Irving H. Picard, Trustee for the Liquidation of B v. Zraick, Jr., individually and as joint tenant et a

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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SECURITIES INVESTOR PROTECTION 	:
CORPORATION, 	: 	Adv. P. No. 08-01789 (SMB)
:
Plaintiff, 	: 	SIPA LIQUIDATION
:
-against- 	: 	(Substantively Consolidated)
:
BERNARD L. MADOFF INVESTMENT 	:
SECURITIES LLC, 	:
:
Defendant. 	:
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In re: 	:
:
BERNARD L. MADOFF, 	:
:
Debtor. 	:
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:
IRVING H. PICARD, trustee for the liquidation :
of Bernard L. Madoff Investment Securities 	: 	Adv. P. No. 10-05257 (SMB)
LLC 	:
:
Plaintiff, 	:
:
-against- 	:
:
EDWARD A. ZRAICK, JR., et al. 	:
:
Defendants. 	:
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MEMORANDUM DECISION GRANTING DEFENDANTS’ MOTION TO
EXTEND THE REBUTTAL EXPERT DISCLOSURE DEADLINE
A P P E A R A N C E S:
BAKER & HOSTETLER LLP
45 Rockefeller Plaza
New York, NY 10111
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David J. Sheehan, Esq.
Keith R. Murphy, Esq.
Maximillian S. Shifrin, Esq.
Of Counsel
Attorneys for Irving H. Picard, Trustee
for the Liquidation of Bernard L. Madoff
Investment Securities LLC
HUNTON & WILLIAMS LLP
200 Park Avenue
New York, NY 10166
Robert A. Rich, Esq.
Attorneys for Defendants
STUART M. BERNSTEIN
United States Bankruptcy Judge
The Defendants have moved to extend the deadline for rebuttal expert disclosure
and to compel the production of documents. (Zraick Defendants’ Motion for Entry of
an Order (I)(A) Extending Time for Rebuttal Expert Disclosures By Twelve Days or (B)
In the Alternative, Declaring Defendants’ Rebuttal Expert Report Timely Served; and
(II) Compelling the Production of Documents Concerning Securities Listed on
Defendants’ Customer Statements, dated Mar. 6, 2017 (“Motion”) (ECF Doc. # 67).)1
The Court denied the motion to compel from the bench and reserved decision on the
motion to extend the rebuttal expert disclosure deadline. For the reasons that follow,
that branch of the Motion is granted.
1 	“ECF Doc. # __” refers to documents filed on the electronic docket of this adversary proceeding
and “ECF Main Case Doc. # __” refers to documents filed on the electronic docket of the BLMIS SIPA
liquidation, In re BLMIS, No. 08-01789 (SMB).
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BACKGROUND
Irving H. Picard (the “Trustee”), as trustee for the liquidation of Bernard L.
Madoff Investment Securities LLC (“BLMIS”) under the Securities Investor Protection
Act, 15 U.S.C. §§ 78aaa, et seq. (“SIPA”), filed a complaint against Edward A. Zraick, Jr.,
Nancy Zraick, Patricia Zraick DeLuca, Karen Rich, and the estate of Lorraine Zraick (the
“Zraick Parties”) seeking to avoid and recover their withdrawal of fictitious profits,
aggregating $285,000, from their BLMIS accounts as intentional fraudulent transfers
under section 548(a)(1)(A) of the Bankruptcy Code. (See Amended Complaint, dated
Feb. 3, 2012 (ECF Doc. # 15).) In accordance with the Order (1) Establishing Litigation
Case Management Procedures for Avoidance Actions and (2) Amending the February
16, 2010 Protective Order, dated Nov. 10, 2010 (ECF Main Case Doc. # 3141) 2, the
parties filed their Case Management Notice, dated Dec. 2, 2015 (ECF Doc. # 46). The
Case Management Notice established November 16, 2016 as the deadline for the
Trustee to disclose his experts and December 16, 2016 as the deadline for the Zraick
Parties to disclose their rebuttal experts.
The Trustee timely served his expert reports on November 16, 2016, which the
Zraick Parties received the next day. The Trustee’s production consisted of (1) a 1135
page Expert Report of Bruce G. Dubinsky MST, CPA, CFE, CVA, CFF, MAFF, dated Aug.
20, 2013 (“Dubinsky Report”)3 who opined, among other things, that BLMIS’
2 	The procedures set forth in the Avoidance Procedures Order apply in avoidance actions in which
the Trustee seeks to recover $20 million or less, and the Trustee or the defendant(s) files a notice of
applicability on the docket of the adversary proceeding. (See Avoidance Procedures Order, Ex. A, § 1.A.)
The Trustee filed a notice of applicability when he commenced this case. (See ECF Doc. # 2.)
3 	A copy of the Dubinsky Report is annexed as Exhibit B to the Motion.
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investment advisory business did not engage in legitimate trading “at least as far back as
the 1970s,” 4 (2) two separate expert reports of Matthew B. Greenblatt, CPA/CFF, CFE
(“Greenblatt Reports”) 5 who analyzed the chronological principal balance calculations
for the Zraick Parties’ BLMIS accounts, and (3) the expert report of Lisa Collura
(“Collura Report”) 6. On December 16, 2016, counsel for the Zraick Parties wrote to the
Court asking for an extension of the December 16 deadline to disclose their rebuttal
experts. (See Letter, dated Dec. 16, 2016 (“Dec. 16, 2016 Letter”) (ECF Doc. # 61).) The
Dec. 16, 2016 Letter gave two reasons. First, the Zraick Parties needed more time to
coordinate with defense counsel in similarly situated cases for joint retention of rebuttal
experts because it was not practical for them to retain their own expert given the
amounts involved. (Id. at 2.) Second, the Zraick Parties intended to file a motion in
limine to limit the proposed testimony of Greenblatt and Collura because their expert
reports were based on hearsay and were not the type of hearsay that could be reasonably
relied on by an expert. (Id.) In response, the Court scheduled a conference for
December 29, 2016.
In the meantime, other events were occurring relevant to the pending Motion. By
way of background, Madoff has steadfastly maintained that his Ponzi scheme began in
1992, and before then, he was engaged in legitimate trading. If so, it would mean that
any profits earned before 1992 were not fictitious. This might reduce a defendant’s
potential claw back liability in a fraudulent transfer action brought by the Trustee. In
4 	Dubinsky Report at ¶ 18.
5 	A copy of one of the Greenblatt Reports is annexed as Exhibit G to the Motion. The other
Greenblatt Report was not submitted with the Motion.
6 	The Collura Report was not submitted with the Motion.
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July and August 2016, various defendants, including the Zraick Parties, requested the
opportunity to take Madoff’s deposition on this and other issues. (See Notice of Zraick
Defendants’ Request to Participate in the Deposition of Bernard L. Madoff, dated Aug.
4, 2016 (ECF Main Case Doc. # 13838).) The Court granted the request and entered an
order authorizing the defendants in those cases where the discovery deadline had not
expired to take Madoff’s deposition on limited issues related to the start date and scope
of the BLMIS Ponzi scheme, and the interpretation of BLMIS books and records. (See
Order Authorizing the Deposition of Bernard L. Madoff (“Madoff Deposition Order”),
at ¶¶ 1-7, dated Sept. 29, 2016 (ECF Main Case Doc. # 14213).) The Madoff Deposition
Order extended fact discovery in those cases for the “limited and sole purpose of taking
Madoff’s deposition,” but allowed interested parties the “right to move the Court for
further discovery based upon Madoff’s testimony.” (Id., ¶ L.)
On December 20, 2016, the Zraick Parties and other participating defendants
completed the first day of Madoff’s deposition. 7 Madoff was particularly critical of the
Dubinsky Report. Although Madoff did not question Dubinsky’s conclusions regarding
the Ponzi scheme and the fictitious trading after 1992, (Madoff Depo. at 84:5-24), he
challenged Dubinsky’s understanding of how convertible bond trading was conducted in
the 1980s, his conclusion that the Ponzi scheme began in the 1970s, and his opinion that
the profits shown in the pre-1992 customer statements were fictitious. He testified, in
substance, that prior to 1992 and the initiation of the split strike strategy, see In re
BLMIS, 654 F.3d 229, 231 (2d Cir. 2011) (“The split-strike conversion strategy
7 	A redacted copy of the December 20, 2016 Madoff deposition transcript is available at ECF Doc. #
16237-9, and references to it will be denoted as “Madoff Depo. at __:__.”
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supposedly involved buying a basket of stocks listed on the Standard & Poor’s 100 Index
and hedging through the use of options.”), cert. denied, 567 U.S. 934 (2012), Madoff
conducted a legitimate convertible bond trading business, and those trades were real.
(Madoff Depo. at 100:9-13.)
The Madoff deposition changed the focus of the Zraick Parties’ request. At the
December 29, 2016 conference, they asserted that Madoff’s deposition revealed
additional facts which would be germane to a rebuttal expert in this case. The Court
granted the Zraick Parties a thirty-day extension after receipt of the Madoff deposition
transcript to disclose their rebuttal experts. Accordingly, the new deadline was set for
February 2, 2017.
On February 2, 2017, counsel to the Zraick Parties again wrote to the Court
requesting a further extension of their rebuttal expert deadline. (See Letter, dated Feb.
2, 2017 (“Feb. 2, 2017 Letter”) (ECF Doc. # 64).) Counsel alluded to the lengthiness of
the Dubinsky Report, and stated that the Zraick Parties were “finalizing the retention of
their own expert” to rebut it. (Feb. 2, 2017 Letter at 1-2.) At a February 9, 2017
conference scheduled at the Zraick Parties’ request, the Court stated that it was not
inclined to grant yet another extension but stated that counsel could move for such
relief. (Transcript of Feb. 9, 2017 Hearing at 38:12-18 (ECF Doc. # 67-3).)
The Zraick Parties served the report of their rebuttal expert, Bill Feingold (the
“Feingold Report”) 8, twelve days late on February 14, 2017, and filed the Motion on
8 	A copy of the Feingold Report is annexed as Exhibit A to the Motion.
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March 6, 2017. They asserted that good cause existed to grant the additional extension
to February 14, 2017, because the Feingold Report “addresses a critical issue in this
adversary proceeding. . . .” (Motion at ¶ 25.) The Motion was not, however,
accompanied by an affidavit or declaration by counsel explaining the reasons for the
delay, and the Trustee objected, arguing that the Zraick Parties had failed to show
diligence in procuring a rebuttal expert. (See Trustee’s Memorandum of Law in
Opposition to Defendants’ Motion to Extend the Rebuttal Expert Disclosure Deadline
and Compel Discovery, dated Mar. 22, 2017, at 4-6 (ECF Doc. # 68).)
The Court held a hearing on the Motion on March 29, 2017, but adjourned the
matter because counsel for the Zraick Parties had failed to provide evidence to support
the Motion. Thereafter, defense counsel filed the Declaration of Robert A. Rich In
Support of Motion for Entry of an Order Extending Time for Rebuttal Expert
Disclosures by Twelve Days on Apr. 12, 2017 (“Rich Declaration”) (ECF Doc. # 71), and
the Court held a subsequent hearing on May 3, 2017.
DISCUSSION
Rule 16(b)(4) of the Federal Rules of Civil Procedure, applicable to this adversary
proceeding pursuant to Rule 7016 of the Federal Rules of Bankruptcy Procedure, states
that a deadline in a scheduling order “may be modified only for good cause and with the
judge’s consent.” “[A] finding of ‘good cause’ depends on the diligence of the moving
party.” Parker v. Columbia Pictures Indus., 204 F.3d 326, 340 (2d Cir. 2000). “In
other words, the movant must show that the deadlines cannot be reasonably met despite
its diligence,” and if “a party was not diligent, the good cause inquiry should end.” Rent-
A-Ctr. v. 47 Mamaroneck Ave. Corp., 215 F.R.D. 100, 104 (S.D.N.Y. 2003) (citations,
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quotation marks, and alterations omitted). A lack of prejudice to other parties will not
excuse a lack of diligence, Oppenheimer & Co. Inc. v. Metal Mgmt., Inc., No. 08 Civ.
3697 (FM), 2009 WL 2432729, at *3-4 (S.D.N.Y. July 31, 2009), adopted by No. 08 Civ.
3697 (LTS), 2010 WL 743793 (S.D.N.Y. Mar. 2, 2010), but a court may consider
prejudice as a secondary factor. Wolk v. Kodak Imaging Network, Inc., 840 F. Supp. 2d
724, 736 (S.D.N.Y. 2012), aff’d, 569 F. App’x 51 (2d Cir. 2014).
The record establishes diligence given the task at hand. On November 17, 2016,
counsel received four reports from the three experts, and Dubinsky’s alone spanned 1135
pages including 169 pages of narrative and opinions. Dubinsky was retained in June
2011, his report is dated August 20, 2013, and he worked two years to produce it.
Moreover, the task was arduous. Dubinsky testified on October 30, 2013 at the criminal
trial in United States v. Bonventure, 10 Cr. 228 (LTS) (S.D.N.Y.) that his analysis took
an enormous amount of time, effort and expertise to put together, (Transcript of
October 30, 2013 Trial at 1579:20-25 (ECF Dist. Ct. Case No. 10 Cr. 228 Doc. # 824)),
and his employer, Duff & Phelps, had been paid $30 million to date. (Id. at 1579:24-
1581:5.)
The Case Management Notice, issued before these reports were disclosed in this
adversary proceeding, gave the Zraick Parties only thirty days to rebut them.
Furthermore, this is a $285,000 lawsuit; counsel acted reasonably in first attempting to
coordinate the submission of a joint rebuttal report with other defendants to defray the
costs. (Rich Declaration at ¶ 4.) In addition, the Madoff deposition transcript
concentrated the Zraick Parties’ focus on obtaining an expert that could rebut the part of
the Dubinsky Report addressing convertible bond trading. (Id. at ¶ 7.) It took the
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Zraick Parties until the end of January 2017 to retain Mr. Feingold, (id.), and he
completed his report within two weeks. The combination of the number and length of
the Trustee’s expert disclosures, the short amount of time the Zraick Parties had to rebut
them and the economic limitations that they faced demonstrates that it was
unreasonable to expect them to meet the deadline set in the Case Management Notice
and the extended deadline ordered by the Court despite their diligence, and justifies the
twelve day extension that they seek.
The Trustee complains that the Rich Declaration’s description of what counsel
did without specifying what he did on a particular day is fatal. (Letter from Keith R.
Murphy, Esq. to the Court, dated Apr. 24, 2017, at 4 (“Most fundamentally, the
Declaration fails to provide even a single date that any specific action was taken with
respect to Defendants’ retention of a rebuttal expert.”) (emphasis in original) (ECF Doc.
# 73).) In the first place, the Trustee does not cite any authority requiring that type of
granular detail as a precondition to showing good cause. In the second place, it is
unnecessary in this case. The Court is familiar with the Trustee’s expert reports and
Madoff’s deposition testimony. The need for additional time to locate an expert in
convertible bond trading, especially in light of the amount involved in the adversary
proceeding, is apparent without the need to detail the day to day efforts the Trustee
insists is required in every case. Finally, and as a secondary consideration, the Trustee
admits that he will not be prejudiced by the receipt of the Feingold Report because, he
contends, the conclusion that Madoff engaged in legitimate convertible bond trading
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until 1992 would not change the outcome of this adversary proceeding. 9 (See Transcript
of May 3, 2017 Hearing at 36:12-37:15 (ECF Main Case Doc. # 15969).)
Accordingly, the Motion is granted to the extent of extending the deadline for the
Feingold Report to February 14, 2017, and is otherwise denied. The Trustee may take
Mr. Feingold’s deposition within thirty days of the date of this memorandum, after
which the parties should contact chambers to arrange a conference for the purpose of
scheduling the trial or other disposition of the adversary proceeding. Submit order.
Dated:New York, New York
June 28, 2017
/s/ Stuart M. Bernstein
STUART M. BERNSTEIN
United States Bankruptcy Judge
9 	The Court questioned the Trustee’s counsel why the Trustee simply did not stipulate solely for the
purpose of this adversary proceeding that the Ponzi scheme began in 1992, allow the Zraick Parties to file
the Feingold Report and save the costs and avoid the delay caused by this entire dispute dating back to
December 2016. The Trustee’s counsel replied that “the trustee has a commitment to the truth and he is
reluctant to stipulate to anything that is at odds with the facts.” (Transcript of May 3, 2017 Hearing at
39:11-19.)
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