letters”), respectively. The DioGuardi Letter, dated June 10, 1975, reflects Mr.
Gillespie’s response to Mr. DioGuardi’s proposals to reduce WFHC’s tax liability. (See Pls. Mem.
4–5 Ex. A.) In the DioGuardi Letter, Mr. Gillespie notes the “difficult, and quite complicated,
problems involved in the relationships of [WFHC and the Club]” and states that he has plans to
meet with an attorney from the law firm Kelley Drye Newhall and Maginnes to discuss certain
questions relating to the future relationship between the two entities. (Id.) He then proceeds to
address Mr. DioGuardi’s proposals that WFHC renegotiate its lease with the Club, apply for taxexempt status under the Internal Revenue Code (“IRC”), or merge with the Club. (Id.) Of note,
Mr. Gillespie expresses his disagreement with Mr. DioGuardi’s suggestion that the Internal
Revenue Service (“IRS”) might consider WFHC to be the “alter ego or captive” or the Club “in
view of the fact that the [Club] itself and its current members own less than one-half of [WFHC]
stock.” (Id.) He further expresses his “doubt that [an IRC] Section 501(c) exemption will be
available to [WFHC]. There is no evidence in [WFHC]’s charter or by-laws of the fact that
[WFHC] was organized exclusively to hold title to property, to collect the income therefrom, and
to turn over the entire amount, less expenses, to the [] Club.” (Id.) The DioGuardi Letter also
contains Mr. Gillespie’s opinion that a merger between WFHC and the Club was unlikely because
the Club would not “wish to consider conferring dissenter’s rights on outside stockholders,” and
his understanding that the Club would make a concerted effort to acquire a majority of WFHC’s
shares in the coming year. (Id.)
The Kolb Letter, dated March 14, 1975, addresses itself to Walter Kolb’s correspondence
regarding the transfer of WFHC shares. (Pls. Mem. 4–5 Ex. B.) Mr. Gillespie notes that WFHC’s
policy and practice at the time was, at least initially, to disapprove and refuse to record transfers
17
of shares to persons other than a close relative of a stockholder. (Id.) However, Mr. Gillespie
opines that “as a legal matter, [he does] not think the Board of Directors of [WFHC] may properly
withhold approval of any transfer of a share if the transfer papers are in good order. Neither
[WFHC’s] charter nor [its] By-laws give [the Board of Directors] the authority to pick and choose.”
(Id.) Mr. Gillespie also discusses specific instances where transfer restrictions were enforced
against WFHC shareholders, stating his view that WFHC had been lucky not to face litigation with
respect to such restrictions because it would likely lose the case. (Id.) He observes that in every
case where a proposed transferee had disagreed with WFHC’s actions and hired counsel to
represent their interests in court, the proposed transferee simply gave up “because, obviously, one
does not litigate a matter involving a share nominally worth $250.” (Id.)
2. Admissibility of the 1975 Letters
In their opposition to Plaintiffs’ motions, Defendants argue before reaching the issue of
whether the 1975 Letters constitute party admissions that the 1975 Letters should be excluded on
other evidentiary grounds. Specifically, Defendants aver that the 1975 Letters should be excluded
in their entirety as irrelevant pursuant to Federal Rule of Evidence 402. They also aver that, even
if relevant, the 1975 Letters are likely to waste the Court’s time, mislead the jury, and unfairly
prejudice Defendants, and should be excluded on those grounds pursuant to Federal Rule of
Evidence 403.
As the Court has outlined in recent dispositions, see infra pp. 2–4, evidence offered by a
party to this action will be relevant only if it bears upon one of the limited issues remaining for
trial. Plaintiffs argue that the 1975 Letters meet this standard because they are pertinent to the
question of whether WFHC was created to be a corporation to profit shareholders or whether, from
its inception, WFHC has existed solely to support the Club. Plaintiffs rely on the Court’s prior
18
rulings on motions for summary judgment as purported evidence of the Court’s agreement that
Mr. Gillespie’s statements in the 1975 Letters have a “high degree of relevance” to this issue. (Pls.
Reply Mem. in Support of Pls. Mots. 4–5 (“Pls. Reply 4–5”) (ECF No. 314) at 1.)
To the extent Plaintiffs invoke the Court’s 2016 ruling on Defendants’ first motion for
summary judgment, Busher, 2016 WL 1249612, the Court notes that the March 2019 Opinion
further limited the issues in this case and is the applicable guide to the scope of the matters that
may be properly addressed at trial. In that regard, the March 2019 Opinion cited the 1975 Letters
in a section entitled “Background” and referred more generally to Plaintiffs’ allegations of
misconduct regarding transfer restrictions in addressing Plaintiffs’ tolling arguments. Busher,
Docket 227, at 3–4, 10–13. It further referenced one of Mr. Gillespie’s statements in the DioGuardi
Letter as potential evidence that WFHC was not formed for the exclusive benefit of the Club. Id.
at 16. Contrary to Plaintiffs’ assertions, however, the Court has not explicitly considered whether
the 1975 Letters are properly admissible pursuant to Federal Rule of Evidence 402.
The information contained in the 1975 Letters is of dubious relevance to the issues
remaining for trial. The Kolb Letter discusses restrictions placed by WFHC on the transfer of
WFHC shares and includes Mr. Gillespie’s opinion that such restrictions were in violation of
WFHC’s charter and by-laws and therefore illegal. All the purported transfers took place well
before June 16, 2008, and were not connected to WFHC’s 2013 extension of its lease with the
Club. Instead, Plaintiffs maintain that the Kolb Letter is admissible because “evidence concerning
the nature and value of [WFHC]’s shares [is] probative of [WFHC]’s purpose.” (Pls. Reply 4–5
at 2.) To be sure, evidence that shares were initially discussed as an investment and that at annual
meetings the value of shares were often considered relative to the assets and liabilities of WFHC
may suggest that WFHC was a for-profit corporation, just as evidence that shares were sold at the
19
price of Club membership could suggest the opposite. However, no such connection is obvious
between WFHC’s corporate purpose and the transfer restrictions imposed on individual shares in
the 1970s, as discussed in the Kolb Letter. Plaintiffs may not shoehorn a time-barred cause of
action arising from the purportedly illegal practices of WFHC with respect to share transfers into
this derivative suit by simply claiming that any evidence pertaining to “the nature” of WFHC
shares is relevant to whether WFHC was formed to generate profits for its shareholders. See infra
pp. 28–29, 40–41.
Mr. Gillespie’s statements in the DioGuardi Letter with respect to transfer restrictions are
irrelevant for the same reasons. Further, his statements regarding the Club’s intention to make a
concerted effort to buy WFHC shares so that it could become a majority shareholder are similarly
lacking in relevance to the question of WFHC’s original corporate purpose. If they bear any
connection to the 2013 lease extension at all, it is based on the argument that the Club’s scheme to
become a majority shareholder in the 1970s ultimately facilitated its approval of lease renewals in
later years. However, whether any wrongdoing took place in connection with the Club’s buying
of shares many years outside of the applicable statute of limitations period is not a question that
may be put before the jury. The manner in which the Club gained its status as majority shareholder
is not relevant to the question of whether Defendants breached their fiduciary duties or caused the
loss or waste of WFHC’s assets when they entered into the 2013 lease extension. Nor do the
restrictions Defendants imposed on share transfers otherwise bear on any of Plaintiffs’ remaining
claims. See infra pp. 34–37.
The vast majority of Mr. Gillespie’s statements regarding WFHC’s tax classification under
Section 501(c) of the IRC are also plainly irrelevant to WFHC’s corporate purpose under state law.
See infra 22–25. The only statement that warrants further scrutiny pertains to Mr. Gillespie’s
20
assessment of WFHC’s governing documents. In explaining why he believes WFHC is ineligible
for a federal tax exemption, Mr. Gillespie opines that there is no evidence in the WFHC charter or
by-laws of the fact that WFHC was organized exclusively to hold title to the Winged Foot property
and to turn over income to the Club. While this statement, in isolation, appears to implicate
Defendants’ theory of WFHC’s purpose, its placement within a discussion of WFHC’s
classification under federal tax law shows that it is concerned with whether WFHC meets the
requirements for an exemption under the IRC. As the Court explains in further detail below, the
fact that there is overlap between the parties’ theories of corporate purpose under state law and
federal taxation law does not mean that federal taxation law is relevant to any issue in this case.
In any event, even if Mr. Gillespie’s isolated opinion statement were relevant, it constitutes
hearsay, and Plaintiffs have not shown that it fits into any exception to the prohibition on hearsay
that would make it admissible. Federal Rules of Evidence 801(d)(2)(B) and (d)(2)(D) permit the
introduction of a hearsay statement offered against an opposing party if the statement is one the
party manifested that it adopted or believed to be true, or was made by the party’s agent or
employee on a matter within the scope of that relationship and while it existed. Fed. R. Evid.
801(d)(2)(B), (d)(2)(D). As to the first of these exceptions, a party seeking to offer a statement as
an adoptive admission may show adoption or acquiescence in any appropriate manner. See
Penguin Books, U.S.A. v. New Christian Church of Full Endeavor, Ltd., 262 F. Supp. 2d 251, 258
(S.D.N.Y. 2003) (citing Fed. R. Evid. 801(d)(2)(B), advisory comm. notes). Here, the fact that
Mr. Gillespie, who was not an officer of the Club when he wrote the DioGuardi Letter, copied the
Club on his response to Mr. DioGuardi, (see Pls. Reply 4–5 at 7), does not suffice to demonstrate
that the Club adopted any of Mr. Gillespie’s statements or believed them to be true. Likewise,
Plaintiffs do not show that the Club’s failure to respond or to pursue any action related to the
21
taxation matters discussed in the DioGuardi Letter is conduct in compliance with Mr. Gillespie’s
statement. See Penguin Books, U.S.A., 262 F. Supp. 2d at 259 (“In the case of written statements,
such as letters or other documents, mere non-response is generally considered insufficient [to show
adoption by silence].”).
Nor do Plaintiffs demonstrate that Mr. Gillespie was acting as the Club’s agent at the time
he wrote the DioGuardi Letter. No evidence has been produced to show that, although Mr.
Gillespie did not have any position with the Club when he wrote the DioGuardi Letter, Mr.
Gillespie was nonetheless under the Club’s control and was doing its bidding when he discussed
WFHC’s tax status. Indeed, it is unclear why Mr. Gillespie would need authority from the Club
to discuss a matter that was specific to WFHC, even if the Club had an interest in that matter.
Accordingly, Plaintiffs have demonstrated neither that the 1975 Letters are relevant to an
issue in this case, nor that Mr. Gillespie’s opinion statement about WFHC’s governing documents
in the DioGuardi Letter would be admissible under Federal Rules of Evidence 801(d)(2)(B) or
(d)(2)(D) even if it were relevant. Plaintiffs’ motions in limine four and five are therefore denied.
II.
Defendants’ Motions in Limine
A. Defendants’ Motion to Preclude Evidence Regarding WFHC’s Classification under
Federal Income Tax Law
In their first motion in limine, Defendants seek to preclude the introduction of evidence
related to WFHC’s classification under federal income tax law. (Defs.’ Mem. in Support of Defs.
Mot. 1 (“Defs. Mem. 1”) (ECF No. 262).) Specifically, Defendants implore the Court to exclude
the testimony of Plaintiffs’ retained tax law expert, Jeffrey A. Galant, and the testimony of fact
witness Joseph J. DioGuardi as to discussions in the 1970s about tax-related proposals that were
considered but never implemented by WFHC. Defendants argue that such testimony is irrelevant,
unreliable, and prejudicial, and should be excluded pursuant to Federal Rules of Evidence 104,
22
402, 403, and 702. Plaintiffs oppose the motion, averring that the fact that WFHC did not or could
not apply for an exemption under the IRC is probative of its corporate purpose. (Pls.’ Mem. Opp.
Defs. Mot. 1 (“Pls. Opp. 1”) (ECF No. 301).) For the following reasons, Defendants’ motion is
granted.
Defendants contend that WFHC’s classification under federal tax law lacks relevance to
any issue remaining in this trial, including the question of WFHC’s original corporate purpose. As
Defendants correctly note, the question of corporate purpose is a state law question. See Burwell
v. Hobby Lobby Stores, Inc., 573, U.S. 682, 713 (2014). While there may be some overlap between
the definition of a non-profit entity under state law and the definition of a tax-exempt entity under
the IRC, the two concepts are legally distinct. As the United States Internal Revenue Service
(“IRS”) explains on its website,
Nonprofit status is a state law concept. Nonprofit status may make an organization
eligible for certain benefits, such as state sales, property and income tax
exemptions. Although most federal tax-exempt organizations are nonprofit
organizations, organizing as a nonprofit organization at the state level does not
automatically grant the organization exemption from federal income tax. To
qualify as exempt from federal income tax, an organization must meet requirements
set forth in the Internal Revenue Code.
INTERNAL REVENUE SERVICE, APPLYING FOR TAX EXEMPTION FAQ #1, https://www.irs.gov/
charities-non-profits/frequently-asked-questions-about-applying-for-tax-exemption (last visited
Dec. 17, 2019). In other words, the fact that an organization’s corporate purpose, as determined
by state law, is something other than the maximization of shareholder profit does not by itself
indicate that such organization is likely to receive a federal tax exemption. Rather, the only criteria
relevant to the determination of federal tax status is that which is explicitly set forth by the IRC.
Similarly, an organization’s tax-exempt status under the IRC may not be conflated with its
corporate purpose. Doing so would wrongly suggest that an issue exclusively governed by federal
23
law is relevant to a state law determination. See Foreman v. United States, 232 F. Supp. 134, 136
(S.D. Fl. 1964) (holding that a corporation’s federal tax status is determined exclusively by federal
tax law, because “it would introduce an anarchic element in federal taxation if we determined the
nature of associations by State criteria rather than the special criteria sanctioned by the tax law”);
In re Reed, 127 B.R. 244, 247 (Bankr. D. Haw. 1991) (in determining whether the IRS could levy
upon certain property, holding that “[s]tate law may define the nature of the taxpayer’s interest in
the property, but the consequences flowing from that definition under state law are of no concern
to the operation of federal tax law”).
Thus, to argue to a jury that WFHC’s status under federal tax law is probative of its purpose
under state law would be misleading, at best. This issue is compounded by the fact that Plaintiffs’
proposed tax expert, Mr. Galant, adopts the term “for-profit business corporation” in lieu of
“nonexempt” or “taxable” corporation to describe a corporation subject to federal income taxation
in his Expert Report dated December 23, 2016. (See Defs. Mem. 1 Ex. 1.) While Mr. Galant’s
usage of that term is not meant to convey an opinion as to WFHC’s status under state corporate
law, its effect on jurors who are being asked to determine that very question in the context of
profits is likely to be confusing and prejudicial.
In addition, Mr. Galant testified at his deposition that the IRC implicitly “assumes a
business corporation is in business and has a for-profit motive” when a business corporation files
its tax return on a U.S. Corporation Income Tax Return Form. (Id. Ex. 2 at 63–64.) There is no
such presumption as to for-profit status, however, under New York state law, which looks to
substance over form to determine corporate purpose. See Busher, Docket 227 at 15–16 n.7. This
testimony, too, is likely to confuse the jury and lacks any relevance to the question they must
decide.
24
Mr. Galant is also expected to testify as to the potential application of Section 482 of the
IRC to WFHC’s income. (See Defs. Mem. 1 Ex. 1 at 10–12.) Again, Plaintiffs fail to explain how
WFHC’s theoretical tax liability, even as it arises from the amount of rent it charges to the Club,
is relevant to corporate purpose or to the 2013 lease extension, which is the only occurrence left
in this action from which a claim arises. Nor do they show how it may be relevant to any of
Defendants’ affirmative defenses.
In sum, Mr. Galant’s testimony as to WFHC’s classification under federal tax law is not
relevant to any issue remaining in this case and is subject to exclusion on that ground. The
testimony of Mr. DioGuardi with respect to tax proposals considered, but not implemented, by
WFHC in the 1970s warrants the same treatment. Whether WFHC applied for, or could apply for,
exemptions from federal taxation over the course of its nearly one-hundred-year existence does
not make it more or less likely that WFHC’s original shareholders believed they were contributing
capital to an organization whose purpose was to create profits for shareholders. Accordingly,
Defendants’ motion to preclude irrelevant evidence and testimony related to the classification of
WFHC under federal tax law, including such testimony as is anticipated from Mr. Galant and Mr.
DioGuardi, is granted.
B. Defendants’ Motion to Exclude Certain Evidence Related to Corporate Purpose
Defendants next move to preclude Plaintiffs from introducing evidence related to WFHC’s
corporate purpose that is irrelevant to the expectations of WFHC’s original shareholders, and to
exclude certain evidence or arguments anticipated from Plaintiffs that are inconsistent with the
Court’s prior holdings on the issue of corporate purpose. (Defs.’ Mem. in Support of Defs. Mot.
2 (“Defs. Mem. 2”) (ECF No. 269).) Relatedly, Defendants seek to exclude certain testimony
from Plaintiffs’ experts, Professor Merritt Fox and Jeffrey Baliban, related to WFHC’s corporate
25
purpose. (Id.) Plaintiffs oppose the motion, stating, inter alia, that much of Defendants’ motion
is inappropriately broad in the scope of evidence it seeks to preclude, and that their experts should
be permitted to testify. (Pls.’ Mem. Opp. Defs. Mot. 2 (“Pls. Mem. 2”) (ECF No. 306).)
Defendants’ motion is granted in part and denied in part.
1. Relevant Evidence of Corporate Purpose
Defendants seek a ruling from the Court restricting evidence that will be considered
relevant to the question of corporate purpose to “evidence that reflects, either directly or as
recounted in documents concerning Winged Foot’s general history, the words, actions, or inaction
of WFHC’s earliest shareholders.” (Defs. Mem. 2 at 3.) Defendants cite to no specific evidence
that they believe will violate their proposed principal, and that alone warrants denial of this portion
of their motion. See Weiss, 293 F. Supp. 2d at 408 (defendants’ motion “lack[ed] sufficient
specificity with respect to the evidence to be excluded” where “[n]o particular documents or
testimony ha[d] been identified”). “In the absence of context the court cannot categorically
conclude that [] evidence is not related to matters raised by the present dispute nor can it weigh its
probity.” TVT Records v. Island Def Jam Music Group, 250 F. Supp. 2d 341, 345 (S.D.N.Y. 2003)
(denying motion for an order precluding evidence of collateral legal disputes between plaintiff and
defendant).
Moreover, Defendants’ proposed preclusion of all evidence that “reflect[s] the actions or
opinions of those who did not contribute to the corporation,” (Defs. Mem. 2 at 4), is unduly broad.
The Court cannot, for example, determine that evidence of how officers of WFHC viewed
WFHC’s purpose after its founding, or how/whether WFHC interacted with businesses other than
the Club is irrelevant to whether WFHC was formed as a for-profit corporation.
26
Indeed,
Defendants’ proposed limitation would call into question even evidence of corporate purpose that
they argue elsewhere is admissible, such as the 6/8/47 recitals.
Accordingly, the portion of Defendants’ motion seeking to limit evidence of corporate
purpose is denied, without prejudice to Defendants’ raising specific evidentiary objections at trial.
2. Preclusion of Certain Legal Arguments as to Corporate Purpose
i.
Argument that Form of Incorporation is Dispositive of Purpose
Defendants ask the Court to preclude Plaintiffs from offering any testimony or argument
that WFHC’s form of incorporation is dispositive of its purpose. Such testimony or argument
would contradict this Court’s express ruling that the “certificate of incorporation is insufficient to
overcome the genuine issues of material fact created by evidence in the record” with regard to
corporate purpose. Busher, Docket 227 at 15–16 n.7. The Court notes that Plaintiffs’ opposition
indicates that they are aware of this ruling and do not intend to challenge it at trial. (Pls. Opp. 2 at
14.)
As all parties are aware, it is the Court, and not counsel or expert attorney witnesses, that
instructs the jury on the law to be applied in reaching their verdict. To the extent any party or
witness purports to define the legal parameters within which the jury must exercise its fact-finding
function, such party or witness usurps the role of the Court. See Hygh v. Jacobs, 961 F.2d 359,
364 (2d Cir. 1992) (“Whereas an expert may be uniquely qualified by experience to assist the trier
of fact, he is not qualified to compete with the judge in the function of instructing the jury.”);
United States v. Bilzerian, 926 F.2d 1285, 1294 (2d Cir. 1991) (“[A]lthough [] expert[s] may opine
on an issue of fact within the jury’s province, [they] may not give testimony stating ultimate legal
conclusions based on those facts.”). Either party may make an appropriate objection if instances
of this nature arise during trial. Since Plaintiffs do not contest that introducing evidence or
27
testimony that WFHC’s corporate form is dispositive to the question of corporate purpose would
violate the foregoing principles, however, the portion of Defendants’ motion seeking to exclude
such evidence or testimony is preliminarily denied as moot.
ii.
Arguments Related to Status of WFHC Shares Under Federal Securities Law
Defendants also ask the Court to preclude the introduction of evidence or testimony that
the Supreme Court’s decision in Landreth Timber Co. v. Landreth, 471 U.S. 681 (1985), supports
their theory of WFHC’s corporate purpose. Landreth addresses, inter alia, the determination of
whether an instrument is a security within the meaning of the 1934 Securities Exchange Act, 15
U.S.C.A. § 78a et seq., and the 1933 Securities Act, 15 U.S.C.A. § 77a et seq. Landreth, 471 U.S.
at 683. Plaintiffs aver that whether WFHC shares are “securities” with investment value under
federal securities laws bears on the question of whether WFHC’s original shareholders purchased
their shares with an expectation of receiving a financial return. (Pls. Opp. 2 at 20.)
As a preliminary matter, the Court reminds the parties, again, that expert witnesses may
not opine on the law to be applied by the jurors during their deliberations. To the extent that
Plaintiffs seek to introduce only factual evidence as to the classification of WFHC shares for
purposes of the federal securities laws, such evidence is irrelevant to the question of WFHC’s
corporate purpose under state law. To be sure, the federal securities laws at issue in Landreth were
not even in existence at the time WFHC’s original shareholders purchased their shares, and for
that reason alone could not possibly have informed their expectations. Plaintiffs essentially ask
that they be allowed to litigate and put before a jury a matter of federal securities law that has no
bearing on any issue remaining in this case and would amount to nothing more than a distraction
from the core legal questions for trial. The Court declines to grant such permission. The portion
28
of Defendants’ motion seeking to exclude evidence or testimony as to the classification of WFHC
shares under federal securities law is granted.
3. Admissibility of Expert Testimony of Merritt Fox
Defendants challenge certain portions of the expert testimony of Plaintiffs’ proposed
corporate law expert, Professor Merritt Fox, on two separate grounds, neither of which has merit.
First Defendants seek to preclude Professor Fox from testifying that it is “fair to assume” that the
members of the New York Athletic Club who incorporated WFHC and the Club were
“sophisticated business and professional people of their time.” (Defs. Mem. 2 at 8 (quoting Decl.
of Laura Samuels in Support of Defs. Mot. 2 (“Samuels Decl.”) (ECF No. 270) Ex. 2 at 8.)
Defendants contend that this assumption is completely unsupported and is thus unreliable and
inadmissible pursuant to Federal Rules of Evidence 702 and 403. (Id. at 9.) The Court disagrees.
Professor Fox is permitted to offer his opinion that, based on membership in an affluent club, the
price paid for original shares, and the decision to choose different modes of incorporation for
WFHC and the Club, (see Pls. Opp. 2 at 16), the original incorporators of WFHC were
sophisticated businesspeople.
Of course, Defendants may challenge the bases underlying
Professor Fox’s assumptions on cross-examination.
Defendants also argue that Professor Fox should be “precluded from testifying that []
WFHC was required to change how it fulfilled its corporate purpose once one or more shareholders
were no longer [] Club members.” (Defs. Mem. at 6.) However, Defendants misstate Professor
Fox’s proposed testimony. Professor Fox has not opined that WFHC was legally required to
change its corporate purpose. Rather, Professor Fox’s opinion is that WFHC was formed as a forprofit business corporation, and that although it could further its corporate purpose in its early
years without dealing with the Club at arms-length, since WFHC membership and Club
29
membership were identical, it could no longer maximize returns to all of its shareholders when the
requirement of share ownership as a condition of Club membership was eliminated without
altering its relationship with the Club. (See Samuels Decl. Ex. 1 at 5–7.) Professor Fox’s
testimony is relevant to WFHC’s corporate purpose and the scope of WFHC’s fiduciary duties
towards its shareholders, which Plaintiffs contend were breached through the 2013 lease extension.
His opinion that WFHC was created to provide a return to shareholders directly supports Plaintiffs’
theory of corporate purpose. His explanation that, at its inception, WFHC was fulfilling this
purpose even though it was engaged in non-arms-length transactions with the Club, but that WFHC
could not no longer fulfill this purpose through the same course of conduct after membership in
the Club and WFHC shareholder status diverged suggests that Director Defendants acted in
violation of their fiduciary duties by entering a sweetheart lease with the Club in 2013.
For the foregoing reasons, the portion of Defendants’ motion seeking to preclude the
testimony of Professor Fox is denied.
4. Admissibility of Expert Testimony of Jeffrey Baliban
Defendants seek to preclude the expert testimony of Jeffrey Baliban to the extent it
references a legal memorandum from 1961 prepared by the law firm Kelley Drye Newhall and
Maginnes (the “Kelley Drye memo”). (Defs. Mem. 2 at 12–14.) Plaintiffs assert in their
opposition that they “will not ask Mr. Baliban any questions about the Kelley Drye memo, and
will not seek to elicit any testimony from Mr. Baliban concerning the contents of that memo.”
(Pls. Opp. 2 at 5.) Since both parties agree that such testimony will not be solicited, Defendants’
motion to preclude Mr. Baliban’s testimony to the extent it concerns the Kelley Drye memo is
denied without prejudice as moot.
30
C. Defendants’ Motion to Exclude Certain Evidence Related to Liability
Defendants’ next motion seeks to exclude several categories of evidence as irrelevant to
the issues remaining in this action. Specifically, Defendants seek to exclude (1) evidence related
to time-barred leases; (2) evidence relevant to Defendants’ alleged fraud or misrepresentations in
communications or transactions with shareholders, including in WFHC’s financial statements, and
to the allegedly illegal share transfer restrictions enforced by Defendants; (3) evidence regarding
WFHC’s activities with respect to lost shareholders for whom it has no contact information; and
(4) evidence related to Defendants’ liability insurance. (Defs.’ Mem. in Support of Defs. Mot. 3
(“Defs. Mem. 3”) (ECF No. 281).) Defendants also move to exclude testimony from Plaintiffs’
proposed witnesses whose testimony is unrelated to corporate purpose or the 2013 lease. (Id.)
Plaintiffs oppose the motion, stating that much of Defendants’ motion is impermissibly broad, and
disputing that the evidence highlighted by Defendants is irrelevant to Defendants’ liability. (Pls.’
Mem. Opp. Defs. Mot. 3 (“Pls. Opp. 3”) (ECF No. 307).) For the following reasons, Defendants’
motion is granted in part, denied in part, and reserved in part.
1. Evidence Related to Leases Preceding the 2013 Lease Extension
As Defendants correctly observe, and as set forth in greater detail above, “by order dated
March 12, 2019, this Court ruled that the only claims left for trial concern the appropriateness of
one contract: the 2013 lease extension [] between [WFHC] and the [Club].” (Defs. Mem. 3 at 1.)
Relatedly, the Court explained that Plaintiffs’ claims arising from the 2013 lease extension depend
on the threshold question of WFHC’s corporate purpose. See Busher, Docket 227 at 15. Thus,
the March 2019 Opinion clearly limited the issues remaining in this action. Nonetheless, Plaintiffs
have resisted tailoring their case for trial in accordance with the Court’s order, necessitating further
clarification from the Court that “the only relevant occurrence remaining in this action is the 2013
31
lease extension.” Busher, Docket 244 at 5. Notwithstanding this clarification, Plaintiffs continue
to argue that they should be permitted to litigate the validity of the 1947 Lease Amendment at trial
next month. (See Pls. Opp. 3 at 3–4; Joint Final Trial Report (ECF No. 257) at 6 (“Plaintiffs allege
that the 1947 amendment of the original lease, and Defendants’ extension of the amended lease in
2013, constituted acts of corporate waste . . . and are therefore void.”).)
The validity of the 1947 Lease Amendment is not an issue that may be properly litigated
in this case. The Court has now repeated numerous times that “[e]vents preceding [the 2013] lease
extension and outside of the statutory period are not actionable,” and has reminded the parties that
they “should not rely on or attempt to prove such events in their pretrial submissions or at trial.”
Busher, Docket 244 at 5. That Plaintiffs have now decided to cloak their time-barred claim arising
from the 1947 Lease Amendment in the new legal theory that all extensions of the 1947 Lease
Amendment, including the 2013 lease extension, are void ab initio, (Pls. Opp. 3 at 4), does not
alter the Court’s conclusion. Indeed, Plaintiff first introduced their new legal theory two months
ago in their October 2019 letter asking the Court to withdraw or stay the October 2019 Opinion,
and the Court nonetheless denied that request and adhered to its decision. (See ECF No. 256.) The
Court notes, in addition, that allowing Plaintiffs to introduce a new legal theory that revives a timebarred claim nine months after issuing its decision disposing of that claim, and less than one month
before the start of trial, would be highly prejudicial to Defendants.
Accordingly, the Court adheres to its prior decisions and declines to endorse Plaintiffs’
creation of brand-new legal theories, which Plaintiffs have not pursued in the approximately five
years since they commenced this action, on the eve of trial, in order to avoid the effect of the
Court’s rulings. See Farouki v. Petra Int’l Banking Corp., No. 08-cv-2137, 2013 WL 12309520,
*2 (D.C. Cir. June 12, 2013) (application to amend pleading is properly denied “when a party—
32
without explanation for the delay—springs new facts and legal theories on the eve of trial”); Sanai
v. Sanai, No. C02-2165Z, 2005 WL 1172437, at *1–*2 (W.D. Wash. May 18, 2005) (plaintiffs not
permitted to adopt a new legal theory to allow previously dismissed claims to continue on the eve
of trial, after the close of discovery, and after the dispositive motions deadline); see also Beck v.
Met. Prop. And Casualty Ins. Co., No. 3:13-cv-00879, 2016 WL 4978411, *1 (D. Or. Sept. 16,
2016) (considering defendant’s decision “to advance for the first time on the eve of trial a
completely new and significant legal theory, and to do so through the awkward procedural
mechanism of an evidentiary motion” in calculating attorneys’ fees plaintiff was entitled to). The
portion of Defendants’ motion seeking to exclude evidence or testimony related to the 1947 Lease
Amendment is granted to the extent that Plaintiffs may not attempt to prove the validity of the
1947 Lease Amendment at trial. Insofar as Plaintiffs argue that general information regarding the
1947 Lease Amendment may be relevant for purposes of providing background to the 2013 lease
extension, the Court reserves decision on whether general evidence or testimony related to the
1947 Lease Amendment is relevant and admissible under the circumstances that present
themselves at trial. 5
As to Plaintiffs’ contention that they may introduce evidence in connection with the Club’s
exercise of a lease extension option granted by WFHC in 2002, the Court has stated numerous
times that “the only relevant occurrence remaining in this action is 2013 lease extension,” Busher,
Docket 244 at 5, defined in the Court’s March 2019 Opinion as the extension that “extends the
lease from 2050 through October 2071,” Busher, Docket 227 at 3. Accordingly, the portion of
Defendants’ motion seeking to preclude the introduction of evidence related to the 2002 lease
extension and the Club’s exercise of an option granted in that lease extension is denied.
5
The Court suspects, however, that far less information regarding the 1947 Lease Amendment is necessary for
background purposes than Plaintiffs contemplate.
33
2. Evidence Related to Defendants’ Alleged Fraud and Misrepresentations in
Communications or Transactions with Shareholders
Defendants argue that evidence relating to Defendants’ alleged fraudulent statements and
misrepresentations to current and former non-original shareholders other than Plaintiffs, and to the
enforcement of transfer restrictions printed on WFHC shares, is irrelevant to the claims remaining
in this action and improper in a derivative lawsuit. (Defs. Mem. 3 at 4–8.) Defendants observe
that much of the evidence Plaintiffs seek to introduce in this regard pre-dates the statutory
limitations period and has no bearing on WFHC’s original corporate purpose or whether
Defendants’ entering the 2013 lease extension breached their fiduciary duties to shareholders. (Id.)
Defendants also note that Plaintiffs have not produced any evidence that any purported fraud or
misrepresentation to an individual shareholder caused damages to WFHC, as required to state a
derivative claim. (Id. at 6.)
Plaintiffs counter that the challenged evidence is relevant to Plaintiffs’ claims because it
shows that the 2013 lease extension was part of a “common course of conduct in which the Director
Defendants acted as agents of the Club while maintaining the pretense of serving as fiduciaries of
[WFHC] and its shareholders.” (Pls. Opp. 3 at 9.) Plaintiffs assert that Defendants’ “scheme to
control” WFHC is also relevant to WFHC’s corporate purpose and to the nature of relief that may
be appropriate should Plaintiffs prevail on the issue of liability. (Id. at 10–11.)
Plaintiffs’ alleged “scheme to control” appears to be another attempt to backdoor in
significant amounts of evidence related to claims that the Court has dismissed as time-barred.
However, the fact that Plaintiffs invoke the same theory, i.e., that Defendants acted to enrich the
Club, to explain different species of Defendants’ conduct does not make all conduct which could
conceivably fit under that theory relevant to Plaintiffs’ claims. At trial, the jury will not be asked
to decide whether Defendants engaged in a decades-long scheme to defraud shareholders of
34
WFHC for the benefit of the Club. That is not a claim in this case. Instead, the jury will be asked
whether Defendants’ entry into the 2013 lease extension constituted a breach of Defendants’
fiduciary duties, the scope of which will be determined by WFHC’s corporate purpose. That
Plaintiffs can prove prior bad acts of Defendants related to their representations to shareholders,
many of which took place prior to June 16, 2008, does not aid resolution of that question. Nor
does Director Defendants’ purported facilitation of the Club’s purchase of WFHC shares bear upon
WFHC’s original corporate purpose. On the contrary, such evidence would only serve to confuse
the jury as to the issues it is to consider. It would also substantially prejudice Defendants and
would imply that jurors may properly consider evidence of Defendants’ past wrongdoing in
deciding whether they breached their fiduciary duties in 2013. See New Am. Mktg. FSI LLC v.
MGA Entm’t, Inc., 187 F. Supp. 3d 476, 480 (S.D.N.Y. 2016) (defendant’s proposed evidence of
fraud or defenses sounding in fraud, where fraud-based counterclaims had previously been
dismissed, was precluded as both irrelevant and substantially prejudicial to plaintiff); see also Fed.
R. Evid. 404(b) (“Evidence of a crime, wrong, or other act is not admissible to prove a person’s
character in order to show that on a particular occasion the person acted in accordance with the
character.”); United States v. Lyles, 593 F.2d 182, 195 (2d Cir. 1979) (“The greater the danger of
prejudice, the more justification must be shown for the introduction of challenged evidence.”)
(citation omitted).
Plaintiffs’ argument that evidence of Defendants’ past fraudulent behavior is relevant to
the issue of the remedy Plaintiffs are entitled to is similarly without merit. Plaintiffs argue it is
logical to assume that if the 2013 lease were rescinded, “the Club would simply use its entrenched
control over [WFHC] . . . to find other ways to continue looting [WFHC]’s assets,” as evidenced
by “the Club’s scheme to control [WFHC].” (Pls. Opp. 3 at 10.) Therefore, argue Plaintiffs,
35
monetary damages or the dissolution and sale of WFHC are more appropriate remedies than
rescission. (Id.) Plaintiffs’ line of reasoning rests upon the unsupported premise that Defendants
will continue to violate their fiduciary duties in unspecified ways unless the Court orders a remedy
that will provide monetary compensation to Plaintiffs. The Court is unpersuaded by this theory.
Plaintiffs’ argument that their proposed evidence of a scheme to control WFHC is relevant
to corporate purpose is also unavailing. As the Court has stated, while certain evidence related to
WFHC shares does bear upon whether WFHC’s purpose was to enrich its shareholders, not every
fact or theory related to the shares does so. Defendants’ alleged practice, beginning in the 1970s,
of restricting the transfer of WFHC shares and attempting to consolidate the Club’s majority
shareholder status in part through such restrictions does not make it more likely than not that
WFHC was formed to enrich its shareholders.
Finally, Plaintiffs argue that their proposed evidence supports their derivative claims
because Defendants’ fraudulent shareholder communications and share transfer restrictions
constitute acts of “looting” WFHC by entrenching the Club’s control of WFHC. (Pls. Opp. 3 at
7–8.) Plaintiffs raise these claims in the Joint Final Trial Report only in the context of their
alternative claim for dissolution, and not in the context of their derivative claims. 6 (See Joint Final
Trial Report at 5.) Previously, Plaintiffs invoked evidence related to shareholder communications
and transfers to demonstrate that Defendants looted WFHC by pursuing a scheme “to purchase
and accumulate shares from non-member shareholders in order to consolidate the Club’s majority
control over WFHC and thereby remove potential obstacles” to purportedly unfair leases. (Pls.’
Mem. in Support of Mot. for Partial Summ. J. (ECF No.194) at 47.) However, WFHC gained
6
Plaintiffs raise these claims, which are separate from and unrelated to the 2013 lease, in spite of their initial
assertion that “In light of the Court’s rulings, all claims for relief stated in Plaintiffs’ amended complaint remain to
be tried to the extent the claims relate to Defendants’ extension in 2013 of the lease between [WFHC] and [the
Club].” (Joint Final Trial Report at 3.)
36
majority shareholder status by 1983. See Busher, Docket 227 at 4. It appears that Plaintiffs have
now amended their theory of liability to suggest that Defendants’ scheme to advance the Club’s
control over WFHC harmed WFHC in some manner unrelated to the lease extensions or to the
Club’s power as majority shareholder. Plaintiffs have not disclosed what that harm entailed, or
how they expect to prove any damages to WFHC arising from Defendants’ post-2008 actions in
this regard. In other words, Plaintiffs appear to have introduced a new legal theory without
evidentiary support, on the eve of trial, in order to revive a claim that was dismissed by the Court
nine months ago. However, Plaintiffs’ proposed evidence does not show any harm to WFHC and
thus does not support a derivative claim. Plaintiffs’ allegations with respect to the fraudulent
actions of Defendants are more properly the subject of the direct action commenced against
Defendants in 2016. See Clune v. Barry, No. 7:16-cv-4441, Am. Compl., Docket 62.
In sum, the Court is unpersuaded that any evidence related to Defendants’ alleged “scheme
to control” is relevant to the issues of corporate purpose and the 2013 lease extension.
Furthermore, even if such evidence carried any probative value, that value is substantially
outweighed by the prejudice it would inflict on Defendants.
Accordingly, the portion of
Defendants’ motion to preclude evidence related to Defendants’ alleged fraud or
misrepresentations to shareholders, or restricted transactions involving WFHC shares, is granted.
3. Evidence Related to Lost Shareholder Contact Information
Defendants next argue that Plaintiffs should be precluded from presenting evidence
regarding WFHC’s alleged failure to proactively seek out updated contact information for certain
shareholders. (Defs. Mot. 3 at 8–9.) Plaintiffs contend that such evidence is relevant to the
“scheme to control” discussed above, to assess appropriate remedies should Plaintiffs prevail at
trial, and to explain why Defendants extended the 1947 Lease Amendment using option
37
instruments rather than formally replacing or amending the original lease. (Pls. Opp. 3 at 11–12.)
As to the first of these rationales, the Court has considered and rejected Plaintiffs’ argument that
evidence is per se relevant if it is indicative of Defendants’ attempts to consolidate the Club’s
control over WFHC. Similarly, Plaintiffs’ assertion that whether Defendants actively sought out
contact information for “lost” shareholders is relevant to whether rescission is an appropriate
remedy is without merit for reasons the Court has already discussed. Finally, the rationale behind
the instrument used by WFHC to extend its lease with the Club is not relevant to any issue in this
case. The Court can discern no basis for the entry of Plaintiffs’ proposed evidence at trial.
Accordingly, the portion of Defendants’ motion seeking to preclude Plaintiffs from introducing
evidence regarding WFHC’s failure to contact shareholders who have not updated their contact
information is granted.
4. Defendants’ Liability Insurance
Federal Rule of Evidence 411 (“Rule 411”) precludes parties from offering evidence that
a person was or was not insured against liability to prove whether the person acted negligently or
otherwise wrongfully. Fed. R. Evid. 411. However, “Rule 411 is not a bar to the introduction of
evidence regarding liability insurance in all cases.” Weiss, 293 F. Supp. 2d at 413. A court may
admit such evidence for another purpose, “such as proving a witness’s bias or prejudice or proving
agency, ownership, or control.” Fed. R. Evid. 411.
Defendants seek to preclude Plaintiffs from introducing any evidence regarding
Defendants’ liability insurance arrangements. (Defs. Mem. 3 at 10–11.) Plaintiffs agree that they
will not seek to offer most of the evidence of Defendants’ liability insurance identified in
Defendants’ moving papers. (Pls. Opp. 3 at 12–13.) However, Plaintiffs contend that they should
be permitted to offer evidence at trial relating to an indemnification agreement between WFHC
38
and the Club, dated October 15, 2013 (the “Indemnification Agreement”), as evidence of
Defendants’ culpability.
(Id.) While this is not a permissible purpose for which to offer
indemnification evidence pursuant to Rule 411, Plaintiffs state that because the Indemnification
Agreement was executed after WFHC entered the 2013 lease extension, they are entitled to an
exception from the rule. Specifically, Plaintiffs aver that “[a]n indemnification agreement,
obtained after wrongdoing, is admissible as evidence of consciousness of wrongdoing.” (Id. at
12.)
Plaintiffs cite a single Texas District Court case for this proposition.
See DSC
Communications Corp. v. Next Level Communications, 929 F. Supp. 239 (E.D. Tex. 1996). That
case involved indemnity agreements under which a buyer of a corporation agreed to indemnify the
corporation’s former employees for any liabilities incurred in a trade secret misappropriation
action that had been recently commenced by their former employer. Id. at 241–42. The Texas
District Court determined for various reasons, including that the agreements were isolated business
arrangements and did not insure against future risk, that the indemnification agreements did not
constitute liability insurance under Rule 411, and were not inadmissible pursuant to that rule. Id.
at 242–45. It did not determine that any indemnification agreement “obtained after wrongdoing”
is “admissible as evidence of consciousness of wrongdoing.”
Plaintiffs, resting on their
mischaracterization of the Texas District Court’s holding, make no attempt to analogize the
Indemnification Agreement with the facts of the case they cite.
Since Plaintiffs have presented no basis for the admission of the Indemnification
Agreement pursuant to Rule 411, and the Court does not find that references to the Indemnification
Agreement would serve any probative purpose as to the issues remaining for trial, the portion of
39
Defendants’ motion seeking to preclude evidence related to the Indemnification Agreement is
granted.
5. Inadmissible Witness Testimony
Defendants ask the Court to exclude testimony from several of Plaintiffs’ proposed
witnesses who, according to Defendants, are only expected to testify on topics unrelated to
corporate purpose or the 2013 lease extension. First, Defendants state that the testimony of
Plaintiffs’ proposed expert, Craig Jacobson, should be excluded as irrelevant and prejudicial
because it relates solely to the historical value of a WFHC share, dating back to 1923, and whether
the prices paid for a WFHC share over its history were reasonable. (Defs. Mem. 3 at 11–12.)
Specifically, Mr. Jacobson will testify that he calculated an indicative, present-day price for a
WFHC share based on the valuation of WFHC’s property performed by Plaintiffs’ expert Eric
Haims, and indexed this present-day price to economic indices such as the Dow Jones Industrial
Average, the S&P 500, and the Consumer Price Index in order to calculate similar indicative prices
for WFHC shares in past years. (See Pls. Opp. 3 at 14; Defs. Mem. 3 Ex. 14.) Based on his
comparison of the indicative prices to the actual, transactional prices historically paid for WFHC
shares, Mr. Jacobson will testify that while in the 1920s and 1930s, the actual transactional prices
for WFHC shares closely correlated with the indicative prices, from the year 1945 onwards, the
indicative prices exceeded the transactional share prices by varying but consistently large amounts.
(Id.) Further, Mr. Jacobson will testify that prior to 1945, price movements of WFHC shares
correlated with the movement of the indices, but that after that year, transactional prices moved
arbitrarily in relation to the market-reflective indicative prices, displaying no apparent linkage with
underlying value. (Id.) Mr. Jacobson intends to opine that (1) since 1945, “the prices paid for
WFHC stock were not reasonable and were significantly lower than the indicated value of the
40
stock,” and (2) “in recent decades, the prices paid for WFHC stock were frequently even more
dramatically lower than the indicated value of the stock.” (Defs. Mem. 3 Ex. 14 (ECF No. 285).)
Defendants argue that these facts are irrelevant to WFHC’s corporate purpose, liability, or
Plaintiffs’ damages. Plaintiffs disagree, contending that Mr. Jacobson’s testimony is relevant to
WFHC’s corporate purpose insofar as it tends to support Plaintiffs’ theory that WFHC shares were
originally equity securities intended “to provide a prospective return related to the value of
[WFHC]’s assets.” (Pl. Opp. 14.) While certain aspects of WFHC stock, particularly around the
time of WFHC’s founding, might be relevant to whether WFHC’s original shareholders expected
WFHC to produce a profit for them, the Court can discern no reason why the reasonableness of
the transactional prices of WFHC shares throughout its nearly one-hundred-year-long history
would have any bearing on that question, regardless of whether such prices tracked hypothetical
indicative prices. Since it appears that Mr. Jacobson’s testimony will be limited to that issue, the
Court concludes that it should be precluded as irrelevant.
As to Defendants’ arguments that an additional twelve fact witnesses should be precluded
as irrelevant, (Defs. Mem. 3 at 13–15), the Court does not have enough information about their
expected testimony to conclude that their testimony would have no conceivable relevance to any
issue in this case. Accordingly, the Court declines to categorically preclude Plaintiffs from calling
these witnesses. However, the Court cautions that the testimony of these witnesses is required to
conform with the Court’s rulings to date. The portion of Defendants’ motion seeking to preclude
certain fact witnesses is preliminarily denied, without prejudice to Defendants’ re-raising their
objections during trial.
41
D. Defendants’ Application for Dismissal of Plaintiffs’ Dissolution Claim
Since the issue of damages will be tried separately from and subsequently to the issue of
liability in this matter, the Court reserves decision on the majority of the issues raised in
Defendants’ two motions in limine concerning evidence of damages. However, one issue raised
by Defendants warrants the Court’s present consideration. Specifically, Defendants argue that
Plaintiffs’ cause of action seeking judicial dissolution of WFHC must be dismissed because the
Court lacks subject matter jurisdiction to hear such a claim. (Defs. Mem. in Support of Defs.’
Mot. 4 (“Defs. Mem. 4”) (ECF No. 287) at 11.) Plaintiffs oppose dismissal of their dissolution
claim, asserting that it is not jurisdictionally barred, that Defendants have waived their right to
seek the Court’s abstention, and that, in any event, the Court should decline to exercise abstention.
(Pls.’ Mem. Opp. Defs. Mot. 4 (“Pls. Opp. 4”) (ECF No. 308) at 13–15.)
Whether the Court has subject matter jurisdiction over a claim to dissolve a corporation is
a question that has not been resolved by the Second Circuit. See Friedman v. Revenue Mgmt. of
N.Y., Inc., 38 F.3d 668, 671 (2d Cir. 1994) (discussing competing authority with respect to whether
or not federal courts have subject matter jurisdiction over dissolution claims and concluding that
“we need not authoritatively resolve [that issue] at this time”). In any event, however, “federal
courts may decline to exercise their jurisdiction, in otherwise exceptional circumstances, where
denying a federal forum would clearly serve an important countervailing interest.” Quackenbush
v. Allstate Ins. Co., 517 U.S. 706, 716 (1996) (internal quotation marks omitted). One such class
of exceptional circumstances was recognized by the Supreme Court in Burford v. Sun Oil Co., 319
U.S. 315, 332–34 (1943). Pursuant to the Burford abstention doctrine,
Where timely and adequate state-court review is available, a federal court sitting in
equity must decline to interfere with the proceedings or orders of state
administrative agencies: (1) when there are difficult questions of state law bearing
on policy problems of substantial public import whose importance transcends the
42
result in the case at bar; or (2) where the exercise of federal review of the question
in a case and in similar cases would be disruptive of state efforts to establish a
coherent policy with respect to a matter of substantial public concern.
New Orleans Public Service, Inc. v. Council of City of New Orleans, 491 U.S. 350, 361 (1989)
(internal quotation marks omitted).
The Second Circuit has “identified three factors to consider in connection with the
determination of whether federal court review would work a disruption of a state’s purpose to
establish a coherent public policy on a matter involving substantial concern to the public,” which
are as follows: “1) the degree of specificity of the state regulatory scheme; (2) the need to give one
or another debatable construction to a state statute; and (3) whether the subject matter of the
litigation is traditionally one of state concern.” Liberty Mut. Ins. Co. v. Hurlbut, 585 F.3d 639,
650 (2d Cir. 2009) (quoting Hachamovitch v. DeBuono, 159 F.3d 687, 697 (2d Cir. 1998)) (internal
quotation marks omitted). In general, Burford abstention is appropriate when a federal court
determines that “the strong interest in having certain classes of cases, and certain federal rights,
adjudicated in federal court” outweighs “the State’s interests in maintaining uniformity in the
treatment of an essentially local problem.” Quackenbush v. Allstate Ins. Co., 517 U.S. at 728.
A claim for judicial dissolution implicates Burford, “given the comprehensive regulation
of corporate governance and existence by New York.” Friedman, 38 F.3d at 671. The Second
Circuit has explicitly recognized that “New York has a strong interest in the creation and
dissolution of its corporations.” Id. Furthermore, the Second Circuit, in reviewing a district court’s
decision to abstain from exercising jurisdiction over a dissolution claim for abuse of discretion,
has noted that in such cases, abstention “would avoid needless interference with New York’s
regulatory scheme governing its corporations.” Id. In accordance with that rationale, district
courts within this Circuit have routinely, and almost uniformly, elected to exercise Burford
43
abstention over claims for the dissolution of a corporation formed under state law. See, e.g., Mecca
v. Lennon, No. 16-cv-1414, 2017 WL 1410790, at *5 (E.D.N.Y. Apr. 18, 2017); Sojitz Am. Capital
Corp. v. Keystone Equip. Fin. Corp., 88 F. Supp. 3d 59, 62 (D. Conn. 2015); Kermansah v.
Kermansah, 580 F. Supp. 2d 247, 271 (S.D.N.Y. 2008); Feiwus v. Genpar, Inc., 43 F. Supp. 2d
289, 296–98 (E.D.N.Y. 1999); see also Friedman, 38 F.3d at 671 (noting that “every federal court
that has addressed the issue of dissolving state corporations has either abstained or noted that
abstention would be appropriate, assuming that jurisdiction existed”).
Here, it is unnecessary for the Court to reach the merits of Defendants’ jurisdictional
challenge because even assuming that the Court does possess jurisdiction to dissolve WFHC, the
Court finds it proper to abstain from exercising that power. WFHC, a corporation formed under
the laws of the state of New York, is a creature of the state, and its dissolution necessarily
implicates New York’s comprehensive system of corporate governance. The fact that Plaintiffs
say they are pursuing a claim for dissolution under common law, rather than a state statute, (see
Pls. Opp. 4 at 15), does nothing to alter this fact, or New York’s “strong interest in the creation
and dissolution of its corporations.”
Friedman, 38 F.3d at 671.
Moreover, the Court is
unpersuaded by Plaintiffs’ argument that Defendants have waived the right to seek the Court’s
abstention. (See Pls. Opp. 4 at 13–14.) While the Court does not endorse Defendants’ delay in
raising this issue, Plaintiffs have demonstrated neither that waiver of Burford abstention is a
recognized concept in this Circuit, nor that they would be prejudiced by the Court’s exercise of
abstention at this phase in the proceedings. Indeed, Plaintiffs admit that “[i]f the Court abstained
44
from exercising jurisdiction over the dissolution claim, Plaintiffs would be able to re-file the cause
of action in New York Supreme Court, Westchester County." (Pls. Opp. 4 at 14 n.18.)
For the foregoing reasons, the Court finds abstention appropriate as to Plaintiffs'
dissolution claim, without ruling on the issue of subject matter jurisdiction. The portion of
Defendants' motion in limine seeking dismissal of that claim is granted. The Court reserves
decision on the remainder of the motion.
CONCLUSION
For the foregoing reasons, Plaintiffs' motions in limine, (ECF Nos. 273, 275, & 280), are
GRANTED in part and DENIED in part. Defendants' motions in limine concerning evidence
bearing on the question ofliability, (ECF Nos. 264, 268, & 278), are GRANTED in part, DENIED
in part, and RESERVED in part. Defendants' motion in limine which seeks, in relevant part,
dismissal of Plaintiffs' dissolution claim, (ECF No. 286), is granted to the extent that such claim
is dismissed without prejudice to Plaintiffs' asserting the claim in a state court action, and the
Court otherwise reserves decision on all other aspects of the motion. The Court likewise reserves
decision on Defendants' motion in limine seeking to preclude evidence of the theoretical
development of the Winged Foot property, (ECF No. 265).
The Clerk of the Court is directed to terminate the motions at ECF Nos. 273,275,280,264,
268, & 278.
Dated:
December I 'b , 2019
White Plains, New York
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45