Kelley v. Boosalis

Background

The case arose from the collapse of the Petters-related investment scheme. The Trustee alleged that Boosalis transferred money to PCI in at least 65 transactions totaling at least $4,640,000 in principal and received at least $8,380,590 in distributions. The Trustee brought claims under the Bankruptcy Code and the Minnesota Uniform Fraudulent Transfer Act to recover allegedly fraudulent transfers and impose a constructive trust. Boosalis denied the allegations and asserted defenses including that he gave value, acted in good faith, and that PCI received reasonably equivalent value.

The parties were scheduled for trial, and together they filed seven motions in limine. A motion in limine asks the court to decide before trial whether particular evidence may be presented to the jury. The opinion addressed five motions by Boosalis and two by the Trustee.

Boosalis’s Motions

1. Reasonably equivalent value — deferred. Boosalis sought to exclude testimony from the Trustee’s expert, Theodore Martens, concerning the reasonably equivalent value of the transfers. The court explained that this issue was relevant both to the Trustee’s constructive-fraud claim and to Boosalis’s defense to the actual-fraud claim. The court found that Martens was not expected to testify about the legal meaning of the phrase. Instead, his proposed testimony concerned factual matters such as the number and amounts of the transactions, interest received, whether the transactions related to legitimate purchases or sales, and whether the funds were part of the Ponzi scheme. The court concluded that the testimony could be relevant but deferred a final ruling until trial, subject to a proper foundation.

2. Insolvency analysis — deferred. Boosalis sought to exclude Martens’s testimony about PCI’s insolvency during the relevant period. The court noted that the Minnesota Supreme Court had rejected a conclusive rule that a Ponzi scheme is insolvent from its beginning and had required proof of fraudulent-transfer elements for each transfer. But the court found that Martens had reviewed PCI’s financial records for the relevant period and had offered an opinion based on that review, rather than relying only on the existence of the Ponzi scheme. The court stated that the cited Minnesota decision did not prohibit this type of evidence, assuming a proper foundation, but deferred its ruling until the testimony was offered.

3. Evidence of criminal prosecutions — denied. Boosalis sought to exclude evidence concerning the criminal prosecutions of participants in the Petters scheme. The court found that evidence concerning prosecutions and convictions connected to the period of Boosalis’s transactions was relevant to whether PCI operated as a legitimate business. The court stated that the Minnesota Supreme Court’s decision did not bar a specific type of evidence that could be used to establish indicators of fraud, although it did bar treating the existence of a Ponzi scheme as conclusive proof of fraudulent intent. The court therefore denied the motion and did not exclude evidence concerning the criminal convictions of Petters, Deanna Coleman, Robert White, Larry Reynolds, Michael Catain, and PCI based on that decision.

4. Transfer-by-transfer analysis of Boosalis’s notes — deferred. Boosalis sought to exclude Martens’s testimony concerning his analysis of the individual transactions. The court did not rule before the testimony was offered and a proper foundation was established. The final order therefore deferred this motion.

5. Interest rates — deferred. Boosalis sought to exclude Martens’s testimony about the reasonableness of the interest rates on his promissory notes. Subject to a proper foundation, the court deferred ruling until trial.

Trustee’s Motions

1. Evidence concerning Walter Mondale, Ted Mondale, and Tom Hay — granted in part and deferred in part. The court granted the motion with respect to evidence regarding and testimony from Vice President Walter Mondale and Ted Mondale. It found that their involvement was irrelevant to Boosalis’s decision to transact with PCI because the investments initially occurred before their involvement with Red Tag World, and neither was involved with PCI. The court deferred the portion concerning Tom Hay’s work for Petters-related entities other than Petters Company, Inc. The court stated that evidence about Hay could be relevant to Boosalis’s defense if it showed that Hay was involved with PCI, and it would rule after reviewing Hay’s complete deposition.

2. Federal Bureau of Investigation and Internal Revenue Service memoranda — granted. The Trustee sought to exclude eleven investigative memoranda that Boosalis might offer. The court ruled that the memoranda contained hearsay, including hearsay within hearsay, and that Boosalis had not identified applicable exceptions for the specific statements. The court also found that the residual hearsay exception did not apply because the interviews were not under oath or transcribed and lacked the required guarantees of trustworthiness. The court further stated that, if Deanna Coleman testified, live testimony would be more probative than a law-enforcement memorandum. The court granted the motion and excluded the memoranda from evidence.

Disposition

Susan Richard Nelson’s order deferred Boosalis’s Motions in Limine Nos. 1, 2, 4, and 5; denied Boosalis’s Motion in Limine No. 3; granted in part and deferred in part the Trustee’s Motion in Limine No. 1; and granted the Trustee’s Motion in Limine No. 2. The order addressed trial evidence and did not resolve the parties’ underlying fraudulent-transfer claims.