Securities and Exchange Commission v. Manouchehr Moshayedi

REPLY in Support of MOTION IN LIMINE

C.D. Cal.October 7, 2013

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 LATHAM & WATKINS LLP William R. Baker, pro hac vice william.baker@lw.com Sean M. Berkowitz, pro hac vice sean.berkowitz@lw.com Patrick E. Gibbs, Bar No. 183174 patrick.gibbs@lw.com Matthew Rawlinson, Bar No. 231890 matt.rawlinson@lw.com Michele D. Johnson, Bar No. 198298 michele.johnson@lw.com 650 Town Center Drive, 20th Floor Costa Mesa, California 92626-1925 Telephone: +1.714.540.1235 Facsimile: +1.714.755.8290 PAUL HASTINGS LLP Thomas P. O’Brien, Bar No. 166369 thomasobrien@paulhastings.com Thomas A. Zaccaro, Bar No. 183241 thomaszaccaro@paulhastings.com 515 South Flower Street, 25th Floor Los Angeles, California 90071 Telephone: +1.213.683.6000 Facsimile: +1.213.627.0705 Attorneys for Defendant Manouch Moshayedi UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. MANOUCHEHR MOSHAYEDI, Defendant. CASE NO. 12-CV-01179-JVS-ANx DEFENDANT’S REPLY MEMORANDUM IN SUPPORT OF MOTION IN LIMINE TO EXCLUDE LAY OPINION TESTIMONY CONCERNING MATERIALITY OF ALLEGED OMISSIONS (MIL NO. 1 OF 4) The Honorable James V. Selna Date: October 21, 2013 Time: 11:00 a.m. Place: Courtroom 10C Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 1 of 27 Page ID #:26950 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 i CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 TABLE OF CONTENTS Page I. INTRODUCTION .......................................................................................... 1 II. DISCUSSION ................................................................................................ 4 A. The Lay Opinion Testimony Should Be Excluded Because It Is Irrelevant To The Jury’s Determination Of Materiality ...................... 4 B. The Lay Opinion Testimony Of The Analysts And Underwriters Should Be Excluded Under Rule 701 ............................ 7 1. The Proffered Lay Opinion Testimony Fails to Satisfy the Personal Knowledge Requirement Of Rule 701(a) ............. 7 2. The Proffered Lay Opinion Testimony Fails to Satisfy the Helpfulness Requirement Of Rule 701(b) ......................... 11 3. The Proffered Lay Opinion Testimony Is Inadmissible Because It Is Based on the Witnesses’ Expertise and Specialized Knowledge In Violation Of Rule 701(c) ............. 13 C. The Proffered Testimony Should Be Excluded Under Rule 403 ...... 18 III. CONCLUSION ............................................................................................ 20 Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 2 of 27 Page ID #:26951 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ii CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 TABLE OF AUTHORITIES Page(s) Cases Athridge v. Aetna Cas. & Sur. Co., 474 F. Supp.2d 102 (D.D.C. 2007) ...................................................................... 9 Basic v. Levinson, 485 U.S. 224 (1988) ........................................................................................... 11 Estate of Carey by Carey v. Hy-Temp Mfg., Inc., 929 F.2d 1229 (9th Cir. 1991) .............................................................................. 9 Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993) ........................................................................................... 18 Einsberg v. Gagnon, 766 F.2d 770 (3d Cir. 1985) ............................................................................... 10 Grossman v. Novell, Inc., 120 F.3d 1112 (10th Cir. 1997) .......................................................................... 11 Hester v. BIC Corp., 225 F.3d 178 (2d Cir. 2000) ................................................................... 10, 13, 14 Jackson v. Virginia, 443 U.S. 307 (1979) ............................................................... 14 Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137 (1999) ........................................................................................... 18 Lauria v. Nat’l R.R. Passenger Corp., 145 F.3d 593 (3d Cir. 1998) ............................................................................... 12 Lohnes v. Level 3 Communs., Inc., 272 F.3d 49 (1st Cir. 2001) ................................................................................ 17 Lynch v. City of Boston, 180 F.3d 1 (1st Cir. 1999) .................................................................................. 12 McEuin v. Crown Equip. Corp., 328 F.3d 1028 (9th Cir. 2003) ............................................................................ 18 Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 3 of 27 Page ID #:26952 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 iii CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 TABLE OF AUTHORITIES (continued) Page(s) McNulty v. Citadel Broad. Co., 58 F. App’x 556 (3d Cir. 2003) .......................................................................... 12 Mitroff v. Xomox Corp., 797 F.2d 271 (6th Cir. 1986) .............................................................................. 13 Nationwide Transp. Fin. v. Cass Info. Sys., Inc., 523 F.3d 1051 (9th Cir. 2008) ...................................................................... 13, 14 SEC v. Perry, No. 2:11-cv-1309-R (JCx) (C.D. Cal. July 9, 2012) .......................................... 16 SEC v. Retail Pro, Inc., Case No. 09cv1620-WQH-RBB, 2011 U.S. Dist. LEXIS 13095 (S.D. Cal. Feb. 10, 2011) ........................................................................................... 8, 9 In re STEC Inc. Sec. Litig., Case No. SACV 09-1304 JVS, 2011 U.S. Dist. LEXIS 75093 (C.D. Cal. June 17, 2011)..................................................................................................... 16 TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438 (1976) ........................................................................................... 12 U.S. Aviation Underwriters, Inc. v. Yellow Freight Sys., Inc., 296 F. Supp. 2d 1322 (S.D. Ala. 2003) .............................................................. 12 United States v. Barile, 286 F.3d 749 (4th Cir. 2002) .............................................................................. 11 United States v. Beck, 418 F.3d 1008 (9th Cir. 2005) .............................................................................. 8 United States v. Bush, 58 F.3d 482 (9th Cir. 1995) ................................................................................ 20 Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 4 of 27 Page ID #:26953 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 iv CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 TABLE OF AUTHORITIES (continued) Page(s) United States v. Ferguson, No. 3:06CR137, 2007 WL 4556625 (D. Conn. Dec. 20, 2007)......................... 16 United States v. Garcia, 413 F.3d 201 (2d Cir. 2005) ............................................................................... 15 United States v. Hanna, 293 F.3d 1080 (9th Cir. 2002) .............................................................................. 6 United States v. Henderson, 409 F.3d 1293 (11th Cir. 2005) ............................................................................ 9 United States v. Hill, 643 F.3d 807 (11th Cir. 2011) ............................................................................ 10 United States v. Hitt, 981 F.2d 422 (9th Cir. 1992) ................................................................................ 4 United States v. Kingston, 971 F.2d 481 (10th Cir. 1992) ............................................................................ 10 United States v. Mason, 993 F.2d 406 (4th Cir. 1993) .............................................................................. 10 United States v. Matsumaru, 244 F.3d 1092 (9th Cir. 2001) ............................................................................ 10 United States v. Nacchio, No. 05-cr-005450EWN (D. Colo. Mar. 26, 2007) ...................................... passim United States v. Olender, 338 F.3d 629 (6th Cir. 2003) ................................................................................ 8 United States v. Park, No. CR 08-00220 MMM, 2008 WL 2338298 (C.D. Cal. May 27, 2008) ......... 19 United States v. Peoples, 250 F.3d 630 (8th Cir. 2001) ................................................................................ 8 Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 5 of 27 Page ID #:26954 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 v CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 TABLE OF AUTHORITIES (continued) Page(s) United States v. Rea, 958 F.2d 1206 (2d Cir. 1992) ............................................................................. 11 United States v. Rigas, 2004 WL 360444 (S.D.N.Y. Feb. 26, 2004) ...................................................... 16 United States v. Santos, 201 F.3d 953 (7th Cir. 2000) ................................................................................ 8 United States v. Skeet, 665 F.2d 983 (9th Cir. 1982) ................................................................................ 8 United States v. Tomasetta, 2012 WL 1080293 (S.D.N.Y. Mar. 30, 2012) ................................................... 16 United States v. Victor Teicher & Co., Case No. 88 CR. 796 (CSH), 1990 WL 29697 (S.D.N.Y. Mar. 9, 1990) ............ 6 United States v. Whaley, 860 F. Supp. 2d 584 (E.D. Tenn. 2012) ............................................................. 11 United States v. Yazzie, 976 F.2d 1252 (9th Cir. 1992) .............................................................................. 8 Washington v. Dept. of Transp., 8 F.3d 296 (5th Cir. 1993) .................................................................................... 9 Wells Fargo Home Mortg. Overtime Pay Litig., No. MDL 06-1770 MHP, 2007 U.S. Dist. LEXIS 77525 (N.D. Cal. Oct. 17, 2007) .................................. 19 Wong v. Regents of Univ. of California, 410 F.3d 1052 (9th Cir. 2005) ............................................................................ 17 Yeti By Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101 (9th Cir. 2001) ............................................................................ 17 Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 6 of 27 Page ID #:26955 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 vi CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 TABLE OF AUTHORITIES (continued) Page(s) Other Authorities Fed. R. Civ. P. 26 .................................................................................................................. 12. 15 Fed. R. Civ. P. (continued) 26(a)(2)(A) .......................................................................................................... 14 37(c) .................................................................................................................... 14 Fed. R. Crim. P. 16 .................................................................................................. 12 Fed. R. Evid. 37(c)(1) ............................................................................................................... 15 403 ................................................................................................................ 15, 16 701 ............................................................................................................... passim 701(a) .................................................................................................................. 10 701(b) .............................................................................................................. 9, 11 701(c) ........................................................................................................ 8, 12, 15 702 .............................................................................................................. 4, 8, 12 3 Federal Rules of Evidence Manual § 701.02 (10th ed. 2013) .......................... 9, 12 4 Jack B. Weinstein & Margaret A. Berger, Weinstein’s Federal Evidence § 701.02 (2d ed. 1997) ........................................................................................... 12 Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 7 of 27 Page ID #:26956 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 I. INTRODUCTION In his Motion in Limine to Exclude Lay Opinion Testimony Concerning Materiality of Alleged Omissions, defendant Manouch Moshayedi set forth the arguments for excluding the lay opinion testimony of ten witnesses-eight analysts who covered sTec, Inc. (“sTec”) during the 2009-2010 period (the “Analysts”), and two investment bankers who worked on sTec’s secondary offering (the “Underwriters”). As set forth in more detail in the Motion, the proposed testimony takes the form of hypothetical and speculative hindsight opinion about whether the Analysts and Underwriters would have considered allegedly omitted “facts” (which, themselves, are hotly disputed) to be “important” and how they may have reacted had they known the information at the time. (SEC’s Mot. in Limine to Admit Lay Op. Test. (Dkt. No. 257-2) (“SEC’s MIL”) at 1, 3-4; SEC’s Opp’n to Def.’s Mot. in Limine No. 1 (Dkt. No. 283) (“Opp’n”) at 1-2, 4-7.) This testimony, however, is irrelevant, improper lay opinion and prejudicial, and should be excluded. The SEC’s Opposition is just an endless shell game in which the SEC constantly changes its arguments in a futile attempt to try to find one that may persuade the Court to allow the improper testimony of the Analysts and Underwriters. For example, just during the briefing on the motions in limine, the SEC has changed its position regarding the Analyst testimony it intends to offer at trial. In its own Motion in Limine to Admit Lay Opinion Testimony (Dkt. No. 257-2), the SEC proclaimed that “[t]he substance of the analysts’ anticipated trial testimony is contained in their respective declarations submitted by the SEC in support of it [sic] motion for partial summary judgment.” (SEC’s MIL at 2 n.1.) Yet, after Mr. Moshayedi based his Motion in Limine on these declarations, the SEC now takes the exact opposite position and argues that “[Mr.] Moshayedi’s reliance on the analysts’ declarations as a blueprint of their expected testimony at Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 8 of 27 Page ID #:26957 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2 CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 trial is misplaced” because those declarations do not contain their expected trial testimony. (Opp’n at 3-4.) The SEC’s next argument-raised for the first time in this case in its Opposition-asserts that the Analysts and Underwriters should be able to testify as fact witnesses because they supposedly are “victims” of the alleged fraud-an argument that finds no support in fact or law. (See Opp’n at 1-2.) Indeed, the SEC offers no evidence (and there is none) to support its bold allegation that either the Analysts or the Underwriters are “victims.” And, if that argument fails, the SEC argues that the Analysts and Underwriters should be able to testify as expert witnesses because the SEC had previously identified them as fact witnesses in supplemental disclosures and, therefore, Mr. Moshayedi should not be surprised by the expert opinions they may offer at trial. (Opp’n at 9-10.) None of these arguments has merit or supports the admissibility of the proposed Analyst or Underwriter testimony. The SEC also tries to disguise the purpose and extent of the proposed testimony by claiming the witnesses will testify only as to the “importance” of the information and not its “materiality.” (See SEC’s MIL at 3, 5, 8 (“[The Analysts] will only express their opinions as to whether the omitted information would have been important to their coverage and understanding of [sTec] and how their recommendations to client and investors would have changed had they known that information at the time.”), 8-9 (“Clearly, whether these people found the information Moshayedi deliberately withheld to be important to their views about sTec and Moshayedi’s offering will be helpful to the jury in understanding what was important information to an investor at the time.”); cf. Opp’n at 1-2, 4-7.) But in this context, the term “importance” is just a synonym for “material.” The SEC’s intent is clear: the Analysts and Underwriters are expected to tell the jury that the allegedly omitted information was “important” (i.e., material) information that would have significantly altered the total mix of information. (Id.) Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 9 of 27 Page ID #:26958 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 These very issues were addressed and decided in United States v. Nacchio, No. 05-cr-005450EWN (D. Colo. Mar. 26, 2007) (“Nacchio”), a case the SEC heavily relied on to defeat summary judgment and which it claims is a “similar case” that is “directly on point” with respect to the standard for determining materiality in an insider trading case.1 (Pl.’s Opp’n to Def.’s Mot. for Summ. J. (Dkt. No. 178) at 1, 4; Pl.’s Reply ISO Mot. for Summ. J. (Dkt. No. 201) at 16.) With respect to an insider trading claim, Nacchio excluded analyst testimony on issues relating to the “importance” of supposedly undisclosed information, finding that analysts are not an appropriate proxy for the hypothetical reasonable investor and that a professional analyst’s opinion on the importance of certain information is “irrelevant to whether that information would be important to a reasonable investor in deciding whether to buy or sell stock.” Nacchio at 6. The testimony of the Analysts and Underwriters should also be excluded under Rules 701 and 403 of the Federal Rules of Evidence.2 The proffered testimony fails each element of Rule 701 because (1) it is purely hypothetical and speculative testimony that cannot satisfy the personal knowledge requirement; (2) it (a) is irrelevant and cannot, therefore, be helpful to the jury’s determination of a fact in issue, and (b) does not clarify an issue the jury could not otherwise understand, but merely serves to tell the jury what it should find; and (3) relies on technical and specialized knowledge within the scope of Rule 702. See Fed. R. Evid. 701(a)-(c). The testimony should also be excluded under Rule 403 because, as Nacchio held, lay opinion testimony of analysts regarding materiality is unfairly prejudicial and likely to confuse the issues and mislead the jury. Nacchio at 8-9 1 For the convenience of the Court, a copy of Nacchio is attached to the Declaration of Thomas A. Zaccaro filed concurrently herewith. 2 All references to “Rule” or “Rules” refer to the Federal Rules of Evidence unless otherwise noted. Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 10 of 27 Page ID #:26959 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4 CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 (holding that “[t]he testimony would pose a significant danger of misleading the jury” and “pose a danger of prejudice to Defendant” (internal citations omitted)). Nacchio addresses the same facts and legal principles at issue in this case and has been trumpeted by the SEC as persuasive authority that stands on all fours with the instant case. The SEC has relied extensively on Nacchio, using it both to oppose Mr. Moshayedi’s Motion for Summary Judgment and in support of its own Motion for Summary Judgment, and cannot credibly disavow it now. As the proposed evidence has little to no probative value and the risk of unfair prejudice is clear, it should be precluded under Rule 403. United States v. Hitt, 981 F.2d 422, 424 (9th Cir. 1992) (“Where the evidence is of very slight (if any) probative value, it’s an abuse of discretion to admit it if there’s even a modest likelihood of unfair prejudice or a small risk of misleading the jury.”). II. DISCUSSION A. The Lay Opinion Testimony Should Be Excluded Because It Is Irrelevant to the Jury’s Determination of Materiality The lay opinion testimony of the Analysts and Underwriters should be excluded because it is irrelevant to the jury’s determination of materiality. The subjective hindsight opinion of a professional analyst or underwriter has no relevance in determining materiality under the objective standard: whether the hypothetical reasonable investor would have considered the information material. While the SEC denies that the Analysts and Underwriters will opine on materiality or “utter the word ‘material’ to the jury,” it concedes that it intends to elicit lay opinion testimony from the Analysts and Underwriters to purportedly help the jury determine whether the allegedly omitted information is material. (See Opp’n at 6-7 (arguing lay opinion testimony should be admitted to “help the jury understand the importance of the undisclosed information”).) Specifically, the SEC states that it expects the Analysts and Underwriters to opine on, inter alia, issues such as (1) the importance or significance of the purportedly undisclosed Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 11 of 27 Page ID #:26960 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 information to the Analysts and Underwriters’ coverage and analysis of sTec; (2) how their “coverage and analysis of sTec would have changed had they known of the undisclosed information in [Mr.] Moshayedi’s possession at the time he traded”; (3) “the importance of STEC’s forward-looking guidance to its stock price”; (4) “the information they relied upon to create their own estimates of STEC’s future revenues, earnings per share, and target stock price”; (5) “their understanding, based on STEC’s public description of its $120 million supply agreement with EMC, that this contract was for sales in the second half of 2009 and represented actual sell-through demand by EMC for that amount of product during that period of time”; and (6) their “rel[iance] on that contract in modeling STEC’s future growth over 2009 and 2010.” (See, e.g., id. at 1-2, 4-7; SEC’s MIL at 3-5, 8-9.) The SEC argues that the witnesses will not “be asked to testify whether the undisclosed information would have been ‘material’ to a reasonable investor, or opine on [Mr.] Moshayedi’s knowledge or whether [Mr.] Moshayedi was in possession of material, non-public information at the time he traded.” (Opp’n at 5.) But, the proffered testimony is irrelevant to the issue of materiality or, to use the SEC’s terminology, the importance of the purportedly undisclosed information. Indeed, the SEC’s arguments were squarely addressed and rejected by Nacchio. In Nacchio, the Government sought to introduce lay opinion testimony from analysts about what information they considered important about Qwest “to help the jury determine what a reasonable investor would do.” Nacchio at 2, 5. The Government argued (as the SEC does here) that the analysts would opine on the importance of certain information to them, but would not opine on “such broad matters of opinion as ‘what is material in the marketplace’ . . . .” Nacchio at 5-6. The court rejected these arguments. It held that a professional financial analyst is not an appropriate proxy for a reasonable investor and that the subjective opinion of a financial analyst is irrelevant to the determination of materiality. Nacchio at 6 Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 12 of 27 Page ID #:26961 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6 CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 (“[T]he information a financial analyst personally finds important is irrelevant to whether that information would be important to a reasonable investor in deciding whether to buy or sell stock. Common sense alone tells the court that a financial analyst is not akin to a reasonable investor.”). Nacchio cogently explained the basis for excluding the analyst testimony: [F]inancial analysts are arguably hypersensitive to information disseminated about the market. Undoubtedly, financial analysts encounter much information that they consider important but that a reasonable investor would not. In fact, it is precisely a financial analyst’s job to consider information that a reasonable investor may overlook. In this case, using highly trained [analysts] to determine what a reasonable [investor would consider important would be] like using a bloodhound to determine whether the average person would pick up a scent. Nacchio Order, supra, at 6-7 (internal citation and quotation marks omitted; alteration in original). As in Nacchio, the testimony the SEC seeks to elicit from the Analysts and Underwriters in this case has no relevance to the determination of materiality. See id.; accord United States v. Victor Teicher & Co., No. 88 CR. 796 (CSH), 1990 WL 29697, at *1 n.3 (S.D.N.Y. Mar. 9, 1990) (information that may be of interest to a professional securities trader because of professional interest in the stock market does not mean such information is material when judged through the eyes of a reasonable investor); cf. United States v. Hanna, 293 F.3d 1080, 1086 (9th Cir. 2002) (law enforcement officers not qualified to opine on whether a reasonable person would perceive a communication to be a threat on the President’s life because of officers’ extensive training, experience, and expertise). Accordingly, the proffered lay opinion testimony on the significance of the alleged disclosures should be excluded. Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 13 of 27 Page ID #:26962 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7 CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 B. The Lay Opinion Testimony of the Analysts and Underwriters Should Be Excluded Under Rule 701 Lay witnesses are competent to testify about those facts about which they have personal knowledge because they personally perceived the information in real time. A lay witness may also offer an opinion about what he or she perceived if it satisfies all three requirements of Rule 701. The lay opinion testimony must be “(a) rationally based on the witness’s perception; (b) helpful to clearly understanding the witness’s testimony or to determining a fact in issue; and (c) not based on scientific, technical, or other specialized knowledge within the scope of Rule 702.” Fed. R. Evid. 701(a)-(c). Here, the Analysts’ and Underwriters’ testimony fails all three requirements. 1. The Proffered Lay Opinion Testimony Fails to Satisfy the Personal Knowledge Requirement of Rule 701(a) The SEC does not (and cannot) deny that the Analysts and Underwriters have no first-hand knowledge of “concrete facts” that underlie their proffered lay opinions. Instead, it argues that the questions it poses to these witnesses will not be in the form of hypotheticals because it will create a foundation at trial by asking the witnesses to “observe” (1) emails introduced at trial (that the witnesses did not send or receive) and (2) prior sworn trial testimony to establish the necessary foundation for their lay opinions as to the significance of the information in the emails and testimony. (Opp’n at 4.) But, introducing evidence at trial cannot create a foundation of personal knowledge for the lay testimony and does not transform these hypothetical questions into questions based on the Analysts’ or Underwriters’ first-hand knowledge of concrete facts. Put simply, the SEC should not be permitted to manufacture a foundation where none exists. Rule 701 clearly requires that lay witness opinion be based on Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 14 of 27 Page ID #:26963 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8 CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 first-hand knowledge of concrete facts.3 See, e.g., United States v. Yazzie, 976 F.2d 1252, 1255 (9th Cir. 1992) (“[T]he witness may state his impressions and opinions based upon what he observed” as a means of “conveying to the jury what the witness has seen or heard.” (quoting United States v. Skeet, 665 F.2d 983, 985 (9th Cir. 1982))); United States v. Olender, 338 F.3d 629, 637-38 (6th Cir. 2003) (trial court properly excluded lay opinion testimony based on after-the-fact review of documents and statements).4 The only authority the SEC can muster in support of its argument that it should be permitted to create a foundation for lay opinion testimony at trial is SEC v. Retail Pro, Inc., No. 08cv1620-WQH-RBB, 2011 U.S. Dist. LEXIS 13095, at *13 (S.D. Cal. Feb. 10, 2011). Retail Pro, however, does not discuss the foundational requirements for lay opinion testimony. Instead, it stands for the unremarkable proposition that expert testimony may be based on hypothetical facts supported by evidence in the record. Id. at *14-15. In that case, the SEC moved in limine for an order “excluding the testimony and expert report of [the defendant’s] expert, Jerry Arnold, because Arnold’s testimony ‘is solely based on assumptions he was provided by Furman’s counsel.’” Id. at *11. The court denied the SEC’s 3 “[P]rototypical example[s] of the type of evidence contemplated by the adoption of Rule 701 [relate] to the appearance of persons or things, identity, the manner of conduct, competency of a person, degrees of light or darkness, sound, size, weight, distance, and an endless number of items that cannot be described factually in words apart from inferences.” Fed. R. Evid. 701, advisory committee’s notes (2000) (internal citations omitted); see also United States v. Santos, 201 F.3d 953, 963 (7th Cir. 2000) (Lay witnesses must base opinions on personal knowledge. They cannot offer opinion testimony that is not “tethered to perception, to what the witness saw or heard.”). 4 See also United States v. Beck, 418 F.3d 1008, 1015 (9th Cir. 2005) (lay witness testimony must be “based upon personal observation and recollection of concrete facts” (emphasis added) (internal quotation marks omitted)); United States v. Peoples, 250 F.3d 630, 641 (8th Cir. 2001) (reversing lower court’s decision to allow law enforcement agent to testify as lay opinion witness, because the agent lacked first-hand knowledge of the matters about which she testified and her opinions were based on an after-the-fact investigation). Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 15 of 27 Page ID #:26964 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9 CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 motion to exclude evidence reasoning that “[e]xpert witnesses may be competent to give opinions based upon hypothetical facts even though a foundation that the expert has personal knowledge of those facts has not been laid.” Id. at *14 (quoting Estate of Carey by Carey v. Hy-Temp Mfg., Inc., 929 F.2d 1229, 1235 n.2 (9th Cir. 1991) (emphasis added)). Thus, Retail Pro lends no support to the SEC’s argument because it involves expert testimony and finds that even absent a foundation of personal knowledge, an expert may be qualified to testify. Id. This case is plainly inapposite and, in fact, supports Mr. Moshayedi’s Motion. (Opp’n at 4.) The ability to answer hypothetical questions is “‘[t]he essential difference’ between expert and lay witnesses.” United States v. Henderson, 409 F.3d 1293, 1300 (11th Cir. 2005). Although the SEC denies that it will ask the witnesses hypothetical questions, it proposes to introduce evidence at trial and ask a line of questions beginning, “What would you have done if you had known …”-this is, by definition, hypothetical questioning. (See Opp’n at 1-2, passim.) What a witness thinks he would have done in 2009 based on information shown to him in 2014 is not based on his perception in 2009-rather, it is the very kind of naked speculation barred by Rule 701.5 See, e.g., 3 Stephen A. Saltzburg et al., Federal Rules of Evidence Manual § 701.02[3] (10th ed. 2013) (“Nor is the Rule designed to permit completely hypothetical testimony.”); Washington v. Dep’t of Transp., 8 F.3d 296, 300 (5th Cir. 1993) (upholding the exclusion of testimony regarding what the witness would have done in the past if he had seen the relevant evidence (a warning label), where the testimony would not be based upon actual perception but upon “self-serving speculation”); Athridge v. Aetna Cas. & Sur. Co., 474 F. 5 The harm from allowing improper lay opinion testimony would be compounded here because the alleged material undisclosed information consists mostly of statements of belief and opinion (and negotiation posturing) that simply differed from those of Mr. Moshayedi. Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 16 of 27 Page ID #:26965 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10 CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 Supp. 2d 102, 105 (D.D.C. 2007) (“Speculative testimony as to what a witness would have done under different circumstances cannot possibly be based on the witness’s perception.”).6 The cases cited by the SEC in support of its arguments are clearly distinguishable because, unlike this case, they do not involve multiple layers of inference and opinion, and they involve witnesses with first-hand knowledge of concrete facts whose opinions do not rely on technical expertise. See United States v. Hill, 643 F.3d 807, 841-42 (11th Cir. 2011) (finding no abuse of discretion where the lay opinion required no specialized knowledge, there was “little or no danger that lay witness testimony was used to evade the reliability requirements of Rule 702,” and the “witnesses who had personally dealt with the fraudulent loan transactions at issue” were providing their opinions on whether the loans would have been denied if the borrowers had disclosed the source of their down payments); United States v. Matsumaru, 244 F.3d 1092, 1102 (9th Cir. 2001) (finding no abuse of discretion where INS officers who had previously reviewed visa petitions were permitted to testify about whether knowing certain facts would have influenced their decision to approve a visa petition); United States v. Kingston, 971 F.2d 481, 486-87 (10th Cir. 1992) (finding no abuse of discretion where witnesses charged with overseeing loans were permitted to testify about whether they would have provided the loan had they known borrower falsely stated that she did paid charges and fees with her own funds); Einsberg v. Gagnon, 766 F.2d 770, 781 (3d Cir. 1985) (finding witness who personally observed an offering 6 See also Hester v. BIC Corp., 225 F.3d 178, 184-85 (2d Cir. 2000) (holding that lay opinion witnesses may testify as to their own observations, but may not engage in mere speculation where the jury is in as good a position as the witness to draw an inference); United States v. Mason, 993 F.2d 406, 408-10 (4th Cir. 1993) (reversible error where district court allowed witness to give answers to prosecution questions that were based upon hypothetical facts). Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 17 of 27 Page ID #:26966 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11 CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 memoranda and scrutinized it for adequacy of disclosure could testify as to how he would have viewed undisclosed facts).7 In this case, the SEC plainly intends to elicit lay opinion testimony about evidence introduced at trial that is far beyond anything the witnesses personally observed. This evidence should be excluded because it fails to satisfy the personal knowledge requirement of Rule 701(a). 2. The Proffered Lay Opinion Testimony Fails to Satisfy the Helpfulness Requirement Under Rule 701(b) Even if the proffered testimony could satisfy the personal knowledge requirement, it should be excluded for the independent reason that it will not be helpful to the jury’s determination of a fact in issue. Fed. R. Evid. 701(b); United States v. Rea, 958 F.2d 1206, 1217 (2d Cir. 1992) (helpfulness is a threshold issue “that must be determined by the court before it may allow the opinion to be heard by the jury”). First, the lay opinion cannot meet the helpfulness requirement because, as set forth above, it is irrelevant to the determination of materiality. Materiality is determined based on the objective standard of whether the “hypothetical reasonable investor” would have viewed the allegedly omitted facts in light of “the total mix of information made available” to the financial markets and having “significantly altered the ‘total mix’ of information available.” See Basic v. Levinson, 485 U.S. 224, 231-32 (1988); accord Grossman v. Novell, Inc., 120 F.3d 7 United States v. Whaley, 860 F. Supp. 2d 584 , 595-96 (E.D. Tenn. 2012) (allowing witnesses to testify regarding whether loan applications would have been approved if truth regarding misrepresentations was known because their opinions did not require specialized knowledge and their opinions were based on their first- hand review of the loan applications at issue); United States v. Barile, 286 F.3d 749, 752, 754-56 (4th Cir. 2002) (analyzing the exclusion of a prior inconsistent statement, court found that prior statements of opinion by an FDA reviewer which were contained in FDA documents created during her review were admissible to establish what she considered important at the time of her review). Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 18 of 27 Page ID #:26967 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 12 CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 1112, 1119 (10th Cir. 1997) (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)). The subjective opinion of a professional analyst or underwriter is irrelevant to the determination of what information a hypothetical reasonable investor would find to be material or important. Nacchio at 6 (“Common sense alone tells the court that a financial analyst is not akin to a reasonable investor.”); see also McNulty v. Citadel Broad. Co., 58 F. App’x 556, 564 (3d Cir. 2003) (Rule 701 limits the admission of lay opinion testimony to that which will aid or clarify “an issue that the jury would not otherwise be as competent to understand” (quoting Lauria v. Nat’l R.R. Passenger Corp., 145 F.3d 593, 600 (3d Cir. 1998))). Second, and consistent with Rule 701(a), lay witness opinion is generally considered helpful only to the extent that it is necessary for a witness to use “shorthand” to summarize “facts that the witness observed.” 4 Jack B. Weinstein & Margaret A. Berger, Weinstein’s Federal Evidence § 701.02 (2d ed. 1997); 3 Federal Rules of Evidence Manual § 701.02 (same). Here, the proffered lay opinion testimony of the Analysts and Underwriters cannot satisfy the helpfulness requirement under Rule 701 because it is not based on any facts these witnesses personally perceived. Instead, as set forth above, the testimony would be based on the lay witnesses’ assessment of evidence presented at trial and the inferences and opinions they make based on that evidence. (See Opp’n at 3-6.) This is plainly improper. See Lynch v. City of Boston, 180 F.3d 1, 17 (1st Cir. 1999) (lay opinion testimony must be excluded “when the jury can readily draw the necessary inferences and conclusions without the aid of the opinion.” (citing 7 John Henry Wigmore, Wigmore on Evidence §§ 1917-18) (Chadbourne rev. 1978)); U.S. Aviation Underwriters, Inc. v. Yellow Freight Sys., Inc., 296 F. Supp. 2d 1322, 1333 (S.D. Ala. 2003) (lay opinion testimony inadmissible where “[a] jury can look at the same evidence considered by [the witness] and reach its own conclusions”). Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 19 of 27 Page ID #:26968 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 13 CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 Finally, the proffered testimony would do nothing more than tell the jury what it should do-the very harm Rule 701(b) seeks to prevent. Hester, 225 F.3d at 181-82 (Rule 701(b) is “designed to provide assurances against the admission of opinions which would merely tell the jury what result to reach”). The SEC seeks to have Analysts and Underwriters with specialized knowledge and training opine on the importance of alleged “facts” which are in dispute (and about which they have absolutely no personal knowledge) and speculate as to what they would have done had they had personal knowledge of those “facts” back in 2009, all with the benefit of perfect hindsight. The SEC should not be permitted to bolster its theory with such self-serving speculation. See Nationwide Transp. Fin. v. Cass Info. Sys., Inc., 523 F.3d 1051, 1059-60 (9th Cir. 2008) (district court did not abuse discretion in granting a motion to limit testimony because it “would have served to do nothing more than tell the jury what result it should reach” (internal quotation marks omitted)); Mitroff v. Xomox Corp., 797 F.2d 271, 276 (6th Cir. 1986) (“[S]eldom will be the case when a lay opinion on an ultimate issue will meet the test of being helpful . . . since the jury’s opinion is as good as the witness’s and the witness turns into little more than an ‘oath helper.’”). Mr. Moshayedi is entitled to have the jury-not the SEC’s pseudo-experts who were not disclosed, qualified, or subject to the vetting appropriate for an expert witness-determine whether the alleged omissions would have been important to a reasonable investor. 3. The Proffered Lay Opinion Testimony Is Inadmissible Because It Is Based on the Witnesses’ Expertise and Specialized Knowledge in Violation of Rule 701(c) Even if the proffered testimony were relevant and could somehow satisfy the first two requirements of Rule 701, it should be precluded for the independent reason that it is based on “specialized knowledge within the scope of Rule 702.” Fed. R. Evid. 701(c). The SEC should not be permitted to evade the expert Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 20 of 27 Page ID #:26969 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14 CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 disclosure requirements set forth in Rule 26 of the Federal Rules of Civil Procedure, and its attendant protections, by calling an expert in lay clothing. Fed. R. Evid. 701, advisory committee’s notes (Rule 701 “channel[s] testimony that is actually expert testimony to Rule 702 . . . [to] ensure[] that a party will not evade the expert witness disclosure requirements set forth in Fed. R. Civ. P. 26 and Fed. R. Crim. P. 16 by simply calling an expert witness in the guise of a layperson”). The SEC argues that the Analysts and Underwriters will not rely on their specialized or technical skill, but will “reach logical conclusions based upon facts they observed [at trial].” (Opp’n at. 8.) But such evidence is improper-weighing the evidence and reaching “logical conclusions” is plainly the job of the jury. See Jackson v. Virginia, 443 U.S. 307, 319 (1979) (It is “the responsibility of the trier of fact fairly to resolve conflicts in the testimony, to weigh the evidence, and to draw reasonable inferences from basic facts to ultimate facts.”); see also Hester, 225 F.3d at 181-82 (Rule 701(b) provides “assurances against the admission of opinions which would merely tell the jury what result to reach.” (emphasis and citation omitted)); accord Nationwide Transp. Fin., 523 F.3d at 1059-60 (district court did not abuse discretion in granting motion to limit testimony because it “would have served to do nothing more than tell the jury what result it should reach” (internal quotation marks omitted)). Moreover, as set forth above, these witnesses “observed” none of the purported facts and the reliability of purported “facts” is a key issue in this case. Further, although the SEC appears to deny it now, in its Motion in Limine to Admit Lay Opinion Testimony, the SEC stated that “[t]he substance of the [A]nalysts’ anticipated trial testimony is contained in their respective declarations submitted by the SEC in support of it [sic] motion for partial summary judgment.” (Compare Mot. at 2 n.1, with Opp’n at 3-4.) The declarations of the Analysts demonstrate their opinions are based on their specialized technical knowledge of sTec and in “analyzing and studying the semiconductor industry.” (See, e.g., Decl. Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 21 of 27 Page ID #:26970 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 15 CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 of Thomas A. Zaccaro ISO MIL No. 1 (“Zaccaro Decl. ISO MIL No. 1”), Exs. A- H (declarations of Analysts attesting to the fact that their opinions are based on their experience studying and analyzing the semiconductor industry and their specialized skills in financial analysis).) The Analysts are also expected to testify about how particular information would have affected their analytical models and employ such specialized concepts and analyses as “consensus revenue and earnings estimates,” “guidance,” “earnings per share,” “target stock price,” “modeling” of future growth, and “actual sell-through demand” in their analysis of the events that transpired at sTec. (See Opp’n at 1-2, 4-7 (arguing that the Analysts and Underwriters should be permitted to testify about “how Mr. Moshayedi’s misrepresentations and omissions, had they known them at the time, would have impacted their decision-making”); SEC’s MIL at 1-5, 8-9 (arguing that analyst and underwriters should be permitted to testify about “how their understanding of STEC would have changed had they known those undisclosed facts at the time[,]” and “whether the omitted information would have been important to their coverage[.]”; see also Zaccaro Decl. ISO MIL No. 1, Exs. A (Cassidy Decl.) ¶¶ 7- 9; B (Crawford Decl.) ¶¶ 7-9; SEC’s MIL at 3-4.) Understanding these specialty finance, investment, and semiconductor industry terms and concepts, however, is not “knowledge gained through normal experience” and cannot qualify as lay opinion. See Nacchio at 6-8 (discussing how “highly trained” analysts differ from the prototypical reasonable investor and noting that where courts have allowed financial analysts to testify, “the financial analysts were qualified as experts and testified not based on their personal experience, but on their expert opinion as to what reasonable investors would have considered material” (emphasis in original)); Fed. R. Evid. 701, advisory committee’s notes (2000); United States v. Garcia, 413 F.3d 201, 215 (2d Cir. 2005) (“[A] lay opinion must be the product of reasoning processes familiar to the average person in everyday life.”). Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 22 of 27 Page ID #:26971 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 16 CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 The SEC’s citations in support of its argument are unavailing as they limit analyst testimony to actual observations that do not rely on specialized knowledge or training. In Ferguson, the SEC’s primary authority, the court substantially restricted the analysts’ ability to testify about the significance of information to their observations of particular investors. 2007 WL 4556625, at *3. Ferguson allowed analyst testimony in the form of “observations” about investors, not hypotheticals, and the court encouraged the defendant to renew his objection under Rule 701(c) if the testimony strayed beyond the actual observations of the analysts. Id. at *3 n.6. Tomasetta, Rigas and Perry reached similar conclusions. See United States v. Tomasetta, No. 10 Cr. 1205 (PAC), 2012 WL 1080293, at *4 (S.D.N.Y. Mar. 30, 2012) (limiting testimony to “what the analyst read, heard, asked about, and/or otherwise learned about [a company] from its disclosures”); United States v. Rigas, No. 02 CR. 1236 (LBS), 2004 WL 360444, at *1 (S.D.N.Y. Feb. 26, 2004) (permitting analysts to testify “as to interaction with a Defendant, the questions they asked, the reasons why they asked those questions and why they can recall the answers they received”); Order (Dkt. No. 119) at 1, SEC v. Perry, No. 2:11-cv- 1309-R (JCx) (C.D. Cal. July 9, 2012) (Real, J.) (“analysts and investors may provide opinion testimony so long as the testimony is based upon personal observation and recollection of concrete facts”).8 Apparently recognizing the expert nature of the proffered testimony, the SEC resorts to arguing that even if the witnesses are experts, they should not be excluded because Mr. Moshayedi should not be surprised that they are testifying because the SEC disclosed the Analysts during discovery and Mr. Moshayedi chose not to depose them. (Opp’n at 9.) But this is plainly improper. Fed. R. Civ. 8 The SEC’s reliance on In re STEC Inc. Sec. Litig., is equally unavailing. No. SACV 09-1304 JVS (MLGx), 2011 U.S. Dist. LEXIS 75093, at *23-25, 45 (C.D. Cal. June 17, 2011) (Denying motion to dismiss and noting that third-party analyst statements “comport with Plaintiff’s mosaic . . . .”). Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 23 of 27 Page ID #:26972 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 17 CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 P. 26(a)(2)(A) (“[A] party must disclose to the other parties the identity of any witness it may use at trial to present evidence under Federal Rule of Evidence 702 . . . .”); see also Wong v. Regents of Univ. of Cal., 410 F.3d 1052, 1056 (9th Cir. 2005) (upholding district court’s decision to exclude late designated expert witnesses when “[t]he need for those witnesses could reasonably have been anticipated prior to the supplemental identification of witnesses”); Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1106 (9th Cir. 2001) (upholding district court’s decision to exclude the testimony of the defendant’s only damages expert for failure to timely provide the expert report despite the previous disclosure of the expert’s identity). Indeed, ensuring compliance with the expert notice requirement motivated the enactment of Rule 701(c). See Fed. R. Evid. 701, advisory committee’s notes (litigants must not “evade the expert witness disclosure requirements . . . by simply calling an expert witness in the guise of a layperson”). Further, Federal Rule of Evidence 37(c)(1) mandates the exclusion of expert evidence for the failure to make Rule 26(a) disclosures “unless such failure is harmless.” Discovery in this case is closed and trial is near. Any attempt to now designate Analysts and Underwriters as experts would not be harmless. The SEC has known about these witnesses since the inception of the case and there is no reason that they could not have complied with the disclosure requirements. See Lohnes v. Level 3 Commc’ns., Inc., 272 F.3d 49, 59-60 (1st Cir. 2001) (excluding expert evidence because party failed to make Rule 26(a) disclosures and deeming expert affidavit submitted shortly before final pretrial conference as “nothing short of a sneak attack”).9 9 As it stands, the SEC failed to provide the analyst declarations to Mr. Moshayedi until three weeks after the close of fact discovery. Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 24 of 27 Page ID #:26973 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 18 CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 Moreover, the rules for disclosing and qualifying experts also ensure the reliability and relevance of their testimony, guaranteeing that they will employ “in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in the relevant field.” Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 152 (1999). Absent such qualifications (which are not present here), the opinion testimony would usurp the role of the jury-exactly what the SEC proposes to do here. See Daubert v. Merrell Dow Pharm. Inc., 509 U.S. 579, 592 (1993) (Unlike an “ordinary witness,” an expert, because of his qualifications in his field, is “permitted wide latitude to offer opinions, including those that are not based on first hand knowledge or observation.”). C. The Proffered Testimony Should Be Excluded Under Rule 403 Even if this Court finds that the proffered evidence is relevant and somehow satisfies the requirements of Rule 701, it should still be excluded under Rule 403 because its meager probative value (if any) is substantially outweighed by the danger of undue prejudice, confusion of the issues, misleading the jury, and wasting time. The SEC does not dispute that the lay opinion testimony poses “a significant danger of misleading the jury into believing that it should judge materiality from the perspective of a highly trained financial analyst [or underwriter] rather than from the perspective of a reasonable investor.” Nacchio at 8-9 (excluding lay opinion testimony of analysts as unfairly prejudicial and likely to confuse and mislead the jury); see also McEuin v. Crown Equip. Corp., 328 F.3d 1028, 1034 (9th Cir. 2003) (affirming exclusion of evidence where it “might . . . resemble in the jury’s mind something” which it was not); (Compare Mot. at 21-22, with Opp’n at 10-12). This “would pose a danger of prejudice to [Mr. Moshayedi] because the jurors may erroneously conclude that they were not the best qualified to assess the materiality of the information at issue, that they should second guess their own judgment, and that they should defer to the [Analysts or Underwriters].” Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 25 of 27 Page ID #:26974 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 19 CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 Nacchio at 8-9 (internal citations, quotation marks, and brackets omitted); (Compare Mot. at 21-22, with Opp’n at 10-12). The SEC also does not dispute the risk that significant confusion may be caused and significant time wasted, through sidebars and other disputes, as Mr. Moshayedi would be forced to, among other things, (1) repeatedly assert objections to the foundation for the testimony; (2) engage in lengthy cross- examination by presenting facts (also not known to the witnesses) to test their opinions and establish their bias; and (3) present numerous witnesses in rebuttal. See United States v. Park, No. CR 08-00220 MMM, 2008 WL 2338298, at *7 (C.D. Cal. May 27, 2008) (exclusion under Rule 403 is proper when “the court [may have] . . . to conduct a mini-trial” to establish the basis for the evidence or “give limiting instructions that might lead to jury questions or confusion”); (Compare Mot. at 21-22, with Opp’n at 10-12). Instead, the SEC argues that Mr. Moshayedi’s concerns about witness bias are unfounded because the SEC never threatened or coerced the witnesses. (Opp’n at 10-12.) But Mr. Moshayedi never suggested that the SEC threatened the Analysts or Underwriters with civil (or criminal) charges or any other type of harm. (Mot., passim.) The bias in this case arises from the fact that the witnesses are employed by entities with strong motivations (and likely institutional policies) to promote cooperation with the SEC, and not with Mr. Moshayedi. See Christopher B. Mueller & Laird C. Kirkpatrick, 3 Federal Evidence § 6:79 (3d ed. 2012) (“Mere vulnerability to charges of any kind (whether or not related to the present case) may put a witness under the thumb of the government[.]” (emphasis in original)); Wells Fargo Home Mortg. Overtime Pay Litig., No. MDL 06-1770 MHP, 2007 U.S. Dist. LEXIS 77525, at *14-15 (N.D. Cal. Oct. 17, 2007) (holding that declarations of current employees who may fear for their jobs are “inherently suspect”), rev’d on other grounds, Mevorah v. Wells Fargo Home Mortg., 571 F.3d 953, 959 (9th Cir. 2009). Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 26 of 27 Page ID #:26975 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 20 CASE NO. 12-CV-01179-JVS (ANx) DEFENDANT’S REPLY MEMORANDUM ISO MOTION IN LIMINE NO. 1 Finally, the SEC now appears to want to use the Analyst and Underwriter testimony to argue that the witnesses are victims of the alleged fraud. (See Opp’n at 1-2 (“Moshayedi asks the court to exclude these witnesses’ lay opinion testimony, even though they are among the percipient fact witnesses to, and victims of, Moshayedi’s fraudulent misrepresentations and omissions.”); SEC’s MIL at 1-2 (the SEC seeks to “hav[e] the [A]nalysts and [U]nderwriters testify about the fraud Moshayedi perpetrated on them”).) Nowhere has the SEC actually alleged, nor does the record support, this contention. Where, as here, “testimony not only lacks probative value but actually leads the jury to draw false inferences about the accused, only a slight showing of prejudice need be made to tip the scales toward exclusion.” United States v. Bush, 58 F.3d 482, 489 (9th Cir. 1995). That showing has been made and this improper lay opinion evidence should be excluded. III. CONCLUSION For the foregoing reasons, Mr. Moshayedi respectfully requests that the Court bar the SEC from offering, eliciting, or referencing at trial lay opinion testimony from the Analysts and Underwriters. Dated: October 7, 2013 Respectfully submitted, LATHAM & WATKINS LLP By /s/ Patrick E. Gibbs Patrick E. Gibbs PAUL HASTINGS LLP By /s/ Thomas A. Zaccaro Thomas A. Zaccaro Attorneys for Manouch Moshayedi Case 8:12-cv-01179-JVS-AN Document 324 Filed 10/07/13 Page 27 of 27 Page ID #:26976