CDR Creances S.A.S.,, Respondent,v.Maurice Cohen, Appellant, et al., Defendants.-------------------------CDR Creances S.A.S.,, Respondent, v. Leon Cohen,, et al., Appellants, et al., Defendants.

Brief

N.Y.March 27, 2014

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). 80 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 81 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) 82 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 83 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 84 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 85 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). 86 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