USA v. Carney, et al

OCR transcription for search; preserved printed pages are authoritative

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IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS

FAYETTEVILLE DIVISION
UNITED STATES OF AMERICA PLAINTIFF
V. CASE NO. 5:25-CR-50005-001 & -002
JASON BOYD CARNEY and
LACEY CHRISTINA CARNEY DEFENDANTS
OPINION AND ORDER

Before the Court are the Government's Seventh Motion in Limine to Admit Expert
Testimony (Doc. 102) and Defendants’ Motion in Limine to Exclude Expert Testimony
(Doc. 104) concerning the Government's proposed witness Heather Larkin. For the
reasons explained below, both Motions are GRANTED IN PART AND DENIED IN PART.

|. BACKGROUND

According to the Government, Ms. Larkin is an expert in the field of non-profit
business requirements, including best practices,’ policies, and procedures for non-profit
financial oversight and management. She has served for the past eighteen years as
President and CEO of a non-profit called the Arkansas Community Foundation, Inc.,
which, according to her CV (Doc. 102-2), is the largest grantmaker in the State in terms
of numbers of grants awarded and does business with thousands of other non-profits

each year. The Government seeks to qualify Ms. Larkin as an expert witness under

1 These “best practices” include: common financial controls for non-profits, standard
record-keeping requirements, the roles of accountants and bookkeepers in non-profit
financial management, common conflicts of interest, the selection and training of board
members, salary determinations, and budgeting and spending oversight. See Doc. 102-
1, p. 4 (Expert Disclosure).

AUTHENTICATED
U.S. GOVERNMENT.
INFORMATION

GPO

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Federal Rule of Evidence 702 based on her specialized knowledge, skill, experience, and
training regarding non-profits.

In the Government's view, Ms. Larkin’s testimony will aid the jury in understanding
non-profit management and governance, which will, in turn, help them assess whether
the Carneys had the requisite intent to use 2nd Milk funds to commit fraud or were willfully
blind to the fraudulent use of such funds. Ms. Larkin is expected to testify about her
experience in running a large non-profit and opine that a well-functioning non-profit should
maintain by-laws, codes of ethics, and conflict-of-interest policies subject to oversight and
review; and that a non-profit’s directors should review tax forms and supporting financial
data before submitting them to the IRS. She also plans to explain to the jury how well-
functioning non-profits go about setting executive salaries, instituting common financial
controls, utilizing accountants and bookkeepers, and avoiding potential conflicts of
interest. Finally, the Government expects Ms. Larkin will testify about non-profit formation
requirements under state and federal law, including filing and auditing requirements, uses
of revenue, and hiring and compensation. See Doc. 102-1, pp. 3-4. The Government
insists that it will not go so far as to ask her “to opine on whether 2nd Milk breached any
... duties [of care] or whether the Defendants committed any fraudulent acts.” (Doc. 136,
p. 3).

The Carneys view Ms. Larkin’s expected testimony as irrelevant and unnecessary
at best, and likely to confuse the jury or be unduly prejudicial at worst. Accordingly, their
Motion in Limine (Doc. 104) asks the Court to exclude Ms. Larkin’s testimony under Rules
402 and 403. They submit that their alleged failure to follow “best practices” in running

2nd Milk does not mean they are guilty of federal crimes; however, they fear the jury may

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become confused about the import of Ms. Larkin’s testimony and find them guilty simply
because they did not satisfy Ms. Larkin’s standards for appropriate non-profit governance.
Furthermore, they object to Ms. Larkin instructing the jury on the contours of Arkansas
non-profit law and offering legal opinions as to whether 2nd Milk was in compliance, as
that testimony would invade the duty of the Court to instruct the jury on the relevant law.
ll. LEGAL STANDARDS

Rule 702 of the Federal Rules of Evidence governs the admissibility of expert
testimony. Under the Rule, proposed expert testimony must satisfy the following
prerequisites: (1) the testimony must be based on scientific, technical, or specialized
knowledge that is useful to the finder of fact in deciding the ultimate issue of fact; (2) the
witness must be qualified to offer such testimony; and (3) the testimony must be reliable
or trustworthy in the evidentiary sense, so that if the finder of fact accepts it as true, it will
provide the assistance that the finder of fact requires. See Lauzon v. Senco Prods. Inc.,
270 F.3d 681, 686 (8th Cir. 2001). The district court has a “gatekeeping” obligation to
make certain that all testimony admitted under Rule 702 satisfies these prerequisites. See
Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 597-98 (1993). An expert’s opinion
should only be excluded if it “is so fundamentally unsupported that it can offer no
assistance to the jury.” Bonner v. ISP Techs., 259 F.3d 924, 929 (8th Cir. 2001).

According to the Advisory Committee’s Note on Rule 702, it may be important in
some cases “for an expert to educate the factfinder about general principles, without ever
attempting to apply these principles to the specific facts of the case” such as by
“instruct[ing] the factfinder on the principles of thermodynamics, or bloodclotting, or on

how financial markets respond to corporate reports, without ever knowing about or trying

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to tie their testimony into the facts of the case.” Such “generalized testimony” may help
the factfinder “address a subject matter” the factfinder knows little about. /d. But by the
same token, expert testimony is not always necessary: “Where the subject matter is within
the knowledge or experience of lay people, expert testimony is superfluous.” Ellis v. Miller
Oil Purchasing Co., 738 F.2d 269, 270 (8th Cir. 1984).

lil. DISCUSSION

The Carneys do not dispute that Ms. Larkin is qualified to educate the jury on
general principles of non-profit formation, governance, auditing, revenue, and hiring.
Instead, they claim her testimony is not necessary in the first place. However, if the Court
disagrees and is inclined to let her testify, the Carneys think it likely that she will attempt
to offer ultimate conclusions as to their state of mind and opine as to their guilt. Further,
they fear Ms. Larkin’s “best practices” testimony will cause the jury to believe that if 2nd
Milk’s recordkeeping, financial controls, and personnel decisions fell below the standard
of care (according to Ms. Larkin), the jury should find the Carneys guilty of fraud.

The Court has considered both sides’ positions and finds Ms. Larkin qualified
under Rule 702 to offer general testimony on the structure, governance, policies, fiduciary
responsibilities, and management of non-profit entities, given her experience working with
her own non-profit and many others. This testimony is likely to assist the jury in
understanding facts that the average layperson would not know and that are integral to
the pending charges of wire fraud, conspiracy to commit wire fraud, structuring
transactions to evade reporting requirements, and tax fraud. Ms. Larkin’s testimony in this
regard will also provide helpful context to the jury as they assess the Carneys’ respective

roles in the non-profit as CEO and CFO.

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Ms. Larkin will not be permitted to offer legal conclusions or opinions that apply
corporate governance concepts to the case’s specific facts. She is prohibited from opining
as to whether either or both of the Carneys breached their fiduciary duties or broke the
law. These guardrails will avoid both jury confusion and the possibility of unfair prejudice
to the Carneys under Rule 403.

IT IS THEREFORE ORDERED that the Government's Seventh Motion in Limine
(Doc. 102) and the Carneys’ Motion in Limine to Exclude Testimony (Doc. 104) are both
GRANTED IN PART AND DENIED IN PART, as stated above.

agit
IT 1S SO ORDERED on this ive day of May,

MST Lig OKs
CHIEF U D STATES DISTRICT JUDGE