Securities Investor Protection Corporation v. Bernard L. Madoff Investment Securities, LLC. et a

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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SECURITIES INVESTOR PROTECTION 	:
CORPORATION, 	: 	Adv. P. No. 08-01789 (SMB)
:
Plaintiff, 	: 	SIPA LIQUIDATION
:
-against- 	: 	(Substantively Consolidated)
:
BERNARD L. MADOFF INVESTMENT 	:
SECURITIES LLC, 	:
:
Defendant. 	:
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:
In re: 	:
:
BERNARD L. MADOFF, 	:
:
Debtor. 	:
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MEMORANDUM DECISION REGARDING MOTIONS IN LIMINE
A P P E A R A N C E S:
BAKER & HOSTETLER LLP
45 Rockefeller Plaza
New York, NY 10111
David J. Sheehan, Esq.
Seanna R. Brown, Esq.
Amy E. Vanderwal, Esq.
Of Counsel
Attorneys for Irving H. Picard, Trustee
for the Liquidation of Bernard L. Madoff
Investment Securities LLC
CHAITMAN LLP
465 Park Avenue
New York, NY 10022
Helen Davis Chaitman, Esq.
Gregory M. Dexter, Esq.
Of Counsel
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Attorneys for Various Claimants
BAKER & MCKENZIE LLP
815 Connecticut Avenue, N.W.
Washington, D.C. 20006
Richard A. Kirby, Esq.
Laura K. Clinton, Esq.
Graham R. Cronogue, Esq.
Of Counsel
Attorneys for the Blums
STUART M. BERNSTEIN
United States Bankruptcy Judge
Irving H. Picard (the “Trustee”), the trustee for the liquidation of Bernard L.
Madoff Investment Securities LLC (“BLMIS”) under the Securities Investor Protection
Act, 15 U.S.C. §§ 78aaa, et seq. (“SIPA”) filed motions in limine (1) to preclude certain
claimants represented by Chaitman LLP (the “Chaitman Claimants”) from calling him as
a trial witness (the “Picard Motion”), 1 and (2) to preclude certain deposition testimony
by Drs. Joel Blum and Norman Blum (the “Blums”) based on their alleged lack of
personal knowledge (the “Blums Motion”). 2 For the reasons stated, the Picard Motion
is granted, and the ruling on the Blums Motion is deferred until trial.
BACKGROUND
A. 	Determining Customer Net Equity
The circumstances surrounding the massive Ponzi scheme orchestrated by
Madoff and the demise of BLMIS have been recounted in numerous reported decisions.
1 	See Memorandum of Law in Support of Trustee’s Motion in Limine Number 4 to Exclude the
Trustee as Witness, dated Oct. 28, 2016 (ECF Doc. # 14357).
2 	See Memorandum of Law in Support of Trustee’s Motion in Limine Number 2 to Exclude Certain
Testimony of Joel and Norman Blum, dated Oct. 28, 2016 (ECF Doc. # 14355).
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See, e.g., Picard v. Ida Fishman Revocable Trust (In re BLMIS), 773 F.3d 411, 414-15
(2d Cir. 2014), cert. denied, 135 S. Ct. 2859 (2015); Picard v. JPMorgan Chase & Co. (In
re BLMIS), 721 F.3d 54, 58-59 (2d Cir. 2013), cert. denied, 134 S. Ct. 2895 (2014); SIPC
v. BLMIS (In re BLMIS), 424 B.R. 122, 125-32 (Bankr. S.D.N.Y. 2010), aff’d, 654 F.3d
229 (2d Cir. 2011), cert. denied, 133 S. Ct. 25 (2012). The Court assumes familiarity and
limits the facts to those germane to this dispute.
The issues raised by the motions relate to whether admittedly ambiguous
notations in BLMIS’ books and records reflect actual withdrawals of cash by BLMIS
customers. SIPA establishes a “customer property” estate for priority distribution to
former customers, and each customer shares ratably in the pool of customer property
“to the extent of their respective net equities. . . .” SIPA § 78fff-2(c)(1)(B). “Net Equity”
is defined as the dollar amount of the account or accounts of a customer, to be
determined by:
A) calculating the sum which would have been owed by the debtor to such
customer if the debtor had liquidated, by sale or purchase on the filing
date –
i) 	all securities positions of such customer (other than customer name
securities reclaimed by such customer); . . . minus
B) any indebtedness of such customer to the debtor on the filing date. . . .
SIPA § 78lll(11).
SIPA directs the Trustee to determine and pay each customer’s net equity claim
“insofar as such obligations are ascertainable from the books and records of the debtor
or are otherwise established to the satisfaction of the trustee.” SIPA § 78fff-2(b). In
light of the fraudulent nature of most of the entries in BLMIS’ books and records, the
proper method for computing net equity in this case became a hotly contested subject.
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The Trustee determined that each customer’s net equity should be calculated by
crediting the amount of cash deposited by the customer into his BLMIS account, less the
amounts withdrawn from it (the “Net Investment Method”). Conversely, BLMIS
customers argued that their net equity was equal to the market value of securities listed
on their final BLMIS account statements (“Last Statement Method”).
The Second Circuit agreed with the Trustee. It ruled that the Net Investment
Method was “more consistent with the statutory definition of ‘net equity’ than any other
method advocated by the parties,” while the use of the Last Statement Method would
have the “absurd effect of treating fictitious and arbitrarily assigned paper profits as real
and would give legal effect to Madoff’s machinations.” In re BLMIS, 654 F.3d 229, 235
(2d Cir. 2011) (“Net Equity Decision”), cert. denied, 133 S. Ct. 25 (2012).3 The Second
Circuit further explained that the Net Investment Method was in keeping with SIPA §
78fff-2(b)’s requirement to satisfy net equity claims insofar as the amount owed is
“ascertainable from the books and records of the debtor or are otherwise established to
the satisfaction of the trustee.” Id. at 237 (quoting SIPA § 78fff-2(b)). The Last
Statement Method relies on fictitious profits which were “after-the-fact constructs . . .
rigged to reflect a steady and upward trajectory in good times and bad,” while the Net
Investment Method “relies solely on unmanipulated withdrawals and deposits and
refuses to permit Madoff to arbitrarily decide who wins and who loses.” Id. at 238
(quotation omitted). Since the Second Circuit ruled that the Net Investment Method
was the superior method in the BLMIS case “as a matter of law,” it did not have to
3 	The Second Circuit subsequently held that the net equity calculation should not include time-
based damages such as inflation or interest. SIPC v. 2427 Parent Corp. (In re BLMIS), 779 F.3d 74, 81, 83
(2d Cir.), cert. denied, 136 S. Ct. 218 (2015).
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determine whether the Trustee’s opinion as to the correct methodology was entitled to
weight. Id. at 238 n. 7. The Second Circuit has since affirmed the use of the Net
Investment Method to calculate the amount of actual transfers between BLMIS accounts
(i.e., inter-account transfers). 	Sagor v. Picard (In re BLMIS), No. 16-413-bk, 2017 WL
2376567, at *4 (2d Cir. June 1, 2017).
B. 	Treatment of Profit Withdrawals
BLMIS customer statements identified several different “transaction types,” and
one of them was a “profit withdrawal” identified by a “PW” notation. For purposes of
determining net equity, the Trustee treated profit withdrawals as cash withdrawals that
reduced a customer’s net equity claim. (See Amended Motion for Order Establishing
Schedule for Limited Discovery and Briefing on Profit Withdrawal Issue, dated May 19,
2015, ¶ 4 (ECF Doc. # 10017).) Several BLMIS customers objected to the reduction of
their net equity claims based on profit withdrawals, and some contradicted the
conclusion based on their personal knowledge of their own account histories.
Accordingly, the Court established a procedure for parties to present evidence about
how profit withdrawals should be treated for purpose of determining a customer’s net
equity. (See Order Establishing Schedule for Limited Discovery and Briefing on Profit
Withdrawal Issue, dated June 24, 2015 (“PW Procedures Order”) (ECF Doc. # 10266).)
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The Trustee intends to rely on two experts—Matthew B. Greenblatt4 and Lisa M.
Collura 5— to demonstrate that profit withdrawals reflect actual cash withdrawals. (See
Picard Motion at 5.) According to Greenblatt, there were 91,138 profit withdrawals 6 in
BLMIS customer accounts. (Greenblatt Report at ¶¶ 5, 6, 13.) He concluded that
BLMIS treated a profit withdrawal like any other withdrawal, and reduced the amount
in a customer’s account with each profit withdrawal. (Id. at ¶¶ 15, 16, 19.) Collura was
tasked with reconciling the PW transactions reflected in the BLMIS customer
statements with other available documentation. (Collura Report at ¶¶ 8-9.) According
to her report, she was able to reconcile 51,758 of the 91,138 profit withdrawals by
reviewing bank records, correspondence, other documents in customer files, and/or
documents received from customers or related parties. (Id. at ¶ 17.) Of the 5,527 profit
withdrawals occurring within ten years of the BLMIS filing date (December 11, 2008),
she was able to trace 99.997% of the profit withdrawals into the customer’s non-BLMIS
bank account. (Id.)
In accordance with the PW Procedures Order, the Trustee moved to affirm his
treatment of profit withdrawal transactions, (see ECF Doc. ## 10660, 10661, 13876),
and objections were filed by the Chaitman Claimants, represented by Helen Chaitman,
Esq. (“Chaitman”), 7 (see ECF Doc. # 14161), and the Blums. (See ECF Doc. # 14168.) In
4 	See Expert Report of Matthew B. Greenblatt, CPA/CFF, CFE Senior Managing Director FTI
Consulting, Inc., dated July 14, 2015 (“Greenblatt Report”) (ECF Doc. # 10663-2).
5 	See Expert Report of Lisa M. Collura, CPA, CFE, CFF, dated July 14, 2015 (“Collura Report”)
(ECF Doc. # 10664-1).
6 	Greenblatt included transactions with “CW” and “JRNL” notations as profit withdrawals in
certain instances. (Greenblatt Report at ¶ 6.)
7 	Chaitman has represented, and still represents, clients other than the Chaitman Claimants in
connection with the BLMIS liquidation. She has also worked at various firms throughout her involvement
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advance of the evidentiary hearing, the Trustee filed the Picard Motion, which is
discussed immediately below, and the Blums Motion, which is considered at the end of
this decision.
C. 	The Picard Motion
The Chaitman Claimants intend to call the Trustee as a witness at the PW trial.
(See Participating Claimants’ Prehearing Disclosures, dated Sept. 30, 2016, Part I (ECF
Doc. # 14359-6).) Through the Picard Motion, the Trustee seeks to preclude Chaitman
from calling him as a trial witness. He argues that he is relying on his experts, Lisa
Collura and Matthew Greenblatt—who analyzed and reconciled BLMIS’ book and
records—to testify about the meaning of the PW notations. The Trustee himself lacks
personal knowledge regarding BLMIS’ books and records, and any testimony he could
provide at the evidentiary hearing would not be probative of the meaning of PW, or
would be duplicative of the testimony of his experts. (Picard Motion at 5-10.) Instead,
the Trustee argues that Chaitman included him on the witness list to harass him. (Id. at
10-14.)
The Chaitman Claimants respond 8 that the Trustee’s testimony is relevant to the
basis of his subjective decision in 2009 to treat the PW transactions as withdrawals in
computing their net equity claims. (Chaitman Opposition at 1 (“It was the Trustee who
made that determination in 2009, rejecting the claims of the Participating Claimants on
in the case. For ease of reference, the Court will use the term “Chaitman” to refer to the attorney
notwithstanding her representation of different clients and while at firms other than her current firm.
8 	See Participating Claimants’ Memorandum of Law in Opposition to the Trustee’s Motion In
Limine Number 4 to Bar the Participating Claimants From Calling the Trustee as a Witness, dated Nov.
18, 2016 (“Chaitman Opposition”) (ECF Doc. # 14476).
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the theory that the PW notations represented withdrawals by the customers. The
Participating Claimants are entitled to have, as part of the record on this issue, the
testimony of the Trustee as to the basis on which he reached that decision.”); id. at 3
(“At the Profit Withdrawal evidentiary hearing, the Participating Claimants intend to
call the Trustee to testify on at least the following issues: (a) his factual basis in 2009 for
denying the claims of the Participating Claimants; (b) the factual investigation he made
as to the appropriate treatment of PW entries; and (c) whether the Trustee’s
determinations are justified.”); id. at 5 (“Here, the Trustee’s experts – hired in
connection with the Profit Withdrawal litigation in 2014 – cannot possibly testify as
[sic] the Trustee’s processes in denying SIPC claims in 2009. The Trustee is the only
source of testimony as to the factual basis on which he denied SIPC claims in 2009.”).)
They hypothesize that he had no basis to deny their claims, and instead, assume his
decision was part of a conspiracy with the Securities Investor Protection Corporation
(“SIPC”) to minimize SIPC’s statutory obligation to advance funds to satisfy net equity
claims:
Let us assume, for example, that the Trustee had no factual basis for his
rejection of the Participating Claimants’ claims and he simply charged
them with profit withdrawals when he had good reason to know the
debtor’s books and records did not evidence the withdrawals. Let us
further assume that his reason for doing this was that the Securities
Investor Protection Corporation (“SIPC”), which pays the Trustee’s
counsel fees, wanted to save as much money as possible by paying out as
little in SIPC insurance as it possibly could. In other words, let us assume
that the Trustee denied the SIPC claims of the Participating Claimants for
a grossly improper reason – in order to enrich himself and SIPC at the
expense of Madoff’s victims. Surely, if those are the facts, the record
should encompass them.
(See id. at 1-2 (emphasis added).)
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DISCUSSION
“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.” Palmieri v. Defaria, 88 F.3d 136, 141 (2d Cir. 1996) (quotation omitted). A
trial court may reserve decision on an in limine motion until trial, so that the motion is
reviewed in the “appropriate factual context.” Nat’l Union Fire Ins. Co. of Pittsburgh,
PA v. L.E. Myers Co. Grp., 937 F. Supp. 276, 287 (S.D.N.Y. 1996). A court’s ruling on a
motion in limine “is subject to change when the case unfolds,” Luce v. United States,
469 U.S. 38, 41 (1984); even if nothing changes, a trial court may alter a prior in limine
ruling in the exercise of sound judicial discretion. Id. at 41-42.
The usefulness of in limine motions is largely negated in bench trials. As the
Ninth Circuit Court of Appeals explained:
Because the judge rules on this evidentiary motion, in the case of a bench
trial, a threshold ruling is generally superfluous. It would be, in effect,
“coals to Newcastle,” asking the judge to rule in advance on prejudicial
evidence so that the judge would not hear the evidence.
United States v. Heller, 551 F.3d 1108, 1112 (9th Cir.), cert. denied, 556 U.S. 1252
(2009); accord Official Comm. of Unsecured Creditors v. Isr. Disc. Bank of New York
(In re Oak Rock Fin., LLC), 560 B.R. 635, 638 (Bankr. E.D.N.Y. 2016) (“As this is a
bench trial without a jury, the need for an advance ruling to exclude evidence has been
deemed by some courts as superfluous and unnecessary.”).
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The PW evidentiary hearing will be heard by the Court without a jury. Although
this Court agrees that the usefulness of in limine motions in a bench trial is limited, it
concludes that the Picard Motion should be granted as explained immediately below.
1. 	The Picard Motion
Relevant evidence is generally admissible, F ED. R. E VID. 402, and 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,”
F ED. R. E VID. 401, i.e., the fact is material. The bar for relevancy under Federal Evidence
Rule 401 is “very low,” United States v. White, 692 F.3d 235, 246 (2d Cir. 2012)
(quotation omitted), and “[e]vidence should not be excluded on a motion in limine
unless such evidence is ‘clearly inadmissible on all potential grounds.’” Hart v. RCI
Hospitality Holdings, Inc., 90 F. Supp. 3d 250, 257 (S.D.N.Y. 2015) (Engelmayer, J.)
(quoting Nat'l Union Fire Ins. Co., 937 F. Supp. at 287). Nevertheless, the “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,” F ED. R.
E VID. 403, and similarly, may exercise reasonable control over the mode of presenting
evidence so as to effectively determine the truth, avoid wasting time and protect
witnesses from harassment or undue embarrassment. F ED. R. E VID. 611.
A trial court is afforded broad discretion in its evidentiary rulings, including
those made in connection with a motion in limine. See Sprint/United Mgmt. Co. v.
Mendelsohn, 552 U.S. 379, 384 (2008). As one treatise explained, “[Federal Evidence
Rule 611] imposes on the trial court the duty of balancing the trial’s primary function of
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ascertaining the truth concerning the dispute between the parties against the needs of
the courts to conserve their time and to protect witnesses from harassment or undue
embarrassment at the hands of overzealous advocates.” 4 M ARK S. B RODIN ET AL.,
WEINSTEIN’ S F EDERAL E VIDENCE § 611.02[2][a] at 611-6 (2d ed. 2017). “Restrictions on
examination and exclusion of testimony are within the discretion granted the district
court by Rule 611. To avoid repetition and irrelevant testimony, the court may limit
testimony or exclude it altogether.” Id. § 611.02[2][b][i] at 611-28.3 to 611-29. The trial
court has “wide latitude” under Federal Evidence Rule 611 in controlling the
presentation of evidence. SR Int’l Bus. Ins. Co. Ltd. v. World Trade Ctr. Props., LLC,
467 F.3d 107, 119 (2d Cir. 2006) (quotation omitted).
The testimony that Chaitman seeks to adduce regarding the Trustee’s subjective
reason in 2009 to treat PW transactions as cash withdrawals is immaterial. The
question for trial is whether the “PW” notation refers to an actual cash withdrawal, and
not whether the Trustee had a reasonable basis in 2009 to treat PW notations as
withdrawals. If the Trustee had a reasonable basis in 2009 to treat PW notations as
withdrawals but his conclusion proves incorrect based on the trial evidence, he will lose.
Conversely, if he did not have a reasonable basis in 2009 but the evidence shows that he
was nevertheless correct, he will prevail. 9 Allowing the Chaitman Claimants to pursue a
line of inquiry into the Trustee’s subjective knowledge and conclusions in 2009 will
9 	Chaitman’s argument implies that the Trustee could not have rationally concluded in 2009 that
PW referred to an actual withdrawal because he hired these experts in 2014. ((Chaitman Opposition at
5.) In fact, both experts are members of the team at FTI Consulting, Inc. hired by the Trustee’s counsel
shortly after he was appointed to reconstruct BLMIS’ books and records including reconciliation of all
deposits and withdrawals. (See Greenblatt Report at ¶ 4; Collura Report at ¶ 4.)
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propel the Court and the parties into a time consuming, immaterial area that will
prolong the trial without any corresponding benefit.
As to the issue that is before the Court, the Trustee lacks personal knowledge
relating to the appropriate treatment of the PW notations. (Picard Motion at 8.)
Whatever he knows is based on what his experts told him (which is presumably work
product). (Id. at 5, 9.) It was Greenblatt and his team that reviewed each deposit and
withdrawal for each BLMIS account from 1981 to the filing date, and identified a subset
of 91,138 profit withdrawal transactions that are relevant to this proceeding.
(Greenblatt Report at ¶ 13.) It was Collura and her team that reconciled 51,758 of the
91,138 profit withdrawals with third-party bank records or other documentation.
(Collura Report at ¶ 17.) The Chaitman Claimants do not seriously suggest that the
Trustee was part of either team or conducted his own forensic investigation and drew
his own conclusions – and they have not even bothered to take his deposition. Like
most court-appointed trustees, the Trustee lacks personal knowledge about the events
that preceded his appointment, a point the Chaitman Claimants do no dispute.
Finally, although the Chaitman Claimants’ protest that they do not intend to
harass the Trustee, the history of this case suggests otherwise. Based on a litany of
unsupported assumptions, they hope to prove that the Trustee’s position is the result of
a conspiracy with SIPC to take meritless legal and factual positions hostile to BLMIS
customers to reduce the amount of statutory payments SIPC has had to make to
customers under SIPA § 78fff-3(a).
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Chaitman has advanced variations of this theory on multiple occasions to show
that the Trustee is hopelessly conflicted and/or in cahoots with SIPC. For instance,
Chaitman objected to the Trustee’s and his counsel’s first interim fee application
accusing the Trustee and his attorneys of “misrepresent[ing] the law to destitute
Customers who cannot afford to retain their own counsel, with the clear intent of
inducing Customers to accept less in SIPC insurance than they are entitled to receive.”
(See ECF Doc. # 351 at ¶ 10.) Judge Lifland (who then presided over the BLMIS SIPA
liquidation) overruled the objection finding that “there has been nothing shown that this
Trustee is not acting in good faith. That is clear. There is nothing that has been shown
that this Trustee is guilty of any kind of fraud or dereliction of duty . . . .” (Tr. of Aug. 6,
2009 Hr’g at 35:5-9 (ECF Doc. # 381).) Chaitman moved in the District Court for leave
to appeal the Bankruptcy Court’s fee order, advancing theories about the Trustee’s
purported conflict of interest. District Judge Daniels denied Chaitman’s motion, and
observed that her arguments all stem from her disagreement with the Trustee about the
method to be utilized to compute net equity. See SIPC v. BLMIS, No. M 47 (GBD), 2010
WL 185102, at *1 (S.D.N.Y. Jan. 11, 2010) (“Objectants essentially argue that the Trustee
is applying an incorrect methodology for net equity and is therefore underpaying some
of the SIPC customers.”).
Chaitman again objected, this time to the Trustee’s and his counsel’s second
interim fee application, citing the same purported conflict of interest. (See ECF Doc. #
1055 at ¶ 6 (“SIPC, as the insurer of Customer accounts, is in a direct adversarial
position to the Customers, putting the Trustee and [his counsel] in an untenable conflict
of interest.”).) Once again, Bankruptcy Judge Lifland overruled Chaitman’s objection
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“on basically the same ground that I have done previously. . . .” (Tr. of Dec. 17, 2009
Hr’g at 33:25-34:1 (ECF Doc. # 1438).)
Undaunted, Chaitman objected anew to the Trustee’s and his counsel’s third
interim fee application asserting his conflict of interests. (See ECF Doc. # 2233 at 10
(“The Trustee and [his counsel] are disabled from serving because, as they have
demonstrated repeatedly in the first 16 months of their service, they have a fundamental
conflict of interest and are working solely to enrich SIPC at the expense of the
Customers to whom they owe a fiduciary duty.”).) The Court overruled the objection for
a third time, stating that there was “no basis for finding that the Trustee should be found
to have an appearance of a conflict of interest.” (Tr. of May 5, 2010 Hr’g at 97:23-25
(ECF Doc. # 2267).) Chaitman moved for leave to appeal, but District Judge Scheindlin
denied the motion, SIPC v. BLMIS (In re BLMIS), 2010 WL 3260074, at *5 (S.D.N.Y.
Aug. 6, 2010), pointing out that the Trustee and his counsel were deemed to be
disinterested under applicable SIPA provisions by the Bankruptcy Court in January
2009. Id., at *4; see also Order of Disinterestedness of Trustee and Counsel to Trustee,
dated Feb. 4, 2009 at 2 (“ORDERED, DECREED, AND ADJUDGED that the Trustee
and Baker & Hostetler LLP are disinterested pursuant to the provisions of Section
78eee(b)(6) of SIPA, Bankruptcy Code Section 327(a) and Federal Rule of Bankruptcy
Procedure 2014(a).”) (ECF Doc. # 69). Chaitman nevertheless pressed the same
objection to the Trustee’s fourth interim fee application, (see ECF Doc. # 2943 at 10),
fifth interim fee application, (see ECF Doc. # 3308, ¶ 18), and sixth interim fee
application (see ECF Doc. # 4088, ¶¶ 4-9; see also Letter, dated May 31, 2011 (ECF Doc.
# 4116)), all without success.
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Fee application objections were not the only vehicle that Chaitman used to drive
home her speculative narrative. In the Picard v. Greiff case, she argued that the District
Court should withdraw the reference under 28 U.S.C. § 157(d) to decide whether the
Trustee’s receipt of compensation for liquidating BLMIS violated the defendant’s due
process rights under the United States Constitution. According to Chaitman, the
Trustee, as a fiduciary appointed by SIPC, was acting as a judge in the cases he was
commencing. (See Defendants Memorandum of Law In Support of Motion for
Mandatory Withdrawal of the Reference, dated June 2, 2011 at 15-17 (ECF Dist. Ct.
Case No. 11-cv-03775 Doc. # 1).) During the oral argument, District Judge Rakoff asked
Chaitman about the basis for her allegations:
MS. CHAITMAN: Your Honor, the basis is that I have been informed by a
personal friend of [the Trustee] that he was compensated --
THE COURT: Who?
MS. CHAITMAN: A lawyer in New Jersey.
THE COURT: Who?
MS. CHAITMAN: You know, unfortunately I can’t remember his name. . . .
THE COURT: Did you have any other basis?
MS. CHAITMAN: No. When we argued --
THE COURT: So wait a minute . . . on the basis of some hearsay comment
from someone who may or may not have personal knowledge, and who
must be so little known to you that you can’t even remember his name, you
made an allegation of unethical or biased approach by [the Trustee]? That
seems an awfully weak read to make such an allegation.
(Tr. of July 28, 2011 Hr’g at 12:2-22 (ECF Dist. Ct. Case No. 11-cv-03775 Doc. # 17).)
The District Court denied Chaitman’s motion on the due process issue, but granted it on
others. (See Order, dated Sept. 15, 2011 (ECF Dist. Ct. Case No. 11-cv-03775 Doc. # 19).)
Chaitman next asserted in motions to dismiss that the Trustee’s compensation
arrangement denied her clients due process. According to Chaitman, the Trustee’s
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receipt of a share of his firm’s legal fees constituted an improper financial stake in the
fraudulent transfer cases he commenced in the BLMIS liquidation. 	(See Defendants’
Omnibus Memorandum of Law In Support of Motions to Dismiss, dated Nov. 1, 2013 at
5-7 (ECF Adv. P. No. 10-04292 Doc. # 36).) The Court dismissed the argument as a
matter of law and held that the Trustee’s and his counsel’s receipt of compensation was
not a due process violation:
Here, the Trustee is not the adjudicator of the claims he brings. He
investigates the claims and brings litigation, but a judge decides the
outcome. Furthermore, although the Trustee has an interest in the fees
awarded to his firm and paid by SIPC, neither he nor his firm have an
interest in the outcome of any litigation he brings.
SIPC v. BLMIS (In re BLMIS), 531 B.R 439, 460 (Bankr. S.D.N.Y. 2015) (“Omnibus
Decision”). Chaitman then moved for leave to appeal, but District Judge Daniels denied
her motion because the factual sources she cited failed to support her assertion about
the Trustee’s fees. In addition, Judge Daniels noted that District Judge Rakoff had
previously expressed doubts about Chaitman’s sources. In re BLMIS, No. 15 Civ. 06564
(GBD), 2016 WL 690834, at *2, *2 n. 1 (S.D.N.Y. Feb. 11, 2016).
Chaitman persisted. After her motion for leave to appeal was denied, she served
requests for interrogatories on the Trustee to obtain discovery regarding the Trustee’s
compensation. At a discovery conference, the Court explained that its ruling in the
Omnibus Decision resolved the due process issue as a matter of law and discovery on the
topic was therefore improper. (Tr. of Mar. 17, 2016 Hr’g at 9:12-10:20 (ECF Adv. P. No.
10-04658 Doc. # 52).) Accordingly, the Court issued a protective order consistent with
its bench ruling. (See ECF Doc. # 12912.) Chaitman moved for leave to appeal but her
motion was denied by District Judge Pauley, ruling that she had failed to establish a
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“substantial ground for difference of opinion on the question of whether a SIPA
[t]rustee, proceeding as a litigant in filing avoidance actions, attains a state-actor status
analogous to that of a judge or prosecutor.” In re BLMIS, Nos. 16cv2792, 16cv2804,
16cv2806, 16cv2807 (WHP), 2016 WL 3892765, at *4 (S.D.N.Y. July 14, 2016).
Chaitman has never pointed to any facts to overcome the finding of the Trustee’s
disinterestedness or the good faith performance of his duties, and Chaitman’s baseless
“assumptions” are no substitute for facts. Her line of inquiry is immaterial, will, at best,
duplicate the experts’ testimony, and if permitted, unnecessarily prolong the trial and
harass the Trustee. Since Chaitman has not identified any other purpose for the
Trustee’s testimony, the Picard Motion is granted.
2. 	The Blums Motion
The Blums’ BLMIS accounts received inter-account transfers from the accounts
of their now deceased parents. Their parents’ account statements showed numerous
PW transactions, but the Blums asserted that their parents never received profit
withdrawals. (See, e.g., Deposition of Norman Blum, M.D., dated May 13, 2016 at 60:2-
61:23 (ECF Doc. # 14359-4) & Deposition of Joel Alan Blum, dated May 16, 2016 at
77:20-79:5 (ECF Doc. # 14359-5).)
The crux of the Blums Motion, which focused on the Blums’ deposition
testimony, was that the Blums should not be permitted to testify as to their parents’
BLMIS accounts because they lacked personal knowledge as required by F ED . R. E VID.
602. (Blums Motion at 4-9.) The Blums countered that they would be able to lay a
foundation for the testimony about their parents’ accounts based on their knowledge of
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their father’s financial and estate planning. (Blums Opposition at 7-10.) Alternatively,
they asserted that the testimony was admissible under F ED. R. E VID. 406 as evidence of
their father’s habits. (Blums Opposition at 21.)
After the April 18, 2017 hearing, counsel for the Blums informed the Court that
the Blums would testify in person. (See Letter, dated May 4, 2017 (EDF Doc. # 15957).)
Accordingly, the Court will defer ruling on the Blums Motion. Nat’l Union Fire Ins. Co.,
937 F. Supp. at 287.
CONCLUSION
For the reasons stated, the Picard Motion is granted, and a ruling on the Blums
Motion is deferred until trial. Settle order on notice.
Dated:New York, New York
June 15, 2017
/s/ Stuart M. Bernstein
STUART M. BERNSTEIN
United States Bankruptcy Judge
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