VENTURE INDUSTRIES CORP. v. AUTOLIV ASP
Oral Argument · Case 2005-1537 · 37:40
0:04
Judge Dyk
So now we'll move on to the second venture case.
0:08
This is No. 05-1537, Venture Industries Corporation v. Autolive.
0:18
Appellant Attorney
And again, we have Mr. Green.
0:27
May it please the Court, Autolive in this appeal is appealing to the Court's denial of its motion for a new trial pursuant to Rule 60B2 and Rule 60B3.
0:39
The issue we submit on our appeal is whether the Court applied an improper legal standard on the B3 and the P2 grounds.
0:50
But before I address that, I would like to respond to the question the Court instructed that we be prepared to respond to in argument.
1:01
Judge Dyk
It's a little surprising that neither side cited Frage or Schreiber in their briefs.
1:11
They seem to be fairly pertinent cases, even though they're not applying Sixth Circuit law.
1:17
They are our cases.
1:18
Appellant Attorney
Yes, Your Honor, they are.
1:24
All I can say, I think, to that is at the time we became involved in the 60B motion, the way it was framed to the district court,
1:35
it did not seem that it would be appropriate at that time in that court.
1:41
To be raising a claim as to a duty on the other side to advise the Court.
1:47
But if I may address the Court's question, our view is that Ventures Counsel and Ventures itself did have an obligation to apprise the Court and apprise Autolive of the information regarding the unreliability of their financial,
2:07
reported financial statements and the information regarding the unreliability.
2:11
of the statements at the Grand Blanc plant, that's the plant where the covers would have been produced, which they call Vemco, and those statements, they also had an obligation, we submit, to tell us that they had restated those plant statements to make corrections.
2:29
The statements were relied upon by their expert, in part, for his damages calculation, they were produced.
2:36
Judge Dyk
But at the time that the counsel discovered,
2:41
the problem was the financial statements, the case was on appeal.
2:45
Yes, the case was on appeal.
2:47
So that's a difference from the Schreiber.
2:49
Appellant Attorney
It is a difference from trial, judge, but I don't think,
2:53
the duty,
2:55
to,
2:56
apprise the Court
2:58
and the opposing party
3:00
of material facts that you have learned
3:04
have been misstated or were incorrect or incomplete
3:09
expires at trial.
3:10
If we looked to,
3:11
to Rule 26E of the Federal Rules of Civil Procedure or Rule 3.3 of the Model Rules of Professional Conduct,
3:20
neither rule terminates such a duty at the time of trial,
3:27
and the model rules make it very clear that such a duty terminates only at the conclusion of the proceedings,
3:35
which the comments to the rule explain to be the time at which all times for appeals have expired.
3:44
Haven't you waived this point by not raising it in your brief?
3:49
No, Your Honor, I don't believe we've waived the point.
3:54
Our point is they did engage in discovery misconduct, and the judge was wrong in that,
4:01
but the standard he applied is wrong,
4:05
and it doesn't matter whether it's discovery misconduct or not.
4:09
What matters is whether or not there was a deliberate act of fraud or misrepresentation in the case.
4:16
So we believe that whether the court agrees with us that there was a duty to disclose
4:25
and agrees with us that we haven't waived it,
4:28
then that would be clearly discovery misconduct,
4:30
and even under the standard Judge Cohn applied,
4:34
then R-60B.
4:35
3 motion would be granted.
4:37
But we also take the position that if the court were to disagree with us or believe we waived it,
4:43
the appropriate standard under 60B.
4:45
3 is not limited to discovery misconduct.
4:49
It's any misconduct or fraud that takes place and affects the procurement of a judgment.
4:58
Judge Dyk
So what's the standard here in terms of showing a relationship
5:04
between the court and the judge?
5:05
Well, first of all, it's the fraud in the jury verdict.
5:08
I mean, here we have a situation where Judge Cohn
5:11
has made extensive findings about the lack of relationship,
5:17
and he says, he concludes that this would not,
5:21
that if the correct information had been made available,
5:24
this would not have affected the jury verdict.
5:27
And the question is, while those findings were made in the context of the B-2 motion,
5:33
the newly-discovered evidence motion,
5:35
Why doesn't that carry over to B3 and show that there's no effect on the jury verdict from the fraud, if we call it?
5:48
Appellant Attorney
There are a few questions embedded in there, Judge. Let me try to take them in order, if I can.
5:54
The standards under B2 differ from the standards under B3 as an initial matter.
6:01
Under Sixth Circuit law and the Jordan-Packard case, we cite...
6:07
Judge Prost
Which is a non-precedential?
6:08
Appellant Attorney
It's an unpublished case, but under the local rules in the Eastern District of Michigan, parties are allowed to cite that case if they believe it has precedential value.
6:19
And under the standard articulated in that case, Judge, once a party shows that there has been a fraud or a misrepresentation,
6:29
any deliberate act of the type of misconduct...
6:31
referred to in Rule 60, then there is a presumption, in all cases, that it has had a material effect.
6:41
Unless the opposing party can show, by clear and convincing evidence, that there was no prejudice at all, that's under Rule 60 B3.
6:54
Under Rule 60 B2, the findings Your Honor was referring to, we believe the court...
7:02
applied the wrong standard to determine what is and what is not material.
7:07
What the court essentially did is to take the evidence...
7:11
Judge Dyk
Did it apply the wrong standard for B2 purposes?
7:14
Appellant Attorney
For B2 purposes as well, Your Honor.
7:17
Because what the court essentially did is it took the misstatements that had been identified in the various forensic accounting reports
7:26
and tried, in an isolated fashion, to quantify them in dollars...
7:32
and cents to see how much they would or they wouldn't have affected Mr. Levko's testimony
7:37
and then ultimately relied on Mr. Levko's statement that they wouldn't have changed his mind at all.
7:43
We submit that's the wrong way to look at the evidence.
7:46
The way the evidence should be looked at is not in that balkanized, compartmentalized sense, but as a whole.
7:53
And the proper question is, if the jury had heard this evidence, would it likely affect their outcome?
8:01
Would it probably...
8:02
affect their outcome?
8:03
That's essentially what we submit, what the Schreiber case also says.
8:07
Judge Dyk
But I'm not clear, in terms of B2, how did he apply the wrong standard?
8:12
As I understand the standard under B2, it's whether it clearly would have resulted in a different verdict.
8:17
Appellant Attorney
That is the standard, but I submit, Your Honor, what that standard means, and it's similar to what this court determined in its...
8:23
I think back in 1985 in its Yachts America case.
8:27
That's a probability assessment.
8:29
And what the question that has to be asked...
8:32
If the jury heard this, would it probably result in a different outcome?
8:36
And I don't think that's what the court did.
8:39
I think the court...
8:40
Well, what was different about what the court did?
8:43
The court tried to quantify how big a difference the evidence would make in its mind,
8:49
and determined, relying on Mr. Levko's testimony, that it wouldn't have made any difference,
8:54
because Mr. Levko said he wouldn't change his mind.
8:57
I think that's actually inconsistent with the court's own comments,
9:01
at the close of the April 29th evidentiary hearing, when the court stated on the record,
9:07
gee, if the jury heard that, it really would have caused them to doubt.
9:12
It would have covered the trial.
9:14
OK, but what about the B3 standard?
9:18
On the B3 standard, prejudice does not have to be established by auto lead,
9:26
because under Jordan versus Packard, as soon as there is a deliberate act,
9:31
Mr. Levko said,
9:31
the court would make a decision.
9:32
misconduct referred to in Rule 60, prejudice is assumed in all cases,
9:38
unless the other side can show by clear and convincing evidence that there's been none at all.
9:43
Judge Prost
And did you argue, because on the B-3, it seems that the district court's focus was virtually entirely on the discovery fraud.
9:50
Yes.
9:51
But did you argue something other, I mean, what we're talking about, what you've been talking about with Judge Dyke,
9:55
is not the discovery fraud issue, but that other aspect of B-3.
9:58
Yes.
9:58
Appellant Attorney
Was that raised?
9:59
Yes, the whole April 29th evidentiary hearing and the briefs we submitted after that hearing
10:06
are all about the misstatements in their financials.
10:09
We did not claim in that hearing that they didn't give us those improper financials.
10:15
Certainly we had that argument that there was discovery misconduct as well, but that was not the sole argument.
10:22
We had an independent argument that the whole April 29th hearing was about was the misconduct and fraud here,
10:29
was the reliance by the expert in his damages model on evidence that was tainted by fraud or misconduct.
10:39
And the court essentially ignored that argument, Your Honor, and dealt simply with discovery misconduct,
10:46
which is inconsistent with the wording of the rule.
10:48
The rule contains no limitation that the only kinds of conduct it can consider is discovery misconduct.
10:55
The Lonsdorff case from the Seventh Circuit makes it clear that,
11:00
however, misconduct doesn't have to take place in the proceeding, much less in discovery.
11:05
Indeed, the rule itself, when it talks about fraud, it says, including what was previously referred to as extrinsic or intrinsic fraud.
11:15
Extrinsic fraud, when they used to use those terms, was fraud outside the case.
11:20
Intrinsic fraud was fraud in the case.
11:22
So the conduct—
11:23
Judge Prost
But the judge ultimately concluded, after an extensive discussion of the facts in the witness's testimony,
11:29
that—
11:30
that even assuming the fraud—I mean, I think we can infer from what he said—
11:35
even assuming the fraud, didn't he conclude that the other side, even if it has the burden that you suggest under Jordan,
11:40
had met that burden, because there was absolutely no relationship between the relevant testimony
11:47
that their damages witnesses gave in terms of damages and the so-called reliance on the fraudulent information?
11:57
Appellant Attorney
I think in the B-3 section of his opinion,
12:00
Judge, he did not conclude that.
12:02
Judge Prost
But can we take his discussion of that testimony under the B-2 and place that in the B-3,
12:11
and therefore, doesn't his discussion and his analysis and his conclusion with respect to the relevance or non-relevance of the fraud aspect?
12:18
Appellant Attorney
No, Judge, I would submit you can't do that, because even if one were to apply his B-2 materiality analysis to the B-3,
12:29
Judge, he did not conclude that. I think—
12:30
Judge, I would submit you can't do that, because even if one were to apply his B-2 materiality analysis to the B-3,
12:30
argument, all the core in the—in his B-2 materiality analysis found that auto leave had not presented evidence,
12:40
clear and convincing evidence, that would show it had a material effect.
12:44
He did not find that Venture did—presented evidence that—by clear and convincing evidence to show that it had no effect at all.
12:54
Indeed, his own comment at the close of trial, I think, is just the opposite.
12:59
Moreover, there was evidence we submitted in connection with the B-2 of an expert witness, Mr. Dages,
13:09
that showed using Mr. Levko's own methodologies and own assumptions for testing the effect,
13:16
the effect of these misstatements could be as much as $5 million on the damages verdict.
13:22
That was—
13:22
Judge Prost
Wait, wait, let me—I'm sorry to interrupt, but, I mean, you're right, you know, that they talk about auto leave and whether they've made out the case,
13:28
but he does alter—
13:29
Sure. I mean, you're right, you know, that they talk about auto leave and whether they've made out the case, but he does alter—
13:29
I mean, you're right, you know, that they talk about auto leave and whether they've made out the case,
13:30
and ultimately conclude that the bid data used by Levko to form his damages opinion was separate and independent
13:35
from the grand blank facility plant-wide financial data.
13:39
Isn't that conclusion sufficient to satisfy, assuming they have a burden under Jordan or whatever,
13:46
of clear and convincing evidence?
13:48
Isn't that finding sufficient?
13:50
Appellant Attorney
No, Judge, I—again, I submit it's not, because Mr. Levko himself testified,
13:55
and the Court, in another section of his opinion, quoted it, where he relied—
14:00
on grand blank plant financials up to and including June 30, 2003, and those financials were misstated.
14:10
Mr. Levko—
14:10
Judge Dyk
Those were just used as a check, not his other numbers.
14:13
Appellant Attorney
No. Excuse me, Your Honor, if I can just—
14:21
At page 118 of—Mr. Levko testified, and I'm reading from page 29 of the transcript question,
14:39
and in order to back out from those bid sheets, the dollars that you believed were attributable to fixed cost,
14:48
you relied on the Levko plant-wide income statements for 1996 through June 30, 2003.
14:56
Is that not correct?
14:57
I used them in my calculations, yes, to do the analysis,
15:01
but I also looked at the actual studies of these programs, which show the contribution margin.
15:06
Question.
15:07
Did you use the actual studies to—
15:09
Did you use the actual studies to make your calculation?
15:10
Answer.
15:11
I used them to check.
15:12
That's the actual studies.
15:14
Question.
15:16
Answer.
15:17
You did not use the actual studies to make your calculation.
15:21
Answer.
15:22
I used the financial statements to actually, as I said, categorize the cost.
15:28
Question.
15:28
So the financial statements were the data.
15:30
The plant-wide financial statements are the data on which you relied in actually making the calculations you submitted to the jury,
15:38
not the studies you listed.
15:40
Answer.
15:41
That's correct.
15:42
I used the studies as a check.
15:44
The actual plant-wide calculations he used, so—
15:50
Judge Dyk
If we were to hypothetically agree with you that there was prejudice here on the B3 theory,
16:01
why should that result in anything more than a new trial on the damages issue?
16:06
I believe that's what would result in, Judge.
16:08
I would agree with that.
16:10
Does Judge Lin have any questions?
16:12
Thank you.
16:15
I think you've covered all of my issues.
16:21
We'll restore your rebuttal time.
16:27
Appellee Attorney
I'd like to start with the last discussion because without reading this in some context, it gets a little confusing.
16:35
Mr. Levko was being questioned about the way in which he used the plant-wide financial statements, unaudited plant-wide financial statements.
16:46
That's an important point.
16:48
He was using the unaudited.
16:49
And those appear at Trial Exhibit 7247.
16:55
And those unaudited financial statements were what he was utilizing to do two things.
17:02
In this case, the colloquy that goes back and forth between Mr. Levko and counsel concerns the ratio between fixed and variable cost.
17:11
And the ratio between fixed and variable cost is not impacted by increase or decrease in production costs.
17:18
It remains the same.
17:19
And that argument about ratios was really abandoned by Autoliv in the proceeding below.
17:25
Because Mr. Levko has offered testimony, underdone testimony, that the ratios are not impacted by the changes that were made in the inventory and payables issues in connection with the plant.
17:38
Judge Prost
Okay.
17:38
But let's leave that a moment and go back to our earlier discussion with Mr. Green, which involved the legal standard that was applied to analyze this evidence.
17:48
Yes.
17:49
I would agree, would you not, that the district court judge's analysis of Mr. Levko's testimony and all of this information was in the context of whether or not Autoliv had met its burden to show that there would have been a different result.
18:06
Correct?
18:06
Appellee Attorney
I believe that the judge's finding, which is reflected in his opinion at pages 63 of the appendix, 62 of the appendix.
18:21
He says, Autoliv has not...
18:27
Judge Dyk
Which page of the opinion is this?
18:29
Page 8 of the opinion.
18:30
No, but my copy is the copy that's attached to the blueberry.
18:36
Appellee Attorney
The appendix?
18:37
Judge Dyk
This is the judge's opinion you're talking about.
18:39
Appellee Attorney
It's page 8.
18:40
Page 8?
18:41
Yes.
18:42
ADD 9.
18:45
He concludes in discussing the 60B3 analysis.
18:49
ADD 2.
18:50
No, I'm now looking at the section above the 60B2 section.
18:54
Okay.
18:54
The last paragraph.
18:55
Based on the record, Autoliv has not come close to establishing a likelihood that fraud, misrepresentation, or misconduct occurred during the pretrial that would cause the court to consider a further evidentiary hearing on its B3 claim or granting a new trial on damages.
19:13
Judge Prost
Okay.
19:13
Well, let's assume, then, that we've established that there's fraud, and so the prong remaining is whether or not that would have affected it.
19:22
Would you agree, then, with the other side?
19:24
That under Jordan and elsewhere, it would have been your burden, therefore, to come forward with clear and convincing evidence that it did not affect the trial?
19:32
Appellee Attorney
That is not the law of the Sixth Circuit.
19:34
As the court is well aware, the Jordan case is an unpublished decision that creates this burden shifting that does not exist anywhere else in Sixth Circuit authority.
19:44
In fact, the standard, as the court I'm sure is aware, is that it may have affected the impact.
19:52
That is the standard in virtually every case.
19:54
That is the standard in all the other circuits that have addressed this issue.
19:56
Judge Dyk
Well, in our case, as in Frage and Schreiber, we seem to say that we're not going to speculate as to whether it had an effect.
20:04
If there was B3 misconduct, that may be the end of it.
20:09
Appellee Attorney
Well, and that is certainly, the court has brought to our attention, the Schreiber case.
20:14
And that's what the Schreiber case says.
20:16
This court is well aware of what the Schreiber case says.
20:19
Has the court had the benefit of the supplemental filing that we filed in connection with the question?
20:24
Judge Dyk
I don't think we've received anything.
20:29
Appellee Attorney
It was submitted overnight and by fax.
20:32
Overnight last night?
20:33
No, overnight for receipt yesterday and by fax.
20:36
Judge Dyk
Well, we don't have it, so.
20:39
Appellee Attorney
I'm sorry that you don't.
20:40
Because I want to discuss why this is not a Schreiber case.
20:46
It is not a Schreiber case.
20:47
Judge Dyk
Before we get on to that, this part that you read from page 8 of the district court's opinion strikes me.
20:55
I don't know.
20:56
It hurts you because he's saying there's not sufficient misconduct here that would cause the court to consider a further evidentiary hearing.
21:05
In other words, he's declining to consider the issue of prejudice.
21:09
That's the way I understand what he's saying.
21:11
Isn't that a problem for you?
21:13
Appellee Attorney
It is not because in the first instance, he has concluded two things.
21:18
At page 63, he concludes that there is no fraud, that there is no misrepresentation, and that there is no misconduct.
21:23
At page 75, he concludes.
21:26
Judge Dyk
And he says after that, in the part that you read, I'm not going to hold a hearing.
21:31
Basically, he's saying on the question of prejudice.
21:35
Appellee Attorney
Well, that is, I don't read it that way, Judge.
21:39
He does not say that.
21:40
Judge Prost
Well, even beyond that, this section in his opinion, I read as dealing with the issue of the question of discovery misconduct.
21:48
Appellee Attorney
It is the only misconduct that was argued by Audubon.
21:52
It's the only misconduct that was argued by Audubon.
21:54
Judge Prost
But you don't even raise in your response brief.
21:58
You suggest that this was the main focus, but you're not making an argument that they waived the right to raise this,
22:04
or that it wasn't properly raised below, and therefore, they can't raise it here, right?
22:08
Appellee Attorney
Well, discovery misconduct was the only issue that was framed, and the only issue that was argued, and the only issue that was considered.
22:13
Judge Dyk
Well, how do we know that?
22:14
Is the motion in the appendix?
22:17
Appellee Attorney
The motion is not in the appendix, but it is in the docket.
22:21
And the...
22:23
Judge Dyk
So the...
22:25
You're saying that motion doesn't raise it?
22:26
Appellee Attorney
Does not raise this issue.
22:28
The court's question is the first time...
22:30
Judge Dyk
Well, we can't resolve that today.
22:32
I think we ask the parties to submit copies of that motion so we can tell whether it was raised or not.
22:39
Appellee Attorney
Thank you, Judge.
22:39
But let me tell you why this is not a Schreiber case.
22:42
This is not a Schreiber case because there were no false statements.
22:48
There were no false statements in this case because in this instance,
22:52
the audited financial opinion of Deloitte Touche,
22:55
remains a clean opinion.
22:58
It has not been withdrawn.
22:59
Judge Dyk
I don't understand what you're saying.
23:00
What do you mean there's no...
23:02
The financials were admittedly incorrect.
23:06
Appellee Attorney
No, they were not.
23:08
They were not?
23:09
The financials, if you look at Appendix 189,
23:13
if you look at Appendix 189, this is the report of Doron Mayhew.
23:18
And this is the reason that...
23:19
This is a very important point.
23:23
Doron Mayhew, in Appendix 189,
23:25
in the last paragraph,
23:27
as part of this forensic investigation,
23:30
we are not engaged to and did not perform an audit
23:34
for purposes of expressing an opinion
23:38
in accordance with generally accepted auditing standards.
23:41
They are not challenging the audited opinion of Deloitte Touche.
23:45
Judge Dyk
That is somewhat startling to me.
23:48
I mean I thought the whole point of this report
23:50
is that the financial statements were not correct
23:53
and in fact they said we can't even tell whether the earlier ones are correct or not
23:57
because we haven't done a full investigation.
23:59
Appellee Attorney
No, that is not what Doron Mayhew says.
24:03
And if I could draw the court's attention to Appendix 185,
24:09
where it treats precisely what is at issue,
24:12
and it is a very narrow point,
24:14
and it's the first paragraph at the top, second sentence,
24:18
the work we performed included the process of identifying related party transactions
24:23
and investigating the nature of each transaction
24:25
in order to determine whether the transaction
24:28
was considered on no less favorable terms to the debtor
24:31
than would be obtained if the transaction were an arms-length transaction
24:35
for the non-affiliated entity.
24:36
I just want to make this point.
24:38
The related party transactions were fully disclosed
24:41
in the audited financial statements in the opinion of Deloitte Touche.
24:45
And you can see Appendix 939 for an example of that.
24:50
Judge Prost
Well, I mean, focusing back to your brief,
24:53
it seemed to me, and maybe I misread it,
24:56
I mean I'm not understanding, on page 53 of your brief
24:58
you're just saying,
24:59
you're discussing the audited consolidated financials
25:01
of Venture Holdings for 96 to 2001.
25:05
Yes.
25:05
And I think I read it as,
25:08
that's what we're talking about here is being the problematic documents.
25:12
And your answer was not these documents were fine
25:16
and there was nothing wrong with them,
25:18
but trying to argue that Mr. Levko really didn't rely on them.
25:22
Appellee Attorney
No, and actually, Judge...
25:24
So what am I missing? Okay.
25:25
Well, I'm sorry, Judge, that I wasn't clear.
25:27
If you look at page 56 of our brief,
25:31
the footnote, and actually we mentioned it earlier,
25:35
as noted super, the audited financials of Venture Holdings
25:39
for 1996 to 2001 still carry an unqualified opinion from Deloitte Touche.
25:45
Judge Dyk
What does that mean?
25:46
Appellee Attorney
It means they have not withdrawn their opinion, Judge.
25:49
And the reason they have not withdrawn their opinion
25:51
is that Doran Mayhew does not offer an audited analysis
25:56
of the...
25:57
Judge Dyk
They haven't redone the financial statements.
26:00
That's clear enough, but haven't they said
26:02
that the financial statements are inaccurate?
26:04
Appellee Attorney
No, they haven't.
26:04
Judge, when you say they, Doran Mayhew has not said that.
26:10
Doran Mayhew...
26:11
Judge Dyk
Hasn't the company said that the financial statements are inaccurate?
26:14
Didn't they advise the SEC that the statements were inaccurate
26:18
and they couldn't be relied on?
26:19
Appellee Attorney
If you will look at the AT judge,
26:22
and that is at Appendix 590,
26:34
and let's start at the beginning.
26:38
After listing the parties,
26:39
it begins about the middle of the paragraph.
26:43
The debtors and the official committee of unsecured creditors
26:46
of Venture Holdings as co-plaintiffs
26:49
filed suit on April 5th, 2004
26:53
in the bankruptcy court against Larry J. Winget.
26:56
This 8 is filed in connection with the announcement of a lawsuit.
27:02
And this is a very significant point
27:04
because the preceding bulk of the 8
27:08
simply lists the allegations in the lawsuit.
27:12
When we get to the language that you're focusing on, Judge,
27:16
which is on page 592,
27:19
in the first full unnumbered paragraph,
27:21
the last sentence,
27:23
it says,
27:24
in light of the information contained in the Doran Mayhew report,
27:29
it appears that the financial information previously publicly reported
27:34
is unreliable.
27:35
But let's go back to the Doran Mayhew report.
27:38
Judge Dyk
We shouldn't believe him?
27:39
Appellee Attorney
No, Judge.
27:40
You should believe them,
27:41
but you should believe them only with respect to what they opined on.
27:44
And let me tell you what that is.
27:46
At page 1.
27:49
Judge Dyk
But I mean, here's the company saying
27:50
it appears that financial information previously publicly reported
27:53
by Venture Holdings as far back as 1998
27:56
is unreliable and should not be relied on.
27:58
I mean, are we not supposed to believe
28:00
what the company says about its own audited financial statement?
28:03
Appellee Attorney
Judge, what we are to believe is that it appears
28:07
in light of the Doran Mayhew report.
28:09
Now, we've got to go back to the Doran Mayhew report.
28:11
What does the Doran Mayhew report say in its conclusions?
28:14
And I would draw the court's attention to paragraph,
28:17
or to page 187.
28:22
This is the appendix.
28:25
Sub G, last sentence.
28:33
In conclusion, we have quantified the results of our findings
28:36
and make a recommendation as to a potential claim
28:40
against the affiliated entity or outsider.
28:43
Look at the block, the page 190,
28:46
above the signature block.
28:49
Above the signature block on 190.
28:51
This report is intended to be used solely by the Venture Board of Directors
28:55
in connection with our forensic investigation
28:58
of Venture Holdings LLC transactions
29:01
with affiliated entities and insiders
29:03
and in support of any further litigation
29:06
asserting the claims identified within our report.
29:09
This report focuses on identifying claims lost.
29:15
Judge Dyk
Okay, but let's assume, hypothetically,
29:17
I think we grasp your point about this.
29:20
Let's assume, hypothetically, that we reject it
29:23
and we say that the financial statements were false.
29:29
Why don't we have to send it back to Judge Cohen
29:35
to consider the issue of prejudice under B3?
29:40
Appellee Attorney
Because the court has already found, in its opinion,
29:47
at page, Appendix 75,
29:49
it has already found precisely the point that I made
29:56
just a few moments ago.
29:57
Judge Dyk
And which page of the opinion is this?
29:59
Appellee Attorney
I'm sorry, that's page 21 of the opinion, Judge Cohen.
30:03
Now, the paragraph at the top of the page,
30:05
the last sentence,
30:09
and this is quite significant because it picks up
30:12
on precisely the point I was just making
30:14
as taken from the Dorn-Mahy report.
30:16
The March 10th Dorn-Mahy report disclosed
30:19
not mismanagement of financial accounts of Venture,
30:22
but rather overreaching by Venture's principal
30:25
stockholders.
30:25
Nothing in this report casts any doubt
30:28
on the financial accounts of the Grand Rapids facility.
30:31
Judge Prost
And here is his point.
30:33
But that's talking about the March 10th Mayu report.
30:36
And if you keep reading,
30:38
the next paragraph says,
30:40
while the March 25th Mayu report
30:42
casts some doubt on the financial account.
30:45
Appellee Attorney
Judge, and the reason that I was focusing
30:48
on the March 10th report is it is the March 10th report
30:51
that I read from just a few moments ago
30:54
that appears,
30:54
Appendix 189 and 190.
30:57
Judge Prost
Well, let me ask...
30:58
Appellee Attorney
No, I...
31:00
Judge Prost
Didn't the judge conclude that there was evidence,
31:04
that there was some doubt on the financial accounts
31:06
at the Grand Rapids facility?
31:08
Appellee Attorney
He's talking about the unaudited statements there, Judge.
31:11
The March 25th report relates to the subsequent examination
31:16
of the unaudited statements where there are
31:19
some inventory and payables issues.
31:21
And he treats those extensively in his opinion.
31:23
The March 10th report,
31:25
the court concludes,
31:27
it doesn't talk about the integrity
31:30
of the financial information.
31:31
And this is quite important because
31:33
Mr. Levko's testimony at trial was only that
31:37
I took comfort that there was an
31:39
audited financial opinion,
31:40
that there was an unqualified opinion out there.
31:43
He says, I didn't rely on them
31:45
to develop the information
31:48
about what happens at the Grand Rapids facility.
31:52
And this is exactly
31:53
what the court is saying here.
31:55
It's saying there's a disconnect.
31:57
Even if you accept that there are
31:59
related party transactions, meaning
32:01
the company's profits would have been higher,
32:05
it doesn't tell me anything about the Grand Rapids facility.
32:08
And why is that?
32:09
Because the consolidated audited financials
32:12
consolidate ten different entities.
32:14
This case turns on one plant and one company.
32:19
The audited financials are entirely attenuated
32:22
from the analysis that was done
32:25
in this case.
32:25
And I'd like to make one other point.
32:27
The court said and found
32:32
the financial statements in the March 25th
32:35
that are subject to the March 25th report.
32:37
Judge Dyk
You're out of time.
32:39
Why don't you try to wrap it up.
32:41
You can finish the point you're making.
32:43
Appellee Attorney
Thank you.
32:44
The court made the point
32:46
that the plant financial statements
32:48
were not the source of Mr. Levko's analysis.
32:51
In fact, he uses the words
32:53
at page 64 of the appendix
32:57
that the data that he used
32:59
was raw data that was specific and reliable.
33:01
And the point is this.
33:03
The plant-wide data included
33:05
not only the subject of a lawsuit,
33:07
which is these little airbag covers,
33:08
but bumpers, which are 66% of the plant production.
33:13
There is a disconnect between
33:15
using any plant-wide information
33:17
and trying to figure out what your damages are
33:19
on airbag covers.
33:21
There is a further attenuation
33:23
when you take this plant information
33:25
and roll it into 10 companies
33:29
in a consolidated report.
33:30
Getting back to Judge Cohn's...
33:32
Judge Dyk
Okay, I think that's about enough.
33:34
Thank you, Mr. Henning.
33:36
Mr. Green?
33:37
Oh, I actually should ask Judge Luna
33:39
if he has any questions here.
33:41
Appellee Attorney
No, I have nothing further. Thank you.
33:58
Appellant Attorney
Discovery misconduct in B3.
34:01
The answer, as I said in my opening argument, is yes.
34:04
Is the place to find that in the motion?
34:06
The place to find it, I think, most clearly
34:09
it is at 491 of the docket,
34:13
which is a supplemental brief
34:15
that was submitted after the April 29th hearing,
34:18
and it's at page...
34:19
It's identified at page A51 of the transcript, Your Honor.
34:24
It's that brief that I think most clearly
34:27
capsulizes the argument
34:29
that was advanced to the court.
34:31
What page is this again?
34:32
It's at page A51 of the appendix, Judge,
34:35
and it's docket...
34:38
docket entry 491.
34:41
It's the last item on that page of the appendix.
34:49
Judge Dyk
Why don't you supply us with a copy of that document?
34:53
I'd be happy to.
34:55
Appellant Attorney
The only other point I would like to make is,
35:00
as the court's questions indicated,
35:02
there are two categories of financial documents
35:06
as to which there were misstatements.
35:08
The audited financial statements
35:11
of the entity as a whole
35:13
and the Grand Blanc statements.
35:15
Our position on the audited financial statements
35:18
is once the company advised the SEC
35:21
that they're unreliable,
35:23
we think any argument as to their reliability
35:25
after that lacks merit.
35:28
As to the Grand Blanc financial statements,
35:31
which Mr. Levko used up to and including June 2003,
35:37
the transcript...
35:38
the record itself establishes
35:41
that not only were they false,
35:44
as Doran Mayhew indicated,
35:46
that subsequent to the trial,
35:48
Venture restated those financials,
35:52
those of the unaudited financials,
35:54
and that's at appendix 819.
35:58
I have nothing further to add
36:00
unless the court has additional questions.
36:03
Judge Dyk
Why don't counsel...
36:04
Does Judge Lynn have anything?
36:07
Thanks.
36:08
Nothing further.
36:10
Okay.
36:10
If counsel would just remain seated for one moment.
36:41
Subject to objection from Judge Lynn,
36:44
we'd like the parties to submit supplemental briefs
36:47
two weeks from today,
36:51
no more than ten double-spaced pages in length,
36:55
limited to a single question,
36:58
and that is, for purposes of B3,
37:01
what is the standard for prejudice
37:04
under Sixth Circuit law?
37:06
And I think you should include in that
37:08
the question of whether we can properly consider
37:10
under our rules the Jordan case since it's unpublished.
37:16
Okay?
37:17
Thank you both.
37:18
Appellant Attorney
Two weeks from today.
37:19
Judge Dyk
Two weeks from today.
37:20
Is that all right with Judge Lynn?
37:24
Appellee Attorney
Yeah.
37:25
That's fine.