163 F. Supp. 3d 549
N.D. Ill.2016Background
- SEC alleges Ferrone (former CEO/President of Immunosyn) violated §10(b), Rule 10b-5, Rule 13a-14 and aided/abetted disclosure violations by not disclosing an FDA clinical hold on SF-1019; trial scheduled April 18, 2016.
- SF-1019 (a goat-blood–derived biopharmaceutical) was subject to an FDA full clinical hold after an IND; Ferrone became CEO in October 2007.
- Separate fraud: McClain, Sr. made misleading statements at a 2008 Texas clinic and sold stock to terminally-ill patients; SEC previously won summary judgment on claims against McClain, Sr.
- Large third‑party production ("August Documents") from Ollendorff was produced to the McClains’ counsel for privilege review but not timely produced to Ferrone; many of those documents were produced to Ferrone after the discovery cutoff.
- Ferrone moved in limine on multiple fronts: exclude evidence of the Texas clinic fraud, exclude late-produced Ollendorff documents, exclude or limit Dr. Peter Rheinstein’s expert testimony (Daubert), exclude Drs. Hazelwood and Kanter, and bar advice-of-counsel/good-faith evidence; SEC filed related motions.
- The court resolved the motions variably: barred Texas clinic fraud evidence as unfairly prejudicial and irrelevant to Ferrone; denied exclusion of late-produced documents but required redaction conferral; granted/limited expert testimony issues in part; reserved issues about some fact witnesses and scope of good‑faith/advice‑of‑counsel evidence for trial.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Admissibility of evidence about McClain, Sr.’s Texas clinic fraud | Relevant as consistent with an overall scheme involving Ferrone | Irrelevant: different actor, place, statements; unfairly prejudicial | Excluded — irrelevant under Rule 401 and barred under Rule 403 as unduly prejudicial |
| Use of Ollendorff "August Documents" produced after discovery cutoff | SEC: produced to McClains’ counsel for privilege review; two emails should be admitted despite the flawed privilege process | Ferrone: late production prejudiced his ability to investigate and defend; seeks exclusion | Denied — Ferrone failed to show actual prejudice or diligence lapses; SEC’s limited discovery oversight not grounds to bar documents; two email strings admissible with agreed redactions |
| Admissibility/scope of Dr. Peter Rheinstein’s testimony (Daubert) | SEC: Rheinstein will explain FDA processes, IND/clinical‑hold significance, and timelines to show materiality | Ferrone: large portions irrelevant, legal conclusions, improper opinions, and overbroad foundation | Granted in part, denied in part, reserved in part — expert may testify on relevant FDA/regulatory process and opinions grounded in his expertise but may not offer legal conclusions, state parties’ mental states, or irrelevant historical background; trial context will govern specifics |
| Evidence/argument about reliance on advice of counsel or involvement of lawyers (good faith) | SEC: such evidence is an affirmative‑defense area; defendant hasn't shown elements of advice‑of‑counsel defense, so exclude | Ferrone: not asserting classic advice‑of‑counsel defense but will offer evidence of others’ review to support good faith and rebut scienter | Denied without prejudice — court will permit limited good‑faith evidence and manage boundaries at trial; pure reliance‑on‑counsel proof remains unavailable absent showing required elements |
Key Cases Cited
- Luce v. United States, 469 U.S. 38 (U.S. 1984) (district court may rule on evidentiary matters in advance via motions in limine)
- Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (U.S. 1993) (standard for expert admissibility)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. 2007) (scienter definition context and pleading standard discussion)
- Aaron v. SEC, 446 U.S. 680 (U.S. 1980) (SEC bears burden to prove scienter in §10(b) claims)
- Sundstrand Corp. v. Sun Chem. Corp., 553 F.2d 1033 (7th Cir. 1977) (recklessness standard described as near functional equivalent of intent)
- Jonasson v. Lutheran Child & Family Servs., 115 F.3d 436 (7th Cir. 1997) (motions in limine serve gatekeeping to exclude clearly inadmissible evidence)
- Perry v. City of Chicago, 733 F.3d 248 (7th Cir. 2013) (motions in limine procedural guidance)