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United States v. Rapower-3, LLC

United States District Court, D. Utah, Central Division

March 14, 2018

UNITED STATES OF AMERICA, Plaintiff,
v.
RAPOWER-3, LLC, INTERNATIONAL AUTOMATED SYSTEMS, INC., LTB1, LLC, R. GREGORY SHEPARD, NELDON JOHNSON, and ROGER FREEBORN, Defendants.

          MEMORANDUM DECISION AND ORDER DENYING DEFENDANTS' [319] MOTION IN LIMINE TO EXCLUDE TESTIMONY REGARDING DAMAGES RELATING TO DISGORGEMENT OF FUNDS

          DAVID NUFFER UNITED STATES DISTRICT JUDGE

         Defendants have moved to exclude “Plaintiff's proposed evidence regarding damages relating to disgorgement of funds” because “Plaintiff has failed to timely disclose any computation…of damages” and “to timely designate an expert” witness.[1] Plaintiff responded in opposition.[2] Defendants replied.[3] For the reasons set forth below, Defendants' Motion is DENIED.

         Defendants seek, pursuant to Rule 26(a)(1)(iii), to prohibit the Plaintiff from introducing evidence of disgorgement because “Plaintiff failed to properly and timely disclose” “any documents or other evidentiary material on which any computation of damages or disgorgement is based.”.[4] Plaintiff responds that “Rule 26(a)(1) does not require disgorgement calculations to be disclosed, and [they] disclosed all information that supports [their] disgorgement calculations.”[5] This is correct. “Disgorgement is not a damages remedy, and therefore ‘the disclosure required by Rule 26(a)(1)(A)(iii) is inapplicable.'”[6] Furthermore, Plaintiff “timely disclosed the bank records and tax returns underlying [their disgorgement] calculations.”[7]

         Defendants claim they would be prejudiced by Plaintiff's ability to “put on evidence of damages or disgorgement that Plaintiff failed to properly and timely disclose.”[8] Plaintiff responds “[i]t is nonsensical [for Defendants] to claim prejudice because [Plaintiff] did not disclose information [Defendants possess].”[9] Defendants should know the total amount of lenses sold and how much money was derived from those sales. Defendants are “not prejudiced by the [Plaintiff's] failure to disclose a precise calculation of disgorgement because [they are] in at least as good of a position, if not better, as the [Plaintiff] to calculate the ill-gotten gains [they] received.”[10] Moreover, Defendants have repeatedly withheld information from Plaintiff regarding the basis for disgorgement, despite being ordered to do so.[11]

         Defendants also complain that they have not had the opportunity to examine experts who must necessarily present disgorgement evidence.[12] Plaintiff asserts that “[n]o specialized expertise is required to perform the [disgorgement] calculations.”[13] Plaintiff will present “evidence on disgorgement through summary witnesses who reviewed the same voluminous documents that [were] timely disclosed to Defendants, and who will be available for cross-examination.”[14] These witnesses reviewed Defendants' bank accounts and tax returns of Defendants' customers and synthesized this information into Excel to “calculate Defendants' gross receipts and estimate the harm to the Treasury.”[15] Assuming sufficient foundation is laid and the testimony is not otherwise objectionable, a witness with “personal knowledge or perception acquired through review of records” may testify from her lay opinion testimony.[16] In this situation, no expertise is required.

         ORDER

         IT IS HEREBY ORDERED that

         (1) Defendants' Motion[17] is DENIED.

         (2) The parties shall meet and confer and make an attempt to find a time for Defendants to depose JoAnna Perez and Amanda Reinken, only on the subject of the exhibits as to which they will testify and their preparation of those exhibits. Neither deposition shall consume more than three hours.

         (3) The parties must submit briefs on or before noon March 26, 2018 on the measurement and proof of a disgorgement amount. Specifically, the parties must provide legal authority for (1) measuring disgorgement by the amount of (a) taxes avoided by investors in Defendant RaPower; (b) gross profit of RaPower; (c) net profit of RaPower; (d) income of individual defendants from RaPower; or any other measure, and (2) who, in the event net profit is a proper measure, bears the burden of proof on expenses RaPower incurred in its business.

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Notes:

[1] Defendants' Motion in Limine to Exclude Testimony Regarding Damages Relating to Disgorgement of Funds (“Motion”), docket no. 319, at 1, 9, filed March 5, 2018.

[2] United States' Memorandum in Opposition to Defendants' Motion in Limine to Exclude Testimony Regarding Damages Relating to Disgorgement of Funds (“Opposition”), ...


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