ficial Comm. of Unsecured Creditors v. Calpers Corp.

OFFICIAL COMMITTEE OF UNSECURED CREDITORS, Plaintiff, v. CALPERS CORPORATE PARTNERS LLC, et al., Defendants.

Docket No. 1:18-cv-00068-NT

UNITED STATES DISTRICT COURT DISTRICT OF MAINE

July 30, 2021

ORDER ON MOTIONS IN LIMINE

Lincoln Paper and Tissue LLC ("LPT") operated a pulp, paper, and tissue manufacturing mill in Lincoln, Maine. It filed for bankruptcy in September of 2015. In this action, the Plaintiff seeks to avoid and recover two distributions made by LPT to members of its parent company, LPT Holding LLC. Trial is set to begin on August 5, 2021.

The Plaintiff has filed two motions in limine (ECF Nos. 258 and 259), and the Defendant has filed three motions in limine (ECF Nos. 298, 299, and 300). The Court's rulings on these motions are set forth below.

I. Plaintiff's Motions In Limine

A. Lenny Rendell

Plaintiff Official Committee of Unsecured Creditors ("Plaintiff" or "the Committee") has moved in limine to exclude the testimony of Lenny Rendell at trial (ECF No. 259). For the reasons set forth below, the Plaintiff's motion is DENIED.

1. Background

Mr. Rendell is an employee of Berry Dunn McNeil & Parker LLC ("BerryDunn"). Pl.'s Mot. in Limine to Exclude Testimony of Lenny Rendell ("Pl.'s Mot.") 1 (ECF No. 259). BerryDunn is a financial consulting firm that audits the financial statements of its clients using generally accepted accounting principles ("GAAP"). Pl.'s Mot. 1. Relevant to this case, BerryDunn served as the auditor for LPT and issued an audit opinion for LPT for the year ending on December 31, 2013 (the "2013 Audit"). Pl.'s Mot. 1.

BerryDunn designated Mr. Rendell as its designee under Federal Rule of Civil Procedure 30(b)(6), and Mr. Rendell was deposed on June 12, 2019. Pl.'s Mot. 1; see also Dep. of Lenny Rendell (ECF No. 259-1). At that deposition, Defendant CalPERS Corporate Partners LLC ("Defendant" or "CCP") questioned Mr. Rendell about the valuation of LPT's assets and liabilities, whether LPT was a "going concern," whether BerryDunn qualified the 2013 Audit based on going concern matters, and LPT's solvency. See Pl.'s Mot. 1-2. CCP has indicated that it plans to call Mr. Rendell as a witness at trial, which is set to begin on August 5, 2021. Pl.'s Mot. 1.

The Plaintiff asserts three reasons why Mr. Rendell's testimony should be excluded. First, the Plaintiff argues that Mr. Rendell is providing expert opinion testimony, but he was not disclosed as an expert by the Defendant. Pl.'s Mot. 2. Second, the Plaintiff argues that Mr. Rendell's testimony is also inadmissible as lay witness opinion testimony because his opinions "are the product of his specialized knowledge and the application of technical rules imposed by GAAP." Pl.'s Mot. 3.Finally, the Plaintiff argues that any non-opinion testimony from Mr. Rendell would be irrelevant, cumulative, and confusing to the jury. Pl.'s Mot. 3-4.

The Defendant responds that Mr. Rendell is not being called as an expert witness. Def.'s Obj. to Pl.'s Mot. in Limine to Exclude Testimony of Lenny Rendell ("Def.'s Opp'n") 2 (ECF No. 303). Rather, the Defendant contends that Mr. Rendell "is a percipient fact witness with personal knowledge about the audit of LPT's finances during the very time period at issue in this case," adding that "to the extent his testimony may contain opinion, it is admissible lay opinion." Def.'s Opp'n 2.

At the Plaintiff's request, see ECF No. 305, the Court heard brief oral argument on this motion on July 27, 2021. The Plaintiff reiterated at that time that the 2013 Audit was not released until after the second challenged distribution.

2. Legal Standard

The Federal Rules of Evidence provide that a witness may testify if he "has personal knowledge of the matter." Fed. R. Evid. 602. An expert witness—qualified "by knowledge, skill, experience, training, or education"—may also "testify in the form of an opinion or otherwise" if:

(a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;

(b) the testimony is based on sufficient facts or data;

(c) the testimony is the product of reliable principles and methods; and

(d) the expert has reliably applied the principles and methods to the facts of the case.

Fed. R. Evid. 702. And a witness who is not testifying as an expert may offer testimony in the form of an opinion if that opinion is:

(a) rationally based on the witness's perception;(b) helpful to clearly understanding the witness's testimony or to determining a fact in issue; and

(c) not based on scientific, technical, or other specialized knowledge within the scope of Rule 702.

Fed. R. Evid. 701. The determination of whether a witness's "testimony falls within the scope of Rule 701 . . . or Rule 702 . . . does not depend on the identity of the witness, but rather on the nature of the testimony itself." Portland Pipe Line Corp. v. City of S. Portland, 288 F. Supp. 3d 321, 336 n.10 (D. Me. 2017) (citing Fed. R. Evid. 701 advisory committee's note to 2000 amendment).

Finally, the Rules state that relevant evidence is generally admissible unless a federal statute, constitutional provision, or another rule provides otherwise. Fed. R. Evid. 402. "Evidence is relevant if: (a) it has any tendency to make a fact more or less probable than it would be without the evidence; and (b) the fact is of consequence in determining the action." Fed. R. Evid. 401. And a "court may exclude relevant evidence if its probative value is substantially outweighed by a danger of one or more of the following: unfair prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence." Fed. R. Evid. 403.

3. Discussion

I begin with the question of relevance. Mr. Rendell is expected to testify about LPT's financial condition around the time of the challenged distributions, which is at the heart of the issues remaining in this case. Mr. Rendell "was personally involved in auditing LPT's 2013 financials, which included communicating with LPT's management, gathering information from them, and analyzing that information." Def.'s Opp'n 1. He thus "has direct personal knowledge of LPT's financial conditionat the time of the audit," Def.'s Opp'n 1, and he can testify based on that personal knowledge. The Plaintiff suggests that his testimony is irrelevant because Mr. Rendell's analysis of LPT's financial condition in the 2013 Audit was based on GAAP. Pl.'s Mot. 3 n.3. While GAAP may not ultimately control the determination of solvency in the bankruptcy context, balance sheets prepared according to GAAP are often a useful starting point. See Post-Confirmation Comm. for Small Loans, Inc. v. Martin, No. 1:13-CV-195 (WLS), 2016 WL 1316685, at *8 (M.D. Ga. Mar. 31, 2016) (courts making solvency determinations are not bound by GAAP); In re Babcock & Wilcox Co., 274 B.R. 230, 260-61 (Bankr. E.D. La. 2002) ("The court concludes that although GAAP principles are relevant, they are neither controlling nor presumptively valid in this case in determining [the debtor's] solvency."); In re KZK Livestock, Inc., 290 B.R. 622, 625 n.3 (Bankr. C.D. Ill. 2002) (citing In re Kaypro, 218 F.3d 1070 (9th Cir. 2000)); see also id. at 625 (explaining that a solvency determination considers the "fair value of all the debtor's property, compiled by the use of balance sheets, financial statements, appraisals, expert testimony, and other affirmative evidence and compared to the amount of his debts" and that it "will ordinarily begin with audited financial statements" prepared according to GAAP, and "extend to an examination of the financial records of the debtor, including bank account statements, journals, ledgers, tax returns, and all contracts, notes and security agreements"). Moreover, as an independent auditor, Mr. Rendell possesses first-hand knowledge about LPT's financial records during the relevant time period and provides a perspective distinctfrom other witnesses. Accordingly, I find that Mr. Rendell's testimony is relevant and that it would not be unnecessarily cumulative or confusing to the jury.

The fact that Mr. Rendell has specialized education and experience does not automatically turn any testimony he gives into expert testimony. See Portland Pipe Line, 288 F. Supp. 3d at 335 n.10. As LPT's "accountant with personal knowledge of the company books," Mr. Rendell "may testify about the specific factual information with which he is familiar from his work," including his "personal knowledge based on his ordinary duties." Campbell v. CGM, LLC, No. 15-cv-088-JD, 2016 WL 6989769, at *2 (D.N.H. Nov. 29, 2016) ("In the area of a business's financial information, a lay witness may be allowed to testify under Rule 701 based on the witness's own perceptions and knowledge and participation in the day-to-day affairs of the business." (citation and internal quotations omitted)); see also Wade v. Touchdown Realty Grp., LLC, 386 F. Supp. 3d 56, 63 (D. Mass. 2019); Nat'l Starch & Chem. Trading Co. v. M/V STAR INVENTANA, No. 05-91-P-S, 2006 WL 1876996, at *3 (D. Me. July 5, 2006) ("A witness may testify under Rule 701 about 'inferences that he could draw from his perception' of a business's records, or 'facts or data perceived' by him in his corporate capacity." (quoting Teen-Ed, Inc. v. Kimball Int'l, Inc., 620 F.2d 399, 403-04 (3d Cir. 1980))).

The question may become closer if, at trial, the Defendant seeks to elicit opinion testimony from Mr. Rendell. Under Rule 701, a lay witness may not offer testimony in the form of an opinion if it is "based on scientific, technical, or other specialized knowledge within the scope of Rule 702." Fed. R. Evid. 701(c). The FirstCircuit has explained the distinction between "experiential knowledge that relies on reasoning processes familiar to the average person and more specialized knowledge." United States v. Vega, 813 F.3d 386, 395 (1st Cir. 2016) (internal quotations omitted); see also United States v....