APL-2013-00162
New York County Clerk’s Index Nos. 109565/03E and 600448/06E
Court of Appeals
STATE OF NEW YORK
Index No. 109565/03E
CDR CRÉANCES S.A.S., as Successor to Société de Banque Occidentale,
Plaintiff-Respondent,
against
MAURICE COHEN,
Defendant-Appellant,
and
SUMMERSON INTERNATIONAL ESTABLISHMENT, BLUE OCEAN FINANCE, LTD.,
WORLD BUSINESS CENTER, INC., and IDERVAL HOLDING, LTD.,
Defendants.
(Additional Caption on the Reverse)
>> >>
KELLNER HERLIHY GETTY & FRIEDMAN LLP
Attorneys for Plaintiff-Respondent
CDR Créances S.A.S., as Successor
to Société de Banque Occidentale
470 Park Avenue South, 7th Floor
New York, New York 10016
212-889-2821Of Counsel:
Douglas A. Kellner
Date Completed: October 30, 2013
To Be Argued By:
Douglas A. Kellner
Time Requested: 30 Minutes
BRIEF FOR PLAINTIFF-RESPONDENT
CDR CRÉANCES S.A.S.
Index No. 600448/06E
CDR CRÉANCES S.A.S., as Successor to Société de Banque Occidentale,
Plaintiff-Respondent,
against
LEON COHEN a/k/a LEON LEVY a/k/a LEON LEVY COHEN a/k/a LEON COHEN
LEVY a/k/a LEON COHEN-LEVY a/k/a LEVY COHEN a/k/a LEVY LEO COHEN a/k/a
LEO COHEN LEVY a/k/a LEON COMEN; MAURICE COHEN a/k/a MAURICIO ASSOR
a/k/a MAURICIO COHEN ASSOR a/k/a MAURICE ASSOR; SONIA COHEN, ROBERT
MARABOEUF and ALLEGRIA ACHOUR AICH,
Defendants-Appellants,
and
IDERVAL HOLDINGS, LTD.; BLUE OCEAN FINANCE, LTD.; WORLD BUSINESS
CENTER, INC.; EDOUARD SONNENSCHEIN; ROBERT HARRISON; MICHELLE SENAT;
CLARA LOPEZ; JUDI YOUMANS; PATRICIA HABIB PETETIN; MARTINE GALES;
JOELLE HABIB and SUMMERSON INTERNATIONAL ESTABLISHMENT f/k/a FLATOTEL
INTERNATIONAL ESTABLISHMENT,
Defendants.
CORPORATE DISCLOSURE STATEMENT
CDR CRÉANCES, S.A.S. is wholly owned by CONSORTIUM
DE RÉALISATION, S.A., which is in turn wholly owned by
ÉTABLISSEMENT PUBLIC DE FINANCEMENT ET DE
RESTRUCTURATION, a government authority of the Republic of
France.
ii
TABLE OF CONTENTS
Page
Corporate Disclosure Statement……………………………………….……………… i
Table of Authorities……..…………………………………...………………………….. v
Preliminary Statement……….………..…….…………………………………………... 1
Questions Presented……………………………………………………………..………. 5
Counter Statement of Facts……………………..………………………………...……. 6
A. Appellants conspired to defraud CDR………………………………………. 6
B. Appellants stonewalled compliance with their discovery
obligations………………………………………………………………...………
10
C. Appellants conspired to defraud the court……………………...…………… 16
D. Justice Yates found clear and convincing evidence of egregious
misconduct after a full evidentiary hearing………...……………….………
18
1. Appellants sought to conceal their relationships………..…….………
2. The fictitious “Jim Cox” and “Francois Lavalle”……………..………
3. Appellants’ concealed the Cohens’ direction of their legal
representation…………………………………………...…………………
4. The affidavit submitted to Justice Tolub and in support of the
motions to vacate defendants’ defaults, and cited by this court
in its May 29, 2009 decision, were false………...……...………………
20
27
30
33
iii
5. Appellants’ deposition testimony shows that they carried out
the plan to lie about their depositions………...………...………………
Leon Cohen’s Deposition – July 2009………...…….…...………
Maurice Cohen’s Deposition – July 2009…………..………...…
Sonia Cohen’s Deposition – July 2009………...………...………
Allegria Aich’s Deposition – October 2009………...………...…
Allegria Aich’s Deposition – March 2010………...…………….
Maurice Cohen’s Deposition – April 2010………...……...…...
Robert Maraboeuf’s Deposition – June 2010………...………....
D. Appellants submitted forged documents to the court………...………...….
Argument………………………...……………………………………...…………………
I. CLEAR AND CONVINCING EVIDENCE RECEIVED AT THE
EVIDENTIARY HEARING ESTABLISHED THAT APPELLANTS
WERE GUILTY OF EGREGIOUS MISCONDUCT DESIGNED TO
DEFRAUD THE COURT……………………….…………...…………………
A. Clear and convincing evidence received at
the evidentiary hearing established that appellants were guilty
of egregious misconduct designed to defraud the court………..
B. Appellants made no attempts to testify on their behalf or to
present live testimony and offered no excuse for such failure...…
C. Dismissal for fraud on the court or egregious discovery
misconduct does not impinge Appellants’ right to a jury trial...….
D. Striking the answers and entering a default judgment was
the only viable sanction given the clear and convincing
evidence of fraud on the court………………..……...…………………
34
36
38
39
42
43
45
46
49
54
54
55
64
69
72
iv
E. Appellants exagerate reliance on the Cohens’ criminal
conviction……………...…………………………………………………...
II. THE COURT PROPERLY ASSESSED CDR’S ACTUAL
DAMAGES BASED ON DOCUMENTARY EVIDENCE………..…...
A. Appellants raised no disputed factual issues that warranted
an evidentiary hearing on damages……..…………...…………………
B. The Appellate Division and the motion court correctly
determined the amount of CDR’s damages……...……………………
C. The Appellate Division and the motion court applied the
proper legal standards in determining the amount of
CDR’s damages…………..…………………………….………………….
1. Pre-judgment interest is appropriate when the fraud
impairs recovery on a judgment to recover a loan……..…….
2. The bankruptcy settlement did not discharge appellants……..
3. Co-Conspirators are jointly liable for all the damages
caused by the conspiracy………………………………….……….
Conclusion…………………………………………………………………………..…….
74
76
77
78
81
81
82
84
85
1
PRELIMINARY STATEMENT
Appellants engaged in extreme fraud on the court designed to
undermine and subvert the very core of the truthfinding process. Justice James
Yates, after an evidentiary hearing, found by clear and convincing evidence that
Appellants committed perjury and witness tampering, submitted falsified
documents and affidavits, and failed to comply with the court’s discovery
orders (R 18-24). The court concluded that Appellants’ fraud “pervades every
aspect of this case,” and that a “lesser sanction would not repair the harm done
by [Appellants’] willful misconduct” (R 26).
While the fraud on the court through subornation of perjury and non-
compliance with discovery obligations in this case may be extraordinary, the
court’s remedy of striking the pleadings for egregious misconduct is not. The
Court of Appeals, all four departments of the Appellate Division, and the
federal courts have ruled that determination of the appropriate sanction for non-
compliance with discovery obligations, including the ultimate sanction of
striking the pleadings, is a matter for the sound discretion of the court.
The Appellate Division gave Appellants a second chance, after
Appellants had been previously defaulted by Justice Tolub for their
“longstanding pattern of default” “lateness” and “abject failure to comply with
Court orders.” Based on what we now know, the Appellate Division was
2
initially induced by Appellants’ fraudulent misrepresentations to vacate their
defaults essentially on the ground that the motion court granted the ultimate
sanction too quickly (62 AD3d 576, R 379-80). In so ruling, the Appellate
Division did not question Justice Tolub’s findings of Appellants’ repeated
violation of court orders and other discovery violations, but accepted at face
value Appellants’ perjurious claims that they were all ill advised by their former
counsel, who represented all of them but was paid and directed by Maurice
Cohen.
Instead of taking advantage of the second chance afforded them to
contest this case on its merits, the Cohens, aided and abetted by their current
and former employees, renewed their efforts to defraud the court by organizing
a series of meetings at which they gave their co-conspirators perjurious
“scripts” to follow and coached them to lie at their upcoming depositions so as
to corroborate the Cohens’ own perjured testimony at their own depositions
which were to be conducted first.
The conspiracy began to unravel when Maurice and Leon Cohen were
arrested in Manhattan in April 2010 on federal criminal charges of conspiracy
to defraud the United States government. Those arrests prompted two of their
co-conspirators, Joelle Habib and her sister, Patricia Benharbon, to retain
separate counsel and ultimately to cooperate with the federal authorities, turn
3
state’s evidence, and disclose the details of what they knew about the
conspiracy. The sisters subsequently testified not only at the Cohens’ criminal
trial, but at a hearing in the Florida civil litigation and at the evidentiary hearing
that is the subject of this appeal.
Justice Yates did not act preciptiously when CDR moved to strike
Appellants’ pleadings, but ordered an evidentiary hearing to give Appellants’ an
opportunity to present evidence addressing the charges laid out in CDR’s
motion papers, which were opposed with only naked, conclusory affidavits
denying their fraud. Justice Yates intentionally delayed the hearing until the
conclusion of the Cohens’ criminal trial in order to afford each of the
Appellants an opportunity to testify without compromising the Cohens’
criminal defense. Nevertheless, none of the Appellants attended the hearing or
made any effort to provide any testimony to refute the very extensive testimony
and documentary evidence presented by CDR.
At that hearing, Justice Yates, sitting within arm’s reach, heard the
sisters’ cogent, detailed, and corroborated testimony that described a conspiracy
to defraud CDR and the courts that is unrivaled for its brazen disregard for the
truth and the integrity of our system of justice. They produced the smoking
gun: the perjury scripts that instructed the defendants how to coordinate their
testimony to conceal the Cohens’ ownership and control of the entities used to
4
steal the collateral securing repayment of the loan to finance the acquistion and
rehabilitation of the New York Flatotel. In stark contrast, none of the
Appellants testified or called any witnesses to refute the evidence presented by
CDR.
Justice Yates explicitly credited the sisters’ testimony, which was the
subject of intensive cross-examination and attempted impeachment, and after
considering the extensive documentary evidence, Justice Yates found, “on the
basis of clear and convincing evidence” that Appellants “committed a fraud on
the Court,” and that striking Appellants’ pleadings and entering a default
judgment was the appropriate sanction for “the Cohens’ bad faith and deliberate
intent to deceive the Court.” Having considered other possible sanctions,
Justice Yates concluded: “A lesser sanction would not repair the harm done by
defendants’ willful misconduct which pervades every aspect of this case.”
The adjudicatory process cannot function when a party subverts the
truthfinding process by the crimes of subornation of perjury, perjury, forgery,
tampering with witnesses and coercion, as perpetrated by the Cohens against
the court. Given the clear and convincing evidence of Appellants’ fraud on the
court—“a wrong against the institutions set up to protect and safeguard the
public” (Hazel-Atlas Glass Co. v Hartford-Empire, 322 US 238, 246 [1944])—
5
the court should vindicate the integrity of our judicial system by affirming the
judgment appealed from.
QUESTIONS PRESENTED
1. Was it an abuse of discretion for the court to strike Appellants’
answers after finding by clear and convincing evidence after an evidentiary
hearing that each Appellant participated in a conspiracy to defraud the court
through perjury, subornation of perjury, submission of false documents and
affidavits that pervaded every aspect of the case and irreparably harmed the
truthfinding process?
The Appellate Division ruled that, “the proof elicited is more than
sufficient to establish that Appellants engaged in an extensive scheme to suborn
perjury and subvert the judicial process” (RA 13). “Based on the extensive
evidence adduced in this matter,” the Appellate Division found that “Supreme
Court did not abuse its discretion in striking the answer” (RA 15) and affirmed
the judgment.
2. Did Justice Sherwood properly award monetary damages against
Appellants in the amount of $135,359,331.39, together with interest, based on
the unrefuted, extensive evidentiary record submitted on CDR’s motion for
determination of the amount of damages?
6
Justice Sherwood and the Appellate Division answered this question
in the affirmative.
COUNTERSTATEMENT OF FACTS
A. Appellants conspired to defraud CDR
Each one of the Appellants was an active participant in the conspiracy
to defraud CDR, orchestrated by Leon and Maurice Cohen to divert the assets
of Euro-American Lodging Corporation (“EALC”) and EALC’s Cohen-
controlled shareholders (R 5303-04 ¶¶ 298-307). The purpose of the conspiracy
was to defraud CDR of its right to recover the proceeds of a loan made by
CDR’s predecessor in 1991, to conceal that fraud from CDR, to conceal
evidence of the fraudulent acts, and to conceal the location of the fruits of stolen
proceeds, which continues to this day.
CDR is an instrumentality of the Republic of France and is charged
with obtaining value for the assets of insolvent French financial institutions.
CDR is the successor in interest to Société de Banque Occidentale, a French
bank that was wholly owned by Credit Lyonnais. SDBO was formally merged
into CDR in 1995.
CDR seeks to recover the substantial damages that it sustained as a
consequence of Appellants’ ongoing conspiracy to defraud. Appellants went to
extraordinary lengths to conceal their fraudulent theft of the loaned funds and
7
the collateral, which has cost CDR immense amounts of time and resources.
The fraud was successfully accomplished by the use of conspirators that
engaged in many false filings, false record keeping and false statements that
violated the criminal laws of New York and elsewhere. Appellants abused and
entirely ignored the corporate form in different jurisdictions to carry out this
conspiracy. To evade repayment of the loan, Appellants hid behind the
corporate veil of entities based in nations with notorious secrecy laws, such as
Liechtenstein, Panama and the British Virgin Islands. Further, Appellants
conducted business through those entities with bank accounts in Switzerland
and elsewhere, all the while stealing CDR’s collateral and causing additional
damages to CDR that, but for their criminal behavior, would not have been
incurred.1
The Paris Court of Appeal determined on February 12, 2003 that
Euro-American Lodging Corporation (“EALC”) must pay CDR $95,837,522
plus twelve years interest (SR 1883-1906). That judgment of the French court
was recognized by judgments entered in New York County on April 19, 2005
for principal in the amount of $95,838,152.00, and on October 19, 2005 for
interest in the amount of $112,159,088.41 (SR 1907-15). The Appellate
1 These foreign corporations, which were formed in jurisdictions allowing bearer shares that
facilitated the money laundering used to hide the stolen proceeds of the conspiracy to
defraud, never appealed the judgments entered against them in 2008 (see Referee Report
following an inquest for damages SR 1468-72).
8
Division affirmed the recognition of those judgments in CDR Créances, S.A. v
Euro-American Lodging Corp., 40 A.D.3d 421 [1st Dep’t 2007].
CDR commenced the first New York action to recover for the fraud in
May 2003 when it was only beginning to learn the scope of the conspiracy
orchestrated by Appellants (for complaint see SR 1390-1409). The complaint in
the 2003 action was based on very limited knowledge because of the Cohens’
active and ongoing concealment. As CDR obtained additional evidence, it
learned that Maurice Cohen was aided and abetted by others. The 2003 action
alleges that Maurice Cohen orchestrated a complex series of transactions that
defrauded CDR of its security interest in the shares of EALC with full
knowledge that the shares were pledged. (Id. at ¶¶ 18, 29-44, 67-72) The 2003
complaint alleges a tortious conspiracy to interfere with CDR’s contractual
rights and to defraud CDR, unjust enrichment, and alter ego and conspiratorial
liability for the misconduct of the offshore and domestic entities that Maurice
Cohen manipulated and misused to effectuate the fraud (SR 1405-07).
The 2006 action, commenced on February 10, 2006, names additional
co-conspirators, including Appellants Leon Cohen, Sonia Cohen, Robert
Maraboeuf and Allegria Aich, and contains additional causes for ongoing
fraudulent conduct, conspiracy to commit fraudulent acts, tortious acts,
conspiracy to commit tortious acts, and breaches of duty and conspiracy to
9
commit breaches of duty, all of which damaged and continue to damage CDR
(SR 155-275).2 The full extent of the means and methods used by the
Appellants, as well as the locations of stolen assets that belong to CDR, have
not been fully revealed to this date, having been actively concealed by
Appellants’ efforts.3
Specifically, the 2006 complaint details a number of complex methods
used by Maurice Cohen, Sonia Cohen and Leon Cohen to steal and impair the
collateral for repayment of the loan. These included using a number of offshore
entities owned with bearer shares to divert the income of the hotel which had
been pledged as collateral for repayment of the loan; looting the entities that
had guaranteed repayment of the loan; selling the shares of EALC that had been
pledged as collateral for the loan and diverting the proceeds of that sale to the
Swiss bank account of a Pananamanian corporation ultimately owned by
Maurice Cohen with bearer shares; diverting the funds loaned for rehabilitation
of the hotel to other offshore entities controlled by Maurice Cohen, Sonia
Cohen and Leon Cohen, and by setting up a phony lease for a substantial
2 On March 15, 2005, EALC, Macson Express USA, Inc., and Ospin commenced litigation
involving the February 14, 2000 transfer of the pledged collateral from the Cohens’ dummy
entities to the Elias dummy entities that disclosed many previously unknown facts. Euro-
American Lodging Corp. v Iderval Holdings, Ltd., Index No. 103584/05 [Sup. Ct., N.Y. Co.
2005] (R 6616-6634).
3 Much of the facts and procedural history of these actions have been previously detailed in
decisions of the Commercial Division (21 Misc3d 1135A [2008], 2009 NY Misc LEXIS
10
portion of the premises with another entity ultimately owned by the Cohens that
substantially reduced the value of the hotel to any potential purchaser. By these
devices the Cohens had stolen huge amounts of cash collateral and so
substantially impaired the value of the hotel that it was worth $200 million less
than it would have been if the collateral had not been impaired.4 Consequently
it was impossible to obtain full recovery of CDR’s judgment in the July 12,
2007 settlement of the Euro-American Lodging Corp. bankruptcy proceedings.
B. Appellants stonewalled compliance with their discovery obligations
Since the commencement of these lawsuits, Appellants have been
trying to prevent the truth from coming out through discovery about the alter-
ego status of those entities that received the stolen funds derived from the sale
of CDR’s collateral in February 2000. On February 28, 2006, Justice Debra
James entered a preliminary conference order in the 2003 action that directed
the parties who had not yet appeared “to answer or otherwise appear by March
15, 2006” (R 22). Justice James directed that the parties serve all discovery
demands on or before April 15, 2006. The Cohens’ company, defendant World
Business Center, Inc. (“WBC”), timely served an answer. CDR then served the
6514 [2009] and the Appellate Division (43 AD3d 45 [2007], 62 AD3d 576 [2009], 77 AD3d
489 [2010]).
4 See the testimony of CDR’s expert appraiser, Jerome Haims, at the first inquest hearing (SR
1770-74).
11
Amended Notice of Deposition on WBC on March 29, 2006.5 WBC and the
Cohens, who controlled this entity,6 ignored this first discovery demand and
failed to produce any requested documents or designate anyone to appear for
examination (R 364 n 11). The cases were reassigned to Justice Walter Tolub in
January 2008.
By the March 2008 preliminary conference before Justice Tolub,
Appellants were already in default of their obligations to appear for depositions
and to produce documents (R 22, 2333). CDR had already submitted a motion
to compel the Appellants who had not already been found in default to comply
with the outstanding discovery demands.7 Justice Tolub made it clear that
additional motions to dismiss or for summary judgment would not stay
discovery, and set a schedule for compliance (R 365 n12). Justice Tolub
repeated his insistence that Appellants comply with their discovery obligations
at each of the subsequent conferences and motion arguments.8 Nevertheless,
neither the Cohens nor any of the other co-defendants represented by Gleason
5 From the commencement of the 2003 and 2006 actions, Gleason & Koatz LLP had
represented the Cohens, Joelle Habib and other co-conspirators named as defendants, as well
as the Cohens’ companies World Business Center, Inc. and Iderval Holding, Ltd. It was only
in September 2008, after entry of the order dated August 7, 2008 where Justice Tolub found
them in default, that Appellants changed counsel as a further dilatory tactic (R 6835-37).
6 See affidavits of George Pavia, Esq., attorney for the Cohens during the 2000 sale, as well
as testimony of S. David Harrison, Esq., the attorney who incorporated WBC for the Cohens,
where they both state that Maurice Cohen controlled WBC (R 234 [2008 affidavit]; R 329
[2001 affidavit]. S. David Harrison Dep. at R 4721).
7 Motion Sequence No. 8 in the 2003 Action.
12
& Koatz appeared for any deposition, nor did they produce any documents or
respond to any interrogatories.9
Right after Justice Tolub ordered discovery to continue in March
2008, Maurice and Sonia Cohen, allegedly joined by Robert Maraboeuf,
Allegria Aich, Patricia Petetin Benharbon and Joelle Habib, began proceedings
in France in an effort to stop the New York actions (2SR 3823-44). But it was
the Cohens who had ordered their attorneys in France to file this action against
CDR and to falsely and fraudulently advise the French court as to whom they
really represented. Patricia Petetin Benharbon testified at the hearing held
before Justice Yates that she never gave anyone permission to include her name
on this lawsuit filed in France (R 6835:4-6835:6). Joelle Habib testified that
she only first learned that she was a plaintiff in this French lawsuit against CDR
during the last perjury preparation meeting held in March 2010, when Maurice
Cohen told her that he had asked Guy Ferreboeuf, the Cohens’ long-time
French attorney, to sue CDR for abusive lawsuit (R 6986:17-6988:6).10
8 See transcripts 4/3/2008 (2SR 3781:23-3782:13) and for 5/9/2008 transcript (2SR 3791:18-
22).
9 In addition, after Justice Tolub had repeatedly directed that Leon Cohen appear for
examination, John Gleason affirmed that “Leon Cohen is unreachable by telephone or
electronically while he is on active duty with the Army” (R 307 ¶ 59). Both of these
statements were demonstrably false. Leon Cohen’s passport shows that he had departed
Israel months earlier (R 355; see also SR 711-16).
10 Allegria Aich testified during her deposition that she never retained Sylviane Gauthier, the
counsel of record in the French action or Guy Ferreboeuf, the Cohens’ long time attorney in
France, who assisted on the appeal after the Paris Commercial Court dismissed their claims,
to represent her personally in any proceedings (R 3866:15-3868:15). Robert Maraboeuf
13
On August 7, 2008, Justice Tolub granted CDR’s motion to strike the
answers of Appellants Leon Cohen, Maurice Cohen, Sonia Cohen, Joelle
Habib, World Business Center, Inc. and Iderval Holding, Ltd. (“Iderval”) for
failure to comply with discovery obligations. Justice Tolub noted that:
The Appellate Division, in a series of decisions, orders, and
statements made to counsel on the record, made it abundantly clear
to defendants that no further discovery delays in either the 2003 or
2006 action would be tolerated. Defendants have repeatedly
chosen to ignore these orders (the evidence of which is abundant in
plaintiff's submissions for both motion sequences) and instead,
have chosen to barrage the Appellate Division with motion
practice comprised of lengthy and predominately unsupported
requests for relief. Defendants' long-standing patterns of default,
lateness, and abject failure to comply with Court orders amounts to
willful and contumacious conduct which not only warrants, but
necessitates the striking of defendants' collective answer and an
award of a default judgment.
(R 364-65).
The record before Justice Tolub showed repeated, persistent refusal on
the part of Appellants to appear for examination, to answer interrogatories or to
produce documents. In the same order, Justice Tolub denied the motion of
Robert Maraboeuf, Allegria Aich and Patricia Petetin to vacate their default in
failing to appear (R 366).
Robert Maraboeuf, Allegria Aich, Patricia Petetin and Joelle Habib
then changed attorneys and moved for reargument, renewal or vacatur or their
testified at his deposition in Paris that he had never hired any lawyers in the past five years to
represent himself personally against CDR (R 4389:22-4390:21).
14
default. In denying that motion, Justice Tolub found in his November 21, 2008
decision, in pertinent part:
Allegria Aich, Patricia Petetin, Joelle Habib and Robert Maraboeuf
also claim that they only learned of this case from each other, or, in
Ms. Aich's case, from the Cohen defendants who she claims
advised her to contact Mr. Gleason. [R 3829 ¶2, 3818 ¶2, 3807 ¶ 2,
3840 ¶2] Missing however, is that Allegria Aich, Patricia Petetin,
Joelle Habib and Robert Maraboeuf each learned of this action
when they were served in 2006 with the Summons and Notice—in
France. In fact, in accordance with French "custom", each one of
these defendants was summoned to, and appeared at their local
police station. At the police station, they were presented with a
copy of Summons with Notice in English and in French, after
which they were required to make a statement about the receipt of
the legal documents on the record (Affirmation in Opposition,
Sequence 025 and 026, Exhibits C-F). Equally incredulous is the
claim that these four defendants did not understand what was going
on in this action. Were this truly the case, it is doubtful that they
would have joined Maurice and Sonia Cohen in an attempt to
obtain an injunction from the Paris Commercial Court preventing
CDR from further prosecuting this action on March 26, 2008,
roughly two months after the initial determination that Aich,
Petetin, Habib and Maraboeuf were in default for failure to appear
in the action.
(emphasis in original) (R 376).
Justice Tolub rejected the collective contention that he misinterpreted
the facts. To the contrary, he found that his decision was “based upon the lack
of facts and evidence presented by Appellants in support of their own
arguments.” (R 375). Justice Tolub also noted that Appellants’ affidavits were
devoid of any facts that would show law office failure, particularly in view of
their failure to disclose the French lawsuits to enjoin the New York litigation:
15
Allegria Aich, Patricia Petetin, Joelle Habib and Robert Maraboeuf
each claim that they each independently agreed to have Mr.
Gleason represent them in this action, paid an undisclosed fee to
him, yet never spoke to him (see, the respective Affidavits of'
Allegria Aich, Patricia Petetin, Joelle Habib and Robert Maraboeuf
[R 4295-337]). There are no retainer agreements, no proof of
payment, no statement of how much was to be paid for legal
representation, and no indication of when and how retention of
counsel was made. The claims advanced, unaccompanied by the
submission of any affidavits of merit, are simply unsupported. (Id.)
The Appellate Division reversed Justice Tolub’s order finding
Appellants in default on May 21, 2009, but did not find any error in the
underlying discovery orders, only that the sanction of a default judgment was
too severe in view of the short time period during which the defaults occurred
[62 AD3d 576]. The last sentence of the Appellate Division decision provides
that, “Our disposition is without prejudice to the imposition of such other
sanctions as the court deems appropriate.”
It is significant, however, that the subsequent testimony of Joelle
Habib and Patricia Petetin Benharbon at the evidentiary hearing conducted by
Justice Yates demonstrated that much of the narrative submitted to the court
seeking to vacate that judgment was false.
Even after the Appellate Division gave the Cohens a “second chance,”
the Cohens continued to challenge Justice Tolub’s discovery orders. Justice
Tolub wrote a 33-page opinion on November 24, 2009 that detailed the
extensive non-compliance with Appellants’ outstanding discovery obligations,
16
including a finding that the Appellants’ original attorneys, Gleason & Koatz,
were in contempt of court (R 390-422).11 The Appellate Division subsequently
affirmed virtually all of those orders in its decision of October 19, 2010 [77
AD3d 489].12
Justice Tolub retired in December 2009 and the cases were reassigned
to Justice Yates, who immediately invested substantial time in trying to resolve
the outstanding discovery issues in these cases which were the oldest on his
calendar. Between January and June 2010, Justice Yates held conferences or
hearings on 21 days and ruled on 11 motions (R 2209, 2436, 2502, 2522, 2573,
2676, 4159, 4213, 4292, 6515, 6552, 470, 5107, SR 3244). After an evidentiary
hearing, Justice Yates ruled that CDR had made a prima facie showing of fraud
to apply the “crime fraud exception” to the privilege for attorney-client
communications regarding the transactions involving the EALC shares (R 51-
52, SR 3244-50).
C. Appellants conspired to defraud the court
On April 15, 2010, Maurice and Leon Cohen were in New York to
attend their previously uncompleted 2009 depositions when federal authorities
11 Justice Tolub also denied Appellants’ motion for leave to amend their answer to raise
additional defenses, finding them either meritless or barred by prior rulings of the court, and
denied Appellants’ second motion for summary judgment (R 401-09).
12 Gleason & Koatz also served a notice of appeal, but did not pursue the appeal after the
Appellate Division denied Appellants’ and the law firm’s motions for a stay pending appeal
(R 423-24).
17
arrested them on criminal charges of conspiracy to defraud the United States
government and subscription to false income tax returns, which were based
upon their failure to report or pay taxes on the $33 million proceeds from the
2000 sale of the Flatotel (R 204-221)—proceeds stolen by the Cohens that were
part of the collateral for repayment of the loan.13
Both Cohens were held in custody without bail (they were foreign
residents and claimed no assets (R 280; see also R 269-74)) and were
transported to Florida for trial. Joelle Habib and Patricia Habib Petetin
Benharbon, who were also in New York at the time for their own depositions,
were told to seek independent counsel by their New York attorney, David
Pegno, Esq., who at the time had been retained and paid by Maurice Cohen to
jointly represent the Cohens, the Habib sisters and all the Appellants in these
actions (R 6860:16-6861:2; R 6879:8-6881:7). The Habib sisters then retained
Thomas Moore, Esq., an experienced criminal lawyer, withdrew from the
Cohens’ conspiracy, and agreed to testify against the Cohens in their federal
criminal trial scheduled for September 2010 in Florida (R 6881:8-6885:19; see
also R 3261-65, 3384-85, 7131).
13 Maurice Cohen and Leon Cohen were convicted after a jury trial and sentenced to 120
months incarceration plus restitution and fines. United States v Assor, Case No. 10-60159
[S.D.Fla.], aff’d, 466 Fed. Appx. 854 [11th Cir. 2012].
18
The federal criminal indictment and preliminary proceedings
disclosed key evidence that the Cohens had engaged in gross misconduct
including the crimes of perjury, forgery, tampering with witnesses, coercion and
subornation of perjury, to undermine the adjudication process in the actions
now before the court (R 204-21, 130-50). In particular:
The Cohens instructed Joelle Habib, Patricia Habib Petetin Benharbon,
Allegria Aich and Robert Maraboeuf to give perjurious testimony at their
depositions that would corroborate the perjured testimony that Maurice
Cohen and Leon Cohen would give at their depositions (R 135); and
The Cohens submitted falsified and forged documents and then tried to
prevent the fabrications from being discovered (R 134, n 7, 136).
In view of the egregious nature of Appellants’ criminal misconduct
directed at the very core of the court’s fact-finding process, in August 2010,
CDR moved to strike Appellants’ pleadings (R 111-29). As the Habib sisters
revealed more information following the indictment, CDR learned that the
Cohens caused the submission of false affidavits in September 2008 to support
the motions to vacate the default judgments, ultimately leading to the decision
of the Appellate Division on May 21, 2009 to reopen the litigation.
D. Justice Yates found clear and convincing evidence of egregious
misconduct after a full evidentiary hearing
Appellants submitted only naked, conclusory affidavits in opposition
to CDR’s motion to strike their pleadings for fraud on the court and for non-
compliance with their discovery obligations. The affidavits, in the form of a
19
general denial, did not address any of the specifics raised in the motion papers
(R 2717, 2704, 2709, 2715). Arguably, Appellants’ meager submission did not
raise any material factual issues. Nevertheless, Justice Yates went out of his
way to protect Appellants’ rights.
Justice Yates ordered a full evidentiary hearing explaining that, “The
ideal would be that people who are alleged to have lied will be on the stand and
given the chance to explain whether they lied or not” (R 94:22-26).
Nevertheless, Appellants declined to testify themselves or to offer any other
witnesses to challenge the evidence against them.
At the evidentiary hearing held from November 29 to December 2,
2010, Joelle Habib and Patricia Habib Petetin Benharbon testified that Leon
Cohen suborned perjury by – literally – creating a script full of lies for
witnesses to follow in the depositions ordered by Justice Tolub (for Ms.
Benharbon’s testimony see R 6815-6969, 7028-7038, R 3341-62, R 3137-94
and for Ms. Habib’s testimony see R 6970-7021, 7039-7110, R 3273-3339, R
2917-3137; for scripts see R 151-92, 3392-96).The scripts were designed to
make sure that the truth remained hidden from the court and to coordinate the
false testimony that they would each give at their depositions. The transcripts of
the depositions of Maurice Cohen, Sonia Cohen, Leon Cohen, Allegria Aich
and Robert Maraboeuf all confirm that each Appellant carried out that scheme
20
by giving false, incomplete and misleading testimony at their depositions
(infra).
1. Appellants sought to conceal their relationships
The overriding theme of the perjury suborned by Maurice Cohen and
Leon Cohen was that their co-defendants should not disclose the Cohens’
relationship to the various entities that were used to steal the collateral pledged
for repayment of the loan held by CDR.
Patricia Petetin Benharbon testified that at the meeting Maurice
Cohen instructed her to say “that I didn't know Mr. Maurice Cohen or Leon
Cohen; that was the main thing, that I didn't know them.” (R 6844:24-26; R 171
¶ 2.3.3; R 172 ¶2.3.4) The script also provided that the co-defendants should
deny or distort their relationships with each other (see R 172- ¶¶ 2.3.4 through
2.3.11). Joelle Habib testified that the Cohens told her the golden rule was to
not say that Maurice Cohen was the owner of any of these hotels (R 7007:12-
21). Ms. Habib said that she knows this is not true because she has “always
worked with Maurice Cohen, he is the boss, he’s the one who invented the
name Flatotel, he’s the one who directed everything. I even saw him design the
Flatotel logo.” (R 7007:22-26) Ms. Habib stated that it was false if Maurice
Cohen were to say that he never owned anything. According to Ms. Habib,
Maurice Cohen has owned six hotels in Europe and New York (R 7009:8-13).
21
Between 1992 and 1999, millions of dollars worth of income from the
New York Flatotel that had been pledged as collateral for repayment of the loan
was transferred to the Swiss bank accounts of International Winder
Investments, Inc. and Compania Europamerica Hotelera (R 6628 ¶¶ a and b; R
6630 ¶ 41; for wire transfer records supporting amounts in verified petition of
Jeffrey Stoler see SR 2088-2171), many of the transfers having been arranged
by Joelle Habib (R 6972:22-6973:6; for letters from J. Habib arranging
transfers see R 7175-7234). Ms. Habib testified that she was Maurice Cohen’s
personal secretary for 23 years, beginning when she was 17 years of age (R
6970-73). Yet, Ms. Benharbon testified that she and Joelle Habib were
instructed by Maurice Cohen to deny that they knew him or Leon Cohen (R
6844:21-6846). Even though Ms. Habib was Maurice Cohen’s personal
secretary for 23 years, if asked about the location of Maurice Cohen’s office,
she was to lie and say that she did not remember whether her office was next to
Maurice Cohen’s (R 152 ¶ 2.1.2.12). Although Maurice Cohen controlled
International Winder, all of the co-defendants were to testify that the fictitious
Francois Lavalle controlled International Winder (R 160-1 ¶¶ 2.2.6.3, 2.2.6.8,
2.2.6.11, 2.2.6.21; see also Pavia affidavit R 236 ¶3, 332 ¶8). Ms. Habib
testified that both Maurice and Leon Cohen told her that she had to say it was
Francois Lavalle who hired her, “knowing that of course that’s absolutely
22
completely false because I don’t know Mr. Francois Lavalle, he doesn’t exist”
(R 7010:19-23). Even though Maurice Cohen closely supervised every
financial transaction Joelle Habib carried out for International Winder,
including those that stole the income of the New York Flatotel pledged to repay
the loan, Joelle Habib was directed to deny knowledge of the Winder bank
accounts (R 160 ¶¶ 2.2.6.13, 2.2.6.16-20). The script was explicit: “Maurice
Cohen was not a shareholder of Winder according to the information given to
me by Francois Lavalle.” (R 161 ¶ 2.2.6.31). Ms. Habib testified that in reality,
Maurice Cohen was her boss and the decision maker for these companies,
including Flatotel International France, Flatotel Biovimer Cote d’Azur, Macson
Express USA, Residences de la Plaine, and Winder Investment (R 6976:20-
6977:25).
Joelle Habib further testified that after working with Maurice Cohen
for 23 years, “I was in the heart of everything that was going on. He was the
one who gave all the directions, he was hands-on, and nothing was done
without his authorizations. He was the one who directed everything” (R
6978:19-24). Nevertheless, Ms. Habib testified that, during the meeting,
Maurice Cohen directed the co-defendants “to say that he was there [at the
offices of Pavia & Harcourt in February 2000 during the Flatotel closing]
because it was Mr. Francois Lavalle who had asked him to go there. And I
23
asked him, ‘if Mr. Francois Lavalle, if he really existed, why wouldn’t he go
himself?’ I told them, ‘they’re never going to believe this, this is impossible.
You conducted all the negotiations and I was there.’” Maurice Cohen
nevertheless told her “just say that” (R 7020:25-7021:8).
The transactions leading to the transfer of $33 million into the Swiss
bank account of the Panamanian company Blue Ocean Finance Ltd. (“Blue
Ocean”) on February 15, 2000 were also the subject of an elaborate series of
lies scripted by Maurice and Leon Cohen. One hundred percent of the shares of
EALC was pledged as collateral for the loan (R 6195, 6196 ¶ 2 and 6215, 6216
¶ 2). Flatotel International Establishment, a Liechtenstein anstalt that
subsequently changed its name to Summerson International Establishment,
owned half of the EALC shares (R 6195 ¶ 2 “the Pledgor is the owner of the
500 shares of stock…”). The other half were owned by M. Coenson
International et Cie. SNC (now known as Summersun International et Cie.
SNC) (R 6215 ¶ 2 “the Pledgor is the owner of the 500 shares of stock…”).
The 2006 complaint explains that the Cohens caused EALC to amend
its certificate of incorporation to increase the number of authorized shares from
the 1,000 shares pledged to EALC to 10,000 (R 7136, 7143). The Cohens then
caused EALC to issue the 9,000 “new” shares in two separate stock certificates
to another Cohen controlled entity, Iderval (R 7145). On paper, Patricia Petetin
24
Benharbon was the Secretary of EALC who signed the documents to
accomplish this aspect of the conspiracy to defraud CDR. Yet, Ms. Petetin
Benharbon, who was employed as a sales person at Parfums de France, the
perfume shop owned by Maurice and Sonia Cohen, testified that she had no
knowledge about EALC and was simply told to come to Maurice Cohen’s
office to sign the documents (R 6816:6-6817:9; 6818:5-9; 6888:19-6891:11; for
signature on EALC documents R 7134-7163).
Nevertheless, at the meetings the Cohens organized in preparation for
the depositions, Ms. Petetin Benharbon was instructed by Maurice and Leon
Cohen to deny any relationship to them or to Sonia Cohen and Maurice and
Sonia Cohen's daughter, Lea Cohen (R 6844:21-6846, 6860:6-8, 6877:2-9), and
to lie about any involvement with Parfums de France (R 6850:17-6851:2).
Instead, Maurice Cohen told Patricia Petetin Benharbon to testify that her only
intermediary was Robert Maraboeuf and that she became secretary of EALC at
the request of Mr. Maraboeuf and that she bought five shares in EALC (R 6844-
45, 6847, 6848:19-6850:24). In fact, Ms. Benharbon testified, it was Maurice
Cohen who asked her to become secretary of EALC and who called her into his
office one day to sign documents in a binder, a process that took two hours (R
6845:7-8; 6847:11-14; 6888:19-6890:11). Contrary to her scripted instructions,
Patricia Benharbon testified that she knows the Cohen family and had worked
25
for them for many years, even being invited to their luxury apartment complex
at avenue Van Dyck in Paris for their daughter’s wedding (R 6846:10-
6847:14; 6968:12-20).
Although Ms. Petetin Benharbon testified that she stopped using the
name Patricia Petetin and started using Patricia Benharbon when she remarried
on March 21, 1996 (R 6815-16) and that her employment with the Cohens was
terminated in 1997 (R 6828-29), many of the documents used to further the sale
of the EALC stock that closed in February 2000 contained forged “Patricia
Petetin” signatures, which post-dated her marriage and employment with
Parfums de France (R 6886-88; 7139; 7147-63).
Ms. Benharbon testified that during the meeting on June 15, 2009 and
subsequent meetings in October 2009 and March 2010, Leon Cohen showed her
these documents on his computer and all of her signatures, even ones she never
signed (R 6891), and in the presence of Maurice Cohen, Leon Cohen instructed
her “to make sure that I [Patricia] don't say that it was not my signature, to say
that I'm not sure. For example, I'm not sure I recognize my signature, but to not
say yes or no, to leave the confusion remaining” (R 6891:8-11). Maurice Cohen
even went so far as prompting her to blame Albert Israel, an associate of
Maurice Cohen, for forging her signature. Maurice and Leon told her that they
were not on good terms with Albert Israel and that “if you see your name and
26
your signature next to Mr. Israel's name, just say that he was the one who
forged your signature” (R 6891:12-93; ie, R 7144).
In order to hide the disposition of the stolen collateral, including the
$33 million transferred to the Swiss account of Blue Ocean, the 2006 complaint
describes the complex series of transactions culminating in the February 2000
closing of the Flatotel. In breach of the Pledge Agreements, the entities that
owned the shares of EALC and Macson Express USA, Inc. gave options to Blue
Ocean to purchase the shares for a small fraction of their value (R 349; for
English translation see R 352 and R 7235). At the closing that took place at the
office of Pavia & Harcourt, who acted as attorneys for all of the parties (R 234
fn 1), Blue Ocean assigned the options to Ospin International Inc. (“Ospin”),
Simon Elias’ Bahamanian corporation for $33 million, which sum was
transferred from the Pavia & Harcourt escrow account to Blue Ocean’s Swiss
bank account. Ospin then exercised the options, thereby obtaining the shares of
EALC and Macson, and then entered into a complex agreement for the payment
of the balance due that became the subject of litigation between Elias’
companies and the Cohens’ companies, resulting in this Court’s decision in
World Business Center, Inc. v Euro-American Lodging Corporation, 209 AD2d
166, 168-69 [1st Dept 2003].
27
2. The fictitious “Jim Cox” and “Francois Lavalle”
Justice Yates found that some of the “most egregious acts of perjury
concerned the fabrication of fictitious charaters” and was “convinced that Jim
Cox and Francois Lavalle were conscious fabrications created by the Cohens to
meet the exigencies of the situation and to obstruct the Court’s truth-finding
process.” (R 20). A key component of the scripts was the invention of
completely fictitious characters that the Appellants could testify were the
persons in charge of the Flatotel closing. “Jim Cox” was supposed to be the
person behind Blue Ocean who Allegria Aich introduced to Joelle Habib as the
representative of Blue Ocean (See scripts, R 164-167, 178-80, ¶¶ 2.2.7.24,
2.2.8, 2.3.14, 2.3.14.16; see also R 3392 ¶ 1.2.1 referencing “Jim Fox”).
However, Ms. Habib testified that she never discussed the agreement for the
sale of the New York Flatotel with Allegria Aich, who had signed on behalf of
Blue Ocean, or negotiated or even met with Jim Cox, even though the script
states that Ms. Habib was introduced by Allegria Aich to Jim Cox, the
purported representative of Blue Ocean at that time (R 166 ¶ Q.2.2.8.27; R
7017:10-7020:26, 7046:7-47:5, 7041:3-20, 7043:11-7044:5; see also the
Unilateral Promise of Sale Agreement, R 7235; see also Allegria Aich’s
testimony about Jim Cox, R 714; see also R 3392 ¶ 1.2.1 referencing “Jim
Fox”). In fact, Joelle Habib testified that, in reality, Maurice Cohen had
28
prepared the Sale Agreement and she was called into his office at 14 rue du
Theatre in Paris and signed it at his request, but she did not know what she was
signing (R 7046:7-24; R 7235).
Another fictional character made up by the Cohens was “Francois
Lavalle,” the purported representative of International Winder (R 160-62, 178
¶¶ 2.2.6.3-11, 2.2.6.24). Ms. Habib testified that she was told by Maurice and
Leon Cohen to say that Francois Lavalle controlled Winder, the owner of the
Flatotel franchise (R 7012:8-10).
If either “Cox” or “Lavalle” existed, they both would have been key
players in the negotiations leading to the February 2000 sale of the Flatotel and
Joelle Habib would have known them since she was supposed to be the
representative for Winder at the closing. But Ms. Habib testified that “Cox”
and “Lavalle” were made up and that she never met these individuals (R
7043:11-7044:5).
While reviewing the script that Leon Cohen created for her at the
hearing, (R 151-92) Joelle Habib testified that all the answers in that script were
false (R 7041:5-7042:18). She testified that at the June 15, 2009 meeting,
Maurice Cohen, Leon Cohen and Allegria Aich mainly spoke about the closing
transactions part of the script “because it was one of the most important parts,
because it tackled the closing of February 2000, and it was mainly on this
29
subject that they wanted to draw my attention” (R 7041:5-7042:21). She further
testified that “concerning this meeting, we had to remember the story line,
because, in fact, there was new personalities, new people like Francois Lavalle
and Jim Cox, these were new people and I just learned about them that day, on
the day in which they gave me this document” (R 7043:11-15).
Ms. Habib testified that, on one occasion, Maurice and Leon Cohen
were present with her at Allegria Aich's office when the names of Francois
Lavalle and Jim Cox came up (R 7019:2-8). She stated that Maurice Cohen
asked Leon Cohen “’where did you get these names?’ He said, ‘well, Mr. Cox,
I looked it up in the phone book and I found it, he lives in London, and Mr.
Lavalle, well, he lives in Canada’” (R 7019:11-14). The script went so far as to
include physical descriptions of “Jim Cox” and “Francois Lavalle” so the co-
defendants could consistently lie about their physical appearances (R 166¶¶
2.2.8.32 and 2.2.6.37).
Regarding the February 2000 closing, Ms. Habib testified that
Maurice Cohen asked her to come to New York from Paris in order to sign a
couple of closing documents (R 7048:4-7049:10) (Contract of Transfer of Stock
Representing the Entire Authorized Capital of the Company Macson Express
USA, Inc. and Special Agreement R 7237 and 7241). Joelle Habib stated that
she came to New York with Allegria Aich and went to the Flatotel property first
30
and then had a meeting at the offices of Pavia & Harcourt to sign the sales
documents (R 7049). She testified that Maurice Cohen, who was accompanied
by Albert Israel, Simon Elias and Leon Cohen, directed everything (R 7049-
51). She stated that the negotiations did not just take place in New York and
she had seen things in Paris (R 7050:16-17). In Paris, Maurice and Leon
Cohen, accompanied by Albert Israel who acted as an English interpreter,
would speak to Simon Elias on the phone or in person about the upcoming
closing (Id.). Ms. Habib testified that when they were in New York, she saw
Maurice Cohen with many documents in a conference room at the office of
Pavia & Harcourt and he was directing the lawyers to make changes to those
closing documents (R 7050:3-7051:3). Maurice Cohen told Joelle Habib that
if she was asked why she was at the closing, she was to say that Francois
Lavalle had asked her to be present (R 7052:10-17). Joelle Habib was even
supposed to say that she didn’t know why Leon Cohen was at the closing (R
7052:18-22).
3. Appellants' concealed the Cohens’ direction of their legal
representation
Justice Yates found that evidence was shown that the Cohens paid
their co-defendants’ legal fees and coordinated their litigation defense; that each
co-defendant was asked to and did falsely testify under oath that they paid their
own legal fees; that the Habib sisters were asked to sign a bank signature card
31
in order to pay legal fees after the Cohens hired the law firm of Simon &
Partners to represent them; and that the firm's bank records reveal that payments
received were from a Panamanian and a Canadian entity that are both linked to
the ownership of the Cohens' Paris apartment.
The Habib sisters testified that the Cohens coerced them by telling
them to deny that the Cohens were paying their legal fees and were
coordinating their litigation defense (R 6876:25-6877:9 and 7057:20-7059:4; R
171 ¶ 2.3.2.2-2.3.2.7). Both Joelle Habib and Patricia Petetin Benharbon
testified that the Cohens paid their legal fees (R 6835-36, 6840, 6860, 6869-71,
6991-92, 7057-58). Specifically, Ms. Habib testified that Maurice Cohen told
her over the phone that she had to tell Brian Waller, her then new attorney at
Simon & Partners in New York, that she had handed over money to Allegria
Aich to pay John Gleason’s legal fees (R 6991). Ms. Habib said that this was
not true and Maurice Cohen told her that she had no choice but to say this
because he was the one paying her legal fees and she had to do exactly as he
said (R 6991:25-6992:2). In fact, Ms. Habib testified, she never paid any of her
legal fees (R 7057:23-7058:21).
Patricia Benharbon also testified that at the September 2009 meeting,
Leon Cohen felt “it was a problem knowing that they [the Cohens] were the
ones who were paying the lawyers, the legal fees. We had to show that it was us
32
who really paid those lawyer fees for our defense. And Mr. Cohen stood up and
told me, ‘Patricia, never say that you know me, never say that you know
Maurice or Leon Cohen. Let's stick to this strategy’" (R 6877:2-9).
According to the scripts, co-defendants Allegria Aich, Robert
Maraboeuf, Patricia Petetin Benharbon, and Joelle Habib were all supposed to
say that they paid their own legal bills, payments made and coordinated through
Allegria Aich (R 171, ¶¶ Q.2.3.2.3 - Q.2.3.2.6). But Ms. Benharbon and Ms.
Habib testified that they never gave Allegria Aich any money for her to transmit
for legal fees paid on their behalf (R 6869:19-18, 7058:5-8). Ms. Benharbon
testified that at the meeting, Allegria Aich told her that she could say she has a
friend who is able to loan her the money and suggested the name “Mr. Dahan”
(R 6870:3-25). In truth, in an effort to portray that they are independent parties,
Ms. Habib and Ms. Benharbon were asked by Allegria Aich to sign a bank
signature card in order to pay the legal fees after the Cohens hired the law firm
of Simon & Partners to represent them (R 6871:6-6873:6, 7058-59). The
Simon & Partners bank records reveal that almost all the payments they
received were from a Panamanian entity, Merriwall Corporation, and a
Canadian entity, Farlton Enterprises, which is linked to the ownership of the
Cohens’ mansion at avenue Van Dyck in Paris where Ms. Benharbon testified
33
the Cohens lived (R 6872:21-6874:15; 6819-6821:15; for photo in evidence R
7130, reproduced 3271).
Simon & Partners, P.C. was originally retained by the Habib sisters,
Appellant Maraboeuf and Appellant Aich in September 2008 to replace
Gleason & Koatz in order to give the appearance that they were independent
from Appellants Maurice Cohen, Sonia Cohen and Leon Cohen. At the
evidentiary hearing, however, Simon & Partners produced their invoices, which
were all sent by e-mail to Allegria Aich, the only one of the law firm’s four
clients who was still employed by the Cohens (R 6788-6815, 7309). Simon &
Partners apparently had no choice but cease their representation in this litigation
shortly after Appellant Aich’s patent perjury in her deposition that a “Mr.
Dahan,” whom she would not identify, was paying the legal fees rather than the
Cohens (R 6693). Because Ms. Aich’s attorneys knew that her testimony was
false, they had no choice but to withdraw from further representation.
4. The Affidavits submitted to Justice Tolub in support of the
motions to vacate Appellants’ defaults, and cited by this Court in
its May 29, 2009 decision, were false
Joelle Habib testified that significant portions of the September 24,
2008 affidavit that her attorney Bradley Simon wrote for her and submitted to
Justice Tolub in support of Appellants’ motion to vacate their defaults was false
(R 6991; 7091-92). Ms. Habib specifically testified that Maurice Cohen told
34
her on the phone to lie in an affidavit about paying legal fees to Gleason &
Koatz, the firm that represented her, her sister and Appellants at the time of
their defaults (R 6991 and 7090). In particular, she specifically testified that it
was untrue that she ever paid any fee to Mr. Gleason to represent them (Id.). In
fact, she testified, Maurice Cohen paid the fee (R 6990-92). She also testified
that she had lied when she said that she had no prominent position in any of the
companies (R 6993-95). Ms. Benharbon also testified that she was told to lie in
the affidavit about paying legal fees to Mr. Gleason (R 6835-40).
Justice Tolub gave little credence to Appellants’ naked affidavits (R
373-378) when he denied Appellants’ motions to vacate their defaults, but the
Appellate Division specifically referred to those affidavits in reversing that
order in its May 21, 2009 memorandum decision (R 379-80) – a significant fact
that Justice Yates considered now that we know that it was not true that the
Cohens’ nominees ever paid any retainer to John Gleason, Esq. (R 18, 20).
5. Appellants’ deposition testimony shows that they carried out the
plan to lie at their depositions
Justice Yates found that, “[t]he evidence before the Court shows that
the Cohens’ co-defendants followed the perjurious scripts and repeated the
Cohens’ false directives in their depositions” (R 21).
Leon Cohen, Maurice Cohen, Sonia Cohen, Allegria Aich and Robert
Maraboeuf had no other recourse than to appear for their deposition testimony
35
or accept a second default judgment, the first of which had been previously
vacated with their false affidavits.
An analysis of the two perjury scripts given to Joelle Habib
demonstrates how Maurice and Leon Cohen sought to make sure that
Appellants stuck to their scripts in order to repeat the Cohens’ fabrications that
the Cohens never operated, owned or sold the Flatotel and they do not own any
assets:
• “Is Mr. Cohen the owner of these hotels [Flatotel International chain]? A.
No, Mr. Cohen has never been a hotel owner” (R 152 ¶ 2.2.1.4).
• “March 1998: Jim Cox makes a purchase offer for Macson Express USA
only. A: Jim Cox returns to the Flatotel Paris and expresses his interest in
Allegria Aich to take over/buy the management of the Flatotel New York
(but not the ownership).” (R 3392 ¶ 1.2.1.2).
• “September 1998: Joelle (Winder) responds that Francois Lavalle agrees to
sell Macson Express USA if EALC is sold” (R 3392 ¶ 1.2.1.7).
• “What is the corporate purpose of Macson Express USA?” A. “To carry on
the business of the brand name system of Flatotel in the USA as a direct
subsidiary of Macson Express S.A.” (R 158 ¶ 2.2.5.2).
• “Who controlled Macson Express USA? A. Macson Express SA and then
Winder” (R 158 ¶ 2.2.5.3).
• “Was Maurice Cohen the beneficiary of Winder? A. Maurice Cohen was not
a shareholder of Winder according to information given to me by Francois
Lavalle” (R 161 ¶ 2.2.6.31).
• “Who controlled Macson Express SA? A. The CEO” (R 155 ¶ 2.2.3.3).
• “ Who was the CEO of Macson Express SA?” A. “Don’t remember” (R 155
¶ 2.2.3.4).
• “Who was the beneficiary of Macson Express SA?” A. “The shareholders”
(R 156 ¶ 2.2.3.22).
36
• “Is Mr. Cohen the owner of Flatotel Spain?” A. “No, Mr. Cohen has never
been a hotel owner” (R 153 ¶ 2.2.1.10).
Leon Cohen’s Deposition – July 2009
Justice Yates noted in his decision, “[i]n their depositions, the Cohens
denied an ownership interest in Blue Ocean Finance, Whitebury and other
entities used to transfer funds.” (R 19). On July 20-21, 2009, at his deposition,
Leon Cohen committed perjury in order to hide the fact that he and his family
are, in truth, the alter egos of the entities involved in the 2000 transaction, as
well as to hide the fact that they own any assets. For example, in response to
questions regarding the ownership of various entities, Leon Cohen denied that
he or any member of [his] family had any direct or indirect ownership interest
in EALC, Iderval Holding Ltd., Macson Express USA, Inc., International
Winder Investments, Macson Express SA, Summerson International
Establishment, and Caribean Business Funds Corporation (R 1706-07; 1759:4-
15; 1784:6-85; and 1931:5-9).
However, documentary evidence admitted before Justice Yates
showed that statement to be false. There is an HSBC loan document dated May
8, 2003 discussing an application for a $30 million loan to build a piece of
property in Florida, which states that Maurice and Leon Cohen are respectively
70% and 30% owners of Caribean Business Funds Corporation, which received
$32,014,000 from Blue Ocean, which in turn is the 100% owner of American
37
Leisure Resorts, Inc., another alleged alter-ego entity of the Cohens, which
owns Florida properties that are the subject of a related lawsuit (R 248 and 2SR
3854). There is also a 2002 HSBC beneficial ownership letter for Whitebury
Shipping and a 2002 HSBC Client application for Whitebury Shipping showing
that Maurice Cohen is the beneficial owner of the company, that Sonia Cohen is
a signatory on the account, and that Leon Cohen and his sister Lea Cohen are
joint signatories on the account (R 7248, reproduced 3457, in evidence 7113; R
7248, reproduced 3459, in evidence 7113).
In addition, George Pavia, Esq., the attorney who represented all
parties to the sale of the New York Flatotel stated in an affidavit, dated May 27,
2008, that he understood that:
Mr. [Maurice] Cohen…seeks to create the impression, that he did
not control the entities referred to below which owned EALC and
the Flatotel prior to February, 2000, and that he did not own or
control WBC. Those statements and suggestions are completely
untruthful and misleading. Mr. Cohen personally negotiated the
February, 2000 transactions on behalf of the [sic] each of the
entities which owned the Flatotel and on behalf of WBC at a series
of all day meetings held in my offices in New York in February,
2000…His son, Leon Cohen, was also present at some of the
meetings. (emphasis in the original, R 235 at ¶ 2).
In addition, Mr. Pavia stated that “EALC was the corporate owner of
the Flatotel property, which in turn was owned by Maurice Cohen through two
separate offshore corporations which he controlled, Iderval Holding, Ltd…and
Summersun [sic] International Establishment” (R 236 ¶3). Moreover, Simon
38
Elias, the purchaser of the New York Flatotel in 2000, corroborated Mr. Pavia’s
statements (see Elias aff., R 224-225 at ¶¶ 2-3).
Maurice Cohen’s Deposition – July 2009
On July 23, 24, 27-29, 2009, Maurice Cohen followed the story line
that he had created and indeed committed perjury. For example, Maurice
Cohen denied that he was in any way involved with the negotiations and sale of
the Flatotel, claiming that he was merely “a spectator” (R 1607 at 105). He
even testified that he “never had any property” (R 1538 and 1558:4-12).
Maurice Cohen further testified that he never owned any part of Blue Ocean
Finance, Ltd., Caribean Business Fund Corporation, Compania Europamerica
Hotelera Corp., American Leisure Resorts, Inc., World Business Center, Inc.,
First Hotels and Resorts Investments Inc., or Flatotel International
Establishment, claiming that these entities were owned by their shareholders,
finally claiming “I've never owned anything at all.” (R 1478-79; 1648; 1150;
1100; and 1333).
Of course, these statements are all demonstrably false.14 An HSBC
PB Suisse statement of an account opening for Blue Ocean Finance Ltd. dated
July 5, 1999, lists Maurice Cohen as its 100% owner (R 239). A Republic
14 The Appellate Division found in World Business Center, Inc. v Euro-American Lodging
Corp., 309 AD2 166 [1st Dep’t 2003], an appeal arising from the sale of the New York
Flatotel, that, “All of the signatories were corporations controlled by or on behalf of a certain
39
National Bank (predecessor of HSBC) memorandum from 1994 states that
Maurice Cohen owns Europamerica (R 222). In addition, in a City of Miami
Disclosure of Interest form for American Leisure Resorts, Inc., dated April 6,
2007 and signed by Leon Cohen, Maurice Cohen is listed as its 100% beneficial
owner (R 260-261). Maurice Cohen is also listed as the owner of First Hotels &
Resorts Investments, Inc. in an HSBC Executive Summary dated January 13,
2004 (R 242-246). Finally, in a letter dated January 22, 2006 to the receiver for
Summerson International Establishment, the Swiss bank Union Bancaire Privée
named Maurice Cohen as the beneficial owner of the Summerson account at
that bank (R 247).
Sonia Cohen’s Deposition – July 2009
At her deposition on July 28, 2009, Sonia Cohen testified under oath
and committed perjury when she stated: “I'm a homemaker, and I've never been
part of any business whatsoever.” (R 5853 at 38:17-20). Mrs. Cohen further
claimed under oath that she “never signed anything related to [her] husband’s
business,” nor was she ever a shareholder of anything (R 5853 at 38:21-25,
5854 at 43:10-14). Yet, as confirmed by the testimony of Patricia Benharbon
and Joelle Habib, Sonia Cohen was intimately connected with her husband's
business ventures. Specifically, with respect to Parfums de France, Patricia
Maurice Cohen. Whether or not WBC is still controlled by Mr. Cohen is disputed.” 309
40
Benharbon testified that the store was not only owned and operated by Sonia
Cohen, "it was like her toy for her to come and enjoy herself…Madame Cohen
ran the store…she received the commercial directors and the perfumes, [and]
she went over the accounts" (R 6825-26). When asked who owned Parfums de
France, Ms. Benharbon testified, "Madam Cohen," and also that, "[t]he boss
who gave me the orders was Mr. and Mrs. Cohen" (R 6818-19; 6850-51).
Despite Sonia Cohen's vehement denial under oath as to her
involvement with or interest in any Cohen entity, her corporate paper trail
speaks otherwise. Sonia Cohen signed documents as the director and
shareholder of Macson Express SA (2SR 3695-3704), and was a signatory on
bank accounts for Whitebury Shipping and First Hotels & Resorts (R 7246, in
evidence 7113; R 7248, reproduced 3457-58, in evidence 7113). Specifically,
her blanket denial as to signing "anything related to my husband's business,"
including the June 29, 1978 franchise agreement between Macson Express SA
and Flatotel International, (R 5854 at 43:10-14), is directly contradicted by her
signature on two separate franchise agreements as representative of Macson
Express SA. It is noteworthy that none of these documents were produced by
Appellants in response to the demand for production of documents, but were
obtained by CDR from other sources.
AD2d at 167.
41
In addition, Sonia Cohen maintained the fiction that neither she nor
her family owns any assets. Mrs. Cohen testified that her son, Leon Cohen did
not have a Ferrari Testarossa, which is completely false based on Florida
vehicle registrations. (R 5855 at 47:4-6; see 2SR 3845-53). Sonia Cohen even
falsely testified that her home while in Miami, Florida, 7213 Fisher Island, does
not belong to her and is merely a professional apartment (R 5851). When asked
what she meant by the word “professional apartment,” Mrs. Cohen was unable
to answer. She testified “It's an apartment—I don't understand very well
business. I'm not informed. But it falls into that context. There was some
business involved in the middle of all this.” (R 5851). However, Florida Circuit
Court Judge Manno-Schurr found that American Leisure Resorts, which
purchased 7213 Fisher Island, was the alter ego of the Cohens (R 4082, 4100 ¶¶
57-59).
Furthermore, when Sonia Cohen was asked whether she knew Robert
Maraboeuf, she testified “No, I don’t believe so.” (R 5854 at 43). But Ms.
Petetin Benharbon who worked at Parfums de France, testified that Sonia
Cohen was the owner of that perfume store and Robert Maraboeuf worked there
as the manager (R 6818-19; 6827). And Ms. Habib who worked as Maurice
Cohen’s secretary at rue du Theatre in Paris France, also testified that Sonia
Cohen knew Robert Maraboeuf and that she had an office on the first floor in
42
that same building where Mrs. Cohen worked directly with Robert Maraboeuf
(R 7064).
Allegria Aich’s Deposition – October 2009
On October 8-9, 2009, Allegria Aich also followed through with her
perjury and maintained the fictions contained in the scripts. For example, Ms.
Aich testified that she asked Joelle Habib: “Who was in charge of the franchise
in France, and who had a connection with the people in charge of the operation
of the New York hotel?” and Ms. Habib supposedly “sought information from
Mr. Lavalle who represented the franchise and the operation.” (R 722). Ms.
Aich further testified that “Mr. Lavalle told Joelle Habib that the operation
could not be sold without the ownership of building,” and Allegria Aich
informed Mr. Cox of that when he came back to Paris from London (R 722-
723). Allegria Aich also stated that Maurice Cohen did not have any financial
interest in the entity that owns the Flatotel in Spain (R 6691). This statement
was demonstrably false because Joelle Habib testified that Maurice Cohen
owned six Flatotels and one of them is in Spain (R 7009).
Joelle Habib further testified that Allegria Aich’s testimony was false,
specifically stating that Ms. Habib was never introduced to and never
negotiated with a Mr. “Cox” or “Lavalle” (R 7043-44). In fact, Ms. Habib
testified that she had to prepare or rehearse her deposition testimony with
43
Allegria Aich and ask her many questions in order to make sure that her false
deposition testimony would not be contradictory to Ms. Aich’s testimony that
had already been given at her 2009 deposition (Id.).
Allegria Aich’s Deposition – March 2010
On March 9-10, 2010, Allegria Aich appeared again for the
continuation of her videotaped deposition where she maintained and furthered
her lies by protecting the Cohens’ interests. For example, Ms. Aich testified:
Q. And you worked for Flatotel for 22 years and you don't know who
the individual was who owned all of these corporations, is that your
testimony?
…
A. It's none of my business. I can tell you that the owner was
Summersun, represented by Mr. Maraboeuf. I don't know the
shareholders.
Q. Did anyone ever tell you who the individual or individuals were
who owned, at the end of the chain of corporations, the properties that
were called Flatotel?
A. Flatotel is a name. The owner of the building is Summersun and
Mr. Maraboeuf is the one who represents Summersun. And as I said
earlier, I don't know the shareholders of Summersun. I didn't work for
Summersun. (R 1019).
Allegria Aich, who attended the meetings at her office to coordinate
her co-defendants’ sworn statements, testified in complete accord with the
script (see R 169 ¶¶ 2.2.10.4, 2.2.10.9, 2.2.10.11, 2.2.10.13; see also R 722 and
R 6750 at 583:5-23). At her deposition, Ms. Aich did not know any
information such as names, addresses, or any other evidence that “Jim Cox” or
44
“Francois Lavalle,” who supposedly engaged in multi-million dollar
transactions, ever existed or even any information regarding “Dahan,” the man
that was supposedly paying her legal fees (R 910-913:7). At one point during
her deposition, aside from the “I don’t know[s]”, Ms. Aich claimed “[t]his is a
gentleman [“Mr. Dahan”] who is married and I cannot share his information.”
(R 912:2-3).
In support of her version of events, Allegria Aich merely offers the
conclusory denial in her affidavit dated September 16, 2010: “I deny those
allegations as I was not a party to such an agreement…I was not provided with
a script and was not told what to say…” (See R 2717 ¶¶3-4; for English
translation see R 2720). Ms. Aich did not even respond or deny Ms. Habib’s
assertion that it is Ms. Aich’s handwriting on one of the scripts (R 192)—
written by Allegria Aich at the March 21, 2010 meeting, at Leon Cohen’s
direction, in order to update it with what Ms. Aich said at her own deposition on
March 9 and 10, 2010 (R 7056:18-7057:4). Ms. Aich never even denied in her
affidavit that it was her handwriting or provided Justice Yates with a
handwriting sample (R 2717-2721).
45
Maurice Cohen’s Deposition – April 2010
Maurice Cohen continued his cover up and lies during his second
videotaped deposition conducted on April 12-14, 2010.15 At that deposition,
Maurice Cohen denied ownership of Whitebury Shipping Ltd., claiming “No,
sir. No, sir. I’m not a shareholder. There are many shareholders in this
company, and I don’t have shares.” (2SR 3532:22 – 2SR 3533:3). He further
claimed under oath “I was never an owner of Flatotel or of a company,” and
“you can go through all the years but I didn't have -- I never had any assets.”
(2SR3667-68, 2SR3686). Maurice Cohen’s testimony was patently false.
Even Maurice Cohen’s own Florida lawyer, William Petros, Esq.
admitted to CDR’s Florida attorney Carlos de Zayas that the “Cohen’s asset
protection scheme was amazing and that it rendered the Cohens, in effect,
judgment-proof.” (R 3854 ¶ 7). In addition, Joelle Habib testified at the
Melcher hearing that she knows that the foregoing testimony is not true because
she has “always worked with Maurice Cohen, he is the boss, he’s the one who
invented the name Flatotel, he’s the one who directed everything. I even saw
him design the Flatotel logo” (R 7007:23-26). Ms. Habib stated that it was
false if Maurice Cohen were to say that he never owned anything (R 7007:12-
15 At the evidentiary hearing, Justice Yates stated that he would consider all the deposition
testimony as part of the evidence in the case to the extent that they were specifically cited to
or referred to in the post-hearing memoranda submitted by the parties (R 7115-16).
46
26). According to Ms. Habib, Maurice Cohen has owned six hotels in Europe
and New York (R 7009:6-13).
Robert Maraboeuf’s Deposition – June 2010
Robert Maraboeuf’s videotaped deposition was held in Paris, France
on June 7-8, 2010, almost two months after Maurice and Leon Cohen’s arrest in
New York. Indeed, in granting Mr. Maraboeuf’s request to have his deposition
held in France ostensibly because of his age and health, Justice Yates warned in
his order dated April 8, 2010, that Robert Maraboeuf “must testify truthfully,
fairly and fully, respond to any relevant questions put to him, and failure to do
that may result in a default judgment or other sanction” (R 2470). But Robert
Maraboeuf or “Bob” as he was known in the scripts defied the court’s order and
lied under oath.
Mr. Maraboeuf testified that Maurice Cohen was never the indirect
owner and controller of any company through nominee members of his family
and others at the time that Mr. Maraboeuf was in positions as either gérant (the
highest person in specific types of French companies) or chief executive officer
(Maraboeuf dep. at R 4416:21-4417:10). Those companies include: EALC (R
618:24-619:1), the Delaware entity that received the loan in 1991 from SDBO,
CDR’s predecessor in interest; Macson Express S.A. (R 4392:2-5), the entity
that was the management company for the New York Flatotel, which
47
fraudulently looted any income from the hotel's operation, thus causing the
hotel and EALC to become insolvent; Summersun S.A. (formerly known as
Coenson International S.A., R 4388:18-21), and SNC Summersun et. Cie (R
4388:12-17), which were the two guarantors on SDBO’s loan to EALC; and
two other Cohen alter-ego entities, SARL Summersun Paris (formerly Coenson
Paris SARL R 4500:12-15), and Parfums de France.
Robert Maraboeuf's blanket denials and misstatements as to his
involvement with the Cohen enterprises are completely contradicted by the
testimony of both Joelle Habib and Patricia Benharbon (for blanket denial see
R 2704-08). On June 7, 2010, Mr. Maraboeuf testified that he "never worked
for Maurice Cohen" and that "more than 10 years" had passed since his last
communication with Maurice Cohen. (R 4418:5-23; R 4396:15-19). In his
sworn affidavit, dated September 24, 2008, Robert Maraboeuf claimed that he
"did not hold a prominent position or control any legal entity." (R 3843 ¶11).
After submitting this false claim to Justice Tolub in support of Appellants’
motion to vacate their default, Mr. Maraboeuf subsequently acknowledged at
his 2010 deposition that he was president of EALC and signed the various
documents presented to him, including minutes and agreements for EALC (R
618:24-619:14; 636:17-638:21).
48
Contrary to Robert Maraboeuf's sworn statements, Joelle Habib
testified that Mr. Maraboeuf was "one of [Maurice Cohen's] own employees"
and it was Maurice Cohen from whom he "receive[d] orders" (R 7063:3-12; for
script see R 175 ¶ 2.3.7.6). Joelle Habib was even supposed to testify that Mr.
Maraboeuf, not the Cohens, was a decision maker (R 175 ¶ 2.3.7.9. But this she
says is false (R 7064:16-18). When asked whether it was true that Maurice
Cohen had not spoken to Robert Maraboeuf in 15 years, Mrs. Habib replied,
"It's not true because we were together at the meetings" (R 7063:13-23; for M.
Cohen’s dep. See R 1526:24-1527:2).
According to her script, Joelle Habib was also supposed to testify that
she did not remember anything with respect to a woman named Josianne
Sabban, except that she was a decision maker for Macson Express S.A. (R 177
¶¶ 2.3.11.1-2.3.11.10). However, Ms. Habib knew Ms. Sabban as Sonia
Cohen’s personal assistant or “go-fer”, and also as someone who worked in
Mrs. Cohen’s perfume store (R 7060:20-7061:12). Robert Maraboeuf testified
according to script (R 177 ¶ 2.3.11.2) that he does not know Josianne Sabban (R
685:22-24), but Ms. Habib testified that this was false because Mr. Maraboeuf
was a director at the Parfums de France store where Ms. Sabban sometimes
worked (R 7061:24-7062:4).
49
D. Appellants submitted forged documents to the court
Justice Yates found that “the Cohens . . . also forged and falsified
documents that provided additional support for their defense…. including the
Whitebury Shareholder Affidavit and a number of promissory notes related to
Whitebury” (R 21-22).
Habib Levy, Sonia Cohen’s brother and Maurice Cohen’s brother in
law, testified in person at Maurice and Leon Cohen’s criminal trial in Florida
and denied ownership of Whitebury Shipping Ltd, an entity formed in the
British Virgin Islands and First Hotels & Resorts Investments Inc., which is an
entity formed in Québec, Canada. He also testified that his signature on certain
corporate and bank documents for these entities, such as promissory notes,
checks, and beneficial ownership letters filed with HSBC, had been forged
without his express or implied permission.
Although Mr. Levy, who lives in Venezuela and was not subject to
subpoena, did not come to New York to testify before Justice Yates at the
Melcher hearing, counsel for CDR submitted an affidavit to the court setting
forth its diligent, but unsuccessful, efforts through Mr. Levy’s attorneys who
represented him in Florida to get Mr. Levy to come to New York to testify in
person (R 4358-59). Only then did CDR rely upon his prior trial testimony,
which had previously been credited by both the criminal jury and Judge Manno-
50
Schurr in Florida and was entered into evidence by Justice Yates (R 7113; R
7249-99, R 3515-3785) who also obviously credited it (R 7113-7115).
Appellants had offered a letter of beneficial ownership for Whitebury
Shipping Ltd., dated May 1, 2006, that lists Mr. Levy as its beneficial owner, in
support of their claim that Maurice Cohen is not the owner of Whitebury (R
2722). However, at the Florida civil hearing, Habib Levy testified that he never
signed that document (R 7248, in evidence R 7113, reproduced 3459, 7254; see
also 7251-59).
Mr. Levy testified that he first learned of Whitebury Shipping Ltd.
after Maurice Cohen was arrested (R 7260:24-7261:4). Habib Levy also
testified that Maurice Cohen never asked him if he could use his name as the
beneficial owner (R 7262:23-7263:2). Furthermore, although these HSBC
documents state that the signatures were verified, Mr. Levy further stated that
HSBC never contacted him to verify his signature (R 7248, reproduced 3457, in
evidence 7113; R 7263:5-7). Following Habib Levy’s testimony in the Florida
civil and criminal trial, HSBC produced two recordings of conversations that
took place between Habib Levy and its representative Monica Calabrese, on
June 18, 2007 and October 11, 2007, which corroborated Mr. Levy’s testimony
(R 3893-3909 and 3910-3916). During the first conversation, Ms. Calabrese
told Mr. Levy:
51
Monica: It’s precisely about the accounts. Uhm…the rules
compliance area told me that for some reason I wasn’t aware of
that there are other accounts in another part of the group and that
you appear as the end beneficiary of those accounts, so I wanted to
because it’s the same person, the same name, the same everything
and these accounts relate to real estate, to real estate companies, I
wanted to know if it’s the same person…as they have that
discrepancy. Right when they were opening the accounts for me,
they said look: “we are opening the accounts, but have a
discrepancy here, could you help us with this?”
Mr. Levy: But what is the discrepancy? I’m sorry, I didn’t
understand.
Monica: Ok, let’s see if I can explain it better. There are some
accounts that are in another group here of the bank.
Mr. Levy: Of the bank in New York or in…?
Monica: In New York.
Mr. Levy: In New York
Monica: Aha.
Mr. Levy: These can’t be any others except Villasara and
Seashore.
Monica: Yes, no, it isn’t those, it isn’t those two. There are
two more accounts or another group of accounts. I don’t have the
names, but I can get them, where you appear as the end
beneficiary, that is, where you are, how do I put this, the owner.
You don’t appear as the signer, but as the end beneficiary and the
activity of those accounts is in real estate of a Mr. Cohen…I’ll
have to ask them to send me the information. Does this sound like
something real to you?
Mr. Levy: Not at all. I don’t have any other account. (R 3893-
94).
In the second recording, Ms. Calabrese stated that she did not think
that the signature on the First Hotels & Resorts Investments Inc. account was
52
Mr. Levy’s or that the background information was correct (R 3910-11).
HSBC documents reveal that First Hotels was an entity used by Maurice Cohen
to purchase his New York pied-a-terre (R 243). Ms. Calabrese stated:
Monica: the information I have on you, the information they
have in that group of yours is completely different. It’s the same
person, but it has nothing to do with it, it doesn’t apply.
…
Then I saw the signature, and that too isn’t yours.
…
That is, it’s you…the person and the copy of the signature in the
passport and the signature on the application to open the account
are different. Anyway, you will see it (R 3911).
After HSBC sent him a copy of the HSBC client application and
agreement for the First Hotels account, dated October 3, 2003 (R 7246, in
evidence 7113), Habib Levy recognized the handwriting as that of Maurice
Cohen’s and testified at the civil evidentiary hearing that it was not his
signature on the document nor had he ever authorized anyone to sign on his
behalf (R 7253:6-7254:22). He also testified that the beneficial ownership letter
dated September 30, 2003 for First Hotels (R 7247, in evidence 7113) had
Maurice Cohen’s handwriting on it and that he did not sign the document (R
7255:18-7257:1). Habib Levy testified that he was never the beneficial owner
of First Hotels (R 7257:2-7).
Neither Maurice Cohen, Leon Cohen, Sonia Cohen, Allegria Aich nor
Robert Maraboeuf chose to testify at the evidentiary hearing (R 6779-7129).
53
Instead, Maurice Cohen and Leon Cohen relied solely on the testimony they
gave at their criminal trial in Florida where the jury found beyond a reasonable
doubt that they were guilty of conspiracy to defraud the United States pursuant
to 18 U.S.C. § 371, implicitly rejecting their self-serving testimony (R 7352-
7476, 7477-7625; 3787).
Justice Yates properly noted that the court would draw appropriate
inferences from Appellants’ failure to testify at the hearing (R 7124-25). After
reviewing the testimony and the documents in evidence, Justice Yates
concluded that there was clear and convincing evidence that Appellants
committed a fraud on the court (R 25) and that any sanction short of striking the
pleadings “would not repair the harm done by defendants’ willful misconduct
which pervades every aspect of this case” (R 26).
Justice Yates’ order directed the entry of a default judgment against
Appellants (R 54). CDR then moved for a determination of the amount of
damages to be assessed. CDR offered in its motion for damages extensive
documentation as well as the sworn testimony received at the inquest held on
June 11-12, 2008 in connection with the prior defaults (SR 1380-2608).
Appellants never contested the factual documentation or testimony submitted in
support of the damage calculation before the motion court (SR 2609-14), and
Justice O. Peter Sherwood determined that CDR had incurred actual damages in
54
the amount of $135,359,331.39, but denied CDR’s claim for punitive damages
(SR 30-41).
The Appellate Division affirmed both the entry of a default judgment
and the assessment of damages. (RA 5-38). The Appellate Division ruled that,
“the proof elicited is more than sufficient to establish that Appellants engaged
in an extensive scheme to suborn perjury and subvert the judicial process” (RA
13). “Based on the extensive evidence adduced in this matter,” the Appellate
Division properly found that “Supreme Court did not abuse its discretion in
striking the answer” (RA 15) and affirmed the judgment, Justice James M.
Catterson dissenting.
The Court of Appeals granted leave to appeal.
ARGUMENT
I. CLEAR AND CONVINCING EVIDENCE RECEIVED AT THE
EVIDENTIARY HEARING ESTABLISHED THAT APPELLANTS
WERE GUILTY OF EGREGIOUS MISCONDUCT DESIGNED TO
DEFRAUD THE COURT.
Justice Yates was able to hear and observe the Habib sisters' live
testimony on the stand, evaluate their demeanor both during their direct and
cross-examination, and determine whether or not he found their testimony
plausible and worthy of belief. After hearing and observing those witnesses
over the course of the five day hearing, Justice Yates found their testimony to
55
be "the most damaging to defendants' case and the Court credits their
testimony." (R 18). The record of the hearing also included extensive
documentary evidence that corroborated the Habib sisters’ testimony. None of
the Appellants chose to testify, although they were given ample opportunity to
do so.
“It is well settled ... that the fact-finding of a trial court should not be
disturbed unless its conclusions could not have been reached under any fair
interpretation of the evidence, particularly where its determination rests, in
whole or in part, upon the credibility of the witnesses” Thoreson v Penthouse
Int'l, 80 NY2d 490, 495 [1992].
The overwhelming evidence supports Justice Yates’ findings,
particularly in view of the failure of any of Appellants to testify and the spartan,
naked denials contained in their affidavits opposing CDR’s motions.
A. Clear and convincing evidence received at the evidentiary hearing
established that Appellants were guilty of egregious misconduct
designed to defraud the Court.
Virtually all discovery disputes turn on contested issues of fact
regarding compliance with the court’s orders. Appellants seek to have the
Court of Appeals adopt, contrary to its established precedent, a completely
unworkable standard that would prevent the court from striking pleadings
unless the non-compliance is “conclusively demonstrated.” In this case the
56
motion court found “on the basis of clear and convincing evidence,” after an
evidentiary hearing, that Appellants “committed a fraud on the Court,” and that
striking Appellants’ pleadings and entering a default judgment was the
appropriate sanction for “the Cohens’ bad faith and deliberate intent to deceive
the Court” (R 53).
In evaluating the allegations against the Cohens, Allegria Aich and
Robert Maraboeuf, and finding that they each repeatedly committed fraud on
the court and on CDR, Justice Yates adopted the standard used in the federal
courts and approved by the United States Supreme Court that there should be
clear and convincing evidence to prove fraud on the court (R 16-18). Justice
Yates considered the five factors set forth in McMunn v Memorial Sloan-
Kettering Cancer Center (191 F Supp 2d 440, 446 [SDNY 2002]) (R 18).
Those factors are: (1) whether the misconduct was the product of intentional
bad faith; (2) whether and to what extent the misconduct prejudiced the other
party; (3) whether there is a pattern of misbehavior, rather than an isolated
instance; (4) whether and when the misconduct was corrected; and (5) whether
further misconduct is likely to continue in the future.
Although Justice Yates struck Appellants’ pleadings for egregious
fraud on the Court based on clear and convincing evidence, the Appellate
Division also noted that “[d]ismissal of the answer is supported by conduct that
57
can fairly be described as ‘dilatory, evasive, obstructive and ultimately
contumacious’ [citation omitted] designed to frustrate the motion court’s
discovery orders and directives (CPLR 3124).” RA 19. The Appellate Division
cited the Court of Appeals decision in Arts4All, Ltd. v Hancock, 12 N.Y.3d 846
[2009] that “[b]ased on the extensive evidence adduced in this matter, Supreme
Court did not abuse its discretion in striking the answer. RA 15-16. Although
the Appellate Division ruled that a party need only prove the misconduct by a
preponderance of the evidence, the Appellate Division also found here that,
“[w]hile the proof may not quite amount to ‘undisputed untruthfulness on the
record’ [citation omitted], it is sufficient to constitute incontrovertible
untruthfulness on the record.” RA 19.
Justice Yates also found by clear and convincing evidence a persistent
pattern of defiance of discovery orders (R 50-51): Appellants were persistently
in default and obstructed discovery. Justice Tolub explained these defaults at
great length when he first ordered the entry of default judgments in August
2008 (R 356-72) and when he denied Appellants’ motion to vacate their default
in November 2008 (R 390-422). The pattern of defiance persisted after the
Appellate Division reversed Justice Tolub’s default judgments (R 379-80), and
after a second appeal where the Appellate Division denied a stay of Justice
Tolub’s subsequent discovery orders (R 423-24). Even after the second
58
Appellate Division decision, Appellants continued to obstruct and evade
discovery supervised by Justice Yates (R 51).
In Kihl v Pfeffer, 94 NY2d 118 [1999], the court affirmed the ultimate
sanction of striking the pleadings pursuant to CPLR § 3126 where there was a
factual dispute whether there was timely notice of the court’s discovery order.
The Court of Appeals noted that, “if the credibility of court orders and the
integrity of our judicial system are to be maintained, a litigant cannot ignore
court orders with impunity. Indeed, the Legislature, recognizing the need for
courts to be able to command compliance with their disclosure directives, has
specifically provided that a ‘court may make such orders ... as are just,’
including dismissal of an action.” Id. at 123. The Court of Appeals affirmed the
dismissal even though there were affidavits denying receipt of the notice and
there was no hearing (Id. at 122). The Court of Appeals noted that: “the
Legislature, recognizing the need for courts to be able to command compliance
with their disclosure directives, has specifically provided that a ‘court may
make such orders … as are just,’ including dismissal of an action (CPLR 3126).
Finally, we underscore that compliance with a disclosure order requires both a
timely response and one that evinces a good-faith effort to address the requests
meaningfully.” Id. at 123, see also, Arts4all, Ltd. v Hancock, [1st Dep't, 2008],
aff’d, 12 NY3d 846 [2009], cert. denied, 130 S Ct 1301[2010] (affirmed the
59
ultimate discovery sanction, which was disputed by the parties); . Turk
Eximbank-Export Credit Bank of Turkey v Bicakcioglu, 81 AD3d 494 [1st Dep’t
2011]; (Figiel v Met Food, 48 AD3d 330 [1st Dep’t 2008].
In Di Russo v Kravitz, 21 N.Y.2d 1008 [1968], the Court of Appeals
ruled that it was appropriate to reinstate a motion for dismissal for failure to
prosecute when it became apparent at trial that defendants had previously
avoided the dismissal by submission of an affidavit that was a fraud on the
court. The Court wrote that:
To permit plaintiff to recover after he deliberately and willfully submitted
a false affidavit to mislead the court would place a premium on such
reprehensible and illegal conduct.
Plaintiff's false affidavit was used to defeat defendant's right to a
dismissal of the action. Such grievous misconduct offends against
fundamental concepts of the true administration of justice.
The New York courts have always adhered to the principle that “[t]he
object of a trial is to do justice, and whenever it is made to appear that one of
the parties to the litigation has by fraud, connivance, conspiracy or any other
dishonest act prevented his adversary from having a fair trial, then the court
never hesitates to use the power which it possesses to rectify that wrong by
vacating the judgment obtained....” (Nugent v Metropolitan S.R.Co., 48 App
Div 105 [1st Dept, 1899]). The courts have also recognized that a party’s
actions, even if not a fraud on the court and the other party, may constitute
60
misrepresentation and misconduct sufficient to warrant vacatur of a prior
judgment (see Birsett v General Accident Ins. Co. of America, 241 AD2d 683
[3rd Dep’t 1997]; see also Garnett v Hudson Rent A Car, 258 AD2d 559 [2nd
Dept 1999] [where defendants supplied false and fraudulent information, the
Second Department held that the trial court did not improvidently exercise its
discretion in granting plaintiff’s motion to strike the answer]).
There is a well-settled line of cases in the Second Circuit that holds
that courts have “the inherent power to do whatever is reasonably necessary to
assure a level playing field for all litigants” (Shangold v Walt Disney Co., 2006
US Dist LEXIS 748 [SDNY 2006]). The district court in Shangold granted
defendants’ motion to dismiss on the grounds that plaintiffs fabricated evidence
and perpetrated a fraud on the court. In so ruling, the court found that
defendants had demonstrated clearly and convincingly that plaintiffs fabricated
evidence and manipulated the judicial process by fabricating a timeline and plot
outlines and then bolstering that false evidence with perjurious testimony.
Thus, the court concluded: “Plaintiffs’ misconduct requires that the policy
favoring adjudication on the merits yield to the need to preserve the integrity of
the courts” (Id.). In affirming, the Second Circuit found no abuse of discretion
and held that, while dismissal is a harsh sanction, it “is appropriate if there is a
showing of willfulness, bad faith, or fault on the part of the sanctioned party;”
61
that plaintiffs’ repeated false statements showed their willfulness and bad faith;
and that their actions resulted in significant costs to the defendants (2008 US
App LEXIS 9181*74 [2008][citation omitted]).
In the case of a fraud on the court, which “ threatens the integrity of
the judiciary and the proper administration of justice,” (Gleason v Jandrucko,
860 F2d 556, 559 [2nd Cir 1988]), that power includes the “powerful sanction”
of dismissal with prejudice without reaching the merits (See McMunn v
Memorial Sloan Kettering Cancer Center, 191 F Supp2d 440, 445 [SDNY
2002]).
In their presentation to Justice Yates, Appellants placed great weight
on the Appellate Division's holding in Melcher v Apollo Med Fund Mgmt LLC,
52 AD3d 244 [1st Dept 2008] that “[d]eceit warranting the striking of the
answer was not conclusively demonstrated (see 317 W. 87 Assoc v Dannenberg,
159 AD2d 245 [1990])” and the District Court’s holding in Passlogix, Inc. v 2
FA Tech, LLC, 708 F Supp 2d 378 [SDNY 2010] that the plaintiff did not
present “clear and convincing evidence” that defendant committed a fraud on
the court where defendant rebutted “nearly all of [plaintiff’s] evidence” and
“present[ed] a colorable counter-narrative.” Melcher and Passlogix were both
decided on their own particular facts. In both, the individuals accused of
submitting false sworn statements gave what the court in Melcher obviously
62
found to be a plausible explanation for any supposed contradictions (see
Melcher, 2007 NY Misc LEXIS 8563) and the court in Passlogix described as a
“colorable counter-narrative” (see 708 F. Supp 2d at 406).
Here, on the other hand, Appellants have utterly failed to rebut by
credible live testimony the unequivocal and believable testimony of Patricia
Benharbon and Joelle Habib regarding the subornation meetings organized and
orchestrated by Maurice and Leon Cohen and participated in by Allegria Aich
and Robert Maraboeuf. Nor did they offer any plausible explanation or
colorable counter-narrative for their egregious misconduct. The court should
reject any attempted explanations by defendants’ counsel because it is not based
on personal knowledge of the underlying facts that are at issue as to the motive
for the criminal conduct, or defendants’ state of mind.
The key issue presented to Justice Yates was whether he believed the
testimony of Joelle Habib and Patricia Benharbon—which he believed was
entirely satisfactory—proved to him that the Cohens, Allegria Aich, and Robert
Maraboeuf had perpetrated a fraud on the court. That was the whole purpose of
the evidentiary hearing, namely to give the parties an opportunity to present
witnesses so that the court would be able to evaluate their credibility. Once the
court found their testimony worthy of belief, the court then had to determine
whether or not their testimony established clearly and convincingly that a fraud
63
had been perpetrated on the court. Justice Yates found that despite Appellants’
efforts to dispute CDR’s claims, the evidence put forth by CDR at the Melcher
hearing conclusively or clearly and convincingly established that Appellants
conspired to defraud the court.
Courts must have the inherent power to sanction fraudulent
misconduct. See Chambers v NASCO, Inc., 501 U.S. 32, 45 [1991]; Hazel-Atlas
Glass Co. v Hartford-Empire Co., 322 U.S. 238, 250 [1944] (a district court is
“warranted in dismissing [a] case” once it “learn[s] of the fraud”). It is
“elementary that [a] court has inherent authority . . . to conduct an investigation
to determine if it is the victim of a fraud, and may impose sanctions, including
dismissal, upon determining that such a fraud has taken place.” Corto v Nat’l
Scenery Studios, No. 95-5080, 1997 WL 225124, at 3 [2d Cir. May 5, 1997].
The standard proposed by Appellants and advocated by Justice
Catterson in his dissent, that there be no factual dispute regarding discovery
defaults or fraud on the court, is contrary to the established precedent and
would be entirely unworkable. It would open the floodgates for abuse because
it would be virtually impossible for the courts to enforce their discovery orders
or to vindicate the truthfinding process by policing against fraud on the court.
64
B. Appellants made no attempt to testify on their own behalf or to
present live testimony and offered no excuse for such failure.
Justice Yates afforded Appellants more than ample opportunity to
produce witnesses or come to court to testify on their own behalf. They failed to
do so and chose instead to rely on their counsel to argue the credibility of his
non-testifying clients. Although CDR presented—together with voluminous,
supportive, documentary evidence—the live testimony of Joelle Habib and
Patricia Benharbon, which Justice Yates determined was credible, Appellants
chose not to testify at the hearing held to determine whether they had
perpetrated a fraud on the court.16
Justice Yates had previously warned defendants in advance of the
evidentiary hearing that “affidavits are admissible as admissions against the
party for whom they're being introduced, but they're not admissible as a
defense...” (R 96). In addition, the court clearly stated at that same pre-hearing
conference, “[t]he ideal would be that people who are alleged to have lied will
be on the stand and given the chance to explain whether they lied or not.” (R 94
see also, “I was hoping for live witnesses…” R 95).
In addition, CDR had clearly expressed its position prior to the
evidentiary hearing “that for the purposes of the hearing, the affidavits are not
admissible.” Id. CDR also requested as early as October 2010 that the court set
65
a tentative date in order to allow for the Cohens to appear at the evidentiary
hearing (R 77).17 Yet none of the defendants proposed any alternative
arrangements, and none offered any proof of their unavailability to testify at the
hearing.
Instead of testifying, Appellants relied on a blanket denial in affidavits
by Robert Maraboeuf and Allegria Aich dated September 16, 2010 (R 7634,
reproduced 2704; R 7634, reproduced 2717, in evidence R 7124), where they
were not subject to cross-examination, and the transcript of Maurice and Leon
Cohen’s testimony at their federal criminal trial in Florida (R 7352-7476 and
7477-7625, in evidence R 7124), as well as their attorney’s representations and
arguments. The conclusory affidavits did not address any of the specifics of the
Habib sisters’ detailed testimony. Consequently, it was appropriate for the court
to receive the affidavits into evidence, but with the unambiguous warning that
they were received “along with an inference or a presumption against [their]
non-appearance” (R 7125).
The federal criminal jury in Florida found the Cohens guilty beyond a
reasonable doubt of all but one minor criminal count (R 3787; court took
judicial notice of the jury verdict R 7129:3-9; and for counts see indictment R
16 For Ms. Benharbon’s testimony see R 6815-6969, 7028-7038 and for Ms. Habib’s
testimony see R 6970-7021, 7039-7110.
66
204-21). In reaching its verdict, the jury necessarily found that Maurice and
Leon Cohen diverted the $33 million proceeds of the Flatotel sale as part of the
conspiracy to defraud the federal government (SR 756 ¶¶ 27-29). The federal
jury also implicitly found beyond a reasonable doubt that Maurice Cohen and
Leon Cohen lied when they testified as part of their criminal defense. Justice
Yates correctly found “that the criminal action in Florida was based on the same
allegations of this case, namely the Cohens' utilization of a web of alter-ego
entities to hide the millions they received from the sale of their New York
hotel” (R 24). The United States Court of Appeals affirmed the judgments of
conviction in United States v Assor, 466 Fed. Appx. 854 [11th Cir. 2012].18
Justice Yates found the Habib sisters’ testimony most damaging to
Appellants and credited their testimony. He also found important the explicit
“script” retained by Joelle Habib despite Leon Cohen’s instructions to
memorize it and destroy it before coming to New York (R 18). Most damning
17 “That may be a reason, judge, to set a tentative date now, so if it's the Cohens' intention
that they want to testify in this proceeding, that they can start to make arrangements to do
that.”
18 Judge Manno-Schurr also found, after the evidentiary hearing before the Florida Circuit
Court, that the Cohens had perpetrated a fraud on the Florida civil court as well as the New
York courts (R 4093 ¶ 20, 4995 ¶ 33, 4099 ¶ 54, 4102 ¶ 66).
The Florida court’s judgment against Maurice Cohen, Sonia Cohen and Leon Cohen was
affirmed, Empire World Towers, LLC v CDR Créances, S.A.S., 89 So. 3d 1034 [Florida Ct. of
App., 3d Dist.], cert. denied, 109 So.3d 780 [Florida 2013], cert. denied, 133 S.Ct. 2757
[2013].
67
in the eyes of Justice Yates were the fabrications of “Jim Cox” and “Francois
Lavalle” (R 19-20).
Appellants argue that the testimony of Joelle Habib and her sister,
Patricia Habib Benharbon, should have been rejected because they “were highly
motivated to testify favorably to CDR” (App. Br. at 44). Appellants ignore,
however, that the Habib sisters only entered into cooperation agreements with
CDR after they had already testified in the Cohens’ federal criminal trial (R
7131-32). The confessions of judgment were for a relatively small amount,
$25,000, necessary to assure that these individuals who live in France, beyond
the jurisdiction of the New York court, would actually appear to testify.
If “Jim Cox” and “Francois Lavalle” are the persons Appellants claim
to be the real principals behind a $33 million transaction that stole part of
CDR’s collateral, it should have been a simple matter for Appellants to offer
evidence that these persons existed. Instead, none of the Appellants offered any
substantiation at all for their preposterous deposition testimony based on the
perjury scripts.
Sonia Cohen never testified or offered any proof of her unavailability.
The only excuse by her counsel is that she is an innocent, now 70 year old
housewife and grandmother with no knowledge of her husband’s business
affairs (Appellants' Br. At 71). There is nothing in the Record to show any
68
reason for her failure to appear and testify at the hearing. Indeed, Sonia Cohen
had traveled to New York when she gave her deposition that carried out the
perjury scripts (R 5843) and she was in New York in April 2010 when Maurice
Cohen and Leon Cohen were arrested. If she were truly innocent and knew
nothing about her husband’s business affairs, it stands to reason that, rather than
risk having a huge default judgment entered against her, a reasonable person in
her position would come forward to convince the court of her credibility.
On the other hand, the evidence adduced at the hearing showed that
Sonia Cohen was an integral participant in the Cohen family’s business (R
6818-19, 6825-26, 6850-51); she was the signatory on bank accounts used to
steal CDR’s collateral (R 7246, in evidence 7113; R 7248, reproduced 3457-58,
in evidence 7113); and she received powers of attorney to direct the affairs of
bearer-share entities used to steal CDR’s collateral (R 133, SR 2304, SR 2308,
SR 2310, R. 3561, R. 3606, 2SR 3743).19 Her deposition testimony showed that
she had lied in accordance with the perjury scripts and the Cohens’ fraud on the
court.
Unlike a criminal trial, where the Appellants may choose not to testify
on their own behalf and rely upon the presumption of innocence, in a civil
19 A tape recording was presented in the federal criminal proceedings that Maurice Cohen,
who denied owning any assets, had instructed Sonia Cohen in code to “liquidate the stuff”
shortly after he was arrested (SR 1256-1260).
69
proceeding where their credibility is at issue, it was incumbent upon Appellants
to make every effort to appear and testify on their own behalf or risk having the
trier of fact draw an adverse inference against them for their failure to offer live
testimony. Commissioner of Social Services v Philip De G., 59 N.Y.2d 137, 141
[1983](trier of fact allowed to draw the strongest inference that the opposing
evidence in the record permits); Marine Midland Bank v John E. Russo Produce
Co., 50 N.Y.2d 31, 42 [1980].
C. Dismissal for fraud on the court or egregious discovery misconduct
does not impinge Appellants’ right to a jury trial.
The inherent power to dismiss is a long-recognized and critical
gatekeeping authority that protects courts and juries from becoming “mute and
helpless victims of deception and fraud.” Hazel-Atlas, 322 U.S. at 246. As
Judge Friendly explained, “fraud on the court” is “that species of fraud which
does or attempts to defile the court itself . . . so that the judicial machinery
cannot perform in the usual manner its impartial task of adjudging cases that are
presented for adjudication.” Martina Theatre Corp. v Schine Chain Theatres,
Inc., 278 F.2d 798, 801 [2d Cir. 1960] (internal quotation marks omitted).
Accordingly, to “protect the sanctity of the judicial process” and “maintain
institutional integrity,” a court may exercise its inherent dismissal power “to
combat those who would dare to practice unmitigated fraud upon the court
70
itself” and “defend [its] integrity against” such “unscrupulous marauders.”
Aoude, 892 F.2d at 1118-19.
Neither the Seventh Amendment to the United States Constitution nor
N.Y. Constitution Article I § 2 prevents the courts from sanctioning misconduct
by striking the offending party’s pleading. “It has always been one of the
attributes -- one of the powers necessarily incident to a court of justice -- that it
should have this power of vindicating its dignity, of enforcing its orders, of
protecting itself from insult, without the necessity of calling upon a jury to
assist it in the exercise of this power” (Eilenbecker v Plymouth County, 134
U.S. 31, 36 [1890]). In essence, this conduct constitutes an implicit waiver of
any right to a jury trial. More importantly, any such claim was not preserved
for appellate review because Appellants never raised the issue before Justice
Yates.
In Pope v Fed. Express Corp., 974 F.2d 982 [8th Cir. 1992], for
example, the court held that dismissal based on a fraudulent exhibit did not
violate the Seventh Amendment because, without the exhibit, there was no issue
left for the jury to resolve. Id. at 984. This was true even though the court relied
on “expert testimony and demonstrative evidence” to determine that the exhibit
had been fabricated, id. at 983. Similarly, in REP MCR Realty, LLC v Lynch,
363 F. Supp. 2d 984 [N.D. Ill. 2005]—a case involving “flagrant bad faith
71
misconduct that began with document fabrication and concluded with multiple
instances of perjury and the provision of willfully false testimony in federal
court”—the court refused to take a “counter-intuitive” approach limiting pre-
trial dismissal, observing that any argument that dismissal would conflict with
the Seventh Amendment “would be unavailing under the caselaw.” Id. at 1015.
The New York State Constitutional provision is limited to “all cases
in which [trial by jury] has heretofore been guaranteed. Dating back to the
Charter of Liberties and Privileges adopted by the first New York Colonial
Assembly in 1683, however, the common law has never recognized the right to
a jury when the court must vindicate its own inherent power to punish for
misconduct.20 The earliest cases on the subject after the adoption of the 1777
State Constitution show that New York continued the rule that no jury was
required for misconduct that affected the integrity of the court’s process. In In
re Yates, 4 Johns 317, 371-74 [1809], Chief Justice Kent upheld the decision by
the Chancery Court to hold the party in contempt after a nonjury proceeding at
which it was established that he had forged the name of a solicitor to a pleading
and had illegally acted as a solicitor. Two years later, Senator Platt, sitting in
the Court of Errors, citing Blackstone, wrote: “The right of punishing for
20 The 1683 Charter of Rights and Liberties, 1683 Colonial Laws of New York, ch. 1,
provides, “none of the said amerciaments shall be assessed but by the oath of twelve honest
and lawfull men of the vicinage provided the faults and misdemeanours be not in contempt of
courts of judicature.” (emphasis added) (Full text submitted in the Compendium).
72
contempts by summary conviction, is inherent in all courts of justice, and
legislative assemblies, and is essential for their protection and existence. . . . A
contempt is an offense against the court, as an organ of public justice; and the
court can rightfully punish it on summary conviction.” Yates v Lansing, 9 Johns
395, 416-17 [1811].
As Justice Yates wrote:
The United States Supreme Court has stated that "false testimony in a
formal proceeding is intolerable. We must neither reward nor condone
such a flagrant 'affront' to the truth-seeking function of the adversary
proceedings"(ABF Freight Sys., Inc. v NLRB, 510 US 317, 323 [1994]).
The Supreme Court has described fraud on the court as "a wrong against
the institutions set up to protect and safeguard the public" (Hazel-Atlas
Glass Co. v Hartford-Empire, 322 US 238, 246 [1944]). While viewed as
a wrong perpetuated on the judicial system rather than on an individual
litigant, the doctrine of fraud upon the court has led to the dismissal of a
perjuring plaintiff's claims. (R 17)
Appellants cannot now complain of the need for adjudication by a
jury when they so abused the adjudicatory process to make it impossible for the
court’s process to work as intended.
D. Striking the answers and entering a default judgment was the only
viable sanction given the clear and convincing evidence of fraud on
the court.
Justice Yates noted that actions for fraud upon the court are rare.
When considering CDR's motions to strike Appellants’ pleadings, Justice Yates
stated that he was mindful of the strong policy favoring resolution of cases on
their merits and that dismissal is a drastic sanction, which should be imposed
73
sparingly (R 17). However, he stated that he was also mindful of the need to
maintain the court’s integrity and the administration of justice (Id.).
Justice Yates found that through lies under oath, delays and through
concealment by deliberate actions, Appellants attempted to hide from the court,
CDR and ultimately the fact-finders, evidence that clearly concerned the heart
of this case (R 25). Furthermore he found that Appellants’ cover-up attempts
also militate toward dismissal, as well as the fact that their actions prejudiced
CDR by impeding its ability to obtain true discovery and forcing CDR to spend
enormous amounts of money and time to prove their case (Id.). Justice Yates
also took into consideration that the Cohens’ actions were not an isolated case
of misconduct, nor did they attempt to correct their misconduct (Id.). In fact,
the court believed that the Cohens’ deception on the court would continue if the
actions were allowed to go forward, thereby nullifying the integrity of those
proceedings (R 25-26).
Justice Yates considered lesser sanctions, such as an adverse jury
inference, but concluded that such an inference would not sufficiently remove
the taint from those actions (R 26). Moreover, the court considered monetary
sanctions, which it found would likely be uncollectible because the Cohens
have already exhibited manipulative financial behavior (Id.). Throughout this
litigation, the Cohens have cried poverty while at the same time they have lived
74
a luxurious lifestyle, all the while hiding their assets through the use of
offshore dummy entities (R 272-73; R 144, 147; see also, HSBC executive
summary R 243, 239-41, 247-48, and also R 3452, 3457 with Cohen family as
signatories to the First Hotels and Whitebury accounts). Hence, the court
opined Appellants would never pay such a sanction, and that such a sanction,
which in any event would prove difficult for CDR to collect without a judgment
considering that their assets are in foreign jurisdictions (R 26).
The Court of Appeals’ recent decision in Merrill Lynch, Pierce,
Fenner & Smith, Inc. v Global Strat Inc., __ N.Y.3d __(October 10, 2013) is
very different from this case now before the Court. Unlike Merrill Lynch, there
is a comprehensive record that establishes extensive willful and contumacious
misconduct both to defraud the court and to avoid Appellants’ discovery
obligations.
Accordingly, because a monetary sanction representing the additional
costs, fees, and expenses incurred by CDR due to the Cohens’ deceit would not
sufficiently punish them and a lesser sanction would not repair the harm done
by Appellants’ willful misconduct which pervaded every aspect of these
actions, Justice Yates properly granted CDR’s motions, struck the Appellants’
answers and directed the Clerk of the Court to enter a default judgment against
the Appellants and in favor of CDR (R 26). Appellants offer no counter
75
argument that would warrant disturbing Justice Yates’ findings and
determination.
E. Appellants exaggerate reliance on the Cohens’ criminal conviction
Appellants were the ones who sought to introduce the testimony of
Maurice Cohen and Leon Cohen at their criminal trial, apparently instead of
making arrangements for them to testify subject to cross-examination by CDR
(R 7121). Any objection they may have had to the procedure they suggested
was not preserved for appellate review. The hearing court took judicial notice of
the criminal jury’s verdict based on Appellants’ proffer of that testimony (R
7129). Those circumstances distinguish this case from those cited in
Appellants’ Brief.
Furthermore, the Appellate Division explicitly wrote that it was not
applying collateral estoppel to the criminal sentencing findings (RA 22).
Nevertheless, the Appellate Division could just have easily cited to the jury’s
verdict, which necessarily found that both Maurice Cohen and Leon Cohen had
committed perjury when they testified at their criminal trial. Justice Yates
properly cited to Emich Motors Corp. v General Motors Corp., 340 U.S. 558,
569 [1951] for the proposition that only those “issues which were essential to
the verdict” would be considered for preclusive effect of a conviction (R 15).
76
Of course, the jury convicted Maurice Cohen and Leon Cohen based on
evidence beyond a reasonable doubt.
While neither the Appellate Division nor Justice Yates gave collateral
estoppel effect to the criminal sentencing findings, those findings do, however,
validate Justice Yates’ determination.
II. THE COURT PROPERLY ASSESSED CDR’S ACTUAL DAMAGES
BASED ON DOCUMENTARY EVIDENCE
Following the findings by Justice Yates, CDR moved for an order
directing entry of a money judgment representing compensatory damages in a
sum certain and punitive damages in its favor against the defaulting Appellants.
By decision and order entered on August 22, 2011 in Supreme Court, New
York County, Justice Sherwood found that CDR is entitled to $135,359,331.39
in compensatory damages with costs and interest (SR 30-40). CDR presented
the motion court with a full documentary record (SR 1380-1759) as well as the
testimony submitted at the inquest held before Special Referee Marilyn
Dershowitz on June 11 and 12, 2008 (SR 1760-2608).
As a result of the striking of Appellants’ answers, Justice Sherwood
found that the defaulting Appellants had “admitted ‘all traversable allegations
in the complaint, including the basic allegations of liability’” (SR 35-36,
quoting Rokina Optical Co. v Camera King, 63 NY2d 728, 730 [1984]). Justice
Sherwood further found that Appellants were not permitted to raise any
77
arguments or introduce any evidence tending to defeat plaintiff’s causes of
action nor are they entitled to any further disclosure in preparation for an
inquest (SR 37).
Justice Sherwood found that “based upon the voluminous record
before [him], that plaintiff’s compensatory damages are for a sum certain which
may be calculated without resort to any extrinsic evidence, thereby rendering
the conduct of a hearing on this aspect of plaintiff’s damages unnecessary” (SR
36). The calculation is straightforward arithmetic (SR 36-37):
10/19/2005 New York judgments $207,997,240.41
Add: Interest 10/19/2005-7/12/2007 (631 days) 32,362,090.98
Less: 7/12/2007 debt transfer proceeds -105,000,000.00
Principal amount of judgment $135,359,331.39
Clerk’s calculation of interest to date of entry 50,965,569.62
Clerk’s taxation of costs and disbursements _______400.00
Total judgment amount $186,325,301.01
A. Appellants raised no disputed factual issues that warranted an
evidentiary hearing on damages
Appellants argue that they were entitled to contest CDR’s claimed
damages at an inquest because they were not for “a sum certain,” and that
Justice Sherwood erred in directing the entry of a money judgment against them
without a hearing. However, “[i]f the damages, although unliquidated, can be
established by paper alone, and do not require oral testimony - one may draw an
analogy here to standards used on a summary judgment motion - the court can
make the assessment without an oral hearing,” (Siegel, New York Practice [4th
78
ed.], Section 293, p 477). This procedure is also entirely consistent with the
Uniform Rules for the Supreme Court, 22 NYCRR § 202.46 (“the party seeking
damages may submit the proof required by oral testimony of witnesses in open
court or by written statements of the witnesses.”)
Thus, it was incumbent upon Appellants to come forward and lay bare
their proof in opposition to CDR’s motion for an assessment of compensatory
damages. Having completely failed to make even a proffer of any evidence that
they intended to present at an inquest, Justice Sherwood was fully justified in
concluding, “based upon the voluminous record before it, that plaintiff’s
compensatory damages are for a sum certain which may be calculated without
resort to any extrinsic evidence, thereby rendering the conduct of a hearing on
this aspect of plaintiff’s damages unnecessary.” (SR 36).
Appellants had their chance when they submitted their opposition
papers to Justice Sherwood to offer or, at the very least, state the evidence they
intended to show at an inquest. They had their chance but forfeited it.
B. The Appellate Division and the motion court correctly determined
the amount of CDR’s damages
As a result of the striking of Appellants’ answers, the defaulting
Appellants had “admitted ‘all traversable allegations in the complaint, including
the basic allegations of liability’” Rokina Optical Co. v Camera King, 63 NY2d
728, 730 [1984]). Appellants were not permitted to raise any arguments or
79
introduce any evidence tending to defeat plaintiff’s causes of action. These
include all of the allegations of the complaint that Appellants stole the proceeds
of CDR’s collateral and impaired the collateral by entering into contractual
agreements with entities that they controlled that siphoned off all of the
earnings from the hotel in breach of the loan documents.
Appellants are incorrect when they argue for the first time in their
motions for leave to appeal that “CDR never proved that the amount of the
alleged ‘fraudulent conveyance’ equaled the entire unpaid amount of the loan.”
In fact, CDR offered in its motion for damages extensive documentation as well
as the sworn testimony received at the inquest held on June 11-12, 2008 in
connection with the prior defaults (SR 1380-2608).21 This included the
testimony of appraiser Jerome Haims who testified at the June 2008 inquest.
His appraisals showed that, but for the fraudulent encumbrances Appellants
placed on the Flatotel, the property could have been sold for $312,200,000
rather than the $105,000,000 paid in the 2007 bankruptcy settlement—a sum
substantially in excess of the sum certain due on the loan. (SR 1770-74).
21 The attorney who appeared for the defendants at the June 2007 inquest represented all of
the present Appellants at that time and had a full opportunity to cross-examine CDR’s
witnesses (SR 1865-66, 1872).
Special Referee Marilyn Dershowitz, like Justice Sherwood, denied CDR’s claim for
punitive damages, but found that the amount due on the loan judgment was the proper
calculation of damages (SR 1472).
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Appellants never contested the factual documentation or testimony
submitted in support of the damage calculation before the motion court (SR
2609-14), nor did they contest this in their briefs in the Appellate Division.
Appellants made an entirely different argument that the bankruptcy settlement
precluded an award of damages, which was rejected by the motion court and by
the Appellate Division (see, e.g. RA 25, SR 37). It is only now that Appellants
claim a factual dispute over the value of the collateral that Appellants stole and
impaired.
Thus, it was entirely appropriate for the motion court to find, based on
the documentary record before the motion court that, but for the fraud
perpetrated by the Appellants stealing and impairing the loan collateral, CDR
would have recovered the full amount due on its loan judgment after deducting
$105,000,000 received on July 12, 2007 (SR 1382-85). Because Appellants
failed to contest the documentation or testimony that established the sum
certain, this issue has not been preserved for further appellate review. Bingham
v New York City Trans. Auth., 99 NY2d 355, 359 [2003].
Appellants argue that CDR should once again be required to prove the
amount due on the loan. This argument ignores the 2003 judgment of the Paris
Court of Appeals, recognized in New York and affirmed by the Appellate
Division that determined the amount due on the loan. CDR Creances S.A. v
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Euro-American Lodging Corp., 40 A.D.3d 421, 423 [1st Dep't 2007]. The
testimony submitted at the prior inquest, together with the extensive
documentary record established that, as alleged in the complaint, but for the
tortious conduct of Appellants, CDR would have recovered the full amount due
on the judgment against Euro-American Lodging Corp.
C. The Appellate Division and the motion court applied the proper
legal standards in determining the amount of CDR’s damages
1. Pre-judgment interest is appropriate when the fraud impairs
recovery on a judgment to recover on a loan.
The gravamen of CDR’s complaint is that Appellants conspired to
prevent CDR from recovering on its judgment for repayment of the loan to
finance the acquistion and rehabilitation of the New York Flatotel by stealing
the collateral and concealing the disposition of the proceeds of their theft. It is
well established that damages for fraud that impair the right to recover on a loan
include prejudgment interest.22 (See generally, CPLR 5001(a); Flamm v Noble,
296 N.Y. 262 [1947]; see Miot v Miot, 24 Misc.3d 1224 [Sup. Ct. NY Co.
2009]; aff’d, 78 A.D.3d 464, 910 N.Y.S.2d 436 [1st Dep't 2010]; see also
22 The $12 million agios charge included in the judgment of the Paris Court of Appeal is yet
another red herring that has repeatedly been resolved in CDR’s favor (SR 1903); see CDR
Creances S.A. v Euro-American Lodging Corp., 40 A.D.3d 421, 423 [1st Dep't 2007].
Contrary to the claim raised in the Appeal Brief at 64, the Paris Court of General Jurisdiction
denied the Cohen’s challenge to the computation of interest by the New York Supreme
Court. Euro-American Lodging Corp. v CDR Créances, Docket No. 05/81984 [Tribunal de
Grande Instance de Paris, Juge de l’Exécution 10/28/2005] (“the request for deduction of the
agio credit is absolutely the same as the one that was argued before the Paris Court of Appeal
and denied by that court.”)(Copied in the Compendium)
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Eighteen Holding Corp. v Drizin, 268 A.D.2d 371, 372 [1st Dep't 2000] (award
of prejudgment interest proper because defendants wrongly withheld plaintiff's
money)). The cases cited by Appellants do not rule otherwise.
2. The bankruptcy settlement did not discharge Appellants
To the extent that Appellants rely upon Bailon v Guane Coach Corp.,
Inc., 78 A.D.3d 608 [1st Dept 2010] in support of their argument that CDR has
waived or forfeited any claims against them because of the settlement with
Simon Elias in the bankruptcy proceedings, that case is readily distinguishable.
In Bailon, the release of the underlying corporate claims did not include the
carve-out provision contained in CDR’s settlement with EALC, which
specifically provided in the second paragraph of Article 6 of the Debt Transfer
Agreement of July 12, 2007 that CDR:
Expressly…retains the exclusive benefit of the proceedings for
fraud which it has brought against Mr. Maurice COHEN, the
members of his family and of his group, and of the companies in
which he holds interests, directly or indirectly. These proceedings
are pending before the Supreme Court of the State of New York,
County of New York (Index No. 6000448/06) Generally, only
CDR CREANCES may bring against them the actions which it
shall judge opportune, based on their tortious or quasi-tortious
liability.
(SR 2566; for English translation see SR 2574).
Appellants argued that they should be discharged by the bankruptcy
settlement in more than a dozen applications in the Supreme Court, the
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Appellate Division, in the litigation in Florida, and to the Bankruptcy Court.
Every court that has considered the issue has rejected the claim that the
bankruptcy settlement discharged Appellants from their tort liability for stealing
and impairing the collateral, which was no longer available to secure the loan.
The decision of United States District Judge Alison J. Nathan is the
most recent to address the issue in In re Euro-American Lodging Corp., Case
No. 12-cv-4996-AJN [S.D.N.Y. 3/25/2013] (reproduced in CDR’s
Compendium). Appellant Leon Cohen appealed the Bankruptcy Court’s denial
of his motion to reopen the EALC bankruptcy proceeding in order to obtain an
injunction to prevent CDR from pursing the tort claims. In a ten-page decision,
Judge Nathan concluded, “Cohen is incorrect in asserting that he is relieved of
personal liability to CDR because of EALC's discharge. If a ‘state court
construes the discharge correctly, its judgment will be enforced and not be
vulnerable to being upset by means outside the normal appellate channels’" Id.
at 9, quoting In re Pavelich, 229 B.R. 777, 783 [9th Cir. B.A.P. 1999]. “To the
extent that Cohen seeks review of state court determinations that his debts were
not discharged, those state court rulings were correct and the Bankruptcy Court
was correct in denying the requested relief.” Id. at 9-10.
Appellants also seek to confuse the Court of Appeals by suggesting
that the claims of alter-ego liability against Appellants are limited to EALC, the
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corporate party to the loan agreement. However, the 2006 complaint makes it
clear that Appellants bear liability as the alter egos of other entities besides
EALC that were used as part of the criminal conspiracy to steal and impair
CDR’s collateral. These entities include but are not limited to Blue Ocean
Finance, Ltd., Summerson International Establishment and Iderval Holding
Ltd., which are the subjects of outstanding judgments. (see SR 1468 for the
referee’s report). Contrary to Appellants’ suggestion, none of those entities
appealed those judgments and they remain outstanding.
3. Co-Conspirators are jointly liable for all of the damages caused by
the conspiracy.
All of the Appellants share liability as co-conspirators for the torts
committed against CDR as alleged in the complaint, which is deemed admitted
as a consequence of their gross misconduct. It is well established law in New
York that a co-conspirator is jointly and severally liable for the full amount of
the damages caused by the conspiracy. DLJ Mtge. Capital, Inc. v Kontogiannis,
2013 NY Slip Op 06787 [1st Dep't Oct. 17, 2013]; American Transit Ins. Co. v
Faison, 242 A.D.2d 201 [1st Dep't 1997]; Merrill Lynch, Pierce, Fenner &
Smith v Arcturus Bldrs., 159 A.D.2d 283, 284-285 [1st Dept 1990]. “[U]nder
New York law, the liability of co-conspirators is joint and several,
notwithstanding the amount of any direct benefit conferred upon them through a
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fraudulent transaction.” Merrill Lynch at 288. Consequently, there was no need
to establish the damages caused by each appellant.
CONCLUSION
Virtually all discovery disputes turn on contested issues of fact
regarding compliance with the court’s orders. Appellants seek to have the the
Court adopt, contrary to its established precedent, a completely unworkable
standard that would prevent the court from striking pleadings unless the fraud
on the court is “conclusively demonstrated.” In this case the motion court
found “on the basis of clear and convincing evidence,” that Appellants
“committed a fraud on the Court,” and that striking Appellants’ pleadings and
entering a default judgment was the appropriate sanction for “the Cohens’ bad
faith and deliberate intent to deceive the Court” R 25.
Based on the extensive evidentiary record of perjury, subornation of
perjury, submission of false documents and affidavits that pervaded every
aspect of the case that irreparably harmed the truthfinding process, the
Appellate Division correctly ruled that, “Supreme Court did not abuse its
discretion in striking the answer” (RA 15).
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Accordingly, the Court of Appeals should affirm the judgment in all
respects, with costs.
Dated: October 30, 2013
Respectfully submitted,
KELLNER HERLIHY GETTY & FRIEDMAN, LLP
By: _ __
Douglas A. Kellner
Attorneys for Plaintiff CDR Créances, S.A.S.
470 Park Avenue South—Seventh Floor
New York, New York 10016-6819
(212) 889-2121
dak@khgflaw.com
Of counsel:
Robert J. Cimino, Esq.
Robert A. Lifson, Esq.
Lewis Johs Avallone Aviles, LLP
One CA Plaza, Suite 225
Islandia, NY 11749