The opinion of the court was delivered by: Denny Chin, United States District Judge
In this case, plaintiffs contend that in the 1980s, as Keene Corporation ("Keene") became the subject of a rapidly-increasing number of asbestos claims, it engaged in a series of fraudulent conveyances intended to place hundreds of millions of dollars in assets beyond the reach of claimants. In 1981, Keene formed a holding company, Bairnco Corporation ("Bairnco"), and eventually Keene itself became a wholly-owned subsidiary of Bairnco. From 1983 through 1989, Keene transferred certain of its profitable businesses or divisions to newly-created Bairnco subsidiaries. By 1993, after more than 100,000 asbestos lawsuits had been brought against it, Keene went into bankruptcy.
Plaintiffs, the Trustees of the Keene Creditors Trust (the "Trust"), brought this action on behalf of asbestos claimants to challenge the transactions as fraudulent conveyances. Plaintiff's claims present two key factual areas of inquiry: (1) whether the newly-created subsidiaries paid "fair consideration" for the assets they purchased from Keene, and (2) whether the management of Keene and the purchasing companies acted with fraudulent intent, i.e., with the intent to hide assets from Keene's creditors.
Before the Court are defendants' motions to exclude the testimony of three of plaintiffs' proposed expert witnesses: William J. Carney, a law professor who has provided an opinion as to the "business purpose" of the transactions in question, and Thomas E. Dewey, Jr., an investment hanker, and Jocelyn D. Evans, a finance professor, who have provided opinions as to the value of the transferred businesses.
For the reasons that follow, the motions are granted: Professor Carney, Mr. Dewey, and Dr. Evans will not be permitted to testify at trial.
The facts are summarized in the Court's prior decisions in this case. See, e.g., Lippe v. Bairnco Corp., 230 B.R. 906, 908-11 (S.D.N.Y. 1999); Lippe v. Bairnco Corp., 225 B.R. 846, 850 (S.D.N.Y. 1998). The facts relating to the role of defendant Kidder, Peabody & Co. ("Kidder"), a former defendant in this case, are of particular relevance to the motion to exclude the testimony of plaintiffs' valuation experts. Kidder provided "fairness opinions" concerning the transactions in question. After the purchase price for each transaction had been set Kidder determined the value of the company in question and then rendered an opinion as to whether the purchase price was fair. In every instance, Kidder concluded that fair consideration was being paid. These facts are summarized in the Court's decision granting certain motions to dismiss filed by Kidder and other former defendants. See Lippe v. Bairnco Corp., 218 B.R. 294, 300 (S.D.N.Y. 1998).
Carney prepared a 129-page report, dated August 29, 2001, setting forth his opinion as to the "business purpose" of the transactions in question. The report was the subject of prior motion practice in this case, as defendants moved to strike his report and to preclude him from testifying at trial.
By Memorandum Decision filed January 7, 2002, I granted the motion in part and I denied it in part. Lippe v. Bairnco Corp., No. 96 Civ. 7600 (DC), 2002 WL 15630 (S.D.N.Y. Jan. 7, 2002). I held:
Carney will not be permitted to give testimony stating
ultimate legal conclusions; he will not be permitted
to opine that the conveyances in question were
fraudulent conveyances. Likewise, Carney will not be
permitted to offer his personal assessment on the
credibility of others or what others actually
intended. He will be permitted to testify about
corporate conveyances and transactions to help the
jury understand the series of corporate transactions
Id. at *3. I granted the motion in part because much of Carney's proposed testimony was improper, as he was proposing to tell the jury what result to reach — that defendants had engaged in fraudulent conveyances. Me was proposing to tell the jury that defendants' witnesses were not to be believed and that their "real purpose" was "to remove the most valuable and promising business assets that Keene owned from the reach of its asbestos creditors." (Carney Report at 7, 9).*fn1
Within just a few days after I issued my decision, defendants proposed to plaintiffs that the parties seek to agree on "which portions of Professor Carney's report survive the Court's . . . ruling." (Cowan Decl. Ex. 4). Plaintiffs declined. Defense counsel then offered to mark up Carney's report first, to start the process of trying to reach an agreement. Plaintiffs again declined.
At Carney's deposition in May 2002, defendants again asked plaintiffs to set forth their position on what Carney could testify to, but plaintiffs again refused:
MR. FEIGELSON: . . . [A]re plaintiffs' counsel
prepared at this time to respond to our request we've
made before; and that is, to identify for us those
parts of Professor Carney's report that you believe he
will not be allowed to testify to at trial, in light
of Judge Chin's opinion?
MR. GROSS: No.
MR. FEIGELSON: Are you prepared to tell us when, if
ever, plaintiffs will give us that information?
MR. GROSS: No.
In fact, plaintiffs took the position at the deposition that if defendants asked Carney any questions about any topic in his report, Carney would be free to testify about those subjects at trial:
MR. GROSS: . . . [I]t is our position that if you do
delve into areas that the judge has indicated, as you
understand his order, are not proper, then we'll take
the position that anything you ask he has a right to
testify about at this trial. Okay? . . .
MR. BURDETTE: David, if you're going to do that, you
have to tell us what you think he is not allowed to
MR. GROSS: I'll tell you what I need to tell you when
I think I do, Brooks, not what you'd like me to tell
(Id. at 8-9).
Defendants proceeded to question Carney about his full report. Carney reiterated his understanding that he was going to testify as to the "business purpose" of the transactions in question:
Q. . . . Could you read aloud, sir, the first sentence
under the heading Engagement?
A. "In the present matter I have been asked to provide
my opinion as to the business purpose for the
transactions . . . concerning Keene, Bairnco, and
Q. And is the report as you understand it, in fact, a
statement of your opinion as to the business purpose
for these transactions? That is, did you do in your
report what you said in the first sentence under
Engagement here that you were going to do?
A. Well, I think others will have to judge my success
in carrying out that enterprise, but it is my personal
belief that I've been responsive to that request,
Q. Was it your intention in this report to opine about
Q. As you sit here today, do you have any
understanding about what opinions you will be asked to
offer at trial if you testify at trial?
A. I think that that single sentence probably sets
that out as clearly as any I can say.
Q. Your opinion as to the business purpose for the
(Carney Dep. at 139-42 (quoting Carney Report at 1)).
2. Carney's Role As "Counsel"
The discovery taken after my January 7, 2002 decision revealed that Carney was engaged as "counsel" by plaintiffs (and their attorneys of record) in October 1999. Carney sent a retainer letter, on letterhead of "William J. Carney, Attorney at Law," to plaintiffs' counsel on October 27, 1999. The letter, addressed to David R. Gross, Esq., reads in part as follows:
I am pleased that you have chosen me to serve as
counsel to your firm in the above-referenced
litigation. . . . This letter will confirm the scope
of my initial engagement and our fee arrangement for
the services I will render.
Pursuant to my discussions with you, I will serve as
consultant to you on certain issues of corporate law
in the above referenced litigation. I understand that
I may be asked to review certain documents and
transactions to determine if I can serve, if
requested, as an expert witness with respect to issues
raised in the litigation. If, after this review
determine that I am able to testify on behalf of your
client, I will take such steps as may be necessary to
prepare to testify at trial.
The fee arrangements described below are not
contingent on my being able to testify. . . . The
amount of time expended by me will be recorded and
assigned a dollar value based upon my personal hourly
rate, which is $375.
Certain charges for items performed on the client's
behalf in rendering legal services, such as filing
fees, long-distance telephone calls, . . . and the
like are payable by the client.
(Cowan Decl. Ex. 9 (emphasis added)).
In fact, as the record shows, Carney acted as an attorney in the case. Although he called himself a "consultant" or "analyst" at times during his deposition, he freely acknowledged his job as "counsel." (Carney Dep. at 60, 80, 257, 498, 499). Indeed, over the course of his deposition he acknowledged his role as counsel or described himself as "counsel" or "legal advisor" numerous times.*fn2 More important than the label, however, was the actual role that Carney acknowledged he undertook: he carried out the traditional functions of a lawyer as he helped plaintiffs "explore and develop legal theories," "identify the legal issues and the facts — the kinds of facts that would be necessary to support various claims," "formulat[e] and develop issues and theories in the case," and "evaluat[e] the defense that would be put up in this case." (Id. at 60, 257, 507).
Other documents produced in discovery show that Carney acted as counsel. He placed the notation "CONFIDENTIAL — ATTORNEY WORK PRODUCT" on notes he prepared. He provided legal advice, in writing, as to plaintiffs' claims and legal theories and suggested areas for cross-examination of defendant Bailey. (Cowan Decl. Exs. 7-8, 10-14).
Notwithstanding his role as counsel, Carney is prepared to testify as an expert witness in this case, with respect to the very issues and theories that he helped formulate and develop in his role as a lawyer. (Carney Dep. at 507-08; see also id. at 344). In fact, Carney testified that he saw no tension or conflict "at all" in "developing [an] argument as counsel and then opining on it as an expert." (Id. at 344).
The valuation experts, Dewey and Evans, prepared reports in which they offered opinions as to the value of the companies that were the subject of the transactions in question. Evans also offered opinions on Keene's values at various times. In making their valuations, Dewey and Evans relied on the materials that Kidder had prepared back in the 1980s. Both Dewey and Evans were also deposed at length by defendants. In every instance, they concluded that the fair market value of the transferred assets far exceeded the consideration that defendants Bairnco, Kaydon Corporation, ("Kaydon"), the Genlyte Group, Inc. ("Genlyte"), Kasco Corporation ("Kasco"), Shielding Systems Corporation ("Shielding"), and Arlon, Inc. ("Arlon") paid for them.
This case was filed in 1996. It has been heavily litigated, as the parties have engaged in extensive motion practice and voluminous discovery. There were numerous discovery disputes that required the Court's intervention. Detailed agreements were reached, and approved by the Court, as to a schedule for discovery, fact and expert, and discovery closed long ago. Defendants filed summary judgment motions as well as these motions to exclude certain expert testimony, and both sets of motions are fully submitted. Trial is, and has been for some time now, set for March 31, 2003, just nine weeks away.
I heard argument on the instant motions on January 10, 2003. At the outset, in an effort to focus the argument, I gave the lawyers my preliminary views based on my review of the motion papers. (1/10/03 Tr. at 3-12). Instead of proceeding with argument, however, plaintiffs' counsel asked for a recess. When the session reconvened, plaintiffs' counsel asked for the opportunity, on another day, to call Carney, Dewey, and Evans as witnesses so that the Court could hear their testimony in person. (Id. at 13-17). I declined to adopt the suggestion, in part because all three had been deposed at length and the transcripts of their depositions were part of the record. I indicated, however, that if I were to conclude, upon further review of the matter, that testimony would be helpful, I would advise the parties. I indicated that otherwise I would rule on the motions. (Id. at 19-22, 62). The parties proceeded to present their oral arguments.
A. Applicable Legal Principles
1. Expert Testimony Generally
A witness qualified as an expert will be permitted to testify if his or her testimony "`will assist the trier of fact to understand the evidence or to determine a fact in issue.'" United States v. Lumpkin, 192 F.3d 280, 289 (2d Cir. 1999) (quoting Fed.R.Evid.. 702). To be admissible, expert testimony must be both relevant and reliable. Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 589 (1993). As the Court explained in Daubert, the trial judge's task is to "ensur[e] that an expert's testimony both rests on a reliable foundation and is relevant to the task at hand." Id. at 597. The trial judge's "gatekeeping" obligation applies not only to "scientific" testimony but to "technical" and "other specialized" knowledge as well. Kumho Tire Co. v. Carmichael, 526 U.S. 137, 141 (1999).
In 2000, in response to the Court's decision in Daubert and decisions that followed, including Kumho Tire, Congress amended Rule 702 of the Federal Rules of Evidence. As amended, Rule 702 provides:
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, if (1)
the testimony is based upon sufficient facts or data,
(2) the testimony is the product of reliable
principles and methods, and (3) the witness has
applied the principles and methods reliably to the
facts of the case.
Fed.R.Evid.. 702. The proponent of expert testimony must establish its admissibility by a preponderance of the evidence. See Astra Aktiebolag v. Andrx Pharms., Inc., 222 F. Supp.2d 423, 487 (S.D.N.Y. 2002) (citing Fed.R.Evid.. 104(a) and Bourjaily v. United States, 483 U.S. 171
, 175-76 (1987)); Cayuga Indian Nation v. Pataki, 83 F. Supp.2d 318, 322 (N.D.N.Y. 2000) ("[I]t is the proponent's burden . . . to establish admissibility, rather than the opponent's burden to establish inadmissability." (internal quotations omitted)); Fed.R.Evid.. 702 advisory committee's note (2000 Amendments) ("[T]he proponent has the burden of establishing that the pertinent admissibility requirements are met by a preponderance of the evidence."). Rejection ...