Commercial Litigation and Arbitration

Good Cause Requirement of Fed. R. Civ. P. 16(b) to Modify Scheduling Order Applies to Deadlines in District Judge’s Individual Rules and Practices — Here, Untimely Challenge to Expert Testimony

Tr. for the Liquidation of Bernard L. Madoff Inv. Sec. LLC v. Rar Entrepreneurial Fund, Ltd.. (In re Bernard L. Madoff Inv. Sec. LLC), 2023 U.S. App. LEXIS 33544 (2d Cir. Dec. 19, 2023):


DECREED that the judgment of the district court is AFFIRMED.

Defendant-Appellant RAR Entrepreneurial Fund, Ltd. ("RAR") appeals from a judgment entered September 23, 2022, by the United States District Court for the Southern District of New York (Furman, J.). This case arises from the Ponzi scheme of Bernard L. Madoff and the liquidation of Bernard L. Madoff Investment Securities LLC ("BLMIS," or the "LLC") under the Securities Investor Protection Act, 15 U.S.C. §§ 78aaa et seq. ("SIPA"). "Because the facts [of the scheme] are well documented across many pages of Federal Reporters," In re BernardL. Madoff Inv. Sec. LLC, 976 F.3d 184, 188 (2d Cir. 2020), including several decisions of this Court, see, e.g., id.; Picard v. JABA Assocs. LP, 49 F.4th 170 (2d Cir. 2022), we recount them only briefly here.

Madoff registered with the Securities and Exchange Commission ("SEC") as a broker-dealer in 1960 and ran his broker-dealer business as [*2]  a sole proprietorship until 2001. Three business units comprised the sole proprietorship: (1) an investment advisory ("IA") business, (2) a proprietary trading business, and (3) a market-making business. In 2001, Madoff formed the LLC—in which he served as the sole member—and registered it with the SEC as the "successor" to the sole proprietorship. Upon Madoff's arrest and the collapse of his Ponzi scheme in 2008, Irving H. Picard (the "Trustee") was appointed as trustee for the liquidation of the LLC.

From at least April 3, 1998 to December 11, 2008, RAR was a customer of Madoff's IA business. In November 2010, the Trustee brought the underlying adversary proceeding against RAR seeking to avoid and recover $12,800,065 that RAR received from two JPMorgan Chase accounts used by the IA business (the "509 and 703 Accounts"). The case ultimately went to trial in the spring of 2022 on the issue whether the transfers to RAR were "a transfer of an interest of the debtor," see 11 U.S.C. § 548(a)(1)-that is, whether they were transfers from the LLC. While the Trustee maintained that Madoff transferred all three business units to the LLC such that all payments to IA customers were transfers of the debtor's property, [*3]  RAR argued that Madoff never transferred the IA business or the 509 and 703 Accounts, so the transfers it received were not from the debtor. The jury returned a verdict in the Trustee's favor, and the district court entered judgment consisting of the principal amount of $12,800,065 and prejudgment interest of $6,067,230.81. We assume the parties' familiarity with the underlying facts, the procedural history of the case, and the issues on appeal.


On appeal, RAR raises four main arguments to challenge the judgment: improperly admitted expert testimony, wrongful denial of a motion for a judgment as a matter of law ("JMOL"), error in the special verdict form, and improper award of prejudgment interest.

  1. Expert Testimony

This Court reviews a district court's decision to admit expert testimony for abuse of discretion. United States v. Williams, 506 F.3d 151, 159-60 (2d Cir. 2007). "The decision to admit expert testimony is left to the broad discretion of the trial judge and will be overturned only when manifestly erroneous." McCullock v. H.B. Fuller Co., 61 F.3d 1038, 1042 (2d Cir. 1995).

RAR argues that the district court incorrectly permitted the Trustee's expert, Bruce Dubinsky, to testify at trial. It contends that Dubinsky's expert report improperly does not contain the key opinion proffered in his testimony—that [*4]  Madoff transferred the IA business to the LLC on or as of January 1, 2001—nor does it express an opinion on the ownership of the JPMorgan bank accounts. RAR seeks a new trial because it claims the district court should have precluded the testimony as not timely disclosed and that RAR should have been permitted to challenge both Dubinsky's qualifications to speak on this topic and the relevance of his opinions. We disagree.

Here, the district court maintained an internal rule, Rule 3(I) of the Court's Individual Rules and Practices in Civil Cases, that "[u]nless the Court order[s] otherwise, motions to exclude testimony of experts . . . must be made by the deadline for dispositive motions and should not be treated as motions in limine." Spec. App'x at 1. RAR did not seek to preclude Dubinsky's testimony until after the parties' summary judgment motions had been filed. At the start, Federal Rule of Civil Procedure 16(b) requires "good cause" to excuse compliance with a scheduling order. Fed. R. Civ. P. 16(b); see Kassner v. 2nd Ave. Delicatessen Inc., 496 F.3d 229, 243 (2d Cir. 2007). "[A] finding of 'good cause' depends on the diligence of the moving party." Parker v. ColumbiaPictures Indus., 204 F.3d 326, 340 (2d Cir. 2000). In response to a joint letter by the parties addressing whether either or both should be permitted to make an untimely motion to exclude expert testimony, the district court rejected RAR's arguments, writing: "Defendant had [*5]  ample opportunity to file a motion with respect to Mr. Dubinsky . . . and failed to do so by the Court's deadline. Defendant . . . failed to show good cause [for leave to file after the deadline.]" Spec. App'x at 4. Nevertheless, RAR soon after tried to exclude Dubinsky's testimony a second time through a motion in limine premised on Federal Rules of Civil Procedure 26 and 37, and a final time at a pretrial conference.1

  1. Rule 26(a)(2) provides that the disclosure of a potential witness must be accompanied by a written report by the witness containing, inter alia, "a complete statement of all opinions the witness will express and the basis and reasons for them." Fed. R. Civ. P. 26(a)(2)(i). Rule 37(c)(1) states that "[i]f a party fails to provide information or identify a witness as required by Rule 26(a) or (e), the party is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless." Fed. R. Civ. P. 37(c)(1).

We are unmoved by RAR's argument that the untimeliness of its motion should have been excused because "Dubinsky's opinions on the issue to be tried were not [timely] disclosed." App't Br. at 37. The Trustee had disclosed Dubinsky as an expert in advance. Dubinsky's report contained opinions consistent with his testimony and the Trustee's characterization of events: that the assets of the sole proprietorship-including the IA business-were transferred to the LLC, that the IA business operated through the 509 and 703 Accounts, and that the JPMorgan accounts contained customer money and were used for customer withdrawals. And even though Dubinsky's report did not reference every detail of his trial testimony, the district court did not abuse its discretion in concluding that RAR had sufficient notice and opportunity [*6]  to challenge Dubinsky's opinions. Thus, although the case originated with a judge who maintained a different internal rule on motion deadlines, RAR had sufficient time after the case's re-assignment to familiarize itself with and avail itself of the court's rules.

Likewise, RAR's argument that it was erroneously precluded from untimely challenging Dubinsky's qualifications under Federal Rules of Evidence Rule 702 is unavailing.2 Dubinsky, a forensic accountant, has repeatedly qualified as an expert in related cases in our Circuit, but we need not reach RAR's argument about his qualifications as an expert here. RAR [*7]  did not show good cause for filing an untimely motion and the district court did not abuse its discretion in denying RAR's efforts to preclude or challenge Dubinsky's opinions.

  1. Rule 702 provides: "A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in[*8]  the form of an opinion or otherwise if the proponent demonstrates to the court that it is more likely than not that: (a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; (b) the testimony is based on sufficient facts or data; (c) the testimony is the product of reliable principles and methods; and (d) the expert's opinion reflects a reliable application of the principles and methods to the facts of the case." Fed. R. Evid. 702.


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