Free Motion in Limine - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS STERLING SAVINGS ASSOCIATION, a state chartered savings association, STERLING FINANCIAL CORPORATION, a Washington corporation, Plaintiffs, v. UNITED STATES OF AMERICA, Defendant. ) ) ) ) ) ) ) ) ) ) ) )

No. 95-829C (Judge Wheeler)

DEFENDANT'S MOTION IN LIMINE TO EXCLUDE HEARSAY TESTIMONY AND EXHIBITS Pursuant to Rule 802 of the Federal Rules of Evidence and the Court's January 3, 2007 Pretrial Order, defendant, the United States, respectfully requests that hearsay testimony and exhibits offered by plaintiff Sterling Savings Association ("Sterling") be excluded from evidence. Specifically, we request exclusion of the testimony of Messrs. Cajer Neely, Gary Crithfield, and Thomas M. Beil concerning "knowledge of customers lost as a result of the government's breach of the contracts." Pl. May 23, 2007 Revised Witness List, pp. 4,6. We also request exclusion of Sterling's exhibits P-352 ("Results of Dan King's review of Sterling's loan reports"), P-353 ("Results of Gary Crithfield's review of Sterling's loan reports"), P-354 ("Results of Tom Beil's review of Sterling's loan reports"), P-355 ("Results of Cajer Neely's review of Sterling's loan reports"), and P-356 ("List of developers") because they are hearsay.1

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Exhibits P-352 through P-356 are Attachment A to this motion.

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FACTUAL BACKGROUND Sterling's memorandum of contentions of fact and law, filed April 25, 2007, includes the following contention: "Sterling Lost Deposits And Customers Because Of The Government's Restrictions On Its Activities." Pl. Mem. at 14. Specifically, plaintiffs contend that "Sterling lost significant deposits and/or customers because of the OTS restrictions on Sterling in the wake of FIRREA. Sterling lost many customers with deposits in excess of $100,000." Id.; see also id. at 26-27. For support, Sterling cites exhibits P-352, P-353, P-354, and P-355 as examples. Id. at 14. Sterling also specifically contends that "Sterling had to turn business away. Existing and prospective customers sought construction loans from Sterling during that time or inquired about the possibility of loans and Sterling was unable to accommodate them." Id. at 14-15; see also id. at 27. For support, Sterling cites exhibit P-356 as an example. Id. at 15. In its revised witness list, filed May 23, 2007, Sterling states that Messrs. Neely, Crithfield, and Beil are all former loan officers who will or may testify and have "knowledge of customers lost as a result of the government's breach of the contracts in Sterling's acquisitions of Lewis Federal Savings & Loan and Tri-Cities Savings & Loan." Pl. Revised Witness List at 4, 6. ARGUMENT "`Hearsay' is a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted." Fed. R. Evid. 801(c). A "statement" can be either an "oral or written assertion." Fed. R. Evid. 801(a). If the significance of a statement is that the statement was simply made, then the statement is not

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offered for its truth and is not hearsay or is called nonhearsay. Of course, the statement nevertheless must be relevant pursuant to rules 401 and 402.2 I. Statements Made To Sterling's Former Loan Officers By Third Parties Concerning The Impact Of The Breach Upon Sterling's Deposits And Customers Are Inadmissable Hearsay Plaintiffs intend to introduce alleged statements made by existing and prospective customers to Messrs. Neely, Crithfield, and Beil. Pl. Mem. at 14-15, 26-27; Pl. Revised Witness List at 4, 6. These alleged statements concern whether existing and prospective customers moved their deposits and banking from Sterling "because of the OTS restrictions on Sterling in the wake of FIRREA." Pl. Mem. at 14. Such statements exhibit all of the classic elements of hearsay. The third-party declarants, i.e., the existing and prospective customers, made oral statements out of court to Messrs. Neely, Crithfield, and Beil to explain their alleged reasons for not banking with Sterling. Upon this basis, the statements should be excluded. See, e.g., Air Land Forwarders, Inc. v. United States, 172 F.3d 1338, 1342 (Fed. Cir. 1999); Sanjuan v. IBP, Inc., 160 F.3d 1291, 1297 (10th Cir. 1998); Morrow v. Wal-Mart Stores, Inc., 152 F.3d 559, 563 (7th Cir. 1998) (employee complaints of harassment in an affidavit intended to prove complaints were made and that the employer did nothing are hearsay). Nor can plaintiffs argue that these statements are not offered for their truth and are nonhearsay. This argument fails because if the statements are not offered for their truth, they (1)

Rule 401 states: "`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." Rule 402 states, in relevant part: "Evidence which is not relevant is not admissible." 3

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have no independent legal significance; and (2) are irrelevant and unhelpful to the trier of fact. See Fed. R. Evid. 402. Plaintiffs' burden is to affirmatively show that the breach caused it to lose existing and prospective customers and deposits, which resulted in financial injury. Assuming the statements made by third parties to plaintiffs' loan officers are not being offered for their truth, the statements have no legal significance. See, e.g., United States v. Blandina, 895 F.2d 293, 300 (7th Cir. 1989) (requiring statements, if not offered for the truth, to have independent legal significance). The loss of existing and prospective customers and deposits, by themselves, do not show the breach caused plaintiffs' damages. The statements, without alluding to the breach as the cause of not remaining or becoming a Sterling customer, do not establish a fact of consequence. Similarly, the statements, if offered simply to show that current and prospective customers and deposits were lost, are irrelevant to the case. To the extent plaintiffs are excluded from inquiring into the details of those third-party statements ­ i.e., the reason customers and deposits left Sterling ­ the statements do not tend to make more likely than not that the breach was the reason for moving business from Sterling. If the statements are not offered for their truth, they are not relevant to causation and should be excluded. II. Exhibits Signed By Plaintiffs' Loan Officers In Preparation For Litigation Are Inadmissable Hearsay Plaintiffs intend to introduce exhibits P-352,3 P-353, P-354, and P-355, signed by Messrs.

Plaintiffs' exhibit P-352 is entitled "Results of Dan King's review of Sterling's loan reports." Mr. King is not listed as a may- or will-call witness upon Sterling's revised witness list, filed May 23, 2007. 4

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Neely, Crithfield, Beil and Daniel King, to support their claim that existing and prospective customers and deposits were lost as a result "of the OTS restrictions on Sterling in the wake of FIRREA." Pl. Mem. at 14. Further, exhibit P-356, signed by Mr. Crithfield, purports to list "[e]xisting and prospective customers [that] sought construction loans from Sterling . . . or inquired about the possibility of loans and Sterling was unable to accommodate them." Pl. Mem. at 14-15. These exhibits are hearsay. These exhibits are written statements, not made by Messrs. Neely, Crithfield, King, and Beil while testifying at trial, to explain why existing and prospective customers and deposits were lost and why Sterling was unable to accommodate loan requests from existing and prospective customers. Upon that basis, the Court should exclude these statements. See, e.g., Air Land Forwarders, Inc., 172 F.3d at 1342; Sanjuan, 160 F.3d at 1297; Morrow, 152 F.3d at 563. In addition, these exhibits are not admissible pursuant to an exception to the hearsay rule. See Fed. R. Evid. 803. Plaintiffs' exhibits P-352, P-353, P-354, and P-355 were each prepared in 2001, and state that the loan officers, none of whom were employed by Sterling in 2001, "reviewed Sterling Savings loan reports and the following were identified by [them] as customers lost as a direct result of the restrictions imposed by the Office of Thrift Supervision on Sterling Savings Bank's lending and deposit-gathering during the period of approximately November 1, 1989 to June 30, 1992." P-356 is a handwritten list written by Mr. Crithfield approximately two weeks prior to his July 9, 2002 deposition. See Deposition of Gary D. Crithfield, dated July 9, 2002, at p. 26-28 (Attachment B). Therefore, these documents were not prepared at the time Sterling's existing and prospective customers and deposits were allegedly lost or when Sterling 5

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was allegedly unable to accommodate loan requests from existing and prospective customers. See Fed. R. Evid. 803(1). In addition, these exhibits are not "[r]ecords of [r]egularly [c]onducted [a]ctivity," but are records made for litigation. See Fed. R. Evid. 803(6). Indeed, these documents were not prepared by Messrs. King, Crithfield, Neely, and Beil. While these individuals generated lists, the exhibits were prepared by Sterling personnel and presented to these Sterling employees for signature. See, e.g., Deposition of Cajer Neely, dated June 26, 2002, at p. 48-53 (Attachment C). As such, they are not admissible pursuant to the business records exception to the hearsay rule. Id. "`It is well-established that one who prepares a document in anticipation of litigation is not acting in the regular course of business.'" United States v. Gwathney, 465 F.3d 1133, 1141 (10th Cir. 2006) , cert. denied, -- S. Ct. --, 2007 WL 1237887 (U.S. April 30, 2007) (quoting Timberlake Const. Co. v. U.S. Fidelity and Guar. Co., 71 F.3d 335, 342 (10th Cir. 1995)). Finally, because these exhibits were prepared for the purposes of litigation, they lack the "circumstantial guarantees of trustworthiness" to be admitted pursuant the residual exception to the hearsay rule. Fed. R. Evid. 807. Nor can plaintiffs argue that these exhibits are not offered for their truth and are nonhearsay. This argument fails because, for the very reasons discussed with respect to thirdparty statements, if the exhibits are not offered for their truth, they (1) have no independent legal significance; and (2) are irrelevant and unhelpful to the trier of fact. See Fed. R. Evid. 402. Plaintiffs' burden is to affirmatively show that the breach caused it to lose existing and prospective customers and deposits. Assuming the exhibits are not being offered for their truth, the exhibits have no legal significance independent of causation. See, e.g., Blandina, 895 F.2d at 6

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300 (requiring statements, if not offered for the truth, to have independent legal significance). The loss of existing and prospective customers and deposits and Sterling's inability to accommodate loan requests from existing and prospective customers, by themselves, do not show the breach caused plaintiffs' damages. The exhibits, without alluding to the breach as the cause of not remaining a Sterling customer or granting a loan, do not establish a fact of consequence.4 Similarly, the exhibits, if offered simply to show that existing and prospective customers and deposits were lost or loans were not made, are irrelevant to the case. To the extent plaintiffs are excluded from inquiring into the details of these exhibits ­ i.e., the reason customers and deposits left Sterling or loans were not made ­ the exhibits do not tend to make more likely than not that the breach was the reason for removing business from Sterling. If the exhibits are not offered for their truth, they are not relevant to causation and should be excluded.

P-352, P-353, P-354, and P-355 each state that the loan officer referenced "reviewed Sterling Savings loan reports and the following were identified by him as customers lost as a direct result of the restrictions imposed by the Office of Thrift Supervision on Sterling Savings Bank's lending and deposit-gathering during the period of approximately November 1, 1989 to June 30, 1992." In order to not be offered for their truth, this statement would need to be stricken from each exhibit, because it is hearsay for the very reasons discussed in this motion. See Fed. R. Evid. 805 ("Hearsay included within hearsay is not excluded under the hearsay rule if each part of the combined statements conforms with an exception to the hearsay rule provided in these parts."). "`Double hearsay exists when the record is prepared by an employee with information supplied by another person.'" Gwathney, 465 F.3d at 1141 (quoting Wilson v. Zapata Off-Shore Co., 939 F.2d 260, 271 (10 th. Cir. 1991)). "Any information provided by another person, if an outsider to the business preparing the record, must itself fall within a hearsay exception to be admissible." Gwathney, 465 F.3d at 1141 (citing Wilson, 939 F.2d at 271). 7

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CONCLUSION For the foregoing reasons, the Government respectfully requests that the Court grant its motion in limine to exclude hearsay testimony and exhibits.

Respectfully submitted, MICHAEL F. HERTZ Deputy Assistant Attorney General

JEANNE E. DAVIDSON Director

/s/ Kenneth M. Dintzer KENNETH M. DINTZER Assistant Director

Of counsel: TAREK SAWI Senior Trial Counsel MELINDA HART DELISA SANCHEZ TIMOTHY ABRAHAM WILLIAM KANELLIS ELIZABETH A. HOLT May 30, 2007

/s/ Elizabeth M. Hosford ELIZABETH M. HOSFORD Trial Attorney Commercial Litigation Branch Department of Justice Attn: Classification Unit 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Tele: (202) 616-0332 Attorneys for Defendant

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CERTIFICATE OF FILING I hereby certify that on May 30, 2007, a copy of foregoing "DEFENDANT'S MOTION IN LIMINE TO EXCLUDE HEARSAY TESTIMONY AND EXHIBITS" was filed electronically. I understand that notice of this filing will be sent to all parties by operation of the Court's electronic filing system. Parties may access this filing through the Court's system.

/s/ Elizabeth M. Hosford Elizabeth M. Hosford