Court Opinion

ID: 1808383
Source: CourtListenerOpinion
Date Created: 2013-10-30 07:29:43.526095+00
Date Added: 2024-06-11T09:29:56.105615
License: Public Domain

382 B.R. 599 (2008)
In re PERRY H. KOPLIK & SONS, INC., Debtor.
Michael S. Fox, as Litigation Trustee of Perry H. Koplik & Sons, Inc., Plaintiff,
v.
Michael Koplik and Alvin Siegel, Defendants.
Bankruptcy No. 02-40648 (REG), Adversary No. 04-02490 (REG).
United States Bankruptcy Court, S.D. New York.
February 19, 2008.
Satterlee, Stephens, Burke & Burke LLP by Christopher R. Belmonte, Esq., *600 Pamela A. Bosswick, Esq., New York City, for Plaintiff.
Seward & Kissel LLP by Ronald L. Cohen, Esq., Walter A. Naeder, Esq., New York City, for Defendants.
Sanford P. Rosen & Associates, P.C. by Sanford P. Rosen, New York City, Esq., for Defendants.

BENCH DECISION ON MOTIONS TO STRIKE LAY WITNESS TRIAL TESTIMONY
ROBERT E. GERBER, Bankruptcy Judge.
In this adversary proceeding under the umbrella of the confirmed chapter 11 case of Debtor Perry Koplik & Sons, the plaintiff Litigation Trustee charges former insiders of the Debtor with breach of fiduciary duty. In the trial of the action, the Litigation Trustee has submitted the direct testimony affidavit[1] of Barry Kasoff, a Certified Turnaround Professional and Certified Public Accountant, who studied the Debtor's affairs, including, inter alia, the insiders' activities. In his direct affidavit, Mr. Kasoff has described his perceptions of the defendants' acts and, in more than a few instances, his subjective views with respect to those acts, based on a combination of his review of the acts and his training and experience in business and accounting matters. But he hasn't been offered as an expert under Fed.R.Evid. 702, nor has the plaintiff complied with Fed.R.Civ.P. 26 requirements for expert disclosures.
The defendants move to strike portions of the direct testimony as impermissible lay witness opinion testimony. Their motion is granted in part and denied in part, as described in the accompanying table. My conclusions of Jaw and bases for the exercise of my discretion follow.
Fed.R.Evid. 701(a) provides, in relevant part:
If the witness is not testifying as an expert, the witness' testimony in the form of opinions or inferences is limited to those 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.
As usual, I start with textual analysis. Under Fed.R.Evid. 701, lay opinion testimony is permissible if, but only if, the three subsections of Rule 701(a) are satisfied. I note in that connection, however, that while subsections (a) and (b) are stated affirmatively, subsection (c) is articulated in the negative[2] That means, as a practical matter, that lay opinion testimony is permissible if subsections (a) and (b) are satisfied, and if the testimony isn't then excluded by reason of the effect of subsection (c).
The Second Circuit has twice spoken to this issue, in Bank of Chinn v. NBM LLC, 359 F.3d 171 (2d Cir.2004), and United States v. Rigas, 490 F.3d 208 (2d Cir.2007), in each case involving a fact pattern similar to that here, where an individual conducted *601 an investigation of matters that preceded his arrival on the scene, and then testified about what he found.
In Bank of China, the Circuit held that the admission of lay opinion testimony that was based on a combination of a lay witness's observations and his knowledge of business custom and the business community's understanding of certain kinds of transactions and business concepts was an abuse of discretion. Admission of that testimony was held to be error because it wasn't based entirely on the witness's perceptions. The district court abused its discretion to the extent it admitted the testimony based on the witness's experience and specialized knowledge in international banking. See 359 F.3d at 181.
The Bank of China court explained that "Subsection (c) of Rule 701, which was amended in 2000, explicitly bars the admission of lay opinions that are `based on scientific, technical, or other specialized knowledge within the scope of Rule 702.'" Id., quoting Fed.R.Evid. 701(c). Testimony admitted pursuant to Rule 701 must be "rationally based on the perception of the witness." Id., quoting Fed.R.Evid. 701(a).
Thus, to the extent that the testimony was based on the perceptions of the witness, it was admissible, but to the extent that it was based on specialized knowledge, as contrasted to personal observation, it was inadmissible. See id. The Circuit clarified:
To some extent, [the investigating witness] Huang's testimony was based on his perceptions. As a Bank of China employee, Huang was assigned to investigate defendants' activities at the tailend of their scheme and after Bank of China stopped doing business with them. Huang's senior role at the Bank and his years of experience in international banking made him particularly well-suited to undertake such an investigation and was likely a factor in the Bank's decision to assign the task to him. The fact that Huang has specialized knowledge, or that he carried out the investigation because of that knowledge, did not preclude him from testifying pursuant to Rule 701, so long as the testimony was based on the investigation and reflected his investigatory findings and conclusions, and was not rooted exclusively in his expertise in international banking. "Such opinion testimony is admitted not because of experience, training or specialized knowledge within the realm of an expert, but because of the particularized knowledge that the witness has by virtue of his [] position in the business."
Id., quoting Fed.R.Evid. 701 advisory committee's note (emphasis added).[3]
Thus, to the extent the investigating witness Huang's testimony was grounded in *602 the investigation he undertook in his role as a Bank of China employee, it was admissible pursuant to Rule 701 of the Federal Rules of Evidence because it was based on his perceptions. But to the extent that the testimony was not based on his perceptions, it was inadmissible.
Similarly, in Rigas, the Circuit affirmed criminal convictions after a trial in which Judge Sand of the district court had permitted the introduction of testimony by Robert DiBella, a forensic accountant retained by Adelphia's new management to examine Adelphia's books and records, and to investigate transactions that had been entered into while Adelphia was operating under the Rigases' watch. Citing Bank of China, the Rigas court found the testimony admissible, as it was based on witness perception, and did not materially involve specialized knowledge with respect to the particular issues on which he was testifying. That was so even though the Second Circuit's decision at least implied (and this Court from its firsthand knowledge knows) that Mr. DiBella's witness perceptioni.e., his ability to observewas materially assisted by his accounting expertise.[4]
Each of Bank of China and Rigas involved circumstances, like those here, where an individual wasn't personally involved in the events that were the principal focus of his testimony, and instead involved the testimony based on participation in an investigation of events that predated the witness's appearance on the scene. Rigas is particularly relevant, because it involved a situation, very similar to the one we have here, where a skilled accounting professional studied what happened before he arrived, and explained in testimony what he had discovered. That was permissible, as reflecting witness perception.
Significantly, however, in neither Bank of China nor Rigas did the Circuit endorse the admission of testimony as to the witness's views as to whether what the witness had perceived was wrongful, or as to what should have been done under the circumstances.
In support of contentions that all of the challenged testimony should be stricken, the defendants cite three other cases, all from outside the Second Circuit. See JGR, Inc. v. Thomasville Furniture Indus., 370 F.3d 519 (6th Cir.2004); DIJO, Inc. v. Hilton Hotels Corp., 351 F.3d 679 (5th Cir.2003); Autoforge, Inc. v. Am. Axle & Mfg., Inc., 2008 WL 65603, 2008 U.S. Dist. LEXIS 755 (W.D.Pa. Jan. 4, 2008). None of these, of course, could trump a Second Circuit decision on point. And in any event, they are nowhere as closely similar to the facts we have here, and to the extent they are relevant at all, they support the nuanced standard articulated by the Second Circuit in Bank of China and Rigas. None involved the testimony of a trained financial professional who had studied financial transactions and reported on what he saw.
Instead, each involved testimony on lost profits and/or the value of a business areas where an outsider's personal perception would often be modest at best, and *603 that traditionally would involve testimony. of bona fide experts, except in cases where the actual owner of the business might have the requisite personal perception. See JGR, 370 F.3d at 524, 526 (CPA and lawyer testifying about lost profits and business value relied on information primarily obtained from plaintiff's principal); DIJO, 351 F.3d at 685 (testifying financial consultant "had little significant actual knowledge about DIJO and its operations;" contrasting ability of "business owners or officers to testify based on particularized knowledge derived from their position") (emphasis in original); Autoforge, 2008 WL 65603, at *6-7, 2008 U.S. Dist. LEXIS 755 at *19-20 (relying on circuit court holdings that "persons outside of a business, including attorneys and financial consultants," who were not able to establish the requisite foundation of personal knowledge, "may not offer a lay opinion as to value or project lost profits of a business") (citing JGR and DIJO).
With those principles in mind, the Court will permit lay opinion testimony that reflects the perceptions of the witness Mr. Kasoff as to what happened (including, inter alia, what the defendants did)even if Mr. Kasoff was aided in forming his perceptions by an ability, aided by his training and experience, to understand what he saw. But to the extent Mr. Kasoff seeks to testify not with respect to his perceptions, but rather with respect to views as to (a) whether what he perceived was right or wrong; (b) what should have been done; (c) what is customary in business practice; or (d) what his training and experience tell him about appropriate conduct in these cases, the testimony will be excluded.
My rulings with respect to the particular aspects of the Kasoff testimony that were the subject of the lay opinion evidence objections appear on the attached Table A to this Decision.
SO ORDERED.

                                     Table A
                              Rulings on Testimony In Issue
¶ #                          Testimony in Issue                     Ruling
  9         "Debtor had serious issues relating to its equity and      Objection sustained.
            clearly was in the zone of insolvency,"
 20         "Koplik and Siegel knew or should have known by            First sentence: objection
             virtue of their positions at the Debtor of the terms of   sustained. Second sentence:
            the RCF and the Trade Credit Insurance Policy.             objection overruled.
            Siegel was responsible to the Bank for reporting
            about the Debtor's compliance with the various RCF
            covenants, and Michael Kelly, who reported directly
            to Siegel, was responsible for compliance with the
            Trade Credit Insurance Policy."
 21         "Beginning in 1997, the Debtor was experiencing            First and third sentences:
            financial difficulty and continued to do so through        objection overruled. Second
            2001. As the Debtor's financial situation began to         sentence: objection
            deteriorate, it inexplicably took on extraordinary         sustained.
            credit risks, in the form of advances, loans and other
            unreasonable trade and non-trade extensions of credit,
            that were disproportionate to its equity position.
            Such problems began to appear after Perry H. Koplik,
            the Debtor's founder, became less involved in the
            management of the Debtor with the defendants taking
            over more active roles."
*604
 22         "In fact, one of the key factors contributing to the       Objection overruled.
            Debtor's financial breakdown was the absence of any
            objective decision-making process. Any system of
            internal controls employed by the Debtor was overridden
            routinely by defendants as the key executives
            involved in all key financial aspects of the Debtor.
            Since the Debtor's internal control processes, if any,
            were subject to defendants' override, an environment
            existed that allowed transactions to occur without
            sufficient regard for level of risk, having considerable
            detrimental consequences to the Debtor's business.
            . . .
            I believe that the Debtor did not have, implement or
            utilize any credit policy manuals as a guide to extend
            credit, loans, advances and/or other financial accommodations
            made to third-parties."
 23         "Examples of transactions entered into by the Debtor       Objection overruled.
            under defendants' management in the absence of
            any objective decision-making process include: the
            extension of approximately $27 million of total debt
            to ATC which included funding ATC's payroll on an
            emergency basis, the extension of non-trade credit
            that was not supported by proper loan documentation
            and clearly in violation of the RCF, the reduction of
            accounts receivable in exchange for uninspected, and
            possibly nonexistent, inventory, the holding of postdated
            checks, which bounced and were re-deposited
            and bounced again, the extension of additional credit
            to ATC when it was delinquent on existing receivables,
            and the extension of non-trade credit and/or
            investment in International Supply and Agency, Ltd.
            and Samoa Pacific Cellulose, LLC. Thus, despite
            having less than $10 million of equity a part of which
            was illiquid, the Debtor entered into several transactions,
            the majority of which were with ATC, which
            put the Company's viability at severe risk."
 24         "Without a doubt, defendants knew that ATC was             First sentence: objection
            experiencing severe liquidity problems. ATC's grave        was previously sustained
            liquidity issues were largely the result of its funding    for testifying as to another's
            the acquisition of long term assets with short term        state of mind, and is
            liabilities."                                              not saved by calling this lay
                                                                       opinion. Second sentence:
                                                                       objection overruled.
 24         "Despite such knowledge,"                                  Objection was previously
                                                                       sustained for testifying as
                                                                       to another's state of mind,
                                                                       and is not saved by calling
                                                                       this lay opinion.
 24         "Despite being aware of ATC's financial distress,          First sentence portions
            defendants had Debtor advance approximately $27            ("Despite being aware" and
            million to the now bankrupt ATC with knowledge             "with knowledge that"):
            that a significant portion of those advances would be      objections were previously
            events of default under the RCF and not covered by         sustained for testifying as
            the Trade Credit Insurance Policy. To extend an            to another's state of mind,
            amount of trade and non-trade credit to one customer,      and are not saved by calling
            which amount was three times the Debtor's equity,          this lay opinion. First
            and which jeopardized its relationship with the            sentence remainder: objection
            Bank, exemplifies the defendants' complete lack of         overruled. Second
*605
            credit-risk assessment in connection with the              sentence: objection
            Debtor's business operations."                             sustained.
 25         "These loans violated the terms of the RCF and were        Objection overruled.
            not covered by the Trade Credit Insurance Policy;
            thereby endangering the Debtor's working capital.:'
 27         "despite ATC's delinquent and/or nonexistent payments      Objection overruled.
            to the Debtor." The Debtor essentially served
            as a financier for ATC, providing millions of dollars
            of financing for ATC's production without any guarantee
            of payment by Kimberly Clark who only
            agreed to the arrangement for the month of March,
            2001."
 28         "Defendants heedlessly exposed the Debtor to unwarranted   Objection to "heedlessly"
            risk by continuing to finance production                   and "As defendants should
            after the end, of March and by depending upon ATC's        have expected" sustained.
            relationship with Kimberly Clark to support the invoices.  Remainder of quoted testi"mony:
            As defendants should have expected, ATC                    objection overruled.
            bounced checks that it issued to Kimberly Clark for
            the pulp purchases, resulting in Kimberly Clark's
            offsetting its pulp receivables against tissue payables
            owed to ATC."
 30         "Defendants provided ATC with the foregoing financing      Objection to "in complete
            in complete disregard that such actions with ATC           disregard," "were well
            and Kimberly Clark violated the RCF and were not           aware," and "ignoring these
            covered under the Trade Credit Insurance Policy.           red flags" sustained.
            Given the bounced checks and the continued requests        Remainder of quoted
            for advances, defendants by March of 2001 were well        testimony: objection
            aware of ATC's fiscal crisis. Yet, ignoring these red      overruled.
            flags, the Debtor continued to extend trade and nontrade
            credit to ATC."
 31         "[the Ponderosa advance constituted an event of default    Objection overruled.
            under the RCF,] endangering the Debtor's
            entire business operations."
 32         "The Ponderosa advance was made in the absence of          Objection to "knowingly"
            any objective decision making process on the part of       sustained. Remainder of
            defendants for the following reasons: (a) defendants       quoted testimony: objection
            knowingly engaged in the transaction without the           overruled.
            benefit of appropriate loan documentation; (b) defendants
            extended to ATC an amount equal to approximately
            one-quarter of its equity at a time when ATC
            was long overdue on receivables; (c) defendants'
            actions violated Bank covenants causing a breach
            under the RCF, putting its working capital and the
            Debtor as a going-concern at risk; and (d) defendants
            did not seek advice from, or discuss with,
            Debtor's counsel or accountants the consequences of
            such actions."
 36         "Since ATC had ongoing cash-flow difficulties and          Objection to "defendants
            defendants knew that the Debtor needed to keep             knew" sustained. Remainder
            ATC's trade accounts receivable balance below the          of quoted testimony:
            $15 million limit of the Trade Credit Insurance Policy,    objection overruled.
            defendants negotiated an arrangement to reduce
            ATC's accounts receivable in exchange for approximately
            $3,776,941 of inventory of finished goods from
            Ampad, an ATC affiliate."
 37         "It is my belief that this arrangement was, in fact, an    Objection sustained.
            illusory transaction, designed to keep the receivables
*606
            below the Trade Credit Insurance Policy's limit. The
            use of the Ampad inventory to reduce ATC's accounts
            receivable balances is another example of
            defendants embarking on a transaction without any
            aforethought or regard for risk."
 38         "Defendants improperly characterized APP's accounts        First sentence: objection
            receivable as eligible in the Debtor's borrowing           sustained. Second sentence
            base certificates for August and September of              and third sentence
            2001. The Debtor continued to extend credit to ATC         fragment: objection overruled.
            despite the latter's clearly demonstrated inability to
            pay and questionable viability.
            . . .
            endangering the Debtor's own existence."
 42         "Each of these unpaid, non-trade extensions of credit      Objection overruled.
            in its own right constitutes an event of default under
            the RCF."
 43         "In short, defendants caused the Debtor to engage in       First and third sentences:
            numerous high risk transactions by extending               objection overruled. Second
            approximately $8.5 million of non-trade credit to ATC      sentence: objection
            for the latter's purchase or funding of various under      sustained.
            performing mills without the benefit of obtaining any
            supporting loan documentation or consulting with
            Debtor's attorneys. If known by the Bank, such
            breaches of the RCF would have resulted in the
            acceleration or refinancing of the loan or the restructuring
            and/or liquidation of the Debtor's business.
            Thus, each and every non-trade extension of credit
            put the Debtor's working capital and, consequently,
            the Debtor's viability at risk."
 44         "No reasonable person would believe that putting the       First sentence: objection
            Debtor's business at risk was worth the unlikely           sustained. Second sentence,
            benefit of transacting business with ATC. Indeed, it       portion stating "and,
            is questionable whether defendants conducted any           to the best of my knowledge,
            type of assessment of the high risks associated with       no document exists
            the non-trade credit transactions with ATC, and, to        evidencing such assessment
            the best of my knowledge, no document exists evidencing    or analysis": objection
            such assessment or analysis."                              overruled. Remainder of
                                                                       sentence: objection
                                                                       sustained.
 45         "Likewise, defendants' reliance on ATC's proposed         Third sentence: objection
            bond offering was given without the benefit of any        sustained. Remainder of
            objective decision-making process or advice from          testimony in this paragraph:
            professionals. Defendants did not analyze the financial
            statements supporting the bond issue. Instead, defendants
            somehow claim to `have relied upon the
            prospectus and alleged due diligence conducted by
            UBS Warburg, despite knowing that ATC's true
            financial condition was not accurately depicted therein,
            in part, because defendants-failed to disclose the
            extraordinary loan transactions outlined above. The
            Debtor's history shows that, after ATC's prior bond
            offering in 1999, the Debtor's business with ATC
            declined even though ATC had the cash flow to
            engage in such business."
 46    "As the years progressed and the Debtor's financial             Second sentence: objection
        condition deteriorated, it became increasingly more            sustained. Remainder of
        reliant on ATC as a customer. Defendants' reliance,            testimony in this paragraph:
*607
            however, was disproportionate with the actual              objection overruled.
            amount of revenue produced by ATC; In 1998-1999,
            the revenue generated by sales td ATC represented
            approximately 13%-14% of the total revenue of the
            Debtor. However, in 2000, theremenue generated by
            sales to ATC dropped to approximately 7% of the
            Debtor's total revenue, and, while sales to ATC
            picked up in 2001, to equal approximately 10% of the
            Debtor's total revenue, those sales were a function of
            ATC's difficulty in obtaining credit from other companies.
            Moreover, the Debtor, was not receiving the
            cash generated from those sales in 2001 since almost
            all of the sales in 2001 to ATC were on credit. The
            Debtor sold approximately $28 million to ATC in
            2001 but collected only a few million dollars for the
            sales on a net basis during that same time period."
 48         "The Debtor unnecessarily continued to enter into          First and second sentences:
            high risk transactions and to extend unjustifiable         objection sustained.
            amounts of credit to ATC despite defendants' knowledge     Remainder of quoted language
            of ATC's such illiquidity was clearly                      in this paragraph:
            evident by February of 2001,                               objection overruled.
            . . .
            The Debtor's receivables from ATC were not being
            paid in a timely manner. Days-sales-outstanding skyrocketed
            to 120 days in February of 2001 and were
            not paid in cash. The Debtor chose to re-age or
            extend the credit terms to ATC on those receivables
            from 30 days to 60 days and then to 90 days all in
            violation of the Trade Insurance Credit Policy. By
            April, ATC could not even cover its own checks and
            bounced approximately $4 million in checks to the
            Debtor between May and June of 2001."
 49         "In short, the Debtor was extending credit beyond          First and second sentences:
            that which a reasonable business person would extend       objection sustained. Third
            under terms that no reasonable business person             sentence: objection overruled.
            would have extended to ATC. To extend such an
            extraordinary amount of trade and non-trade credit
            to a customer while jeopardizing its banking relationship
            is not prudent business.
            . . .
            As a result, Koplik, without the, benefit of any objective
            analysis, outside legal or accounting advice, or
            Board of Directors' input, extended additional credit
            to ATC for trade and non-trade transactions until
            ATC's bond offering could theoretically be
            completed."
 50         "In addition to the extraordinary transactions             Objection overruled.
            entered into with ATC,"
 55         "The transaction with Samoa both violated the RCF          Objection overruled.
            and generated a significant loss to the Debtor.
            Again, no legal advice was sought in connection with
            the alleged loans, and, consequently, no rational
            decision-making process was employed."
 58         "Somewhat suspiciously, only after RST questioned          First sentence: objection
            the loan,                                                  sustained. Second and
            . . .                                                      third sentences: objection
            The memo written by Siegel is inconsistent with the        overruled. Fourth sentence:
            Debtor's audited financial statements for the years        objection to portion
*608
            1996 through 2000, for which Siegel was responsible,       "It is my belief that such
            since such documents show the loan as an asset             salary was excessive"
            without any offsetting liability. Notably, this loan       Sustained, but objection
            was in addition to the base salary paid to Siegel in       to remainder overruled.
            the amount of $300,000. It is my belief that such
            salary was excessive given that the majority of Siegel's
            services were performed from his home in Florida
            away from the Debtor's actual daily business
            operations."
 59         "To the best of my knowledge and given the exorbitant      Objection sustained.
            salaries already received by defendants, the
            Debtor did not receive fair consideration and/or
            reasonably equivalent value in exchange for the
            Transfers."
 61         "The Debtor violated the RCF and/or entered into           Objection overruled.
            transactions not covered by the Trade Credit Insurance
            Policy by, among other things, funding ATC's
            various acquisitions of mills such as the Ponderosa,
            Keiffer Paper and Shelby mills, funding the production
            of goods for sale to Kimberly Clark, extending
            certain working capital loans to ATC, providing
            loans, advances and/or excessive compensation to the
            Debtor's officers and employees and their relatives,
            advancing funds with respect to Willendra and his
            company and Samoa, borrowing against ineligible
            accounts receivable and improperly applying payments
            to reduce ATC's accounts receivable rather
            than APP's accounts receivable."
 66         "Since each of these transactions, in and of itself,       Objection overruled.
            violated the RCF and constituted events of default
            thereunder, the Bank was entitled to accelerate the
            indebtedness of the Debtor due under the RCF.
            Accordingly, the Debtor essentially was rendered"
            insolvent upon its first unauthorized transaction with
            ATC. Simply put, without the ability to access funding
            or working capital, the Debtor could not meet its
            obligations to others."
 67         "Moreover, it was completely irrational for the            First sentence: objection
            defendants to believe that the Debtor could recover        sustained with respect to
            under the Trade Credit Insurance Policy, when, in          "it was completely irrational
            violation of such policy, the Debtor allowed the           for the defendants to believe
            days-sales-outstanding to get inordinately high and        that the Debtor could
            then reached an agreement, without the insurance           recover under the Trade
            carrier's knowledge or consent, with ATC to re-age its     Credit Insurance policy,"
            receivables from 30 to 60 to 90 days. The Debtor also      and overruled with respect
            accepted payment for such receivables in inventory         to "in violation of such policy,
            without even inspecting the same solely for the purpose    the Debtor allowed the
            of reducing the ATC receivables to within the              days-sales-outstanding to
            policy's limits and improperly reduced ATC's receivables   get inordinately high and
            instead of those belonging to the true party in            then reached an agreement,
            interest."                                                 without the insurance
                                                                       carrier's knowledge or
                                                                       consent, with ATC to reage
                                                                       its receivables from 30
                                                                       to 60 to 90 days." Second
                                                                       sentence: objection overruled.
*609
 68         "In addition, the Debtor withheld information              Objection sustained.
            regarding ATC's true financial condition. ATC's
            bounced checks, its inability to fund its own payroll,
            and its wholesale dependence on ATC's bond offering
            are huge red flags which should have put the defendants
            on notice to take stepsto limit its exposure to
            ATC in a proper fashion. The Trade Credit Insurance
            Policy is not a guaranty for any loss irrespective
            of defendants' actions. When defendants became
            aware of these red flags, they had an obligation to
            take steps to reduce the Debtor's exposure to ATC
            or run the risk that the insurance company would not
            cover such obligations. Defendants illogically chose
            to accept that risk. Under these circumstances, no
            rational person would believe that the Trade Credit
            Insurance Policy would cover the extraordinary
            amount of credit extended to ATC, and defendants'
            reliance on the same as a safety net is completely
            unjustifiable."
 68 n. 1    "Similarly, defendants clearly could not rely on the       Portion "defendants neither
            guarantees issued by Mehdi Gabayzadeh, former              evaluated the creditworthiness
            CEO of ATC, and Super American Tissue, an ATC              of the guarantors and
            affiliate, to recover the sums owed by ATC since           their respective assets nor
            defendants neither evaluated the credit worthiness of      requested any security with
            the guarantors and their respective assets nor requested   respect to same": objection
            any security with respect to the same."                    overruled. Remainder of
                                                                       quoted sentence: objection
                                                                       sustained.
 69         "Over the course of those three days, RSI reviewed         Objection overruled.
            the Debtor's assets, liabilities, and equity and concluded
            by October 28, 2001, that the Debtor was in
            the zone of insolvency"
 70         "Based on this further analysis, it grew clear that the    Objection overruled.
            Debtor became insolvent between March and June, of
            2001.
            . . .
            Moreover, the Debtor clearly was in violation of the
            RCF at that time and, without the ability to have
            funding from the Bank, would have no working
            capital, rendering it insolvent."

NOTES
[1]  Under the Court's case management order, direct testimony in the trial has been submitted by affidavit, with cross-examination and subsequent testimony to proceed live.
[2]  Rule 701 was amended in 2000, at which time the original language was divided by the lettered subdivisions that now appear in the Rule, and the material that is now in subdivision (c) was added. See Mueller and Kirkpatrick, Federal Evidence, § 7:1 (2007). Thus it now explicitly bars the admission of lay opinions that are "based on scientific, technical, or other specialized knowledge within the scope of Rule 702." Rule 701(c).
[3]  I'm aware that the Bank of China court stated that testimony involving personal perception with the benefit of professional expertise was permissible so long as it wasn't "rooted exclusively" in the witness's professional expertise (there, in international banking). That could be read as suggesting that a peppercorn of personal perception would permit a great deal of lay opinion testimony, circumventing the safeguards of Fed.R.Evid. 702 and Fed.R.Civ.P. 26. I think it is truer to the language and spirit of Bank of China to try to separate the testimony based on perception from that based on opinion on an answer-by-answer basis (and individually within each answer, to the extent necessary), and in the exercise of my discretion, I will be permitting testimony only to the extent that any aspect of a larger body of testimony embodies, in material part, witness perception. See Bank of China, 359 F.3d at 181 (noting purpose of Rule 701(c) "to eliminate the risk that the reliability requirements set forth in Rule 702 will be evaded through the simple expedient of proffering an expert in lay witness clothing").
[4]  My understanding of the Second Circuit's ruling in Rigas is assisted by my personal knowledge, as a consequence of Adelphia's bankruptcy case having been before me, and matters as to which I can take judicial notice. I know that Mr. DiBella had accounting expertise, because I heard testimony by Mr. DiBella, on distinct, but related, issues, Myself. But Mr. DiBella's testimony in the criminal case was in material respects based on what he observed, and did not go to issues where his accounting expertise, other than his ability to explain what he saw, was material to the issues on which he was testifying. Mr. DiBella testified on matters invoking his accounting expertise to a considerably greater degree in the Adelphia bankruptcy case, without objection by any party.