In re Initial Public Offering Securities Litig.

• Decision Date: 07 November 2001
• Docket Number: No. 21 MC 92(SAS).,21 MC 92(SAS).
• Citation: 174 F.Supp.2d 61
• Parties: In re: INITIAL PUBLIC OFFERING SECURITIES LITIGATION This Document Relates To: All Cases
• Court: U.S. District Court — Southern District of New York

174 F.Supp.2d 61

In re: INITIAL PUBLIC OFFERING SECURITIES LITIGATION

This Document Relates To: All Cases

No. 21 MC 92(SAS).

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

November 7, 2001.

Melvyn I. Weiss, Esq., Ariana J. Tadler, Esq., Milberg Weiss Bershad Hynes & Lerach LLP, Stanley Bernstein, Esq., Robert Berg, Esq., Bernstein Liebhard & Lifshitz, LLP, New York, Liaison Counsel for Plaintiffs.

Gandolfo V. DiBlasi, Esq., Sullivan & Cromwell, New York, Liaison Counsel for Defendants (Underwriters).

Jack C. Auspitz, Esq., Morrison & Foerster LLP, New York, Liaison Counsel for Defendants (Issuers).

OPINION AND ORDER

SCHEINDLIN, District Judge.

Over the last eleven months, plaintiffs have brought over 860 securities class actions against more than 200 companies and approximately 40 investment banks ("underwriters") alleging, in the broadest terms, that these defendants violated federal law by manipulating the prices of stocks that the companies had issued to the public. Because the hundreds of complaints share some common issues, Chief Judge Michael B. Mukasey ordered them consolidated for pretrial purposes and assigned the cases to this Court on August 9, 2001. See Order, In re Initial Public Offering Sec. Litig., 21 MC 92 (Aug. 9, 2001).

Many, but not all, of the underwriters have moved to recuse this Court for various reasons under 28 U.S.C. § 455 (the "moving defendants"). In support of their motion, the moving defendants have proffered the affidavits and declarations of Professors Geoffrey Hazard and Charles Wolfram as experts in judicial ethics. For the reasons that follow, these declarations must be precluded.¹

I. LEGAL STANDARD

"It is well-established that `the trial judge has broad discretion in the matter of the admission or exclusion of expert evidence.'" Boucher v. United States Suzuki Motor Corp., 73 F.3d 18, 21 (2d Cir.1996) (quoting Salem v. United States Lines Co., 370 U.S. 31, 35, 82 S.Ct. 1119, 8 L.Ed.2d 313 (1962)). Nonetheless, "[i]n evaluating the admissibility of expert testimony, this Court requires the exclusion of testimony [that] states a legal conclusion." United States v. Feliciano, 223 F.3d 102, 121 (2d Cir.2000) (quotation marks and citation omitted) (alteration in original); see also Marx & Co. v. Diners' Club Inc., 550 F.2d 505, 510 (2d Cir.1977). Indeed, "[t]his circuit is in accord with other circuits in requiring exclusion of expert testimony that expresses a legal conclusion." Hygh v. Jacobs, 961 F.2d 359, 363 (2d Cir.1992) (emphasis added).

II. BACKGROUND

At a conference held on September 26, liaison counsel² for the underwriters informed this Court that certain underwriters had decided to seek recusal based on this Court's purchases and sales of particular stocks. Over the next two weeks, the Court held several conferences to discuss the proposed recusal.

On October 3, without permission of the Court, the moving defendants submitted a fifteen-page declaration by Professor Geoffrey C. Hazard, Jr. According to the declaration, the moving defendants had asked Professor Hazard to "give [his] opinion concerning whether 28 U.S.C. § 455 requires recusal of the presiding district court judge, Honorable Shira A. Scheindlin." 10/3/01 Hazard Decl. ¶ 2. Throughout his nine-page opinion, Professor Hazard "relied upon the Statement of Facts prepared at [his] request by counsel for defendants in this action and attached hereto as Exhibit A," id. ¶ 3, which accounted for an additional six pages (single-spaced) of the declaration.

On Friday afternoon, October 12, the Court received a letter from the underwriter liaison firm requesting permission "to file a thirty-five page memorandum of law and an approximately forty-page supporting declaration from Charles W. Wolfram, the Charles Frank Reavis Sr. Professor Emeritus at the Cornell Law School." 10/12/01 Letter from Penny Shane of Sullivan & Cromwell. The letter further stated, "we also plan on submitting an affidavit attaching approximately twenty-five exhibits ...." Id. After considering the request, the Court issued the following order by email:

The page limit on the memorandum of law is extended to 35 pages. A 40-page declaration is excessive in length and will not be considered by the Court. Counsel should submit a list of the proposed exhibits. Until such list is reviewed by the Court, no exhibits will be considered.

After reviewing the e-mail, the liaison law firm contacted a law clerk by phone and asked whether there was some page number between zero and forty that the Court would accept. See 10/15/01 (11:00 a.m.) Tr. at 7. In response, the Court instructed the clerk to say it would allow fifteen pages to be submitted. See id. The Court also had the clerk notify the liaisons with the following email: "At the request of the counsel for the defendant-underwriters, the Court will accept a declaration from Professor Wolfram that is not to exceed 15-pages in length."

On Monday, October 15, 2001, the Court convened a telephone conference to discuss the proposed exhibit list and the declarations of Professors Hazard and Wolfram. At that conference, the Court raised the issue of whether the affidavits and declarations by Professors Hazard and Wolfram were admissible. See 10/15/01 (11:00 a.m.) Tr. at 19-20. Specifically, the Court stated that, in its view, affidavits "are supposed to put in factual material, but they're not suppose to in essence, make an additional legal argument." Id. at 19. After encouraging the moving defendants to share the declarations with the plaintiffs and discuss whether they should be admitted, see id. at 26, the Court adjourned the conference until later that day. See id. at 30.

At the reconvened conference, the plaintiffs informed the Court that they had reviewed the declaration by Professor Wolfram and believed it was "nothing more than an attempt to camouflage what is clearly an opinion as a matter of law on a legal issue by just using some facts as background for his conclusion." 10/15/01 Tr. (5:35 p.m.) at 8. The Court then instructed the parties to submit letter-briefs on whether the declarations of Professors Hazard and Wolfram should be admitted. See id. at 10, 12-13.

III. DISCUSSION

A. Should the Court Accept Expert Opinion on a Recusal Motion?

"This Court has repeatedly held that the testimony of an expert on matters of domestic law is inadmissable for any purpose." Music Sales Corp. v. Morris, 73 F.Supp.2d 364, 381 (S.D.N.Y.1999)(emphasis added). The law of this circuit is that while an expert may provide an opinion to help a jury or a judge understand a particular fact, "he may not give testimony stating ultimate legal conclusions based on those facts." United States v. Bilzerian, 926 F.2d 1285, 1294 (2d Cir.1991); see also Andrews v. Metro North Commuter R.R. Co., 882 F.2d 705, 708 (2d Cir.1989) (holding that engineer's testimony that defendant was negligent was an improper legal conclusion); United States v. Scop, 846 F.2d 135, 140 (2d Cir.), modified on other grounds, 856 F.2d 5 (2d Cir.1988) (holding that expert's statements that defendants violated securities law and "drew directly upon the language of the statute" were legal conclusions that "went well beyond his province as an expert").

The rule prohibiting experts from providing their legal opinions or conclusions is "so well-established that it is often deemed a basic premise or assumption of evidence law — a kind of axiomatic principle." Thomas Baker, "The Impropriety of Expert Witness Testimony on the Law," 40 U. Kan. L.Rev. 325, 352 (1992).³ In fact, every circuit has explicitly held that experts may not invade the court's province by testifying on issues of law. See Nieves-Villanueva v. Soto-Rivera, 133 F.3d 92, 100 (1st Cir.1997) (excluding expert legal opinion "because the judge's expert knowledge of the law makes any such assistance at best cumulative, and at worst prejudicial"); Weston v. Washington Metro. Area Transit Auth., 78 F.3d 682, 684 n. 4 (D.C.Cir.1996) ("An expert witness may not deliver legal conclusions on domestic law, for legal principles are outside the witness' area of expertise under Federal Rule of Evidence 702."); Snap-Drape, Inc. v. Comm'r of Internal Revenue, 98 F.3d 194, 198 (5th Cir.1996) ("We have repeatedly held that this rule does not allow an expert to render conclusions of law."); United States v. Sinclair, 74 F.3d 753, 757-58 n. 1 (7th Cir.1996) ("Federal Rules of Evidence 702 and 704 prohibit experts from offering opinions about legal issues that will determine the outcome of a case. That is, they cannot testify about legal issues on which the judge will instruct the jury."); Peterson v. City of Plymouth, 60 F.3d 469, 475 (8th Cir.1995) ("To that end, his testimony was not a fact-based opinion, but a statement of legal conclusion. The legal conclusions were for the court to make. It was an abuse of discretion to allow the testimony."); Berry v. City of Detroit, 25 F.3d 1342, 1353 (6th Cir.1994) ("We also believe this testimony was received in violation of the Federal Rules of Evidence.... It is the responsibility of the court, not testifying witnesses, to define legal terms. The expert's testimony in this regard invaded the province of the court."); Aguilar v. Int'l Longshoremen's Union Local # 10, 966 F.2d 443, 447 (9th Cir.1992) ("Here, the reasonableness and foreseeability of the casual workers' reliance were matters of law for the court's determination. As such, they were inappropriate subjects for expert testimony."); United States v. Leo, 941 F.2d 181, 196 (3rd Cir.1991) (stating that "it is not permissible for a witness to testify as to the governing law"); Montgomery v. Aetna Cas. & Sur. Co., 898 F.2d 1537, 1541 (11th Cir.1990) ("A witness also may not testify to the legal implications of conduct; the court must be the jury's only source of law."); Specht v. Jensen, 853 F.2d 805, 807 (10th Cir.1988) (en banc) ("There being only one applicable legal rule for each dispute or...