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Gilliland v. Hergert

July 1, 2008

DAVID L. GILLILAND, SOUTHEASTERN IMAGING GROUP, LLC, PLAINTIFFS,
v.
JONATHAN K. HERGERT, DEFENDANT.



The opinion of the court was delivered by: Terrence F. McVerry United States District Court Judge

MEMORANDUM OPINION AND ORDER

Before the Court for consideration and disposition are numerous motions in limine: Plaintiffs' MOTION IN LIMINE TO PRECLUDE EVIDENCE OR ARGUMENT CONCERNING PLAINTIFF GILLILAND'S PERSONAL FINANCES (Document No. 109); Plaintiffs' MOTION IN LIMINE CONCERNING EVENTS RELATED TO PLAINTIFFS' ALLEGED ROLE IN THE CESSATION OF MAIN HOLDING'S BUSINESS OR IN DEFENDANT'S INVOLVEMENT IN MATTERS RELATED TO ITS MEDICAL RECORDS (Document No. 110); Plaintiffs' MOTION IN LIMINE TO PRECLUDE EVIDENCE OR ARGUMENT CONCERNING COMPLAINTS FILED IN ADVANCE OF THE TIME PLAINTIFFS KNEW THAT DEFENDANT HERGERT WAS A MANAGER OF MAIN HOLDING OR THE TIMING OF DISCOVERY IN THIS ACTION (Document No. 111); Plaintiffs' MOTION IN LIMINE TO PRECLUDE EVIDENCE AND/OR ARGUMENT REGARDING ISSUES THIS COURT HAS ALREADY DETERMINED AS MATTERS OF LAW (Document No. 112); Plaintffs' MOTION IN LIMINE TO PRECLUDE EVIDENCE OR ARGUMENT BY DEFENDANT HERGERT THAT PROPORTIONATE, COMPARATIVE OR CONTRIBUTORY NEGLIGENCE MIGHT MITIGATE DEFENDANT'S JOINT AND SEVERAL LIABILITY FOR SECURITIES FRAUD (Document No. 113); Defendant's MOTION IN LIMINE TO EXCLUDE CERTAIN TESTIMONY BY PLAINTIFFS' EXPERT WITNESS DOUGLAS M. BRANSON (Document No. 114), with brief in support; Plaintiffs' MOTION IN LIMINE TO PRECLUDE EVIDENCE OR ARGUMENT THAT PLAINTIFFS MUST PROVE SCIENTER, REASONABLE RELIANCE, AND/OR OTHER ELEMENTS OF CLAIMS UNDER FEDERAL RULE 10B-5 THAT DO NOT APPLY TO THEIR CLAIMS UNDER THE PENNSYLVANIA SECURITIES ACT (Document No. 116); Defendant's MOTION IN LIMINE TO EXCLUDE EVIDENCE OF GERAMITA'S ALLEGED CONVERSION OF FUNDS (Document No. 117), with brief in support; Defendant's MOTION IN LIMINE RELATING TO ALLEGED PUNITIVE DAMAGES (Document No. 119), with brief in support; Defendant's MOTION IN LIMINE TO CLARIFY THAT THE AUGUST 16, 2004 NOTE IS NOT A SECURITY IN MAIN HOLDING (Document No. 121), with brief in support; and Defendant's MOTION IN LIMINE TO PRECLUDE HEARSAY TESTIMONY REGARDING COMMUNICATIONS BETWEEN GILLILAND AND GERAMITA (Document No. 123), with brief in support. Responses have been filed (Document Nos. 125-135) and the Court further notes the errata filed at Document No. 136. The motions are ripe for disposition and will be addressed seriatim.

As a preliminary matter, some of the pending motions are targeted at evidence that one party guesses that the opposing party might present. Some of these motions were unnecessary in light of the clarifications and representations made in response. The time and expense of filing such motions may have been minimized through a more cooperative and forthcoming interaction among counsel.

Gilliland's Personal Finances (# 109)

Plaintiffs seek to prevent Hergert from offering evidence regarding Gilliland's personal wealth or the amount he obtained from the sale of Geodax Technology, Inc. Plaintiffs are willing to stipulate that Gilliland is a "sophisticated investor" and do not object to questions regarding Gilliland's experience and knowledge in the industry. The motion is directed only at the "actual dollar figures" involved. Defendant contends that the evidence is material and that a stipulation is inadequate. Defendant contends that the jury is entitled to understand the magnitude of Gilliland's previous investments and successes, which are probative of the reasonableness of Gilliland's claimed reliance on representations made by Hergert and/or Geramita.

Defendant's response is not directed at the narrow relief sought by Plaintiffs. Defendant is entitled to thoroughly explore Gilliland's experience and knowledge in the industry, including his prior investments, and Plaintiffs do not contest this point. Defendant may also solicit evidence that Gilliland's prior investments were profitable. However, the Court agrees with Plaintiffs that the "actual dollar figures" involved in earlier, unrelated transactions are not relevant to any of the issues in this case and therefore should be excluded pursuant to F.R.E. 401. Any possible relevance is outweighed by the danger of unfair prejudice, confusion of issues, misleading the jury and waste of time such that "actual dollar figures" would be excluded under F.R.E. 403.

Accordingly, Plaintiffs' MOTION IN LIMINE TO PRECLUDE EVIDENCE OR ARGUMENT CONCERNING PLAINTIFF GILLILAND'S PERSONAL FINANCES (Document No. 109) is GRANTED.

Events re Closure of Main Holding (#110)

Plaintiffs seek to exclude evidence and argument related to cessation of the business operations of Main Medical Holdings, LLC ("Main Holding"), Mid Atlantic Imaging, Inc., and Main Medical Ventures (collectively, the "Main Medical Companies") and preservation of patient diagnostic imaging records as set forth in sections G and H of Defendant's pretrial statement. Plaintiffs contend (1) that such evidence is irrelevant because it occurred several months after the alleged misrepresentations at issue and will confuse the jury; and (2) that Defendant is estopped because he refused to produce discovery regarding the closure of the Main Medical Companies on the grounds of relevance. At a minimum, if Defendant is permitted to introduce such evidence, Plaintiffs seek the production of all relevant documents and an opportunity to conduct follow-up discovery.

In response, Defendant now contends that the matters are "highly relevant." Specifically, Defendant intends to argue that Gilliland's last-minute decision in February 2005 not to make a major equity investment in Main Holding was the proximate cause of his damages. Defendant further argues that his personal and voluntary investment of time to preserve medical records refutes Plaintiff's theory that the fear of losing legal fees motivated Hergert to make misrepresentations. Defendant does not address the estoppel argument, except to state that Plaintiffs' document requests were "overbroad" and did not pertain to the topics in sections G and H of the pretrial statement.

The Court agrees with Plaintiffs. As an initial matter, Hergert objected to document requests targeting the closure of the Main Medical Companies because they sought "information which is irrelevant to any issue involved in this action." It is simply not accurate to now portray this as an objection to overbreadth. Defendant stonewalled this specific discovery by claiming it to be irrelevant and he will have to live with the consequences of having taken that position. In any event, the Court agrees (with both parties) that information regarding the closure of the Main Medical Companies and the efforts to preserve medical records is not relevant to the Pennsylvania Securities Act, negligent misrepresentation and unlawful concerted action claims that will be presented to the jury. Gilliland entered into an agreement dated August 16, 2004 and Southeastern entered into an agreement dated December 17, 2004. The Main Medical Companies abruptly ceased operations in May 2005, some six to nine months later. This trial concerns Hergert's alleged conduct in inducing Plaintiffs to enter into the agreements in 2004. It is simply not a defense for Hergert to argue that Gilliland's own refusal to make a further influx of cash several months later caused the company to fail and was the proximate cause of his damages. It was entirely reasonable for Gilliland -- who allegedly believed that he was a victim of fraud -- not to invest any more money. Moreover, the complicated circumstances of the closure would introduce numerous confusing and irrelevant issues. Defendant contends that there would not be any side trials, but then launches into the "hotly disputed" question of whether he had a legal duty to represent the Main Medical Companies in a state court lawsuit brought by the Pennsylvania Attorney General regarding preservation of medical records -- which amply illustrates the danger of permitting such evidence.*fn1 Thus, the Court concludes that F.R.E. 403 dictates exclusion of this testimony/evidence. Defendant may explore the interactions Gilliland had with Geramita during the August 2004-February 2005 timeframe, including the negotiations regarding an equity infusion, but Defendant may not introduce evidence regarding the closure of the Main Medical Companies or argue that Gilliland caused the failure, nor may Defendant introduce evidence or argument regarding his efforts to preserve medical records maintained by the Main Medical Companies.

Accordingly, Plaintiffs' MOTION IN LIMINE CONCERNING EVENTS RELATED TO PLAINTIFFS' ALLEGED ROLE IN THE CESSATION OF MAIN HOLDING'S BUSINESS OR IN DEFENDANT'S INVOLVEMENT IN MATTERS RELATED TO ITS MEDICAL RECORDS (Document No. 110) is GRANTED.

References to Procedural Issues (#111)

Plaintiffs seek to exclude evidence and argument concerning the facts that: (1) Hergert was not named as a Defendant in the original complaint; and (2) Plaintiffs did not take Geramita's deposition prior to his death. Plaintiffs argue that the procedural history of the case has no probative value and would only confuse and mislead the jury. Defendant opposes the motion and contends that the procedural history is relevant to the credibility of the witnesses. Defendant apparently seeks to surmise to the jury that Gilliland did not name him as a defendant in the original complaint because Gilliland had ordered Geramita not to reveal his identity to Hergert.

The Court agrees with Plaintiffs. Litigation decisions (such as the naming of Defendants or the scheduling of depositions) were likely made by Plaintiffs' lawyers, and thus, do not reflect on Gilliland's credibility. Moreover, the procedural history is not relevant to the underlying facts of the case and would introduce multiple misleading and fruitless side issues which would only serve to confuse the jury and lengthen the trial.*fn2

Accordingly, Plaintiffs' MOTION IN LIMINE TO PRECLUDE EVIDENCE OR ARGUMENT CONCERNING COMPLAINTS FILED IN ADVANCE OF THE TIME PLAINTIFFS KNEW THAT DEFENDANT HERGERT WAS A MANAGER OF MAIN HOLDING OR THE TIMING OF DISCOVERY IN THIS ACTION (Document No. 111) is GRANTED.

Law of the Case (# 112)

Plaintiffs seek to preclude evidence and argument regarding issues that the Court has already decided in its earlier rulings. Specifically, Plaintiffs point to Defendant's pretrial statement, in which Hergert states that he intends to re-argue (1) that the August 16 Note is not a "security," (2) that he cannot be held liable under 70 P.S. § 1-503 for Geramita's alleged misconduct and cannot be liable without an adjudication of Geramita's liability, (3) that the law firm bill did not constitute a "pecuniary interest," and (4) that he cannot be liable because Gilliland was anonymous. Defendant has responded to each topic and Court will address them seriatim.

1. August 16 Note

Defendant preserves his disagreement with the Court's ruling that the August 16 Note is a "security" but recognizes that it is a settled issue. Defendant correctly observes that the Court did not decide whether the security was issued by Geramita or Main Holding, an issue that will be addressed supra. Defendant further observes that the Note will be in evidence and its terms will be available for use in ...


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