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Securities And Exchange Commission v. The Nutmeg Group, LLC

United States District Court, N.D. Illinois, Eastern Division

August 1, 2017

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
THE NUTMEG GROUP, LLC, RANDALL GOULDING, and DAVID GOULDING, Defendants, DAVID GOULDING, INC., DAVID SAMUEL, LLC, FINANCIAL ALCHEMY, LLC, PHILLY FINANCIAL, LLC, and ERIC IRRGANG, Relief Defendants.

          MEMORANDUM OPINION AND ORDER

          Jeffrey T. Gilbert United States Magistrate Judge.

         This matter is now before the Court on motions in limine filed by Plaintiff Securities and Exchange Commission (the "SEC"). Plaintiffs Motions in Limine (the "SEC's Motions"), [ECF No. 885]. For the reasons stated below, the SEC's Motions in Limine [ECF No. 885] are granted in part and denied in part.

         I. LEGAL STANDARD

         The district court has the inherent authority to manage the course of a trial. Luce v. United States, 469 U.S. 38, 41 n.4 (1984). The court may exercise this power by issuing an evidentiary ruling in advance of trial. Id. A party may seek such a ruling by filing a motion in limine, which requests the court's guidance on what evidence will (or will not) be .admitted at trial. Perry v. City of Chicago, 733 F.3d 248, 252 (7th Cir. 2013). Prudent motions in limine serve a gatekeeping function by allowing the judge "to eliminate from further consideration evidentiary submissions that clearly ought not be presented to the jury." Jonasson v. Lutheran Child & Family Servs., 115 F.3d 436, 440 (7th Cir. 1997). By defining the evidentiary boundaries, motions in limine both permit "the parties to focus their preparation on those matters that will be considered by the jury" id, and help ensure "that trials are not interrupted mid-course for the consideration of lengthy and complex evidentiary issues." United States v. Tokash, 282 F.3d 962, 968 (7th Cir. 2002).

         As with all evidentiary matters, the court has broad discretion when ruling on motions in limine. United States v. Ajayi, 808 F.3d 1113, 1121 (7th Cir. 2015); Jenkins v. Chrysler Motors Corp., 316 F.3d 663, 664 (7th Cir, 2002). Moreover, the court can change its ruling at trial, "even if nothing unexpected happens." Luce, 469 U.S. at 41. Rulings in limine are speculative in effect; essentially, they are advisory opinions. Wilson v. Williams, 182 F.3d 562, 570 (7th Cir. 1999) (Coffey, J., concurring in part and dissenting in part).

         The court will grant a motion in limine to bar evidence only where that evidence is clearly inadmissible for any purpose. Taylor v. Union Pac. R. Co., 2010 WL 5421298, at *1 (S.D. Ill.Dec. 27, 2010). This is a high standard. Thomas v. Sheahan, 514 F.Supp.2d 1083, 1087 (N.D. Ill. 2007). The moving party bears the burden of establishing clear inadmissibility. Euroholdings Capital & Lnv. Corp. v. Harris Trust & Sav. Bank, 602 F.Supp.2d 928, 934 (N.D. Ill. 2009). If the moving party cannot satisfy her burden, the evidentiary ruling should be deferred until trial. Green v. Goodyear Dunlop Tires N. Am., Ltd., 2010 WL 747501, at *1 (S.D. Ill. Mar. 2, 2010). That is because, at trial, the court will have the benefit of understanding "the context, foundation, and relevance of the contested evidence within the framework of the trial as a whole." Casares v. Bernal, 790 F.Supp.2d 769, 775 (N.D. Ill. 2011).

         II. DISCUSSION

         The SEC has filed five motions in limine. Defendants Randall Goulding ("Randall") and David Goulding ("David") filed a joint response brief in opposition to the SEC's Motions. Defendants' Opposition to the SEC's Miscellaneous Motions in Limine ("Defendants' Response"), [ECF No. 890]. In addition, David filed a separate response brief addressing one of the SEC's Motions. Supplemental Response of Defendant David Goulding in Opposition to the SEC's Miscellaneous Motions in Limine - Concerning Advice of Counsel Defense ("David's Response"), [ECF No. 889], Relief Defendants Financial Alchemy, LLC; Philly Financial, LLC; and Eric Irrgang (collectively, "Relief Defendants") joined Randall's and David's briefs, but also filed a separate response brief raising a new argument that should be addressed before turning to the merits of the SEC's Motions. Reply Brief Pertaining to Relief Defendants' Motion in Limine to Bar Any Admission of Evidence of Various Other Items - Regarding Leslie Weiss, and Response in Opposition to the SEC's Miscellaneous Motions in Limine ("Relief Defendants' Response"), [ECF No. 892], at 1.

         Relief Defendants assert in their response brief that the SEC's claims against them in this case should be dismissed because "it is unfathomable that the SEC can prove any disgorgement damages in this matter, so as to implicate the Relief Defendants." Id. ¶ 1. There are multiple flaws with the procedural vehicle Relief Defendants have chosen to present this argument to the Court. Relief Defendants did not file a motion seeking to dismiss the claims against them; rather, they seek that relief in a brief responding to motions in limine that do not raise the issue of whether the SEC can prove disgorgement damages. Relatedly, Relief Defendants are seeking dispositive relief predicated on a summary judgment-type argument. A motion in limine is not the proper way to present such arguments to the court for resolution. See Louzon v. Ford Motor Company, 718 F.3d 556 (6th Cir. 2013). Finally, Relief Defendants' brief is a short filing devoid of any citations to the record or legal authority. Such undeveloped and unsupported arguments are waived. See Crespo v. Colvin, 824 F.3d 667, 674 (7th Cir. 2016) ("Moreover, 'perfunctory and undeveloped arguments, and arguments that are unsupported by pertinent authority, are waived (even where those arguments raise constitutional issues).'") (quoting United States v. Berkowitz, 927 F.2d 1376, 1384 (7th Cir. 1991)). For these reasons, Relief Defendants have not properly put before the Court their request to dismiss the claims against them.

         1. The SEC's Motion in Limine No. 1

         The SEC's Motion in Limine No. 1 relates to whether and, if so, how the jury will be informed of the Court's ruling on the parties' motions for summary judgment in this case. See SEC v. Nutmeg Grp., LLC, 162 F.Supp.3d 754 (N.D. Ill. 2016). In that ruling, the Court granted summary judgment in favor of the SEC with respect to several alleged primary violations of the Investment Advisers Act ("Advisers Act") committed by Randall and the Nutmeg Group, LLC ("Nutmeg"). Specifically, the Court found (1) Nutmeg did not maintain proper books and records; (2) Nutmeg improperly commingled assets; (3) Nutmeg did not conduct a required surprise examination or audit; (4) Nutmeg and Randall did not disclose material facts related to asset transfers, payments to Relief Defendants, and commingling; and (5) Nutmeg and Randall made false or misleading statements in investors' account statements and Nutmeg's Form ADVs. Id. at 772-82. The SEC did not seek summary judgment on its claims that Randall and Nutmeg misvalued and misappropriated assets. Id. at 761. The Court denied summary judgment with respect to the SEC's aiding and abetting claims alleged against Randall and David. Id. at 782-86.

         The SEC asserts the Court should tell the jury about the summary judgment ruling and permit the SEC to describe the ruling during its opening statement, closing argument, and witness examinations. The SEC focuses most of its attention on the argument that the primary violations found at summary judgment satisfy the first element of aiding and abetting liability, which requires a primary violation of the Advisers Act. See Id. at 782. In response, Defendants contend none of the aiding and abetting claims predicated on the primary violations found at summary judgment will be before the jury. Thus, Defendants say, the Court's summary judgment ruling is irrelevant to the issues to be decided by the jury and admitting evidence of the ruling would be unfairly prejudicial.

         The parties' dispute turns largely on the nature of the claims that will be before the jury. Judge Hibbler addressed that issue in his ruling on the SEC's Motion to Strike Defendants' Jury Demand, which was issued in October 2011. Order and Statement Dated October 19, 2011, [ECF No. 390]; see also Minute Entry Dated December 21, 2011, [ECF No. 451]. As Judge Hibbler explained, the SEC and Defendants did not demand a jury trial in the original complaint and answers filed in this case. Id. at 1. But Defendants requested a jury trial when they answered the SEC's Amended Complaint. Id. The SEC then moved to strike Defendants' jury demand. Id. The Court determined Defendants' jury demand was untimely with respect to the factual matters alleged in the original complaint. The Court therefore concluded those matters would be resolved in a bench trial. The Court held that only the new matters raised in paragraphs 62 to 68, 77 to 82, and 83 to 88 of the Amended Complaint would be resolved in a jury trial. Id. at 2. In those paragraphs, the SEC alleges: (1) Defendants used assets owned by Nutmeg's funds (the "Funds") to pay for personal expenses and other expenses unrelated to the Funds' operations; (2) Defendants misvalued the Funds' securities by inadequately discounting them, and (3) Defendants misappropriated over $2.3 million from the Funds by inflating fees and exchanging overvalued securities. Id. at 1-2. Only aiding and abetting claims related to these factual allegations will be decided by a jury.[1]

         In the summary judgment ruling, the Court did not find any defendant liable for misvaluing or misappropriating assets. The SEC did not seek summary judgment on these claims, and the Court denied Defendants' motion for summary judgment on them. In light of the Court's rulings on Defendants' jury demand and at summary judgment, the jury in this case will not decide any aiding and abetting claim predicated on the primary violations the Court held a Defendant committed in its summary judgment ruling. Therefore, the SEC's main argument -that a jury should be informed of the existence of a primary violation as a predicate for aiding and abetting claims the jury will decide - does not hold water. To the extent the SEC wants to tell the jury that Defendants were held liable for primary violations that are not the predicate for the aiding and abetting claims the jury will be asked to decide, the Court agrees with Defendants that any probative value that evidence could have on the issues properly before the jury is outweighed by the prejudicial effect it could have upon Defendants.

         The SEC also contends it should be allowed to "confront Defendants" with the summary judgment ruling if they "argue that they believed they were acting properly while helping Nutmeg to do things that already have been deemed to be violations of the [Advisers] Act." Plaintiffs Reply in Support of Its Motions in Limine ("The SEC's Reply"), [ECF No. 893], at 3. As a threshold matter, in ruling on the summary judgment motions, the Court did not make any findings about whether Defendants believed they were acting properly. Indeed, the Court denied the SEC's motion with respect to the aiding and abetting claims because the SEC failed to show that, based on the undisputed facts then before' the Court, "any reasonable jury would find Defendants had a general awareness of illegality and impropriety." Nutmeg, 162 F.Supp.3d at 785-86; see also Id. at 783-86. Nonetheless, the Court agrees with the SEC that depending upon what arguments Defendants make or evidence they attempt to introduce at trial, it may be that one or more of the Court's summary judgment rulings will be relevant, probative, and admissible for a particular purpose. The Court cannot predict now the circumstances under which that might occur and the parties' briefs are not specific enough to allow the Court to make those judgments. But the parties are on notice that there may be circumstances under which the Court could decide that the jury should be informed of one or more of the Court's rulings on the motions for summary judgment.

         In summary, the jury in this case will not be tasked with deciding all of the primary violations and aiding and abetting claims alleged by the SEC. Most of those claims have been or will be decided by the Court through summary judgment and a bench trial. All of the aiding and abetting claims predicated on the primary violations found at summary judgment will be resolved in a bench trial. The Court's ruling on summary judgment did not resolve any of the primary violations on which Defendants properly requested a jury trial. Therefore, subject to the caveat in the preceding ...


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