In re Sedgwick LLP

[2] 3 UNITED STATES DISTRICT COURT 4 NORTHERN DISTRICT OF CALIFORNIA 5 SAN JOSE DIVISION [6] 7 JAMES GANSMAN, Case No. 23-cv-03667-BLF 8 Plaintiff, ORDER RE: MOTIONS IN LIMINE 9 v. [Re: ECF No. 13, 21, 22] 10 MICHAEL A. TANENBAUM, et al., 11 Defendants. 12 JAMES GANSMAN, Case No. 23-cv-03671-BLF 13 Plaintiff, 14 v. 15 JAMES KEALE, 16 Defendant. 17 On February 15, 2024, the Court held a pretrial conference in this action, during which it 18 issued oral rulings on Plaintiff James Gansman’s and Defendants Michael A. Tanenbaum and 19 James Keale’s motions in limine. The Court here expands upon those oral rulings. 20 I. DISCUSSION 21 A. Plaintiff’s Motion in Limine No. 1 to Exclude Defendant’s Expert, D. Paul Regan, from Providing Expert Testimony Pursuant to Fed. R. Evid 702 (ECF 22 No. 21) 23 Plaintiff argues that Defendants’ insolvency expert, D. Paul Regan, should be precluded 24 from giving expert opinion testimony regarding Sedgwick LLP’s date of insolvency and his use of 25 generally accepted accounting principles (“GAAP”) at trial. ECF No. 21 at 1. First, Plaintiff 26 argues that Regan should not be allowed to offer an independent opinion on Sedgwick’s date of 27 insolvency because he did not conduct an independent insolvency analysis, he did not apply the 1 LeBouef LLP, and he failed to analyze the effects of certain events (i.e., Sedgwick’s decreasing 2 revenue in 2016, partner defections in 2017, and the breach of certain covenants). Id. at 2–4. 3 Second, Plaintiff argues that Regan’s testimony regarding his use of GAAP must be excluded 4 because the Bankruptcy Code requires a “fair valuation” analysis rather than a GAAP analysis. Id. 5 at 4–5. On the first argument, Defendants respond that Heller and Dewey are inapposite because 6 those cases presented different facts and circumstances and Regan was retained as a plaintiff’s 7 expert and therefore had the burden of proof. ECF No. 25 at 2. In this case, Regan was retained 8 as a defense expert and focused his analysis on rebuttal. Id. at 2–3. Defendants also respond that 9 Regan’s report considers two of the three fair valuation analyses that he conducted in Heller and 10 Dewey. Id. at 3–4. On the second argument, Defendants argue that GAAP standards, although not 11 controlling, are relevant to determine insolvency. Id. at 1. 12 The Court finds that Regan has applied reliable principles and methods. Regan applied 13 two of the three fair valuation methods that he previously applied in Heller and Dewey cases—his 14 report analyzes whether Sedgwick had unreasonably small capital or was doomed to fail and 15 whether Sedgwick had the ability to pay its debts as they became due. See ECF No. 21, Coy Decl. 16 Ex. 1 (“Regan Report”) ¶¶ 33–36 (analysis of ability to pay debts as they became due), ¶ 37 17 (analysis of unreasonably small capital). To the extent that Plaintiff argues that Regan should not 18 be permitted to offer an independent opinion of Sedgwick’s date of insolvency, Defendants 19 clarified at the pretrial conference that Regan is being offered only as a rebuttal expert and will not 20 be offering independent opinions on the date of insolvency. 21 The Court further finds that Regan’s use of GAAP does not require exclusion. Although 22 Plaintiff is correct that GAAP are not the controlling principles for purposes of insolvency, GAAP 23 may still be relevant to the insolvency determination. See In re Sierra Steel, Inc., 96 B.R. 275 , 24 278 (B.A.P. 9th Cir. 1989) (“[A]lthough GAAP are relevant, they are not controlling in insolvency 25 determinations.”); In re Winstar Commc’ns, Inc., 348 B.R. 234, 274 (Bankr. D. Del. 2005) (same). 26 Thus, the fact that Regan used GAAP does not, in and of itself, mean that Regan failed to apply 27 reliable principles and methods. 1 representation that Regan is not offering his own independent opinion on Sedgwick’s date of 2 insolvency and because reliance on GAAP is not alone a basis for exclusion. Regan may attack in 3 rebuttal any date offered by Plaintiff’s expert, Austin Wade, and give reasons why there is no 4 insolvency on that date. 5 B. Plaintiff’s Motion in Limine No. 2 to Exclude Defendants’ Expert, D. Paul Regan, from Providing Expert Opinion Testimony Regarding a Third-Party 6 Insolvency Analysis Pursuant to Fed. R. Evid. 402, 403, 702 (ECF No. 14) 7 Plaintiff argues that Regan should be prevented from providing expert testimony based on 8 a report prepared by Commenda, Inc. (“Commenda Report”). ECF No. 14 at 1. Regan’s initial 9 report is framed in part as a rebuttal of the Commenda Report. See Regan Report ¶ 16. Plaintiff 10 argues that Regan cannot testify at trial regarding the Commenda Report because: (1) Plaintiff 11 does not seek to introduce the Commenda Report at trial; (2) the Commenda Report is 12 unauthenticated and not the type of information reasonably relied upon by experts; and (3) the 13 probative value of Regan’s analysis of the Commenda Report is substantially outweighed by the 14 danger of unfair prejudice. ECF No. 14 at 2–5. Defendants explain that Regan responded initially 15 to the Commenda Report because Defendants were not aware of any solvency analysis conducted 16 by Plaintiff at the time of initial simultaneous expert disclosures. ECF No. 26 at 1–3. Defendants 17 also argue that the Commenda Report is relevant and not unduly prejudicial because it reaches the 18 same conclusion regarding Sedgwick’s date of insolvency as Wade. Id. at 3–4. As such, 19 Defendants argue the Commenda Report is helpful for analyzing the flaws in Wade’s report and 20 its relevance and any prejudice must be considered in the context in which it might be introduced 21 at trial. Id. 22 The Court finds that Plaintiff’s motion is premature. As Plaintiff acknowledges, it is 23 possible that the Commenda Report will not be introduced at trial at all. Defendants have 24 indicated that if the Commenda Report is not the basis of Wade’s opinions, then Defendants are 25 unlikely to offer Regan’s rebuttal to the Commenda Report. If the Commenda Report is 26 introduced, the Court will consider its relevance and any objections as they may arise at trial. 27 Accordingly, the Court DEFERS ruling on Plaintiff’s Motion in Limine No. 2. Plaintiff C. Defendants’ Motion in Limine No. 1 to Exclude Expert Austin Wade’s 1 Insolvency Opinions (ECF No. 22) 2 Defendants argue that Wade’s insolvency opinions should be excluded under Federal 3 Rules of Evidence 403 and 702 and under Daubert. ECF No. 22. First, Defendants argue that 4 || Wade’s opinions based on his balance sheet analysis are flawed because he makes adjustments 5 || under which most law firms in the United States would be found insolvent. Jd. at 1-2. Second, 6 || Defendants argue that Wade’s opinions based on his income approach analysis are inconsistent 7 with the facts of this case, including the deposition testimony of two fact witnesses. Id. at 3—4. 8 || Third, Defendants argue that Wade’s opinion that Sedgwick was not paying its debts as they 9 || became due is unreliable because Wade fails to analyze certain facts. Jd. at 5. Plaintiff responds 10 || that Wade’s opinions are based on the fair valuation methodology approved by the Bankruptcy 11 Code and California law, and that Defendants’ objections rely on mischaracterizations or out-of12 || context issues of fact that are best raised at cross-examination. ECF No. 22 at 3-5. 13 Although Defendants argue that Wade’s methods are unreliable or unreliably applied, 14 || Defendants’ arguments appear to be objections to Wade’s ultimate conclusions and the 3 15 || consideration of certain facts in the expert’s analysis. The fact that Defendants disagree with a 16 Wade’s analysis is not a basis for exclusion under Rule 403, Rule 702, or Daubert. Defendants 3 17 have merely demonstrated that this trial will be a battle of experts—as such, it is more appropriate 18 || for Defendants to raise these challenges to Wade’s opinions in cross-examination. 19 Accordingly, the Court DENIES Defendants’ Motion in Limine No. 1. 20 || IL ORDER 21 For the foregoing reasons, IT IS HEREBY ORDERED that: 22 1. Plaintiff's Motion in Limine No. 1 (ECF No. 21) is DENIED. 23 2. Plaintiff's Motion in Limine No. 2 (ECF No. 14) is DEFERRED. 24 3. Defendants’ Motion in Limine No. 1 (ECF No. 22) is DENIED. [25] 26 || Dated: February 20, 2024 BETH LABSON FREEMAN 28 United States District Judge