Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_04-cv-05474/USCOURTS-caed-1_04-cv-05474-6/pdf.json

Nature of Suit Code: 423
Nature of Suit: Bankruptcy Withdrawal 28 USC 157
Cause of Action: 28:0157 Motion for Withdrawal of Reference

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

GREG BRAUN, Chapter 11 Trustee, CASE NO. CV F 04-5474 LJO

Plaintiffs, ORDER ON MOTIONS IN LIMINE

(Docs. 74, 75, 77-81, 83-87.)

vs.

THOMAS O’BRIEN, et al.,

Defendants.

 /

INTRODUCTION

In this breach of fiduciary duty and related action, this Court conducted a February 24, 2006

hearing on the parties’ motions in limine. Plaintiff Greg Braun (“Mr. Braun”), plan agent for Chapter

11 debtor Coast Grain Company (“Coast Grain”), appeared by counsel Justin D. Harris, Walter Law

Group. Defendants Thomas O’Brien (“Mr. O’Brien”) and Dairy Feed Group (“DFG”) appeared by

William W. Woolman, Jory, Peterson, Watkins, Ross & Woolman. As discussed below, this Court

makes the following orders on the parties’ motions in limine.

BACKGROUND

Events Preceding Coast Grain’s Bankruptcy

On October 3, 2001, defendant DFG was incorporated as a nonprofit mutual benefit corporation

in California. On October 3, 2001, DFG acquired Coast Grain’s stock for $1 pursuant to a stock

purchase agreement. As of October 3, 2001, Mr. O’Brien became DFG’s secretary and treasurer. On

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This Court issued its February 17, 2006 order on the parties’ stipulation that Mr. Braun will not seek 1

damages relating to Agri-Systems to render Agri-Systems transactions irrelevant. At the February 24, 2006 hearing, the

parties reaffirmed as much.

This claim is moot based on the parties’ stipulation.

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October 4, 2001, Mr. O’Brien became chairman of Coast Grain’s board of directors and its secretarytreasurer. During October 10-15, 2001, Mr. O’Brien on Coast Grain’s behalf engaged in several

transactions, including signing in Agri-System’s favor a $2 million promissory note and deed of trust

and a security agreement. Mr. O’Brien for Coast Grain also signed a construction agreement with AgriSystems and authorized a $500,000 payment to Agri-Systems. In addition, Mr. O’Brien received

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$88,000 payments from Coast Grain.

On October 17, 2001, an involuntary Chapter 11 bankruptcy petition was filed against Coast

Grain. Subsequently, Mr. Braun was appointed the Chapter 11 trustee.

On November 15, 2001, Mr. O’Brien became Coast Grain’s president. On February 26, 2002,

Mr. O’Brien received a $65,000 payment from Coast Grain. On February 26, 2002, Mr. O’Brien

resigned as Coast Grain’s president effective March 4, 2002. On October 28, 2003, the bankruptcy court

confirmed Mr. Braun’s third amended Chapter 11 plan for Coast Grain and appointed Mr. Braun as plan

agent to implement the plan. Mr. Braun continues to serve as the plan agent. 

Mr. Braun’s Claims

On September 23, 2003, Mr. Braun filed against Mr. O’Brien and DFG (collectively

“defendants”) an adversary proceeding to allege that Mr. O’Brien attempted “to utilize DFG to claim

monies, control or other items from Coast Grain to the detriment of creditors, including persons to whom

O’Brien and DFG owed fiduciary duties.” More specifically, Mr. Braun’s complaint alleges that Mr.

O’Brien violated his fiduciary duties to Coast Grain by:

1. Authorizing and executing a $2 million note and deed of trust in Agri-Systems’ favor in

October 2001 without adequate investigation or proper corporate authority;2

2. Transferring without consideration valuable contracts between Miller Brewing Company

and Coast Grain to Thomas Maurer or an entity controlled by Thomas Maurer;

3. Entering into an employment agreement with Coast Grain and authorizing retention and

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severance payments on the eve of the involuntary bankruptcy petition with full

knowledge of Coast Grain’s insolvency and without proper corporate authority;

4. Receiving $78,000 as a retention payment on the eve of the involuntary bankruptcy

petition with full knowledge of Coast Grain’s insolvency and without proper corporate

authority;

5. Receiving $65,000 in severance payments from Coast Grain after the filing of the

involuntary bankruptcy petition without proper corporate authority or bankruptcy court

approval;

6. Authorizing $900,000 to Coast Grain employees after the filing of the involuntary

bankruptcy petition in disregard of bankruptcy requirements and without proper

corporate authority or bankruptcy court approval; and

7. Failing to observe bankruptcy laws and guidelines to manage Coast Grain after the filing

of the involuntary bankruptcy petition.

This Court issued its June 8, 2004 order to withdraw the adversary proceeding from the

bankruptcy court to become this action before this Court. Mr. Braun proceeds here on three remaining

causes of action.

As noted in the pretrial order, for his breach of fiduciary duties (first) cause of action, Mr. Braun

seeks from defendants approximately $158,245.50 for payments received by Mr. O’Brien. Mr. Braun

also seeks approximately $900,000 for retention payments made to employees at Mr. O’Brien’s request

without bankruptcy court approval and in derogation of his fiduciary duties to Coast Grain and its

creditors.

For his avoidable fraudulent transfers 11 U.S.C. §548 (third) cause of action, Mr. Braun seeks

to avoid payments to Mr. O’Brien of $78,000 and $10,000 and seeks repayment to the estate of those

amounts.

For his post-petition transfers 11 U.S.C. §549 (fourth) cause of action, Mr. Braun seeks

avoidance and repayment of the $65,000 payment to Mr. O’Brien, plus additional taxes paid on his

behalf in the amount of $5,245.50, for a total of $70,245.50.

This Court granted Mr. Braun summary judgment/adjudication as to his fifth cause of action to

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This opinion is moot based on the parties’ stipulation to exclude evidence regarding Agri-Systems

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transactions.

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determine that DFG has no ownership interest in Coast Grain de Mexico, an Mexican corporation. This

Court further granted Mr. Braun summary judgment/adjudication as to his sixth cause of action to

disallow DFG’s $873,300 claim in the Coast Grain bankruptcy to render moot Mr. Braun’s

recharacterization of DFG claim as equity (seventh) cause of action, which this Court dismissed.

DEFENDANTS’ MOTION IN LIMINE TO EXCLUDE

ATTORNEY EXPERT TESTIMONY

Defendants seek to exclude opinions/legal conclusions of Mr. Braun’s attorney expert Gerald

K. Smith (“Mr. Smith”) that Mr. O’Brien acted in bad faith or unreasonably or breached duties,

including the standard of care. Mr. Braun disclosed Mr. Smith as an expert who has experience in

“malpractice and disclosure/disqualification cases in the bankruptcy area.” Mr. Smith prepared a

November 16, 2005 preliminary expert report to summarize his opinions that:

1. Coast Grain’s $78,000 and $65,000 payments to Mr. O’Brien, absent full disclosure and

authorization by disinterested directors, may be recovered byMr. Braun based on breach

of the duty of loyalty;

2. Mr. O’Brien violated Bankruptcy Code provisions by paying himself $65,000 at the

commencement of Coast Grain’s bankruptcy case without bankruptcy court approval;

3. Mr. O’Brien is not entitled to compensation in the absence of a bankruptcy court order

to approve his employment;

4. Mr. O’Brien conducted an apparent inadequate investigation into the value of assets and

facts relevant to payments regarding Agri-Systems transactions to constitute a potential

breach of his duty of care to Coast Grain for which Mr. Braun may recover damages;3

and

5. Mr. O’Brien breached his duty of due care to Coast Grain by authorizing $900,000

payments to Coast Grain employees after commencement of its bankruptcy and without

bankruptcy court authorization, and Mr. Braun may recover such payments from Mr.

O’Brien without first attempting to recover the payments from the employees.

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Defendants did not depose Mr. Smith and characterize his opinions in his expert report as legal

conclusions that Mr. O’Brien breached duties and which address Mr. Braun’s potential recovery under

specific statutes and legal theories. Defendants contend that Mr. Smith is unable to opine as to

governing legal standards in that the California Corporation Code sets forth applicable law to establish

Mr. O’Brien’s duties. According to defendants, issues whether Mr. O’Brien acted in bad faith or

unreasonably or breached duties call for inadmissible legal conclusions. Defendants assert that Mr.

Smith’s testimony “should be limited to his opinions regarding principles of corporate governance and/or

practices.”

Mr. Braun responds that Mr. Smith is qualified to opine as to fiduciary duties of a corporate

officer and director before and during bankruptcy in that he has served as a trustee and has provided

expert testimony for bankruptcy estates. According to Mr. Braun, Mr. Smith “is in the best position to

assist the trier of fact in navigating the challenging worlds of fiduciary duties and bankruptcy” which

“are outside the common realm of experience and require specialized assistance.” Mr. Braun argues a

pretrial ruling would be premature in that defendants (and presumably this Court) do not know which

opinions Mr. Smith will offer at trial. Mr. Braun concludes that this Court “is simply without sufficient

information, based on Mr. Smith’s report, to make a determination that the opinions to be proffered at

trial would be inadmissible or are even legal conclusions.” 

At the hearing, the parties agreed that Mr. Smith may identify standards of care and obligations

applicable to a person in Mr. O’Brien’s position in Coast Grain.

Discussion

A qualified expert witness may testify “in the form of an opinion or otherwise” when “scientific,

technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to

determine a fact in issue.” F.R.Evid. 702. The requirement to “assist the trier of fact to understand the

evidence or to determine a fact in issue” goes “primarily to relevance.” Daubert v. Merrell Dow

Pharmaceuticals, Inc., 509 U.S. 579, 590, 113 S.Ct. 2786, 2795 (1993). Admissibility of opinion

testimony is directed to the trial court’s broad discretion and is reviewable only for abuse of discretion.

United States v. Henderson, 68 F.3d 323, 325 (9 Cir. 1995). th

F.R.Evid. 704 permits opinion testimony on ultimate issues and provides that “testimony in the

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form of an opinion or inference otherwise admissible is not objectionable because it embraces an

ultimate issue to be decided by the trier of fact.” Whether expert opinion is “otherwise admissible”

depends, in part, on whether it will “assist the trier of fact” to understand the evidence or to determine

a fact in issue. Burkhart v. Washington Metropolitan Area Transit Authority, 112 F.3d 1207, 1212,

(D.C. Cir. 1997); see F.R.Evid. 702. 

Expert legal conclusions (i.e., opinions on an ultimate issue of law) cannot properly assist the

trier of fact to understand the evidence or to determine a fact in issue and thus are not otherwise

admissible. Burkhart, 112 F.3d at 1212; see Mukhtar v. Cal. State Univ., Hayward, 299 F.3d 1053,

1066, n. 10 (9 Cir. 2002) (“an expert witness cannot give an opinion as to her legal conclusion”); th

Weston v. WMATA, 78 F.3d 682, 684 n. 4 (D.C. Cir. 1996) (“legal conclusions on domestic law . . . are

outside [an expert’s] area of expertise”); Torres v. County of Oakland, 758 F.2d 147, 150 (6 Cir. 1985) th

(expert testimony couched as a “legal conclusion” is “not helpful to the jury”). “When an expert

undertakes to tell the jury what result to reach, this does not aid the jury in making a decision, but rather

attempts to substitute the expert’s judgment for the jury’s.” United States v. Duncan, 42 F.3d 97, 101

(2 Cir. 1994) (italics in original). F.R.Evid. 704 does not permit “opinions which would merely tell nd

the jury what result to reach” or which are “phrased in terms of inadequately explored legal criteria.”

F.R.Evid. 704 Adv. Comm. Note; see Weston, 78 F.3d at 684, n. 4 (an expert cannot testify as to whether

“discrimination” occurred for Title VII purposes).

“Each courtroom comes equipped with a ‘legal expert’ called a judge, and it is his or her

province alone to instruct the jury on the relevant legal standards.” Burkhart, 112 F.3d at 1213;

Duncan, 42 F.3d at 101; Strong v. E.I. DuPont de Nemours Co., Inc., 667 F.2d 682, 685-686 (8 Cir. th

1981); CMI-Trading, Inc. v. Quantum Air, Inc., 98 F.3d 887, 890 (6 Cir. 1996) In general, witnesses th

are in no better position than the jury to draw a legal conclusion from the evidence. United States v.

Poschwatta, 829 F.2d 1477, 1483 (9 Cir. 1987). Use of legal terminology may be objectionable if the th

terms have a “separate, distinct and specialized meaning in the law different from that present in the

vernacular.” Torres v. County of Oakland, 758 F.2d 147, 151 (6 Cir. 1985); Burkhart v. Washington th

Metro. Area Transit Auth., 112 F.3d 1207, 1213 (D.C. Cir. 1997). 

The line between inadmissible legal conclusions and admissible assistance to the trier of fact to

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understand the evidence or to determine a fact in issue “is not always bright.” Burkhart, 112 F.3d at

1212. An “expert may offer his opinion as to facts that, if found, would support a conclusion that the

legal standard at issue was satisfied, but he may not testify as to whether the legal standard has been

satisfied.” Burkhart, 112 F.3d at 1207. The Advisory Notes to F.R.Evid. 704 (opinion on ultimate

issue) are helpful and note:

The abolition of the ultimate issue rule does not lower the bar so as to admit all

opinions. Under Rules 701 and 702, opinions must be helpful to the trier of fact, and

Rule 403 provides for exclusion of evidence which wastes time. These provisions afford

ample assurance against the admission of opinions which would merely tell the jury what

result to reach, somewhat in the manner of the oath-helpers of an earlier day. They also

stand ready to exclude opinions phrased in terms of inadequately explored legal criteria.

Thus the question, “Did T have capacity to made 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 allowed. McCormick, § 12.

In sum, Mr. Smith opines in his report that Mr. O’Brien breached the duty of loyalty and violated

the Bankruptcy Code by taking payments from Coast Grain and is not entitled to employment

compensation. Mr. Smith further opines that Mr. Braun may recover damages and inappropriate

payments from Mr. O’Brien. Based on his expert report alone, Mr. Smith does not appear to limit his

opinions as to facts that, if found, would support a conclusion that Mr. O’Brien breached duties. In his

report, Mr. Smith appears to opine that legal duties were breached and that Mr. Braun is entitled to

recover damages or improper payments made to or by Mr. O’Brien. Mr. Smith’s report appears to tell

the jury what result to reach and to include inadmissible legal conclusions. Nonetheless, this Court

recognizes that Mr. Smith, as an expert, is entitled to latitude to the extent his opinions benefit the jury

to explain and clarify transactions and Mr. O’Brien’s duties.

Order

This Court PERMITS Mr. Smith’s opinion testimony to the extent it benefits the jury to explain

and clarify transactions and Mr. O’Brien’s fiduciary duties at issue. This Court ADMONISHES Mr.

Braun’s counsel to use caution regarding Mr. Smith’s testimony on ultimate issues.

MR. BRAUN’S MOTION IN LIMINE NO. 1 TO EXCLUDE

MR. O’BRIEN’S EXPERT TESTIMONY

Mr. Braun seeks to exclude Mr. O’Brien’s expert testimony, including that on Coast Grain’s

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insolvency. Mr. O’Brien disclosed no expert witnesses and identified no expert witnesses in the joint

pretrial statement for inclusion in the pretrial order. The February 2, 2006 pretrial orders limits who may

testify:

Only witnesses listed in this pretrial order (including “rebuttal” and/or

“impeachment” witnesses) shall be allowed to testify at trial, except as may otherwise

be provided by this Court’s order after a showing of good cause, or by stipulation of the

parties and this Court’s order thereon.

Mr. Braun fears that defense counsel may attempt to elicit Mr. O’Brien’s opinion testimony on

Coast Grain’s insolvency. Mr. Braun notes that it disclosed an insolvency expert. Mr. Braun contends

that he has not been permitted to examine Mr. O’Brien regarding is qualifications or purported expert

opinions. Thus, without citing authority other than the pretrial order, Mr. Braun argues that Mr. O’Brien

is precluded to offer expert opinion on Coast Grain’s insolvency.

Defendants respond that Mr. O’Brien will offer “his opinions and understandings, to the extent

such are relevant to establishing the reasonableness of decisions he made at particular points [when] he

was involved with running Coast Grain Company. Defendants cannot predict, until Plaintiff presents

its case, which specific opinions Mr. O’Brien may seek to offer as justification for his state of mind and

actions/inactions.”

Discussion

F.R.Civ.P. 26(a)(2)(A) requires parties to disclose the identity of each expert witness to testify

at trial. F.R.Civ.P. 26(a)(2) “imposes an additional duty to disclose information regarding expert

testimony sufficiently in advance of trial that opposing parties have a reasonable opportunity to prepare

for effective cross examination and perhaps arrange for expert testimony from other witnesses.”

F.R.Civ.P. 26 Adv. Comm. Notes (1993 Amendments). 

F.R.Civ.P. 37(c)(1) addresses failure to disclose required information: “A party that without

substantial justification fails to disclose information required by Rule 26(a) . . . shall not, unless such

failure is harmless, be permitted to use as evidence at a trial . . . any witness or information not so

disclosed.” “Rule 37(c)(1) gives teeth . . . by forbidding the use at trial of any information required to

be disclosed by Rule 26(a) that is not properly disclosed.” Yeti by Molly Ltd. v. Deckers Outdoor Corp.,

259 F.3d 1101, 1106 (9 Cir 2001). “The power of the trial court to exclude exhibits and witnesses not th

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disclosed in compliance with discovery and pretrial orders is essential” to judicial management of the

case. Admiral Theatre Corp. v. Douglas Theatre Co., 585 F.2d 877, 897-898 (8 Cir. 1978); Sylla- th

Sawdon, 47 F.3d at 284. The Ninth Circuit Court of Appeals has upheld a district court ruling to

preclude an expert from testifying when the expert was not timely and properly disclosed. Jenkins v.

Whittaker Corp., 785 F.2d 720, 728 (9 Cir.), cert. denied, 479 U.S. 918, 107 S.Ct. 324 (1986). th

F.R.Civ.P. 16(f) and 37(b)(2)(B) “authorize district courts to prohibit the admission of evidence

proffered by the disobedient party.” Sylla-Sawdon v. Uniroyal Goodrich Tire Co., 47 F.3d 277, 284 (8th

Cir.), cert. denied, 516 U.S. 822, 116 S.Ct. 84 (1995); United States v. 68.94 Acres of Land, 918 F.2d

389, 396 (3 Cir. 1990); Smith v. Rowe, 761 F.2d 360, 366 (7 Cir. 1985). “The sanction of exclusion rd th

is thus automatic and mandatory unless the party to be sanctioned can show that its violation of Rule

26(a) was either justified or harmless.” Finley v. Marathon Oil Co., 75 F.3d 1225, 1230 (7 Cir. 1996); th

see Jones v. Lincoln Elec. Co., 188 F.3d 709, 728 (7 Cir. 1999), cert. denied, 529 U.S. 1067, 120 S.Ct. th

1673 (2000). “[I]t is the obligation of the party facing sanctions for belated disclosure to show that its

failure to comply with [F.R.Civ.P. 26] was either justified or harmless . . .” Wilson v. Bradless of New

Englanc, Inc., 250 F.3d 10, 21 (1 Cir. 2001). “Implicit in Rule 37(c)(1) is that the burden is on the party

st

facing sanctions to prove harmlessness.” Yeti, 259 F.3d at 1107.

Although Mr. O’Brien appears in the pretrial order as a lay witness, he was not disclosed and has

not been treated as an expert. Thus, attention turns to the scope of his lay opinion testimony.

F.R.Evid. 602 addresses witness personal knowledge and provides in pertinent part:

A witness may not testify to a matter unless evidence is introduced sufficient to

support a finding that the witness has personal knowledge of the matter. Evidence to

prove personal knowledge may, but need not, consist of the witness’ own testimony.

Lay witness testimony must be based on what he/she actually observed or perceived through his/her

senses, i.e., the witness must have first-hand knowledge acquired by directly perceiving the event that

is the subject of his/her testimony. See F.R.Evid. 602, Adv. Comm. Notes (1972); SEC v. Singer, 786

F.Supp. 1158, 1167 (S.D. N.Y. 1992). The party offering the evidence has the burden to show the

witness has personal knowledge. F.R.Evid. 602; United States v. Davis, 792 F.2d 1299, 1303 (5 Cir. th

1986). 

Under F.R.Evid. 701, laywitness testimony “in form of opinions or inferences is limited to those

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opinions or inferences which are (a) rationally based on the perception of the witness, (b) helpful to a

clear understanding of the witness’ testimony or the determination of a fact in issue, and (c) not based

on scientific, technical, or other specialized knowledge within the scope of Rule 702.” (Bold added.)

For lay opinion testimony to be admissible, the following must be present:

1. The witness must have personal knowledge of the matter forming the basis of his/her

opinion;

2. There must be a rational connection between the opinion and the facts upon which it is

based; 

3. The opinion or inference must be helpful to the trier of fact, either in understanding the

testimony or in determining a fact in issue;

4. The opinion may not be based on scientific, technical or other specialized knowledge.

2 Jones & Rosen, Federal Civil Trials and Evidence (2005) Opinion Testimony, para. 8:1412, p. 8F-8

and 8F-9.

Admissibility of opinion testimony is directed to the trial court’s broad discretion and is

reviewable only for abuse of discretion. United States v. Henderson, 68 F.3d 323, 325 (9 Cir. 1995). th

Mr. Braun broadly contends that Mr. O’Brien cannot offer opinion testimony on insolvency

because he was not disclosed as an expert. In his papers, Mr. Braun fails to address the scope of Mr.

O’Brien’s lay opinion testimony and to explain how the issue of insolvency in this context is reserved

for experts. Defendants do not help matters by failing to give a clue as to Mr. O’Brien’s potential

opinions, including any on insolvency. Clearly, Mr. O’Brien may provide his lay opinion if it meets

F.R.Evid. 701 requirements. To that end, Mr. O’Brien may testify as to his actions and his reasons for

them in his capacity as a lay percipient witness. Mr. O’Brien is precluded to give expert opinions,

including explanations of statutes and law and their applicability. 

Order

This Court PERMITS Mr. O’Brien to testify as to F.R.Evid. 701 lay opinion and his actions and

reasons for them in his capacity as a lay percipient witness. This Court PRECLUDES Mr. O’Brien’s

expert opinions, including explanations of statutes and law and their applicability.

/ / /

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MR. BRAUN’S UNOPPOSED MOTION IN LIMINE NO. 2 TO EXCLUDE

CONTENTIONS THAT MR. BRAUN SEEKS TO RECOVER

FOR COAST GRAIN CREDITORS

Mr. Braun seeks to exclude contentions that Mr. Braun seeks to recover for Coast Grain’s thirdparty creditors. Mr. Braun contends that he seeks damages caused by defendants’ breaches of fiduciary

duties owed to Coast Grain and which compromised Coast Grain’s ability to pay creditors. Mr. Braun

argues that such claims belong to the bankruptcy estate and that Mr. Braun has standing to pursue such

claims. Mr. Braun denies that he seeks to recover third-party creditors’ claims. Mr. Braun argues that

mischaracterization of Mr. Braun’s claims as third-party creditor claims “will have a prejudicial and

unnecessarily confusing and misleading effect on the jury, and will unfairly affect the entire trial.”

Defendants do not oppose the motion in limine.

Order

This Court EXCLUDES evidence or claims that Mr. Braun seeks to recover for Coast Grain

third-party creditors.

MR. BRAUN’S UNOPPOSED MOTION IN LIMINE NO. 3 TO PRECLUDE

ATTEMPTS TO DISPROVE UNDISPUTED FACTS

Mr. Braun seeks to preclude attempts to disprove the pretrial order’s 29 undisputed facts. Mr.

Braun notes that the parties “will therefore proceed to trial in reliance upon the belief that these

undisputed facts are established.” Mr. Braun argues that attempt to disprove or contradict an undisputed

fact would be unfair and misleading and would invoke irrelevant or unduly prejudicial matters.

Defendants do not dispute the motion in limine.

Mr. Braun seeks a blanket order and points to no particular undisputed fact subject to challenge.

Defendants appear to concede that the pretrial order supersedes the pleadings and is the operative

“pleading” for trial, including its undisputed facts.

Order

This Court PRECLUDES attempts to disprove the pretrial order’s undisputed facts and

ADMONISHES counsel that the pretrial order is the operative pleading for trial, including its undisputed

facts.

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MR. BRAUN’S MOTION IN LIMINE NO. 4 TO EXCLUDE

REFERENCE TO THE WARN ACT

Mr. Braun seeks to exclude reference to the Worker Adjustment and Retraining Notification Act

(“WARN Act”). Mr. Braun anticipates defendants will claim that the WARN Act required Mr. O’Brien

to authorize February 26, 2002 retention payments of $900,000 to Coast Grain employees. As such, Mr.

Braun expects defendants to argue that Mr. Braun can claim no damages for the payments.

The parties cite to WARN Act definitions and agree that the WARN act requires an “employer”

to provide a 60-day advance notice to employees prior to a “plant closing” or “mass layoff” that causes

an “employment loss.” Mr. Braun further notes that under the WARN Act, penalties may be imposed

on a qualified employer which fails to provide required notice. Citing to 29 U.S.C. § 2104(a)(1),

defendants note that if an employer fails to give the 60-day notice, an employer must pay employees that

which they would have earned had the notice been given. 

Mr. Braun contends that defendants have made no offer of proof in discovery responses or

otherwise to demonstrate WARN Act relevancy or application. Mr. Braun argues that the probative

value of WARN Act evidence is substantially outweighed by risk of prejudice, confusion and misleading

effect in that bankruptcy law required Mr. O’Brien to seek bankruptcy court approval prior to taking

actions “outside the ordinary course of business.” As to such bankruptcy law, Mr. Braun cites to 11

U.S.C. § 363(b)(1) which addresses administrative powers of trustees.

Defendants contend that the WARN Act is relevant to damages and the reasonableness of

defendants’ actions. Defendants note that Mr. O’Brien will testify that when the retention payments

were made, Coast Grain was neither liquidating nor winding up and that Mr. O’Brien understood the

retention payments would eliminate or reduce WARN Act obligations. At the hearing, defense counsel

argued defendants are entitled to an offset to the extent retention payments could be attributable to

WARN Act obligations.

Whether a bankrupt entity is subject to the WARN Act depends whether it is winding up or

continuing as a going concern. See In re United Healthcare System, Inc., 200 F.3d 170, 178 (3 Cir. rd

1999). Mere filing for bankruptcy “does not exempt an entity from the WARN Act.” United

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The WARN Act defines employer as a business enterprise that employs 100 or more employees, excluding

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part-time employees or 100 or more employees who in aggregate work at least 4,000 hours per week, exclusive of overtime.

29 U.S.C. § 2101(a)(1).

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Healthcare, 200 F.3d at 177. Determination whether a bankrupt entity qualifies as an “employer”4

subject to the WARN Act “depends in part on the nature and extent of the entity’s business and

commercial activities while in bankruptcy and not merely on whether the entity’s employees continue

to work ‘on a daily basis’”:

The more closely the entity’s activities resemble those of a business operating as a going

concern, the more likely it is that the entity is an “employer;” the more closely the

activities resemble those of a business winding up its affairs, the more likely it is the

entity is not subject to the WARN Act.

United Healthcare, 200 F.3d at 178 (non-profit health care services corporation was not an “employer”

subject to the WARN Act because it ceased operating its business as a going concern and prepared for

liquidation).

The parties fail to explain whether Coast Grain operated as a going concern or wound down at

the time of the employee payments, which appear to have been made near or shortly after the bankruptcy

filing. If Coast Grain was operated as a going concern, the WARN Act appears to contribute to Mr.

O’Brien’s defense for his actions. Mr. Braun seeks a broad exclusion of WARN Act reference but fails

specifically to substantiate irrelevance or undue prejudice of the WARN Act. Mr. Braun seeks a ruling

akin to summary adjudication that the WARN Act is inapplicable to the $900,000 payments at issue.

In the absence of stronger legal support, Mr. Braun fails to justify his requested broad exclusion.

Nonetheless, evidence on the WARN Act must be limited to address Mr. O’Brien’s actions and reasons

for them and otherwise comply with this Court’s order on Mr. Braun’s motion in limine number one.

Order

Based on defense counsel’s representation on limited use and purpose of potential WARN Act

evidence, this Court LIMITS WARN Act evidence to address Mr. O’Brien’s actions and reasons for

them and REQUIRES such evidence comply with this Court’s order on Mr. Braun’s motion in limine

number one. If WARN Act evidence exceeds the scope contemplated at the hearing, this Court

ORDERS counsel to address such evidence with the Court outside the jury’s presence.

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MR. BRAUN’S UNOPPOSED MOTION IN LIMINE NO. 5 TO EXCLUDE

EVIDENCE TO CONTRADICT COAST GRAIN BANKRUPTCY COURT RECORDS

Mr. Braun seeks to exclude evidence to contradict Coast Grain bankruptcy court records. Mr.

Braun claims that defendants refused to stipulate to disputed facts which are not subject to reasonable

dispute because they relate to whether the bankruptcy court made certain orders. Mr. Braun contends

that evidence which contradicts official bankruptcy court records would be unfair and misleading.

Defendants do not oppose the motion in limine to exclude evidence to contradict the “bankruptcy

court docket” but contend that Mr. Braun has the burden to establish the docket’s relevance to this

action. Defendants argue that Mr. Braun must establish lack of bankruptcy court approval for payments

to Mr. O’Brien and that the docket, without more, neither establishes whether bankruptcy court approval

was obtained nor prohibits Mr. O’Brien to raise an issue. Defendants do not dispute the accuracy of the

bankruptcy court docket.

Mr. Braun seeks a broad, not well defined exclusion. Mr. Braun notes that the bankruptcy court

docket approximates 350 pages. Defendants appear to limit the scope of the motion in limine to the

bankruptcy court docket, not records reflected in the docket. An order to exclude anything that

contradicts the bankruptcy court docket or records would be difficult to police and would presume

absolute accuracy of the records. Mr. Braun points to no practical effect of his requested order, and at

the hearing, his counsel acknowledged “no downside” to denial of the motion in limine.

ORDER

This Court DENIES Mr.Braun’s motion in limine to exclude evidence to contradict Coast Grain

bankruptcy records and ORDERS Mr. O’Brien, prior to trial, to review and become familiar with the

bankruptcy court docket to eliminate undue waste of time at trial when he is questioned about the docket.

MR. BRAUN’S UNOPPOSED MOTION IN LIMINE NO. 6 TO EXCLUDE

EVIDENCE OF RETALIATION AGAINST DEFENDANTS

Mr. Braun seeks to exclude evidence of retaliation against defendants. Mr. Braun claims that

defendants have asserted that Mr. Braun brings this action in bad faith and to retaliate against defendants

“for statements and/or actions made or undertaken against one or more members of the Coast Grain

unsecured creditors committee.” Mr. Braun further claims that this Court denied defendants’ request

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to belatedly attempt to include such assertion in the pretrial order. Mr. Braun argues that the assertion

is irrelevant, would greatly expand the trial’s scope and would be extremely prejudicial.

Defendants do not oppose the motion in limine.

Order

This Court EXCLUDES evidence of retaliation against defendants.

MR. BRAUN’S UNOPPOSED MOTION IN LIMINE NO. 7 TO EXCLUDE

PRIOR SETTLEMENT OFFERS

Mr. Braun contends that evidence of prior settlement offers is excluded under F.R.Evid. 408.

Defendants do not oppose the motion in limine.

Order

This Court EXCLUDES evidence of settlement offers and negotiations.

MR. BRAUN’S MOTION IN LIMINE NO. 8 TO EXCLUDE

CERTAIN DEFENSE EXHIBITS

Mr. Braun seeks to exclude as irrelevant the following defense exhibits of which no copies have

been provided to this Court:

Coast Grain’s W-2 Wage Form And Tax Statement 2002 (Bates stamped T00586)

Mr. Braun argues that the W-2 wage form provided by Coast Grain to Mr. O’Brien is irrelevant

because Undisputed Fact No. 24 provides: “On or about February 26, 2002, Mr. O’Brien received a

payment from Coast Grain in the amount of $65,000.” Mr. Braun further points to Undisputed Fact Nos.

25 and 29 that Mr. O’Brien never obtained bankruptcy court approval for the $65,000 payment or his

Coast Grain employment. 

Defendants intend to use the W-2 wage form to support their position that the payment was

salary.

The undisputed facts fail to indicate that the payment was salary. Mr. Braun points to no

irrelevancy of the W-2 wage form.

Order

This Court DENIES the motion in limine to exclude the W-2 wage form.

/ / /

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Riley C. Walter’s Declaration To Support Application For Payment

Of Fees And/Or Expenses

Mr. Braun contends that the declaration is irrelevant and incomplete and contains no information

pertinent to Mr. Braun’s remaining claims.

Defendants contend the declaration “is relevant to the Madera Mill, to the extent it is put at issue

at trial.”

Since the substance of the declaration is not at issue, the declaration is excluded.

Order

This Court GRANTS the motion in limine to exclude the declaration.

April 30, 2003 Trustee’s Disclosure Statement

Mr. Braun contends that the disclosure statement is irrelevant and was not approved by the

bankruptcy court.

Defendants contend the declaration “is relevant to the Madera Mill, to the extent it is put at issue

at trial.”

Since the substance of the disclosure statement is not at issue, the disclosure statement is

excluded.

Order

This Court GRANTS the motion in limine to exclude the disclosure statement.

Documents Regarding Coast Grain De Mexico

Mr. Braun contends that the following documents regarding Coast Grain de Mexico are irrelevant

in that this Court summarily adjudicated that DFG has no interest in Coast Grain de Mexico and no

claim in Coast Grain’s bankruptcy:

1. Declaration of Greg Braun in Support of Plaintiff’s Motion for Partial Summary

Judgment, dated November 18, 2005;

2. Joanne Mittwer’s January 5, 2005 e-mail to Mr. Braun and John Stellingwerf re Mexico

Money (Bates stamped TO00382-TO00383);

3. John Stellingwerf’s October 18, 2003 letter to Mr. Braun (Bates stamped CG225862);

4. John Stellingwerf’s October 2, 2002 letter to Sr. Murillo (Bates stamped CG271023);

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5. Coast Grain de Mexico Ordinary Shareholders’ Meeting – March 10, 2003 (Bates

stamped CG223993-CG224006);

6. Bruce Varner’s January 14, 2002 letter to Sr. Murillo (Bates stamped CG097745); and

7. Bill of Sale and Limited Release of Liability between Coast Grain de Mexico and Star

Milling Co., dated December 31, 2002 (Bates stamped CG223946).

Defendants do not oppose the motion in limine, except as to John Stellingwerf’s October 2, 2002

and October 18, 2003 letters. Defendants contend Mr. Stellingwerf’s letters are relevant to his

credibility, if he testifies.

To the extent the letters may be used for legitimate impeachment, they should not be excluded.

Order

This Court EXCLUDES the Coast Grain de Mexico documents, except Mr. Stellingwerf’s letters

which may be used for legitimate impeachment and credibility purposes if Mr. Stellingwerf testifies.

Coast Grain Co. Balance Sheet, Dated May 31, 2003

Mr. Braun contends that the balance sheet is irrelevant in that there are no claims which relate

to the time period subject to the unverified balance sheet, a hearsay document.

Unless needed for impeachment, defendants do not oppose the motion in limine as to the balance

sheet. 

Since defendants point to no impeachment use of the balance sheet, it is excluded.

Order

This Court EXCLUDES the balance sheet.

December 30, 2005 Fresno Bee Article Regarding Ethanol

Mr. Braun contends that the hearsay article is irrelevant and self-serving to justify retroactively

Mr. O’Brien’s actions when in control of Coast Grain.

Unless needed for impeachment, defendants do not oppose the motion in limine as to the article.

The article is hearsay. Since defendants point to no impeachment use of the article, it is

excluded.

Order

This Court EXCLUDES the article.

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MR. BRAUN’S UNOPPOSED MOTION IN LIMINE NO. 9 TO PRECLUDE

ATTEMPTS TO PROVE OR DISPROVE MATTERS

IRRELEVANT TO A LEGAL ISSUE IN THE PRETRIAL ORDER

Mr. Braun seeks to exclude what he characterizes as matters irrelevant to a legal issue in the

pretrial order. Mr. Braun notes that since the pretrial order supersedes the pleadings, the parties will

proceed to trial on reliance that the pretrial order’s Points of Law/Disputed Legal Issues are established

for trial and with the pretrial’s undisputed and disputed facts form the basis for jury determination. Mr.

Braun notes that attempt to alter or add to the pretrial order’s legal issues would be unfair, irrelevant

and/or prejudicial. 

Defendants do not oppose the motion in limine.

The pretrial order’s Points of Law/Disputed Legal Issues reference California Corporate sections,

Bankruptcy Code sections, and case citations to support Mr. Braun’s claims. The Points of

Law/Disputed Legal Issues reference defendants’ legal contentions that ERISA and the WARN Act

obligated Coast Grain to make employee retention payments and whether Mr. Braun has standing to

pursue breach of fiduciary duty claims based on events pre-dating Coast Grain’s bankruptcy filing.

Mr. Braun’s motion in limine is vague in that he seeks to preclude “any matter that attempts to

prove and/or disprove as a fact any matter which is irrelevant to an issue of law as set for[th] in the

Pretrial Order.” Like Mr. Braun’s Motion in Limine No. 3, this motion in limine seeks a blanket order

and points to no particular fact or legal issue subject to challenge. Defendants concede that the pretrial

order supersedes the pleadings and is the operative “pleading” for trial, including its undisputed facts

and legal issues. 

Order

This Court PRECLUDES addition or expansion of the pretrial order’s Points of Law/Disputed

Legal Issues and ADMONISHES counsel that the pretrial order is the operative pleading for trial,

including its undisputed facts and legal issues.

MR. BRAUN’S MOTION IN LIMINE NO. 10 TO EXCLUDE

REFERENCE TO ERISA

Mr. Braun seeks to exclude reference to the Employee Retirement Income and Security Act

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(“ERISA”). Mr. Braun anticipates that defendants will claim that ERISA required Mr. O’Brien to

authorize February 26, 2002 retention payments of $900,000 to Coast Grain employees. As such, Mr.

Braun expects defendants to argue that Mr. Braun can claim no damages for the payments.

Mr. Braun argues that defendants have made no offer of proof in discovery responses or

otherwise to demonstrate ERISA relevancy or application. Mr. Braun contends that the probative value

of ERISA evidence is substantially outweighed by the risk of prejudice, confusion and misleading effect

in that bankruptcy law required Mr. O’Brien to seek bankruptcy court approval prior to taking actions

“outside the ordinary course of business.” As to such bankruptcy law, Mr. Braun cites to 11 U.S.C. §

363(b)(1) which addresses administrative powers of trustees.

Defendants contend that ERISA is relevant to damages and the reasonableness of defendants’

actions. Defendants note the Mr. O’Brien will testify that the retention payments at issue would

eliminate or reduce Coast Grain’s ERISA obligations for severance pay. Defendants argue that because

Coast Grain was required to make severance paymentsto employees who received retention payments,

alleged damages regarding the retention payments should be reduced by amounts which Coast Grain was

required to pay employees pursuant to the ERISA severance plan.

If a pension plan is ERISA-qualified, the plan’s assets are excluded from the bankruptcy estate.

In re Sterns, 345 F.3d 1036, 1040 (9 Cir. 2003). th

At the hearing, defense counsel acknowledged that a legal question arises whether Mr. Braun’s

alleged damages regarding the retention payments are offset by amounts which Coast Grain was required

to pay employees pursuant to an ERISA severance plan. Defendants have not provided sufficient legal

authority for their position regarding ERISA application to the retention payments and such issue may

be subject to expert opinion on which defendants have disclosed no expert. Thus, similar to WARN Act

evidence, ERISA evidence must be limited to address Mr. O’Brien’s actions and reasons for them and

otherwise comply with this Court’s order on Mr. Braun’s motion in limine number one. 

Order

This Court LIMITS ERISA evidence to address Mr. O’Brien’s actions and reasons for them and

REQUIRES such evidence to comply with this Court’s order on Mr. Braun’s motion in limine number

one. If ERISA evidence exceeds the scope contemplated at the hearing, this Court ORDERS counsel

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to address such evidence with the Court outside the jury’s presence.

IT IS SO ORDERED.

Dated: February 24, 2006 /s/ Lawrence J. O'Neill 

66h44d UNITED STATES MAGISTRATE JUDGE

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