Free Response to Motion - District Court of Colorado - Colorado

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

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Filed 10/11/2005

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Civil Action No. 03-F-1973 (MJW)

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

THE WALKER GROUP, INC. Plaintiff, v. FIRST LAYER COMMUNICATIONS, INC. and J.E.H. KNUTSON Defendants.

WALKER GROUP'S RESPONSE IN OPPOSITION TO PLAINTIFF'S MOTION IN LIMINE REGARDING ALLEGED FRAUDULENT CONVEYANCES

Defendant Walker Group, Inc. ("Walker Group"), through counsel, respectfully submits this memorandum of law in opposition to Plaintiff J.E.H. Knutson's ("Plaintiff") Motion In Limine Regarding Alleged Fraudulent Conveyances. For the reasons stated below, Plaintiff's Motion should be denied.

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I.

EVIDENCE OF FRAUDULANT CONVEYANCES IS RELEVANT TO THE CLAIMS AT ISSUE Plaintiff's actions after signing the Guaranty are relevant to Walker Group's claim that he

breached his continuing obligation as a guarantor, as well as to Walker Group's claim that he intentionally or, at the least, negligently misrepresented his financial worth to Walker Group. Rule 402 of the Federal Rules of Evidence provides that all relevant evidence is admissible unless otherwise barred by the Constitution, by an Act of Congress, by other rules of evidence, or by other rules prescribed by the Supreme Court. After noting that "relevant

evidence" is defined broadly to be that which has "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," the United States Supreme Court recognized the basic standard of relevance to be "a liberal one." Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 587 (1993) (citing Fed. R. Evid. 401). In the Tenth Circuit, courts have understood the "federal rules and practice [to] favor the admission of evidence rather than its exclusion if it has any probative value at all." U.S. v. Carranco, 551 F.2d 1197, 1200 (10th Cir. 1977) (citing

Julander v. Ford Motor Co., 488 F.2d 839, 848 (10th Cir. 1973). Plaintiff's conveyances have probative value and support Walker Group's theory of liability. Evidence that Plaintiff transferred a substantial amount of his assets after signing the Guaranty and later amendments is relevant to the issue of Plaintiff's failure to meet his obligations as a guarantor. By the terms of the Guaranty, Plaintiff "unconditionally guarantee[d] to Beneficiary [Walker Group] the full and prompt payment or performance of the Obligations," and the Guaranty was to "remain in full force and effect until all of the Obligations of the Company [First Layer Communications, Inc.] to Beneficiary [Walker Group] have been paid or

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provided for according to the terms of the Note." (Guaranty ¶¶ 1-2 (attached to Aff. of Douglas E Leckie, III, as Exhibit D, Feb. 28, 2005)). When the Guaranty was signed, Walker Group had not yet been paid and would not be paid until some point in the future. Thus, Plaintiff's obligation also encompassed his ability to guaranty the note in the future, not simply at the time of signing. Therefore, his attempts to render himself unable to guaranty the note, through his later financial transfers, bear directly on whether or not he has breached the Guaranty. Additionally, when Plaintiff signed the Guaranty, Plaintiff was representing that he had sufficient financial worth to support his personal guaranty. If he had known at that time that he would be divesting himself of these assets that enabled him to make the representation, his pledge would have been a misrepresentation. Thus, Plaintiff's subsequent acts to remove his assets from his apparent control are relevant to determine the character of the representations Plaintiff made at the time the Guaranty was executed.

II.

EVIDENCE OF FRAUDULANT CONVEYANCES DOES NOT UNFAIRLY PREJUDICE PLAINTIFF Plaintiff also seeks to have evidence of his allegedly fraudulent conveyances excluded on

the grounds that its inclusion would be "more likely to mislead or confuse the jury than to assist it under F.R.E. 403." (Pl's Mot. In Limine ¶ 5). Rule 403, however, only bars relevant evidence if "its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence." Fed. R. Evid. 403 (emphasis added). The mere suggestion that the jury may be mislead or confused should not operate as a bar to otherwise relevant evidence. Instead, "[t]he exclusion of relevant evidence under Rule 403 is

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`an extraordinary remedy to be used sparingly.'" K-B Trucking Co. v. Riss Int'l Corp., 763 F.2d 1148, 1155 (10th Cir. 1985) (quoting U.S. v. Plotke, 725 F.2d 1303, 1308 (11th Cir. 1984)). The Court of Appeals for the Tenth Circuit has instructed courts that when "performing the 403 balancing, the court should `give the evidence its maximum reasonable probative force and its minimum reasonable prejudicial value.'" Deters v. Equifax, 202 F.3d 1262, 1274 (10th Cir. 2000). Given the preference for admitting, rather than excluding, evidence when balancing probative value against potential prejudicial value, this Court should admit the evidence of Plaintiff's subsequent financial conveyances. Here, the evidence's high probative value is not outweighed by the mere suggestion that the jury would be misled or confused by its admission, and there is no reason to believe the jury will be mislead or confused when presented with evidence of Plaintiff's later financial transactions. In fact, Plaintiff has offered no concrete reason why this evidence will be confusing or misleading. Instead, this evidence should be helpful to the jury in determining the extent to which Plaintiff breached the Guaranty and whether he intentionally or negligently misrepresented his financial worth.

CONCLUSION For the reasons discussed herein, Walker Group respectfully requests that the Court deny Plaintiff's Motion In Limine Regarding Alleged Fraudulent Conveyances.

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Respectfully submitted, this the 11th 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 WINLIB01:1150886.3

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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO CERTIFICATE OF SERVICE (CM/ECF) I hereby certify that on October 11, 2005, I electronically filed the foregoing WALKER GROUP'S RESPONSE IN OPPOSITION TO PLAINTIFF'S MOTION IN LIMINE REGARDING ALLEGED FRAUDULENT CONVEYANCES 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 WINLIB01:1150886.3