Irving H. Picard v. Sage Associates
- John Keenan
- 1:20-cv-10057
- U.S. District Court · Southern District of New York
- 11
In Irving H. Picard v. Sage Associates, Judge Keenan granted Picard’s motion to admit Frank DiPascali’s prior trial testimony.
The ruling affected Irving H. Picard, as trustee, and the defendants Sage Associates, Sage Realty, Malcolm Sage, Martin Sage, and Ann Sage Passer by allowing Picard to use DiPascali’s prior trial testimony in the scheduled bench trial.
What happened
In Irving H. Picard v. Sage Associates, Irving H. Picard, acting as trustee for Bernard L. Madoff Investment Securities LLC’s liquidation, sought to admit testimony from former employee Frank DiPascali. The testimony concerned the company’s operations, investment strategies, backdated trading information, and failure to buy securities for customer accounts. The defendants opposed admission, arguing that the testimony was unreliable hearsay and unfairly prejudicial.
The court ruled that the testimony qualified under a hearsay exception for statements with strong guarantees of trustworthiness and unusual importance. DiPascali testified under oath, faced extensive questioning by the parties in his criminal trial, did not later withdraw his testimony, and was unavailable because he had died. The court also found that other evidence supported his account and that his firsthand knowledge made the testimony especially useful. Because the case would be decided by a judge rather than a jury, the court found little risk of unfair prejudice.
Judge John F. Keenan granted Picard’s first motion to exclude or admit evidence, allowing DiPascali’s prior trial testimony under Federal Rule of Evidence 807. The court did not decide whether the testimony also qualified under another hearsay exception, and it noted that separate motions would be addressed later.
The detailed version
- Irving H. Picard v. Sage Associates · No. 1:20-cv-10057
- John Keenan
- Dec. 8, 2021
Background
The opinion concerns two consolidated actions brought by Irving H. Picard, the trustee for the liquidation of Bernard L. Madoff Investment Securities LLC (BLMIS). Under Sections 548 and 550 of the Bankruptcy Code, Picard sought to avoid and recover allegedly fraudulent transfers: $13,510,000 transferred to Sage Associates and $3,370,000 transferred to Sage Realty. The opinion states that Picard also sought to hold Malcolm Sage, Martin Sage, and Ann Sage Passer jointly and severally liable in their alleged capacities as partners or joint venturers.
The bench trial was scheduled to begin on January 18, 2022. Picard’s first motion in limine asked the court to admit portions of former BLMIS employee Frank DiPascali’s testimony from the criminal trial of United States v. Bonventre. DiPascali had since died. The proposed testimony addressed BLMIS operations and cash management, the investment strategies Madoff claimed to use, backdated trading information, and BLMIS’s failure to purchase or sell securities for customers in its investment-advisory business.
The defendants argued that the testimony was hearsay and did not qualify under Federal Rule of Evidence 804(b)(1) or Rule 807. They also argued that Rule 403 required exclusion because the testimony’s potential for unfair prejudice outweighed its usefulness.
Analysis
The court analyzed the testimony under Rule 807, the residual exception to the hearsay rule. That rule permits hearsay when it has sufficient guarantees of trustworthiness and is more useful on the disputed point than other evidence the proponent could obtain through reasonable efforts. The court considered whether the testimony was trustworthy, material, significantly probative, in the interests of justice, and properly noticed.
The court found sufficient guarantees of trustworthiness. Although DiPascali was awaiting sentencing in his own criminal case and may have hoped that his cooperation would help him, he testified under oath in open court and was extensively cross-examined. Five criminal defendants questioned him over sixteen days, and the government also cross-examined him during the prosecution’s case. The court noted that DiPascali never recanted his testimony and that his unavailability resulted from his death rather than an effort to avoid testifying in the consolidated actions.
The court rejected the defendants’ argument that inconsistencies between DiPascali’s trial testimony and plea allocution made the testimony unreliable. It found that the differences in his descriptions of when Madoff’s fraud began were slight and did not undermine trustworthiness. The court also relied on corroborating evidence compiled by Picard’s expert, Bruce Dubinsky, concerning the duration of Madoff’s fraud.
The court separately found the testimony sufficiently probative. DiPascali had been directly responsible for implementing the fraudulent split-strike conversion strategy, had extensive exposure to fraudulent investment strategies used in other accounts, and had generated fraudulent customer statements for investment-advisory clients. The court concluded that his account of his thirty-year tenure at the center of the investment-advisory business was more probative regarding the scope and duration of Madoff’s fraud than other evidence Picard could reasonably obtain.
Because the court found the testimony admissible under Rule 807, it did not address whether Rule 804(b)(1), the former-testimony exception, also applied. The court also rejected the Rule 403 objection, explaining that the case would be tried to the bench and that the risk of unfair prejudice was therefore remote.
Disposition
Judge John F. Keenan granted Picard’s “Motion in limine Number 1” and ruled that the identified portions of DiPascali’s prior trial testimony were admissible under Rule 807. The opinion states that the court would rule separately on Picard’s second motion in limine and the defendants’ motion in limine.
Read the full 11-page opinion on CourtListener, the free public archive maintained by the Free Law Project.