Free Redacted Document - District Court of Delaware - Delaware

Case 1:04-cv-01494-JJF

Document 260-2

Filed 01/04/2008

Page 1 of 28

UNREPORTED CASES

Case 1:04-cv-01494-JJF

Document 260-2

Filed 01/04/2008

Page 2 of 28
Page 1

Not Reported in A.2d Not Reported in A.2d, 1998 WL 326686 (Del.Ch.), 24 Del. J. Corp. L. 189 (Cite as: Not Reported in A.2d)

Fitzgerald v. Cantor Del.Ch.,1998. UNPUBLISHED OPINION. CHECK COURT RULES BEFORE CITING. Court of Chancery of Delaware. Cantor FITZGERALD, L.P., Plaintiff, v. Iris CANTOR, Individually, and as De Facto Trustee of the Cantor Family Trust, and Iris Cantor as Trustee of the Michelle Labozzetta Trust, Iris Cantor as Trustee of the Suzanne Fisher Trust, Iris Cantor as Trustee of the Howard Lutnick Trust, Iris Cantor as Trustee of the Stuart Fraser Trust, Iris Cantor as Trustee of the Monica Muhart Trust, and Iris Cantor as Trustee of the Randi Ross Trust, Cantor Fitzgerald Incorporated, Rodney Fisher, Market Data Corporation and Chicago Board Brokerage, L.L.C., Defendants. No. C.A. 16297. Submitted June 3, 1998. Decided June 16, 1998. Rodman Ward, Karen L. Valihura , Joseph M. Asher and George F. Fraley, III of Skadden, Arps, Slate, Meagher & Flom, Wilmington, Delaware, of counsel Thomas J. Schwarz and Jeremy A. Berman of Skadden, Arps, Slate, Meagher & Flom, New York City, for plaintiff. Lawrence C. Ashby, Stephen E. Jenkins, Richard D. Heins and Richard I.G. Jones, Jr. of Ashby & Geddes, Wilmington, Delaware, of counsel, Jack C. Auspitz and Howard E. Heiss of Morrison & Foerster, New York City, Steven M. Weinberg of Weinberg Sullivan, Phoenix, Arizona; Barry I. Slotnick , J. Lawrence Crocker and Joshua T. Rabinowitz of Slotnick Shapiro & Crocker, New York City, David F. Dobbins and Saul B. Shapiro of Patterson, Belknap, Webb & Tyler, New York City, for defendants Iris Cantor, Cantor Fitzgerald Incorporated, Rodney Fisher and Market Data Corporation. Martin P. Tully and William Lafferty of Morris, Nichols, Arsht & Tunnell, Wilmington, Delaware,

of counel Josef J. Riemer, Ellen M. Moskowitz and Mark A. Racanelli of Kirkland & Ellis, New York City, for defendant Chicago Board Brokerage, L.L.C. MEMORANDUM OPINION STEELE, Vice Chancellor. *1 Cantor Fitzgerald, L.P. ("CFLP" or "Plaintiff"), a Delaware limited partnership, alleges that three of its limited partners, working through a Delaware corporation under their control and in conjunction with an unassociated Delaware limited liability corporation, have developed a product that will compete directly with CFLP's core business. Plaintiff CFLP seeks a preliminary injunction against all five defendants to prevent the new product's launch on July 13, 1998. Plaintiff may obtain a preliminary injunction if it establishes the following three elements: (1) a reasonable likelihood of success on the merits, (2) imminent, irreparable harm will result if an injunction is not granted and (3) the damage to Plaintiff if the injunction does not issue will exceed the damage to the defendants if the injunction does FN1 issue. Decision on the application for a Preliminary Injunction is reserved until the record may be supplemented on the issues of the existence of imminent, irreparable harm and whether the balance of the equities favors the issuance of the injunction. FN1.Mills Acquisition Co. v. Macmillan, Inc., Del.Supr., 559 A.2d 1261, 1279 (1988). In the underlying Complaint, Plaintiff alleges breach of fiduciary duty, breach of contract and unjust enrichment claims against the three limited partners. It alleges aiding and abetting, tortious interference and unjust enrichment claims against the Delaware corporation and limited liability comFN2 pany. Defendants have moved to dismiss all claims pursuant to Rule 12(b)(6) or for Judgment on the Pleadings pursuant to Rule 12(c). As to the fiduciary duty and contract claims, defendants' Motions to Dismiss and joint Motion for Judgment on the Pleadings are denied. As to the unjust enrich-

© 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.

Case 1:04-cv-01494-JJF Document 260-2 Filed Not Reported in A.2d Not Reported in A.2d, 1998 WL 326686 (Del.Ch.), 24 Del. J. Corp. L. 189 (Cite as: Not Reported in A.2d)

01/04/2008

Page 3 of 28 2 Page

ment claims, the Motions to Dismiss/joint Motion for Judgment on the Pleadings are granted with respect to the three limited partners and denied with respect to the Delaware corporation and limited liability company. FN2. At the parties' request, this Opinion does not address four additional counts of the Complaint. BACKGROUND Plaintiff CFLP is a leading inter-dealer and institutional broker of United States Treasury securities and other government securities. Three of the defendants in this action, Iris Cantor ("Cantor"), Rodney Fisher ("Fisher"), and Cantor Fitzgerald Incorporated ("CFI") (collectively "Limited Partner Defendants"), are Limited Partners in CFLP. Cantor, in addition to being a Limited Partner of CFLP, is also the Vice Chairman of CFLP and the owner FN3 and CEO of CFI. FN3. Cantor owns CFI through the Iris Cantor Trust, of which Cantor is grantor, trustee and sole beneficiary. Market Data Corporation ("MDC"), a fourth defendant in this action, is a Delaware corporation in the business of distributing financial data and of licensing software and technology for electronic trading systems. CFLP spun off MDC in 1987 in order to enhance the focus of MDC's business as a separate profit center. Cantor is majority shareholdFN4 er of MDC , and Fisher is MDC's Chairman and CEO. FN4. Cantor is the majority shareholder of MDC through the Iris Cantor Trust. The fifth defendant is Chicago Board Brokerage, L.L.C. ("CBB"), a Delaware limited liability company. CBB is a joint venture of Ceres Trading Limited Partnership, a limited partnership controlled by the Chicago Board of Trade, and Prebon Yamane, a broker/competitor of CFI. "CBB was formed to develop a new and more efficient way of brokering and trading Treasuries-through an interactive elec-

tronic trading system...."

FN5

FN5. CBB's Memorandum of Law is Support of Its Motion to Dismiss the Complaint at 2-3 (hereafter "CBB's Open. Dismiss Br."). *2 CFLP filed this action after CBB announced that, on July 13, 1998, it will launch a new electronic trading system called "MarketPower." CFLP contends the new system is intended to compete directly against CFLP in its "historic core business"-the brokerage of U.S. Treasuries. CBB concedes that, through MarketPower, it "intends to bring full and fair competition to the Treasuries market," which is currently "dominated by plaintiff FN6 CFLP." CBB developed the specifications for MarketPower and searched for approximately four years for a vendor to build the system. Ultimately, CBB chose MDC as its vendor because "it committed to develop the software on a timetable acceptable to CBB and because [it] could produce the FN7 software on acceptable financial terms." FN6. CBB's Open. Dismiss Br. at 3. FN7. CBB's Memorandum of Law in Opposition to Plaintiff's Motion for Preliminary Injunction at 4 (hereafter "CBB's Opposing P.I. Br."). Although CBB did not sign a formal contract with MDC until February 9, 1998, and did not announce the impending launch of MarketPower until March 19, 1998, CFLP learned from one of its employees that MDC was close to signing a contract with CBB to develop an electronic trading system at least as early as September of 1997. On October 6, 1997, CFLP sent a letter to Cantor, Fisher and MDC objecting to MDC's role as CBB's software vendor. CFLP claimed that the activity constituted a breach of the 1996 Agreement of Limited Partnership of Cantor Fitzgerald, L.P. ("1996 Limited Partnership Agreement" or "1996 Agreement"). CFLP knew that its warnings were going unheeded, however, in November of 1997, when a CFLP employee attended a high-profile, industry-wide, public demonstration of the MarketPower software that MDC

© 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.

Case 1:04-cv-01494-JJF Document 260-2 Filed Not Reported in A.2d Not Reported in A.2d, 1998 WL 326686 (Del.Ch.), 24 Del. J. Corp. L. 189 (Cite as: Not Reported in A.2d)

01/04/2008

Page 4 of 28 3 Page

built for CBB. Plaintiff did not initiate this action until April 6, 1998. Plaintiff never expressed any concern directly to CBB about the propriety of using MDC as CBB's software vendor. Nevertheless, CBB learned of the allegations in CFLP's October 6, 1997, letter through MDC. Fisher assured CBB, however, as he had from the start of the companies' negotiations in June of 1997, that CFLP and MDC were separate companies and that CFLP's allegations were baseless. In fact, the Agreement Between Chicago Board Brokerage, L.L.C., and Market Data Corporation (the "CBB/MDC Software Licensing Agreement") provides that if CFLP ever materially interferes with MDC's participation in the CBB/MDC deal, MDC will be in material breach of the CBB/ MDC Software Licensing Agreement, and CBB may terminate the agreement and look to its rights as stated in paragraphs 8.3 and 11.3. Thus, between October of 1997, and April of 1998, in reliance on MDC's assurances, CBB "made substantial commitments ... to prepare for the launch of MarketPower, including hiring more staff and undertaking the significant task of building a network to support the FN8 system." Despite seeing caution flags waved, CBB intends to launch as scheduled, on July 13, 1998. FN8. CBB's Opposing P.I. Br. at 8. CONTENTIONS OF THE PARTIES Count I of the Complaint alleges that the Limited Partner Defendants, by allowing or causing MDC to collaborate with CBB to develop and sell a product intended to compete directly against CFLP in its "historic core business," breached a fiduciary duty of loyalty owed to CFLP and breached section 3.03(b) of the 1996 Limited Partnership Agreement. Count III of the Complaint alleges that Cantor and CFI breached section 3.03(a) of the 1996 Agreement. Counts II and IV of the Complaint, respectively, allege that MDC and CBB, by collaborating on the development and sale of MarketPower, aided and abetted the Limited Partner Defendants' breach of their duty of loyalty and tortiously interfered

with the 1996 Limited Partnership Agreement. Count V alleges a claim of unjust enrichment against all five defendants. *3 Shortly after filing the Complaint, CFLP filed a Motion for Preliminary Injunction to prevent the July 13, 1998, launch of MarketPower. CFLP contends that it has at least a reasonable likelihood of success on the merits, based on its interpretation of the 1996 Limited Partnership Agreement and based on Delaware's case law concerning the fiduciary duty of loyalty and accomplice liability. CFLP also contends that, if MarketPower is allowed to be released in July, CFLP will suffer irreparable harm in the form of, inter alia, loss of customers and of market share. Finally, CFLP argues that the harm it will suffer if the Court refuses to issue an injunction substantially outweighs the harm that defendants will suffer if the Court grants the injunction. All five defendants contest Plaintiff's arguments and oppose the Motion for Preliminary Injunction. Fisher, MDC and CBB have filed Motions to Dismiss the Complaint for failure to state a claim. Because Cantor and CFI had already filed their Answer, they were prohibited from filing a Motion to Dismiss and instead filed a joint Motion for Judgment on the Pleadings ("J.O.P."). Rather than respond to the defendants' Motions to Dismiss/Motion for J.O.P. directly, CFLP filed a Motion for Leave to File Amended Complaint. CFLP contends that the proposed Amended Complaint has fixed any problems that may have existed in the original Complaint. As to the defendants who have not yet filed a responsive pleading, CFLP may amend the FN9 Complaint as of right. However, with respect to Cantor and CFI, CFLP must obtain this Court's perFN10 mission to file an Amended Complaint. FN9. Ct.Ch.R. 15(a). FN10. Ct.Ch.R. 15(a). A party may also amend its complaint by written consent of the adverse party, but there has been no written consent in this case. This Court liberally grants motions to amend "unless there is a showing of substantial prejudice

© 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.

Case 1:04-cv-01494-JJF Document 260-2 Filed Not Reported in A.2d Not Reported in A.2d, 1998 WL 326686 (Del.Ch.), 24 Del. J. Corp. L. 189 (Cite as: Not Reported in A.2d)

01/04/2008

Page 5 of 28 4 Page

FN11 or legal insufficiency." Cantor and CFI oppose CFLP's Motion to Amend on the basis of legal insufficiency. The standard for assessing the legal sufficiency of a proposed Amended Complaint is the same standard applicable to a Motion to DisFN12 miss. Therefore the Court's decision on defendants' Motions to Dismiss, which follows, implicitly decides Plaintiff's motion to amend the Complaint as well. FN11.Carlton Invs. v. TLC Beatrice Int'l Holdings, Inc., Del.Ch., C.A. No. 13950, 1996 WL 189435 at *3, Allen, C. (Apr. 16, 1996). FN12.Moore Business Forms, Inc. v. Cordant Holdings Corp., Del.Ch., C.A. No. 13911, 1995 WL 707877 at *2, Jacobs, V.C. (Nov. 30, 1995). THE 1996 LIMITED PARTNERSHIP AGREEMENT Section 3.03(b) of the 1996 Limited Partnership Agreement states: "Each Partner acknowledges its duty of loyalty to the Partnership and agrees to take no action to harm (or that would reasonably be expected to harm) the Partnership or any Affiliated Entity." The Limited Partner Defendants are "Partners," FN13 and Plaintiff contends they are, as a result, bound by the terms of section 3.03(b). CFLP contends that the Limited Partner Defendants, by allowing MDC to contract with CBB to develop a product that will compete with CFLP in its core business, breached their fiduciary duty of loyalty to CFLP and took an action that would reasonably be expected to harm CFLP. FN13. The 1996 Agreement of Limited Partnership of Cantor Fitzgerald, L.P., § 1.01 (hereafter "1996 Limited Partnership Agreement"), defines "Partner," in part, as "the General Partners and the Limited Partners." Section 3.03(a) states, in pertinent part:

"Nothing contained in this Agreement shall be deemed to preclude the Managing General Partner, CFI or any of their respective Affiliates from engaging or investing in or pursuing, directly or indirectly, any interest in other business ventures of every kind, nature or description independently or with others; provided, that such activities do not FN14 constitute Competitive Activities." FN14. 1996 Limited Partnership Agreement § 3.03(a) (italics in original). Cantor and MDC appear to be Affiliates of CFI.1996 Limited Partnership Agreement § 1.01. (defining "Affiliate" as any person or entity "that directly or indirectly through one or more intermediaries controls or is controlled by or is under common control with the specified [person or entity]"). *4 The 1996 Agreement states that " `Competitive Activity' shall have the meaning given in Section 11.04(c)." Section 11.04(c) states, in pertinent part: "[A] Partner shall be considered to have engaged in a Competitive Activity if such Partner while a Partner ... (ii) solicits any of the customers of the Partnership or any Affiliated Entity (or any of their employees), induces such customers or their employees to reduce their volume of business with, terminate their relationship with or otherwise adversely affect their relationship with, the Partnership or any Affiliated Entity ... (iv) directly or indirectly engages in, represents in any way, or is connected with, any Competing Business, directly competing with the business of the Partnership or of any Affiliated Entity, whether such engagement shall be as an officer, director, owner, employee, partner, consultant, affiliate or other participant in any Competing Business or (v) assists others in engaging in any Competing Business in the manner described in the foregoing FN15 clause (iv)." FN15. A Competing Business: "(i) involves the conduct of the wholesale or in-

© 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.

Case 1:04-cv-01494-JJF Document 260-2 Filed Not Reported in A.2d Not Reported in A.2d, 1998 WL 326686 (Del.Ch.), 24 Del. J. Corp. L. 189 (Cite as: Not Reported in A.2d)

01/04/2008

Page 6 of 28 5 Page

stitutional brokerage business, (ii) consists of marketing, manipulating or distributing financial price information of a type supplied by the Partnership or any Affiliated Entity to information distribution services or (iii) competes with any other business conducted by the Partnership or any Affiliated Entity if such business was first engaged [in] by the Partnership or an Affiliated Entity...." 1996 Limited Partnership Agreement § 11.04(c). CFLP contends that the Limited Partner Defendants, by allowing or causing MDC to help CBB develop and sell MarketPower, have: (1) "solicit[ed] the customers of CFLP to reduce their volume of business with CFLP" in violation of section 11.04(c)(ii), (2) "directly engag[ed] in a Competing Business" in violation of section 11.04(c)(iv) and (3) "assist[ed] others in engaging in [a] Competing FN16 Business" in violation of section 11.04(c)(v). FN16. Plaintiff's Opening Brief in Support of Its Motion for Preliminary Injunction at 15. The quotation includes Rodney Fisher, but CFLP has apparently since conceded that § 3.03(a) of the 1996 Agreement does not apply to Fisher. This is the Court's decision on defendants' Motions to Dismiss and joint Motion for J.O.P. DISCUSSION A cause of action may be dismissed pursuant to Rule 12(b)(6) for failure to state a claim when, assuming the truth of all well-pleaded facts in the Complaint and construing all inferences to be drawn from those facts in the light most favorable to the non-moving party, the Court is convinced that there is no set of facts under which the plaintiff FN17 would be entitled to relief. The Court may consider facts contained in documents incorporated into the complaint by reference when deciding a FN18 motion to dismiss. The 1996 Limited Partnership Agreement and the CBB/MDC Software Licensing Agreement are incorporated by reference into CFLP's Amended Complaint.

FN17.Union Texas Petroleum Holdings, Inc. v. Travelers Indem. Co., Del.Ch., C.A. No. 15548, 1998 WL 83068 at *3, Chandler, C. (Feb. 19, 1998). FN18.See e.g., In re Santa Fe Pacific Corp. Shareholder Litigation, Del.Supr., 669 A.2d 59, 69-70 (1995) (considering joint and supplemental proxy statements on motion to dismiss disclosure action and suggesting appropriateness of considering underlying contract in action for its breach). The legal standard applicable to a Motion for J.O.P. differs from the standard applicable to a Motion to Dismiss. Although the Court is still required to assume the truth of all well-pleaded facts in the Complaint and to construe all inferences to be drawn from those facts in the light most favorable to the non-moving party, just as on a motion to dismiss, "[a] motion for judgment on the pleadings may be granted only when no material issue of fact exists and the movant is entitled to judgment as a matter FN19 of law." FN19.Desert Equities v. Morgan Stanley, Del.Supr., 624 A.2d 1199, 1205 (1993). Counts I and III of the Amended Complaint allege that the Limited Partner Defendants breached their duty of loyalty to CFLP and the 1996 Limited Partnership Agreement. The 1996 Agreement clearly states that all Limited Partners owe CFLP a duty of loyalty and agree to take no action that would reasonably be expected to harm CFLP. The Agreement also states that CFI and its Affiliates may not engage in Competitive Activities or Competing Businesses. The Amended Complaint alleges that the Limited Partner Defendants, while Limited Partners of CFLP, allowed MDC to contract with CBB to develop and sell a product that will compete directly against CFLP in its core business of brokering U.S. Treasuries. The underlying facts, stated in the Amended Complaint, if true, would seem to support an inference of (a) a breach of the Limited Partners' duty of loyalty, (b) harm to CFLP, (c) a Competit-

© 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.

Case 1:04-cv-01494-JJF Document 260-2 Filed Not Reported in A.2d Not Reported in A.2d, 1998 WL 326686 (Del.Ch.), 24 Del. J. Corp. L. 189 (Cite as: Not Reported in A.2d)

01/04/2008

Page 7 of 28 6 Page

ive Activity and (d) a Competing Business. *5 The Limited Partner Defendants contend, among other arguments, that regardless of the 1996 LimFN20 ited Partnership Agreement's terms , they have earned the right to allow or cause MDC to compete with CFLP through a prior course of dealing. They contend that since 1993, the year CFLP first inserted the language currently found in sections 3.03(a), 3.03(b) and 11.04(c) of the 1996 Agreement, MDC has completed, or has proposed and negotiated, many transactions with CFLP's competitors that would arguably constitute Competitive Activities or Competing Businesses, or that might arguably be considered a violation of the Limited Partner Defendants' duty of loyalty and harmful to CFLP. Defendants contend that Plaintiff never objected to, or sought to enjoin, these dealings, notwithstanding that some allegedly involved the development of electronic trading systems for companies that compete directly with CFLP in the fields of mortgage-backed securities and emerging markets, as well as in CFLP's core business of U.S. Treasuries. FN20. The Limited Partner Defendants also contend that the 1996 Agreement, when considered in the context of its drafting history, permits them to take precisely the actions CFLP complains of in this action. This argument is more appropriately considered next month, when the record concerning all three elements of the Preliminary Injunction standard is complete. The Limited Partner Defendants may prevail on their theory after a full trial on the merits. On the very limited record before me, however, and construing all reasonable inferences in the light most favorable to CFLP, I cannot say with certainty that there is no set of facts under which CFLP would be entitled to relief. Thus, Fisher's Motion to Dismiss Counts I and III is denied. Similarly, whether Cantor and CFI may allow or cause MDC to compete with CFLP, despite the terms of the 1996 Agreement, because of the parties' prior course of dealing is a disputed material fact that precludes this Court

from entering judgment on the pleadings. Cantor's and CFI's joint Motion for J.O.P. on counts I and III is denied. Counts II and IV raise accomplice liability theories against MDC and CBB. Count II is a claim for aiding and abetting the Limited Partner Defendants' breach of fiduciary duty, and Count IV is a claim for tortiously interfering with the 1996 Limited Partnership Agreement. The elements of aiding and abetting a breach of fiduciary duty are: (1) the existence of a fiduciary relationship, (2) a breach of the fiduciary's duty and (3) a knowing participation in the breach by the non-fiduciary FN21 defendant. The elements of tortious interference are: (1) a contract, (2) defendant's knowledge of the contract, (3) an intentional act that is a significant factor in causing the breach of the contract, FN22 (4) lack of justification and (5) injury. FN21.Carlton Investments v. TLC Beatrice Int'l Holdings, Inc., Del.Ch., C.A. No. 13950, 1995 WL 694397 at *15, Allen, C. (1995). FN22.See CPM Indus. v. Fayda Chems. & Minerals, Inc., Del.Ch., C.A. No. 15996, 1997 WL 770683 at *7, Jacobs, V.C. (Nov. 26, 1997). A common basis for dismissing accomplice liability theories under Rule 12(b)(6) is that Plaintiff has stated no underlying claim for principal liability. As I have explained, however, the Amended Complaint does state a claim for breach of the duty of loyalty expressly inserted in the 1996 Limited Partnership Agreement. Defendants contend, nevertheless, that Counts II and IV must be dismissed because Plaintiff has stated no facts to support the elements of knowing participation or of intentional action without justification. I disagree. Plaintiff has pleaded sufficient facts to support these elements of its respective claims. *6 Plaintiff alleges that MDC and CBB agreed to work together to develop and sell a product that would compete directly with Plaintiff's core business. It alleges that the product is operable and is

© 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.

Case 1:04-cv-01494-JJF Document 260-2 Filed Not Reported in A.2d Not Reported in A.2d, 1998 WL 326686 (Del.Ch.), 24 Del. J. Corp. L. 189 (Cite as: Not Reported in A.2d)

01/04/2008

Page 8 of 28 7 Page

set to launch on July 13, 1998. Certain Defendants admit in their pleadings that customers are currently being solicited to use the product. MDC received a letter explaining that such a relationship/ product would constitute a breach of the Limited Partner Defendants' duty of loyalty found in the 1996 Limited Partnership Agreement. Plaintiff has alleged that MDC shared this information with CBB and that, in response, CBB required MDC to agree to indemnify CBB in the event that Plaintiff should obtain "against MDC any final and unappealable permanent injunction, court order or settleFN23 ment of any litigation...." FN23. Agreement Between Chicago Board Brokerage, L.L.C., and Market Data Corporation §§ 2.9, 8.3, 11.3. Under these circumstances, the Court may infer that MDC and CBB had reason to believe that developing and marketing MarketPower may constitute a breach of the Limited Partner Defendants' duty of loyalty found in the 1996 Limited Partnership Agreement. The Court may further infer that MDC's and CBB's continued development and marketing of MarketPower in the face of their knowledge lacked justification. Accordingly, defendants' Motions to Dismiss Counts II and IV are denied. Finally, all five defendants have moved to dismiss Count V, which alleges a cause of action for unjust enrichment. Unjust enrichment is "the unjust retention of a benefit to the loss of another, or the retention of money or property of another against the fundamental principles of justice or equity and FN24 good conscience." The elements of unjust enrichment have also been stated in this way: (1) an enrichment, (2) an impoverishment, (3) a relation between the enrichment and impoverishment, (4) the absence of justification and (5) the absence of a FN25 remedy provided by law. FN24.Fleer Corp. v. Topps Chewing Gum, Inc., Del.Supr., 539 A.2d 1060, 1062 (1988). FN25.Khoury Factory Outlets, Inc. v. Snyder, Del.Ch., C.A. No. 11,568, 1996

WL 74725 at *11, Kiger, M. (Jan. 8, 1996). The Limited Partner Defendants argue that a cause of action for unjust enrichment does not lie when a contract determines the obligations between the FN26 parties. However, the Amended Complaint specifically states: "In the alternative, and/or with respect to conduct not governed by the existence of an express contract, CFLP seeks the equitable remFN27 edy of unjust enrichment." Thus, unless and until this Court determines that the defendants' obligations are governed exclusively by contract, Plaintiff has properly stated a claim for unjust enrichment. FN26. See ID Biomedical Corp. v. TM Techs., Inc., Del.Ch., C .A. No. 13269, 1995 WL 130743 at *15, Steele, V.C. (Mar. 16, 1995), for a discussion of this principle. FN27. Proposed Amended Complaint ¶ 113 (emphasis added). I do, however, find that the claims against the Limited Partner Defendants are governed exclusively by contract and that, as to them, the Motions to Dismiss/joint Motion for J.O.P. must be granted with respect to Count V. Whether or not there is an implied duty of loyalty which applies to limited partners generally and prohibits the conduct complained of here is not an issue. Here, by contract, within the 1996 Limited Partnership Agreement, the parties accepted the invitation of 6 Del.C. § 17-1101(d) to address fiduciary duties. The 1996 Agreement is certainly not silent on the subject. Therefore, it may be fairly assumed that the parties intended the nature and scope of the fiduciary duties owed, by whom to whom, to be addressed within the language adopted by them in their own freely-fashioned agreement. This Court repeatedly has emphasized that Delaware law favors allowing parties to an agreement to pursue their own aims so long as no underlying fraud or innocent misrepresentation taints the crafting of the language actually FN28 adopted. This is consistent with the policy of

© 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.

Case 1:04-cv-01494-JJF Document 260-2 Filed Not Reported in A.2d Not Reported in A.2d, 1998 WL 326686 (Del.Ch.), 24 Del. J. Corp. L. 189 (Cite as: Not Reported in A.2d)

01/04/2008

Page 9 of 28 8 Page

the General Assembly expressed in 6 Del.C. § 17-1101(c). FN28.See, e.g., In re Cencom Cable Income Partners, L.P. Litig., Del.Ch., C.A. No. 14634, 1997 WL 666970 at *4, Steele, V .C. (Oct. 15, 1997); In re Cencom Cable Income Partners, L.P. Litig., Del.Ch., C.A. No. 14634, 1996 WL 74726 at *4-5, Steele, V.C. (Feb. 15, 1996). *7 Cantor's and CFI's joint Motion for J.O.P. with respect to Count V is granted. Fisher's Motion to Dismiss Count V is granted. The claims against CBB and MDC are not governed by any contract with CFLP. The Amended Complaint states a claim that survives CBB's and MDC's Motions to Dismiss. Plaintiff repeatedly alleges that, if MarketPower is a success, defendants will be enriched, and Plaintiff will be impoverished. Plaintiff also alleges that neither defendant can retain any benefit resulting from the success of MarketPower "justifiably" or in accordance with "the fundamental principles of justice or equity and good conscience," because they knew that Cantor, Fisher, and CFI were prohibited from producing a product that would compete with Plaintiff's core business. Assuming the truth of these facts, as I must at this stage, I find that Plaintiff has stated a claim that survives CBB's and MDC's Motions to Dismiss. CBB's and MDC's Motion to Dismiss Count V is denied. CONCLUSION Plaintiff's Motion for Leave to File Amended Complaint is granted.Defendants' Motions to Dismiss the Amended Complaint/joint Motion for J.O.P. are granted, in part, and denied, in part.Decision on Plaintiff's Motion for a Preliminary Injunction is reserved until the record is supplemented, on July 6 8, 1998, on the issues of the existence of imminent, irreparable harm and whether the balance of the equities favors the issuance of the injunction. IT IS SO ORDERED.

Del.Ch.,1998. Fitzgerald v. Cantor Not Reported in A.2d, 1998 WL 326686 (Del.Ch.), 24 Del. J. Corp. L. 189 END OF DOCUMENT

© 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.

Case 1:04-cv-01494-JJF

Document 260-2

Filed 01/04/2008

Page 10 of 28
Page 1

LEXSEE 2003 US DIST LEXIS 6150 CARY OIL CO., INC., et al., Plaintiffs, - against - MG REFINING & MARKETING, INC., et al., Defendants. 99 Civ. 1725 (VM) UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK 2003 U.S. Dist. LEXIS 6150

April 11, 2003, Decided April 11, 2003, Filed SUBSEQUENT HISTORY: Later proceeding at Cary Oil Co. v. Mg Ref. & Mktg., Inc., 2003 U.S. Dist. LEXIS 6267 (S.D.N.Y., Apr. 15, 2003) PRIOR HISTORY: Cary Oil Co. v. MG Ref. & Mktg., 2003 U.S. Dist. LEXIS 2479 (S.D.N.Y., Feb. 19, 2003) DISPOSITION: [*1] Plaintiffs' motion in limine to strike certain opinions in defendants' expert report denied. Defendants' motion to strike the plaintiff's expert reports denied. JUDGES: VICTOR MARRERO, UNITED STATES DISTRICT JUDGE. OPINION BY: VICTOR MARRERO OPINION

DECISION AND ORDER VICTOR MARRERO, United States District Judge. [*2] Before the Court are five motions in limine (the "Motions") submitted by Plaintiffs and Defendants in connection with the trial of this matter, scheduled to begin on May 5, 2003. As discussed in the Statement of the Court Regarding Certain Motions in Limine of Plaintiffs and Defendants, dated April 11, 2003, which is attached hereto and incorporated by reference herein, the Court denies the Motions. Accordingly, it is hereby ORDERED that the Plaintiffs' Motion in Limine to Strike Certain Opinions in Defendants' Expert Report of Dr. Phillip Verleger is denied; and it is further ORDERED that the Defendants' Motion to Strike the Expert Reports of Gerald Gay, Marcel Kahan, Michael Canes, and Jeffrey Bernard is denied. STATEMENT OF THE COURT REGARDING CERTAIN MOTIONS IN LIMINE OF PLAINTIFFS AND DEFENDANTS

COUNSEL: For Cary Oil Co, Inc, Corbon Fuel Co, Higginson Oil Co, Merritt Oil Co, Raymer Oil Co, RK Distributing, Inc, Wise Oil & Fuel, Inc, Ports Petroleum Co, Guttman Oil Co, Ferrell Fuel Co, Fauser Oil Co, Inc, Dalton Petroleum, Inc, Premier Petroleum, Inc, MM Satterfield Oil Company, Inc, Erickson Oil Products, Inc, Fox Fuel Oil Co, Inc, Abbott Oil Company, Inc, PLAINTIFFS: Richard G Tashjian, Tashjian & Padian, Jerome K Walsh, Lane & Mittendorf LLP, New York, NY USA. For MG Refining & Marketing, Inc, Metallgesellschaft Corp, Metallgesellschaft AG, DEFENDANTS: Robert B Bernstein, Kaye, Scholer, Fierman, Hays & Handler, LLP, New York, NY USA. For Deutsche Bank AG, Deutsche Bank North America, Deutsche Bank New York, DEFENDANTS: Jeffrey Barist, Milbank, Tweed, Hadley & McCloy LLP, New York, NY USA.

Case 1:04-cv-01494-JJF

Document 260-2

Filed 01/04/2008

Page 11 of 28
Page 2

2003 U.S. Dist. LEXIS 6150, *2

VICTOR MARRERO, DISTRICT JUDGE.

UNITED

STATES

The Court has considered certain motions in limine submitted by Plaintiffs and Defendants in connection with the trial of this matter, which is scheduled to begin on May 5, 2003. The Court will briefly state the findings and reasoning supporting its decision regarding each separate motion in limine. [*3] I. PLAINTIFFS' MOTION TO STRIKE CERTAIN OPINIONS IN DEFENDANTS' EXPERT REPORT OF DR. PHILIP VERLEGER Plaintiffs move to strike certain opinions issued by Defendants' economic expert, Dr. Philip K. Verleger, Jr. ("Verleger") on the grounds that Verleger is not qualified to render such opinions and these opinions do not fit the facts of the case. The Court finds that Verleger's expert testimony satisfies the standards for such testimony as enunciated by the Supreme Court in Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 143 L. Ed. 2d 238, 119 S. Ct. 1167 (1999), and thus should be admitted. Rule 702 of the Federal Rules of Evidence allows a "witness qualified as an expert by knowledge, skill, experience, training or education" to testify if his "specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue." Fed. R. Evid. 702. Courts within the Second Circuit "have liberally construed expert qualification requirements" when determining if a witness can be considered an expert. TC Sys. Inc. v. Town of Colonie, New York, 213 F. Supp. 2d 171, 174 (N.D.N.Y. 2002); see also McCullock v. H.B. Fuller Co., 61 F.3d 1038, 1042 (2d Cir. 1995) [*4] ("The decision to admit expert testimony is left to the broad discretion of the trial judge and will be overturned only when manifestly erroneous."); United States v. Brown, 776 F.2d 397, 400 (2d Cir. 1985) (qualification requirements of Rule 702 "must be read in light of the liberalizing purpose of the rule"); Sullivan v. Ford Motor Co., 2000 U.S. Dist. LEXIS 4114, No. 97 Civ. 0593, 2000 WL 343777, at *4 (S.D.N.Y. 2000) ("One knowledgeable about a particular subject need not be precisely informed about all details of the issues raised in order to offer an opinion."); Canino v. HRP, Inc., 105 F. Supp. 2d 21, 27 (N.D.N.Y. 2000) ("liberality and flexibility in evaluating qualifications should be the rule"). The Second Circuit has instructed that a trial court,

in determining whether a witness is qualified to render an expert opinion, "must first ascertain whether the proffered expert has the educational background or training in a relevant field." TC Sys., 213 F. Supp. 2d at 174. Then the court "'should further compare the expert's area of expertise with the particular opinion the expert seeks to offer and permit the expert ... to testify only [*5] if the expert's particular expertise ... enables the expert to give an opinion that is capable of assisting the trier of fact.'" Zwillinger v. Garfield Slope Housing Corp., 1998 U.S. Dist. LEXIS 21107, No. 94 Civ. 4009, 1998 WL 623589, at *7 (E.D.N.Y. Aug. 17, 1998) (quoting Federal Judiciary Center, Reference Manual on Scientific Evidence 55-56 (1994) (alterations in original)). Under such permissive standards, the Court is persuaded that Verleger is qualified to render expert opinions in the area of petroleum sales and marketing that this matter encompasses. Based on a review of Verleger's curriculum vitae and his expert report discussing the Plaintiffs and the contracts here in question (the "Contracts"), the Court is persuaded that Verleger possesses extensive knowledge about the petroleum marketing business. Indeed, Verleger's experience is extensive, starting with his doctorate in economics from the Massachusetts Institute of Technology and continuing with his focused work over a period of more than twenty five years in the petroleum industry, including his substantial writings on the subject, his position as a member of the Board of Directors of an independent refining company and his [*6] consultant work for several petroleum suppliers and marketers. Plaintiffs argue that because Verleger has not actually run the day-to-day operations of a small fuel distributor, he is therefore incapable of opining in the case at bar. However, "lack of extensive practical experience directly on point does not necessarily preclude [an] expert from testifying." Valentin v. New York City, 1997 U.S. Dist. LEXIS 24059, No. 94 CV 3911, 1997 WL 33323099, at *15 (E.D.N.Y. Sept. 9, 1997). A formal education in a particular field is sufficient to qualify a witness as an expert. See id. (collecting cases). Verleger is clearly not new to the world of petroleum distribution, and his area of expertise certainly enables him to provide an opinion that would assist a jury in understanding the issues relevant in the instant case. A trial court must also decide if a qualified expert's testimony rests on a reliable foundation, or is simply

Case 1:04-cv-01494-JJF

Document 260-2

Filed 01/04/2008

Page 12 of 28
Page 3

2003 U.S. Dist. LEXIS 6150, *6

based on "subjective belief or unsupported speculation." Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579, 590, 125 L. Ed. 2d 469, 113 S. Ct. 2786 (1993). Inherent in this analysis is the question of whether the testimony is relevant in that it "fits" [*7] the facts of the case. Id. at 591-92. Moreover, such testimony must "assist the trier of fact to understand the evidence or determine a fact in issue." Id. at 591 (quoting Fed. R. Evid. 702). The Court is satisfied that Verleger's expert opinions regarding the financial and logistical ability of Plaintiffs to absorb certain volumes of petroleum under the Contracts is admissible pursuant to theDaubert andKumho standards. A review of Verleger's report demonstrates that his opinion fits the facts of the case and is not premised on a false predicate fact, as Plaintiffs contend. Verleger's opinions, rather than being based solely on the purportedly inaccurate presumption that Plaintiffs would have waited until the end of the Contracts to take delivery of the full contract volumes, also consider the possibility of pro rata delivery over the course of the Contract and delivery limited to twenty percent of annual sales of each Plaintiff. Thus, Verleger's analysis incorporated several different hypotheses in examining the ability of Plaintiffs to utilize the Contracts. In addition, Verleger's opinions involve relatively straightforward analysis [*8] using data obtained from the Plaintiffs themselves to conclude that the Contracts, were certain options within them exercised, would have required Plaintiffs to purchase far more petroleum than they had sold on a historical basis, could store given their acknowledged storage capacities, or could afford given their financial statements, and these massive purchases would have likely driven the price of the petroleum down. Verleger, as an economist with significant expertise in the petroleum industry developed from his educational training and work experience, is qualified to explain to the fact finder how his numerical analysis, which employed data submitted by the opposing party, led him to a specific conclusion, and how that conclusion supports the Defendants' theory. That is not to say that Verleger would have license to speculate on what alternatives Plaintiffs did or did not contemplate or what they should or should not have done to satisfy the requirements and contingencies of the Contracts. Finally, Plaintiffs' argument goes more to the weight that should be afforded Verleger's testimony. "The fact that a witness's qualifications are not unassailable does

not mean the witness [*9] is incompetent to testify; rather it is ... for the jury, with the assistance of vigorous cross-examination, to measure the worth of the opinions." Valentin, 1997 U.S. Dist. LEXIS 24059, 1997 WL 33323099, at *15 (internal quotations omitted). Thus, Plaintiffs' contention that Verleger "lacks practical experience relating to the issues in this case is better left for cross-examination." TC Sys. Inc., 213 F. Supp. 2d at 175. II. DEFENDANTS' ORDER TO STRIKE THE EXPERT REPORTS OF GERALD GAY, MARCEL KAHAN, MICHAEL CANES AND JEFFREY BERNARD Defendants move to strike the opinion testimony of four expert witnesses proffered by Plaintiffs to explain various corporate and contractual issues involving Defendants and the Contracts. The Court addresses each individual challenge separately. A. THE EXPERT TESTIMONY OF GERALD GAY Defendants challenge the testimony of Gerald Gay ("Gay"), the chairman of the Department of Finance at Georgia State University and a former chief economist at the Commodity Futures Trading Commission ("CFTC"), arguing that his opinions do not fit the facts of the case as required by Daubert and will not assist the jury in understanding [*10] the evidence. The Court disagrees. Gay's testimony as a whole serves the reasonable purpose of offering a general overview of derivative instruments, the CFTC, its regulation of futures trading and other such general economic background to a laymen jury which will have to confront complex questions involving the motivation of petroleum marketing companies in entering into the Contracts. While Defendants contend that such an overview is unnecessary because the jury must simply determine each Plaintiff's underlying purpose in entering into its Contract with Defendant, the Court is not persuaded that the jury will understand the nature of the Contracts or the complex issues inherent in the formation of such a Contract without understanding the regulatory scheme that structures those Contracts or common economic terms such as "hedge" or "derivative." Thus, the Court agrees that having an expert witness such as Gay -- who teaches graduate level courses in derivatives, has authored articles discussing derivatives hedging and valuation, and was Chief Economist and Director of the Division of

Case 1:04-cv-01494-JJF

Document 260-2

Filed 01/04/2008

Page 13 of 28
Page 4

2003 U.S. Dist. LEXIS 6150, *10

Economic Analysis for the CFTC, where he led a team that examined contracts similar to one at issue [*11] here -- is important if Plaintiffs are to explain to the jury the background issues involved in this complex contractual dispute centered in an intricate regulatory scheme. The Court is also not persuaded by Defendants' assertion that much of Gay's testimony must be excluded because it was not contained in his initial report and therefore violated Fed. R. Civ. P. 26(a)(2)(B). As the Advisory Committee Notes to the Federal Rules explain, Rule 26(a)(2) requires parties to disclose "expert testimony sufficiently in advance of trial [so] that opposing parties have a reasonable opportunity to prepare for effective cross examination and perhaps arrange for expert testimony from other witnesses." Fed. R. Civ. P. 26(a)(2)(B), Advisory Committee Notes (1993 Amendments) at 152 (West 2003). Such a rule intends to prevent surprise testimony from one party that, by virtue of its unexpectedness, would create the perception that the opposing party has no viable response, and thus imbue the surprise testimony with greater significance than it deserves. The modification of this rule by Rule 37(c)(1), which precludes the introduction of new opinions not previously disclosed unless the failure to [*12] disclose them is "harmless," demonstrates that these rules are not designed to prohibit a witness from testifying about anything not explicitly mentioned in his Rule 26 disclosure, but rather to protect one party from being blindsided by another party with new opinions never before discussed. In the case at bar, the opinions that Plaintiffs hope to introduce through the testimony of Gay do not fall into the category of prohibited testimony as described above. Instead, they are general facts and discussions related directly to the expert report Gay submitted to Defendants and the Court. Even if one were to assume that such opinions were sufficiently different or new, Defendants are now on notice about these opinions more than a month before trial and thus have ample time to prepare effective cross examination and consider possible witnesses to counter such discussions, which renders the failure to disclose such opinions harmless. B. THE EXPERT TESTIMONY OF MARCEL KAHAN Defendants also challenge the testimony of Marcel Kahan ("Kahan"), a professor of law at New York University School of Law who specializes in corporate

governance. Defendants argue that Kahan's testimony, as [*13] foreshadowed by his expert report, will impermissibly state the legal standards for control of a company and consequently interfere with the Court in instructing the jury on the law. The Court disagrees. Trial courts must be careful to prevent experts from offering opinions that embody legal conclusions. See United States v. Scop, 846 F.2d 135, 139 (2d Cir. 1988). To allow such opinions would "trespass[] on the province of the jury and the trial court" by imposing the expert's view of what the law is. Fiataruolo v. United States, 8 F.3d 930, 941 (2d Cir. 1993). However, the Federal Rules of Evidence were amended over twenty years ago to allow expert witnesses to render opinions even if they "embrace[] an ultimate issue to be decided by the trier of fact." Fed. R. Evid. 704. This amendment provided trial courts with more latitude to allow experts to testify about issues that would help the jury understand concepts it needed to know to render a verdict despite the fact that the opinions may encroach on matters of law. Thus, the Second Circuit has held that "experts may testify on ... mixed questions of fact and law." Fiataruolo, 8 F.3d at 941. [*14] In the instant case, Plaintiffs want to offer Kahan's testimony to explain general corporate governance principles and the concept of veil-piercing to the jury. As explained above in relation to Gay's testimony, the Court considers such background information crucial if the laymen jury is to understand fully the complex issues in this matter. Kahan's analysis of the evidence in this case -- and his identification of how such evidence may indicate that the relation between the Defendants exceeded the control a parent ordinarily exercises over its subsidiary so as to justify veil-piercing -- does not cross the boundaries into an opinion that would tell the jury what decision to reach, but rather mirrors an example offered by the Advisory Committee to the Federal Rules (the "Committee") when distinguishing permissible opinions on ultimate facts from inadmissible legal conlcusions: The question, "Did T have capacity to make a will?" would be excluded, while the question, "Did T have sufficient mental capacity to know the nature and extent of his property and the natural objects of his bounty and to formulate a rational scheme of distribution?" would be

Case 1:04-cv-01494-JJF

Document 260-2

Filed 01/04/2008

Page 14 of 28
Page 5

2003 U.S. Dist. LEXIS 6150, *14

allowed. (Fed. R. Evid. 704, Advisory Committee Notes (1972 Proposed Rules) (West 2001).) [*15] Through this example, the Committee intended to demonstrate that an opinion which told the jury whether or not a party had the capacity to make a will would be inadmissible because the answer was a conclusion of law that is reserved for the jury to decide, but an opinion which discussed whether the evidence showed the party had met the three requirements necessary to adjudge that party capable of making a will was admissible because it involved questions of fact that could be established based on the expert's opinion. In the instant case, Kahan is being asked to opine on questions of fact concerning the relationship between two of the Defendants. As indicated by his expert report, Kahan intends to conduct this analysis by referring to the evidence submitted for trial that he has reviewed, including objective facts such as the composition of the Board of Directors for and shareholdings of the Defendants. As long as this discussion does not become a statement to the jury "on how its verdict should read," and Kahan "couches his opinion specifically 'on the evidence that [he] looked at and the work that [he] did, [*16] '" Fiataruolo, 8 F.3d at 942, the Court is satisfied that his opinions will fall within the accepted guidelines for admissible testimony. Defendants also contend that Kahan is not qualified to render opinions on matters of corporate governance and, more specifically, veil-piercing. On the contrary, the Court is persuaded that Kahan is more than qualified to testify on such issues. Kahan, a professor of law at one of the nation's most esteemed law schools who teaches exclusively on matters involving corporations and who has lectured and published extensively on matters of corporate governance, can certainly offer a laymen jury the necessary information needed to understand basic issues of corporate governance. Defendants argue that Kahan's experience does not rise to the level of an expert witness in another case brought before this Court, where the judge there allowed the expert to testify on "good corporate practice" because of his "thirty years' of experience in the corporate governance field." Pereira v. Cogan, 281 B.R. 194 (S.D.N.Y. 2002). However, neither this case nor any other provided by Defendants offers as a decisive threshold a

minimum [*17] amount of experience that a potential expert witness in corporate governance or any other field must reach in order to demonstrate sufficient ability to testify. Thus, the Court is not inclined to dismiss Professor Kahan's many years of teaching and writing experience in this field as insufficient in determining his qualifications. C. THE EXPERT TESTIMONY OF MICHAEL CANES Defendants next challenge the testimony of Dr. Michael Canes ("Canes"), a retired Vice President and Chief Economist of the American Petroleum Institute. Similar to their objections to the testimony of Gay, Defendants contend that Canes's opinions do not fit the facts of the case as required by Daubert and will not assist the jury in understanding the evidence. The Court disagrees. Much like the testimony of Gay, Canes's testimony will help the laymen jury understand certain complex business issues that are at the crux of this dispute, such as what a flexie contract is and how it can be utilized by petroleum marketers. Such concepts are likely to be foreign to even the more well-educated members of the jury. Indeed, to ask the jury to render a verdict in this matter without allowing the Plaintiffs to [*18] explain what a flexie contract is and why companies like their own would ever enter into one would result in an uninformed and perhaps confused jury lacking sufficient background information to understand accurately the complex issues involved in this matter. Thus, the Court is persuaded that Canes's testimony fits the facts of the case, and will offer the jury invaluable assistance in understanding the difficult concepts at the core of this litigation. However, the Court notes that allowing Canes to testify does not grant him license to speculate on what motivations Plaintiffs had in entering into the Contracts or whether they intended to take delivery of the oil and gas in the Contracts. D. THE EXPERT TESTIMONY OF JEFFREY BERNHARD Finally, Defendants challenge the testimony of Jeffrey Bernard ("Bernard"), an apparently retired fuel marketer and sales and distribution specialist for Mobil Oil Corporation ("Mobil"). 1 Defendants contend that Bernard is not qualified to render opinions on possible delivery alternatives for fuel marketers. Moreover, Defendants argue that, based on Bernard's expert report,

Case 1:04-cv-01494-JJF

Document 260-2

Filed 01/04/2008

Page 15 of 28
Page 6

2003 U.S. Dist. LEXIS 6150, *18

his testimony will offer merely unsupported speculation on whether or [*19] not Plaintiffs could have secured financing to purchase the full volumes of fuel available under the Contracts. While the Court is persuaded that Bernard is qualified to discuss matters regarding fuel delivery, it is not satisfied that Bernard can testify to the ability of the Plaintiffs to secure financing for fuel purchases under the Contracts. 1 The Court notes that Bernard's curriculum vitae, which lists over thirty years of job experience, does not discuss any job positions he has held since 2000, and Plaintiffs do not indicate in their memorandum of law what Bernard's current job is. As the Court has discussed in regard to Gay and Canes, the jury considering this dispute will need assistance in understanding the complex issues inherent in the petroleum marketing business. One of the disputed issues in this matter concerns the question of whether the Plaintiffs had the storage capacity to take delivery of the massive quantities of fuel under the Contracts. While the Plaintiffs' ability to do so appears [*20] impossible based solely on the amount of storage they owned on-site, Plaintiffs hope to inform the jury of alternatives utilized by the industry that would have allowed Plaintiffs to take delivery of the fuel despite their lack of storage. The Court is satisfied that Bernard, who worked for over three decades in various aspects of the petroleum marketing and supply and distribution business for one of the world's largest oil companies, can provide "specialized knowledge" to the jury about industry customs with regard to fuel storage alternatives and thus assist them in determining whether these alternatives were realistically available to Plaintiffs. See Employers Reinsurance Corp. v. Mid-Continent Casualty Co., 202 F. Supp. 2d 1212, 1216 (D. Kan. 2002) (finding that forty years of insurance background and work experience of expert witness qualified him to testify about industry custom). Thus, the Court does not believe Bernard's testimony would sink to the level of "subjective belief or unsupported speculation." Daubert, 509 U.S. at 590. If anything, Defendants' argument goes more to the weight that should be afforded Bernard's testimony, and as explained [*21] above with regard to Verleger's testimony, it is "for the jury, with the assistance of vigorous cross-examination, to measure the worth of [an expert's] opinions." Valentin, 1997 U.S. Dist. LEXIS 24059, 1997 WL 33323099, at *15 (internal quotations

omitted). However, the Court is not persuaded that Bernard's testimony regarding the abilities of the Plaintiffs to secure financing for their product purchases meets the standards for expert testimony that the Court has articulated above. Bernard opines in his expert report that the Plaintiffs could have readily obtained financing to purchase their full contract volumes under the Contracts because Plaintiffs had previous credit lines established with Defendants and, regardless of the size or availability of this credit, "there is no indication that [Defendants] would restrict purchases under the [Contracts] on the basis of credit unworthiness." (Jeffrey D. Bernard Expert Report ("Bernard Report"), attached to Appendix I to the MG Defendants' Memorandum of Law In Support of Their Motion to Strike the Proposed Testimony of Plaintiffs' Experts, dated December 6, 2002 ("Deft's Memo"), at 12.) This conclusion is unsupported by any factual basis, [*22] and thus qualifies as mere conjecture by Bernard as to what Defendants might have done. Moreover, Bernard's hypothesis that Defendants would have delivered millions of dollars worth of petroleum products despite a lack of assurances that Plaintiffs could afford payment strike the Court as counterintuitive, and therefore particularly unreliable. Similarly unsupported is Bernard's assertion that even if Defendants were not to extend credit for full contract volumes, "any number of financial institutions would extend credit." (Deft's Memo, Bernard Report, at 13.) Bernard neither identifies these possible institutions, nor explains how Plaintiffs would be considered creditworthy. The Court is also not satisfied that Bernard's experience qualifies him to opine on the extension of credit to petroleum marketers by financial institutions. In Bernard's last assignment with Mobil, he was charged with overseeing the extension of credit to customers, but this brief three-year stint only provides him insight into Mobil's policies on extension of credit, and not with those of Defendants. Thus, Bernard could testify as to general industry custom for extension of credit in similar situations to [*23] the extent such custom exists, but by allowing him to testify as to whether or not Defendants and financial institutions would have actually extended such credit would allow Bernard to speculate to an extent forbidden by the Supreme Court. Plaintiffs argue that finding Bernard's testimony on

Case 1:04-cv-01494-JJF

Document 260-2

Filed 01/04/2008

Page 16 of 28
Page 7

2003 U.S. Dist. LEXIS 6150, *23

credit issues inadmissible while allowing Verleger to testify about whether Plaintiffs could have financed their purchases is inconsistent, but the Court disagrees. Verleger undertook an objective numerical analysis to demonstrate the abilities of Plaintiffs to purchase products under the Contracts, using data supplied by Plaintiffs themselves. Bernard desires to opine on whether or not business institutions would have extended credit to Plaintiffs, a fact-intensive, subjective inquiry

that Bernard is not in a position to make. SO ORDERED. Dated: 11 April 2003 Victor Marrero U.S.D.J.

Case 1:04-cv-01494-JJF

Document 260-2

Filed 01/04/2008

Page 17 of 28
Page 1

LEXSEE 2007 US DIST LEXIS 56205 C. CLARK HODGSON, JR., RECEIVER, et al. v. KOTTKE ASSOCIATES, LLC CIVIL ACTION NO. 06-5040 UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA 2007 U.S. Dist. LEXIS 56205

July 31, 2007, Decided August 1, 2007, Filed COUNSEL: [*1] For C. CLARK HODGSON, JR., RECEIVER FOR PHILADELPHIA ALTERNATIVE ASSET MANAGEMENT COMPANY, LLC, AND ITS PARTNERS, AFFILIATES, SUBSIDIARIES AND RELATED ENTITIES, Plaintiff: DANIEL T. FITCH, LEAD ATTORNEY, STRADLEY RONON STEVENS & YOUNG LLP, PHILADELPHIA, PA; NICHOLAS M. ORLOFF, STRADLEY, RONON, STEVENS & YOUNG, PHILADELPHIA, PA. For KOTTKE ASSOCIATES, LLC, Defendant: RICHARD G. PLACEY, LEAD ATTORNEY, MONTGOMERY, MCCRACKEN, WALKER & RHOADS, LLP, PHILADELPHIA, PA. For KOTTKE ASSOCIATES, LLC, Counter Claimant: RICHARD G. PLACEY, LEAD ATTORNEY, MONTGOMERY, MCCRACKEN, WALKER & RHOADS, LLP, PHILADELPHIA, PA. For C. CLARK HODGSON, JR., RECEIVER FOR PHILADELPHIA ALTERNATIVE ASSET MANAGEMENT COMPANY, LLC, AND ITS PARTNERS, AFFILIATES, SUBSIDIARIES AND RELATED ENTITIES, Counter Defendant: NICHOLAS M. ORLOFF, STRADLEY, RONON, STEVENS & YOUNG, PHILADELPHIA, PA. JUDGES: Michael M. Baylson, U.S.D.J. OPINION BY: Michael M. Baylson OPINION MEMORANDUM Baylson, J. I. Introduction On November 14, 2006, C. Clark Hodgson, the Receiver for Option Capital Fund, LP ("Option Capital") and the Philadelphia Alternative Asset Fund, LP (the "LP Fund") filed a Complaint in this Court against Kottke Associates, LLC ("Kottke"), asserting claims for fraudulent [*2] transfer, unjust enrichment/constructive trust, and conversion/wrongful detention. The Receiver seeks to recover approximately $ 662,000 he claims Paul Eustace ("Eustace"), the general partner, trading advisor and commodity pool operator for Option Capital, improperly transferred from the accounts of Option Capital to Kottke. There are currently three outstanding motions in this case: (1) Kottke's Motion to Transfer Venue Pursuant to 28 U.S.C. Section 1404(a) (Doc. No. 5); (2) Kottke's Motion for Judgment on the Pleadings (Doc. No. 7); and (3) the Receiver's Motion to Dismiss the Counterclaim of Defendant Kottke or, In the Alternative, to Dismiss Defendant's Request for Attorneys' Fees (Doc. No. 10). For the following reasons, all three motions will be denied. II. Factual and Procedural Background According to the Receiver's Complaint, Eustace formed Option Capital in May 2000. He operated Option Capital as "commodity pool" in which he solicited investors to purchase limited partnership interests and

Case 1:04-cv-01494-JJF

Document 260-2

Filed 01/04/2008

Page 18 of 28
Page 2

2007 U.S. Dist. LEXIS 56205, *2

invested the resulting funds in the commodities market. The investors in Option Capital, including the LP Fund, directly deposited the funds they wished to invest in Option Capital's trust [*3] account in Toronto, Canada. In October 2000, Eustace, acting as general partner for Option Capital, opened an account with FC Stone LLC ("FC Stone"), a future commodities merchant, for the purpose of trading commodity futures through FC Stone on behalf of Option Capital. Over the course of the next year, Eustace made a number of transfers from the Option Capital trust account to the FC Stone trading account In May 2001, Eustace also entered into a Trading Advisory Agreement with Kottke unrelated to his activities with Option Capital. According to the terms of that agreement, Eustace agreed to develop and implement trading strategies for Kottke, and to personally indemnify Kottke for any losses it sustained while he carried out trades on its behalf. Within weeks of entering into this agreement, Kottke sustained approximately $ 630,000 in trading losses, and Eustace executed a promissary note for the full amount he owed Kottke. He defaulted on the promissary note, and Kottke confessed judgment against Eustace in an action in the United States District Court for the Northern District of Illinois, Kottke v. Eustace, No. 01-5522 ("Illinois Action") in July 2001. While attempting to execute [*4] this judgment, Kottke discovered the trading account Option Capital maintained with FC Stone and requested the court to order FC Stone to liquidate that account and turn the proceeds over to Kottke in satisfaction of Eustace's debt. Option Capital intervened in the action and denied that Eustace had any personal interest in the funds maintained in the FC Stone account. In January 2002, Option Capital and Kottke entered into a Settlement and Release Agreement ("Settlement Agreement"), whereby Kottke released all claims to the funds frozen in the FC Stone account and, in turn, received $ 159,000 in partial satisfaction of Eustace's debt. District Judge Charles Kocoras, the judge presiding over the Illinois Action, signed an order approving the Settlement Agreement. The Receiver claims that, when Kottke entered into the Settlement Agreement, Kottke knew or reasonably should have known that Eustace would make the payment of $ 159,000 from the funds maintained in Option Capital's trading account with FC Stone, even though those funds belonged to Option Capital and its investors and not Eustace. The Receiver further alleges that Kottke received and retained ten additional payments totaling

[*5] $ 503,00 from Eustace using Option Capital's funds. The Receiver further states that he did not learn that Eustace has paid off his personal debt to Kottke using Option Capital's funds until January 2006 when he received a set of documents from the Commodity Futures Trading Commission ("CFTC") relating to the Option Capital trust account and the FC Stone account. He filed this action on November 14, 2006 to recover the approximately $ 662,00 in funds he claims were improperly transferred from Option Capital's accounts to pay off Eustace's personal debt to Kottke. On January 16, 2007, Kottke filed a Motion for Transfer of Venue pursuant to 28 U.S.C. § 1404(a) arguing that the present action is a continuation of the prior lawsuit before Judge Kocoras. On the same date, Kottke filed its Answer, Affirmative Defenses and Counterclaims to the Receiver's Complaint. In its Counterclaim, Kottke asserts that the Receiver is in breach of a Settlement Agreement reached in 2002 between Kottke and Option Capital in the Illinois Action. According to Kottke, the $ 159,000 transfer made pursuant to the Settlement Agreement was offered as consideration for that agreement, and the Settlement Agreement [*6] consequently precludes the recovery of transferred funds by the Receiver. The Receiver filed a Motion to Dismiss Kottke's Count