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explaining that a skilled accounting professional cannot offer lay testimony about whether a practice was wrongful or should have been done differently
Summary of this case from Sec. & Exch. Comm'n v. Nutmeg Grp., LLCOpinion
Case No. 02-40648 (REG), Adversary Proceeding No. 04-02490 (REG).
February 19, 2008.
Satterlee, Stephens, Burke Burke LLP by Christopher R. Belmonte, Esq., Pamela A. Bosswick, Esq., New York City, for Plaintiff.
Seward Kissel LLP by Ronald L. Cohen, Esq., Walter A. Naeder, Esq., New York City, for Defendants.
Sanford P. Rosen Associates, P.C. by Sanford P. Rosen, New York City, Esq., for Defendants.
BENCH DECISION ON MOTIONS TO STRIKE LAY WITNESS TRIAL TESTIMONY
In this adversary proceeding under the umbrella of the confirmed chapter 11 case of Debtor Perry Koplik Sons, the plaintiff Litigation Trustee charges former insiders of the Debtor with breach of fiduciary duty. In the trial of the action, the Litigation Trustee has submitted the direct testimony affidavit of Barry Kasoff, a Certified Turnaround Professional and Certified Public Accountant, who studied the Debtor's affairs, including, inter alia, the insiders' activities. In his direct affidavit, Mr. Kasoff has described his perceptions of the defendants' acts and, in more than a few instances, his subjective views with respect to those acts, based on a combination of his review of the acts and his training and experience in business and accounting matters. But he hasn't been offered as an expert under Fed.R.Evid. 702, nor has the plaintiff complied with Fed.R.Civ.P. 26 requirements for expert disclosures.
Under the Court's case management order, direct testimony in the trial has been submitted by affidavit, with cross-examination and subsequent testimony to proceed live.
The defendants move to strike portions of the direct testimony as impermissible lay witness opinion testimony. Their motion is granted in part and denied in part, as described in the accompanying table. My conclusions of law and bases for the exercise of my discretion follow.
Fed.R.Evid. 701(a) provides, in relevant part:
If the witness is not testifying as an expert, the witness' testimony in the form of opinions or inferences is limited to those opinions or inferences which are (a) rationally based on the perception of the witness, (b) helpful to a clear understanding of the witness' testimony or the determination of a fact in issue, and (c) not based on scientific, technical, or other specialized knowledge within the scope of Rule 702.
As usual, I start with textual analysis. Under Fed.R.Evid. 701, lay opinion testimony is permissible if, but only if, the three subsections of Rule 701(a) are satisfied. I note in that connection, however, that while subsections (a) and (b) are stated affirmatively, subsection (c) is articulated in the negative. That means, as a practical matter, that lay opinion testimony is permissible if subsections (a) and (b) are satisfied, and if the testimony isn't then excluded by reason of the effect of subsection (c).
Rule 701 was amended in 2000, at which time the original language was divided by the lettered subdivisions that now appear in the Rule, and the material that is now in subdivision (c) was added. See Mueller and Kirkpatrick, Federal Evidence, § 7:1 (2007). Thus it now explicitly bars the admission of lay opinions that are "based on scientific, technical, or other specialized knowledge within the scope of Rule 702." Rule 701(c).
The Second Circuit has twice spoken to this issue, in Bank of China v. NBM LLC, 359 F.3d 171 (2d Cir. 2004), and United States v. Rigas, 490 F.3d 208 (2d Cir. 2007), in each case involving a fact pattern similar to that here, where an individual conducted an investigation of matters that preceded his arrival on the scene, and then testified about what he found.
In Bank of China, the Circuit held that the admission of lay opinion testimony that was based on a combination of a lay witness's observations and his knowledge of business custom and the business community's understanding of certain kinds of transactions and business concepts was an abuse of discretion. Admission of that testimony was held to be error because it wasn't based entirely on the witness's perceptions. The district court abused its discretion to the extent it admitted the testimony based on the witness's experience and specialized knowledge in international banking. See 359 F.3d at 181.
The Bank of China court explained that "Subsection (c) of Rule 701, which was amended in 2000, explicitly bars the admission of lay opinions that are `based on scientific, technical, or other specialized knowledge within the scope of Rule 702.'" Id., quoting Fed.R.Evid. 701(c). Testimony admitted pursuant to Rule 701 must be "rationally based on the perception of the witness." Id., quoting Fed.R.Evid. 701(a).
Thus, to the extent that the testimony was based on the perceptions of the witness, it was admissible, but to the extent that it was based on specialized knowledge, as contrasted to personal observation, it was inadmissible. See id. The Circuit clarified:
To some extent, [the investigating witness] Huang's testimony was based on his perceptions. As a Bank of China employee, Huang was assigned to investigate defendants' activities at the tail-end of their scheme and after Bank of China stopped doing business with them. Huang's senior role at the Bank and his years of experience in international banking made him particularly well-suited to undertake such an investigation and was likely a factor in the Bank's decision to assign the task to him. The fact that Huang has specialized knowledge, or that he carried out the investigation because of that knowledge, did not preclude him from testifying pursuant to Rule 701, so long as the testimony was based on the investigation and reflected his investigatory findings and conclusions, and was not rooted exclusively in his expertise in international banking. "Such opinion testimony is admitted not because of experience, training or specialized knowledge within the realm of an expert, but because of the particularized knowledge that the witness has by virtue of his position in the business."
Id., quoting Fed.R.Evid. 701 advisory committee's note (emphasis added).
I'm aware that the Bank of China court stated that testimony involving personal perception with the benefit of professional expertise was permissible so long as it wasn't "rooted exclusively" in the witness's professional expertise (there, in international banking). That could be read as suggesting that a peppercorn of personal perception would permit a great deal of lay opinion testimony, circumventing the safeguards of Fed.R.Evid. 702 and Fed.R.Civ.P. 26. I think it is truer to the language and spirit of Bank of China to try to separate the testimony based on perception from that based on opinion on an answer-by-answer basis (and individually within each answer, to the extent necessary), and in the exercise of my discretion, I will be permitting testimony only to the extent that any aspect of a larger body of testimony embodies, in material part, witness perception. See Bank of China, 359 F.3d at 181 (noting purpose of Rule 701(c) "to eliminate the risk that the reliability requirements set forth in Rule 702 will be evaded through the simple expedient of proffering an expert in lay witness clothing").
Thus, to the extent the investigating witness Huang's testimony was grounded in the investigation he undertook in his role as a Bank of China employee, it was admissible pursuant to Rule 701 of the Federal Rules of Evidence because it was based on his perceptions. But to the extent that the testimony was not based on his perceptions, it was inadmissible.
Similarly, in Rigas, the Circuit affirmed criminal convictions after a trial in which Judge Sand of the district court had permitted the introduction of testimony by Robert DiBella, a forensic accountant retained by Adelphia's new management to examine Adelphia's books and records, and to investigate transactions that had been entered into while Adelphia was operating under the Rigases' watch. Citing Bank of China, the Rigas court found the testimony admissible, as it was based on witness perception, and did not materially involve specialized knowledge with respect to the particular issues on which he was testifying. That was so even though the Second Circuit's decision at least implied (and this Court from its firsthand knowledge knows) that Mr. DiBella's witness perception — i.e., his ability to observe — was materially assisted by his accounting expertise.
My understanding of the Second Circuit's ruling in Rigas is assisted by my personal knowledge, as a consequence of Adelphia's bankruptcy case having been before me, and matters as to which I can take judicial notice. I know that Mr. DiBella had accounting expertise, because I heard testimony by Mr. DiBella, on distinct, but related, issues, myself. But Mr. DiBella's testimony in the criminal case was in material respects based on what he observed, and did not go to issues where his accounting expertise, other than his ability to explain what he saw, was material to the issues on which he was testifying. Mr. DiBella testified on matters invoking his accounting expertise to a considerably greater degree in the Adelphia bankruptcy case, without objection by any party.
Each of Bank of China and Rigas involved circumstances, like those here, where an individual wasn't personally involved in the events that were the principal focus of his testimony, and instead involved the testimony based on participation in an investigation of events that predated the witness's appearance on the scene. Rigas is particularly relevant, because it involved a situation, very similar to the one we have here, where a skilled accounting professional studied what happened before he arrived, and explained in testimony what he had discovered. That was permissible, as reflecting witness perception.
Significantly, however, in neither Bank of China nor Rigas did the Circuit endorse the admission of testimony as to the witness's views as to whether what the witness had perceived was wrongful, or as to what should have been done under the circumstances.
In support of contentions that all of the challenged testimony should be stricken, the defendants cite three other cases, all from outside the Second Circuit. See JGR, Inc. v. Thomasville Furniture Indus., 370 F.3d. 519 (6th Cir. 2004); DIJO, Inc. v. Hilton Hotels Corp., 351 F.3d 679 (5th Cir. 2003); Autoforge, Inc. v. Am. Axle Mfg., Inc., 2008 U.S. Dist. LEXIS 755 (W.D. Pa. Jan. 4, 2008). None of these, of course, could trump a Second Circuit decision on point. And in any event, they are nowhere as closely similar to the facts we have here, and to the extent they are relevant at all, they support the nuanced standard articulated by the Second Circuit in Bank of China and Rigas. None involved the testimony of a trained financial professional who had studied financial transactions and reported on what he saw.
Instead, each involved testimony on lost profits and/or the value of a business — areas where an outsider's personal perception would often be modest at best, and that traditionally would involve testimony of bona fide experts, except in cases where the actual owner of the business might have the requisite personal perception. See JGR, 370 F.3d at 524, 526 (CPA and lawyer testifying about lost profits and business value relied on information primarily obtained from plaintiff's principal); DIJO, 351 F.3d at 685 (testifying financial consultant "had little significant actual knowledge about DIJO and its operations;" contrasting ability of "business owners or officers to testify based on particularized knowledge derived from their position") (emphasis in original); Autoforge, 2008 U.S. Dist. LEXIS 755 at *19-*20 (relying on circuit court holdings that "persons outside of a business, including attorneys and financial consultants," who were not able to establish the requisite foundation of personal knowledge, "may not offer a lay opinion as to value or project lost profits of a business") (citing JGR and DIJO).
With those principles in mind, the Court will permit lay opinion testimony that reflects the perceptions of the witness Mr. Kasoff as to what happened (including, inter alia, what the defendants did) — even if Mr. Kasoff was aided in forming his perceptions by an ability, aided by his training and experience, to understand what he saw. But to the extent Mr. Kasoff seeks to testify not with respect to his perceptions, but rather with respect to views as to (a) whether what he perceived was right or wrong; (b) what should have been done; (c) what is customary in business practice; or (d) what his training and experience tell him about appropriate conduct in these cases, the testimony will be excluded.
My rulings with respect to the particular aspects of the Kasoff testimony that were the subject of the lay opinion evidence objections appear on the attached Table A to this Decision.
SO ORDERED.
Table A Rulings on Testimony In Issue
¶ # Testimony in Issue Ruling
9 "Debtor had serious issues relating to its equity and Objection sustained. clearly was in the zone of insolvency," "Koplik and Siegel knew or should have known by virtue of their positions at the Debtor of the terms of the RCF and the Trade Credit Insurance Policy. First sentence: objection 20 Siegel was responsible to the Bank for reporting sustained. Second about the Debtor's compliance with the various sentence: objection RCF covenants, and Michael Kelly, who reported overruled. directly to Siegel, was responsible for compliance with the Trade Credit Insurance Policy." "Beginning in 1997, the Debtor was experiencing financial difficulty and continued to do so through 2001. As the Debtor's financial situation began to deteriorate, it inexplicably took on extraordinary First and third sentences: credit risks, in the form of advances, loans and objection overruled. 21 other unreasonable trade and non-trade extensions Second sentence: of credit, that were disproportionate to its equity objection sustained. position. Such problems began to appear after Perry H. Koplik, the Debtor's founder, became less involved in the management of the Debtor with the defendants taking over more active roles." "In fact, one of the key factors contributing to the Debtor's financial breakdown was the absence of any objective decision-making process. Any system of internal controls employed by the Debtor was overridden routinely by defendants as the key executives involved in all key financial aspects of the Debtor. Since the Debtor's internal control processes, if any, were subject to defendants' 22 override, an environment existed that allowed Objection overruled. transactions to occur without sufficient regard for level of risk, having considerable detrimental consequences to the Debtor's business. . . . I believe that the Debtor did not have, implement or utilize any credit policy manuals as a guide to extend credit, loans, advances and/or other financial accommodations made to third-parties." "Examples of transactions entered into by the Debtor under defendants' management in the absence of any objective decision-making process include: the extension of approximately $27 million of total debt to ATC which included funding ATC's payroll on an emergency basis, the extension of non-trade credit that was not supported by proper loan documentation and clearly in violation of the RCF, the reduction of accounts receivable in exchange for uninspected, and possibly non 23 existent, inventory, the holding of post-dated Objection overruled. checks, which bounced and were re-deposited and bounced again, the extension of additional credit to ATC when it was delinquent on existing receivables, and the extension of non-trade credit and/or investment in International Supply and Agency, Ltd. and Samoa Pacific Cellulose, LLC. Thus, despite having less than $10 million of equity a part of which was illiquid, the Debtor entered into several transactions, the majority of which were with ATC, which put the Company's viability at severe risk." First sentence: objection "Without a doubt, defendants knew that ATC was was previously sustained experiencing severe liquidity problems. ATC's for testifying as to 24 grave liquidity issues were largely the result of its another's state of mind, funding the acquisition of long term assets with and is not saved by calling short term liabilities." this lay opinion. Second sentence: objection overruled. Objection was previously sustained for testifying as 24 "Despite such knowledge," to another's state of mind, and is not saved by calling this lay opinion. "Despite being aware of ATC's financial distress, First sentence portions defendants had Debtor advance approximately $27 ("Despite being aware" million to the now bankrupt ATC with knowledge and "with knowledge that a significant portion of those advances would that"): objections were be events of default under the RCF and not covered previously sustained for by the Trade Credit Insurance Policy. To extend an testifying as to another's 24 amount of trade and non-trade credit to one state of mind, and are not customer, which amount was three times the saved by calling this lay Debtor's equity, and which jeopardized its opinion. First sentence relationship with the Bank, exemplifies the remainder: objection defendants' complete lack of overruled. Second credit-risk assessment in connection with sentence: objection the Debtor's businessoperations." sustained. "These loans violated the terms of the RCF and were not covered by the Trade Credit Insurance 25 Policy; thereby endangering the Debtor's working Objection overruled. capital." "despite ATC's delinquent and/or nonexistent payments to the Debtor. The Debtor essentially served as a financier for ATC, providing millions 27 of dollars of financing for ATC's production Objection overruled. without any guarantee of payment by Kimberly Clark who only agreed to the arrangement for the month of March, 2001." "Defendants heedlessly exposed the Debtor to unwarranted risk by continuing to finance production after the end of March and by Objection to "heedlessly" depending upon ATC's relationship with Kimberly and "As defendants should 28 Clark to support the invoices. As defendants should have expected suspected" have expected, ATC bounced checks that it issued sustained. Remainder of to Kimberly Clark for the pulp purchases, resulting quoted testimony: in Kimberly Clark's offsetting its pulp receivables objection overruled. against tissue payables owed to ATC." "Defendants provided ATC with the foregoing financing in complete disregard that such actions Objection to "in complete with ATC and Kimberly Clark violated the RCF disregard," "were well and were not covered under the Trade Credit aware," and "ignoring 30 Insurance Policy. Given the bounced checks and these red flags" sustained. the continued requests for advances, defendants by Remainder of quoted March of 2001 were well aware of ATC's fiscal testimony: objection crisis. Yet, ignoring these red flags, the Debtor overruled. continued to extend trade and non-trade credit to ATC." "[the Ponderosa advance constituted an event of 31 default under the RCF,] endangering the Debtor's Objection overruled. entire business operations." "The Ponderosa advance was made in the absence of any objective decision making process on the part of defendants for the following reasons: (a) defendants knowingly engaged in the transaction without the benefit of appropriate loan documentation; (b) defendants extended to ATC an Objection to "knowingly" 32 amount equal to approximately one-quarter of its sustained. Remainder of equity at a time when ATC was long overdue on quoted testimony: receivables; (c) defendants' actions violated Bank objection overruled. covenants causing a breach under the RCF, putting its working capital and the Debtor as a going- concern at risk; and (d) defendants did not seek advice from, or discuss with, Debtor's counsel or accountants the consequences of such actions." "Since ATC had ongoing cash-flow difficulties and defendants knew that the Debtor needed to keep ATC's trade accounts receivable balance below the Objection to "defendants 36 $15 million limit of the Trade Credit Insurance knew" sustained. Policy, defendants negotiated an arrangement to Remainder of quoted reduce ATC's accounts receivable in exchange for testimony: objection approximately $3,776,941 of inventory of finished overruled. goods from Ampad, an ATC affiliate." "It is my belief that this arrangement was, in fact, an illusory transaction, designed to keep the 37 receivables below the Trade Credit Insurance Policy's limit. The Objection sustained. use of the Ampad inventory toreduce ATC's accounts receivable balances is another example of defendants embarking on a transaction without any aforethought or regard for risk." "Defendants improperly characterized APP's accounts receivable as eligible in the Debtor's borrowing base certificates for August and First sentence: objection September of 2001. The Debtor continued to extend sustained. Second 38 credit to ATC despite the latter's clearly sentence and third demonstrated inability to pay and questionable sentence fragment: viability. objection overruled. . . . endangering the Debtor's own existence." "Each of these unpaid, non-trade extensions of 42 credit in its own right constitutes an event of Objection overruled. default under the RCF." "In short, defendants caused the Debtor to engage in numerous high risk transactions by extending approximately $8.5 million of non-trade credit to ATC for the latter's purchase or funding of various under performing mills without the benefit of First and third sentences: obtaining any supporting loan documentation or objection overruled. 43 consulting with Debtor's attorneys. If known by the Second sentence: Bank, such breaches of the RCF would have objection sustained. resulted in the acceleration or refinancing of the loan or the restructuring and/or liquidation of the Debtor's business. Thus, each and every non-trade extension of credit put the Debtor's working capital and, consequently, the Debtor's viability at risk." First sentence: objection "No reasonable person would believe that putting sustained. Second the Debtor's business at risk was worth the unlikely sentence, portion stating benefit of transacting business with ATC. Indeed, it "and, to the best of my 44 is questionable whether defendants conducted any knowledge, no document type of assessment of the high risks associated with exists evidencing such the non-trade credit transactions with ATC, and, to assessment or analysis": the best of my knowledge, no document exists objection overruled. evidencing such assessment or analysis." Remainder of sentence: objection sustained. "Likewise, defendants' reliance on ATC's proposed bond offering was given without the benefit of any objective decision-making process or advice from professionals. Defendants did not analyze the financial statements supporting the bond issue. Instead, defendants somehow claim to have relied Third sentence: objection upon the prospectus and alleged due diligence sustained. Remainder of 45 conducted by UBS Warburg, despite knowing that testimony in this ATC's true financial condition was not accurately paragraph: objection depicted therein, in part, because defendants failed overruled. to disclose the extraordinary loan transactions outlined above. The Debtor's history shows that, after ATC's prior bond offering in 1999, the Debtor's business with ATC declined even though ATC had the cash flow to engage in such business." "As the years progressed and the Debtor's financial condition deteriorated, it became increasingly more reliant on ATC as a customer. Defendants' reliance, however, was disproportionate with the actual amount of revenue produced by ATC. In 1998- 1999, the revenue generated by sales to ATC represented approximately 13%-14% of the total revenue of the Debtor. However, in 2000, the Second sentence: revenue generated by sales to ATC dropped to objection sustained. 46 approximately 7% of the Debtor's total revenue, Remainder of testimony in and, while sales to ATC picked up in 2001, to equal this paragraph: objection approximately 10% of the Debtor's total revenue, overruled. those sales were a function of ATC's difficulty in obtaining credit from other companies. Moreover, the Debtor was not receiving the cash generated from those sales in 2001 since almost all of the sales in 2001 to ATC were on credit. The Debtor sold approximately $28 million to ATC in 2001 but collected only a few million dollars for those sales on a net basis during that same time period." "The Debtor unnecessarily continued to enter into high risk transactions and to extend unjustifiable amounts of credit to ATC despite defendants' knowledge of ATC's illiquidity. Such illiquidity was clearly evident by February of 2001, . . . First and second The Debtor's receivables from ATC were not being sentences: objection paid in a timely manner. Days-sales-outstanding sustained. Remainder of 48 skyrocketed to 120 days in February of 2001 and quoted language in this were not paid in cash. The Debtor chose to re-age paragraph: objection or extend the credit terms to ATC on those overruled. receivables from 30 days to 60 days and then to 90 days all in violation of the Trade Insurance Credit Policy. By April, ATC could not even cover its own checks and bounced approximately $4 million in checks to the Debtor between May and June of 2001." "In short, the Debtor was extending credit beyond that which a reasonable business person would extend under terms that no reasonable business person would have extended to ATC. To extend such an extraordinary amount of trade and non- trade credit to a customer while jeopardizing its First and second banking relationship is not prudent business. sentences: objection 49 . . . sustained. Third sentence: As a result, Koplik, without the benefit of any objection overruled. objective analysis, outside legal or accounting advice, or Board of Directors' input, extended additional credit to ATC for trade and non-trade transactions until ATC's bond offering could theoretically be completed." 50 "In addition to the extraordinary transactions Objection overruled. entered into with ATC," "The transaction with Samoa both violated the RCF and generated a significant loss to the Debtor. 55 Again, no legal advice was sought in connection Objection overruled. with the alleged loans, and, consequently, no rational decision-making process was employed." "Somewhat suspiciously, only after RST questioned the loan, . . . First sentence: objection The memo written by Siegel is inconsistent with the sustained. Second and Debtor's audited financial statements for the years third sentences: objection 1996 through 2000, for which Siegel was overruled. Fourth 58 responsible, since such documents show the loan as sentence: objection to an asset without any offsetting liability. Notably, portion "It is my belief this loan was in addition to the base salary paid to that such salary was Siegel in the amount of $300,000. It is my belief excessive" sustained, but that such salary was excessive given that the objection to remainder majority of Siegel's services were performed from overruled. his home in Florida away from the Debtor's actual daily business operations." "To the best of my knowledge and given the exorbitant salaries already received by defendants, 59 the Debtor did not receive fair consideration and/or Objection sustained. reasonably equivalent value in exchange for the Transfers." "The Debtor violated the RCF and/or entered into transactions not covered by the Trade Credit Insurance Policy by, among other things, funding ATC's various acquisitions of mills such as the Ponderosa, Keiffer Paper and Shelby mills, funding the production of goods for sale to Kimberly Clark, extending certain working capital loans to ATC, 61 providing loans, advances and/or excessive Objection overruled. compensation to the Debtor's officers and employees and their relatives, advancing funds with respect to Willendra and his company and Samoa, borrowing against ineligible accounts receivable and improperly applying payments to reduce ATC's accounts receivable rather than APP's accounts receivable." "Since each of these transactions, in and of itself, violated the RCF and constituted events of default thereunder, the Bank was entitled to accelerate the indebtedness of the Debtor due under the RCF. 66 Accordingly, the Debtor essentially was rendered Objection overruled. insolvent upon its first unauthorized transaction with ATC. Simply put, without the ability to access funding or working capital, the Debtor could not meet its obligations to others." First sentence: objection sustained with respect to "it was completely irrational for the "Moreover, it was completely irrational for the defendants to believe that defendants to believe that the Debtor could recover the Debtor could recover under the Trade Credit Insurance Policy, when, in under the Trade Credit violation of such policy, the Debtor allowed the Insurance policy," and days-sales-outstanding to get inordinately high and overruled with respect to then reached an agreement, without the insurance "in violation of such 67 carrier's knowledge or consent, with ATC to re-age policy, the Debtor allowed its receivables from 30 to 60 to 90 days. The the days-sales-outstanding Debtor also accepted payment for such receivables to get inordinately high in inventory without even inspecting the same and then reached an solely for the purpose of reducing the ATC agreement, without the receivables to within the policy's limits and insurance carrier's improperly reduced ATC's receivables instead of knowledge or consent, those belonging to the true party in interest." with ATC to re-age its receivables from 30 to 60 to 90 days." Second sentence: objection overruled. "In addition, the Debtor withheld information regarding ATC's true financial condition. ATC's bounced checks, its inability to fund its own payroll, and its wholesale dependence on ATC's bond offering are huge red flags which should have put the defendants on notice to take steps to limit its exposure to ATC in a proper fashion. The Trade Credit Insurance Policy is not a guaranty for any loss irrespective of defendants' actions. When 68 defendants became aware of these red flags, they Objection sustained. had an obligation to take steps to reduce the Debtor's exposure to ATC or run the risk that the insurance company would not cover such obligations. Defendants illogically chose to accept that risk. Under these circumstances, no rational person would believe that the Trade Credit Insurance Policy would cover the extraordinary amount of credit extended to ATC, and defendants' reliance on the same as a safety net is completely unjustifiable." Portion "defendants neither evaluated the "Similarly, defendants clearly could not rely on the creditworthiness of the guarantees issued by Mehdi Gabayzadeh, former guarantors and their CEO of ATC, and Super American Tissue, an ATC respective assets nor 68 n. 1 affiliate, to recover the sums owed by ATC since requested any security defendants neither evaluated the credit worthiness of with respect to same": the guarantors and their respective assets nor objection overruled. requested any security with respect to the same." Remainder of quoted sentence: objection sustained. "Over the course of those three days, RSI reviewed 69 the Debtor's assets, liabilities, and equity and Objection overruled. concluded by October 28, 2001, that the Debtor was in the zone of insolvency." "Based on this further analysis, it grew clear that the Debtor became insolvent between March and June of 2001. 70 . . . Moreover, the Debtor clearly was in violation of Objection overruled. the RCF at that time and, without the ability to have funding from the Bank, would have no working capital, rendering it insolvent."