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excluding counsel as a trial witness because his testimony was "not essential" and "problematic because of the danger that his testimony will necessarily implicate communications covered by the attorney-client privilege."
Summary of this case from Graterol-Garrido v. VegaOpinion
06 Civ. 2125 (SAS).
February 6, 2008
For Plaintiffs: Richard Hamlish, Esq. Petek Gunay, Esq. Law Offices of Richard Hamlish Westlake Village, California.
For Defendants: Richard P. Romeo, Esq. Petek Gunay, Esq. Salon Marrow Dyckman Newman Broudy, LLP New York, New York.
OPINION AND ORDER
I. INTRODUCTION
Plaintiffs seek to pierce the corporate veils of their former employers, Ikahn Productions, Inc. and Winter Films, LLC (collectively, the "Entities"), to reach the Entities' alleged alter egos and collect judgments awarded to plaintiffs in arbitration for breach of their employment contracts. The alleged alter egos — Michael Kahn, Laura Kahn, Michael Ashkin, and Darby Group Companies, Inc. — contend that piercing of the corporate veil is inappropriate where the Entities, though closely-held, had separate identities. The Court has scheduled a trial for February 11, 2008. In anticipation of that trial, plaintiffs have made three motions in limine, which defendants oppose. Defendants have made four motions in limine, and plaintiffs oppose those motions. Each parties' motions are separately discussed as follows.
II. APPLICABLE LAW
III. DISCUSSION
A. Plaintiffs' Motions in Limine
See Fed.R.Evid. 402.
Fed.R.Evid. 401.
United States v. Ozsusamlar, 428 F. Supp. 2d 161, 164 (S.D.N.Y. 2006).
United States v. Chan, 184 F. Supp. 2d 337, 340 (S.D.N.Y. 2002).
Luce v. United States, 469 U.S. 38, 41 (1984).
Plaintiffs have filed three motions in limine seeking to preclude defendants from offering evidence of: (1) any compensation paid to plaintiffs by the Entities during the time period beginning December 1, 1999 through July 12, 2002; (2) any travel by plaintiffs on behalf of the Entities during the time period beginning December 1, 1999 through July 12, 2002; and (3) the Entities' losses and/or profits.
See Memorandum in Support of Plaintiffs' Motion in Limine to Exclude Certain Evidence ("Pl. Mem.") at 3-8.
1. Evidence of Compensation Paid to Plaintiffs by the Entities from December 1, 1999 to July 12, 2002
Plaintiffs seek to preclude defendants from introducing any evidence of compensation paid by the Entities to plaintiffs during the period from December 1, 1999 through July 12, 2002. Specifically, plaintiffs contend that such evidence is not relevant to the issues of whether the Entities were operated as defendants' alter egos, and whether the Entities' corporate veils should therefore be pierced. Defendants oppose the motion on the ground that evidence of compensation paid to plaintiffs during the course of their employment is relevant to the first prong of the veil-piercing inquiry — i.e., whether the defendants dominated and controlled the Entities. Defendants further contend that such evidence is relevant to the question of whether the alleged domination was wielded to commit a "wrong" against plaintiffs.
See id. at 3-4.
See Defendants' Memorandum of Law in Opposition to Plaintiffs' Motions in Limine ("Def. Opp.") at 2-6.
See id. at 6.
Plaintiffs' motion is denied. Evidence of compensation paid to plaintiffs during the course of their employment with the Entities is relevant to the issues in this action. Specifically, the fact that the Entities had a number of salaried employees, and the amounts they paid out in salaries, are both relevant to a number of the factors set forth by the Second Circuit in William Passalacqua Builders, Inc. v. Resnick Developers South, Inc. ( "Passalacqua") in determining whether an entity is dominated. For example, an allegedly dominated entity's ability to pay expenses incurred during the course of its business operations — which necessarily include salaries paid to employees — speaks to the level of the entity's available capital. The issue of how those salaries were funded, and whether they were paid by the Entities, or rather by defendants, is also relevant to the Passalacqua factor on the "payment or guarantee of debts of the dominated corporation by other corporations in the group."
933 F.2d 131, 139 (2d Cir. 1991).
See id. at 139 (stating that among the factors relevant to determining whether an entity is dominated or controlled is "inadequate capitalization"). See also Oriental Commercial Shipping Co. v. Rossel, N. V., 702 F. Supp. 1005, 1021 (S.D.N.Y. 1991) (finding undercapitalization of entity where, among other issues, alleged alter ego "paid no rent, no insurance, no subscriptions, nor any `rates' or `service charges'").
Passalacqua, 933 F.2d at 139. Accord Conan Properties, Inc. v. Mattel, Inc., 619 F. Supp. 1167, 1169-71 (S.D.N.Y. 1985) (granting defendants leave to file counterclaim against a third party's parent company on veil-piercing grounds where parent company, inter alia, at all times paid the salary of the subsidiary's president and sole employee).
In moving to exclude the evidence of their compensation, plaintiffs argue that despite the Entities' ability to pay salaries, the companies never "developed a full blown script, produced a film . . . or distributed a film." Plaintiffs further contend that, instead, "[o]ver ninety-eight percent of the investment [in the Entities] was spent on salaries, rent, travel and entertainment, as well as personal expenditures for [d]efendants." These arguments point to facts that may support a finding of domination under the Passalacqua inquiry, and may be the basis for cross-examination of defendants and their witnesses. They do not, however, warrant the wholesale exclusion of evidence that is relevant to the question of whether the Entities were dominated or controlled.
Plaintiffs' Reply to Defendants' Opposition to Plaintiffs' Motion in Limine to Exclude Certain Evidence ("Pl. Reply") at 2.
Id.
2. Evidence of Travel by Plaintiffs on Behalf of the Entities from December 1, 1999 to July 12, 2002
Plaintiffs seek to preclude defendants from introducing any evidence of their travel on behalf of the Entities from December 1, 1999 through July 12, 2002 on the same grounds. Defendants oppose plaintiffs' motion, contending that such evidence is relevant to "show that the Entit[ies] were fully functional business entities pursuing their own, separate and legitimate business goals." Further, defendants oppose exclusion on the ground that this evidence is relevant to demonstrating that travel was a part of the Entities' business, and to refute plaintiffs' claim that defendants intermingled and misused corporate funds to take certain allegedly personal trips.
See Pl. Mem. at 5-6.
Def. Opp. at 12.
See id. at 8.
Plaintiffs contend that evidence of their travel "merely shows that [they] traveled on company business." This characterization, however, oversimplifies the relevance of the evidence at issue. As the Court noted in its Opinion and Order dated August 24, 2007 (the "August 24 Opinion"), although the record suggests that the Entities were dominated or controlled, there remain a number of factors that weigh against domination. Among those factors is that the Entities were operated pursuant to a business plan aimed at developing and producing films and "`pursu[ed] [their] separate corporate business.'" Travel conducted by the Entities' employees, including plaintiffs, is relevant to the question of whether the Entities were, in fact, pursuing their own business objectives. Plaintiffs' travel on behalf of the Entities' business is also relevant to the Passalacqua factor on "whether funds are put in and taken out of the corporation [by defendants] for personal rather than corporate purposes." It may be offered, for example, to counter plaintiffs' contention that defendants used the Entities to fund their personal travels when plaintiffs may also have been present on those trips, and were required to travel on behalf of the business.
See Pl. Reply at 6.
Feitshans v. Khan, No. 06 Civ. 2125, 2007 WL 2438411, at *7 (S.D.N.Y. Aug. 24, 2007).
Id. (quoting Primex Plastics Corp. v. Lawrence Prods., Inc., No. 89 Civ. 2944, 1991 WL 183367, at *6 (S.D.N.Y. Sept. 12, 1991)) ("Where the individual carefully respects the separate identity of the corporation and the corporation is pursuing its separate corporate business rather than purely personal business of the shareholder, the corporate veil should not be pierced.").
Passalacqua, 933 F.2d at 139.
Plaintiffs argue that these trips could not have been an integral part of the Entities' business because, "of all the travel to these film festivals, not even one script was purchased, not one film was ever produced or distributed as a result of the attendance [at the film festivals]." This argument is a basis for cross-examination of defendants and their witnesses rather than a ground for exclusion. While evidence of travel conducted by plaintiffs on behalf of the Entities from December 1, 1999 through July 12, 2002 is admissible, any evidence of plaintiffs' travel prior to or following their employment by the Entities is inadmissible because it is not relevant to the issues in this action.
Pl. Reply at 6.
3. Evidence of the Entities' Losses And/Or Profits
Plaintiffs seek to preclude the introduction of any evidence of the Entities' losses and/or profits, without any limitation as to time period, and on the same grounds as their two other motions in limine. Defendants oppose plaintiffs' motion and argue that this evidence is relevant to the inquiry into whether the Entities were dominated or controlled, and whether that alleged domination was used to commit a wrong or fraud. Defendants contend that evidence of the Entities' failure to generate any revenues, as well as their significant losses, during two and one-half years of operation is relevant to, inter alia, the level of their capitalization. According to defendants, this evidence is also relevant to, and helps legitimize, the reasons underlying their business decision to cease operation of the Entities.
See Def. Opp. at 13-17.
See id. at 13.
See id. at 16.
Plaintiffs' motion is denied because evidence of the losses incurred and/or profits made by the Entities is relevant to the domination inquiry set forth by Passalacqua. Indeed, it is unclear why plaintiffs move in limine to exclude when such evidence may actually serve to bolster their position that the Entities were inadequately capitalized and were not treated as independent profit centers.
See, e.g., In re Flutie New York Corp., 310 B.R. 31, 61 (Bankr. S.D.N.Y. 2004) (piercing corporate veil where, inter alia, the court found evidence of inadequate capitalization based on the allegedly dominated company's consistent income losses, as evident from its annual income statements).
Evidence of the Entities' financial conditions, including whether they had profits or losses while in operation, allows the jury to fully weigh the Passalacqua factors. To exclude this evidence would create a significant gap in the jurors' understanding of, inter alia, how the Entities were operated, how their business fared, whether they operated and were treated as independent profit centers, and the extent to which they were able to carry on their business and exercise independent business discretion.
See Passalacqua, 933 F.2d at 139.
B. Defendants' Motions in Limine
Defendants have filed four motions in limine seeking to: (1) limit plaintiffs' proof on the second prong of the veil-piercing analysis to evidence on the stripping of the Entities' assets that allegedly occurred subsequent to the confirmation of the arbitration awards in favor of plaintiffs; (2) preclude evidence of Fed-Ex shipments which defendants contend were made by or on behalf of the Entities, as well as evidence of the alleged use of Winter Films, LLC's resources for the reinstatement of Michael Kahn's drivers license; (3) preclude evidence of alleged representations made by defendants to plaintiffs in order to induce them to accept employment with the Entities; and (4) preclude plaintiffs from introducing a member of defendants' trial team — Joel Salon, Esq. — as a witness during the trial.
1. Proof on Second-Prong of Veil-Piercing Analysis
Defendants move in limine to limit plaintiffs' proof on the second prong of the veil-piercing analysis to the question of whether the Entities' assets were stripped in order to render them judgment-proof subsequent to the confirmation by the Supreme Court, New York County of the amounts awarded to plaintiffs in arbitration. Defendants base the motion on the August 24 Opinion, contending that "this Court has already determined that [p]laintiffs are limited to proof of a wrong . . . and the only possible `wrong' with respect to which there remains any issue of fact to be tried" is the alleged asset-stripping.
See Defendants' Memorandum of Law in Support of Their Motion in Limine ("Def. Mem.") at 4-10.
Id. at 5-6.
Defendants misapprehend both the Court's analysis in the August 24 Opinion and its effect on the proceedings at trial. In that Opinion, the Court held that there were genuine issues of fact that remained in dispute with respect to the first prong of the veil-piercing inquiry — i.e., domination or control — and explicitly noted that "each party's motion for summary judgment is denied on this prong alone." The Court could have ended the inquiry there, but went on to state that "[e]ven assuming, arguendo, that the Entit[ies] were dominated by the [d]efendants, there is insufficient undisputed evidence in the record as to whether that domination was used to commit a fraud or wrong which caused plaintiffs' injuries."
Feitshans, 2007 WL 2438411, at *7.
Id. at *8.
This meant that even if the first prong of the veil-piercing inquiry had been satisfied at that stage in the litigation — which it had not — disposition of the action on summary judgment would still be inappropriate because there were disputed issues of material fact that precluded the Court from deciding, as a matter of law, that the domination was used to commit a wrong which caused plaintiffs' injury. To be clear, the Court made no legal findings with respect to the second prong, nor did it limit plaintiffs to one specific theory of liability under that prong. Rather, the Court merely provided an additional, albeit unnecessary, ground for denying both parties' summary judgment motions. The Court's analysis, which may be regarded as dicta since it was not the ground upon which summary judgment was denied, does not now bind plaintiffs.
As a result, defendants' reliance upon the law of the case doctrine is inapposite. The Second Circuit has explained that "the law of the case doctrine `posits that when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages in the same case.'" Because the Court did not reach any decision as a matter of law with respect to the second prong of the veil-piercing inquiry, and because, as defendants note, plaintiffs have represented to the Court and to defendants that they have uncovered evidence of additional "wrongs" relevant to the second prong following the close of discovery, the law of the case doctrine is not controlling.
DiLaura v. Power Auth. of State of NY, 982 F.2d 73, 76 (2d Cir. 1992) (quoting Liona Corp. v. PCHAssocs., 949 F.2d 585, 592 (2d Cir. 1991)). As plaintiffs concede, the doctrine is discretionary and "`does not limit a court's power to reconsider its own decisions prior to final judgment . . . [t]he major grounds justifying reconsideration are an intervening change of controlling law, the availability of new evidence, or the need to correct a clear error or prevent manifest injustice.'" Id. (quoting Virgin Atl. Airways v. Nat'l Mediation Bd., 956 F.2d 1245, 1255 (2d Cir. 1992)).
Defendants' concerns, as outlined in their motion in limine, speak more to the merits of plaintiffs' case rather than offering a valid ground for exclusion of otherwise relevant evidence. To the extent that defendants regard plaintiffs' evidence to be legally insufficient, they are entitled to move for judgment as a matter of law under Federal Rule of Civil Procedure 50(a). However, because the evidence in question is relevant to the issues at trial, defendants' motion is denied.
2. Evidence of Fed-Ex Shipments Made by or on Behalf of the Entities, and Use of Winter Films, LLC's Funds for Reinstatement of Michael Kahn's Drivers License
Defendants move in limine to exclude evidence of Fed-Ex shipments that, according to plaintiffs, were personal in nature and constitute evidence of defendants' misuse of the Entities' corporate funds. Defendants also move to exclude evidence of the use of Winter Films, LLC's funds for the reinstatement of Michael Kahn's drivers license. Defendants again offer the August 24 Opinion as the basis for their motion, contending that the Court already "discredited the Fed-Ex evidence and the [c]ar [e]vidence as inconsequential to a veil piercing analysis. . . . "
Def. Mem. at 19.
Defendants again misconstrue the August 24 Opinion. In that Opinion, the Court stated that the Fed-Ex shipments, "standing alone, are so de minimis in nature that they `hardly amount to a shuttling of personal funds in and out of corporate accounts.'" The Court further stated that "[e]ven if one or more of these questioned transactions were `purely personal' in character, they still would not suffice to establish that the Entit[ies] exist primarily to advance the [d]efendants' business rather than their own." That the Fed-Ex shipment evidence did not, as a matter of law, support a broad holding that the Entities were operated as alter egos does not preclude plaintiffs from introducing evidence of those shipments at trial. The evidence, though insufficient standing alone, remains relevant to the inquiry into the Passalacqua factor of "whether funds [were] put in and taken out of the [Entities] for personal rather than corporate purposes." Defendants' attempt to now wield the August 24 Opinion to preclude the admission of otherwise relevant evidence is rejected. To the extent that defendants seek to discredit the Fed-Ex evidence, they are free to use evidence of plaintiffs' own Fed-Ex shipments on cross-examination.
Feitshans, 2007 WL 2438411, at *6 (quoting United States v. Funds Held ex rel. Wetterer, 210 F.3d 96, 107 (2d Cir. 2000)) (emphasis added).
Id. (quotation marks omitted).
Passalacqua, 933 F.2d at 139.
See Feitshans, 2007 WL 2438411, at *6 n. 80 ("The Court notes that while plaintiffs have made it a point to emphasize the existence of Fed-Ex Airbills both addressed to and from a mysterious `DKNY' party — the identity of which the parties dispute — plaintiff Feitshans himself received at least two packages from `DKNY' . . . and therefore should have knowledge as to its true identity.").
Turning to evidence of defendant Michael Kahn's alleged use of Winter Films, LLC's funds for the reinstatement of his drivers license, the Court noted in the August 24 Opinion that the alleged misuse of funds remains in dispute. Because evidence of such misuse is relevant to the inquiry into whether defendants used the Entities' funds for personal purposes, defendants' motion to exclude this evidence is also denied.
See id. at *6.
3. Evidence of Alleged Representations Made by Defendants to Plaintiffs in Order to Induce Their Employment
Defendants move to exclude evidence of representations that they allegedly made to plaintiffs in order to induce them to accept and continue their employment with the Entities. Plaintiffs half-heartedly oppose defendants' motion, contending that the question of "whether [d]efendants were truthful in their relationships with plaintiffs about the operations of [the Entities] is a factor to be considered" by the jury. As plaintiffs have conceded, their complaint has never been amended to include a claim of fraud, and their claim of fraudulent inducement was raised for the first time in their motion for summary judgment and is not properly a part of this action. Courts in this Circuit have stated that "a memorandum of law is not a proper vehicle for rewriting or amending the complaint." Moreover, the Court has not seen a scintilla of evidence to support plaintiffs' fraudulent inducement claim, as it noted at the summary judgment stage. In light of the foregoing, defendants' motion to exclude evidence of fraudulent inducement is granted.
Plaintiffs' Opposition to Defendants' Motions In Limine ("Pl. Opp.") at 11-12.
Ribis v. Mike Barnard Chevrolet-Cadillac, Inc., 468 F. Supp. 2d 489, 495 (W.D.N.Y. 2007) (quotation marks and citations omitted).
See Feitshans, 2007 WL 2438411, at *8 n. 91.
4. Testimony from Defendants' Counsel
Defendants move to preclude plaintiffs from calling its counsel, Joel Salon, as a trial witness on the ground that his testimony is not relevant to the issue of alter-ego liability, and communications between Salon and defendants are covered by the attorney-client privilege. Plaintiffs oppose the motion, arguing that Salon's testimony is relevant because he served as counsel to the Entities and wrote the "letter of termination" that presumably ended plaintiffs' employment. Plaintiffs seek to question Salon on "the circumstances leading to the writing of the letter of termination and who instructed Mr. Salon to write the letter" in support of their theory that defendants dominated the Entities to commit the alleged wrong of breaching plaintiffs' employment contracts and precluding payment under those contracts.
See Pl. Opp. at 12-15.
Id. at 15.
Plaintiffs may not call Salon as a trial witness. The substance of Salon's testimony can be elicited from other witnesses, particularly defendants themselves, who served in leadership positions at the Entities and can therefore speak to business decisions made on the Entities' behalf. Testimony from Salon is therefore not essential, and is also problematic because of the danger that his testimony will necessarily implicate communications covered by the attorney-client privilege. Although plaintiffs contend that "the questions will be phrased in such a way as to avoid any privilege problem" and to the extent such a problem arises "it can be dealt with," I find that such an exercise is both unnecessary and a waste of the Court's time and resources where Salon's testimony is not essential, potentially duplicative, and largely protected under the attorney-client privilege.
Id.
IV. CONCLUSION
For the reasons set forth above, plaintiffs' motions in limine are denied. Defendants' motions in limine are granted in part and denied in part. The Clerk of the Court is directed to close these motions [Document Nos. 112 and 114].
SO ORDERED.