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IN RE INITIAL PUBLIC OFFERING SECURITIES LITIG.

United States District Court, Southern District of New York


November 7, 2001

IN RE INITIAL PUBLIC OFFERING SECURITIES LITIGATION.

The opinion of the court was delivered by: Scheindlin, District Judge.

OPINION AND ORDER

Over the last eleven months, plaintiffs have brought over 860 securities class actions against more than 200 companies and approximately 40 investment banks ("underwriters") alleging, in the broadest terms, that these defendants violated federal law by manipulating the prices of stocks that the companies had issued to the public. Because the hundreds of complaints share some common issues, Chief Judge Michael B. Mukasey ordered them consolidated for pretrial purposes and assigned the cases to this Court on August 9, 2001. See Order, In re Initial Public Offering Sec. Litig., 21 MC 92 (Aug. 9, 2001).

Many, but not all, of the underwriters have moved to recuse this Court for various reasons under 28 U.S.C. § 455 (the "moving defendants"). In support of their motion, the moving defendants have proffered the affidavits and declarations of Professors Geoffrey Hazard and Charles Wolfram as experts in judicial ethics. For the reasons that follow, these declarations must be precluded.*fn1

I. LEGAL STANDARD

"It is well-established that `the trial judge has broad discretion in the matter of the admission or exclusion of expert evidence.'" Boucher v. United States Suzuki Motor Corp., 73 F.3d 18, 21 (2d Cir. 1996) (quoting Salem v. United States Lines Co., 370 U.S. 31, 35, 82 S.Ct. 1119, 8 L.Ed.2d 313 (1962)). Nonetheless, "[i]n evaluating the admissibility of expert testimony, this Court requires the exclusion of testimony [that] states a legal conclusion." United States v. Feliciano, 223 F.3d 102, 121 (2d Cir. 2000) (quotation marks and citation omitted) (alteration in original); see also Marx & Co. v. Diners'. Club Inc., 550 F.2d 505, 510 (2d Cir. 1977). Indeed, "[t]his circuit is in accord with other circuits in requiring exclusion of expert testimony that expresses a legal conclusion." Hygh, v. Jacobs, 961 F.2d 359, 363 (2d Cir. 1992) (emphasis added).

II. BACKGROUND

At a conference held on September 26, liaison counsel*fn2 for the underwriters informed this Court that certain underwriters had decided to seek recusal based on this Court's purchases and sales of particular stocks. Over the next two weeks, the Court held several conferences to discuss the proposed recusal.

On October 3, without permission of the Court, the moving defendants submitted a fifteen-page declaration by Professor Geoffrey C. Hazard, Jr. According to the declaration, the moving defendants had asked Professor Hazard to "give [his] opinion concerning whether 28 U.S.C. § 455 requires recusal of the presiding district court judge, Honorable Shira A. Scheindlin." 10/3/01 Hazard Decl. ¶ 2. Throughout his nine-page opinion, Professor Hazard "relied upon the Statement of Facts prepared at [his] request by counsel for defendants in this action and attached hereto as Exhibit A," id. ¶ 3, which accounted for an additional six pages (single-spaced) of the declaration.

On Friday afternoon, October 12, the Court received a letter from the underwriter liaison firm requesting permission "to file a thirty-five page memorandum of law and an approximately forty-page supporting declaration from Charles W. Wolfram, the Charles Frank Reavis Sr. Professor Emeritus at the Cornell Law School." 10/12/01 Letter from Penny Shane of Sullivan & Cromwell. The letter further stated, "we also plan on submitting an affidavit attaching approximately twenty-five exhibits. . . ." Id. After considering the request, the Court issued the following order by email:

The page limit on the memorandum of law is extended to 35 pages. A 40-page declaration is excessive in length and will not be considered by the Court. Counsel should submit a list of the proposed exhibits. Until such list is reviewed by the Court, no exhibits will be considered.

After reviewing the e-mail, the liaison law firm contacted a law clerk by phone and asked whether there was some page number between zero and forty that the Court would accept. See 10/15/01 (11:00 a.m.) Tr. at 7. In response, the Court instructed the clerk to say it would allow fifteen pages to be submitted. See id. The Court also had the clerk notify the liaisons with the following email: "At the request of the counsel for the defendant-underwriters, the Court will accept a declaration from Professor Wolfram that is not to exceed 15-pages in length."

On Monday, October 15, 2001, the Court convened a telephone conference to discuss the proposed exhibit list and the declarations of Professors Hazard and Wolfram. At that conference, the Court raised the issue of whether the affidavits and declarations by Professors Hazard and Wolfram were admissible. See 10/15/01 (11:00 a.m.) Tr. at 19-20. Specifically, the Court stated that, in its view, affidavits "are supposed to put in factual material, but they're not suppose to in essence, make an additional legal argument." Id. at 19. After encouraging the moving defendants to share the declarations with the plaintiffs and discuss whether they should be admitted, see id. at 26, the Court adjourned the conference until later that day. See id. at 30.

At the reconvened conference, the plaintiffs informed the Court that they had reviewed the declaration by Professor Wolfram and believed it was "nothing more than an attempt to camouflage what is clearly an opinion as a matter of law on a legal issue by just using some facts as background for his conclusion." 10/15/01 Tr. (5:35 p.m.) at 8. The Court then instructed the parties to submit letter-briefs on whether the declarations of Professors Hazard and Wolfram should be admitted. See id. at 10, 12-13.

III. DISCUSSION

A. Should the Court Accept Expert Opinion on a Recusal Motion?

"This Court has repeatedly held that the testimony of an expert on matters of domestic law is inadmissable for any purpose." Music Sales Corp. v. Morris, 73 F. Supp.2d 364, 381 (S.D.N.Y. 1999) (emphasis added). The law of this circuit is that while an expert may provide an opinion to help a jury or a judge understand a particular fact, "he may not give testimony stating ultimate legal conclusions based on those facts." United States v. Bilzerian, 926 F.2d 1285, 1294 (2d Cir. 1991); see also Andrews v. Metro North Commuter R.R. Co., 882 F.2d 705, 708 (2d Cir. 1989) (holding that engineer's testimony that defendant was negligent was an improper legal conclusion); United States v. Scop, 846 F.2d 135, 140 (2d Cir.), modified on other grounds, 856 F.2d 5 (2d Cir. 1988) (holding that expert's statements that defendants violated securities law and "drew directly upon the language of the statute" were legal conclusions that "went well beyond his province as an expert").

The rule prohibiting experts from providing their legal opinions or conclusions is "so well — established that it is often deemed a basic premise or assumption of evidence law-a kind of axiomatic principle." Thomas Baker, "The Impropriety of Expert Witness Testimony on the Law," 40 U. Kan. L.Rev. 325, 352 (1992).*fn3 In fact, every circuit has explicitly held that experts may not invade the court's province by testifying on issues of law. See Nieves-Villanueva v. Soto-Rivera, 133 F.3d 92, 100 (1st Cir. 1997) (excluding expert legal opinion "because the judge's expert knowledge of the law makes any such assistance at best cumulative, and at worst prejudicial"); Weston v. Washington Metro. Area Transit Auth., 78 F.3d 682, 684 n. 4 (D.C.Cir. 1996) ("An expert witness may not deliver legal conclusions on domestic law, for legal principles are outside the witness' area of expertise under Federal Rule of Evidence 702."); Snap-Drape, Inc. v. Comm'r of Internal Revenue, 98 F.3d 194, 198 (5th Cir. 1996) ("We have repeatedly held that this rule does not allow an expert to render conclusions of law."); United States v. Sinclair, 74 F.3d 753, 757-58 n. 1 (7th Cir. 1996) ("Federal Rules of Evidence 702 and 704 prohibit experts from offering opinions about legal issues that will determine the outcome of a case. That is, they cannot testify about legal issues on which the judge will instruct the jury."); Peterson v. City of Plymouth, 60 F.3d 469, 475 (8th Cir. 1995) ("To that end, his testimony was not a fact-based opinion, but a statement of legal conclusion. The legal conclusions were for the court to make. It was an abuse of discretion to allow the testimony."); Berry v. City of Detroit, 25 F.3d 1342, 1353 (6th Cir. 1994) ("We also believe this testimony was received in violation of the Federal Rules of Evidence. . . . It is the responsibility of the court, not testifying witnesses, to define legal terms. The expert's testimony in this regard invaded the province of the court."); Aguilar v. Int'l Longshoremen's Union Local # 10, 966 F.2d 443, 447 (9th Cir. 1992) ("Here, the reasonableness and foreseeability of the casual workers' reliance were matters of law for the court's determination. As such, they were inappropriate subjects for expert testimony."); United States v. Leo, 941 F.2d 181, 196 (3rd Cir. 1991) (stating that "it is not permissible for a witness to testify as to the governing law"); Montgomery v. Aetna Cas. & Sur. Co., 898 F.2d 1537, 1541 (11th Cir. 1990) ("A witness also may not testify to the legal implications of conduct; the court must be the jury's only source of law."); Specht v. Jensen, 853 F.2d 805, 807 (10th Cir. 1988) (en banc) ("There being only one applicable legal rule for each dispute or issue, it requires only one spokesman of the law, who of course is the judge. . . . To allow anyone other than the judge to state the law would violate the basic concept.") (quotation marks and citation omitted); Adalman v. Baker, Watts & Co., 807 F.2d 359, 368 (4th Cir. 1986) ("From beginning to end, it is obvious that Appellants proffered [the person] as an expert witness to testify in substantial part to the meaning and applicability of [law]. This flies squarely in the face of the precedent — and the logic of that precedent. . . .").

Courts make one exception to this strict rule — when interpreting foreign law, expert legal opinion may be allowed. See Nieves-Villanueva, 133 F.3d at 99; Marx & Co., 550 F.2d at 510. Experts may also give limited testimony on mixed questions of law and fact, but the testimony must remain focused on helping the jury or judge understand particular facts in issue and not opine on the ultimate legal conclusion. See, e.g., In re Air Disaster at Lockerbie, Scotland, 37 F.3d 804, 826-27 (2d Cir. 1994) (holding that expert's testimony that defendants engaged in "fraud" and "deceit" was admissible because the words were used in colloquial fashion, but statement that defendants violated federal regulations was inadmissible as a legal conclusion); Specht, 853 F.2d at 809-10 (discussing the distinction).*fn4

The question presented on the recusal motion is whether 28 U.S.C. § 455 requires this Court to disqualify itself. This decision involves nothing more than interpreting the statute given certain undisputed facts; it is solely a question of law. See Jefferson County v. Acker, 92 F.3d 1561, 1581 (11th Cir. 1996) (en banc), vacated on other grounds, 520 U.S. 1261, 117 S.Ct. 2429, 138 L.Ed.2d 191 (1997) ("Whether a judge is disqualified, that is, must not take part in deciding a case, is a question of law."); In re City of Houston, 745 F.2d 925, 927 (5th Cir. 1984) ("The issue of judicial disqualification is solely one of law.").*fn5 Given that expert opinion may not address issues of law, it follows that expert opinion on a recusal motion cannot be admitted unless it involves the rare case where a fact is in dispute. As defendants concede, this is not such a case. See Moving Underwriters' Memorandum of Law in Support of Motion to Submit Declarations of Professors Hazard and Wolfram ("Def.Mem."), at 6 n. 3 ("Here, of course, the Declarations are based on undisputed facts. . . .").

The only opinion that this Court has found addressing the issue of expert testimony on a recusal motion reached the same conclusion. See United States v. Eyerman, 660 F. Supp. 775, 781 (S.D.N.Y. 1987) (Pollack, J.). In Eyerman, Judge Milton Pollack considered a recusal motion made under 28 U.S.C. § 455 by the defendant, a Vice-President of underwriter First Jersey Securities. Id. at 781. In support of the motion, Professors Geoffrey Hazard and Monroe Freedman furnished affidavits as "experts on ethics" and supported "their submission with a weighty compendium of their extracurricular activities to give verisimilitude to their sworn legal conclusions." Id. Judge Pollack rejected the affidavits and stated: "Supplying such affidavits under these circumstances seems rather presumptuous, considering that the affiants have not been asked by the Court for their views on the law and how the motion should be decided." Id.*fn6

Despite the weight of authority against admitting expert opinion on an issue of law, the Court has nonetheless — at the request of the defendants — reviewed the declarations by Professors Hazard and Wolfram. This Court's careful review reveals what will always be the case in a recusal motion when the facts are undisputed: The declarations offer — indeed, they only purport to offer — legal opinions and analyses on the question of whether the statute requires recusal. As Professor Hazard's declaration states: "I have been asked to give my opinion concerning whether 28 U.S.C. § 455 requires recusal of the presiding district court judge. . . . In reaching the following opinions, I have relied upon the Statement of Facts prepared at my request by counsel. . . ." Hazard Decl. ¶¶ 2, 3. Likewise, Professor Wolfram begins his declaration: "In summary, my opinion is that the facts compel her to recuse herself." Wolfram Declaration ¶ 1. Throughout both declarations, the refrain is the same: In their expert opinion, section 455 requires recusal.

Although this Court certainly has respect for Professors Hazard and Wolfram, they are only offering opinions based on undisputed facts. It is beyond dispute that "although an expert may opine on an issue of fact ___ he may not give testimony stating ultimate legal conclusions based on those facts." Bilzerian, 926 F.2d at 1294.

B. The Arguments of the Moving Defendants

Despite the weight of the authority that precludes admitting expert opinion on this motion, I shall nonetheless briefly address the arguments made by the moving defendants in support of their motion to accept the experts' declarations. First, they argue that the Federal Rules of Evidence do not apply to a recusal motion and that "all available guidance" should be received. See Def. Mem. at 5. Second, they contend that even if the Federal Rules of Evidence do apply, in particular Rule 702, the declarations should be admitted because Professors Hazard and Wolfram are experts in ethics. See id. at 7-10. Both of these arguments fail.

1. Should the Court Accept "All Available Guidance" on a Recusal Motion?

The moving defendants first argue that:

[T]he record on recusal motion is not limited to material that would be admissible under the Federal Rules of Evidence. See Hodgson v. Liquor Salemen's Union Local No. 2, 444 F.2d 1344, 1349 (2d Cir. 1971). Therefore, a declaration that might otherwise be inadmissible under the Federal Rules of Evidence should still be considered on a recusal motion, even if an evidentiary flaw reduces the declaration's weight.

Id. at 6. Based on this argument, the moving defendants conclude that "[o]n a recusal motion, the Court should receive all available guidance." Def. Mem. at 5 (emphasis added).

The moving defendants' reliance on Hodgson is inapposite and easily addressed. In that case, as well as in the other cases cited by the moving defendants, the hearsay statements were offered by the parties as the grounds for the recusal motion.*fn7 See Hodgson, 444 F.2d at 1347 (rejecting a recusal motion based on an attorney's statements "that he was very close to [the judge]" and "he could get favored treatment from her"). Accordingly, these courts were willing to consider the hearsay statements in deciding the recusal motions. Similarly, this Court will consider hearsay regarding its own financial transactions when it decides the recusal motion.

The moving defendants' assertion that "[o]n a recusal motion, the Court should receive all available guidance" is far too broad. Def. Mem. at 5 (emphasis added). No court can accept all available guidance on any matter. It would be unwise, if not impossible, for this Court to allow anyone that has a thoughtful opinion on a matter to submit a declaration.*fn8

Moreover, this Court has the inherent authority "to manage [its] own affairs so as to achieve the orderly and expeditious disposition of cases." Chambers v. NASCO, Inc., 501 U.S. 32, 43, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991) (quotation marks omitted).*fn9 In this case, for example, the Court has extended its page limits on briefs as well as convened six conferences to discuss the recusal motion. But there is no reason to think that this Court, or any court, should accept "all available guidance" when a recusal motion is made.

2. Do the Proposed Expert Opinions Fall Under Rule 702?

The moving defendants' second argument is that "[e]ven if the Federal Rules of Evidence did apply in proceedings on recusal, the Wolfram and Hazard Declarations would be admissible" because "expert testimony is allowed from those with `scientific, technical, or other specialized knowledge.'" Def. Mem. at 7 (quoting Fed.R.Evid. 702). This argument fares no better than the first one.

Rule 702 states in pertinent part:

If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise. . . .

Fed.R.Evid. 702 (emphasis added). As Rule 702's plain language shows, the opinion of an expert witness is only admissible if it (1) assists the trier of fact in (2) understanding the evidence or determining a disputed fact.

The moving defendants' argument that Rule 702 allows the declarations to be admitted fails for two reasons. First, this motion does not call for a trier of fact; a motion to recuse is not a trial. Second, even if this Court could be properly labeled a "trier of fact," there is no fact or evidence in issue. The moving defendants concede as much when they state:

The Declarations' reliability flows from the unquestioned expertise of their authors in matters of judicial ethics. It is enhanced by the authors' review of factual material that is itself not subject to dispute, including transcripts of proceedings, court orders, and notices to counsel.

Def. Mem. at 7 (citation omitted) (emphasis added); see also id. at 6 n. 3 ("Here, of course, the Declarations are based on undisputed facts. . . .") (emphasis added). Because these two statutory requirements are not satisfied, the declarations may not be admitted under Rule 702.*fn10

IV. CONCLUSION

When discussing expert opinion, Judge Learned Hand once warned trial courts: "Argument is argument whether in the [witness] box or at the bar, and its proper place is the last." Nichols v. Universal Pictures Corp., 45 F.2d 119, 123 (2d Cir. 1930). The same can be said here because the declarations of Professors Hazard and Wolfram only advocate a particular interpretation of a statute and the ultimate outcome of the motion.

In our adversarial system, lawyers make arguments, judges write legal opinions — and there is no such thing as an expert opinion when it comes to interpreting a statute unless that opinion belongs to a court.*fn11 Professors Hazard and Wolfram are free to consult with the moving defendants, sign their brief, or both. They may attend the conferences and argue on their behalf. They could have submitted an amicus brief arguing how the law should be interpreted, although the time for such a submission has passed. But it remains this Court's exclusive duty and province "to say what the law is." Marbury v. Madison, 5 U.S. (1 Cranch) 137, 177, 2 L.Ed. 60 (1803).

The moving defendants' motion to submit the declarations of Professors Hazard and Wolfram as expert opinion is therefore denied.

SO ORDERED.


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