District judges have broad discretion in ruling on motions in limine. Id. However, in order
to exclude evidence on a motion in limine, the evidence must be inadmissible on all potential
grounds. Jd. Otherwise, rulings should be deferred to the time of trial to make possible the
resolution of questions of relevancy, foundation, and potential prejudice. /d. A ruling ona
motion in limine is not necessarily final. Trial judges are free to alter previous in limine
rulings, within the bounds of sound judicial discretion. Id.
III. DISCUSSION

Plaintiff has filed four motions in limine. Defendant has filed one motion in limine.
For the following reasons, the Court grants in part and denies in part Plaintiff's motion
number |; denies Plaintiff's motion number 2 subject to the disclosures by Defendant as
described below; grants Plaintiff's motions numbered 3 and 4; and denies Defendant’s
motion.
A. PLAINTIFF’S MOTIONS IN LIMINE

1, Defendant’s financial condition and its rehabilitation

On August 25, 2001, the Superintendent of Insurance of the State of New York filed
rehabilitation proceedings against Defendant in the Supreme Court of the State of New York.
Under New York law, the Superintendent may apply for an order to rehabilitate an insurer
who, for example, is insolvent or who is in such condition that its further transaction of
business would be hazardous to its policyholders, its creditors, or the public. N.Y. Ins.

§ 7402 (McKinney 2000). Plaintiff contends that evidence regarding Defendant’s financial



opportunity to disclose potential expert testimony as such and by allowing Plaintiffto prepare
its case. Since Mr. Moore is a former employee, he is not required to submit an expert
report; however, Defendant must disclose the areas in which it expects him to testify in order
to allow Plaintiff to properly prepare its case. Moreover, since David Campbell has not yet
been deposed, Defendant must make him available to be deposed by Plaintiff.

Plaintiffs motion in limine to bar expert testimony is denied subject to Defendant’s
disclosure of David Campbell as an expert, including an identification of the areas in which
he intends to testify, and making him available for a deposition by Plaintiff.

3. Third party’s failure to pay premium for bond

Plaintiff seeks to bar Defendant from presenting evidence that United Homes, the
principal under the Bond, failed to pay Defendant the premium for the Bond’s issuance.
Plaintiff maintains that such evidence should be barred under Federal Rule of Evidence 402
as irrelevant. Alternatively, Plaintiff argues that such evidence should be barred under
Federal Rule of Evidence 403 because it could confuse and mislead the jury regarding
Defendant’s alleged obligation to Plaintiff. The basis for Plaintiff's claim that such evidence
is irrelevant is that Defendant has heretofore never argued that it did not receive the premium
payment, Defendant has never argued that nonpayment of the premium rendered the bond
invalid or unenforceable, and Defendant has never argued that nonpayment of the premium

is an affirmative defense to its surety obligation.



Defendant’s rehabilitation during its deliberations. However, references to Defendant’s
financial status generally will not be permitted because it is irrelevant and unfairly prejudicial
under Federal Rules of Evidence 402 and 403. Therefore, Plaintiff's motion in limine to bar
references to Defendant’s financial status and rehabilitation is granted in part and denied in
part. The parties are to prepare agreed jury instructions to explain that the Defendant’s
rehabilitation is not to be considered on the issue of liability or damages.

2. Expert testimony

Plaintiff argues that Defendant should be barred from presenting any and all expert
testimony under Federal Rules of Evidence 702, 703, and 705 because Defendant has not
disclosed the identity of any intended expert witness or the experts’ reports as required under
Federal Rule of Civil Procedure 26(a)(2). Specifically, Plaintiff argues that Defendant
should be barred from presenting (1) testimony concerning the underwriting process, (2)
testimony concerning the various factors affecting underwriting risks, and (3) testimony that,
had Defendant been in possession of certain additional information, Defendant could have
made different decisions regarding the issuance of the Bond. Plaintiff maintains that this
testimony should be barred because such information is beyond the common knowledge of
a lay witness and can only be presented by someone possessing the knowledge, skill, and
experience of a bond underwriter.

Defendant does not dispute that there were no disclosures of expert witnesses during,

discovery under Federal Rule of Civil Procedure 26(a)(2). Rather, Defendant argues that the


condition or the fact that it is in rehabilitation is irrelevant to the issue of liability or damages
and thus should be barred pursuant to Federal Rule of Evidence 402. Alternatively, Plaintiff
argues that evidence of Defendant’s financial status is unfairly prejudicial because it appeals
to the sympathy of the jury and should be barred pursuant to Federal Rule of Evidence 403.

Inresponse, Defendant does not argue that references to its financial trouble generally
must be admitted. Moreover, Defendant conceded during oral argument that its rehabilitation
status is irrelevant to the issues of liability and damages. Nonetheless, Defendant maintains
that references to its rehabilitation are relevant and necessary in order to inform the jury of
the identity of the defendant in this case. According to Defendant, to do otherwise would be
to present a defendant that does not exist and to hold a fictitious entity liable. Defendant
maintains that the actual party in interest became “Gregory V. Serio as Rehabilitator of
Frontier Insurance Company in Rehabilitation” upon Defendant’s placement in rehabilitation.
In the alternative, Defendant suggests that the Court allow it to reference the rehabilitation,
and then give a jury instruction either explaining what a rehabilitation is or directing the jury
that it can not consider the rehabilitation in its deliberations.

During oral argument, Plaintiff stated that its interest in avoiding unfair prejudice by
the jury could be addressed by giving a limiting instruction informing the jury that
Defendant’s rehabilitation should not be considered in rendering a verdict. The alternative
suggestion by Defendant will be adopted regarding references to Defendant’s rehabilitation

subject to the parties offering limiting instructions that instruct the jury not to consider



was dismissed under summary judgment). Fact witnesses intended to give expert opinions
also must be disclosed as experts, although they need not submit an expert report. Musser,
365 F.3d at 756-57, 757-58. The purpose of this formal designation is to allow the opposing
party to prepare for trial by preparing countermeasures unique to expert testimony, such as
attempting to disqualify the expert testimony on grounds set forth in Daubert v. Merrell Dow
Pharmaceuticals, Inc., 509 U.S. 579 (1993), retaining rebuttal experts, and holding additional
depositions to retrieve the information not available because of the absence of areport. Id.
at 757-58.

Defendant did not designate David Campbell or James Moore as expert witnesses.
At the oral argument, it became clear that James Moore would not be called to provide any
expert testimony. However, the harsh penalty of precluding potential expert testimony by
Defendant is not necessary in order to prevent undue prejudice and surprise to Plaintiff.
Instead, this Court seeks to have the case decided on its merits. See Musser, 365 F.3d at 759.
Since the trial date is not until June, time remains for Defendant to supplement its responses
to interrogatories to include David Campbell as an expert. See Sherrod v. Lingle, 223 F.3d
605, 613 (7th Cir. 2000) (reversing the exclusion of medical testimony because a trial date
had not yet been set, it “appeared a long way off,” and there was thus “no harm” or “unfair
surprise” in allowing the testimony). The Court is not ruling at this time as to whether the
anticipated testimony is indeed expert opinion testimony. Rather the Court is attempting to

achieve a trial on the merits and to avoid prejudice to Plaintiff by giving Defendant the



Minute Order Form (06/97)

United States District Court, Northern District of Illinois

\f d Jud Sitting Judge if Oth
Nae eal ate judge Ronald A. Guzman than assigned Sudee Morton Denlow
CASE NUMBER 01 C2785 DATE 4/21/2004
CASE Mountain Funding, Inc. vs. Frontier Insurance Co.
TITLE

[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

of the motion being presented.]

eu)

MOTION:

DOCKET ENTRY:

(1) Qa Filed motion of [ use listing in “Motion” box above.]

(2) QO Brief in support of motion due

@) oO Answer brief to motion due___. Reply to answer brief due___

(4) o Ruling/Hearingon____—ssetfor_—at__

(5) Q Status hearing[held/continued to] [set for/re-set for]on___setfor__—_at

(6) oO Pretrial conference[held/continued to] set for/re-set for]on__setfor___—at__

7) a Trial[set for/re-set for]on__at

(8) o {Bench/Jury trial] [Hearing] held/continued to___at

(9) Oo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
CFRCP4(m) O Local Rule 41.1 OOFRCP41(a)(1) O FRCP41(a)(2).

qo) of [Other docket entry] | Enter Memorandum Opinion and Order. All matters relating to the referral

of this action having been resolved, the case is retumed to the assigned judge.

[For further detail see order attached to the original minute order.]

No notices required, advised in open court.

No notices required.

umber of notices

Notices mailed by judge’s staff.
Notified counsel by telephone. AP R2 22004

Docketing to mail notices.

Mail AO 450 form,

Copy to judge/magistrate judge.

date mailed notice
courtroom

DK deputy’s
initials

Date/time received in
central Clerk's Office“ trailing depuyinitas



B. DEFENDANT’S MOTION IN LIMINE

Defendant seeks to bar for use at trial as a calculation of damages any testimony,
reference, or argument to amounts of money unpaid to Plaintiff under the 1997 United Round
Lake Loan. Defendant argues that such testimony or argument is irrelevant and prejudicial.
Defendant maintains that the bonded agreement between the parties to this lawsuit is the
1999 Lot Purchase Agreement between United Homes and United Round Lake, not the 1997
United Round Lake Loan between United Round Lake and Plaintiff. Defendant does not
object to references to the loan, or the fact that United Round Lake defaulted, for purposes
of laying foundation or as history of the transactions that are the subject of this lawsuit.
However, Defendant maintains that the 1997 United Round Lake Loan is irrelevant to the
calculation of damages. The Court agrees.

Therefore, Plaintiff is permitted to present evidence showing that it was foreseeable
that a default under the United Round Lake loan would be a consequence of a breach under
the Bond. However, Plaintiff may only offer evidence that damages flow from a breach
under the restructured loan to United Round Lake in 1999, and not under the original United
Round Lake loan made in 1997. For the foregoing reasons, Defendant’s motion in limine is

denied.

11



Although Defendant did not raise non-payment as a defense in its Answer or in its
Response to Plaintiff's Motion for Summary Judgment, Defendant now argues in its
Response to Plaintiffs Motions in Limine that Plaintiff bears the burden of proving that the
Bond is a valid contract, including the burden of proving there was valid consideration for
Defendant’s surety obligation.

Any argument that Plaintiff failed to give valid consideration for the Bond was not
raised by Defendant in its Answer, in its Response to Plaintiff's Motion for Summary
Judgment, or as a contested issue of law or fact in the final Pre-Trial Order. During oral
argument, Defendant requested leave to amend the Pre-Trial Order. However, Defendant has
had several opportunities to raise this defense. It would be unfair to Plaintiff to allow
Defendant to raise this issue so late in the game. Thus, Plaintiff's motion in limine to bar
testimony regarding non-payment for the Bond is granted.

4. Defendant’s fourth affirmative defense

Plaintiff seeks to bar Defendant from presenting evidence relating to its fourth
affirmative defense at trial due to its failure to produce requested discovery on the matter.
During oral argument, Defendant indicated that it has waived this defense. Therefore,
Plaintiff's motion in limine to bar evidence concerning Defendant’s fourth affirmative
defense is granted. The fourth affirmative defense claimed that Plaintiff's claims are barred

because Plaintiff failed to perform its material obligations under the underlying agreement.

10



anticipated testimony is fact-based occurrence witness testimony. According to Defendant,
David Campbell and James Moore, individuals who participated in the decision to issue the
Bond, will testify regarding the actual processes, criteria, and standards they employed in
issuing the Bond, as well as the actual information they received from United Homes. In
addition, Defendant intends to elicit testimony from David Campbell that had he known of
the alleged collaboration between United Homes, United Round Lake, and Plaintiff,
Defendant would not have issued the Bond.

Under Federal Rule of Civil Procedure 37(c), if the Defendant was not substantially
justified in failing to disclose expert witnesses required by Rule 26(a), and the failure to
disclose was not harmless, the Court may impose sanctions. Ortiz-Lopez v. Sociedad
Espanola de Auxilio Mutuo Beneficiencia de Puerto Rico, 248 F.3d 29, 33 (1st Cir. 2001).
The Court has wide latitude to impose a range of sanctions from moderate (limited exclusion
of evidence and attorney’s fees) to harsh (total exclusion of testimony and dismissal of the
case). Fed. R. Civ. P. 37(c); Fed. R. Civ. P. 37(b)(2). Indeed, the barring of testimony as
a sanction for failure to comply with discovery rules has caused cases to be dismissed under
either summary judgment or for failure to state a claim upon which relief can be granted.
Ortiz-Lopez, 248 F.3d at 34, 36 (expert witness barred from testifying due to party’s deficient
disclosures and egregious disregard of discovery rules and thus opposing party’s motion to
dismiss was granted); Musser v. Gentiva Health Servs., 365 F.3d 751 (7th Cir. 2004) (expert

opinion testimony precluded because witnesses were not disclosed as experts and thus case


Under the 1999 Lot Purchase Agreement, expected payments by United Homes to
United Round Lake would have been sufficient to pay off Plaintiff and the senior lender,
Cole Taylor Bank. However, in September 1999, United Homes defaulted under the 1999
Lot Purchase Agreement. In September 1999, February 2000, March 2000, and July 2000,
Mountain Funding notified Frontier of the default and made its claim under the Bond.
Frontier has never paid Plaintiff any money under the Bond. On March 9, 2000, United
Homes filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code.

In July 2000, Plaintiff informed Defendant that it was attempting to mitigate its losses
by allowing United Round Lake to negotiate agreements with other purchasers. In
September, August, and December of 2000, United Round Lake was able to sell the
remaining 454 bonded lots under the 1999 Lot Purchase Agreement to other parties in three
separate transactions for a total of $13,648,510.00.

Plaintiff is seeking $5,708,333.32 under the Bond plus interest pursuant to the failure
of United Homes or Defendant to purchase the bonded lots under the 1999 Lot Purchase
Agreement. Alternatively, Plaintiff is seeking $2,242,920.61 — the difference between the
amount owed by United Homes under the bonded 1999 Lot Purchase Agreement and the
actual amount received from third parties for the 414 bonded lots not sold to United Homes.

Il. LEGAL STANDARD

A district court’s authority to rule on motions in limine is pursuant to its inherent

authority to manage trials, even though such rulings are not explicitly authorized by the

Federal Rules of Evidence. Townsend v. Benya, 287 F. Supp. 2d 868, 871 (N.D. Ill. 2003).



United Homes, Inc. (“United Homes”), the actual homebuilder, pursuant to a lot purchase
agreement (the “1997 Lot Purchase Agreement”). Plaintiff agreed to subordinate its loan to
Cole Taylor Bank, the site improvement lender.

In February 1999, United Round Lake was in default of its obligation to Plaintiff. In
lieu of foreclosing on the 1997 United Round Lake Loan, Plaintiff agreed to a restructuring
of the loan agreement. In order to facilitate the restructuring, on February 9, 1999, anew lot
purchase agreement (the “1999 Lot Purchase Agreement”) was entered into between United
Homes and United Round Lake whereby United Homes agreed to purchase the lots specified
therein on a certain timetable and at a certain price.

Additionally, as part of the restructuring, United Homes was required to procure a
land acquisition bond. United Homes procured the land acquisition bond (the “Bond”) on
May 4, 1999 through Frontier Insurance Company (“Defendant” or “Frontier”). Defendant
was the surety for the Bond, United Homes was the principal for the Bond, and United
Round Lake was the obligee. Later, Plaintiff was added as an additional obligee because it
was the funding source and the Bond was intended to protect it in the event United Homes
defaulted under its obligations. The Bond indicated that in the event United Homes failed
to perform its obligations under the 1999 Lot Purchase Agreement, Defendant “guarantees
performance by United Homes, Inc. pursuant to the Agreement until such time as all lots
have been purchased, however, the Surety’s liability under this bond shall inno event exceed

$5,000,000.”


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
MOUNTAIN FUNDING, INC., )
)
Plaintiff, ) Case No. 01 C 2785
)
v. )
)
FRONTIER INSURANCE CoO., ) Magistrate Judge Morton Denlow
)
Defendant. )

MEMORANDUM OPINION AND ORDER

The parties have completed discovery, filed their final pretrial order, and are preparing
for trial. This matter comes before the Court on motions in limine filed by the parties in
preparation for trial. These motions were referred by District Judge Ronald A. Guzman for
resolution. This Court held oral arguments on the motions on April 12, 2004 and announced
the rulings from the bench. This memorandum opinion provides additional explanations for
the Court’s rulings. Uy

4Pp fy v7)
I. BACKGROUND FACTS 22 2
Cbg

On or about September 30, 1997, Mountain Funding, Inc. (“Plaintiff”) provided $3.8
million in subordinated financing to United Round Lake Land Development, LLC (“United
Round Lake”) for the development of single and multi-family homes in Lake County,

Illinois. This loan between United Round Lake and Plaintiff (the “1997 United Round Lake

Loan’) was secured by a first mortgage lien on the property. United Round Lake purchased

the land upon which the homes were to be developed and was to sell the individual lots to


IV. CONCLUSION

This Memorandum Opinion explains in greater detail the rulings entered following

oral argument on April 12, 2004.

SO ORDERED THIS 21st DAY OF APRIL, 2004.

Copies mailed to:

Howard L. Teplinsky

Seidler & McErlean

One North Wacker Drive, Suite 4125
Chicago, IL 60606

Counsel for Plaintiff

Wort S2o,Se

MORTON DENLOW
UNITED STATES MAGISTRATE JUDGE

12

Cornelius F, Riordan

Michael Palermo, Jr.

Riordan, Dashiell & Donnelly, Ltd.
10 N. Dearborn Street, Fourth Floor
Chicago, Illinois 60602

Counsel for Defendant