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holding that motions in limine should "rarely seek to exclude broad categories of evidence, as the court is almost always better situated to rule on evidentiary issues in their factual context during trial"
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Master File No. CV 01-11115 RSWL (CWx).
January 25, 2011
ORDER
Before the Court are Lead Plaintiff California State Teachers Retirement System's ("Plaintiff") Omnibus Motions in Limine and Defendant Stuart H. Wolff's ("Defendant") Motions in Limine Numbers 1 through 17 [1218, 1219, 1223, 1224, 1225, 1226, 1228, 1229, 1230, 1231, 1232, 1233, 1234, 1235, 1236, 1237, 1238.] After considering all papers and arguments submitted, the Court NOW FINDS AND RULES AS FOLLOWS:
I. Plaintiff's Motion in Limine
Plaintiff brings these Omnibus Motions in Limine, requesting the Court exclude eight types of evidence from Trial and issue an Order affirming Plaintiff's right to admit former trial and deposition testimony from unavailable witnesses at Trial.
1. Plaintiff's Motion in Limine No. 1
The Court GRANTS Plaintiff's Motion in Limine Number 1 to exclude reference to or evidence of Plaintiff's financial condition and other litigation. Evidence of a party's financial condition is generally not relevant and can be unduly prejudicial, as it can distract the jury from the real issues in the case. See, e.g., Utility Trailer Sales of Kansas City, Inc. v. MAC Trailer Mfg., Inc., 2010 WL 1946625 (D. Kan., May 14, 2010). Accordingly, the Court finds that references to and evidence of Plaintiff's financial condition should be excluded. Further, reference to or evidence of Plaintiff's involvement in other litigation prior to this Action is also irrelevant and carries with it a high risk of prejudice. See, e.g., Ritten v. Lapeer Regional Medical Center, 2010 WL 374163, *8 (E.D. Mich., Jan. 25, 2010). As such, the Court also excludes reference to or evidence of Plaintiff's involvement in prior lawsuits.
Therefore, the Court GRANTS Plaintiff's Motion in Limine Number 1 to exclude reference to or evidence of Plaintiff's financial condition and other litigation.
2. Plaintiff's Motion in Limine No. 2
The Court GRANTS Plaintiff's Motion in Limine Number 2 to exclude settlement communications. Defendant does not oppose this Motion, and evidence of settlement communications is inadmissible under Federal Rule of Evidence 408. Fed.R.Evid. 408.
3. Plaintiff's Motion in Limine No. 3
The Court GRANTS Plaintiff's Motion in Limine Number 3 to exclude reference to or evidence of amount of settlement with previous defendants.
Federal Rule of Evidence 408 excludes complete compromises with third parties and prior defendants. Fed.R.Evid. 408. See Young v. Verson Allstate Press Co., 539 F. Supp. 193, 195-96 (D.C. Pa. 1982). Moreover, the Court finds that evidence of the amount of prior settlements is not relevant here and is prejudicial. See Pucci v. Litwin, 1993 WL 405448, *1 (N.D. Ill., Oct. 4, 1993).
Accordingly, the Court GRANTS Plaintiff's Motion in Limine Number 3 to exclude reference to or evidence of amount of settlement with previous defendants.
However, the Court cautions the Parties that evidence of prior settlements is not excluded for purposes of making a determination as to whether to offset any damages that the jury may assign to Defendant.
4. Plaintiff's Motion in Limine No. 4
The Court DENIES Plaintiff's Motion in Limine Number 4 to exclude character evidence regarding Defendant Wolff pursuant to Federal Rule of Evidence 404(a).
The Court finds Plaintiff's request as over-broad and vague, and therefore inappropriate for review at the motion in limine stage. See Colton Crane Co., LLC v. Terex Cranes Wilmington, Inc., 2010 WL 2035800, (C.D. Cal. May 19, 2010) (holding that motions in limine should "rarely seek to exclude broad categories of evidence, as the court is almost always better situated to rule on evidentiary issues in their factual context during trial").
Accordingly, the Court DENIES Plaintiff's Motion in Limine Number 4 to exclude character evidence regarding Defendant Wolff pursuant to Federal Rule of Evidence 404(a).
5. Plaintiff's Motion in Limine No. 5
The Court DENIES Plaintiff's Motion in Limine Number 5 to exclude Defendant from offering expert testimony through deposition testimony rather than through live witness testimony.
The Court finds that Plaintiff has not met its burden here to show that the deposition testimony of all experts should be excluded at this time. See Pucci v. Litwin, 1993 WL 405448 (N.D. Ill., Oct. 4, 1993) (denying plaintiffs' motion in limine to exclude all deposition testimony because plaintiff had not proven that under any circumstances the testimony would be admissible).
Therefore, the Court DENIES Plaintiff's Motion in Limine Number 5 to exclude Defendant from offering expert testimony through deposition testimony rather than live witness testimony.
6. Plaintiff's Motion in Limine No. 6
The Court GRANTS Plaintiff's Motion in Limine Number 6 to exclude John Costello's ("Costello") deposition testimony. Plaintiff had previously designated Costello as an expert leading up to the previously scheduled Trial in this Action, but now does not plan on calling Costello to testify at this Trial [1202]. However, Defendant seeks to introduce the deposition testimony of Costello at Trial [1200].
The Court finds that Federal Rule of Civil Procedure 26(b)(4)(B) precludes the use of this deposition testimony by Defendant, as Plaintiff had previously designated Costello as an expert witness, is no longer calling him to testify, and Defendant has not demonstrated that "exceptional circumstances" exist here to enable Defendant to use this deposition testimony. Fed.R.Civ.P. 26(b)(4)(B). See Otsuka v. Polo Ralph Lauren Corp., 2010 U.S. Dist. LEXIS 25017 (N.D. Cal. Mar. 17, 2010); FMC Corp. v. Vendo Co., 196 F. Supp. 2d 1023, 1036 (E.D. Cal. 2002) (applying the "exceptional circumstances" test under Rule 26(b)(4)(B) to determine whether to exclude plaintiff's request to depose and offer testimony from defendant's previously disclosed expert witness). Defendant states that Costello's testimony concerns the auditing practices of PricewaterhouseCoopers, but the Court finds that this is not a unique field of expertise and Defendant could have designated other experts to testify on this matter. See Rubel v. Eli Lilly Co., 160 F.R.D. 458, 460 (S.D.N.Y. 1995) (noting that "[i]f this were a case in which the expert sought to be called possessed unique evidence, plaintiff's case [to admit expert testimony previously designated by defendant] would have considerabl[y] [more] appeal").
Therefore, the Court GRANTS Plaintiff's Motion in Limine Number 6 to exclude John Costello's ("Costello") deposition testimony.
7. Plaintiff's Motion in Limine No. 7
The Court DENIES Plaintiff's Motion in Limine Number 7 to exclude evidence relating to individualized issues of the Class Representative. Plaintiff seeks to exclude any evidence regarding Plaintiff's individual reliance, arguing that it will be able to use the "fraud on the market" theory to show that the class of Homestore shareholders, as a whole, suffered damages as a result of Defendant's conduct.
The Court finds that this Motion is pre-mature, as Plaintiff must first establish it is entitled to use the "fraud on the market" theory in order to establish that the class, as a whole, suffered damages here before it can show that evidence relating to Plaintiff's individualized proof of reliance is not relevant.See Basic Inc. v. Levison, 485 U.S. 224, 247 (1988).
Accordingly, the Court DENIES Plaintiff's Motion in Limine Number 7 to exclude evidence relating to individualized issues of the Class Representative.
8. Plaintiff's Motion in Limine No. 8
The Court DENIES Plaintiff's Motion in Limine Number 8 to exclude arguments or evidence by Defendant that he is not liable for 10b-5 violations between May 15, 2001 to December 21, 2001 and that the jury be instructed that Defendant must be found liable for 10b-5 violations between May 15, 2001 to December 21, 2001.
The Court finds that Plaintiff has failed to establish that Defendant's guilty plea meets all of the criteria that must be satisfied in order to enable Plaintiff to utilize the collateral estoppel doctrine here to establish Defendant's Section 10(b) violation for the requested period of time. See United States v. Real Prop. Located at Section 18, 976 F.2d 515, 519 (9th Cir. 1992).
Specifically, Plaintiff has failed to show that the issue on which it now offers Defendant's conviction and plea agreement, the issue of his liability for the Section 10(b) violations, is identical to those issues decided by Defendant's plea agreement and conviction. The Court finds that the plea agreement and conviction did not address all the required elements in Plaintiff's 10b-5 claim, such as reliance or economic loss.
As such, the Court DENIES Plaintiff's Motion in Limine Number 8 to exclude arguments or evidence by Defendant that he is not liable for 10b-5 violations between May 15, 2001 to December 21, 2001 and that the jury be instructed that Defendant must be found liable for 10b-5 violations between May 15, 2001 to December 21, 2001.
9. Plaintiff's Motion in Limine No. 9
Plaintiff's Motion in Limine Number 9 for an Order that testimony given during Defendant's 2006 criminal trial is admissible is DENIED AS MOOT, as Plaintiff has now withdrawn this Motion.
10. Plaintiff's Motion in Limine No. 10
Plaintiff's Motion in Limine Number 10 for an Order that deposition testimony given in this Case is admissible where the witness is shown to be unavailable is DENIED AS MOOT, as Plaintiff has now withdrawn this Motion.
II. Defendant's Motions in Limine
Defendant Stuart H. Wolff brings the following 17 Motions in Limine.
1. Defendant's Motion in Limine No. 1
The Court DENIES Defendant's Motion in Limine Number 1 to Decertify "Dismissed Defendants" Subclass and/or to Exclude from Plaintiff Class AOL Time Warner, David Colburn, Eric Keller, Cendant Corporation, Richard A. Smith L90, Inc.
On November 16, 2004, this Court granted then-Defendant PricewaterhouseCoopers' Motion for an Order establishing a Subclass of "Dismissed Defendants" [693]. These "Dismissed Defendants" are persons or entities who were at one point Defendants in this case, but were dismissed from the Action with prejudice.
The Court finds the November 16, 2004 Order [693] properly certified this subclass of "Dismissed Defendants," and that nothing has changed since this Order to necessitate a decertification here.
Accordingly, Defendant's Motion in Limine Number 1 to Decertify "Dismissed Defendants" Subclass and/or to Exclude from Plaintiff Class AOL Time Warner, David Colburn, Eric Keller, Cendant Corporation, Richard A. Smith L90, Inc. is DENIED.
2. Defendant's Motion in Limine No. 2
The Court DENIES Defendant's Motion in Limine Number 2 to exclude from the Plaintiff Class all persons who received a distribution from the settlement with Time Warner, Inc.
Defendant argues that the class members who accepted a distribution from the settlement between Plaintiff and Time Warner, Inc. after receiving the August 24, 2007 notice of this proposed settlement agreement ("Notice") have waived their claims against Defendant and should therefore be excluded from the Plaintiff Class. Defendant argues that the terms in this Notice informed the Class Members they would be releasing all claims against the "Released Time Warner Parties," which was defined as "Time Warner Inc. . . . and any of its or their present or former . . . shareholders." [Declaration of Howard Privette ("Decl. Privette") in support of Defendant's Motion in Limine No. 2, Exh. C at 21.] Defendant argues that because he was a shareholder of AOL Time Warner, Inc., now known as Time Warner, Inc., prior to this settlement and remains a shareholder of Time Warner, Inc. to this date, the members of the Class who accepted the settlement have therefore waived their claims against Defendant.
This particular settlement agreement is governed by California law. [Decl. Privette in support of Defendant's Motion in Limine No. 2, Exh. B at 18.] Under California law, an individual who is not a party to the release or settlement agreement can still enforce that agreement. Vahle v. Barwick, 93 Cal. App. 4th 1323, 1328 (2001). However, the "burden is on the third party to prove the parties to the release agreement intended to benefit the third party," and the third party must "affirmatively show that the parties intended to release him." Id.
The Court finds that Defendant has not met his burden to prove that the parties to the settlement agreement intended to benefit Defendant by releasing all claims against him by virtue of his position as a shareholder of Time Warner, Inc. Specifically, the settlement agreement states that the "remaining claims against . . . [Defendant] are not being settled or compromised by this settlement and will continue to be prosecuted by [Plaintiff] on behalf of the Class." [Decl. Privette in support of Defendant's Motion in Limine No. 2, Exh. B at 3.] Moreover, under the circumstances, it is not likely that the parties to this agreement intended to release him from liability through this settlement, as claims against him for the same conduct were still pending at this time. See Vahle, 93 Cal. App. 4th at 1328 (looking to motives of the parties in examining whether there was an intent to release the third party).
Defendant argues that this specific language is not controlling, as it was not in the Notice. However, the Court finds that Defendant's arguments here that the Notice prevails over the actual settlement agreement are unpersuasive, as class members are "not expected to rely upon notices as a complete source of settlement information, and courts have held that "[a]ny ambiguities regarding the substantive aspects of the settlement could be cleared up by obtaining a copy of the agreement." Grunin v. Int'l House of Pancakes, 513 F.2d 114, 112 (5th Cir. 1995).
Accordingly, the Court DENIES Defendant's Motion in Limine Number 2 to exclude from the Plaintiff Class all persons who received a distribution from the settlement with Time Warner, Inc.
3. Defendant's Motion in Limine No. 3
The Court DENIES Defendant's Motion in Limine Number 3 to exclude evidence of Homestore's financial restatements.
Defendant seeks to exclude evidence regarding the Restatement of Homestore's financial reports for the year 2001 and the first three quarters of 2001 (hereinafter, "Restatement"). As part of an internal investigation initiated in late 2001, Homestore formed a committee of various outside accountants and attorneys in order to review Homestore's accounting practices and certain past business transactions. In 2002, after Defendant had left the company, this committee concluded that the accounting decisions at issue were improper, and determined that Homestore should issue restated financial records for fiscal year 2000 and the first three quarters of fiscal year 2001, subsequently filing the Restatement at issue here with the Securities and Exchange Commission ("SEC"). This Restatement lays out that the history of this investigation and states that certain transactions had been improperly recorded. [Decl. Privette in support of Defendant's Motion in Limine No. 3, Exh. A.]
Defendant first argues that evidence of the Restatements is inadmissible under Federal Rule of Evidence 407, as it is a subsequent remedial measure by Homestore's accountants and lawyers. However, the Court finds that the Restatement is not a subsequent remedial measure under Federal Rule of Evidence 407 because it was not voluntary, given the Restatement was "mandated by federal securities laws." See U.S. SEC v. Battenberg, 2010 WL 3835760 (E.D. Mich. Sept. 24, 2010). Further, Homestore's Restatement does not meet the plain language or policy of Rule 407, as the Restatement was not a voluntary remedial measure but instead a required corrective action under both SEC regulations and the guidelines in the Generally Accepted Accounting Principles. See SEC v. Uzzi, 2003 WL 1342962 (S.D. Fla. Jan. 21, 2003) (holding that Defendant's financial restatement . . . [was] not at all voluntary, and thus, neither the intent nor the policy underlying Rule 407 support exclusion of this material").
Defendant also argues that the Restatement is inadmissible hearsay and not a business record under Federal Rule of Evidence 803(6). The Court finds this argument unpersuasive and that the Restatement is a business record under Rule 803(6). Fed.R.Evid. 803(6). Specifically, the Restatement was made at or near the time of the accounting investigation by those with knowledge of the company's books, the circumstances of its creation do not indicate a lack of trustworthiness, and the Restatement was created and kept in the regular business practice of the company, as the company had a duty to file restated financial statements with the SEC. See Fed.R.Evid. 803(6). See also In re Worldcom, Inc. Securities Litigation, 2005 U.S. Dist. LEXIS 2215, *18-24.
Finally, Defendant has not shown that the probative value of this Restatement is substantially outweighed by the risk of prejudice to Defendant. See id., 2005 U.S. Dist. LEXIS 2215 at *29 (noting that "evidence that prior statements were inaccurate "does not mean that [defendant] will suffer any unfair prejudice from [plaintiff's] possession of persuasive evidence").
Accordingly, the Court DENIES Defendant's Motion in Limine No. 3 to exclude the Restatement.
4. Defendant's Motion in Limine No. 4
The Court GRANTS WITHOUT PREJUDICE Defendant's Motion in Limine Number 4 to exclude the March 29, 2002 Investigation Report of the Audit Committee of Homestore.com ("Cahill Report").
As noted above, in 2001, Defendant initiated an internal investigation into various accounting practices and transactions at issue here. The Audit Committee of Homestore's Board of Directors eventually hired outside special counsel from the law firm of Cahill, Gordon and Reindel ("Cahill") and the forensic accounting firm of FTI Simpson to continue this investigation. Upon completion of this investigation, a report was prepared by Cahill: the Cahill Report. This Report contains a compilation of documents, including memorandum describing interviews of Homestore employees, summaries of Homestore's transactions, and other documents such as wire transfers and agreements. This Report summarizes the reasons for Homestore's restatement of revenues associated with a certain number of its business transactions. Plaintiff's seek to admit evidence from this Report regarding the investigation into the nature of all of Homestore's revenue transactions during the years 2000 to 2001 and the final determination of the necessary restatements to Homestore's financial statements.
Defendant first argues the Cahill Report is inadmissible under Federal Rule of Evidence 407 because it is a subsequent remedial measure. However, the Court finds that the Cahill Report is not a subsequent remedial measure under this Rule. The Report was not created for the purpose of "improving the procedures and controls relating to [Homestore's] transaction system," unlike the audit report in Alimenta (U.S.A.), Inc. v. Stauffer that was found to be a subsequent remedial measure under Rule 407. 598 F. Supp. 934, 941 (D.C. Ga. 1984). Instead, the Report here was made in response to the alleged improprieties and for the purposes of investigating the transactions, not to improve any accounting at Homestore. As such, the Report does not constitute a subsequent remedial measure within the realm of Rule 407. Fed.R.Evid. 407.
However, the Court finds that the Cahill Report contains documents and statements that constitute hearsay. The Report contains many statements and interviews with unknown individuals, and Plaintiff is seeking to offer evidence from this Report to prove the truth of the matter asserted within these documents: Homestore's and Defendant's past fraudulent practices and activities. Plaintiff argues this Report falls within the exception under Federal Rule of Evidence 804(6) for a business record. However, the Court finds that this Report does not meet the requirements in order to constitute a business record pursuant to this Rule. First, the Court finds that the Cahill Report is not a record of a regularly conducted business activity, as it does not "reflect[] the accounting work done."Paddack v. Dave Christenson is instructive here. In Paddack, the trustees of the trust fund suspected that the employer's records were incorrect, and they employed an audit company to perform an audit of the employer's contributions. 745 F.2d 1254, 1256-57 (9th Cir. 1984). The auditors were requested to determine the extent of the employer's compliance with the agreements, and ultimately the report and summaries in the report asserted that the employers had wrongfully failed to contribute to the funds.Id. at 1257. The Ninth Circuit held that the report was not admissible under the business records exception, because it was not made or kept in the ordinary course of business, as the audit was in response to the suspicion of irregularities. Id. at 1258. Here, the Cahill Report, like the audit report in Paddick, was not just a regular audit report. Instead, it was made in response to irregular transactions, and moreover, was likely made in anticipation of and preparation for this current litigation. Id. Therefore, the Court finds that the Report was not made in the normal, regular course of business, as required by Federal Rule of Evidence 804(6).
In addition, the Court finds that the Report lacks the requisite indicia of trustworthiness, as at least one individual interviewed during the investigation that ultimately produced the Report later admitted that he had lied during this interview. See id. (noting that in finding the audit report not a business record that "substantial evidence exists that the summaries were untrustworthy. . . . [for example] the Employer's cross-examination of the accountant supervisor revealed inaccuracies in the audit report").
Moreover, the Court finds that the Cahill Report has not been authenticated pursuant to Federal Rule of Evidence 901. There are no declarations or other testimony here to authenticate this document, and the Court finds Plaintiff's argument here that the Cahill Report is properly authenticated based on the submitted deposition testimony of Adam Zurofsky and Sally Knutson is unpersuasive. This deposition testimony only authenticates the general scope and description of the Report, not the two-thousand plus pages of interviews, memorandum, or items that are being offered by Plaintiff according to the exhibit list [1203].
As such, the Court GRANTS WITHOUT PREJUDICE Defendant's Motion in Limine Number 4 to exclude the Cahill Report at this time.
5. Defendant's Motion in Limine No. 5
The Court DENIES Defendant's Motion in Limine Number 5 to exclude the loss causation and damages Opinions of Plaintiff's designated expert Jane Nettesheim ("Nettesheim").
In order for expert testimony to be admissible under Federal Rule of Evidence 702, it must be scientifically valid and assist the trier of fact. United States v. Ginn, 87 F.3d 367, 370 (9th Cir. 1996) (citing Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579, 592-600 (1993). See also Fed.R.Evid. 702. Moreover, "under the [Federal Rules of Evidence] the trial judge must ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable." Daubert, 509 U.S. at 589.
Defendant argues that Nettesheim's opinions on loss causation and damages are unreliable and contrary to law after the Supreme Court's holding in Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005). Specifically, Defendant argues that Nettesheim employs an improper legal standard and premises her damage analysis on the theory of loss causation rejected by the Supreme Court in Dura: that price inflation at purchase itself causes damages.
In Dura, the Supreme Court held that a private plaintiff who claims securities fraud must prove that the defendant's fraud caused an economic loss. Id. at 342. Specifically, the plaintiff must demonstrate a causal connection between the deceptive acts that form the basis for the claim of securities fraud and the injury suffered by the plaintiff. In re Daou Sys., 411 F.3d 1006, 1025 (9th Cir. 2005).
The Court finds that Nettesheim's opinions are not contrary to the Supreme Court's holding in Dura, as Nettesheim does not base her damage methodology solely on the price of inflation at the time of the stock purchase. Instead, the expert report shows that Nettesheim uses an event study and regression analysis to determine the effect of the alleged misrepresentations and corrective disclosures on the inflated price of the stock. As the Supreme Court in Dura held that the inflated purchase price alone is not sufficient to show loss causation, Defendant's arguments here regarding Nettesheim's methodology and use of inflation are unpersuasive.
Moreover, the Court finds that Nettesheim's opinions show the requisite causal nexus between the alleged fraud misrepresentations and the economic loss. In re DVI, Inc., Sec. Litig., 2010 WL 3522090, *12 (E.D. Pa. Sept. 3, 2010) (stating that courts require that a loss causation expert explain how the truth of fraudulent behavior was revealed to the market and "link this revelation to a corresponding loss"). Specifically, Nettesheim identifies the four corrective disclosures that she explains revealed the truth of Homestore's fraudulent behavior to the market, and also explains how she then used these disclosures in determining the effect of the alleged misrepresentations and omissions on Homestore's stock price. This is sufficient to show loss causation here, as the Court finds that there is a logical connection between these disclosures and the claim of damages resulting from the underlying fraud. See In re Vivendi Univ., 634 F. Supp. 2d 352 at 364 (noting that corrective disclosures only need to reveal an aspect of the fraud and that the alleged fraud is not always revealed through one correction).
Next, Defendant attacks Nettesheim's report and opinions for failing to take into consideration outside, non-fraud related factors that may have affected the price of the stock. However, the Court finds these arguments unpersuasive, as Nettesheim's expert report expressly states that her regression analysis distinguishes between loss attributable to alleged fraud and loss attributable to non-fraud related news and events. [Decl. Sterrett in Opposition to Defendant's Motion in Limine No. 5, Exhs. 3, 9-11.] As a result, Nettesheim makes an attempt to account for other possible causes, and her opinions therefore meet the reliability threshold requirement
Accordingly, Defendant's Motion in Limine to exclude Nettesheim's loss causation and damages opinions is DENIED.
However, with respect to the issue of Nettesheim's use of the trading model to calculate damages, the Parties both acknowledge that the real data is available here and that they can make estimates with this data and present per-share damages to the jury. Given the potential issues with using a trading model that are outlined in In re Broadcom Corp. Securities Litigation, such as potential for error and questionable accuracy, along with the fact that the data is available here given the prior settlements in this Action, the Court orders that the Parties use a per-share presentation of damages. 2005 WL 1403756 (C.D. Cal. June 3 2005) (holding that per share damages estimate should be used because "the Court can easily use the claims administration process to supply the remaining information to calculate an accurate, reliable total damage figure and payout").
6. Defendant's Motion in Limine No. 6
The Court DENIES Defendant's Motion in Limine Number 6 to exclude evidence of and reference to Defendant's plea agreement.
Defendant entered into a binding plea agreement with the United States Attorney's Office on January 1, 2010. Defendant pled guilty to criminal conspiracy in violation of 18 U.S.C. § 371.
Criminal conspiracy under this statute occurs when "two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy. . . ." 18 U.S.C. § 371.
First, as the Court may take judicial notice of this plea agreement pursuant to Federal Rule of Evidence 201, the Court finds that general references to the existence of this plea agreement itself are admissible. Fed.R.Evid. 201. See Scholes v. Lehmann, 56 F.3d 750, 762 (7th Cir. 1995).
Under Federal Rule of Evidence 803(22), "evidence of a final judgment, entered after a trial or upon a plea of guilty, adjudging a person guilty of a crime punishable by death or imprisonment in excess of one year," is admissible "to prove any fact essential to sustain the judgment." Fed.R.Evid. 803(22).
The Court finds that the plea agreement is admissible under Federal Rule of Evidence 803(22), as it meets the above requirements. Therefore, the plea agreement can be used to prove facts that were essential to sustain the judgment. Further, courts have held that admissions in a plea agreement constitute non-hearsay party admissions, and therefore the Court finds that the factual admissions in Defendant's plea agreement are admissible on these grounds as well. See Fed.R.Evid. 801(d)(2). See, e.g., Country Mutual Ins. Co. v. Duncan, 794 F.2d 1211, 1215 (7th Cir. 1986).
Defendant argues that the facts contained in the plea agreement are not relevant to the determination of Defendant's liability, claiming that conspiracy to commit securities fraud is insufficient to state a claim for Section 10(b). In the plea agreement, Defendant admits that he signed 10-Qs on May 15 and August 14, 2001 that contained false and misleading representations and omitted material facts regarding the company's revenue results. [Decl. Privette in support of Defendant's Motion in Limine No. 6, Exh. A.] The Court finds that these admitted facts are relevant to the issue of whether Defendant made material misrepresentations with scienter, elements that Plaintiff must prove to establish a Section 10(b) violation here. While Plaintiff is incorrect that this plea conclusively establishes Defendant's liability here, as noted in the Court's ruling above on Plaintiff's Motion in Limine Number 8, the facts contained in this plea agreement are probative and relevant to the determination of the outcome here. See In re Bristol-Myers Squibb Co. Sec. Litig., 586 F. Supp. 2d 148, 170 (S.D.N.Y. 2008). See also Palmerin v. City of Riverside, 794 F.2d 1409, 1414 (9th Cir. 1986).
Defendant stresses that the plea should be excluded under Federal Rule of Evidence 403 because the jury will be confused and equate a guilty plea of conspiracy with civil liability. However, the Court finds this argument unpersuasive, as cautionary jury instructions can be used to counter these concerns. Moreover, Defendant will also have the opportunity at Trial to stress that Defendant's guilty plea does not establish his liability in this civil Action. Finally, the risk of prejudice here is not substantial when compared to other situations in which courts have excluded plea agreements on prejudicial grounds, such as when the plea has been withdrawn or when the terms in the agreement have an "undue tendency to suggest decision on an improper basis." See, e.g., U.S. v. Alama, 486 F.3d 1062, 1065 (8th Cir. 2007).
7. Defendant's Motion in Limine No. 7
The Court DENIES Defendant's Motion in Limine Number 7 to exclude opinions and testimony of Ruben A. Davila ("Davila"). Plaintiff has designated Davila to testify on the issue of appropriate accounting standards that a corporate Chief Executive Officer should adhere to in the management of a public company.
The Court finds that based on Davila's report, Davila has made the requisite showing that his testimony and opinions qualify as scientific knowledge that will assist the trier of fact to understand or determine a fact in issue in this case. Specifically, Davila has provided the requisite information to prove that his research is legitimately scientific, and has extensive experience in the area of accounting. Moreover, an examination of his expert report illustrates how his opinions are based on his own research of financial statements relevant to this case and that his research is legitimately scientific.
With regard to the relevance inquiry outlined in Daubert, that requirement is met here. Plaintiffs intend to offer Davila's expert testimony to establish what a CEO should know and do in regards to the financials of a company. The Court finds that such information will assist the jury in this case in determining the ultimate issue of whether Defendant had the scienter necessary to establish a violation of Section 10(b).
As such, Davila's testimony meets the requirements set forth inDaubert, and Defendant's Motion in Limine Number 8 to exclude his opinions and testimony is DENIED.
However, Plaintiff is cautioned that Davila will not be able to testify to legal conclusions at trial. See Crow Tribe of Indians v. Raciot, 87 F.3d 1039, 1045 (9th Cir. 1996) (noting that "[e]xperts interpret and analyze factual evidence. They do not testify about the law"). Specifically, Davila is not to be permitted to state any opinion that Defendant knew or must have known about alleged accounting improprieties at Homestore.
8. Defendant's Motion in Limine No. 8
The Court DENIES Defendant's Motion in Limine Number 8 to exclude opinions of Alfred E. Osborne ("Osborn"). Osborne is designated to testify regarding corporate governance, fiduciary duties owed by corporate officers and whether Defendant met his fiduciary duties.
The Court finds that Osborne's testimony qualifies as scientific knowledge that will assist the trier of fact in understanding or determining a fact in issue in this case, as Plaintiff has made the requisite showing as outlined in Daubert to prove that his method is scientifically reliable.
Moreover, the Court finds that Osborne's opinion should provide helpful testimony to the jury on the appropriate standard of behavior a CEO owes its company and shareholders. Osborne's testimony with regard to the standard of behavior would be more probative than prejudicial and relevant to the issue of corporate governance which may impact the ultimate issue of this case of whether Defendant had the scienter necessary to establish a violation of Section 10(b).
However, as noted above, Plaintiff is cautioned that Osborne will not be able to testify to legal conclusions at trial. See Crow, 87 F.3d at 1045.
9. Defendant's Motion in Limine No. 9
The Court GRANTS Defendant's Motion in Limine Number 9 to exclude Joseph Shew's "Notes," as Plaintiff's do not oppose this Motion.
10. Defendant's Motion in Limine No. 10
The Court DENIES Defendant's Motion in Limine Number 10 to exclude cumulative expert testimony.
Defendant moves for an Order stating that Plaintiff may only present testimony of at most one expert on the issue of whether Homestore stock traded on an efficient market and that Plaintiff may only present testimony of at most one expert on the issue of whether Defendant had knowledge of any of the alleged wrongdoing at Homestore. Plaintiff has designated two expert witnesses to testify on each of these issues.
The Court finds that Defendant has not shown that the testimony from Plaintiff's four designated expert witnesses will be cumulative. The expert reports show that these experts are slated to testify about different issues within these two general subject matters. Therefore, there is not a substantial risk of prejudice in presenting these experts, nor is there a risk of waste of judicial resources should Plaintiff present all four experts to testify at Trial.
Accordingly, the Court DENIES Defendant's Motion in Limine Number 10 to exclude cumulative expert testimony.
11. Defendant's Motion in Limine No. 11
The Court GRANTS IN PART AND DENIES IN PART Defendant's Motion in Limine Number 11 to exclude evidence regarding Defendant's stock sales and financial condition.
The Court GRANTS Defendant's Motion with respect to evidence and reference to Defendant's financial condition. As noted above, this type of evidence is irrelevant and prejudicial, and Plaintiff does not oppose this request. See In re Global Health Sciences, 2007 WL 4591679, *3 (C.D. Cal. August 21, 2007) (excluding reference to the defendant's financial condition). With regard to references to Defendant's stock sales, Plaintiff does not oppose this Motion, and therefore the Court GRANTS Defendant's Motion with respect to these references. However, the Court DENIES Defendant's Motion insofar as Defendant requests to exclude references to the amount of stock Defendant held during the Class Period, as this is relevant to the issue of Defendant's motive and scienter during the Class Period.
12. Defendant's Motion in Limine No. 12
The Court DENIES Defendant's Motion in Limine Number 12 to prevent the introduction of evidence or references to Lead Plaintiff as "teachers" or a pension fund for "teachers." The Court finds that Defendant has not sufficiently shown that use of this term will be prejudicial under Federal Rule of Evidence 403.
13. Defendant's Motion in Limine No. 13
The Court DENIES Defendant's Motion in Limine Number 13 to prevent references to the Lead Plaintiff and the Plaintiff Class as "victims."
The Court finds that Defendant has not sufficiently shown that use of this term will be prejudicial under Federal Rule of Evidence 403. See Sears v. PHP of Alabama, Inc. 2006 WL 1223302, *3 (M.D. Ala., May 5, 2006) (denying defendant's motion in limine to exclude the word "victim" because defendant did not sufficiently prove the use of this term would be prejudicial).
Therefore, the Court DENIES Defendant's Motion in Limine Number 13 to prevent references to Plaintiffs as "victims."
14. Defendant's Motion in Limine No. 14
The Court GRANTS Defendant's Motion in Limine Number 14 to exclude evidence or references regarding unrelated corporate "scandals."
Defendant moves to exclude evidence or references to unrelated corporate "scandals," such as the Enron scandal or the Madoff scheme. The Court finds that evidence and reference to these unrelated scandals are not relevant to the Action at hand, and any such reference would be prejudicial to Defendant. See CDX Liquidating Trust ex rel. CDX Liquidating Trustee v. Venrock Associates, 411 B.R. 591, 605-06 (N.D. Ill. 2009). See also Sabratek Liquidating LLC v. KPMG LLP, 2003 WL 22715820, *6 (N.D. Ill., Nov. 18, 2003) (holding that improper conduct at other firms had little relevance to the defendant's conduct at issue, and any of its probative value was substantially outweighed by the risk of unfair prejudice).
Therefore, the Court GRANTS Defendant's Motion in Limine Number 14 to exclude evidence or references regarding unrelated corporate "scandals."
However, evidence and references to these past "scandals" are admissible insofar as they are used to provide foundation for Plaintiff's expert witnesses' qualifications, such as their past experiences and work, including work on other corporate "scandals."
15. Defendant's Motion in Limine No. 15
The Court DENIES Defendant's Motion in Limine Number 15 to exclude evidence and speculation concerning transactions involving SPD LLC and Translations.com.
The Court finds that Defendant has not sufficiently shown that this evidence is irrelevant and prejudicial. Moreover, any concerns over the strength or credibility of Plaintiff's evidence on this issue are better addressed by the trier of fact in the trial setting. See Bado-Sanatana v. Ford Motor Co., 364 F. Supp. 2d 79 (D. Puerto Rico, 2005) (noting that issues of credibility are not normally determined in motions in limine.). See also Pulsipher v. Clark Cty., 2010 5437252, *2 (D. Nev., Dec. 27, 2010) (stating that "a motion in limine should not be used to . . . weigh evidence").
Therefore, the Court DENIES Defendant's Motion in Limine Number 15 to exclude evidence and speculation concerning transactions involving SPD LLC and Translations.com.
16. Defendant's Motion in Limine No. 16
The Court DENIES Defendant's Motion in Limine Number 16 to limit Plaintiff's evidence and arguments to the fourteen transactions identified by Plaintiff in response to the Court's Scheduling Order.
Defendant seeks to limit Plaintiff's evidence and arguments at Trial to the fourteen transactions that were identified by Plaintiff on October 31, 2003, in response to the Court's July 28, 2003 Scheduling Order [253]. The Court finds that this Motion is over-broad in terms of excluding all evidence and arguments except those which pertain to these fourteen transactions. Moreover, Defendant mis-categorizes Plaintiff's identifications here, as Plaintiff identified fourteen categories of transactions, not just fourteen transactions in general, and it should therefore be able to present argument and evidence relating to these disclosed categories.
Accordingly, the Court DENIES Defendant's Motion in Limine Number 16 to limit Plaintiff's evidence and arguments to the fourteen transactions identified by Plaintiff in response to the Court's Scheduling Order.
17. Defendant's Motion in Limine No. 17
The Court GRANTS IN PART AND DENIES IN PART Defendant's Motion in Limine Number 17 to exclude testimony from and evidence relating to parallel criminal and SEC proceedings, including judgments and assertions of Fifth Amendment privileges.
Defendant seeks to preclude the admission of testimony from and evidence and references relating to the parallel criminal and SEC proceedings that involve Defendant and other Homestore personnel, including testimony and judgments in such proceedings, as well as the fact that the individuals exercised their Fifth Amendment rights in this and other proceedings.
The Court first DENIES this Motion insofar as Defendant attempts to exclude any and all evidence or reference to these proceedings, including the complaints, indictments, and other evidence, as this request is over-broad and Defendant has not provided the Court with the specific evidence claimed to be inadmissible. See Lopez v. Chula Vista Police Dept., 2010 WL 6850154, at *7 (S.D. Cal. Feb. 12, 2010) (denying defendants' motion in limine on the grounds it was vague and over-broad).
However, the Court GRANTS Defendant's Motion in Limine to exclude the SEC consent judgments insofar as the judgments are used to establish liability, as Plaintiff does not oppose this request.
The Court DENIES the Motion insofar as it seeks to exclude any third-party plea agreements related to this Action. Plea agreements from third parties have been admitted to prove the facts that are contained therein. See, e.g., In re Slatkin, 310 B.R. 740, 744-45 (C.D. Cal. 2004); Scholes v. Lehmann, 56 F.3d 750, 762 (7th Cir. 1995). Defendant mainly argues here that these plea agreements are not probative and highly prejudicial. However, the plea agreements have not been provided to the Court, and therefore the Court cannot make a determination at this point in time as to the relevancy and potential prejudicial effect of the plea agreements.
Furthermore, the Court DENIES this Motion insofar as Defendant seeks to preclude all former testimony from Defendant's 2006 criminal proceeding. The Court finds that this Motion is pre-mature, as it is unclear at this point whether the former testimony meets the requirements set forth under Federal Rule of Evidence 804(b) for admitting former testimony. Fed.R.Evid. 804(b). See Ind. Ins. Co. v. Gen. Elec. Co., 326 F. Supp. 2d 844, 846 (N.D. Ohio 2004) (noting that to exclude evidence on a motion in limine, "the evidence must be inadmissible on all potential grounds").
As the Parties agree that references to past Fifth Amendment invocations should be excluded, the Court GRANTS Defendant's Motion in Limine with respect to this request.
Therefore, the Court GRANTS IN PART AND DENIES IN PART Defendant's Motion in Limine Number 17 to exclude testimony from and evidence relating to parallel criminal and SEC proceedings, including judgments and assertions of Fifth Amendment privileges.
DATED: January 25, 2011