Free Appellant's Brief - District Court of Delaware - Delaware

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE ) ) ) Oakwood Homes Corporation, et al., ) ) Debtors. _________________________________________ ) ) OHC Liquidation Trust, ) ) Plaintiff, ) ) v. ) ) Credit Suisse (f/k/a Credit Suisse First Boston, a ) Swiss banking corporation), Credit Suisse ) Securities (USA), LLC (f/k/a Credit Suisse First Boston LLC), Credit Suisse Holdings (USA), Inc. ) (f/k/a Credit Suisse First Boston, Inc.), and Credit ) Suisse (USA), Inc. (f/k/a Credit Suisse First Boston ) ) (U.S.A.), Inc.), the subsidiaries and affiliates of ) each, and Does 1 through 100, ) ) Defendants. ) In re: Chapter 11 Case No. 02-13396 (PJW) Jointly Administered

Civil Action No. 07-0799 (JJF)

Re: Civil Docket Nos. 66-71

CONSOLIDATED ANSWERING BRIEF IN OPPOSITION TO DEFENDANTS' ATTEMPTS TO EXCLUDE CERTAIN NON-EXPERT EVIDENCE Tony Castañares (CA SBN 47564) Stephan M. Ray (CA SBN 89853) Scott H. Yun (CA SBN 185190) Whitman L. Holt (CA SBN 238198) STUTMAN, TREISTER & GLATT, P.C. 1901 Avenue of the Stars, 12th Floor Los Angeles, CA 90067 (310) 228-5600 -&Marla Rosoff Eskin (No. 2989) Kathleen Campbell Davis (No. 4229) Kathryn S. Keller (No. 4660) CAMPBELL & LEVINE, LLC 800 N. King Street, Suite 300 Wilmington, DE 19801 (302) 426-1900

Special Counsel for the OHC Liquidation Trust

Dated: April 28, 2008

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TABLE OF CONTENTS NATURE AND STAGE OF THE PROCEEDINGS ....................................................................... 1 SUMMARY OF ARGUMENT ........................................................................................................ 1 RELEVANT BACKGROUND FACTS........................................................................................... 2 ARGUMENT .................................................................................................................................... 7 A. Plaintiff's Unified Statement Of The Case................................................................ 8 1. 2. B. C. Overview....................................................................................................... 8 Plaintiff's Case, As Stated By Plaintiff. ........................................................ 9

Defendants Simply Misapprehend The Nature Of The Required Analysis Under FRE 401, 402, And 403. ............................................................... 21 The CRM Motion Should Be Denied. .................................................................... 23 1. 2. All Of The CRM Evidence Is Relevant. ..................................................... 24 None Of The CRM Evidence Is Unfairly Prejudicial................................. 27

D.

The Subprime Motion Should Be Denied............................................................... 30 1. If The Subprime Motion Is Directed At Evidence, It Fails Because Such Evidence Is Relevant And In No Way Unfairly Prejudicial..................................................................................... 30 If The Subprime Motion Is Directed At Argument, Such A Word-Ban Is An Inappropriate Request Unsupported By Any Case Law............................................................................................. 33

2.

E.

Credit Suisse's Various Other Evidentiary Objections Should Be Denied. .................................................................................................................... 35

CONCLUSION ............................................................................................................................... 40

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TABLE OF AUTHORITIES CASES Blancha v. Raymark Indus., 972 F.2d 507 (3d Cir. 1992)................................................................................................. 22 BrandAid Mktg. Corp. v. Biss, 462 F.3d 216 (2d Cir. 2006)................................................................................................. 20 Carter Equip. Co. v. John Deere Indus. Equip. Co., 681 F.2d 386 (5th Cir. 1982) ............................................................................................... 11 Carter v. Hewitt, 617 F.2d 961 (3d Cir. 1980)................................................................................................. 22 Colo. Capital v. Owens, 227 F.R.D. 181 (E.D.N.Y. 2005) ......................................................................................... 17 Crowley v. Chait, No. 85-2441, 2004 U.S. Dist. LEXIS 27235 (D.N.J. Dec. 27, 2004)...................... 26, 27, 28 Crowley v. Chait, No. 85-2441, 2006 U.S. Dist. LEXIS 8894 (D.N.J. Mar. 7, 2006)...................................... 17 Floyd v. Hefner, No. 03-5693, 2008 U.S. Dist. LEXIS 25642 (S.D. Tex. Mar. 31, 2008)............................. 21 Gibson v. Mayor & Council of Wilmington, 355 F.3d 215 (3d Cir. 2004)................................................................................................. 22 Goodman v. Pa. Tpk. Comm'n, 293 F.3d 655 (3d Cir. 2002)............................................................................................. 2, 22 Grant Thornton, LLP v. FDIC, 535 F. Supp. 2d 676 (S.D.W. Va. 2007)........................................................................ 17, 37 Hugo Boss Fashions, Inc. v. Federal Ins. Co., No. 98-6454, 1999 U.S. Dist. LEXIS 17016 (S.D.N.Y. Nov. 1, 1999)............................... 11 Indian Towing Co. v. United States, 350 U.S. 61 (1955)............................................................................................................... 10 JPMorgan Chase Bank v. Liberty Mut. Life Ins. Co., No. 01-11523, 2002 U.S. Dist. LEXIS 24518 (S.D.N.Y. Dec. 23, 2002) ..................... 28, 33 Langford v. Roman Catholic Diocese, 677 N.Y.S.2d 436 (N.Y. Sup. Ct. 1998) .............................................................................. 11 Levine v. United States Dist. Court, 764 F.2d 590 (9th Cir. 1985), cert. denied, 476 U.S. 1158 (1986)...................................... 35

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LNC Invs., Inc. v. First Fid. Bank, N.A., 173 F.3d 454 (2d Cir. 1999)................................................................................................. 16 Lumbermens Mut. Cas. Co. v. Franey Muha Alliant Ins. Servs., 388 F. Supp. 2d 292 (S.D.N.Y. 2005)............................................................................ 12, 19 Mauney v. Boyle, 865 F. Supp. 142 (S.D.N.Y. 1994)....................................................................................... 17 McAdam v. Dean Witter Reynolds, Inc., 896 F.2d 750 (3d Cir. 1990)................................................................................................. 20 McEachron v. Glans, No. 98-17, 1999 U.S. Dist. LEXIS 21926 (N.D.N.Y. Aug. 23, 1999) ................................ 34 Meinhard v. Salmon, 249 N.Y. 458 (1928) ............................................................................................................ 14 Niagara Mohawk Power Corp. v. Stone & Webster Eng'g Corp., No. 88-CV-819, 1992 U.S. Dist. LEXIS 7721 (N.D.N.Y May 23, 1992)........................... 11 O'Halloran v. PricewaterhouseCoopers LLP, 969 So. 2d 1039 (Fla. Dist. Ct. App. 2007) ......................................................................... 20 In re Olympia Brewing Co. Sec. Litig., No. 77-1206, 1985 U.S. Dist. LEXIS 13796 (N.D. Ill. Nov. 13, 1985) .............................. 19 Palka v. ServiceMaster Mgmt. Servs. Corp., 83 N.Y.2d 579 (1994) .......................................................................................................... 10 Parvi v. Kingston, 41 N.Y.2d 553 (1977) .......................................................................................................... 10 In re Safety-Kleen, Bondholders Litig., No. 00-1145-17, 2005 U.S. Dist. LEXIS 46268 (D.S.C. Feb. 4, 2005) .............................. 34 Scott v. Dime Sav. Bank, 886 F. Supp. 1073 (S.D.N.Y. 1995), aff'd, 101 F.3d 107 (2d Cir. 1996), cert. denied, 520 U.S. 1122 (1997)...................................................................................... 11 Smith v. Sheahan, No. 95-7203, 2000 U.S. Dist. LEXIS 8140 (N.D. Ill. June 8, 2000)................................... 34 Stagl v. Delta Airlines, Inc., 52 F.3d 463 (2d Cir. 1995)................................................................................................... 17 Stanziale v. Pepper Hamilton LLP (In re Student Fin. Corp.), 335 B.R. 539 (D. Del. 2005)................................................................................................ 21 Thropp v. Bache Halsey Stuart Shields, Inc., 650 F.2d 817 (6th Cir. 1981) ............................................................................................... 37

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United States v. Fieger, No. 07-CR-20414, 2008 U.S. Dist. LEXIS 28240 (E.D. Mich. Apr. 8, 2008) .................................................................................................................................... 34 United States v. Tse, 375 F.3d 148 (1st Cir. 2004)................................................................................................ 23 Wechsler v. Hunt Health Sys., Ltd., 381 F. Supp. 2d 135 (S.D.N.Y. 2003)............................................................................ 22, 23 Zal v. Steppe, 968 F.2d 924 (9th Cir.), cert. denied, 506 U.S. 1021 (1992)............................................... 35 STATUTES AND RULES Fed. R. Evid. 401 ...................................................................................................................... passim Fed. R. Evid. 402 ...................................................................................................................... passim Fed. R. Evid. 403 ...................................................................................................................... passim OTHER AUTHORITIES 1 MCCORMICK ON EVIDENCE § 185 at 645 (5th ed. 1999)...............................................................22 Oliver W. Holmes, Jr., The Common Law (1881) ...........................................................................10 Standard & Poor's, For U.S. Subprime RMBS, Positive Implications When Compared With Manufactured Housing ABS (Apr. 27, 2007), available at http://www2.standardandpoors.com/portal/site/sp/en/us/page.article/3,1,1, 0,1148443670700.html (last accessed April 26, 2008)........................................................32

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NATURE AND STAGE OF THE PROCEEDINGS For the convenience of the Court and the parties, the OHC Liquidation Trust, by and through its duly appointed trustee, Alvarez & Marsal, LLC ("Plaintiff") respectfully submits this consolidated Answering Brief in opposition to certain of the non-expert evidentiary motions and objections made by the defendants in the above-captioned proceeding (collectively, "Defendants" or "Credit Suisse"), particularly Defendants' April 16 motions to exclude certain testimony and documents related to their credit risk management group (the "CRM Motion" [D.I. #66]) and to the current "subprime mortgage crisis" (the "Subprime Motion" [D.I. #69]). SUMMARY OF ARGUMENT This brief contains a Unified Statement of Plaintiff's case, which we present for the Court's convenience in assessing this and other matters that have or will come before it. We do this because it is important for this Court finally to hear Plaintiff's case as stated by Plaintiff, rather than the distorted view of Plaintiff's case presented in Defendants' numerous motions, such as the CRM Motion and the Subprime Motion. That Unified Statement is infra at pages 8-21. Among the evidence that Credit Suisse hopes to keep from the jury are the very "smoking gun" documents showing Defendants (i) had actual knowledge that the transactions they were engineering for Oakwood Homes, or actually participating in with Oakwood, were value-destroying to Oakwood; and (ii) knew Oakwood's management did not fully understand the risks and damages of those transactions. As detailed below, such evidence is highly relevant to live issues in this case, particularly Defendants' breaches of duty and causation of damages (this would be true even under Defendants' grossly distorted, strawman presentation of Plaintiff's positions). Hence, such evidence should be excluded only if Defendants set forth unfair prejudice that substantially outweighs its probative value. The only "prejudice" that Defendants

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ever articulate is the concern that such evidence may cause the jury to decide this case against them. Third Circuit case law makes clear, however, that a party's fear of losing on the merits is not the "unfair prejudice" Federal Rule of Evidence ("FRE") 403 is designed to address. See, e.g., Goodman v. Pa. Tpk. Comm'n, 293 F.3d 655, 670 (3d Cir. 2002). As such, Defendants have failed to counter the basic presumption that all relevant evidence ought to be admitted at trial. RELEVANT BACKGROUND FACTS Oakwood Homes Corporation and its affiliates (collectively, "Oakwood") began producing and selling manufactured homes in the 1940s. In the mid-1990s, Oakwood greatly expanded a business that was ancillary to these two functions: providing financing to the purchasers of its products, who often were low-income individuals with poor credit records. This dramatic expansion of Oakwood's financing business was aided, in large part, by the access to capital obtained via "securitizations," most of which were structured by Credit Suisse. Things turned for the worse for the manufactured housing industry in general, and for Oakwood in particular, in 1999 ­ a period that overlapped with the rapid rise of the nowfloundering "subprime" mortgage industry. In need of liquidity, Oakwood turned to its trusted advisor at Credit Suisse, Mr. Fiachra O'Driscoll, for help. Mr. O'Driscoll in turn made a proposal to the New York branch of Credit Suisse's banking arm ("New York Branch") that Credit Suisse provide a committed "reverse repurchase" facility that would allow Oakwood to monetize lower rated tranches of securitizations which Oakwood had been holding on its own balance sheet. The proposed reverse repurchase facility was reviewed by employees of New York Branch's "credit risk management" department ("CRM"), particularly analyst James Xanthos and his supervisor, Thomas Irwin. In November 1999, Mr. Xanthos and Mr. O'Driscoll traveled to North Carolina to meet with Oakwood's management about the proposed facility.

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Shortly thereafter, Mr. Xanthos wrote a detailed memorandum in which he outlined his observations and conclusions about Oakwood and strongly recommended that the proposed credit facility be denied (the "Xanthos Memo"1). The Xanthos Memo provides a blistering account of a corporation in rather deep trouble. Among other things, the Xanthos Memo states that Oakwood had "very real/immediate bankruptcy risk issues/concerns," a "Negative Cash Flow Position which does not appear will reverse anytime soon," a "management [that] does not have a strong understanding of its marketplace," and a glut of "securitized subordinated securities of which currently their [sic] is no strong investor demand." (See Xanthos Memo at CSFB-00250117 [Holt Decl. Ex. "A"].) Based upon such concerns, Mr. Xanthos concluded that Oakwood "is the weakest company in its industry's [sic]" and would "not meet their forecasted profitability levels but will rather be fortunate to at best break even." (See id. at CSFB-00250117 ­ CSFB-00250118.) Even worse, Mr. Xanthos found it "hard to believe that management will not continue to experience . . . losses on the sale of its loans due to the fact that the company must securitize quarterly . . . even if doing so results in large losses." (See id. at CSFB-00250118.) Accordingly, notwithstanding "Oakwood's relationship with [Credit Suisse's investment banking division,] a review of all the negative factors noted above strongly indicates that [Credit Suisse's] risk are large and that repayment of our line is unknown due to the company's other debt obligations and lack of cash flow capacity." (See id. at CSFB-00250117.) Two months later, Mr. Xanthos, Mr. O'Driscoll, and Mr. Irwin had a conference call with Oakwood's management, after which Mr. Xanthos wrote an update memorandum,

1

A true and correct copy of the Xanthos Memo is attached as Exhibit "A" to the accompanying declaration of Whitman L. Holt (cited hereinafter as "Holt Decl.").
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stating that his "opinion of Oakwood as well as this industry as a whole has not changed since" the Xanthos Memo and reiterating his concerns about lending "to a counterpart that is currently facing real bankruptcy risk concerns." (See March 13, 2000 "Memorandum" at CSFB-00250131 [Holt Decl. Ex. "B"].) Within days, CRM declined the proposed facility and informed Mr. O'Driscoll of that decision.2 (See March 21, 2000 "Memorandum" at CSFB-00512903 [Holt Decl. Ex. "C"].) As Defendants note in the brief in support of their CRM Motion, neither the Xanthos Memo nor the negative information contained therein was ever shared with Oakwood by anyone at Credit Suisse. (See D.I. #67 at p. 2.) Things turned even worse for Oakwood in 2000, and by the end of the year, Bank of America informed Oakwood that it would not renew the "warehouse" facility Oakwood used for short-term financing of new loans prior to their securitization. Once again, Oakwood turned to its most trusted advisor at Credit Suisse ­ Mr. O'Driscoll ­ for help. Following a series of discussions, Mr. O'Driscoll concluded that Credit Suisse could replace Bank of America and provide the warehouse, and he made such a proposal to New York Branch. And once again, Mr. Xanthos and Mr. Irwin were the CRM employees who evaluated the proposed Oakwood credit. The principal concern CRM had about Oakwood in early 2001 was its underwriting process ­ specifically, the fact that Oakwood was lending money to people with very poor credit, which was resulting in numerous "repos" (i.e., repossessions of defaulted homes, which had to be remarketed, resold, and perhaps refinanced). Mr. Xanthos expressed the need "to gain control of Oakwood's underwriting process." (January 2, 2001 e-mail from James

2

Interestingly, Mr. O'Driscoll denies that he was ever informed that CRM declined his proposed transaction. (See O'Driscoll Dep. Tr. at 186:8-191:13 [Holt Decl. Ex. "M"].) Thus, at a very bare minimum, the CRM documents related to the reverse repo facility that Credit Suisse wants to exclude go directly to Mr. O'Driscoll's credibility.
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Xanthos, CSFB-00485340 [Holt Decl. Ex. "D"].) Similarly, Mr. Irwin worried that "Repo'd assets are going to be the major issue [Credit Suisse] face[s] going forward, clear the ability of [Oakwood] to survive hinges on this asset class remaining in 'control.'" (February 14, 2001 email from Thomas Irwin, CSFB-00515234 [Holt Decl. Ex. "G"].) Indeed, the problem was so bad that CRM asked Mr. O'Driscoll to draft a memorandum explaining the negative trends in Oakwood's underwriting and reassuring CRM that the problem was under "control." (See January 9, 2001 "Memorandum," CSFB-00483869 [Holt Decl. Ex. "F"].) As in 2000, Mr. Xanthos drafted a lengthy memorandum to evaluate the proposed "warehouse" or "loan purchase" facility (the "Second Xanthos Memo" [Holt Decl. Ex. "H"]). Even though Oakwood had dropped from "B-" to "CCC" on CRM's internal credit scale, "CRM has approved this transaction as a result of its structure and the economic benefit that [Credit Suisse] can potentially realize." (See id. at CSFB-00513803.) Put differently, and more directly, (1) the "bankruptcy-remote" nature of the facility ensured that Credit Suisse had virtually no risk of loss if Oakwood filed for bankruptcy, and (2) Credit Suisse would be paid $2.5 million upfront and $15 million over three years in exchange for providing the "warehouse." Plus, Credit Suisse would receive a warrant to purchase nearly 20% of the equity of Oakwood through 2009, which gave Credit Suisse the power to become Oakwood's largest shareholder by far. The initial February 2001 Credit Suisse "warehouse" facility contained a strict 17.5% limitation on the financing of "repo-refi" loans. However, as Oakwood's prospects turned even worse in 2001 and 2002, that limitation proved too tight. Oakwood attempted to divert the wave of "repos" via the use of the Loan Assumption Program, which they discussed with Mr. O'Driscoll, but ultimately they asked Mr. O'Driscoll to see if CRM would increase the limitation in the warehouse, thereby allowing Oakwood to finance even more bad loans. (See February 19,

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2002 e-mail from Fiachra O'Driscoll, CSFB-00478613 [Holt Decl. Ex. "I"].) As Oakwood continued to deteriorate it increasingly turned to Mr. O'Driscoll for short-term financing solutions. Mr. O'Driscoll designed a number of transactions, such as the socalled "LOTUS" transactions involving the "resecuritization" and guaranty of low-grade "B-2" tranches of past securitizations, that provided Oakwood with quick cash, but came at horrifyingly high costs (such as the guaranty of hundreds of millions of dollars of debt that Oakwood could never repay). Mr. O'Driscoll further attempted to spread the stream of Oakwood fees around Credit Suisse, suggesting that his colleague, Mr. Jared Felt, "pitch" Oakwood on some costly bond buyback proposals. When Mr. Felt asked Mr. O'Driscoll if a draft engagement contract should contain a "lockup" requiring that Oakwood commit to using only Credit Suisse as an investment banker for various transactions, Mr. O'Driscoll found it prudent to correct Mr. Felt's misunderstanding of the nature of the Oakwood relationship, informing him in August 2001 that "[t]he idea of [Oakwood] doing anything away from us is so unlikely that it's probably a little offensive to them" and that the multifaceted nature of Credit Suisse's roles vis-à-vis Oakwood made Oakwood "feel very shackled to [Credit Suisse]." (See August 9, 2001 e-mail from Fiachra O'Driscoll, CSFB-00014152 [Holt Decl. Ex. "T"].) That "shackle" only grew tighter into 2002. Ultimately, the increase in Oakwood's ability to refinance "repos," as well as every other trick Mr. O'Driscoll used to keep Oakwood afloat (and paying him fees), failed to address the basic problem: Oakwood was continuing to make, securitize, and guarantee bad loans. The huge drain on liquidity caused by these value-destroying transactions ultimately led Oakwood to file bankruptcy in November 2002, but not before Oakwood had finally retained Mr. Felt to help prepare for that bankruptcy (in exchange for an additional bag of fees, of course). Part of the preparation involved reviving the New York Branch warehouse post-petition, since

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bankruptcy was an event of default thereunder. Although Oakwood relied on the ever-present Mr. O'Driscoll to assist them with finalizing the "warehouse," Mr. O'Driscoll procrastinated and waited until November 14, 2002 ­ the day before Oakwood filed for bankruptcy ­ even to approach Mr. Irwin about the matter.3 As a result, CRM's due diligence on the post-petition warehouse was delayed until after Oakwood filed for bankruptcy. So too was the preparation of another CRM review memo, although this one again underscored how "[o]ver the past three years CRM has consistently questioned [Oakwood] Management's competency and abilities." (See "Originator/Servicer Assessment" at CSFB-00250105 [Holt Decl. Ex. "J"].) Once again, the CRM review memo paints a portrait of a management team that simply does not understand basic aspects of its market, sales projections, financing, and strategy in bankruptcy. In retrospect, it is all too clear that the many problems identified by CRM in 2000 and 2001 ­ real bankruptcy risk, continued losses on securitizations, rising defaults and "repos," and a management that just did not understand its declining market and value-destroying financing structures ­ are the same problems that ultimately led to Oakwood's 2002 bankruptcy. In other words, as Defendants' own expert witness forthrightly admits,4 Mr. Xanthos was right. Unfortunately, no one from Credit Suisse ­ including Oakwood's trusted advisor Mr. O'Driscoll ­ ever shared these many concerns (or, indeed, expressed any similar concern) with Oakwood. ARGUMENT Defendants' evidentiary objections not only stem from a deep misunderstanding of the analytic framework and respective burdens created by the Federal Rules of Evidence, but

3

See, e.g., Irwin Dep. Tr. at 143:12-148:6 [Holt Decl. Ex. "L"]; O'Driscoll Dep. Tr. at 51:853:17 [Holt Decl. Ex. "M"]. See, e.g., Boland Dep. Tr. at 174:13-177:16, 186:14-21, 190:3-16 [Holt Decl. Ex. "K"].
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also rest on a myopic and distorted understanding of Plaintiff's theory of this case. Once the proper clarifications are made, it is clear that the challenged evidence is highly relevant and that Defendants have utterly failed to show that any unfair prejudice would result if all that evidence were put before the jury. As such, all Defendants' non-expert evidentiary challenges must fail. A. Plaintiff's Unified Statement Of The Case. 1. Overview. In responding to the veritable flood of motions, evidentiary objections, and the like filed by Defendants in recent days, Plaintiff seeks to avoid burdening the Court with having to read the same or very similar material over and over. Plaintiff therefore takes this opportunity to offer this Unified Statement, which will help respond to several of Defendants' motions and to Defendants' relevance objections to certain of Plaintiff's trial exhibits and deposition testimony. Other briefs, such as Plaintiff's responses to Defendants' Daubert motions, will avoid unnecessary repetition of what is contained here, but will refer the Court to this Statement. Much of Defendants' efforts to date have consisted of the creation of simple "strawmen" by mischaracterization of Plaintiff's theories and evidence, followed by attempts to limit Plaintiff's evidence to the strawman case created for Plaintiff by Defendants. Thus our analysis begins with a statement of Plaintiff's actual case.5 We do not attempt to lay out every piece of evidence, or every inference from it, that supports our case ­

5

We also note the pendency of Defendants' Motion for Partial Summary Judgment (D.I. #39). As matters stand, and in accordance with the Court's expressed preference, Plaintiff filed a Counter-Statement Certifying that Genuine Issues of Material Fact Exist (D.I. #50), and awaits the Court's directions as to whether it will deny Defendants' motion on the papers filed to date, or will require Plaintiff to file an answering brief in opposition to Defendants' motion. Thus, the record heretofore contained only Defendants' mischaracterized strawman version of Plaintiff's case. If Plaintiff must file a responsive brief, much of this Unified Statement will help explain Plaintiff's actual case, and demonstrate why summary judgment should not be granted on that case, whatever might be said of the strawman case.
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rather, our purpose is to provide the general outlines of the case succinctly to assist the Court in considering relevance, prejudice, expert testimony, and related concepts. We also point out that this Unified Statement relates only to the "jury" issues in the case. 2. Plaintiff's Case, As Stated By Plaintiff. a. Theories of liability. Defendants are correct in their observation that

Plaintiff asserts three common law causes of action to try to a jury: negligence, implied contract, and breach of fiduciary duty. The three have much in common, principally the duty of care. It is useful to analogize this case to one for professional malpractice, albeit malpractice committed by an insider and fiduciary of the victim. Plaintiff contends that Credit Suisse, well before the 2000-2002 period that will be the principal focus of most of the evidence in this case, undertook to provide financial advice to Oakwood. This embodies a main factual dispute: Plaintiff claims that Defendants undertook this role, and Defendants deny it, claiming that they merely provided securitization services, much like a supplier of lumber or stationery. Plaintiff will offer considerable evidence that Defendants undertook a broader role, particularly through Mr. O'Driscoll's actions. In the interests of brevity we will not discuss all the relevant evidence here, but some salient examples are: (1) Oakwood's executives, as a regular course, sought advice from Mr. O'Driscoll on a variety of business matters, especially in the financial area; (2) in the course of this seeking of advice, Oakwood gave him confidential information about Oakwood that Mr. O'Driscoll had no need to know if his work had actually been confined to executing securitization transactions; (3) in some cases at Oakwood's request, and in other cases entirely unbidden, Mr. O'Driscoll sought avenues of financing for Oakwood, sometimes from Credit Suisse and sometimes from others ­ the purpose, in all cases, being to hock anything that was not nailed down so as to provide temporary liquidity to sustain the "business-as-usual" death spiral that was so detrimental to Oakwood and so profitable to Credit
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Suisse; (4) when outside arm's-length lenders decided that they no longer wanted to finance Oakwood, Defendants (being the "only game in town") stepped in with the "warehouse" facility, which was, in essence, a payday loan scheme designed to keep the patient breathing until the next securitization ­ and in the course of that facility, Credit Suisse acquired a warrant for Oakwood's equity, making them, by admissions in their own documents, an "insider"; (5) Credit Suisse put together a sale to Berkshire Hathaway of low-tranche "B-2" securities that Defendants had not been able to sell on Oakwood's behalf in their underwritings of prior securitizations, which Mr. O'Driscoll negotiated on Oakwood's "behalf" with Berkshire's executives. All of this occurred even though the securitization documents did not require it. Accordingly, Credit Suisse affirmatively chose to undertake such tasks with due care, just as, for example, a lawyer whose formal retainer agreement was confined to the defense of a single lawsuit could have a far greater role if he actually gave advice on other matters. No one would argue that such a lawyer is free to commit malpractice in the course of performing his expanded duties. This is because of the black-letter principle that, while one is not obligated to perform services for another, once one undertakes to do so one must use ordinary care in the process.6 This fundamental principle prevails whether a claim for breach sounds in tort or contract. In tort, we say that one must use reasonable care; in contract, that one must deliver the services bargained for, namely competent ones. Analogizing again to a professional liability claim against a malpracticing lawyer, such as one who allows a statute of limitations to run, we would say that he is liable, either in negligence or for breach of his contract (whether expressed in a retainer agreement or merely implied from his having undertaken the work) to perform
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See, e.g., Indian Towing Co. v. United States, 350 U.S. 61, 69 (1955); Palka v. ServiceMaster Mgmt. Servs. Corp., 83 N.Y.2d 579, 585-87 (1994); Parvi v. Kingston, 41 N.Y.2d 553, 55960 (1977); Oliver W. Holmes, Jr., The Common Law, 278-79 (1881).
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according to professional standards. Of great significance is the congruity of the standard by which we assess the professional's performance: whether in tort or contract, the professional is under a duty to render competent professional services, measured by what reasonable practitioners of the same profession do ­ i.e., the standard of care. What of the fiduciary duty claim? Defendants deny that such a relationship existed, so Plaintiff will undertake the burden of proving it. There is considerable evidence of this, including the five undertakings by Mr. O'Driscoll described above; the numerous and multifaceted roles that Credit Suisse occupied vis-à-vis Oakwood; and, perhaps most glaringly, the outright admission by Jared Felt (one of Defendants' main witnesses): "We had a fiduciary duty to Oakwood."7 Mr. Felt was Defendants' principal actor regarding the formal financial advisory contract that prevailed in the last 88 days of Oakwood's existence. That contract did not mention any fiduciary duty, but it did contain an integration clause. The necessary conclusion is that the fiduciary duty Mr. Felt mentioned came from somewhere else. Precisely. And this leads directly to the law governing the existence of fiduciary relationships. This is a factual issue for the jury,8 and it is to be determined in a case-by-case,

7

(Felt Dep. Tr. at 376:5.) To lessen the burden of paper on the Court, we do not attach another copy here, but refer the Court to the Motion in Limine No. 2 contained in our recently filed consolidated motions in limine (D.I. #74 at pp. 8-13), which deals with Mr. Felt's later effort to "clarify" this testimony after a lunchtime conference with counsel, itself forbidden by the rules of this Court, the details of which were concealed behind refusals to answer questions based on a spurious claim of attorney-client privilege. See, e.g., Hugo Boss Fashions, Inc. v. Federal Ins. Co., No. 98-6454, 1999 U.S. Dist. LEXIS 17016, at *16-18 (S.D.N.Y. Nov. 1, 1999); Scott v. Dime Sav. Bank, 886 F. Supp. 1073, 1078 (S.D.N.Y. 1995), aff'd, 101 F.3d 107 (2d Cir. 1996), cert. denied, 520 U.S. 1122 (1997); Niagara Mohawk Power Corp. v. Stone & Webster Eng'g Corp., No. 88-CV-819, 1992 U.S. Dist. LEXIS 7721, at *71-72 (N.D.N.Y May 23, 1992); Langford v. Roman Catholic
11

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fact-specific inquiry to determine whether a relationship of trust and confidence exists between the parties "independent of the contractual obligation." This quotation is from Senior Judge Conner's recent succinct and scholarly collection of New York law about the subject in Lumbermens Mut. Cas. Co. v. Franey Muha Alliant Ins. Servs., 388 F. Supp. 2d 292, 304-05 (S.D.N.Y. 2005). We believe that the standard set by New York law, as explained in this case, means that in the inquiry anything is relevant if it tends to prove whether trust and confidence existed between the parties, or whether one party relied on the other for superior expertise. We will not here set forth all of the evidence that establishes the relationship in this case; the present point simply is to clarify the legal standard by which "relevance" (and any related weighing of probative value against assertions of "prejudice") should be measured. If a fiduciary relationship existed between Oakwood and Credit Suisse, it gave rise to a standard of care quite similar to the negligence and contract standard. But the fiduciary relationship adds two important wrinkles: first, "a claim for breach of fiduciary duty need not meet the standard requirements of causation and damages," Lumbermens, 388 F. Supp. 2d at 304, a point discussed below; second, there is an added duty of loyalty. As to the latter wrinkle, Plaintiff will offer considerable evidence that virtually all of the advice, express or implied, that Defendants gave Oakwood, especially as the end approached, had two characteristics: first, it was enormously remunerative to Defendants; second, it damaged Oakwood. b. Breach of duties of care and loyalty. The previous section of this Unified

Statement explained the three theories under which a duty of care arose between Credit Suisse and Oakwood, and described why the standard of care is quite similar on all three. That section Diocese, 677 N.Y.S.2d 436, 439 (N.Y. Sup. Ct. 1998). Accord, e.g., Carter Equip. Co. v. John Deere Indus. Equip. Co., 681 F.2d 386, 390 (5th Cir. 1982) ("The existence or nonexistence of a fiduciary relationship between parties is a question of fact for the jury.").
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also explained that Credit Suisse bore a duty of loyalty to Oakwood. What are these standards and how were they breached here? As in other professional liability cases, any duty owed by Credit Suisse would have required Credit Suisse to act reasonably under the circumstances. And, as is usual in such cases, Plaintiff has an expert witness to testify about the subject, Dr. Alan Shapiro. Although Dr. Shapiro's expert report does not use legal buzzwords, its substance is to analyze the economics of the various transactions Credit Suisse either engineered or participated in and their effects. After doing so, Dr. Shapiro concludes that these transactions were value-destroying and unreasonable. Dr. Shapiro also points to evidence among Defendants' own documents that Defendants knew this, knew that Oakwood faced immediate and significant bankruptcy risk as early as January 2000, and knew that Oakwood's management did not fully understand the risks, the danger, and the expected losses associated with its business-as-usual course of transactions with Defendants or engineered by Defendants. Dr. Shapiro opines that under these circumstances, Defendants had the obligation to investigate fully the effects of such transactions, to advise Oakwood that Defendants knew the transactions were not in Oakwood's best interest, and ultimately, if necessary, to refuse to participate any further. (It should be noted that this is not an opinion on the existence of any duty ­ the subject of the previous section of this Statement ­ but on standards of care and loyalty.) He also points to additional evidence of the standard of care in the form of Defendants' own manuals governing relations with Defendants' customers (including fiduciary relationships), and finds that Defendants' conduct in this case fell far short of the standards established by their own manuals. While Dr. Shapiro's conclusion as to the standard of care would obtain absent any fiduciary duty on the part of Credit Suisse, its weight (and the analysis more generally) is

13

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undoubtedly amplified by the fact that Credit Suisse was an Oakwood insider and fiduciary, who was obligated to act toward Oakwood with a degree of loyalty and care significantly beyond that normally required by the "morals of the market place" in which arms-length parties interact.9 Defendants are scornful of any notion that a "bank" ever has a duty to refrain from a transaction, but banks get no exceptions to the ordinary rules of law.10 Consider the case of a physician approached by a patient who says, "Hey Doc, give me some more of those addictive pain pills." Carried to this analogy, Defendants' position would have us say, "Well, the doctor filled out the prescription legibly, and that's what the patient wanted, judgment for defendant." But no one would deny that the physician's duty of care ­ to act reasonably under the circumstances ­ required him to investigate the patient's actual needs and weigh them against the dangers of addiction; let alone the doctor's duty, if that was his belief, to tell the patient how the pills would damage more than help; or ultimately, if the patient replied, "I know that they will harm me, but I want them anyway," to refuse to participate in damaging a patient his duty compelled the doctor to help rather than hurt.11

9

See, e.g., Meinhard v. Salmon, 249 N.Y. 458, 464 (1928) ("Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. . . . Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd."). Credit Suisse, of course, was also far more than a mere "bank" for Oakwood; rather, it was a close and intimate advisor providing various devices and schemes for Oakwood to raise short-term liquidity, a lender of its own capital (albeit in a nearly risk-free way), and a powerful warrant holder. As such, the analysis goes beyond duties typically discussed with regard to investment banks and other financial institutions, and requires Credit Suisse to act in accordance with the obligations imposed by law on corporate fiduciaries and insiders. It is also worth mentioning that Defendants misstate Plaintiff's theory by repeating that we claim Defendants had an obligation to demand that Oakwood file bankruptcy in 2001. Given
14

10

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And now suppose that doctor just happened to own the pharmacy downstairs. And then suppose further that the doctor also occupied a fiduciary status vis-à-vis the patient. c. Damages and proximate causation. It seems axiomatic to say that

Oakwood's continuation of its business-as-usual course of value-destroying transactions caused it to lose value (and garnered massive fees for Credit Suisse). But this succinct formula is Plaintiff's theory of damages here, and it must be contrasted with the absurd chain of causation posited in Defendants' strawman version of Plaintiff's case. The loss of value ("fact of damages") and the amount of that loss are established by the expert testimony of Dr. Michael Tennenbaum.12 Using dates giving the best available data (the ends of Oakwood fiscal years), he compares the fair market value ("FMV") of Oakwood's assets on September 30, 2001 with that same value on September 30, 2002 (mere weeks before the bankruptcy), and finds a diminution of $50 million. Dr. Tennenbaum does this Oakwood's addiction to the value-destroying transactions and mounting debt burden advised and engineered by Defendants, it is highly likely that if Defendants had complied with their duty, and Oakwood had stopped engaging in the value-destroying transactions, Oakwood may have had to file bankruptcy, but that is not a necessary result (the company could have been sold to someone who could finance it without the value-destroying transactions, or any number of other results could have occurred). The key point, as we show in the Damages section below, is that even if Oakwood had needed to file bankruptcy earlier than it did, it would have had a far greater value than it had after another year of value destruction.
12

Dr. Tennenbaum, in addition to the fact and amount of damages, also opines on the issue of Oakwood's insolvency as of various dates. This testimony is of significance to some "bench" issues in the case, but it also is relevant to Dr. Shapiro's opinion regarding the standard of care. Plaintiff contends that a financial advisor to a company that is insolvent or in danger of insolvency must take into account the company's obligation to pay its just debts, which, after all, is an obligation fully imposed by the law. What may be reasonable advice regarding risk and loss to an Exxon or a Microsoft may not be reasonable to a company betting creditors' money against long odds. Defendants deride Dr. Shapiro for not phrasing this standard in the verbiage du jour of the rapidly shifting case law on this subject, but it doesn't matter whether we say any third party owes a duty directly to creditors ­ what matters is that the corporation undeniably does. The real question is the reasonableness of financial advice to that corporation, taking that duty into account.
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by using the time-honored method of discounted cash-flow studies for each date. Defendants' valuation expert, Mr. Pfeiffer, criticizes Dr. Tennenbaum for not giving more weight to the "market data" approach, but using Mr. Pfeiffer's own bond price data, such an approach would have shown a loss of some $72 million, well in excess of Dr. Tennenbaum's $50 million.13 Defendants would like to conflate Dr. Tennenbaum's testimony with the legal theory of "deepening insolvency," to which they then apply adjectives such as "discredited," "moribund," and the like. Once again, Defendants are simply mischaracterizing Plaintiff's case to fit their arguments, because their attacks in no way pertain to Plaintiff's actual case. "Deepening insolvency," whatever livelihood it may have, is a comparison of the extent to which a debtor is insolvent (in the sense of an excess of liabilities over FMV of assets) on day one versus some subsequent date. But that is not what Dr. Tennenbaum has done here. If he had, he would have taken Oakwood's liabilities into account (and the damages figure would have dramatically bigger). Dr. Tennenbaum's work includes a comparison of the FMV of assets on two dates. This is pure economic damages, in the form of plain vanilla loss of asset value, and that measure of economic damages is available in addition to all the fees Credit Suisse was paid.14 See, e.g., LNC Invs., Inc. v. First Fid. Bank, N.A., 173 F.3d 454, 464-66 (2d Cir. 1999). If Defendants had their way, the effect would be to deny an insolvent company

13

Small wonder that Defendants apparently did not engage Mr. Pfeiffer actually to provide an affirmative opinion of any kind, but only to confine his work to "pot shots" (his term) at Dr. Tennenbaum. In virtually all cases, if Mr. Pfeiffer had carried his work through to an actual opinion, it would have been more favorable to Plaintiff's position than Dr. Tennenbaum's. Defendants are only able to attempt to conflate this with "deepening insolvency" on the false theory that Plaintiff is comparing the results of a hypothetical earlier bankruptcy to the actual later one. That would be deepening insolvency, and interestingly enough, one of Mr. Pfeiffer's "pot shots" is to criticize Dr. Tennenbaum for not doing it.

14

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the right to recover economic damages, ever. Consider a claim against an insurance broker who negligently fails to insure the factory against fire, causing a loss of assets of $50 million to an insolvent company ­ no one would claim this is a "deepening insolvency" measure. Yet it is no different from a financial advisor who negligently advises a corporation to engage in financial transactions that result in a $50 million loss. This harm isn't actionable because of the diminished dividend to creditors; it is actionable because the negligence resulted in the loss. "But no," say Defendants, "you can't prove that all of that loss is our fault." While on the surface this argument might seem to have some appeal, it is important to consider it in its proper place in the analysis. It is not an argument against the fact of damages, or against the amount of damages; instead, it is an argument about causation, to which we now turn. One thing the parties agree on is that the appropriate test is proximate cause. Under New York law, this has two elements, the traditional "but for" test, and a notion of foreseeability, and both parts are for the jury.15 Again contrasted with the silly "chain of causation" Defendants attempt to thrust upon Plaintiff in their summary judgment brief, the first portion is straightforward and easily stated: but for Defendants' wrongful advice, participation in, and engineering of value-destroying transactions, Oakwood would not have engaged in them. There is considerable proof of this, some of it cited by Defendants in their various briefs. It is
15

See, e.g., Stagl v. Delta Airlines, Inc., 52 F.3d 463, 473-74 (2d Cir. 1995) (discussing foreseeability aspect of proximate cause, as well as nature of issues for the jury to determine at trial); Colo. Capital v. Owens, 227 F.R.D. 181, 189-90 (E.D.N.Y. 2005) (same); Mauney v. Boyle, 865 F. Supp. 142, 147-48 (S.D.N.Y. 1994) (describing proximate cause concept under New York law, and stating that foreseeability issue is left for the jury to resolve). Accord, e.g., Grant Thornton, LLP v. FDIC, 535 F. Supp. 2d 676, 710-14, 725-29 (S.D.W. Va. 2007) (very detailed post-trial ruling finding that proximate causation and damages elements were met in a case with facts and legal issues fairly similar to those presented by the case at bar); Crowley v. Chait, No. 85-2441, 2006 U.S. Dist. LEXIS 8894 (D.N.J. Mar. 7, 2006) (denying twin motions for judgment as a matter of law and for a new trial made by defendant that lost a jury trial involving issues of proximate causation and damages broadly similar to this case).
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undeniable; but if Defendants deny it, then it is an issue of fact for the jury to decide. Now let us consider the second prong, foreseeability. Suppose Defendants had done exactly what they did, Oakwood limped along for another year, and, in the ensuing year an uninsured fire destroyed a building worth $50 million. On a purely "but for" test, a plaintiff (not this one) might say the loss would not have occurred but for the transactions. Yet in that case, no one could cogently argue that Credit Suisse should have reasonably foreseen the uninsured fire. But that case is a dramatic contrast with this one. In this one, there is proof not only that Credit Suisse could have reasonably foreseen the economic damage of its transactions with Oakwood, but also that they actually did foresee it. The most dramatic examples of this are found in the detailed and damning credit analyses done by Defendants' own employees ­ the very CRM evidence that Defendants now ask this Court to exclude as "irrelevant." In the face of such evidence, though, the jury should have little difficulty with the proximate cause element. We turn now to the fees paid to Defendants as an element of damages. The lossin-asset-value figure of $50 million, discussed above, includes fees of approximately $8,500,000 to Defendants in the year between September 2001 and September 2002.16 But Plaintiff's damages claim on such fees is not limited to that one-year period. In actuality, Plaintiff will seek damages in the form of all such fees reaching back to an earlier date in 2001, when the Credit Suisse "warehouse" (sometimes "loan purchase") facility was first approved. The total of fees paid to Credit Suisse between that date and the date of bankruptcy is nearly $21 million. Here, the "but for" element of proximate cause is easily satisfied: but for

16

Defendants have complained that these dates are arbitrary. They are free to do so. Plaintiff, recognizing that some of its potential damage claims are stronger than others, chooses to present only that evidence on which it is confident that the trier of fact will agree with Plaintiff. If Defendants can make something of that with the jury, they are free to do so.
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Defendants' participation in these wrongful transactions, the Oakwood entities would not have paid them the fees. The "foreseeability" element is also self-evident. But even if these two elements were not easily proved, damages in the form of fees paid to Defendants are the subject of the relaxed standards of causation and damages referred to in Lumbermens, 388 F. Supp. 2d 292, if the jury finds the existence of a fiduciary relationship and breach of the resulting duties. d. In pari delicto. The foregoing is a succinct statement of Plaintiff's case.

We do not attempt here to analyze every affirmative defense Defendants have raised, but since Defendants have made so much of one particular defense ­ in pari delicto ­ in their summary judgment motion, we anticipate that it will figure heavily in the future. Defendants seem to think it is the answer to all of Plaintiff's claims, largely because of strawman mischaracterizations. First, we may observe that while this is a defense to some fiduciary duty claims, particularly in the aiding-and-abetting context, it is rarely regarded as a defense to negligence, and in our opinion is improperly considered as a defense to breach of contract. See, e.g., In re Olympia Brewing Sec. Litig., No. 77-1206, 1985 U.S. Dist. LEXIS 13796, at *7 (N.D. Ill. 1985). Second, Defendant's entire presentation of this defense is based on a deep and fundamental distortion of the wrong Plaintiff alleges. The in pari delicto doctrine holds that when both parties participate in a wrong, a plaintiff may not recover. Thus, Defendants aver here that since Oakwood's management and board engaged in the value-destroying transactions, they participated in the same wrong for which Plaintiff now seeks redress from Defendants. This is intellectual sleight-of-hand. There were two wrongs here. One was the wrong committed by Oakwood's management and board: the adoption of a flawed business plan that drove their company into the ground. There is no evidence, and neither party claims, that they had any evil intent. Rather, it appears that they tried to do a good job, but they were wrong.

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In contrast, Defendants knew all too well that Oakwood's management and board did not understand the implications of the transactions they engaged in with Defendants. Defendants knew that these transactions were value-destroying, and that they would result in future losses. Oakwood relied upon Defendants' greater expertise and advice regarding the these highly complex transactions,17 but Defendants concealed their knowledge and true opinions from Oakwood, putting their stamp of approval on Oakwood's continuation of its disastrous course. This is an entirely separate wrong from the incorrect business judgment observed at Oakwood. It is a wrong wholly personal to Defendants, and there is no way one could meaningfully say that Oakwood had any involvement in it at all. As such, in pari delicto should not be an issue here.18 This difference may be shown by a simple example (the example assumes that in pari delicto applies to negligence at all): a person jaywalks, is hit by a car, and is taken to the hospital, where it is determined that a leg must be amputated. The hospital proceeds to amputate the wrong leg. No one could deny that the victim, as a jaywalker, was in the "wrong." But the wrong the victim committed was entirely different from the hospital's undeniable wrong. This analogy is directly applicable here. In fact, if Defendants' view prevails, it would write out of the

17

Another mischaracterization of Plaintiff's case that Defendants make repeatedly is that Plaintiff claims Defendants should have provided general business advice to Oakwood. This is not so. We do not claim that Defendants should have told Oakwood to hire this laborer or promote that one; or to expand this plant or to close that one. Rather, we claim that Credit Suisse, which was underwriting these same securitizations (and related transactions like warehouse lines and resecuritizations) for other manufactured housing companies and the enormous subprime market then rising hugely, had far a greater expertise and understanding of the implications of this entire financing scheme, and Oakwood relied on Defendants to do the appropriate investigation to enable them to render good advice, to give good advice, and to speak their actual knowledge about how such transactions adversely affected Oakwood. See, e.g., BrandAid Mktg. Corp. v. Biss, 462 F.3d 216, 218-19 (2d Cir. 2006); McAdam v. Dean Witter Reynolds, Inc., 896 F.2d 750, 756-58 (3d Cir. 1990); O'Halloran v. PricewaterhouseCoopers LLP, 969 So. 2d 1039, 1044-47 (Fla. Dist. Ct. App. 2007).
20

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law any cause of action for giving bad advice: "he took the advice, therefore he was in the wrong too, therefore judgment for defendant." This is also the exact situation in this case, which means such absurdity would have to be the law for Defendants' view of this defense to prevail. It isn't. Third, even if Defendants' view of in pari delicto could be applied here at all, Defendants cannot take advantage of it because of their plain status as an Oakwood insider. See, e.g., Floyd v. Hefner, No. 03-5693, 2008 U.S. Dist LEXIS 25642, at *108-09 (S.D. Tex. Mar. 31, 2008) (citing numerous cases); Stanziale v. Pepper Hamilton LLP (In re Student Fin. Corp.), 335 B.R. 539, 547 (D. Del. 2005) (Farnan, J.) ("In pari delicto will not operate to bar claims against insiders of the debtor corporation."). As we have previously set forth in great detail, this is a fact amply proved, including by documents prepared by Defendants themselves. (See D.I. #50 at pp. 7-10, and the associated evidence attached to D.I. ##56-57.) The fact that Defendants' employees bragged to each other, as early as August 2001, about how Oakwood was "very shackled" to Credit Suisse should only cement the point for the jury. Having disposed of Defendants' army of strawmen, we turn to the law applicable to the merits of their evidentiary objections and motions, all of which should be denied. B. Defendants Simply Misapprehend The Nature Of The Required Analysis Under FRE 401, 402, And 403. In their supporting memoranda, Defendants recite the proper definition of "relevant evidence" ­ viz. "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" ­ but Defendants' analysis promptly runs off the rails. (See D.I. #67 at pp. 6-7 & D.I. #70 at pp. 3-4 (each quoting Fed. R. Evid. 401).) After all, the Third Circuit has made clear that "Rule 401 does not raise a high standard," which means "that evidence is irrelevant only when it has no tendency to prove a consequential fact, and . . . while Rule 401

21

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gives judges great freedom to admit evidence, it diminishes substantially their authority to exclude evidence as irrelevant." Gibson v. Mayor & Council of Wilmington, 355 F.3d 215, 232 (3d Cir. 2004) (citations and internal punctuation omitted). Accordingly, evidence should be excluded as irrelevant under FRE 402 only if it has absolutely no connection to a live issue. Moreover, because Defendants are presently here on motions in limine, they must meet an even higher standard for exclusion, given the principle that "[e]vidence should be excluded on a motion in limine only when the evidence is clearly inadmissible on all potential grounds." Wechsler v. Hunt Health Sys., Ltd., 381 F. Supp. 2d 135, 140 (S.D.N.Y. 2003) (emphasis added). Credit Suisse further understates the level of "prejudice" that must be shown in order to justify the exclusion of evidence under FRE 403: This rule . . . . does not offer protection against evidence that is merely prejudicial, in the sense of being detrimental to a party's case. Rather, the rule only protects against evidence that is unfairly prejudicial. Evidence is unfairly prejudicial only if it has an undue tendency to suggest decision on an improper basis, commonly, though not necessarily, an emotional one. It is unfairly prejudicial if it appeals to the jury's sympathies, arouses its sense of horror, provokes its instinct to punish, or otherwise may cause a jury to base its decision on something other than the established propositions in the case. Carter v. Hewitt, 617 F.2d 961, 972 (3d Cir. 1980) (citations and quotation marks omitted). Put differently, "[p]rejudice does not simply mean damage to the opponent's cause," and thus "the fact that probative evidence helps one side prove its case obviously is not grounds for excluding it under Rule 403." Goodman v. Pa. Tpk. Comm'n, 293 F.3d 655, 670 (3d Cir. 2002) (quoting 1 MCCORMICK ON EVIDENCE § 185 at 645 (5th ed. 1999)). No unfair prejudice, no exclusion. Credit Suisse ultimately cannot deny that "[e]vidence should be excluded under Rule 403 only sparingly since the evidence excluded is concededly probative" or that "[t]he balance under the rule should be struck in favor of admissibility." Blancha v. Raymark Indus., 972 F.2d 507, 516 (3d Cir. 1992). Rather, Defendants' sole option is to satisfy their affirmative

22

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burden of proving, not simply asserting, that the probative value of Plaintiff's evidence is substantially outweighed by a real danger of unfair prejudice. See, e.g., United States v. Tse, 375 F.3d 148, 164 (1st Cir. 2004). As discussed in turn below, none of Defendants' several evidentiary attacks come anywhere close to meeting this high standard for exclusion. C. The CRM Motion Should Be Denied. It is unclear exactly what Defendants seek to preclude by the CRM Motion. Their requested relief is the exclusion of "certain testimony and documents relating to credit risk management reviews," but Defendants never specify what are those "certain" testimony and documents. Presumably they include both the Xanthos Memo and the Second Xanthos Memo, but beyond that Defendants' request is unclear (does it, for example, include correspondence between Oakwood's point person, Mr. O'Driscoll, and CRM; if so, why?). The ambiguity of Defendants' requested relief is itself grounds to deny the CRM Motion. See, e.g., Wechsler v. Hunt Health Sys., Ltd., 381 F. Supp. 2d 135, 151 (S.D.N.Y. 2003) (denying motion in limine where "Defendants do not specify any evidence that they seek to preclude," which in turn meant that "no certain forecasted evidence presents itself for a ruling in limine"). In any event, the precise scope of the CRM Motion may not matter; it is clear that all of the documents at which it could be aimed are highly relevant19 to live issues in this case and that Defendants have failed to provide any proof of countervailing "unfair prejudice."

19

Although certain of the documents are lengthy and may seem complex without a full understanding of the background facts, Plaintiff submits that much of the CRM evidence, particularly the Xanthos Memo, is among the most important evidence in this case. The portions of the Xanthos Memo quoted at the beginning of this Answering Brief are only some of the salient analysis in it. Needless to say, Defendants are also aware of the evidentiary importance of certain CRM materials, which undoubtedly explains why they have proffered an overreaching motion seeking to exclude all that evidence on a categorical basis.

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1.

All Of The CRM Evidence Is Relevant. When measured with the actual test for relevance ­ "any tendency to make the

existence of any fact that is of consequence to the determination of the action more probable" ­ it is clear that all of the CRM evidence is admissible under FRE 402, in a number of separate ways. First, and most basically, Credit Suisse New York Branch is a defendant in this case. Although Defendants profess confusion about why this is the case in their memorandum in support of the CRM Motion (see, e.g., D.I. #67 at p. 8),20 the answer should be obvious: New York Branch participated in value-destroying transactions with Oakwood for over 21 months, and received over $11 million in fees for its troubles (and an affiliated entity also received a warrant for 20% of Oakwood's equity in this deal). Thus, evidence which helps the jury understand the nature of these transactions and CRM's stated reasons for approving New York Branch's participation in them (i.e., the structure and the fees) is unquestionably relevant. Indeed, it should be noted that Defendants have recently placed Mr. Irwin on their list of trial witnesses. But Mr. Irwin's only involvement in this case was as a CRM member generally, and
20

Defendants' stated position is defeated simply by prior representations that they have made to this Court and to Bankruptcy Judge Walsh. For example, in the memorandum in support of Defendants' most recent attack on Plaintiff's jury rights, Defendants expressly argued that "[s]o central to plaintiff's theory of its fiduciary duty claim is the Loan Purchase Facility" provided by New York Branch and approved by CRM "that there could be no such claim absent those allegations about the Facility's 'value destructive' financing." (See D.I. #31 at p. 22 (emphasis added).) This statement is incorrect