Lippe v. Bairnco Corp.

• Decision Date: 28 January 2003
• Docket Number: No. 96 Civ. 7600(DC).,96 Civ. 7600(DC).
• Citation: 288 B.R. 678
• Parties: Richard A. LIPPE, Archie R. Dykes, and John J. Robbins, as Trustees for Keene Creditors Trust, Plaintiffs, v. BAIRNCO CORPORATION et al., Defendants.
• Court: U.S. District Court — Southern District of New York

288 B.R. 678

Richard A. LIPPE, Archie R. Dykes, and John J. Robbins, as Trustees for Keene Creditors Trust, Plaintiffs, v. BAIRNCO CORPORATION et al., Defendants.

No. 96 Civ. 7600(DC).

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

January 28, 2003.

COPYRIGHT MATERIAL OMITTED

Levy Phillips & Konigsberg, LLP, New York City, Saiber Schlesinger Satz & Goldstein, LLC, By: David R. Gross, Rsq. Geoffrey Gaulkin, James H. Gianninoto, Newark, New Jersey, Budd Larner Rosenbaum

Greenberg & Sade, P.C., By: Kathleen Marchetti, Short Hills, New Jersey, for Plaintiffs.

Debevoise & Plimpton, By: John H. Hall, Steven Klugman, Jeremy Feigelson, Jennifer R. Cowan, Jeffrey I. Lang, Caroline H. Luckenbach, New York City, Schulte Roth & Zabel LLP, By: Irwin J. Sugarman, Michael S. Chernis, New York City, McCarter & English, LLP, By: Charles F. Rysavy, Alissa Pyrich, Newark, New Jersey, for Defendants.

OPINION

CHIN, District Judge.

In this case, plaintiffs contend that in the 1980s, as Keene Corporation ("Keene") became the subject of a rapidly increasing number of asbestos claims, it engaged in a series of fraudulent conveyances intended to place hundreds of millions of dollars in assets beyond the reach of claimants. In 1981, Keene formed a holding company, Bairnco Corporation ("Bairnco"), and eventually Keene itself became a wholly-owned subsidiary of Bairnco. From 1983 through 1989, Keene transferred certain of its profitable businesses or divisions to newly created Bairnco subsidiaries. By 1993, after more than 100,000 asbestos lawsuits had been brought against it, Keene went into bankruptcy.

Plaintiffs, the Trustees of the Keene Creditors Trust (the "Trust"), brought this action on behalf of asbestos claimants to challenge the transactions as fraudulent conveyances. Plaintiffs' claims present two key factual areas of inquiry: (1) whether the newly-created subsidiaries paid "fair consideration" for the assets they purchased from Keene, and (2) whether the management of Keene and the purchasing companies acted with fraudulent intent, i.e., with the intent to hide assets from Keene's creditors.

Before the Court are defendants' motions to exclude the testimony of three of plaintiffs' proposed expert witnesses: William J. Carney, a law professor who has provided an opinion as to the "business purpose" of the transactions in question, and Thomas E. Dewey, Jr., an investment banker, and Jocelyn D. Evans, a finance professor, who have provided opinions as to the value of the transferred businesses.

For the reasons that follow, the motions are granted: Professor Carney, Mr. Dewey, and Dr. Evans will not be permitted to testify at trial.

BACKGROUND

A. The Facts

The facts are summarized in the Court's prior decisions in this case. See, e.g., Lippe v. Bairnco Corp., 230 B.R. 906, 908-11 (S.D.N.Y.1999); Lippe v. Bairnco Corp., 225 B.R. 846, 850 (S.D.N.Y.1998). The facts relating to the role of defendant Kidder, Peabody & Co. ("Kidder"), a former defendant in this case, are of particular relevance to the motion to exclude the testimony of plaintiffs' valuation experts. Kidder provided "fairness opinions" concerning the transactions in question. After the purchase price for each transaction had been set, Kidder determined the value of the company in question and then rendered an opinion as to whether the purchase price was fair. In every instance, Kidder concluded that fair consideration was being paid. These facts are summarized in the Court's decision granting certain motions to dismiss filed by Kidder and other former defendants. See Lippe v. Bairnco Corp., 218 B.R. 294, 300 (S.D.N.Y.1998).

B. Carney

1. Prior Proceedings

Carney prepared a 129-page report, dated August 29, 2001, setting forth his opinion as to the "business purpose" of the transactions in question. The report was the subject of prior motion practice in this case, as defendants moved to strike his report and to preclude him from testifying at trial.

By Memorandum Decision filed January 7, 2002, I granted the motion in part and I denied it in part. Lippe v. Bairnco Corp., No. 96 Civ. 7600(DC), 2002 WL 15630 (S.D.N.Y. Jan.7, 2002). I held:

Carney will not be permitted to give testimony stating ultimate legal conclusions; he will not be permitted to opine that the conveyances in question were fraudulent conveyances. Likewise, Carney will not be permitted to offer his personal assessment on the credibility of others or what others actually intended. He will be permitted to testify about corporate conveyances and transactions to help the jury understand the series of corporate transactions in question.

Id. at *3. I granted the motion in part because much of Carney's proposed testimony was improper, as he was proposing to tell the jury what result to reach — that defendants had engaged in fraudulent conveyances. He was proposing to tell the jury that defendants' witnesses were not to be believed and that their "real purpose" was "to remove the most valuable and promising business assets that Keene owned from the reach of its asbestos creditors." (Carney Report at 7, 9).¹

Within just a few days after I issued my decision, defendants proposed to plaintiffs that the parties seek to agree on "which portions of Professor Carney's report survive the Court's ... ruling." (Cowan Decl. Ex. 4). Plaintiffs declined. Defense counsel then offered to mark up Carney's report first, to start the process of trying to reach an agreement. Plaintiffs again declined.

At Carney's deposition in May 2002, defendants again asked plaintiffs to set forth their position on what Carney could testify to, but plaintiffs again refused:

MR. FEIGELSON: ... [A]re plaintiffs' counsel prepared at this time to respond to our request we've made before; and that is, to identify for us those parts of Professor Carney's report that you believe he will not be allowed to testify to at trial, in light of Judge Chin's opinion?

MR. GROSS: No.

MR. FEIGELSON: Are you prepared to tell us when, if ever, plaintiffs will give us that information?

MR. GROSS: No.

(Carney Dep. at 138-39).

In fact, plaintiffs took the position at the deposition that if defendants asked Carney any questions about any topic in his report, Carney would be free to testify about those subjects at trial:

MR. GROSS: ... [I]t is our position that if you do delve into areas that the judge has indicated, as you understand his order, are not proper, then we'll take the position that anything you ask he has a right to testify about at this trial. Okay? ...

MR. BURDETTE: David, if you're going to do that, you have to tell us what you think he is not allowed to —

MR. GROSS: I'll tell you what I need to tell you when I think I do, Brooks, not what you'd like me to tell you. Okay?

(Id. at 8-9).

Defendants proceeded to question Carney about his full report. Carney reiterated his understanding that he was going to testify as to the "business purpose" of the transactions in question:

Q.... Could you read aloud, sir, the first sentence under the heading Engagement?

A. "In the present matter I have been asked to provide my opinion as to the business purpose for the transactions ... concerning Keene, Bairnco, and associated companies."

...

Q. And is the report as you understand it, in fact, a statement of your opinion as to the business purpose for these transactions? That is, did you do in your report what you said in the first sentence under Engagement here that you were going to do?

A. Well, I think others will have to judge my success in carrying out that enterprise, but it is my personal belief that I've been responsive to that request, yes.

Q. Was it your intention in this report to opine about anything else?

A. No.

Q. As you sit here today, do you have any understanding about what opinions you will be asked to offer at trial if you testify at trial?

A. I think that that single sentence probably sets that out as clearly as any I can say.

Q. Your opinion as to the business purpose for the transactions?

A. Yes.

(Carney Dep. at 139-42 (quoting Carney Report at 1)).

2. Carney's Role As "Counsel"

The discovery taken after my January 7, 2002 decision revealed that Carney was engaged as "counsel" by plaintiffs (and their attorneys of record) in October 1999. Carney sent a retainer letter, on letterhead of "William J. Carney, Attorney at Law," to plaintiffs' counsel on October 27, 1999. The letter, addressed to David R. Gross, Esq., reads in part as follows:

I am pleased that you have chosen me to serve as counsel to your firm in the above referenced litigation.... This letter will confirm the scope of my initial engagement and our fee arrangement for the services I will render.

Pursuant to my discussions with you, I will serve as consultant to you on certain issues of corporate law in the above referenced litigation. I understand that I may be asked to review certain documents and transactions to determine if I can serve, if requested, as an expert witness with respect to issues raised in the litigation. If, after this review, I determine that I am able to testify on behalf of your client, I will take such steps as may be necessary to prepare to testify at trial.

The fee arrangements described below are not contingent on my being able to testify.... The amount of time expended by me will be recorded and assigned a dollar value based upon my personal hourly rate, which is $375.

Certain charges for items performed on the client's behalf in rendering legal services, such as filing fees, long-distance telephone calls, ... and the like are payable by the client.

(Cowan Decl. Ex. 9 (emphasis added)).

In fact, as the record shows, Carney acted as an attorney in the case. Although he called himself a "consultant" or "analyst" at times during his deposition, he freely acknowledged his job as "counsel." (Carney Dep. at 60, 80, 267, 498, 499). Indeed, over the course of his deposition he acknowledged his role as counsel or...