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| USDC SDNY
1 DOCUMENT
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UNITED STATES DISTRICT COURT DOC #: □
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do JMU BEAT ESE Tie ee CIRO EULA □ DAME LOR REE □□□□ □□□□□□
IRIVING H. PICARD, : ee ruucn □□□□□□□□□□□□□□□□□□□□□□□□□□ sienna □□
Plaintiff, :
. No. 20 Civ. 10109 (JFK)
-against-
SAGE REALTY, et al., : OPINION & ORDER
Defendants. :
———— —
IRVING H. PICARD, :
Plaintiff, :
: No. 20 Civ. 10057 (JFK)
-against- :
: OPINION & ORDER
SAGE ASSOCIATES, et al.,
Defendants. :
—--—--—-—-—— — — — xX
JOHN F. KEENAN, United States District Judge:
A bench trial in this action is set to begin on January 19,
2022. Before the Court is the Defendants’ motion in limine
seeking to preclude Plaintiff Irving H. Picard (the “Trustee”)
from introducing in evidence an FBI Interview Report (the “302
Report”) summarizing statements made by Bernie Madoff on
December 16, 2008, during a proffer session with the Government
following his arrest. (Notice of Motion in Limine, ECF No. 41;
Mem. of L. in Support, ECF No. 42.) The instant motion in
limine also requests that the Court preclude the Trustee from
admitting into evidence testimony given by FBI Special Agent
Theodore Cacioppi regarding the 302 Report. (Mem. of L. in
Support at 1.) The Trustee opposes the motion on the grounds
that both the 302 Report and Madoff’s statements contained
within it are admissible under certain exceptions to the rule
against hearsay. (Mem. of L. in Opp’n, ECF No. 69.) For the
reasons set forth below, the Defendants’ motion is DENIED.
I. Background
The Court assumes familiarity with the facts of this case,
which are set out in greater detail in Judge Alison J. Nathan’s
May 18, 2021, Opinion and Order granting the Defendants’ motion
to withdraw the bankruptcy reference. See Picard v. Sage
Realty, No. 20 Civ. 10057 (AJN), 2021 WL 1987994, at *1
(S.D.N.Y. May 18, 2021). The Court summarizes here the facts
relevant to the consideration of the pending motion in limine.
Following Bernie Madoff’s arrest for securities fraud on
December 11, 2008, Bernard L. Madoff Investment Securities LLC
(“BLMIS”) was placed into liquidation proceedings pursuant to
the Securities Investor Protection Act (“SIPA”). See SEC v.
Madoff, No. 08 Civ. 10791 (LLS) (S.D.N.Y. Dec. 15, 2008).
Irving H. Picard was appointed as a trustee for the SIPA
liquidation and, in accordance with the SIPA, removed the
proceedings to the United States Bankruptcy Court for the
Southern District of New York. During a subsequent
investigation of BLMIS, the Trustee found that the overwhelming
majority of BLMIS’s purported “profits” were fictitious and the
product of a “traditional Ponzi scheme.” See Sage Realty, 2021
WL 1987994, at *1.
Beginning in 2010, the Trustee commenced adversary
proceedings against former BLMIS customers who had received
funds from BLMIS in excess of their principal investment. See
id. at *2. As a part of this effort, the Trustee brought the
instant consolidated actions to avoid and recover allegedly
fraudulent transfers made by BLMIS to the Defendants in the two
years prior to BLMIS’s filing for bankruptcy. Id. Pursuant to
Sections 548 and 550 of the Bankruptcy Code, the Trustee seeks
to avoid and recover a $13,510,000 transfer to Defendant Sage
Associates and a $3,370,000 transfer to Defendant Sage Realty,
and to hold the individual defendants, Malcolm Sage, Martin
Sage, and Ann Sage Passer, jointly and severally liable for
those transfers in their alleged capacities as partners or joint
venturers. Id.
In response to the Trustee’s claims, the Defendants argue
that they are entitled to “credits of principal” for the
securities positions reported on their BLMIS customer statements
because, unlike the majority of BLMIS clients, they directed and
authorized BLMIS to buy and sell specific securities and to hold
those securities in their accounts. (Mem. of L. in Opp’n at 2.)
According to the Defendants, because “the returns in the Sage
Associates accounts mirrored the returns” of the directed
trades, they are entitled to retain the purported profits under
the SIPA. Sage Realty, 2021 WL 1987994, at *4.
In November 2017, the Defendant’s took Madoff’s deposition.
See Sec. Inv. Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC,
No. AP 08-01789 (SMB), 2019 WL 654293, at *1 (Bankr. S.D.N.Y.
Feb. 15, 2019). During the deposition, Madoff testified that
the majority of the trading conducted in the Defendants’
accounts was real and that his fraud was limited to: (i) “split
strike”1 trades starting in or around 1992; and (ii) back-dating
trades on behalf of the “four families” or “big four” accounts
(which did not include the Defendants’ accounts). (Mem. of L. in
Opp’n at 2.) Madoff also testified at his deposition that BLMIS
purchased securities for Defendants’ accounts starting in the
early 1980s. (Id.) The Defendants intend to offer this
testimony at trial in support of their claim that they are
entitled to credit for the securities positions reported on
their BLMIS customer statements. (Id.)
1 “This was a strategy where BLMIS purportedly ‘invested customer funds
in a subset, or basket, of Standard & Poor's 100 Index . . . common
stocks, and maximized value by purchasing before, and selling after,
price increases.’ . . . This ‘strategy’ was never actually used,
however, as no securities were ever purchased for these customers, and
in fact it would have been impossible to implement, according to
subsequent investigations.” Sage Realty, 2021 WL 1987994, at *3
(citations omitted) (quoting In re Bernard L. Madoff Inv. Sec. LLC,
424 B.R. 122, 132-33 (Bankr. S.D.N.Y. 2010), aff'd, 654 F.3d 229 (2d
Cir. 2011).
In response, the Trustee plans to admit FBI Special Agent
Theodore Cacioppi’s December 18, 2008, 302 Report,2 which
memorializes his notes from a December 16, 2008, proffer session
with Madoff at the U.S. Attorney’s Office for the Southern
District of New York. (Mem. of L. in Opp’n at 2.) According to
the 302 Report, Madoff stated during the proffer session that
“he began to engage in fraud as to the entire retail business
[and] stopped engaging in any actual trading” soon after the
retail business began in the 1960s. (Kratenstein Decl., Ex. B
(302 Report) at 3, 7; ECF No. 43-2.) The 302 Report further
indicates that Madoff stated that his fraudulent scheme
“entailed [him] taking in funds from investors, holding those
funds, and paying them out to investors seeking redemptions. It
was essentially a Ponzi scheme.” (Id. at 4.) Regarding the
duration and scope of the fraud, the 302 Report indicates that
Madoff admitted that he “began engaging in fraud in earnest in
the 1970s. The 1980s saw a large expansion in the retail (i.e.
fraudulent) portion of the business. As there was no actual
trading . . . the only records of the purported trades are the
paper confirmations.” (Id.)
2 “An FBI 302 is a form routinely used to memorialize an FBI interview
of a witness.” United States v. Nathan, 816 F.2d 230, 232 n. 1 (6th
Cir. 1987).
Of particular relevance here, the Trustee was only able to
secure a heavily redacted copy of Special Agent Cacioppi’s 302
Report prior to Madoff’s deposition. (Mem. of L. in Opp’n at
4.) The Trustee marked the redacted 302 Report as an exhibit
during the deposition and questioned Madoff about the proffer
session. (Id.) In response, Madoff testified that he recalled
making some of the statements contained in the redacted 302
Report but claimed that he did not state during the proffer that
his fraud began in the 1960s. (Id.) Madoff instead claimed
that his fraud began in the 1990s with the split-strike
conversion strategy. (Id.)
On February 15, 2019, the Government finally provided the
Trustee with a largely unredacted copy of the 302 Report. (Id.)
The Government also made Special Agent Cacioppi available for a
deposition but only in response to written questions under
Federal Rule of Civil Procedure 31.3 (Id.) During the
deposition, Special Agent Cacioppi described the structure and
process of a proffer session and stated that FBI policy requires
agents to prepare a report of the interview based on their
notes. (Id. at 5.) Special Agent Cacioppi also testified that
during the proffer, Madoff “described for us his version of
3 The parties have agreed that in the event the court denies the
instant motion in limine, the Trustee may submit Special Agent
Cacioppi’s deposition testimony in lieu of a direct examination
declaration and live cross-examination. (Mem. of L. in Support at
n.3; Mem. of L. in Opp’n at n.2.)
events as to the formation and execution of his Ponzi scheme”
and “stated that [the fraud] began initially in the ‘60s but
[began] more formally and in earnest in the ‘70s.” (Kratenstein
Decl., Ex. C (Cacioppi Dep. Tr.) at 28:12–29:12; ECF No. 43-3.)
I. Applicable Law
“The purpose of a motion in limine is to allow the trial
court to rule in advance on the admissibility and relevance of
certain forecasted evidence.” United States v. Chan, 184 F.
Supp. 2d 337, 340 (S.D.N.Y. 2002) (citing Luce v. United States,
469 U.S. 38, 41 n.4 (1984)). A district court “should exclude
evidence on a motion in limine only when the evidence is clearly
inadmissible on all potential grounds.” United States v.
Ozsusamlar, 428 F. Supp. 2d 161, 164–65 (S.D.N.Y. 2006)
(citations omitted)).
Federal Rule of Evidence 805 permits the introduction of
hearsay contained within hearsay so long as “each level of
hearsay is covered by an exception to the hearsay rule.”
Agriculture Ins. Co., Inc. v. Ace Hardware Corp., 214 F.Supp.2d
413, 416 (S.D.N.Y. 2002). This rule applies to third-party
statements contained in police reports. See Tokio Marine Mgmt.,
Inc. v. M/V Zim Tokyo, No. 91 Civ. 0063 (PKL), 1993 WL 322869,
at *9 (S.D.N.Y. Aug. 17, 1993) (“[T]here must also be an
independent evidentiary basis for admitting hearsay statements
by other individuals contained within the police report”).
II. Analysis
As both the Defendants and Trustee acknowledge, the 302
Report contains two levels of hearsay. The first level is the
report itself, which the Trustee contends is admissible under
the business record exception of Fed. R. Evid. 803(6) or the
public record exception of Fed. R. Evid. 803(8). (Mem. of L. in
Opp’n 9–11.) The second level consists of Madoff’s proffer
statements, as memorialized in the 302 Report by Special Agent
Cacioppi, which the Trustee argues are independently admissible
as statements against interest under Fed. R. Evid. 804(b)(3)(A).
(Id. at 6–8.) In support of the instant motion in limine, the
Defendants argue that “although the 302 [Report] may be a
business record or public record . . . the statements attributed
to Madoff in the 302 [Report] do not fall under a hearsay
exception.” (Reply Mem. of L. at 2; ECF No. 71.) The Court
disagrees and concludes that Madoff’s proffer statements
memorialized in the 302 Report and Special Agent Cacioppi’s
testimony are admissible at trial.
The Defendants correctly concede in their Reply Memorandum
of Law (Reply Mem. of L. at 2.) that FBI 302 reports may be
admissible as public record under Fed. R. Evid. 803(8). See
Tokio Marine Mgmt., Inc., 1993 WL 322869, at *9 (“It is well
settled that [a] police report itself . . . is admissible as an
exception to the hearsay rule [] as a business record under Fed.
R. Evid. 803(6) or a public record under Fed. R. Evid. 803(8)”);
see also Spanierman Gallery, Profit Sharing Plan v. Merritt, No.
00 Civ. 5712 (LTS) (THK), 2003 WL 22909160, at *5 (S.D.N.Y. Dec.
9, 2003) (“[a]s is true for police reports, FBI reports are
admissible in evidence as either business records . . . or
public records” (citations omitted)); Bradford Trust Co. of
Boston v. Merrill Lynch, Pierce, Fenner and Smith, Inc., 805
F.2d 49, 54 (2d Cir. 1986) (concluding that FBI reports are
admissible under public records hearsay exception).
Under Fed. R. Evid. 803(8), a public record may be admitted
for its truth if it sets out, among other things, “a matter
observed while under a legal duty to report,” and “the opponent
does not show that the source of information or other
circumstances indicate a lack of trustworthiness.” Fed. R.
Evid. 803(8). Here, Special Agent Cacioppi testified during his
deposition that FBI policy requires that “a 302 [report] be
prepared after [a] proffer session[].” (Kratenstein Decl., Ex.
C at 21:19–22.) The 302 Report, therefore, sets out matters
Special Agent Cacioppi “observed while under a legal duty to
report” within the meaning of Fed. R. Evid. 803(8). Regarding
the trustworthiness of the report, the Defendants argue that the
302 Report is untrustworthy because Madoff’s deposition
testimony contradicts his proffer statements. The Court finds
this argument unpersuasive. The statements memorialized in the
302 Report were made by Madoff during a voluntary proffer
session at the very beginning of the Government’s criminal
investigation. Additionally, as Special Agent Cacioppi noted
during his deposition, Madoff was expressly told that lying
during the proffer session was “a crime unto itself.”
(Kratenstein Decl., Ex. C at 20:15–16.) The Court concludes
that the Defendants have failed to establish that Madoff’s
later-in-time deposition testimony fatally undermines the
trustworthiness of the 302 Report. See Bradford Trust Co., 805
F.2d at 54 (“To exclude evidence which technically falls under
803(8)(C) there must be an affirmative showing of
untrustworthiness . . .”). The 302 Report, therefore, is
admissible at trial as a public record under Fed. R. Evid.
803(8).
As for the second level of hearsay, the Trustee argues that
Madoff’s proffer statements memorialized in the 302 Report and
Special Agent Cacioppi’s testimony are admissible as statements
against interest of an unavailable declarant under Fed. R. Evid.
804(b)(3). In a civil case, Rule 804(b)(3)(A) permits a hearsay
statement to be admitted if: (i) the declarant is unavailable as
a witness; and (ii) the statement is “so contrary to the
declarant’s proprietary or pecuniary interest or has so great a
tendency to . . . expose the declarant to civil or criminal
liability” that “a reasonable person in the declarant’s position
would have made the statement only if the person believed it to
be true.” Fed. R. Evid. 804(b)(3)(A). The rationale behind
this exception is “the commonsense notion that reasonable
people, even reasonable people who are not especially honest,
tend not to make self-inculpatory statements unless they believe
them to be true.” Williamson v. United States, 512 U.S. 594,
599 (1994).
Here, there is little doubt that Madoff’s proffer
statements satisfy the two requirements of Rule 804(b)(3)(A).
First, Madoff died on April 14, 2021, and is, therefore,
unavailable within the meaning of Rule 804(b)(3)(A). Second,
Madoff’s proffer statements concerning the scope and duration of
his fraudulent activity unquestionably exposed him to
significant criminal liability. The Defendants’ only argument
against the application of Rule 804(b)(3) is that the proffer
statements are not “supported by corroborating circumstances
[that] clearly indicate the trustworthiness of the [statements]
as required by [Fed. R. Evid.] 804(b)(3).” (Reply Mem. of L. at
4.) The “corroborating circumstances” requirement, however, is
only applicable if the statement is “offered in a criminal
case.” Fed. R. Evid. 804(b)(3)(B); see also Annunziata v. City
of New York, No. 06 Civ. 7637 (SAS), 2008 WL 2229903, at *9
(S.D.N.Y. May 28, 2008) (“The corroboration requirement appears
to apply only in criminal proceedings . . .”). Accordingly, the
Court concludes that Madoff’s proffer statements memorialized in
the 302 Report and Special Agent Cacioppi’s testimony are
admissible under Rule 804(b) (3) (A).
Because the 302 Report and Madoff’s proffer statements are
independently admissible under separate exceptions to the rule
against hearsay, the Defendant’s Motion in limine (ECF No. 41)
is DENIED. The Clerk of Court is respectfully directed to
terminate the motion pending at docket number 41.
SO ORDERED.
Dated: New York, New York pha orn
December 21, 2021 John F. Keenan
United States District Judge
12 Case Information
- Court
- S.D.N.Y.
- Decision Date
- December 21, 2021
- Status
- Precedential