Weisfelner v. Blavatnick (In re Lyondell Chem. Co.)

558 B.R. 661

In re: Lyondell Chemical Company, et al., Debtors.

Edward S. Weisfelner, as Trustee of the LB Litigation Trust, Plaintiff,

v.Leonard Blavatnick, et al., Defendants.

Case No. 09-10023 (GCM) (Jointly Administered)

Adv. Pro. No. 09-1375 (MG)

United States Bankruptcy Court, S.D. New York.

October 11, 2016

Sigmund S. Wissner-Gross, Brown Rudnick, LLP, New York, NY, for Plaintiff.

Allan S. Brilliant, Dechert LLP, Kenneth B. Tomer, Jordan D. Weiss, Goodwin Procter LLP, Evan T. Barr, Michael Alexander Kleinman, Fried, Frank, Harris, Shriver & Jacobson LLP, Douglas Koff, William A. Novomisle, Paul, Hastings, Janofsky & Walker, LLP, Thomas R. Califano, DLA Piper LLP (US), Erich O. Grosz, Joseph P. Moodhe, Lorna G. Schofield, Tricia Bozyk Sherno, Zheng Wang, Debevoise & Plimpton LLP, Nicholas Calamari, 1/0 Capital, LLC, Kate Elizabeth Cassidy, Benjamin Finestone, Susheel Kirpalani, Rex Lee, Frances S. Lewis, Andrew J. Rossman, Alex J.B. Rossmiller, Katherine Scherling, Elinor C Sutton, Richard I. Werder, Susheel Kirpalani, Quinn Emanuel Urquhart & Sullivan, LLP, Dianne F. Coffino, Andrea J. Gildea, Covington & Burling LLP, Ross E. Firsenbaum, Wilmer Cutler Pickering Hale and Dorr LLP, New York, NY, John O. Farley, James S. Dittmar, Goodwin Procter LLP, Jason L. Watkins, Bingham McCutchen LLP, Boston, MA, Michael T. Jones, Goodwin Procter LLP, Menlo Park, CA, Ted A. Berkowitz, Farrell Fritz, P.C., Uniondale, NY, Whitman L. Holt, Klee, Tuchin, Bogdanoff & Stern LLP, Los Angeles, CA, Sarah L. Rubin, Barrasso Usdin Kupperman Freeman & Sarver, L.L.C., New Orleans, LA, John F. Higgins, Thomas A. Woolley, III, Porter & Hedges, L.L.P., Houston, TX, for Defendants.

MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART ACCESS DEFENDANTS' MOTION IN LIMINE TO PRECLUDE CERTAIN TESTIMONY OF RALPH TULIANO, DAVID WITTE, AND H.G. NEBEKER

MARTIN GLENN, United States Bankruptcy Judge

Before the Court is the Access Defendants'¹ Motion in Limine to Preclude Certain Testimony of Ralph Tuliano, David Witte, and H.G. Nebeker , filed on September 20, 2016 (the “Motion,” ECF Docs. ## 823, 828). The Motion is supported by the Declaration of Richard I. Werder Jr. (the “Werder Declaration,” ECF Doc. # 828), which attaches highlighted copies of the expert reports of Tuliano, Witte, and Nebeker. Edward S. Weisfelner, as Litigation Trustee of the LB Litigation Trust (the “Trustee”) filed an opposition to the Motion on September 27, 2016 (the “Opposition,” ECF Doc. # 827).

For the reasons explained below, the Motion is GRANTED IN PART and DENIED IN PART.

I. BACKGROUND

A. This Adversary Proceeding

Judge Gerber provided a summary of the facts of this case in his January 4, 2016 decision dismissing Count VII of the Amended Complaint:

In late December 2007, Basell AF S.C.A. (“Basell”), a Luxembourg entity controlled by Leonard Blavatnik (“Blavatnik”), acquired Lyondell Chemical Company (“Lyondell”), a Delaware corporation headquartered in Houston—forming a new company after a merger (the “Merger”), LyondellBasell Industries AF S.C.A. (as used by the parties, “LBI,” or here, the “Resulting Company”), Lyondell's parent—by means of a leveraged buyout (“LBO”). The LBO was 100% financed by debt, which, as is typical in LBOs, was secured not by the acquiring company's assets, but rather by the assets of the company to be acquired. Lyondell took on approximately $21 billion of secured indebtedness in the LBO, of which $12.5 billion was paid out to Lyondell stockholders. In the first week of January 2009, less than 13 months later, a financially strapped Lyondell filed a petition for chapter 11 relief in this Court. Lyondell's unsecured creditors then found themselves behind that $21 billion in secured debt, with Lyondell's assets effectively having been depleted by payments of $12.5 billion in loan proceeds to stockholders. Lyondell's assets were allegedly also depleted by payments incident to the LBO and the Merger—of approximately $575 million in transaction fees and expenses, and another $337 million in payments to Lyondell officers and employees in change of control payments and other management benefits. Those events led to the filing of what are now five adversary proceedings—... [and] this action, which was originally the first of the five—against Blavatnik and companies he controlled; Lyondell's officers and directors; and certain others.

Weisfelner v. Blavatnik (In re Lyondell Chemical Co.), 543 B.R. 428, 432–33 (Bankr. S.D.N.Y. 2016) (footnotes omitted). Trial is scheduled to begin on October 17, 2016.

B. The Expert Reports

Tuliano, Witte, and Nebeker (the “Experts”) each submitted two sets of moving and rebuttal expert reports, first in 2009 and then in 2011 (the “Expert Reports”). Both times, Witte's and Nebeker's opinions were submitted in joint reports (the “CMAI/PGI Reports”). Tuliano opines on corporate solvency, Witte opines on Lyondell's chemical projections, and Nebeker opines on Lyondell's refining projections. All four of Tuliano's reports are at issue in this Motion, while only the 2011 CMAI/PGI Reports are at issue. (Motion at 5.)

C. The Parties' Contentions

1. The Access Defendants' Contentions

The Access Defendants now move to preclude portions of the Experts' testimony on the grounds that the challenged testimony (i) “weave[s] a factual tale that—assuming the documents and testimony at issue are admissible—the Trustee's counsel is equally capable of arguing” and/or (ii) contains “speculation as to the states of mind of various parties.” (Motion at 2–3.)

First, the Access Defendants contend that the challenged testimony merely “argue[s] the facts” and is therefore inadmissible. (Id. at 6–7.) Expert testimony that constructs a “factual narrative” is inadmissible, the Access Defendants argue, because it “supplant[s] the role of counsel in making argument at trial” and “the role of the factfinder in deciding the facts.” (Id. at 7.) The Access Defendants argue that the Experts “simply collect and summarize the information reflected in the underlying (hearsay) documents,” rather than “analyz[ing] the documents using specialized techniques.” (Id. at 8.) The Access Defendants further argue that the Trustee may make the same argument to the Court after properly admitting the underlying factual evidence, and that “secondhand” expert testimony is inappropriate. (Id. )

Second, the Access Defendants argue that the Experts make conclusions about the parties' states of mind and intentions, which are inadmissible because “the question of a party's intent or state of mind ... is quintessentially the province of the trier of fact.” (Id. at 9.) The Access Defendants cite sections of the challenged testimony opining, for example, that “[M]anagement's financial projections ... appear to have been materially distorted by deal bias” and “it appears the Access Revolver was intended to provide an appearance of liquidity.” (Id. ) These conclusions, the Access Defendants contend, concern the parties' state of mind and are therefore “an inappropriate topic for expert opinion.” (Id. at 10.)

2. The Trustee's Contentions

The Trustee argues that Federal Rule of Evidence (the “Rules”) 703 permits an expert to “base an opinion on facts or data in the case that the expert has been made aware of.” (Opp. at 9.) The Trustee contends that the challenged testimony is not a mere conduit for hearsay because the “vast majority” of the evidence on which the Experts rely is admissible. (Id. at 9.) But even if the evidence were inadmissible, the Trustee argues, Rule 703 permits an expert to rely on hearsay “[i]f experts in the particular field would reasonably rely on those kinds of facts or data.” (Id. ) The Trustee contends that because this case concerns “complex and highly technical industries,” expert analysis “must acknowledge the facts surrounding relevant financial projections.” (Id. at 13 (emphasis in original).)

Although the Trustee concedes that “states of mind and the credibility of witnesses are not a subject for expert testimony,” the Trustee contends that the Experts are merely “drawing inferences from the facts and documents,” not opining on parties' states of mind. (Id. at 16–17.) The Trustee argues that “where the record does not reflect a process of formulating reasonable assumptions, an expert may appropriately draw the inference that that relevant data was ‘ignored.’ Furthermore, when relevant data is not relied upon and where disregarding that data serves the interests of parties to a deal, an expert may appropriately draw an inference of ‘deal bias.’ ” (Id. )

The Trustee makes two additional arguments: first, the Rules' approach to expert testimony should be construed particularly liberally in a bench trial like this one, where the risk of prejudice is “minimal or non-existent.” (Id. at 10.) Second, the Motion should be denied for lack of specificity because the Access Defendants' objections are “inconsistently applied” and highlight all contested portions of the Experts' reports, without noting which objections are based on “storytelling” and which on state of mind testimony. (Id. at 18–19.)

II. LEGAL STANDARD

A. Motions in Limine

“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.” Highland Capital Mgmt., L.P. v. Schneider , 379 F.Supp.2d 461, 467 (S.D.N.Y. 2005) (quoting Palmieri v. Defaria, 88 F.3d 136, 141 (2d Cir.1996) ). “However, evidence should be excluded on a motion in limine only when the evidence is clearly inadmissible on all potential grounds.” MBIA Ins. Corp. v. Patriarch Partners VIII, LLC , No. 09 CIV. 3255, 2012 WL 2568972, at *2 (S.D.N.Y. July 3, 2012) (internal quotation marks and citations omitted). Further, the Court may reserve judgment on the motion until the appropriate factual context is developed at trial. Nat'l...