*1 Before the Court are three motions in limine: one filed by the SEC (SEC MIL, Doc. 76), and two filed by Defendants (Defs.' MIL #1, Doc. 77; Defs.' MIL #2, Doc. 78). Having heard oral argument and requested supplemental briefing, the Court GRANTS the SEC's motion in limine (Doc. 76) and DENIES Defendants' motions (Docs. 77 & 78).

I. SEC MIL: ADVICE OR INVOLVEMENT OF COUNSEL

The SEC's Motion in Limine seeks to exclude evidence that Defendants relied on the advice of counsel or that counsel were involved in decisions or conversations. (SEC MIL, Doc. 76.) The SEC's motion is GRANTED.

Under Rule 403, “[t]he court may exclude relevant evidence if its probative value is substantially outweighed by a danger of one or more of the following: unfair prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence.”

Defendants concede that they “have not asserted an advice of counsel defense” and “that they do not plan to assert an advice of counsel defense at trial.” (Defs.' Opp., Doc. 82.) Nonetheless, Defendants want to introduce evidence regarding advice of counsel to negate any “inten[t] to defraud,” to show Defendants' “state of mind,” and to establish their “good faith.” (Id. at 4–7.) The SEC moves to exclude the evidence under Rule 403 on the ground that references to counsel would improperly suggest to the jury that counsel “blessed” the conduct at issue in this case without Defendants actually establishing the elements of an advice-of-counsel defense.

In SEC v. Frost, the Court rejected a similar attempt by defendants to suggest an advice-of-counsel without actually raising that defense:

SEC v. Frost, No. 8:19-cv-01559-JLS-JDE, 2022 WL 17327322, at *1 (C.D. Cal. Feb. 23, 2022). The Court adheres to its approach from Frost in this case and GRANTS the SEC's motion in limine.

II. Defendants' MIL #1: PRIOR CONSENT DECREES

Defendants Motion in Limine #1 seeks to exclude evidence regarding prior consent decrees entered into with the SEC. (Defs.' MIL #1, Doc. 77.) Defendants' motion is DENIED.

Under Rule 401, evidence is relevant if “(a) it has any tendency to make a fact more or less probable than it would be without the evidence; and (b) the fact is of consequence in determining the action.” Under Rule 403, “[t]he court may exclude relevant evidence if its probative value is substantially outweighed by a danger of one or more of the following: unfair prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence.” Rule 407 makes “subsequent remedial measures” inadmissible “to prove[ ] ... culpable conduct.” Similarly, Rule 408 makes settlement negotiations inadmissible “to prove or disprove the validity or amount of a disputed claim.”

*2 Defendants move to exclude the evidence as irrelevant under Rule 401; as unduly prejudicial under Rule 403; as inadmissible subsequent remedial measures under Rule 407; and as inadmissible settlement offers under Rule 408. (See generally Defs.' MIL #1, Doc. 77.)) The SEC argues that evidence of the consent decrees is relevant to show that Defendants made material misrepresentations about them (SEC's Opp. to Defs' MIL #1, Doc. 80 at 6); to explain why Defendants Davenport and Owens could not serve as directors of Elite (id. at 6–7; SEC Supp. Br., Doc. 97 at 3–5); to show Defendants' knowledge that the alleged operation of the boiler room on behalf of Elite violated the securities laws (id. at 7); and to preclude Defendant Owens from invoking an exemption to liability under section 210 of the JOBS Act (SEC Supp. Br., Doc. 97 at 6.). And the SEC further argues that Rules 407 and 408 are inapplicable because, even assuming the consent decrees fall within those rules' coverage, the consent decrees are not being offered for the reasons those rules prohibit—i.e., to prove Defendants' culpability.

Taking Defendants' arguments in the order that they raise them, the Court finds none to be persuasive:

Relevance. The prior consent decrees are relevant to this action.

First, in response to the SEC's argument that the consent decrees are relevant to show material misrepresentations, Defendants provide the non-sequitur that Tillman, whom the SEC expects to testify on the subject, “is not the plaintiff here.” (Reply, Doc. 86 at 4.) The consent decrees are the subject of alleged material misrepresentations and, therefore, are highly relevant.

Second, in response to the SEC's argument that the consent decrees are relevant to explain Elite's structure and why Defendants did not serve as directors, Defendants simply advance a different inference to be drawn from Elite's structure—an argument that does not undermine the consent decrees' relevance. (See id. (“What the evidence does show is that Evolution sought transparency in connection with its work and Owens' investment in Elite ....”); Defs.' Supp. Br., Doc. 102 at 8 (“[T]he evidence cited by the SEC shows that Owens and Davenport worked to avoid running afoul of securities laws ....”). The consent decrees have a tendency to explain the relationship between the various entities and parties involved in this action; therefore, they are relevant for this second purpose.

Third, in response to the SEC's argument that the consent decrees are relevant to show Defendants' knowledge of the illegality of the alleged boiler-room operation, Defendants contend that “the existence of a boiler room has not been established.” (Id. at 5.) The boiler room's existence is a key disputed issue at trial, and the summary-judgment record reflects that there is “proof ... sufficient to support a finding” that the boiler-room operation existed—rendering evidence going to knowledge of that operation relevant. See Fed. R. Civ. P. 104(b). Therefore, the consent decrees are also relevant for this purpose.[1]

As explained above, the consent decrees are relevant to show an alleged material misstatement, to prove Defendants' alleged state of mind, and to explain the structure of the business relationships at the center of this case.

Rule 403 Balancing. Defendants argue that the consent decrees are unduly prejudicial because their introduction would improperly suggest to the jury that, because Defendants settled prior SEC allegations, Defendants are culpable of what the SEC alleges here. (Defs.' MIL #1, Doc. at 7.) The Court concludes that it can mitigate this risk through a limiting instruction at trial. See, e.g., United States v. Hankey, 203 F.3d 1160, 1173 (9th Cir. 2000) (“This Court has recognized the effectiveness of a properly-worded limiting instruction on numerous occasions.”); United States v. Mende, 43 F.3d 1298, 1302 (9th Cir. 1995) (“Any resultant prejudice was minimized by the limiting instruction.”). The Court ordered the parties to meet and confer and file amended proposed jury instructions. (Hearing Minutes, Doc. 98.) Those instructions shall include the parties' proposed limiting instruction(s) regarding the prior consent decrees.

*3 Subsequent Remedial Measures; Settlement Negotiations. Even assuming that consent decrees satisfy Rule 407's and 408's predicates (i.e., are subsequent remedial measures and/or settlement negotiations), those rules do not render such evidence inadmissible for all purposes. Instead, those rules render evidence inadmissible only if offered “to prove[ ] ... culpable conduct” or “to prove or disprove the validity or amount of a disputed claim.” As detailed in the Court's relevance analysis, the SEC is not seeking to introduce the consent decrees for these purposes. And a limiting instruction will prevent the jury from improperly relying on the consent decrees for such purposes.

Therefore, Defendants' Motion in Limine #1 is DENIED.

III. Defendants' MIL #2: DOCUMENTS NOT IDENTIFIED IN RESPONSE TO CATCH-ALL INTERROGATORIES

Defendants' Motion in Limine #2 seeks to exclude all documents that the SEC did not identify in response to Defendants' catch-all interrogatories asking the SEC to identify “all DOCUMENTS” supporting their claims. (Defs.' MIL #2, Doc. 78; see Interrogatories, Doc. 81, Ex. 6 at 3, 5–7, 9, 11.) Defendants bring their motion under Rule 37(c), which allows a court to exclude evidence where a party's Rule 26 initial disclosures were insufficient. (Defs.' MIL #2, Doc. 78 at 4.) Defendants' motion is DENIED.

Federal Rule of Civil Procedure 26(a)(1)(A)(ii) requires a party to produce to the other side “all documents, electronically stored information, and tangible things that the disclosing party has in its possession, custody, or control and may use to support its claims or defenses.” If a party fails to comply with Rule 26(a), “the party is not allowed to use that information ... at trial, unless the failure was substantially justified or is harmless.” Fed. R. Civ. P. 37(c).

As an initial matter, Defendants do not explain why Rule 37(c) would provide a legal basis for excluding evidence allegedly not identified in a party's interrogatories responses. In any event, Defendants have made no showing of prejudice. Defendants do not contend that the SEC's Rule 26 initial disclosures were insufficient. Defendants never moved to compel the production of further documents after receiving the SEC's responses to their (vague, catch-all) interrogatories. And Defendants have not specifically identified a single document that they seek to exclude under this motion.

Therefore, Defendants' Motion in Limine #2 is DENIED.

IV. CONCLUSION

For the above reasons, the Court (1) GRANTS the SEC's motion in limine (Doc. 76), and (2) DENIES Defendants' motions in limine (Docs. 77 & 78).