The opinion of the court was delivered by: GABRIEL GORENSTEIN, Magistrate Judge
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.
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. ¶
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 ...