2008 Chapter 11 Open Forum: Year In Review

strike portions of the testimony as an improper lay opinion. After expanding on the Second Circuit's interpretation of Rule 701 of the Federal Rules of Evidence, the court concluded that the testimony may be stricken to the extent that the testimony strayed from the witness' personal perception of the insiders' actual activities. That is to say, evidence based on the witness' experience in the industry should be stricken to the extent that it discussed what conduct should be considered right or wrong, appropriate or inappropriate, and customary or abnormal. The court then attached to the opinion a chart containing its ruling with respect to each of the witness' offending statements (would make highly practical flash cards for your associates and law clerks).

• In re WorldCom, Inc., 377 B.R. 77 (Bankr. S.D.N.Y. Oct. 2007) (Gonzalez, J.)
• Adverse inferences from former employees' invocation of the Fifth Amendment was not warranted under the circumstances. The claimants asserted misrepresentation and fraud claims under California state law against the debtor and one of its subsidiaries. According to the claims, the debtor allegedly induced the claimants to sell their stock as part of a merger with the debtor's subsidiary. The court found that the subsidiary did violate state law. The claimants further sought to hold the debtor liable for those violations. To do so under California law, the claimants were required to prove that the debtor was in control of the wrongdoer (i.e., the debtor controlled its own partially-owned subsidiary). The claimants asked the court to draw adverse inferences against the debtor based on several of the debtor's former executives' invocation of Fifth Amendments rights against self-incrimination. However, control over its partially-owned subsidiary could not so easily be inferred, said the court, solely from the former employees' refusal to testify. The claimants could not establish how the questions which the former employees refused to answer were relevant to whether the debtor controlled its subsidiary. Further, noted the court, the claimants could not demonstrate the compatibility of interests between the former executives and the debtor, nor could they establish the degree of control or influence the debtor had over its former executives. Under these circumstances, concluded the court, an inference of the debtor's control was unwarranted.
• In re Kmart Corp., 371 B.R. 823 (Bankr. N.D. Ill. July 2007) (Sonderby, J.)

The debtor's fault in failing to retain and produce potentially relevant information did not warrant sanctions for spoliation. The claimant filed an administrative claim seeking damages for breach of contract and tortious misconduct, and the debtor objected to the claim. After months of discovery, the claimant moved for sanctions on the basis of spoliation. First, said the court, the "trigger date" for preserving potentially relevant information was not necessarily the date that the claim was filed, nor was it necessarily the date that the debtor filed its objection. Instead, because the claim in this case was sufficiently detailed, the "trigger date" was the date upon which the debtor first reviewed the claim. Second, the court considered the levels of culpability for spoliation: bad faith, willfulness, and fault. While the debtor was, no doubt, at fault for failing to employ some form of a litigation hold, the court found that claimant did not present evidence sufficient to find that the debtor acted willfully or in bad faith. Absent such a finding (and, without evidence of prejudice to the claimant), the court concluded that sanctions were not warranted. Said the court, widespread destruction is not tantamount to a presumption