United States District Court, S.D. New York
July 19, 2005.
HIGHLAND CAPITAL MANAGEMENT, L.P., Plaintiff,
LEONARD SCHNEIDER, LESLIE SCHNEIDER, SCOTT SCHNEIDER, SUSAN SCHNEIDER, and JENKENS & GILCHRIST PARKER CHAPIN LLP, Defendants. LEONARD SCHNEIDER, LESLIE SCHNEIDER, SCOTT SCHNEIDER, and SUSAN SCHNEIDER Third-Party Plaintiffs, v. RBC DOMINION SECURITIES CORP., Third-Party Defendants and Counterclaimant.
The opinion of the court was delivered by: GABRIEL GORENSTEIN, Magistrate Judge
OPINION AND ORDER
Plaintiff Highland Capital Management, L.P. ("Highland") brings
this action against defendants, Leonard Schneider, Leslie
Schneider, Scott Schneider, Susan Schneider (the "Schneiders")
and Jenkens & Gilchrist Parker Chapin LLP ("JGPC") (collectively
"the defendants") to recover damages based on the Schneiders'
alleged failure to consummate a transaction involving promissory
notes issued by McNaughton Apparel Group, Inc. ("McNaughton").
Highland alleges that the Schneiders agreed to sell it the notes
but then reneged on the agreement after they received inside information
that caused them to believe the notes would increase in value. In
its third amended complaint, Highland has set forth a variety of
claims for relief against the defendants, including breach of
contract, tortious interference with contractual relations, and
tortious interference with prospective contractual and business
relations. Defendants now move in limine for an order
excluding the testimony of Highland's proposed expert witness,
Sean F. O'Shea ("O'Shea").
As discussed below, O'Shea's proposed testimony consists of a
summary of the evidence in the case from Highland's perspective,
a description of federal securities laws, and an assertion that
those laws were violated by various individuals. It concludes
with the speculation that a federal prosecutor presented with
Highland's version of the events would "likely" pursue a criminal
investigation of these individuals and seek their indictment.
Because this testimony is inadmissible, and because O'Shea's
speculation regarding how a prosecutor would treat this case is
simply irrelevant to any claim asserted by Highland, defendants'
motion to exclude it in its entirety is granted.
A. The Amended Complaint
In its amended complaint, Highland alleges that, prior to April
15, 1998, the Schneiders owned and operated companies, Jeri-Jo
Knitwear, Inc. and Jamie Scott, Inc. (collectively, "Jeri-Jo"),
which made junior active apparel. Plaintiff's Third Amended
Complaint (reproduced as Ex. 4 to Defendants' Notice of Motion to
Exclude Proposed Expert Testimony of Sean O'Shea ("Notice of
Motion")) ("Am. Compl."), ¶ 9. On April 15, 1998, McNaughton
purchased substantially all of the assets of Jeri-Jo. Id. Under
the terms of the deal, McNaughton made an initial payment, assumed debt, and obligated itself to make a
"future earn-out payment" to the Schneiders based on the
performance of Jeri-Jo over the course of the following two
Once Jeri-Jo was sold to McNaughton, Leonard Schneider, the
patriarch of the Schneider family, ended his association with
Jeri-Jo. Id. ¶ 10. Leslie, Susan and Scott Schneider (the
"Schneider Children") remained as operating executives at Jeri-Jo
and entered into employment agreements under which they reported
directly to Peter Boneparth, the President and Chief Executive
Officer of McNaughton. Id.
On August 3, 2000, the terms of the sale agreement were amended
to provide for the retirement of the future earn-out payment
through a combination of cash, stock and promissory notes. Id.
¶ 13. McNaughton issued eight promissory notes totaling $69
million (the "Notes"), to the Schneiders. Id. ¶ 21.
Highland avers that, in November 2000, an officer of McNaughton
forwarded "confidential" information to the Schneiders detailing
McNaughton's financial condition. See id. ¶ 18. Between
January and May 2001, Leonard Schneider sold approximately
693,000 shares of McNaughton stock. Id. ¶ 39. Highland alleges
that, because the McNaughton officer was aware of the volume of
shares being sold and that the Schneider Children were "exiting
the company," the officer "surmised" that the Schneiders were
"engaged in an effort to dump their McNaughton stock. . . ."
Id. ¶ 40.
In late 2000 and early 2001, the Schneiders sought to sell the
Notes. See id. ¶¶ 23-24. The Schneiders allegedly retained
Glen Rauch ("Rauch") of Glen Rauch Securities, Inc. to begin
marketing the Notes for sale. See id. ¶¶ 19, 23. By letter
agreement dated January 5, 2001, Rauch in turn retained RBC
Dominion Securities Corporation ("RBC") "to market the Notes on behalf of the Schneiders." Id. ¶ 24. After Highland was
identified as a potential purchaser of the Notes, a conference
call was arranged involving RBC, Rauch, JGPC (as the Schneiders'
counsel), and Highland. See id. ¶¶ 19, 29; see also
Affidavit of Katherine C. Ash in Support of Motion to Exclude
Proposed Expert Testimony of Sean O'Shea, dated February 9, 2005
(annexed to Notice of Motion) ("Ash Aff."), ¶ 23 (explaining the
various transactions in which JGPC represented the Schneiders).
Highland alleges that, "[o]n the morning of March 12, 2001,
Rauch with the consent and on the behalf of the Schneiders
offered to sell RBC all $69 million of the Notes at 51 cents on
the dollar." Am. Compl. ¶ 34. Highland also alleges that on March
14, 2001 "RBC confirmed the trade orally with Rauch." Id. ¶ 36.
Highland alleges that, "subject to documentation," the trade
consisted of Rauch buying "all the Notes from the Schneiders at
51 cents on the dollar and to sell approximately $45.4 million to
Highland . . . at 52.5 cents on the dollar (the spread being the
commission paid to RBC)." Id. The remaining $23.6 million
portion of the Notes was to be sold to another purchaser also
"at 52.5 cents on the dollar." Id. At this point, according to
Highland, "the parties proceeded to document the transaction and
prepare for settlement." Id. ¶ 37.
At about the same time, McNaughton, through Boneparth, had been
in active negotiations with Jones Apparel Group ("Jones") for a
proposed merger/acquisition. See id. ¶ 42. Highland alleges
that, having learned that the Schneiders were about to trade the
Notes, various officers of McNaughton met privately on March 8,
2001. Id. ¶¶ 43-44. Highland contends that, at this meeting,
the officers "determined that they should inform the Schneiders . . .
of the ongoing merger negotiations in order to persuade the
Schneiders to forego selling the Notes" and their remaining shares in McNaughton. Id. ¶ 45. Highland also alleges
that it was determined that one of these McNaughton officers
"should contact [JGPC] to inform them of the information
regarding the Jones transaction." Id.
The amended complaint alleges that the McNaughton officer then
contacted two attorneys at JGPC and informed them of the
information concerning the McNaughton/Jones merger. See id.
¶¶ 19, 46. Highland claims that the two attorneys were then in
contact with Leonard Schneider and some of the Schneider
children. See id. ¶¶ 48-49. On March 13, 2001, a meeting was
held at JGPC's New York office at which the two attorneys and all
of the Schneiders were present, either in person or by telephone.
Id. ¶ 50. Highland alleges that at this meeting, the attorneys
informed the Schneiders of the possible McNaughton/Jones merger
and advised the Schneiders not to sell either their McNaughton
stock or the Notes. See id. ¶ 51.
Highland alleges that, upon learning this information, the
Schneiders refused to proceed with the transaction. See id.
¶¶ 51-52, 54. At that point, however, Highland claims that the
trade of the Notes "had already been made." Id. ¶ 52. Jones
eventually reached an agreement to purchase McNaughton and the
Schneiders received payment in full for the Notes shortly after
the transaction closed. See id. ¶¶ 54-55. According to
Highland, the Schneiders received a "windfall" of $34 million
"for backing out of their agreement to sell the Notes." Id. ¶
B. The Answers
In their answers, the Schneiders and JGPC deny, inter alia,
that Rauch had the consent of the Schneiders to offer to sell the
Notes to RBC, that the Schneiders (or Rauch on behalf of the
Schneiders) agreed to sell the Notes, or that any information
provided to the Schneiders by officials at McNaughton through the
attorneys at JGPC was improper or used wrongfully. See Schneiders' Answer With Affirmative Defenses and Third-Party
Complaint (reproduced as Ex. 5 to Notice of Motion) ("Schneiders'
Answer"), ¶¶ 1, 33, 35-36, 46-48, 50; Answer of Jenkens &
Gilchrist Parker Chapin LLP With Affirmative Defenses (reproduced
as Ex. 6 to Notice of Motion) ("JGPC Answer"), ¶¶ 1, 33, 35-36,
46-48, 50. The defendants also asserted a variety of affirmative
defenses. See Schneiders' Answer ¶¶ 80-88; JGPC Answer ¶¶
79-88. The Schneiders have set forth claims against RBC via a
third-party complaint. See Schneiders' Answer ¶¶ 89-128.
C. Highland's Claims for Relief and Related Proceedings
Highland has listed seven causes of action in its amended
complaint five of which have been asserted against the
Schneiders and two of which have been asserted against JGPC.
Specifically, it is alleged that the Schneiders: (1) breached a
binding agreement with Highland for the sale of the Notes, see
Am. Compl. ¶¶ 56-60; (2) breached a preliminary agreement with
Highland for the sale of the Notes, see id. ¶¶ 61-65; (3)
tortiously interfered with Highland's rights under an agreement
entered into between Highland and RBC by reneging on their
agreement to sell the Notes, see id. ¶¶ 66-72; (4) tortiously
interfered with Highland's rights under a prospective agreement
with RBC and the business relationship between Highland and RBC
by reneging on their agreement to sell the Notes, see id. ¶¶
73-79; and (5) breached an agreement with RBC for the sale of the
Notes, thereby preventing RBC from fulfilling its obligations to
Highland, see id. ¶¶ 98-103. Highland also alleges that JGPC
(1) tortiously interfered with agreements entered into between
Highland and the Schneiders and Highland and RBC for the sale of
the Notes, see id. ¶¶ 80-88; and (2) tortiously interfered
with Highland's rights under a prospective agreement between Highland and RBC and
the business relationship between Highland and RBC, see id.
D. O'Shea's Proposed Testimony
O'Shea is an attorney in private practice who served as an
Assistant United States Attorney in the United States Attorney's
Office for the Eastern District of New York from 1986 to 1996.
See Expert Report of Sean F. O'Shea (annexed as Ex. 1 to Notice
of Motion) (referred to hereinafter as the "Report" or the
"O'Shea Report") ("O'Shea Rpt."), ¶¶ 1-2, 4. O'Shea served as
Chief of that Office's Business/Securities Fraud Unit from 1989
to 1996. Id. ¶ 2. At Highland's request, O'Shea has opined as
to whether the conduct of certain individuals involved in the
transaction at issue constituted a criminal violation of the
securities laws and how a prosecutor would treat that conduct.
See Deposition of Sean F. O'Shea (reproduced as Ex. 2 to Notice
of Motion), at 41-44. In order to conduct that analysis,
Highland's counsel provided O'Shea with access to "all of the
pleadings . . . and all of the discovery produced in this matter
(including all documents and all deposition testimony)." O'Shea
Rpt. ¶ 7 (footnotes omitted).
O'Shea's conclusions are contained in the Report. In the
Report's first substantive section, labeled "Facts," O'Shea
relies on deposition testimony and documentary evidence to recite
the history of the purported dealings between the Schneiders and
Highland, among others. See id. ¶¶ 8-35. In the closing
paragraphs of the "Facts" section, O'Shea opines as to what were the "effects" of the Schneiders' learning of the McNaughton/Jones
merger. See id. ¶¶ 36-39. In the following two sections of
the Report labeled "Considerations in the Prosecution of
Securities Fraud Violations" and "Legal Basis for Criminal
Securities Fraud Prosecutions" O'Shea details the factors that
prosecutors take into consideration in determining whether to
prosecute alleged violations of the securities laws, see id.
¶¶ 40-43, and sets forth the governing statutes and case law that
underlie criminal violations of the securities laws, see id.
¶¶ 44-57. These sections include a discussion of Section 10(b) of
the Securities Exchange Act of 1934 ("Section 10(b)") and Rule
10b-5, 17 C.F.R. § 240.10b-5, as well as federal statutes
prohibiting, inter alia, mail fraud, wire fraud, and
conspiracy to commit these crimes. Id. ¶¶ 44-45. O'Shea
discusses, through reference to case law, the type of conduct
that he believes would constitute a criminal violation of Section
10(b) and Rule 10b-5. See id. ¶ 46. In addition, O'Shea
refers to case law to define various legal terms pertaining to
securities fraud, including "market manipulation," "insider
trading," "tippers," "tippees," "material" information and
"non-public" information. See id. ¶¶ 47-48, 51, 55-56.
In the next section of the Report, labeled "Summary of
Conclusions," O'Shea states that, based upon his "experience as
an Assistant United States Attorney," it is his opinion: (1) that
information pertaining to, inter alia, McNaughton's financial
condition and to the McNaughton/Jones merger constitutes
"material, non-public information concerning McNaughton"; (2)
that certain individuals "are subject to criminal prosecution"
for manipulating the market price of McNaughton stock; and (3)
that certain individuals "are subject to criminal prosecution for
insider trading" arising from the use of inside information.
See id. ¶¶ 58(a)-(d). In the next section of the Report,
labeled "Explanation of Conclusions," O'Shea reviews the evidence provided by Highland and, applying his construction of
the law to this evidence, explains why he believes that the
conduct of the individuals involved in these transactions was
illegal. See id. ¶¶ 59-75.
In the final section of the Report, labeled "Conclusion,"
O'Shea opines that the conduct of certain named individuals
involved in the transaction "was wrongful and violative of the
criminal law" and that "a federal prosecutor faced with the
foregoing facts, information and caselaw would likely pursue a
criminal investigation of" certain named individuals, "would
present all of the foregoing to a Grand Jury, and would ask that
Grand Jury to return indictments." See id. ¶ 76.
E. The Instant Motion
Defendants have now moved pursuant to Rules 104, 401, 402, 403
and 702 of the Federal Rules of Evidence to exclude O'Shea's
proposed expert testimony. See Notice of Motion; Ash Aff. ¶ 2;
Reply Affidavit of Katherine C. Ash in Further Support of Motion
to Exclude Proposed Expert Testimony of Sean O'Shea, dated March
31, 2005, ¶ 2; Defendants' Memorandum of Law in Support of Motion
to Exclude Proposed Expert Testimony of Sean O'Shea, dated
February 9, 2005 ("Def. Mem."); Defendants' Reply Memorandum of
Law in Support of Motion to Exclude Proposed Expert Testimony of
Sean O'Shea, dated March 31, 2005. Defendants argue, inter
alia, that O'Shea's proposed testimony, as stated in the
Report, is inadmissible and must be excluded because (1) the
"proffered opinion testimony is a series of legal conclusions and
opinions as [to] the state of the law and as to how, in
[O'Shea's] view, the law ought to be applied to the facts" of
this case; (2) the "factual narrative" contained in the Report
"does not assist the trier of fact and is unnecessary and
irrelevant"; (3) throughout the Report there are "[i]nadmissible musings on the intentions and motivations of
defendants and non-parties"; (4) the proposed testimony
improperly "rests on [O'Shea's] evaluation and determination of
the credibility of witnesses"; and (5) the Report "contains
opinions on subjects on which O'Shea does not profess to have, or
lacks, expertise." Def. Mem. at 11, 17, 20, 22-23.
Highland has submitted papers in opposition to defendants'
motion to exclude. See Plaintiff's Memorandum in Opposition to
Defendants' Motion to Exclude Proposed Expert Testimony of Sean
O'Shea, dated March 11, 2005 ("Pl. Mem."). Highland requests that
defendants' motion to exclude be denied or, in the alternative,
that the consideration of the motion be delayed until "at or
shortly before trial when [d]efendants' concerns can be placed in
[the] context of the trial at hand." Id. at 1. Highland also
requests "leave to supplement the O'Shea Report in accordance
with any rulings made on this motion." Id. at 21.
II. APPLICABLE LEGAL PRINCIPLES
A. Motion in Limine Standard
"The purpose of an in limine motion is to aid the trial process
by enabling the Court to rule in advance of trial on the
relevance of certain forecasted evidence, as to issues that are
definitely set for trial, without lengthy argument at, or
interruption of, the trial." Palmieri v. Defaria, 88 F.3d 136,
141 (2d Cir. 1996) (citation and internal quotation marks
omitted); accord Nat'l Union Fire Ins. Co. of Pittsburgh, Pa.
v. L.E. Myers Co. Group, 937 F. Supp. 276, 283 (S.D.N.Y. 1996).
"A motion in limine to preclude evidence calls on the court
to make a preliminary determination on the admissibility of the
evidence under Rule 104 of the Federal Rules of Evidence."
Commerce Funding Corp. v. Comprehensive Habilitation Servs.,
Inc., 2004 WL 1970144, at *4 (S.D.N.Y. Sept. 3, 2004) (citing
Fed.R. Evid. 104(a)). "Evidence should be excluded on a motion in limine only when the evidence is
clearly inadmissible on all potential grounds." Id. (citing
Baxter Diagnostics, Inc. v. Novatek Med., Inc., 1998 WL 665138,
at *3 (S.D.N.Y. Sept. 25, 1998)); accord SEC v. U.S.
Environmental, Inc., 2002 WL 31323832, at *2 (S.D.N.Y. Oct. 16,
2002). A district court's in limine ruling "is subject to
change when the case unfolds, particularly if the actual
testimony differs from what was contained in the . . . proffer."
Luce v. United States, 469 U.S. 38, 41 (1984); accord U.S.
Environmental, 2002 WL 31323832, at *2.
B. Admission of Expert Testimony
Federal Rule of Evidence 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.
The Rule 702 standard incorporates the principles enunciated in
Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579,
589, 597 (1993), in which the Supreme Court held that trial
courts have a "gatekeeping" function to "ensure that any and all
scientific testimony or evidence admitted is not only relevant,
but reliable," and Kumho Tire Co., Ltd. v. Carmichael, in which
the Supreme Court held that Daubert's general gatekeeping
obligation "applies not only to testimony based on `scientific'
knowledge, but also to testimony based on `technical' and `other
specialized' knowledge." 526 U.S. 137
, 141 (1999) (citing
"One of the fundamental requirements of Rule 702 is that the
proposed testimony `assist the trier of fact to understand the
evidence or to determine a fact in issue.'" In re Rezulin Products Liab. Litig., 309 F. Supp. 2d 531, 540 (S.D.N.Y. 2004)
(quoting Fed.R. Evid. 702); accord Lippe v. Bairnco Corp.,
288 B.R. 678, 685 (S.D.N.Y. 2003), aff'd, 2004 WL 1109846, at
*1 (2d Cir. May 17, 2004); see also In re Initial Pub.
Offering Sec. Litig., 174 F. Supp. 2d 61, 68 (S.D.N.Y. 2001)
("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.") (emphasis in original). In deciding whether expert
testimony will be helpful to the fact-finder, the Court must
determine whether the testimony "usurp[s] either the role of the
trial judge in instructing the jury as to the applicable law or
the role of the jury in applying that law to the facts before
it." United States v. Lumpkin, 192 F.3d 280, 289 (2d Cir. 1999)
(quoting United States v. Duncan, 42 F.3d 97, 101 (2d Cir.
1994)) (internal quotation marks omitted); accord United
States v. Bilzerian, 926 F.2d 1285, 1294 (2d Cir.), cert.
denied, 502 U.S. 813 (1991). While an expert "may opine on an
issue of fact within the jury's province," an expert "may not
give testimony stating ultimate legal conclusions based on those
facts." Bilzerian, 926 F.2d at 1294; see also Hygh v.
Jacobs, 961 F.2d 359, 363 (2d Cir. 1992) ("This circuit is in
accord with other circuits in requiring exclusion of expert
testimony that expresses a legal conclusion.") (citing cases). In
addition, expert testimony is inadmissible when it addresses "lay
matters which a jury is capable of understanding and deciding
without the expert's help." Andrews v. Metro N. Commuter R.R.
Co., 882 F.2d 705, 708 (2d Cir. 1989) (citing cases). Moreover,
as with all testimony, the expert's testimony must actually be
relevant to an issue in the case. See, e.g., United States
v. Cruz, 363 F.3d 187, 192 (2d Cir. 2004). III. ANALYSIS
The question before the Court is whether the substance of the
Report is admissible inasmuch as the Report reflects the
testimony that O'Shea would offer as a witness at trial. First,
we discuss the admissibility of each substantive section of the
Report. Next, we address Highland's request that the Court's
ruling be deferred until trial or that it be allowed to amend the
A. The Admissibility of the O'Shea Report
1. The Narrative/Factual Section of the O'Shea Report
In the section entitled "Facts," the O'Shea Report marshals
Highland's evidence concerning the alleged dealings between
Highland and the Schneiders. See O'Shea Rpt. ¶¶ 8-35. O'Shea
declares that he conducted this analysis based upon his review of
"the complaint and certain other pleadings in this matter," the
exhibits used during the course of the depositions, and certain
deposition transcripts. Id. ¶ 7.
To the extent that O'Shea is simply rehashing otherwise
admissible evidence about which he has no personal knowledge,
such evidence taken on its own is inadmissible. While an
expert must of course rely on facts or data in formulating an
expert opinion, see Fed.R. Evid. 703, an expert cannot be
presented to the jury solely for the purpose of constructing a
factual narrative based upon record evidence. See Rezulin,
309 F. Supp. 2d at 551 (rejecting portions of plaintiffs'
expert's testimony that was "a narrative reciting selected
regulatory events" because "[s]uch material, to the extent it is
admissible, is properly presented through percipient witnesses
and documentary evidence"); LinkCo, Inc. v. Fujitsu Ltd., 2002
WL 1585551, at *1-*2 (S.D.N.Y. July 16, 2002) (where expert's
report was based on a review of, inter alia, "documents, computer documents, computer files, deposition transcripts and
exhibits," the "testimony by fact witnesses familiar with those
documents would be far more appropriate . . . and renders [the
expert witness'] secondhand knowledge unnecessary for the
edification of the jury") (citation and internal quotation marks
omitted) (alterations in original); Media Sport & Arts s.r.l. v.
Kinney Shoe Corp., 1999 WL 946354, at *3 (S.D.N.Y. Oct. 19,
1999) (where expert's testimony "is not based on personal
knowledge, but instead on his review of documents and depositions
produced by the parties," the expert's testimony "may not take
the place of that of the individuals who actually negotiated the
deal") (citations omitted); Taylor v. Evans, 1997 WL 154010, at
*2 (S.D.N.Y. Apr. 1, 1997) (rejecting portions of expert report
on the ground that the testimony consisted of "a narrative of the
case which a lay juror is equally capable of constructing").
Because the "Facts" section of the O'Shea Report contains a
factual narrative of the case and addresses "lay matters which a
jury is capable of understanding and deciding without the
expert's help," Andrews, 882 F.2d at 708 (citations omitted),
it is inadmissible.
The Report's narrative also includes O'Shea's own speculation
regarding the state of mind and motivations of certain parties
who were involved in the relevant transaction, often without
citation to any record evidence. For example, he asserts that an
individual involved in the transaction was "likely aware" that
certain parties to the transaction could be preparing to sell
stock and that this individual was "also likely concerned" that
the sale of the stock could "depress the market price of
McNaughton stock." See O'Shea Rpt. ¶ 23 (footnote omitted);
accord id. ¶ 24 (an individual "was likely concerned" that
any purchaser of the Notes could "gain a substantial voice in, if
not control over" McNaughton if the Notes were converted to
McNaughton stock following a merger/acquisition); id. ¶ 26 (an
individual "knew that the Schneiders would not sell the . . . Notes if they knew that
McNaughton was contemplating entering into a merger/acquisition
transaction with Jones"). Indeed, throughout the Report, O'Shea
commonly interjects his opinion as to the state of mind and
knowledge possessed by defendants and non-parties to this action,
see id. ¶¶ 18, 23-24, 26, and speculates as to how obtaining
information concerning the McNaughton/Jones merger affected the
Schneiders' actions, see id. ¶¶ 36-39.
None of this speculation is admissible either. These sorts of
comments consist simply of inferences that O'Shea draws from
other evidence in the case. Whatever expertise O'Shea may
possess, no expert may "supplant the role of counsel in making
argument at trial, and the role of the jury [in] interpreting the
evidence." Primavera Familienstifung v. Askin,
130 F. Supp. 2d 450, 529 (S.D.N.Y. 2001); accord Rezulin,
309 F. Supp. 2d at 541. Thus, "[i]nferences about the intent or motive of parties or
others lie outside the bounds of expert testimony." Rezulin,
309 F. Supp. 2d at 547; accord id. at 546 ("[P]laintiffs'
experts propose improperly to assume the role of advocates for
the plaintiffs' case by arguing as to the intent or motives
underlying the conduct of [the defendant] or others, a
transgression that has resulted in the exclusion of `expert'
testimony as to the `real motive' behind certain business
transactions.") (quoting Lippe, 288 B.R. at 688); LinkCo,
2002 WL 1585551, at *2 (rejecting plaintiff's expert's report
because the report "`does no more than counsel for [plaintiff]
will do in argument, i.e., propound a particular interpretation
of [defendant]'s conduct'") (quoting Primavera,
130 F. Supp. 2d at 530) (alterations in original). Such testimony "is improper . . .
because it describes `lay matters which a jury is capable of
understanding and deciding without the expert's help.'"
Rezulin, 309 F. Supp. 2d at 546 (quoting Andrews,
882 F.2d at 708); see also Taylor, 1997 WL 154010, at *2 (the expert's "musings as to defendants' motivations" as stated in the expert's
report "would not be admissible if given by any witness lay or
In sum, because the "Facts" section of the Report (¶¶ 8-39)
offers only "factual narratives and interpretations of conduct or
views as to the motivation of parties," Rezulin,
309 F. Supp. 2d at 541 (citations and footnotes omitted), it is inadmissible.
2. Discussion of Securities Laws
Another portion of the Report is devoted to O'Shea's discussion
of the federal securities laws, including statutes and cases.
See O'Shea Rpt. ¶¶ 44-57. O'Shea also defines various technical
legal terms pertaining to securities fraud, including "market
manipulation," "insider trading," "tippers," "tippees,"
"material" information, and "non-public" information. See id.
¶¶ 47-48, 51, 55-56. To the extent O'Shea discusses governing
law, the discussion is inadmissible because "[i]t is not for
witnesses to instruct the jury as to applicable principles of
law, but for the judge." Marx & Co., Inc. v. Diners' Club Inc.,
550 F.2d 505, 509-10 (2d Cir.), cert. denied, 434 U.S. 861
(1977). Thus, "it is . . . erroneous for a witness to state his
opinion on the law of the forum." Id. at 510 (citing cases);
cf. Adalman v. Baker, Watts & Co., 807 F.2d 359, 368 (4th
Cir. 1986) (trial court did not err in refusing to allow
plaintiffs' expert, an attorney, to testify at trial where
"[f]rom beginning to end, it is obvious that [plaintiffs]
proffered [the expert] as an expert witness to testify in
substantial part to the meaning and applicability of the
securities laws to the transactions [at issue], giving his expert
opinion on the governing law"), disapproved on other
grounds, 486 U.S. 622 (1988); see also Roundout Valley
Cent. Sch. Dist. v. Coneco Corp., 321 F. Supp. 2d 469, 480
(N.D.N.Y. 2004) ("[T]o make it abundantly clear for the parties, it is axiomatic that an expert is not permitted to
provide legal opinions, legal conclusions, or interpret legal
terms; those roles fall solely within the province of the
court.") (citing cases).
The Report goes on to apply these generic legal principles to
the facts of the instant case, resulting in O'Shea's giving his
opinion that the securities laws have in fact been violated.
See O'Shea Rpt. ¶¶ 58-76. For example, O'Shea opines that the
actions of certain parties in refusing to proceed with a
purported "contractual commitment to sell the . . . Notes"
constituted a purchase or sale of a security within the meaning
of Section 10(b) and Rule 10b-5, and thereby subjected these
individuals to "criminal prosecution" for violating the
securities laws. See O'Shea Rpt. ¶¶ 68-70. To arrive at his
conclusion, O'Shea opines that information pertaining to
McNaughton's financial condition and the McNaughton/Jones merger
constituted "material, non-public information," id. ¶ 58(a),
that certain individuals "acted to manipulate the market price
for McNaughton stock," id. ¶ 61, that certain individuals
"violated" a "direct fiduciary duty to McNaughton" by failing to
keep "[i]nside [i]nformation" concerning the McNaughton/Jones
merger "confidential," id. ¶ 63, and that other individuals,
after being "tipped" with information relating to the
McNaughton/Jones merger, "violated" their "derivative fiduciary
duties to McNaughton" by failing to keep "[i]nside [i]nformation"
confidential, id. ¶ 66. O'Shea then goes on to conclude that
the conduct of certain defendants and non-parties "was wrongful
and violative of the criminal law." See id. ¶ 76.
This type of expert testimony is not permitted. It is
inadmissible because it usurps the jury's role in finding the
facts and applying those facts to the law as instructed by the
court. See Marx, 550 F.2d at 510 (admission of expert
testimony at trial was improper where witness "repeatedly gave
his conclusions as to the legal significance of various facts
adduced at trial" that were "based . . . on his examination of documents and
correspondence . . . which were equally before the judge and
jury" because such testimony "amounts to no more than an
expression of the (witness') general belief as to how the case
should be decided") (citation and internal quotation marks
omitted). There is no reason why a jury in this case could not
apply the law to the facts it finds to determine whether there
has been a violation of the securities laws.
The testimony is also inadmissible because it runs afoul of
case law providing that, while "an expert may opine on an issue
of fact within the jury's province, he may not give testimony
stating ultimate legal conclusions based on those facts."
Bilzerian, 926 F.2d at 1294. The testimony here is essentially
the same as what was barred in United States v. Scop, in which
the Second Circuit held that an expert had improperly testified
that defendants had engaged in a "manipulative and fraudulent
scheme" within the meaning of the securities laws. See
846 F.2d 135, 138, 140 (2d Cir.), modified on other grounds,
856 F.2d 5 (2d Cir. 1988); see also Hygh, 961 F.2d at 362 (in
civil rights action, expert testimony that defendant's conduct
constituted "deadly physical force" that was not "justified under
the circumstances" and that the defendant's conduct was "totally
improper" not admissible) (internal quotation marks omitted);
Andrews, 882 F.2d at 709 (expert testimony that defendant was
"negligent" improper in a personal injury action) (internal
quotation marks omitted).
Highland relies extensively in its brief on two decisions in
support of its argument that defendants' motion to exclude
O'Shea's proffered testimony should be denied: In re Blech Sec.
Litig., 2003 WL 1610775 (S.D.N.Y. Mar. 26, 2003), and U.S.
Environmental, 2002 WL 31323832. In these cases, however, the
courts allowed testimony from experts within the securities
industry merely to discuss the ordinary practices and usages of
that industry, and specifically barred testimony that stated a legal conclusion.
See Blech, 2003 WL 1610775, at *21 (permitting expert to
testify "as to the customs and practices of the industry" but not
as to whether certain trading was "proper" or constituted
"parking or . . . stock manipulation"); U.S. Environmental,
2002 WL 31323832, at *3, *5 (permitting testimony of expert
witness regarding the "practices and usages" of the securities
trading industry based upon his "knowledge of the standard
practices of the securities industry" and his "knowledge of
typical trading activity and the types of trading patterns that
an experienced trader would recognize as irregular," but not
permitting the expert to testify as to whether defendants "were
actively participating in a manipulation" due in part because
such testimony was "more along the lines of a legal conclusion")
(citations and internal quotation marks omitted); see also
Bilzerian, 926 F.2d at 1295 ("[T]estimony concerning the
ordinary practices in the securities industry may be received to
enable the jury to evaluate a defendant's conduct against the
standards of accepted practice.") (citing Marx,
550 F.2d at 509). The comparison with U.S. Environmental is particularly
off the mark since the expert in that case had conducted the
useful exercise of analyzing transactions of common stock between
various entities in particular, a series of "wash trades"
that constituted "indirect evidence" of the market manipulation.
See 2002 WL 31323832, at *3 (internal quotation marks and
citations omitted). Here, by contrast, the Report provides no
"indirect evidence" of anything that would not be readily
discernable to an ordinary juror. Rather, it opines on whether
the conduct of certain individuals involved in the transactions
at issue violated the federal securities laws and how a
prosecutor purportedly would view the conduct of these
individuals. Highland points the Court to Duncan, 42 F.3d at 102 n. 4 and
United States v. Russo, 74 F.3d 1383, 1388-89, 1395 (2d Cir.),
cert. denied, 519 U.S. 927 (1996), to support its argument
that "[s]ecurities experts and law enforcement officials are
routinely allowed to assist the jury in understanding industry
terms and materials, the characteristics of various types of
criminal activity, and whether conduct in the underlying case is
indicative of the criminal conduct alleged." Pl. Mem. at 9-10
(footnote omitted). Highland also apparently contends that three
other decisions of the Second Circuit, see United States v.
Brown, 776 F.2d 397, 400 (2d Cir. 1985), cert. denied,
475 U.S. 1141 (1986), United States v. Young, 745 F.2d 733, 760-61
(2d Cir. 1984), cert. denied, 470 U.S. 1084 (1985), and
United States v. Carson, 702 F.2d 351, 369-70 (2d Cir.),
cert. denied, 462 U.S. 1108 (1983), support this argument.
See Pl. Mem. at 9 n. 17.
Putting aside whether Highland's brief accurately characterizes
the law, O'Shea has not offered testimony concerning "terms and
materials" relevant to the securities industry except for his
discussion of securities law terms that could easily be explained
by a judge to a jury. See O'Shea Rpt. ¶¶ 47-51, 54-56. Nor is
this a case in which the expert describes the "characteristics"
of criminal activity or opines as to whether the conduct of
certain individuals was "indicative" of criminal activity.
Rather, O'Shea states his opinion concerning the law governing
securities fraud and concludes that the conduct of certain
defendants' and non-parties violated that law. The Second Circuit
cases cited by Highland offer no support for admission of this
testimony. See Duncan, 42 F.3d at 102-03 (expert witness's
testimony admissible where, although the expert "stated certain
factual conclusions," his testimony did not "simply tell the jury
what decision to make" and "he never expressed an opinion as to
whether [defendant] was guilty of the offenses charged");
Russo, 74 F.3d at 1395 (expert testimony admissible where the witness's testimony "focused solely on factual conclusions," "did
not involve any legal characterizations," and where the witness
"gave no opinion as to whether the appellants had violated the
securities laws"); Brown, 776 F.2d at 400-03 (police officer's
expert testimony admissible to explain that defendant's role was
to serve as a "steerer" in charged drug transaction); Young,
745 F.2d at 761 (admission of expert's testimony that, through
the search of an apartment, he found "precisely what he . . .
would expect to find" in a heroin "mill" not "manifest error"
where "the expert testimony related to the issues of fact that
were properly before the jury" and the trial judge instructed the
jury that the testimony did not concern "the facts or
circumstances of [that] particular case") (internal quotation
marks and citation omitted); Carson, 702 F.2d at 369 (not error
for agents to testify that defendant's "furtive activity appeared
to them to be sales of narcotics" where that testimony was based
on their observations and the agents' "specialized knowledge, not
possessed by the jury, of the manner in which drug transactions
3. Opinion as to Whether Individuals Would be Prosecuted and
The remaining portions of the O'Shea Report consist essentially
of (1) O'Shea's view of the "considerations" a prosecutor should
take into account in prosecuting securities fraud violations,
see O'Shea Rpt. ¶¶ 40-43, and (2) O'Shea's conclusions about
whether certain of the parties to the relevant transaction would
be subject to criminal prosecution and indicted for their
conduct, see id. ¶¶ 58(b)-(d), 62, 70-71, 75-76.
These factual matters, however, have no relevance to this
matter. Rule 702 specifically states that expert testimony must
"assist the trier of fact to understand the evidence or to
determine a fact in issue." See also Nook v. Long Island
R.R. Co., 190 F. Supp. 2d 639, 641 (S.D.N.Y. 2002) ("In assessing admissibility, the Court must
determine whether the proffered expert testimony is relevant.").
Courts have held that the "helpfulness requirement" of Rule 702
"is `akin to the relevance requirement of Rule 401, which is
applicable to all proffered evidence[,] [but] . . . goes beyond
mere relevance . . . because it also requires expert testimony to
have a valid connection to the pertinent inquiry.'" Rezulin,
309 F. Supp. 2d at 540 (quoting 4 Jack B. Weinstein & Margaret A.
Berger, Weinstein's Federal Evidence § 702.03 (Joseph M.
McLaughlin ed., 2d ed. 1997)) (alterations in original).
Highland's claims against the Schneiders and JGPC sound in
breach of contract and tortious interference with contractual and
business relations. The Court will accept arguendo Highland's
argument that the question of whether any defendant violated the
securities law is relevant to these claims. But it matters not to
this case whether a federal prosecutor would investigate that
violation, the "considerations" a prosecutor would weigh in
prosecuting the violation, or whether the prosecutor would seek
indictments from a grand jury. Indeed, Highland has not even
proferred a comprehensible argument as to why their prediction of
what a federal prosecutor might have done with this case is of
any relevance to their claims for relief. As a result, all of
this testimony is inadmissible.*fn2 B. Deferring Consideration of the Motion and Request to
Supplement the Report
Finally, Highland contends that this Court should defer
considering this motion until "at or shortly before trial when
[d]efendants' concerns can be placed in [the] context of the
trial at hand." Pl. Mem. at 1. Relatedly, Highland also requests
that this Court grant it "leave to supplement the O'Shea Report
in accordance with any rulings made on this motion." Id. at 21.
These requests are denied. As one court put it, the preclusion
is an entirely appropriate measure when, as at
present, the testimony a party seeks to present is
simply inadmissible. Indeed, the curative measures
suggested . . ., such as permitting defendants to . . .
supplement the report, will not alleviate the
underlying defects in [the expert's] proffered
testimony. Here, I am not faced with an ambiguous
report in need of clarification I am presented with
a report containing testimony which a trial jury
should not be allowed to consider. . . . [The] delay
might be warranted if the expert's report contained
potentially admissible testimony; the report now
before the court does not.
Taylor, 1997 WL 154010, at *2-*3; see also Kidder, Peabody
& Co., Inc. v. IAG Int'l Acceptance Group, N.V.,
14 F. Supp. 2d 391, 404 (S.D.N.Y. 1998) ("Second Circuit authority requires me to preclude [the expert's] opinion testimony, as set
forth in his written report. The detailed reasoning contained in
that report makes it unnecessary to defer this conclusion until
his deposition has been taken or the trial has begun."). Because
this is not a case where "the validity of [the] objections to . . .
the challenged expert testimony will become apparent only at
trial," AUSA Life Ins. Co. v. Dwyer, 899 F. Supp. 1200, 1201-02
(S.D.N.Y. 1995) (citing cases), the proposed expert testimony may
now be excluded.
To the extent Highland seeks leave to submit an amended report
in the event of preclusion, that request too must rejected as it
was in Taylor, where leave was denied on the ground that
"plaintiffs . . . presented a report comprised almost completely
of inadmissible material." 1997 WL 154010, at *3; see also
Weisgram v. Marley Co., 528 U.S. 440, 455 (2000) ("It is
implausible to suggest, post-Daubert, that parties will
initially present less than their best expert evidence in the
expectation of a second chance should their first try fail.").
Moreover, it would be unfair to defendants to allow the
submission of a new report now that discovery has closed.
For the foregoing reasons, defendants' motion to exclude
O'Shea's proposed expert testimony is granted and Highland's
request to supplement the O'Shea Report is denied.