KPMG’S FOURTH MOTION IN LIMINE

KPMG’s fourth motion in limine seeks to bar Sabratek from introducing KPMG’s
internal audit manuals and guidelines into evidence or otherwise referring to those
materials at trial. KPMG argues that its internal audit manuals are irrelevant, as
Generally Accepted Accounting Standards (“GAAS”) are what determine the duties
and standards of care at issue.

However, KPMG?’s internal standards and procedures could have potential
relevance as to Sabratek’s negligence claims. In particular, they could shed light on
KPMG’s knowledge of applicable accounting standards and whether the result of its
conduct was foreseeable. In addition, these manuals could be used as potential
impeachment evidence. For these reasons, this motion is denied.

KPMG’S FIFTH MOTION IN LIMINE

KPMG’s fifth motion in limine seeks to bar Sabratek from presenting “evidence
regarding, or referring in argument to, auditing and financial reporting irregularities
recently reported in the media, such as those relating to Enron and Arthur Andersen,
and to any allegations against KPMG involving different clients.” KPMG is correct
that the improper conduct of other firms, such as Arthur Andersen, has little, if any
relevance to KPMG’s conduct at issue in the present case. The probative value of

references to the accounting scandals of the past few years is substantially outweighed

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a. Undisputed Requests
KPMG does not object to the barring of the following categories of evidence,
provided that their exclusion apply equally to both parties. Therefore, Sabratek’s
motion to exclude the following categories of evidence is granted, provided that
Sabratek reciprocally refrains from introducing such evidence:
(1) Any reference to the personal beliefs or opinions of counsel (Request 6).
(2) Any reference to any mediation of this case, or to any statements or conduct
in connection with any mediation of this case (Request 8).
(3) Any questions addressed to parties’ counsel in front of the jury (Request 9).
(4) Any request or question to parties’ counsel to stipulate to either the
admissibility of any evidence or to any facts or matters in front of the jury
(Request 10).
(5) Any reference to whether or not parties’ counsel has declined to stipulate to
any facts or have declined to agree to anything at all (Request 11).
(6) Any reference or questions to jurors during voir dire in an attempt to commit
jurors to the weight they would give certain evidence (Request 13).
(7) Any references to the fact that parties or their counsel have conducted or are

conducting jury research in connection with this case (Request 14).



this nature will be deferred until trial and ruled on in accordance with the Federal Rules
of Evidence.

Sabratek’s Twenty-Second Request seeks to preclude “any reference to or
presentation of testimony or statements of any kind, including but not limited to,
deposition testimony, of any person, whether as a fact witness or as an expert witness,
who has not previously been designated by KPMG in response to interrogatories.”
This request is denied, as evidence and witness testimony will only be allowed in
accordance with the Final Pretrial Order and the Federal Rules of Evidence.

Sabratek’s Twenty-Fifth Request seeks to preclude “any reference that Sabratek
LLC is a successor to Sabratek Corporation.” It has already been established that
Sabratek LLC “is the successor in interest to Sabratek Corporation,” Sabratek

Liquidating LLC v. KPMG LLP, 2002 WL 774185, *1 (N.D. Ill. 2002). While this

fact certainly is of legal relevance, as it allows Sabratek LLC to assert the claims of
Sabratek Corp., it is not a fact that is relevant to the jury’s evaluation of the underlying
claims at issue. For this reason, it is inadmissable pursuant to Federal Rules of
Evidence 401 and 402, and Sabratek’s request is granted.
SABRATEK’S FIFTH AMENDMENT MOTION IN LIMINE

Sabratek has also filed a motion in limine seeking to exclude any reference

before the jury that five former senior officers of Sabratek Corp. (“Former Officers’’)

-9-


Sabratek’s Second Request seeks to preclude “testimony by any witness, live or
by deposition, not timely identified in answers to interrogatories propounded by
Sabratek LLC.” This request is denied, as witness testimony will be allowed only in
accordance with the Final Pretrial Order.

Sabratek’s Third Request seeks to preclude “any argument or insinuation
concerning a witness not called by Sabratek LLC but equally available to KPMG,
including suggestions that (i) Sabratek LLC should have called such witness,
(ii) Sabratek would have called such witness if such testimony would have helped
Sabratek LLC, or (iii) the testimony of any witness would have been unfavorable to
Sabratek LLC or favorable to KPMG.” This request is denied, without prejudice, but
may be resubmitted at trial, when it can be resolved in fuller context.

Sabratek’s Fourth Request seeks to preclude “any opinion testimony (i) by a
witness not timely designated and qualified by KPMG as an expert, or (ii) not
described in answer to Sabratek LLC’s interrogatories.” As to Sabratek’s request
concerning non-expert witnesses, Federal Rule of Evidence 701 allows lay opinion
testimony in certain circumstances and “[t]he admissibility of lay opinion testimony
... cannot be determined until a sufficient foundation is laid at trial.” U.S, v. Gust K,
Newberg Construction Co., 1995 WL 383133, *2 (N.D. Ill. 1995). For this reason, the

first part of this request is denied. As for the request concerning experts, the request

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(8) Any reference to evidence of the conduct or action of parties’ counsel in
unrelated matters or other litigation involving parties’ counsel (Request 15).
(9) Any request by parties’ counsel, in the presence of the jury, that counsel for
the opposing party produce documents or items of any type, stipulate to any
facts, or make any sort of agreement (Request 18).
(10) Any reference to discovery disputes between parties and any documents
or items subject to any discovery dispute between parties (Request 21).
(11) Any reference to or disclosure of the fact that parties’ instant motions have
been presented to or ruled on by this court. In addition, parties are instructed not
to state or in any way suggest to the jury, by argument or otherwise, that parties
have sought to exclude from evidence any matter bearing on the issues in this
case or the rights of the parties to this lawsuit (Request 23).
(12) Any reference to the financial conditions of the parties (Request 25).
b. Disputed Requests
Sabratek’s First Request seeks to preclude “any evidence which would tend to
inform the jury of the effect of their answers to any jury instructions.” This request is
denied, as parties’ counsel will be entitled to make arguments consistent with this

court’s instructions concerning jury interrogatories.


of Civil Procedure 37, not a motion in limine, is the appropriate vehicle for excluding

evidence that was improperly not produced in discovery. Nichols v. City of Chicago,
1992 WL 92177, *3 (N.D. Il. 1992).

Sabratek’s Seventeenth Request seeks to preclude “any evidence which tends
to controvert or dispute matters deemed admitted by KPMG in response to Sabratek
LLC’s discovery requests.” Because Sabratek seeks to exclude potentially relevant
evidence with this extremely broad request, it must be denied. More specific requests
of this sort should be deferred until trial.

Sabratek’s Nineteenth Request seeks to preclude “any disclosure of the fact that
Sabratek has not called to testify any witness equally available to both parties in this
case and that counsel for KPMG be instructed not to tender, read from, or refer to any
ex parte statement or report of any person not then and there present in court to testify
and available for cross-examination by counsel for Sabratek LLC.” This request is
denied as it seeks to preclude evidence potentially admissible under, inter alia, Federal
Rules of Evidence 612, 703, and 803.

Sabratek’s Twentieth Request seeks to preclude “any reference to or disclosure
to the jury in argument or otherwise, the contents of any exhibit which has not been
admitted into evidence or which has been expressly excluded from evidence by the

Court.” This request is denied as vague and overly broad. More specific requests of

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Minute Order Form (0697)

United States District Court, Northern District of Minois

Name of Assigned Judge ing Judge if Other
i Magistrate Sudge Charles P. Kocoras “Than assigned Judge
CASE NUMBER 01 C 9582 DATE 11/18/2003
CASE Sabratek Liquidating vs. KPMG
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}

qi.)

MOTION:

DOCKET ENTRY:

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

(2) o Brief in support of motion due

(3) Oo Answer brief to motion due___. Reply to answer brief due

(4) a Ruling/Hearingon_—ssetfor_ at

(5) Oo Status hearing[held/continued to] [set for/re-set for]on set for at

(6) Oo Pretrial conference[held/continued to] [set for/re-set for]on___—_setfor__at_

(7) o Trial[set for/re-set for]on___at

(8) oO [Bench/Jury trial] [Hearing] held/continued to__at

(9) o This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OOFRCP4(m) OlLocal Rule 41.1 OFRCP4i(a)(1) OO FRCP4i(a)(2).

ao ff {Other docket entry} ENTER MEMORANDUM OPINION: Parties’ motions in limine (Docs

78-1, 79-1, 83-1, 84-1, 85-1, 86-1, 87-1, 88-1 and 89-1) are granted in part and denied in part.

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

No notices required, advised in open court,

No notices required,
a number of notices

Notices mailed by judge’s staff,

NOV 18 2003

Notified counsel by telephone, ante docket

Docketing to mail notices.

Mail AO 450 form.

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Owsley’s opinions are irrelevant, and that his qualifications and his proposed
testimony’s principles and methods do not satisfy Federal Rule of Evidence 702.
Sabratek counters that Owsley is well qualified as an expert and that his testimony is
relevant as to the application of the business judgment rule.

This motion is denied, without prejudice, It may be resubmitted at trial, where
we will entertain brief oral argument. Questions concerning the relevancy of and
qualifications behind Owsley’s testimony can be resolved in a more appropriate
context.

KPMG’S SECOND MOTION IN LIMINE

KPMG’s second motion in limine seeks to bar Sabratek LLC from asserting that
Sabratek Corp. lacked knowledge of facts known to Sabratek’s Corp.’s officers and
directors. In support of this motion KPMG cites various cases which cumulatively
stand for the proposition that the knowledge of officers and agents of a corporation are
imputed to the corporation when the knowledge is acquired on the corporation’s behalf.
While Sabratek does not seem to disagree with this notion, they strongly dispute that
certain officers and directors were acting on Sabratek Corp.’s behalf. Instead, Sabratek
claims that these officers were acting for their own benefit and to the detriment of
Sabratek Corp. Because KPMG’s argument hinges on questions that will not be

answered until trial, this motion is denied.

-11-


have invoked their Fifth Amendment rights against self-incrimination during their
depositions in this case. Sabratek claims that any evidence concerning the Former
Officers’ invocation of their Fifth Amendment rights should be excluded as either
irrelevant or unfairly prejudicial, pursuant to Federal Rules of Evidence 402 and 403.
KPMG counters that evidence relating to the Former Officers’ conduct is relevant as
to Sabratek’s claims and KPMG’s affirmative defenses. Both parties cite relevant case
law in support of their positions.

As aresult of this dispute over the validity of Sabratek’s motion, this court will
deny it, without prejudice, allowing Sabratek to resubmit it at trial. This is because
“only evidence that is clearly inadmissible for any purpose should be excluded
pursuant to a motion in limine.” Tzoumis, 168 F. Supp.2d at 874 (emphasis added).
Since valid arguments can be made for and against excluding the Fifth Amendment
invocations of the Former Officers, our ultimate decision will be deferred until trial
where “questions of foundation, relevancy and potential prejudice may be resolved in
the proper context.” Hawthorne Partners, 831 F. Supp. at 1400.

KPMG’S FIRST MOTION IN LIMINE

KPMG moves to limit the testimony of Henry F. Owsley, one of Sabratek’s

expert witnesses, so as to preclude him from offering testimony about reasonably

prudent directors as well as the quality of KPMG’s audit work. KPMG asserts that

-10-



is denied, as expert testimony will be allowed only in accordance with the Final Pretrial
Order.

Sabratek’s Fifth Request seeks to preclude “any reference to the outcome of
other litigation in which Sabratek or any entity in which it was or is associated has been
a party.” This request is denied as overly broad, as evidence of this nature could be
potentially admissible under Federal Rule of Evidence 404(b).

Sabratek’s Seventh Request seeks to preclude “any question inquiring about
alleged conduct or alleged transactions the occurrence of which KPMG does not have
a good faith expectation of being able to establish with admissible evidence.” This
request is denied as being too vague as it does not point to any specific category of

evidence.

Sabratek’s Twelfth Request seeks to preclude “any reference to the contents of
any of Sabratek LLC’s pleadings which have been superseded by current pleadings on
file in this case.” This request is denied as superceded pleadings are evidentiary
admissions that may be admitted at trial. Old Republic Ins. v. Employers Reinsurance
Corp., 1996 WL 238736, *3 (N.D. Ill. 1996).

Sabratek’s Sixteenth Request seeks to preclude “all documents not produced by
KPMG which would have been responsive to Sabratek LLC’s request for production

of documents or to any subpoena duces tecum.” This request is denied as Federal Rule

7.


limine only when that evidence is clearly inadmissible on all potential grounds.

Hawthorne Partners v. AT & T Technologies, Inc., 831 F. Supp. 1398, 1400 (N.D. Iil.

1993). A district court should be mindful that some proposed evidentiary submissions
cannot be accurately evaluated in a pretrial context via a motion in limine. Tzoumis
v. Tempel Steel Co., 168 F. Supp.2d 871, 873 (N.D. Mil. 2001). For this reason, certain
evidentiary rulings should be deferred to trial so that questions of foundation,
relevancy, and potential prejudice may be resolved in proper context. Hawthorne

Partners at 1400. Denial of a motion in limine does not automatically mean that all

evidence contemplated by the motion will be admitted at trial. Id. at 1401. Instead, the
court will entertain objections to individual proffers as they occur at trial. Id. In any
event “the district judge is free, in the exercise of sound judicial discretion, to alter a
previous in limine ruling.” Luce v. U.S., 469 U.S. 38, 41-42 (1984)
DISCUSSION

Sabratek has filed two motions in limine, while KPMG has filed seven.
SABRATEK’S OMNIBUS MOTION IN LIMINE

Sabratek has filed an omnibus motion in limine, consisting of twenty-five

requests regarding, for the most part, general trial matters.


by the risk of unfair prejudice that could be given to such evidence by the jury. For
this reason, pursuant to Federal Rule of Evidence 403, if Sabratek wishes to allude to
improper accounting practices by parties other than KPMG, it must first request
permission from the court.

KPMG also requests this court to bar references to any allegations involving
KPMG and other clients. However, references to prior bad acts are allowed in certain
circumstances pursuant to Federal Rule of Evidence 404(b). Because of the potential
admissibility of evidence relating to KPMG’s conduct vis-a-vis other clients, this
aspect of KPMG’s fifth motion in limine is denied.

KPMG’S SIXTH MOTION IN LIMINE

KPMG’s sixth motion in limine seeks to bar Sabratek from presenting evidence
regarding, or referring to KPMG’s size, geographic scope, annual earnings, net worth,
or insurance coverage. Sabratek responds that it does not intend to offer evidence
concerning KPMG’s annual earnings, net worth, or insurance coverage. Based on its
representations, if Sabratek wishes to present evidence of this sort, it must first request
permission from this court. As to KPMG’s request concerning evidence about its size
and geographic scope, such evidence is potentially relevant to issues relating to
KPMG’s accounting and auditing expertise. For this reason, this request is denied

pending trial, when specific objections can be made in a more appropriate context.

-14-



2001 WL 1163728 (N.D. Ill. 2000); Chu v. Sabratek Corp., 100 F. Supp.2d 815 (N.D.
Ill. 2000); Chu v. Sabratek Corp., 100 F. Supp.2d 827 (N.D. Ill. 2000), For purposes
of brevity, we reiterate only the facts that pertain to the present motion.

KPMG is an auditing and accounting firm that provided various accounting,
auditing, and consulting services for Sabratek Corp. from 1997 to 1999. Sabratek LLC
alleges that in the course of providing these services, KPMG concocted schemes to
allow Sabratek Corp. to manipulate its earnings and improve the appearance of its
balance sheet. When Sabratek Corp.’s true financial state was eventually revealed (to
the tune of an earnings deficiency of around $39 million), it filed for bankruptcy
protection and the lawsuits ensued.

In December 2001 Sabratek LLC, asserting the claims of Sabratek Corp., filed
the present action against KPMG, alleging negligence, negligent misrepresentation,
breach of contract, and fraud. The fraud claims have been dismissed by this court,
Sabratek Liquidating LLC v. KPMG LLP, 2002 WL 774185 (N.D. Ill. 2002), and the
remaining claims are awaiting trial. The parties now file various motions in limine.

LEGAL STANDARD

A federal district court’s authority to manage trials includes the power to exclude

evidence pursuant to motions in limine. Falk v. Kimberly Services, Inc., 1997 WL

201568, *1 (N.D. Ill. 1997). However, a court has the power to exclude evidence in

2-



UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
SABRATEK LIQUIDATING LLC, ) BOCKETED
_ ) NOV i 8 2008

Plaintiff, )

)

vs. )  o1cgse2

)

KPMG LLP, )

)

Defendant. )

MEMORANDUM OPINION

CHARLES P. KOCORAS, Chief District Judge:

Before the court are two motions in limine brought by Plaintiff Sabratek
Liquidating LLC (“Sabratek” or “Sabratek LLC”) and seven motions in limine brought
by Defendant KPMG LLP (“KPMG”). For the reasons set forth below, the parties’
motions are granted in part and denied in part.

BACKGROUND

Sabratek LLC is a limited liability corporation formed under Delaware law. It
is the successor in interest to Sabratek Corp., a manufacturer of healthcare products
which filed for Chapter 11 bankruptcy protection in Delaware in December 1999.
Sabratek Corp.’s pre-bankruptcy conduct has spawned several suits and opinions prior

to this one, which detail the story of Sabratek Corp.’s demise. See Geinko v. Padda,

\04


KPMG’S THIRD MOTION IN LIMINE
KPMG’: third motion in limine seeks to bar Sabratek from asserting that it is suing on
behalf, or for the benefit, of anyone other than Sabratek Corp. KPMG argues that
evidence that Sabratek is in effect suing on behalf of Sabratek Corp.’s creditors is
irrelevant and prejudicial. Sabratek argues that the jury is entitled to know who will
benefit from any judgment entered against KPMG, stating that the fact that all
recoveries will go to innocent creditors is relevant and admissible evidence.
According to Federal Rule of Evidence 401, “‘relevant evidence’ means
evidence having any tendency to make the existence of any fact that is of consequence
to the determination of the action more probable or less probable than it would be
without the evidence.” While evidence concerning the ultimate beneficiaries of this
lawsuit may help jurors understand the procedural foundations of this case, such
evidence is of no consequence to the underlying claims at issue. Whether creditors or
former officers of Sabratek Corp. would be compensated as a result of a verdict in
Sabratek LLC’s favor has absolutely no bearing on the facts at issue for trial, namely
the past conduct of Sabratek Corp. and KPMG. This motion is granted, as any
reference to the identity of Sabratek LLC’s beneficiaries is inadmissible as irrelevant

under Federal Rules of Evidence 401 and 402.

-12-


KPMG’S SEVENTH MOTION IN LIMINE

KPMG’s seventh motion in limine seeks to bar Sabratek from presenting
evidence that certain services provided by KPMG were not for the benefit of Sabratek.
The evidence KPMG seeks to bar relates to its counterclaim for setoff involving
various services it provided to Sabratek in 1999 that KPMG claims were unpaid. This
motion is denied, without prejudice, but may be resubmitted at trial where a
determination can be made in a more appropriate context.

KPMG specifically requests that this court bar Sabratek’s auditing expert Stuart
Harden from testifying on issues relating to whether KPMG’s 1999 services benefitted
Sabratek. Because Sabratek has represented that it does not intend to present any
testimony from Stuart Harden on this issue, we will require that it first seek permission
from this court before doing so.

CONCLUSION

For the reasons discussed above, the parties’ motions in limine are granted in

part and denied in part.
Charles P. Kocoras
Chief Judge
NOV 18 2003 United States District Court
Dated: —

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