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WAFRA LEASING CORPORATION v. PRIME CAPITAL CORPORATION

October 12, 2004.

WAFRA LEASING CORPORATION 1999-A-1, Plaintiff,
v.
PRIME CAPITAL CORPORATION, PRIME LEASING CORPORATION, PRIME FINANCE CORPORATION 1999-A-1, PRIME FINANCE CORPORATION 1999-A-2, KPMG LLP, MARK BISCHOFF, JAMES FRIEDMAN, VERN LANDECK, THOMAS EHMANN, WILLIAM SMITHBURG, Defendants.



The opinion of the court was delivered by: AMY J. ST. EVE, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff Wafra Leasing Corporation 1999-A-1 ("Wafra") filed suit against Defendants Prime Capital Corporation, Prime Leasing Corporation, Prime Finance Corporation 1999-A-1, Prime Finance Corporation 1999-A-2 (collectively, the "Prime Defendants"), KPMG LLP ("KPMG"), Bischoff & Swabowski, LTD ("B&S"), Mark Bischoff, James Friedman, Vern Landeck, Thomas Ehmann, William Smithburg, and John Walter.*fn1 Defendants KPMG, Bischoff, Friedman, Smithburg, Landeck, and Ehmann ("Moving Defendants") move the Court in limine pursuant to Rules 402 and 403 of the Federal Rules of Evidence to limit Wafra to its "out of pocket" damages and cap those damages at $1,371,376. For the reasons set forth below, the Moving Defendants' Motion is granted in part and deferred in part.

BACKGROUND

  The Court's previous rulings regarding summary judgment, Wafra Leasing Corp. 1999-A-1 v. Prime Capital Corp., 2004 WL 1977572 (N.D. Ill. Aug. 31, 2004) and the multiple motions to dismiss, Wafra Leasing Corp. 1999-A-1 v. Prime Capital Corp., 247 F.Supp. 2d 987 (N.D. Ill. 2002); Wafra Leasing Corp. 1999-A-1 v. Prime Capital Corp., 192 F. Supp. 2d 852 (N.D. Ill. 2002), address the procedural and factual background in detail. The Court sets forth the facts relevant to this Motion below.

  I. The Moving Defendants

  Defendant KPMG served as auditors and principal accounting firm to Prime Capital. (R. 131-1, Third Am. Compl. ¶ 11.) Defendant Bischoff was a member of the Board of Directors of Prime Capital and of the Audit Committee of the Board, Secretary of the Board, and Outside General Counsel to Prime Capital, as well as a large shareholder in Prime Capital. (Id. ¶ 12.) Defendant Friedman was a member of the Board of Directors and Chairman of the Executive Committee of the Board, and the President and Chief Executive Officer of Prime Capital, as well as its largest shareholder. (Id. ¶ 14.) Defendant Landeck was Vice President and Chief Financial Officer of Defendant Prime Capital. (Id. ¶ 15.) Defendant Ehmann was Vice President of Finance of Prime Capital. (Id. ¶ 16.) Defendant Smithburg was a member of the Board of Directors of Prime Capital and of the Executive and Audit Committees of the Board. (Id. ¶ 17.)

  II. The 1999-A Securitization

  Wafra invested $5,550,497 into the 1999-A Securitization, a pool of financial contracts consisting of equipment leases, loans, and installment purchase agreements from which promissory notes could be issued. (R. 258-1, Def.'s Mot. at 2; R. 131-1, Third Am. Compl. ¶ 34.) Under the 1999-A Securitization, Wafra was to receive repayment of its principal, plus an investment return consisting of interest payments until the principal was paid. (R. 281-1, Pl.'s Resp. at 2.) Wafra purchased the Owner Certificate from Prime Finance Corporation 1999-A-1 and 1999-A-2. The Owner Certificate is dated May 4, 1999 and signed by an officer of Prime. (R. 131-1, Third Am. Compl. ¶ 37.) Prime stopped making principal payments in May 2002, but continues to make "interest" payments at a consistent rate. (R. 258-1, Def.'s Mot. Ex. A.)

  ANALYSIS

  I. Legal Standard

  The Moving Defendants bring this motion in limine to limit Plaintiff to its "out of pocket" damages of $1,373,376. It is clear that courts have the power to exclude evidence in limine under their authority to manage trials. Aguilar v. Dixon, No. 93 C 1936, 1995 WL 319621, at *3 (N.D. Ill. May 25, 1995) ("Pursuant to its power to manage trials, the court may exclude evidence in limine"). Courts should grant such motions, however, "only when evidence is clearly inadmissible on all potential grounds." Hawthorne Partners v. AT & T Tech., Inc., 831 F. Supp. 1398, 1400 (N.D. Ill. 1993). Furthermore, courts often defer evidentiary rulings "until trial so that questions of foundation, relevancy and potential prejudice may be resolved in proper context." Id.; see also Noble v. Sheahan, 116 F.Supp.2d 966, 969 (N.D. Ill. 2000).

  Because neither Section 10(b) of the Securities Exchange Act of 1934 ("the Act") nor Rule 10b-5 provide instructions concerning damages, courts have applied the damages standard of Section 28 of the Act. Pelletier v. Stuart-James Co., 863 F.2d 1550, 1557 (11th Cir. 1989). Section 28(a) of the Act limits damages to "actual damages." See Astor Chauffeured Limousine Co. v. Runnfeldt Inv. Corp., 910 F.2d 1540, 1551 (7th Cir. 1990) ("The federal securities laws allow victims of fraud to recover their actual loss — the difference between what they paid for the stock and what it was worth.") The general rule for calculating damages under Section 10(b) is to take the plaintiff's "out of pocket" damages. See Madigan, Inc. v. Goodman, 498 F.2d 233 (7th Cir. 1974). "Out of pocket" damages are calculated as the difference between the plaintiff's investment and any value the plaintiff received as a result of that investment. Astor, 910 F.2d at 1551.

  Nonetheless, courts have recognized certain exceptions to that general rule. When a plaintiff can prove that it struck a bargain for a reasonably certain and non-speculative expectation, the plaintiff can seek to recover for the lost value of that expectation. See Osofsky v. Zipf, 645 F.2d 107, 113 (2nd Cir. 1981). These "benefit of the bargain" damages are calculated by the difference between the value of what the plaintiff received and what it was represented he or she would receive. Medcom Holding Co. v. Baxter Travenol Labs., Inc., No. 87 C 9853, 1989 WL 134846, *3 (N.D. Ill. Oct. 19, 1989). Courts have also departed ...


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