Irving H. Picard v. Sage Associates

Background

The opinion addresses a motion in limine—an advance request to decide whether particular evidence may be used at trial—in consolidated actions brought by Irving H. Picard, the trustee for the liquidation of Bernard L. Madoff Investment Securities LLC (BLMIS). Picard seeks to avoid and recover alleged fraudulent transfers made by BLMIS to Sage Associates and Sage Realty during the two years before BLMIS filed for bankruptcy. The opinion states that Picard seeks to recover $13,510,000 transferred to Sage Associates and $3,370,000 transferred to Sage Realty, and to hold Malcolm Sage, Martin Sage, and Ann Sage Passer jointly and severally liable in their alleged capacities as partners or joint venturers.

The defendants’ primary defense is that they directed BLMIS to buy and sell specific securities and hold those securities in their accounts. They contend that the returns in the Sage Associates accounts reflected those directed trades and that they may retain the purported profits under the Securities Investor Protection Act.

Motion and Positions

The defendants listed nine charts and graphs concerning subjects including margin debt, changes in account equity, historical account performance, market comparisons, the 1987 market crash, and an alleged equity-price analysis. Malcolm Sage created the materials for this litigation and intended to testify about them. The defendants had not disclosed any experts under Rule 26 of the Federal Rules of Civil Procedure, and Malcolm Sage was their sole trial witness.

Picard argued that the charts and related testimony were expert opinions requiring disclosure under Rule 26(a)(2). He also argued that the materials were inadmissible as fact testimony or lay opinions because they rebutted the opinions of Picard’s disclosed expert, Bruce Dubinsky, and relied on Malcolm Sage’s after-the-fact analysis of information outside his personal knowledge.

The defendants argued that the materials were summaries of voluminous factual information and demonstrative evidence under Federal Rules of Evidence 1006 and 611. They characterized Malcolm Sage as a fact witness and argued that any opinions were admissible lay opinions under Rule 701. They also argued that the materials were based on his firsthand knowledge of and involvement with the Sage Associates account and did not require specialized knowledge under Rule 702.

Court’s Analysis

The court stated that it was inclined to agree that the exhibits and related testimony were undisclosed expert testimony admissible only under Rule 702. The court pointed to Malcolm Sage’s after-the-fact research into historical securities-pricing information and calculations that arguably were not based on reasoning familiar from everyday life. The court also noted that several exhibits, particularly Exhibit DX-KF, appeared to have been created to rebut the testimony of Picard’s properly disclosed expert, and that rebuttal expert testimony is not exempt from Rule 26’s reporting requirements.

Even so, the court concluded that exclusion was not appropriate at that time. It explained that sanctions for violating Rule 26 are discretionary and that preclusion—the barring of evidence or testimony—is considered an extreme sanction generally ordered only in rare cases. The court also rejected Picard’s concerns about conducting a reliability challenge under Daubert because this was a bench trial, meaning the judge rather than a jury would decide the facts. The court stated that it had substantial discretion to receive the evidence and later decide what weight, if any, it deserved.

The court recognized Picard’s remaining concerns about unfair surprise and his inability to challenge the exhibits before cross-examination. To address those concerns and avoid trial by ambush, the court conditioned the use of the exhibits and related testimony on the defendants making Malcolm Sage available for a deposition, by video or in person, before trial.

Disposition

Judge John F. Keenan denied Picard’s Motion in Limine Number 2 on the condition that Picard be given the opportunity to depose Malcolm Sage for at least six hours. The court ordered the defendants to make Malcolm Sage available for that deposition on or before January 12, 2022, if they wished to use the challenged exhibits. The court further ordered that the bench trial begin on January 19, 2022, at 11:30 a.m., rather than January 18, 2022.