Free Motion in Limine - District Court of Colorado - Colorado

Case 1:03-cv-01973-PSF-MJW

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Filed 10/17/2005

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Civil Action No. 03-CV-1973-PSF-MJW (Consolidated with 04-CN-02112-PSF-MJW)

THE WALKER GROUP, INC., Plaintiff, v. J. E. H. KNUTSON, Defendant.

WALKER GROUP'S MOTION IN LIMINE REGARDING ITS ACCOUNTING OR TAX TREATMENT OF THE FIRST LAYER COMMUNICATIONS, INC. DEBT

Walker Group, Inc. ("Walker Group"), by and through counsel, respectfully moves the Court for an Order excluding all evidence relating or referring to Walker Group's accounting or tax treatment of the debt owed by First Layer Communications, Inc. ("First Layer"), and, in support thereof, states the following: 1. Recent amendments to Defendant Knutson's exhibit list indicate that he may seek

to introduce evidence relating to Walker Group's accounting treatment of the loss sustained as a result of First Layer's default on the loan Note, as amended, that is the subject of this matter. For example, Defendant recently listed as Exhibit 84 to his Exhibit List the Financial Report of Walker Group (see Plaintiff's Motion to Amend Trial Exhibit List and exhibits thereto), which was prepared by independent auditor McGladrey & Pullen, ("the Report," Attached hereto as

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Ex. A). The Report reflects Walker Group's balance sheets for the period of September 28, 2001, to September 27, 2002. 2. The Report describes Walker Group's accounting in 2001 and 2002 as a result of

"[i]mpairment of investment in and advances to" First Layer. Footnote 13 of the Report further explains Walker Group's accounting treatment for both the loan to First Layer and Walker Group's separate equity investment to First Layer. Walker Group's treatment of both the debt owed by First Layer and Walker Group's loss on its separate equity investment is sound accounting practice and is not at issue in this matter. 3. Walker Group accounting treatment of First Layer's unpaid debt and the loss it

incurred as a result of its separate equity investment in First Layer have no relevance to the underlying issue in this matter ­ the damages sustained by Walker Group as a result of Mr. Knutson's breach of his personal guaranty. The existence of the debt and Mr. Knutson's obligations under his personal guaranty are not affected by how the debt appears on Walker's Group balance sheet or how it was reported for tax purposes. The debt remains outstanding regardless of how Walker Group has accounted for the debt. 4. Rule 402 of the Federal Rules of Evidence provides that "[e]vidence which is not

relevant is not admissible." Because neither First Layer's debt nor Mr. Knutson's liability under his personal guaranty, as amended, are affected by Walker Group's accounting treatment of the debt, this evidence is not relevant to the claims at issue and thus should be excluded under Rule 402 of the Federal Rules of Evidence. 5. Even if evidence is found relevant, the Court may exclude it if "its probative

value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or

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misleading the jury . . ." or if the evidence would create an "undue delay [or] waste of time . . . ." Fed. R. Evid. 403. This evidence is more likely to confuse the issues and mislead the jury than it is to assist the jury in reaching a decision on the claims at issue. As discussed above, the accounting describes Walker Group's accounting for both the loss incurred as a result of First Layer's default under the loan Note and the loss Walker Group's sustained as a result of its separate equity investment in First Layer. Admitting this evidence invites a jury to speculate on the amount recorded for each of these losses. Moreover, admitting this evidence presents a significant risk that the jury will be confused or misled into thinking that Walker Group's accounting practices are at issue. See Grassi v. Info. Res., Inc., 63 F.3d 596, 602 (7th Cir. 1995) (holding that the district court did not abuse its discretion when it used Rule 403 to exclude evidence of defendants' tax returns when there was a "concern that the evidence would unfairly prejudice the defendants by suggesting possible tax fraud, which was not an issue in the case"). Furthermore, if this evidence was to be admitted, more testimony would be needed to explain these common accounting practices, resulting in an undue waste of time. Accordingly, this evidence should be excluded under Rule 403 of the Federal Rules of Evidence. 6. Defendant is not entitled to a credit for any tax relief that Walker Group may have

received as a result of recording the losses because Walker Group will be required to account for and pay taxes on any amounts collected as a result of a judgment against Defendants.

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WHEREFORE, Walker Group respectfully requests that the Court exclude all evidence relating or referring to Walker Group's accounting or tax treatment of the First Layer debt. Respectfully submitted, this the 17th day of October, 2005.

/s/ Richard S. Gottlieb Richard S. Gottlieb Laura A. Greer Kilpatrick Stockton LLP 1001 West Fourth Street Winston-Salem, North Carolina 27101-2400 Telephone: (336) 607-7300 Attorneys for Defendant Walker Group, Inc. Joshua Maximon, Esq. The Maximon Law Firm, LLC 12202 Airport Way, Suite 170 Broomfield, Colorado 80021 Telephone: (303) 991-3344
02560-207219 5501877.3

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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO CERTIFICATE OF SERVICE (CM/ECF) I hereby certify that on October 17, 2005, I electronically filed the foregoing WALKER GROUP'S MOTION IN LIMINE REGARDING ITS ACCOUNTING OR TAX TREATMENT OF THE FIRST LAYER COMMUNICATIONS, INC. DEBT with the Clerk of Court using the CM/ECF system which will send notification of such filing to the following email addresses: [email protected] [email protected], and I hereby certify that I have mailed or served the document or paper to the following non CM/ECF participants by first class mail addressed as follows: none.

/s/ Richard S. Gottlieb Richard S. Gottlieb Attorney for Defendant Walker Group, Inc. Kilpatrick Stockton LLP 1001 West Fourth Street Winston-Salem, North Carolina 27101-2400 Telephone: (336) 607-7300 [email protected]
02560-207219 5501877.3

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