Morgan et al v. The Antioch Company Litigation Trust Company
Filing
324
ORDER GRANTING DEFENDANTS LEE MORGAN'S AND ASHA MORAN'S MOTION IN LIMINE TO EXCLUDE EVIDENCE OF THE 2003 TENDER OFFER AND THE 2007-2008 SALE PROCESS (Doc. 310 ). Signed by Judge Timothy S. Black on 5/21/2014. (mr1)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
THE ANTIOCH COMPANY
LITIGATION TRUST,
W. TIMOTHY MILLER, TRUSTEE,
Case No. 3:10cv156
Judge Timothy S. Black
Plaintiff,
vs.
LEE MORGAN, et al.,
Defendants.
ORDER GRANTING DEFENDANTS LEE MORGAN’S AND ASHA MORAN’S
MOTION IN LIMINE TO EXCLUDE EVIDENCE OF
THE 2003 TENDER OFFER AND THE 2007-2008 SALE PROCESS (Doc. 310)
This civil action is before the court on Defendants Lee Morgan and Asha Moran’s
motion in limine to exclude evidence of the 2003 Tender Offer and the 2007-2008 Sale
Process (Doc. 310) and the parties’ responsive memoranda (Docs. 316, 317).
BACKGROUND
There are two claims remaining for trial: (1) Count Three, alleging that Defendant
Asha Moran breached her fiduciary duties as a corporate officer by authorizing payment
of a surety premium to Condor Guaranty, Inc.; and (2) Count Twelve, seeking to recover
allegedly preferential payments made by The Antioch Company to Defendants Lee
Morgan, Steve Bevelhymer, Karen Felix, and Kimberly Lipson-Wilson, while the
Company was insolvent.
Defendants Morgan and Moran seek to exclude all evidence regarding the 2003
Tender Offer and the 2007-2008 Sale Process pursuant to Federal Rules of Evidence 401,
402, and 403.
ANALYSIS
A. Rules 401, 402, and 403
Federal Rule of Evidence 401 defines “relevant evidence” as “evidence having
any tendency to make the existence of a fact that is of consequence to the determination
of the action more probable or less probable than it would be without the evidence.” 1
Even relevant evidence may be excluded if its probative value is substantially
outweighed by the dangers of unfair prejudice, confusing the issues, misleading the jury,
undue delay, wasting time, or needlessly presenting cumulative evidence. Fed. R. Evid.
403. Exclusion under Rule 403 is an extraordinary measure that should be exercised
sparingly. United States v. Morris, 79 F.3d 409, 412 (5th Cir. 1996) (“Because Rule 403
requires the exclusion of relevant evidence, it is an extraordinary measure that should be
used sparingly.”). Courts are “generally reluctant to grant broad exclusions of evidence
in limine, because ‘a court is almost always better situated during the actual trial to assess
the value and utility of evidence.’” Bishop v. Children’s Ctr. for Developmental
Enrichment, No. 2:08cv766, 2011 U.S. Dist. LEXIS 147832, at *1 (S.D. Ohio Dec. 22,
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See also Advisory Committee Notes to 1972 Proposed Rules (“The fact to be proved may be
ultimate, intermediate, or evidentiary; it matters not, so long as it is of consequence in the
determination of the action. The fact to which the evidence is directed need not be in
dispute…Evidence which is essentially background in nature can scarcely be said to involve
disputed matter, yet it is universally offered and admitted as an aid to understanding.”).
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2011). However, a trial court has broad discretion in deciding admissibility issues under
Rule 403. Tschira v. Willingham, 135 F.3d 1077, 1087 (6th Cir. 1998).
B. Count Three
Plaintiff argues that Count Three is not limited to the allegation that Ms. Moran
wasted corporate assets by directly authorizing a premium payment to Condor Guaranty
in 2008. The Trust seeks damages for all premium payments made to the Condor entities
(from 2004-2008), and it also alleges that Moran breached her fiduciary duties of care
and loyalty when she allegedly made material misrepresentations to the ESOP Noteholders in August, September, October, and November 2008.
In denying Moran’s motion for summary judgment on Count Three, this Court
found genuine issues of material fact as to whether Moran breached her fiduciary duties
by failing to encourage the Company to find a different way to adequately secure the
ESOP Notes, by making material misrepresentations to various constituencies, and by
making premium payments of $1.1 million over a four-year period (2004-2008).
(Doc. 203 at 18). 2 However, the Court’s recent decision granting judgment against
Plaintiff on Count Three and in favor of all Defendants but for Ms. Moran (Doc. 301),
forecloses the relevancy of the Tender Offer or Sale Process evidence. In the latter
2
Moran became aware of Condor Insurance’s insolvency no later than January 31, 2008.
(Doc. 203 at 21). Although she knew Condor Insurance was insolvent, she continued to assure
noteholders that Antioch was financially strong and that they were protected by the Condor
guaranties until just days before Antioch filed for bankruptcy. (Id. at 22). This Court previously
found that an issue of fact exists as to whether Moran’s misrepresentations evidence bad faith,
an abuse of discretion, and a personal interest in the transaction, which findings, if returned,
would preclude application of the defense of the business judgment rule. (Id. at 21-22).
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decision, this Court held that Defendants Bevelhymer, Lipson-Wilson, and Felix did not
breach their fiduciary duties with respect to the premium payments made to Condor in
2004, 2005, 2006, and 2007. 3 Specifically, since a decision not to engage Condor would
have been a breach of duty resulting in immediate harm to the Company, the Court found
that engaging Condor for the years 2004-2007 was the “best decision under the
circumstances.” (Doc. 301 at 9). 4 Accordingly, Ms. Moran cannot have breached her
fiduciary duty for payments made to Condor between 2004-2007. The analysis for the
August 2008 payment is different, since Moran knew then that Condor Insurance was
insolvent.
Plaintiff claims that evidence relating to the Sale Process is central to the
misrepresentations, allegedly because to show that these statements were false and
materially misleading, the Trust needs to present evidence of the Sale Process. 5 The
Court disagrees. To the extent that the origin of the notes is relevant to Count Three,
such as the fact that Antioch was required to make periodic payments over five years to
retirees, such information is merely background to which the parties could generally
3
Bevelhymer, Lipson-Wilson, and Felix were not employed by Antioch when the Company
paid Condor Guaranty’s annual bond premium for the ESOP notes in August 2008. (Doc. 263
at ¶¶ 46, 48; Doc. 94 at 24-25).
4
In August 2013, the Court held that “[t]he fact that Condor was supposedly the ‘only surety
willing to provide coverage of the ESOP Notes’…does not make the decision to use Condor a
reasonable exercise of due care.” (Doc. 203 at 21). However, the Court’s April 14, 2014 Order
(Doc. 301) is the Court’s most recent decision, and it comes after the close of both fact and
expert discovery and after the Court’s exclusion of Plaintiff’s expert.
5
Ms. Morgan continued to assure the noteholders that Antioch was financially strong and that
they were protected by the Condor guaranties until just days before Antioch filed for bankruptcy.
(Dep. Exs. 311, 312, 593, 313, 202).
4
stipulate. Plaintiff’s theory that Condor Guaranty was a sham and that Ms. Moran wasted
the Company’s assets by authorizing the August 2008 premium payment to Condor is
distinct from the Tender Offer, which is irrelevant to proving Count Three.
C. Count Twelve
In Count Twelve, the Trust seeks to recover certain payments made to Defendants
Morgan, Bevelhymer, Felix, and Lipson-Wilson, who were admittedly insiders of the
Company, less than a year prior to the Company filing for bankruptcy protection. The
transfer that the Trust seeks to recover from Morgan was a payment on his Subordinated
Note. Morgan received this Subordinated Note as part of the consideration for the shares
he tendered in the 2003 Tender Offer. The transfers that the Trust seeks to recover from
Defendants Bevelhymer, Felix, and Lipson-Wilson are payments made pursuant to
written agreements to accelerate bonuses when it became apparent that the Sale Process
would not result in a sale price that would be sufficient to pay all creditors and leave
value for the shareholders.
Plaintiff claims that the Sale Process is relevant to whether the Company was on
its deathbed, and because the “[e]xpressions of market valuation received by the
Company during the Sale Process are also relevant to the fair valuation” of the Company.
While the Company’s “deathbed” status is relevant to whether its assets are valued for
purposes of a solvency analysis, Plaintiff’s suggestion that it would utilize “expressions
of market valuation” as evidence for the value of the Company was previously prohibited
by the Court. (Doc. 300 at 7-8). Plaintiff can evidence insolvency from the balance
sheet.
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As to the Tender Offer, Plaintiff claims that such evidence is necessary to establish
the intent of the Company and Mr. Morgan with respect to the transfers. However, “it is
well established that the intent of the parties is irrelevant to the preference analysis.”
Gladstone v. Bank of Am. (In re Vassau), 499 B.R. 864, 868 (Bankr. S.D. Cal. 2013).
CONCLUSION
Accordingly, for these reasons, Defendants’ motion in limine to exclude evidence
of the 2003 Tender Offer and the 2007-2008 Sale Process (Doc. 310) is GRANTED.
The parties shall work cooperatively to write a stipulation for general background
information and context.
IT IS SO ORDERED.
Date: 5/21/14
/s/ Timothy S. Black
Timothy S. Black
United States District Judge
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