To be Argued by:
DAVID S. PEGNO
(Time Requested: 30 Minutes)
APL-2013-00162
New York County Clerk’s Index Nos. 109565/03E and 600448/06E
Court of Appeals
of the
State of New York
CDR CRÉANCES S.A.S., as Successor to Société de Banque Occidentale,
Plaintiff-Respondent,
– against –
MAURICE COHEN,
Defendant-Appellant,
SUMMERSON INTERNATIONAL ESTABLISHMENT,
BLUE OCEAN FINANCE, LTD., WORLD BUSINESS CENTER, INC.,
and IDERVAL HOLDING, LTD.,
Defendants.
——————————————————————
(For Continuation of Caption See Reverse Side of Cover)
REPLY BRIEF FOR DEFENDANTS-APPELLANTS
DEWEY PEGNO & KRAMARSKY LLP
Attorneys for Defendants-Appellants
Maurice Cohen, Leon Cohen,
Sonia Cohen, Allegria Aich
and Robert Maraboeuf
777 Third Avenue
New York, New York 10017
Tel.: (212) 943-9000
Fax: (212) 943-4325
Date Completed: November 13, 2013
Index No.
109565/03E
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,
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.
Index No.
600448/06E
TABLE OF CONTENTS
TABLE OF AUTHORITIES ................................................................................... iii
PRELIMINARY STATEMENT ............................................................................... 1
ARGUMENT ............................................................................................................ 7
I. CDR DOES NOT SUBSTANTIVELY ADDRESS THE
IMPORTANT LEGAL ISSUES RAISED BY THIS APPEAL .................... 7
A. CDR Does Not Address the Important Implications of
Defaulting Parties for the Content of Their Discovery
Responses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
B. CDR Mischaracterizes Appellants' Contentions Regarding
the Importance of Their Right to a Jury Trial.. ................................... 10
C. The Authority CDR Cites Is Inapposite ............................................. 12
II. IT IS UNDISPUTED THAT THE HEARING WITNESSES'
TESTIMONY WAS CRITICAL TO THE DEFAULT, AND
THAT TESTIMONY WAS FAR FROM CONCLUSIVE .......................... 14
A. There Was Significant Evidence Rebutting CDR's
Contentions ......................................................................................... 15
B. The Deference CDR Asks This Court to Give the Trial
Court's Ruling Shows Why the Standard Should Be So High .......... 17
C. CDR's Efforts to Bolster the Hearing Testimony of Its
Witnesses Only Confirms That Serious Fact Issues Exist ................. 18
D. Appellants Were Not Required to Present Live Hearing
Testimony ........................................................................................... 23
1. Appellants Did Not "Choose" Not to Testify .......................... 23
1
2. Even If the Court Were Weighing the Evidence, No
Adverse Inference Was Proper ................................................. 26
III. CDR'S CONTENTIONS REGARDING OTHER DISCOVERY
VIOLATIONS ARE BOTH SUBSTANTIVELY IRRELEVANT
AND FACTUALLY INCORRECT ............................................................. 27
A. CDR Relies on Plainly Erroneous Trial Court Rulings ...................... 27
B. CDR's Argument Regarding the Alleged Submission of
"False Affidavits" Is Grossly Misleading ........................................... 30
C. CDR's Allegations Regarding Habib Levy's Testimony
Only Raise Fact Issues ........................................................................ 31
IV. CDR CANNOT JUSTIFY THE DEFAULT AGAINST SONIA
COHEN ......................................................................................................... 32
V. CDR CANNOT SHOW THAT ENTRY OF JUDGMENT ON ITS
UNLIQUIDATED CLAIMS WITHOUT A HEARING WAS
PROPER ........................................................................................................ 35
A. CDR's Claims Are Unliquidated and an Inquest Was
Required .............................................................................................. 3 6
B. CDR Does Not Show That Alter Ego Claims Exist ........................... 40
1. CDR Has No Claims Against EALC's Alleged Alter
Egos Under This Court's Ruling in Bailon .............................. 41
2. Federal Law Also Precludes CDR's Alter Ego Claims ........... 42
3. Judgments on Default Against Other Entities Have No
Bearing Upon CDR's Alter Ego Claims Against
Appellants ................................................................................. 43
CONCLUSION ....................................................................................................... 44
11
TABLE OF AUTHORITIES
Cases Page(s)
Bailon v. Guane Coach Corp.,
78 A.D.3d 608 (1st Dep't 2010) ............................................................. 41, 42
Brown v. Lafontaine-Rish Med. Assocs.,
295 A.D.2d 167 (1st Dep't 2002) ................................................................. 20
CDR Creances S.A. v. Euro-American Lodging Corp.,
43 A.D.3d 45 (1st Dep't 2007) ..................................................................... 36
CDR Creances S.A.S. v. Cohen,
62 A.D.3d 576 (1st Dep't 2009) ............................................................. 28, 30
Chambers v. Nasco, Inc.,
501 u.s. 32 (1991) ........................................................................................ 13
Corto v. Nat'l Scenery Studios,
112 F.3d 503 (2d Cir. 1997) .......................................................................... 13
DePinto v. Ashley Scott, Inc.,
222 A.D.2d 288 (1st Dep't 1995) ................................................................. 42
Di Russo v. Kravitz,
21 N.Y.2d 1008 (1968) ................................................................................. 13
Dynex Capital, Inc. Sec. Litig.,
No. 05 Civ. 1897(HB)(DF),
2011 WL 2581755 (S.D.N.Y. Apr. 29, 2011) .......................................... 8, 18
Emich Motors Corp. v. Gen. Motors Corp.,
340 u.s. 558 (1951) .................................................................................. 5, 22
Gen. Inv. Co. v. Interborough Rapid Transit Co.,
235 N.Y. 133 (1923) ..................................................................................... 11
111
Cases Page(s)
Gilbert v. Eckerd Corp. of Fla., Inc.,
34 So. 3d 773 (Fla. Dist. Ct. App. 2010) ..................................................... 11
Gleason v. Jandrucko,
860 F.2d 556 (2d Cir. 1988) ............................................................................ 4
Hazel-Atlas Glass Co. v. Hartford-Empire Co.,
322 u.s. 238 (1944) ...................................................................................... 13
Kihl v. Pfeffer,
94 N.Y.2d 118 (1999) ................................................................................... 13
Laffin v. Ryan,
4 A.D.2d 21 (3d Dep't 1957) ........................................................................ 26
McMunn v. Mem'l Sloan-Kettering Cancer Ctr.,
191 F. Supp. 2d 440 (S.D.N.Y. 2002) .................................................. 2, 8, 13
Melcher v. Apollo Med. Fund Mgmt. L.L.C.,
52 A.D.3d 244 (1st Dep't 2008) ................................................................. 2, 7
Northville Indus., Corp. v. NORSEMAN,
No. 85 Civ. 5375, 1989 WL 120148 (S.D.N.Y. Oct. 4, 1989) ..................... 26
Pope v. Fed. Express Corp.,
974 F.2d 982 (8th Cir. 1992) ........................................................................ 13
REP MCR Realty, L.L.C. v. Lynch,
363 F.Supp.2d 984 (N.D. Ill. 2005) .............................................................. 14
Reynolds Sec., Inc. v. Underwriters Bank & Trust Co.,
44 N.Y.2d 568 (1978) ................................................................................... 37
Rockdale Mgmt. Co., Inc. v. Shawmut Bank, N.A.,
418 Mass. 596, 638 N.E.2d 29 (1994) .................................................... 12, 18
IV
Cases
Rybner v. Cannon Design, Inc.,
No. 95 Civ. 0279,
Page(s)
1996 WL 470668 (S.D.N.Y. Aug. 20, 1996) ............................................... 33
Shangold v. Walt Disney Co.,
275 Fed. App'x. 72 (2d Cir. 2008) ......................................................... 12, 13
St. Paul Fire & Marine Ins. Co. v. Pepsico, Inc.,
884 F.2d 688 (2d Cir. 1989) .................................................................... 42, 43
Stephen B. Gleich & Assocs. v. Gritsipis,
87 A.D.3d 216 (2d Dep't 2011) .................................................................... 37
Thoreson v. Penthouse Int'l, 80 N.Y.2d 490 (1992) ............................................... 17
Trussell v. Quest Diagnostics Inc.,
No. 8:09-CV-811-T-33ACP,
2010 WL 1223890 (M.D. Fla. Mar. 24, 2010) ............................................. 18
Zelnik v. Bidermann Indus. U.S.A., Inc.,
242 A.D.2d 227 (1st Dep't 1997) ................................................................. 43
Statutes & Other Authorities
2 McCormick on Evid. § 264 (7th ed. 2013) .......................................................... 27
CPLR 3215(b) ......................................................................................................... 43
CPLR 4517(a)(3)(iii) ............................................................................................... 24
v
PRELIMINARY STATEMENT
CDR's brief to this Court only serves to underscore that the Appellate
Division's opinion is unsupportable, and the $185 million default entered without
any hearing on the merits of either liability or damages cannot stand.
Notwithstanding the substantial briefing on this appeal, what happened below is as
simple as it should be unsettling to anyone who is concerned about the proper
administration of justice: when confronted with a disputed contention that the
parties to one side of this case were lying regarding the merits, the trial judge held
a hearing on the issue, believed one set of witnesses over another, and imposed a
default. We submit that the law of this State, consistent with the prevailing view of
courts in other jurisdictions, should not permit such a result.
First, and tellingly, CDR makes no effort to defend the Appellate Division's
ruling below, on either liability or damages, describing it in a single paragraph in
its 86-page brief. (CDR Br. at 63). CDR mentions only in passing the
preponderance of the evidence standard that the Appellate Division applied to
affirm the default (CDR Br. at 57), a standard used by no other court that has
considered the issue, and that is lower than even the burden that CDR would face
on the merits of its underlying fraud claims. CDR likewise makes no effort to
defend the Appellate Division's misapplication of its own precedent, which
required that the alleged "fraud on the court" be "conclusively demonstrated",
Melcher v. Apollo Med. Fund Mgmt. L.L.C., 52 A.D.3d 244, 245 (1st Dep't 2008).
Instead, CDR presumes that the appropriate standard is clear and convincing
evidence, the one (erroneously) applied by the trial court, and spends the vast bulk
of its brief explaining how that evidentiary standard was met, without making any
serious effort to explain why this Court should adopt such a low standard when
stripping a defendant of the right to defend itself against serious, consequential
allegations.
Second, and relatedly, CDR virtually ignores Appellants' arguments
regarding the many dangers in permitting courts to default parties for an alleged
"fraud on the court" based on the content of their discovery responses, and the case
law holding that it is improper to enter a default where the alleged misconduct is
genuinely disputed. In so doing, CDR cites cases that are legally or factually
distinguishable, e.g., McMunn v. Mem'l Sloan-Kettering Cancer Ctr., 191 F.
Supp. 2d 440, 446-52, 458-60 (S.D.N.Y. 2002) (video and documentary evidence
conclusively showed plaintiff testified falsely), so that CDR still has not, as the
Appellate Division dissent pointed out, cited any case striking a pleading where the
alleged "fraud on the court" was subject to a bona fide dispute, as it is here.
Third, CDR affirmatively asserts (and Appellants agree) that the testimony
of the Habib sisters, Joelle Habib and Patricia Benharbon, regarding the supposed
fraud on the court was crucial to the default ruling. (CDR Br. at 54-55 (trial judge
2
was able to "determine whether or not he found their testimony worthy of belief'),
62 ("The key issue presented to Justice Yates was whether he believed the
testimony of Joelle Habib and Patricia Benharbon"), 64 (CDR presented "the live
testimony of Joelle Habib and Patricia Benharbon, which Justice Yates determined
was credible")). That is, CDR effectively agrees with the validity of Appellants'
argument that, but for their testimony of an alleged agreement to testify falsely,
there would have been no default ruling. That being the case, their testimony
cannot remotely form the basis for the default ruling given that (i) the sisters were
open to significant impeachment, based on their own prior inconsistent sworn
statements, and their strong penal and financial interests to testify in favor of the
government and then CDR, among other grounds; (ii) their testimony was
contradicted by each of the four other supposed parties to the alleged agreement to
testify falsely; and (iii) their testimony was refuted by documentary evidence.
CDR responds to this point by asserting that this Court must give considerable
deference to the trial court's factual findings-an argument that only serves to
emphasize the dangers of CDR's proposed standard, which would give trial courts
tremendous power to eviscerate defendants' rights to a trial on the merits simply by
holding a hearing on "fraud on the court" contentions, with rulings on such
contentions then reviewable only on a very deferential basis.
3
Moreover, obscured in the blizzard of allegations of "fraud on the court" is
the fact that neither witness ever presented any substantive testimony to any court.
See Gleason v. Jandrucko, 860 F.2d 556, 559 (2d Cir. 1988) ("'[F]raud upon the
court' ... is limited to fraud which seriously affects the integrity of the normal
process of adjudication."). The Habib sisters invoked the Fifth Amendment at
their depositions, and there is therefore no conceivable basis for finding that any
court was or even could have been misled by their testimony, a fact that alone
dooms CDR's effort.
Fourth, CDR's effort to bolster the Habib sisters' testimony with other
evidence only reveals additional factual disputes. Thus, CDR relies heavily on
affidavits from Simon Elias and George Pavia, former defendants in this case,
overlooking that CDR previously claimed that Elias and Pavia engaged in the same
fraudulent, devious misconduct that it now attributes to Appellants, as well as its
own arguments here that Appellants' affidavits should be disregarded. Moreover,
CDR relies on the few documents that it has been able to dredge up in the decades
of litigation involving the Flatotel that allegedly support its contentions that the
Cohens were owners of various entities-ignoring Appellants' sworn denials; the
dubious reliability of these documents, which come from third parties and are by
no means dispositive of the ownership issue; Maurice Co hens' testimony that
people often wrongly assumed he was the Flatotel owner because he was in change
4
of the franchise; as well as CDR's own previous sworn court filings that Maurice
Cohen was not the owner of the Flatotel. (R6140 1121-22). CDR further
contends that the criminal verdict against the Cohens necessarily means that the
jury in that case rejected their testimony regarding the alleged agreement to testify
falsely, ignoring that charges in the indictment were unrelated to the Flatotel. Thus
the jury's general verdict in that case did not necessarily decide anything relevant
here. Emich Motors Corp. v. Gen. Motors Corp., 340 U.S. 558, 569 (1951)
(explaining that in considering the preclusive effect of a conviction, only those
issues "which were essential to the verdict must be regarded as having been
determined by the judgment").
Fifth, CDR seeks to bolster the default by pointing to other alleged discovery
violations. However, its repeated concession that the testimony of the Habib
sisters on the alleged agreement to testify falsely was the lynchpin of the default
ruling dictates that these other alleged discovery failures cannot be the basis for
affirmance of the default. Moreover, addressing the substance of CDR's
allegations shows that they cannot support a default. It is a fact that after the
Appellate Division reversed the trial court's first default, the trial court never ruled
that Appellants were in violation of any discovery order; to the contrary,
Appellants bent over backwards to comply with the trial court's discovery orders,
although they strongly disagreed with many of them. Appellants appeared for their
5
depositions for days and days, provided interrogatory and document responses, and
produced hundreds of thousands of pages of documents. By contrast, CDR was
never required to produce a single witness, and CDR's own document production
was facially incomplete. The trial court did nothing about CDR's failures-which
is made all the more unjust since many of these documents would refute the very
charges CDR was pressing. (E.g., R3937 (index referencing 11/22/93 SDBO
document showing 50% owner of EALC was in tum owned 95% not by Maurice
Cohen, as CDR asserts, but by his wife's family)).
Sixth, CDR does not offer any remotely plausible basis for defaulting Sonia
Cohen, a 70-year-old grandmother who was not alleged to have been part of the
agreement to testify falsely, against whom CDR never even pleaded a claim, and as
to whom CDR has never submitted one scrap of evidence that she ever had any
involvement with the New York Flatotel. In support of its contention that Mrs.
Cohen testified falsely, CDR relies on the (dubious) testimony of the Habib sisters
about a perfume shop in Paris that has nothing at all to do with this case. The other
evidence it submits consists of documents she supposedly signed in the 1970s that
were not shown to her at her deposition and about which she simply could have
forgotten (if she signed them at all). It is plain that CDR obtained the default
against her simply because of her relationship to the other Appellants, something
that is offensive to any notion of fairness in our system of justice.
6
Seventh, the trial court's summary assessment of an enormous damage
award-without any hearing-was indefensible. For example, CDR's claim that
Appellants' misconduct deprived them of the ability to be repaid on its loan to
EALC is plainly an unliquidated claim that requires a hearing; CDR must prove
those damages, not merely claim them. Moreover, CDR's claimed damages are
precluded by various other defects, such as its transfer of any claim that it had
against EALC to another entity.
For all these reasons, this Court should not permit the judgment below to
stand.
ARGUMENT
I. CDR DOES NOT SUBSTANTIVELY ADDRESS THE IMPORTANT
LEGAL ISSUES RAISED BY THIS APPEAL
Recognizing that its position on the legal merits is weak, CDR indulges in
invective rather than engaging on substance.
A. CDR Does Not Address the Important Implications of Defaulting
Parties for the Content of Their Discovery Responses
As demonstrated in Appellants' 1 opening brief, both the trial court and the
Appellate Division did not apply the First Department's own Melcher standard
requiring that the fraud on the court be "conclusively demonstrated". Melcher, 52
A.D.3d 245. The Appellate Division instead created its own new, entirely
1Abbreviations here have the same meaning as in Appellants' opening brief.
7
unworkable standard requiring that the conduct be proven only by a preponderance
of the evidence (RA14), a standard that CDR does not even attempt to defend
(R57) and which is contrary to that applied by every court. Again as shown in
Appellants' opening brief, courts consistently deny motions to strike pleadings
where the misconduct at issue is subject to bona fide dispute. (App. Br. at 34-37).
Appellants further discussed the serious implications that CDR's motion
raises: when can a party's pleading be stricken not because of its failure formally
to comply with a discovery order, but because of the content of the discovery that
is provided. CDR ignores that distinction (e.g. CDR Br. at 1 (referring to imposing
"sanctions for non-compliance with discovery obligations")), which courts have
repeatedly found to be crucial. See, e.g., McMunn, 191 F. Supp. 2d 440, 442, 446-
60 (dismissal inappropriate under Fed. R. Civ. P. 37 where defendant submitted
uncontradicted proof that plaintiff lied repeatedly in deposition testimony and
produced fraudulently altered audio tapes while testifying that they were the
unedited originals because conduct did not violate discovery orders); see also
Dynex Capital, Inc. Sec. Litig., No. 05 Civ. 1897(HB)(DF), 2011 WL 2581755, at
*4, *5 (S.D.N.Y. Apr. 29, 2011) ("[T]he squarely contradictory nature of the
declarations" were "insufficient to satisfy Defendants' burden"; declining to hold
hearing because "determining the truth or falsity of the substance of the
8
allegations" at issue "falls within the province of the jury" and "the jury-not the
Court-should determine whether fact witnesses are credible.").
Instead of dealing with Appellants' arguments on these points, CDR devotes
the overwhelming bulk of its 86-page brief to attempting to demonstrate that the
evidence presented below met the standard it presumes should apply here (without
explaining why that standard should apply), that of clear and convincing evidence.
In the process, CDR misstates that the United States Supreme Court has adopted
that standard, a proposition for which it understandably provides no citation (CDR
Br. at 56), because the Supreme Court has never so ruled. CDR's proposed
sanctions regime ignores that defaulting a party for the content of its discovery
presents the very grave danger of usurping the jury's province, something the usual
imposition of sanctions for discovery noncompliance does not implicate.
CDR's response to these legal arguments is relegated to a single paragraph
(CDR Br. at 63) that fails in every contention it seeks to advance. CDR asserts that
the standard "proposed by Appellants and advocated by Justice Catterson in his
dissent ... is contrary to established precedent", while it simultaneously fails to
supply any law supporting its contention and ignores the cases consistently
denying defaults where the alleged fraud on the court is genuinely disputed. (App.
Br. at 34-37). CDR next resorts to a hackneyed "floodgates" argument (CDR Br.
at 63), apparently assuming that juries are incapable of determining when a party is
9
being untruthful. Finally, CDR asserts that requiring a fraud on the court to be
conclusively determined would impinge on the "truthfinding process", forgetting
that it is the jury that plays the key role in that process. (/d.).
Accordingly, CDR does not rebut the serious implications of defaulting a
party for the contents of its discovery responses, implications that, we submit,
should preclude a default where, as here, the conduct in question is inextricably
intertwined with the merits of the action and is genuinely disputed.
B. CDR Mischaracterizes Appellants' Contentions Regarding the
Importance of Their Right to a Jury Trial
CDR's other effort to respond to Appellants' contentions regarding the
appropriate standard here is to assert that Appellants' jury trial arguments were
waived below (CDR Br. at 70) and, in any event, courts have the power to strike
pleadings to protect the judicial process. (CDR Br. at 69-72). CDR's arguments
are wrong on the first point and irrelevant on the second.
First, Appellants did consistently contend below that the matters CDR raised
were not proper for the court to determine, but were for the jury to decide.
(Defendants' Opposition to Motion for Default Judgment 11/12/10 at 6 ("Here, as
set forth below, there is conflicting evidence on the alleged fraud on the Court, and
it is a question for the jury to decide." (ECF Docket No. 210)); see also
Defendants' Post Melcher Hearing Brief 115/11 at 12, 30) (ECF Docket No. 231)).
10
Second, and more significantly, CDR's assertions miss the point entirely. It
is not that, as CDR suggests, Appellants contend that the jury trial right prevents a
court from entering a default for fraud on the court. It is instead that the critical
importance of that right, as recognized in the authorities cited in Appellants'
opening brief, (App. Br. at 39-41) should inform the standard that this Court adopts
for trial courts in this State to determine such motions. The only way adequately to
protect that right is to hold, as courts consistently do (see Appellants' Br. at 34-37),
that a default is improper if the conduct in question is genuinely disputed. Such a
standard is consistent with the one for summary judgment, which does not violate
the jury trial right because summary judgment may only be granted where there is
no question for the jury to decide. Gen. Inv. Co. v. Interborough Rapid Transit
Co., 235 N.Y. 133, 143 (1923) ("In the instant case we conclude that the
constitutional rights of defendant are not infringed by the rule, that the justice at
Special Term properly held that no issue for submission to a jury was shown to
exist between the parties."); Gilbert v. Eckerd Corp. of Fla., Inc., 34 So. 3d 773,
776 (Fla. Dist. Ct. App. 2010) ("[l]fthe motion to dismiss for fraud would not
likewise survive a motion for summary judgment, the trial court should presume
the matter not subject to dismissal.").
11
That was the very point of the concurring opinion of Massachusetts' highest
court in Rockdale Mgmt. Co., Inc. v. Shawmut Bank, N.A., 418 Mass. 596,601,638
N.E.2d 29, 33 (1994):
The precious right of trial by jury is jeopardized by any
suggestion that a jury case may be dismissed or the
defendant may be defaulted whenever a motion judge or
trial judge, after measuring a party's credibility and
without the benefit of an admission such as the judge had
in this case, finds by "clear and convincing evidence"
that that party has committed perjury as "part of a pattern
or scheme to defraud."
CDR understandably ignores this case in its brief because what this opinion
warned against is precisely what happened here: the trial judge held a hearing,
believed one set of witnesses over another, and imposed a default. The rule that
this Court adopts for granting judgment for a party's alleged fraud on the court
should be consistent with its summary judgment standard: the motion should be
denied if it involves triable issues on the merits.
C. The Authority CDR Cites Is Inapposite
The scant authority that CDR cites in support of the default does nothing to
refute Appellants' contentions here.
In fact, one of the few cases that CDR actually discusses demonstrates the
applicability of these principles. In Shangold v. Walt Disney Co., plaintiffs
claimed to have written, in 1995, a "treatment" that contained references to a
"Palm Pilot" device. 275 F. App'x. 72, 73 (2d Cir. 2008). The defendant
12
established that there was no such thing as a "Palm Pilot" until1996. Id.
Therefore, it was "conclusively demonstrated" that the plaintiffs had submitted
fraudulent documents central to their claim. !d. Shangold was thus not a case of a
trial judge believing one set of witnesses over the other, as the trial court did
below, but of the application of an irrefutable time line. 2
Similarly, CDR's cases supporting their claim that courts may dismiss
actions based on alleged discovery misconduct without regard to right to a trial by
jury are inapplicable here because they involve issues that were objectively
verifiable and not-as here-matters of pure credibility. For example, CDR
wholly mischaracterize Pope v. Fed. Express Corp., 974 F.2d 982 (8th Cir. 1992),
stating that the court held that dismissal based on a fraudulent exhibit did not
violate the Seventh Amendment "because, without the exhibit, there was no issue
2 Likewise, in McMunn, a pro se plaintiff testified falsely on a number of matters, including that
she did not have various credit cards when documents showed she did, and that she did not know
the whereabouts of a key witness, when surveillance video conclusively established she was
living with him. 191 F. Supp. 2d at 446-48, 458-60. The remaining cases cited by CDR
similarly do nothing to support their argument. Chambers v. Nasco, Inc., 501 U.S. 32 (1991)
merely allows for sanctions of attorneys' fees, and Hazel-Atlas Glass Co. v. Hartford-Empire
Co., 322 U.S. 238 (1944) and Corto v. Nat'! Scenery Studios, 112 F.3d 503 (2d Cir. 1997) both
involved situations where the plaintiff's entire petition was based on objectively verifiable and
fraudulent facts. Corto, 112 F.3d 503 (plaintiff acknowledged that she filed voluntary
bankruptcy petition for purpose of evading creditors' claim and, when that was dismissed, her
family filed an involuntary Chapter 7 petition against her; creditor had Chapter 7 petition
dismissed); Hazel, 322 U.S. 239-40,250-51 (judgment entered in favor of patent holder against
alleged infringer was vacated where the record "without dispute" showed that patent was
"obtained by fraud"). And DiRusso v. Kravitz, 21 N.Y.2d 1008 (1968) and Kihl v. Pfeffer, 94
N.Y.2d 118 (1999) are inapposite because they both involve plaintiffs who failed to provide
information to defendants sufficient for defendants to determine the substance of plaintiffs'
claims.
13
left for the jury to resolve". (CDR Br. at 70). There, however, appellants
conceded that the exhibit at issue was falsified. /d. at 984. The court found that
"[t]herefore there is no jury issue". /d.
REP MCR Realty, L.L.C. v. Lynch, 363 F. Supp. 2d 984 (N.D. Ill. 2005) is
also inapposite. That case involved the fabrication of three key documents on
which a party's indemnification claim was based. Unlike the situation here, the
fabrication of the documents was established by "numerous objective indicia of
fraud" and "objective falsities", id. at 1000, 1004, so much so that the party's
counsel "came close to conceding ... in his opening statement" that the
documents' authenticity was in "meaningful doubt". /d. at 1008. The court
coupled that fact with the defaulted party's admission that he created and signed a
key, falsified document. /d. at 1007. In contrast, the trial court here had no
objective indicia with which to gauge the Habib sisters' testimony-as CDR
concedes, it was all based on credibility and who was more "believable". (CDR
Br. at 54-55, 62, 64).
II. IT IS UNDISPUTED THAT THE HEARING WITNESSES'
TESTIMONY WAS CRITICAL TO THE DEFAULT, AND THAT
TESTIMONY WAS FAR FROM CONCLUSIVE
We agree with CDR on one point: the testimony of the Habib sisters
regarding the alleged agreement to testify falsely, and the trial court's decision to
credit that testimony, was crucial to the default ruling. (CDR Br. at 62 ("The key
14
issue presented to Justice Yates was whether he believed the testimony of Joelle
Habib and Patricia Benharbon"); see also id. at 54-55, 64). Thus, it is common
ground on this appeal that but for that testimony, there would have been no default.
As set forth in Appellants' opening brief (App. Br. at 42-49), because that
testimony was both subject to impeachment on numerous grounds and disputed by
other testimonial and documentary evidence, the default based on that testimony
was utterly improper.
A. There Was Significant Evidence Rebutting CDR's Contentions
CDR cannot meaningfully dispute that its two hearing witnesses were
subject to significant impeachment based on, among other reasons, their prior
inconsistent sworn statements; the strong pressure they felt from the federal
prosecutors, who gave them the choice of cooperating or facing criminal charges
themselves; and the powerful financial interests they had to testify favorably for
CDR, which holds confessions of judgment against them to ensure their continued
cooperation and is paying their attorneys fees (supposedly the reason these
witnesses felt they had no choice but to agree to commit perjury in the first place).
(See App. Br. at 44-46). The only corroboration for the alleged agreement to
testify was the so-called "script" (which the witnesses themselves referred to as
"questionnaire") (CDR Br. at 3, 66), which was entirely consistent with the sisters'
prior statements and therefore could just as easily have been a summary of the
15
witnesses' truthful testimony. This highly questionable testimony is far too slender
a reed upon which to base the default for $185 million.
The sisters' testimony regarding the alleged agreement is rebutted by the
testimony of no fewer than four other witnesses (Maurice and Leon Cohen, Robert
Maraboeuf and Allegria Aich). (R7418-19, R7524-25, R2704-08, R2709-14,
R2715-16, R2717-21). There is independent support from CDR's own records for
Appellants' testimony; indeed, CDR's predecessor acknowledged in another
litigation that the Flatotel was not owned by Maurice Cohen (R6140 <]{<]{ 21-22),
and, although it has not produced them, CDR has other documents supporting that
conclusion (e.g., R3937 (index referencing 11/22/93 SDBO document showing
50% owner of EALC was in turn owned 95% not by Maurice Cohen, as CDR
asserts, but by his wife's family)). CDR cannot and has not answered this contrary
evidence.
Moreover, Maurice Cohen explained the misperception that he was the
owner of the Flatotel because he managed the Flatotel franchise, further bolstering
Appellants' testimony (R7378-79), evidence that CDR again ignores. Far from
taking this evidence into account, the trial court erroneously asserted that it was
Maurice Cohen's contention that he was not affiliated with the Flatotel at all.
(R21). And, as noted (App. Br. at 45-46), Ms. Habib and Ms. Benharbon did not
come forward with a single document substantiating their supposed long -standing
16
association with the Cohens, not a paystub or even a photograph, even though Ms.
Habib supposedly worked for Maurice Cohen for 23 years. (CDR Br. 21). CDR
proffers no explanation for that failure.
The testimony of Ms. Habib and Benharbon regarding the alleged agreement
to testify falsely was thus the subject of a classic swearing match. CDR's own
hyperbole serves to emphasize that there was a genuine factual dispute. CDR
variously asserts that Sonia Cohen's involvement with a perfume store in France
was "confirmed by the testimony" of its witnesses (CDR Br. at 39); that Maurice
Cohen's testimony about a Flatotel in Spain was "demonstrably false" because
Joelle Habib testified to the contrary (CDR Br. at 42); and Robert Maraboeuf's
testimony was "completely contradicted" by both sisters. (CDR Br. at 47). CDR
thus asserts that these factual issues were finally, fully and forever resolved against
Appellants merely because these witnesses testified in CDR's favor. Far from
establishing the lack of factual dispute here, these assertions confirm that genuine
fact issues exist, which should not have been determined by the trial court.
B. The Deference CDR Asks This Court to Give the Trial Court's
Ruling Shows Why the Standard Should Be So High
CDR's response to evidence contradicting these witnesses is that the trial
court believed the hearing testimony of CDR's witnesses, and its ruling should be
affirmed "unless its conclusion could not have been reached under any fair
interpretation of the evidence". (CDR Br. 55 (citing Thoreson v. Penthouse Int'l,
17
80 N.Y.2d 490, 495 (1992)); id. at 62, 64). Indeed, CDR not only argues that this
Court should afford the fact finding significant deference, but also asserts that the
trial court's ruling is reviewable only for an "abuse of discretion". (CDR Br. at 5).
Those contentions further illustrate the danger posed by adopting anything
less than the most exacting standard for a default motion: that a court could hold a
hearing, believe one set of witnesses over another-in a finding entitled to
substantial deference on appeal-and then enter judgment, eviscerating the rights
of full discovery and trial by jury. E.g., Rockdale Mgmt., 418 Mass. 601, 638
N.E.2d at 33 (concurring); Dynex Capital, 2011 WL 2581755, at *5 (allegations of
misconduct going to the merits are for jury to determine); Trussell v. Quest
Diagnostics Inc., No. 8:09-CV-811-T-33ACP, 2010 WL 1223890, at *2 (M.D. Fla.
Mar. 24, 2010) (denying motion to dismiss for fraud on the court; "[i]t is not this
Court's role to make credibility determinations"). CDR ignores these cases, none
of which are so much as mentioned in its brief, since they can be squared with
neither the result reached by the trial court, nor the deferential review CDR asks
this Court to adopt.
C. CDR's Efforts to Bolster the Hearing Testimony of Its
Witnesses Only Confirms That Serious Fact Issues Exist
By acknowledging that the Habib sisters' testimony regarding the supposed
agreement to testify falsely was the sine qua non of the default ruling (CDR Br. at
54-55, 62, 64), CDR effectively admits that all of the other supposed misconduct it
18
raises to support the default cannot be decisive on this appeal. However, an
examination of the merits of those allegations only confirms that they merely
present factual disputes wholly unsuited to summary determination on a default
motion.
First, CDR submits the affidavits of George Pavia and Simon Elias,
participants in the 2000 sale of the Flatotel. (CDR Br. at 21, 37-38). They were
not subject to cross-examination and their credibility was quite suspect. Pavia and
Elias have been engaged in extensive litigation with the Cohens and entities
allegedly associated with them (CDR Br. 9 at n.2), including the action in which
these affidavits were submitted. (R234). Thus, they are hardly disinterested
witnesses. Moreover, both Pavia and Elias were defendants in the 2006 Action,
and CDR alleged that they themselves committed egregious fraud (R5263 <[ 123
(Elias "wrongfully operat[ed] the Property for his personal benefit and at the
expense of, and detriment to, CDR and its rights as a creditor.")). It hardly befits
CDR to ask the Court to take these affiants at their word about the very transaction
in which CDR insists they committed fraud. 3
Second, CDR cites several documents obtained in in its decades-long
litigation purporting to identify Maurice Cohen as the owner of various entities.
3 CDR also submits the double hearsay affidavit of its own lawyer regarding an alleged statement
from one of the Cohens' Florida attorneys (CDR Br. 45 (citing R3854 'I[ 7))-hardly the type of
dispositive evidence that, we submit, should be necessary to grant CDR's motion.
19
(CDR Br. 36-37, 38-39). That CDR has been able to dredge up a few documents
supporting its position since litigation began in 1991 should not be surprising.
However, Appellants have strongly contested the accuracy of these few
documents, and they are hardly dispositive, consisting almost entirely of internal
bank documents written by unknown bank employees whose knowledge and
credibility was untested by cross-examination or otherwise. The HSBC document
purporting to identify Maurice Cohen as the beneficial owner of Blue Ocean is
disputed by both Allegria Aich and Maurice Cohen (R757:2-14; R1477:17-25); the
1994 Republic National Bank document is likewise disputed by Maurice Cohen,
and it is unclear what factual foundation the author had for the statements made in
it.4 Moreover, Maurice Cohen specifically and repeatedly disputed the 2007 City
of Miami document at his deposition (2SR3533: 12-25), and Leon Cohen was not
asked about it at his deposition.
A prime example of the disputed nature of these documents is the HSBC
document purporting to identify Maurice Cohen as the owner of First Hotels (an
entity that itself has nothing to do with these cases). HSBC's witness testified that
she could not vouch for the accuracy of such documents because of their
unreliability. (E.g., R2903, 2805-07). If HSBC does not trust these documents,
the Court certainly should not rely on them. In any event, the Cohens' contrary
4 The 1994 document states that "all transactions" in the account "are well understood and are
legitimate business transactions" (R222), something with which CDR presumably disagrees.
20
testimony, standing alone, presents a question of fact on this issue. See Brown v.
Lafontaine-Rish Med. Assocs., 295 A.D.2d 167, 168 (1st Dep't 2002) (although
testimony of physician was contradicted by statements "in three places" in medical
records, still summary judgment was inappropriate). Finally, an HSBC document
states that Habib Levy, and not Maurice Cohen, is the owner of First Hotels, with a
notation that Habib Levy's signature was "verified" by bank personnel. (R2722,
cited at App. Br. at 50). So it is not a question of whether bank documents
inaccurately state the ownership of First Hotels, but only which ones are
inaccurate.
Third, CDR's assertion that that the verdict in the criminal tax case means
"the jury necessarily found that Maurice and Leon Cohen diverted the $33 million
proceeds of the Flatotel sale" (CDR Br. 66; see also id. at 75) is plainly false. The
indictment in the tax case against the Cohens contained nine "means and methods"
of the conspiracy (SR755-56) and eighteen overt acts (SR756-59), all related to tax
evasion, only some of which relate to this case.5 The general verdict, however,
does not state which of these the jury found. (R3787). It was thus entirely
possible for the jury to have rendered its verdict without making any findings
relevant here. In considering the preclusive effect of a conviction, only those
5 CDR's assertion that the criminal tax charges "were based upon their failure to report or pay
taxes on the $33 million proceeds from the 2000 sale of the Flatotel" (CDR BR. at 16-17) is
highly misleading-only some of the factual allegations in the indictment relate to that sale.
21
issues which were essential to the verdict must be regarded as having been
determined by the judgment. Emich Motors Corp., 340 U.S. at 569. The general
jury verdict against the Cohens "does not establish" that they used all of the means
or methods in the indictment "or any particular one." /d. Therefore, the jury did
not "necessarily find" that the Cohens committed misconduct relating to CDR.
Fourth, given its virtual abandonment of any effort to defend the Appellate
Division's ruling, CDR is forced to rely heavily on the trial court's "findings" to
sustain its contention that a fraud on the court was properly found. However, CDR
cannot conceal the fact that the trial court made serious errors in its ruling that
were vital to the issues before it. CDR does not dispute, for example, that the trial
court "found" that the Cohens "allegedly controlled" the operating entity for the
Flatotel until at least 2005 (R13), more than five years after the sale of the hotel to
Elias in 2000, after which it is undisputed that the Cohens no longer had any
involvement with the Flatotel; or that the trial court ruled that the Cohens had
asserted they had nothing to do with the Flatotel (R21), notwithstanding that
Maurice Cohen acknowledged that he managed the Flatotel franchise. (R7378-79).
CDR likewise cannot support the trial court's assertion that CDR never received
any "payments of interest or principal" on its loan (Rl2), when in fact CDR
received not less than $105 million. (SR2577). These are significant errors going
to the very heart of the trial court's findings that Appellants misrepresented the
22
Cohens' role at the Flatotel, and to CDR's claims that it was deprived of the right
to be repaid on the loan.
Thus, CDR's evidence is subject to vigorous, substantial dispute, and there
was no basis to enter a default.
D. Appellants Were Not Required to Present Live Hearing
Testimony
A cornerstone of CDR's arguments is that "Appellants chose not to testify at
the hearing". (CDR. Br. at 64; see also id. at 55). That contention is nonsense.
1. Appellants Did Not "Choose" Not to Testify
CDR's assertion fails for numerous, independent reasons. First, since the
parties' motion papers prior to the trial court's evidentiary hearing showed that
there was a factual dispute regarding the supposed agreement to testify falsely, it
was, as Appellants repeatedly asserted at the time, inappropriate to hold a hearing
at all. (E.g., R70-71 ("it would be inappropriate for your Honor to hold a hearing
and believe one side rather than the other on this issue under the relevant case
law"); R85-86 (same)). That being the case, Appellants cannot be faulted for not
appearing at a hearing that never should have been held.
Second, and relatedly, because this Court should adopt a standard requiring
that the alleged fraud on the court be conclusively demonstrated, the notion that the
trial court properly took an adverse inference against Appellants for not testifying
23
at the hearing is nonsensical, since it was improper for the trial court to weigh the
evidence at all.
Third, CDR's argument that Maurice and Leon Cohen "chose" not to appear
is simply preposterous: they were and are in federal custody in Florida. It was
impossible for them to attend the hearing and provide live testimony. The trial
court quite properly received the Cohens' prior cross-examined testimony. See
CPLR 4517(a)(3)(iii) (prior testimony admissible where witness is "unable to
attend or testify because of ... imprisonment"). Appellants explored obtaining
their live testimony, and were advised that it was not possible. (R97).6
Fundamental fairness prevents Appellants from being penalized-indeed suffering
the ultimate sanction-for not doing the impossible.
Similarly, Mr. Maraboeuf was unable to testify at the hearing since he was
under doctor's orders not to travel given serious health conditions. (R5630-33).
The trial court accepted Mr. Maraboeuf' s deposition testimony on the grounds that
he was "an unavailable person". (R7125:14-19 (referring to Defendants' Exhibit
21, Maraboeuf deposition, at R7635-40)). Moreover, CDR deposed Mr.
Maraboeuf in June 2011, after the allegations of an agreement to testify falsely
arose, and therefore CDR was fully able to cross-examine him on this point. On
6 Since the trial court was advised that the Cohens could not appear at the hearing as scheduled,
CDR's assertion, made without record citation, that the trial judge scheduled the hearing after
their criminal trial so they could appear (CDR Br. at 3), is untrue.
24
the few questions that they bothered to ask, Mr. Maraboeuf denied being told what
to say at his deposition. (R7639 at 24-25).
Nor was there any reason for Sonia Cohen to travel to the United States
(again) to testify regarding an alleged agreement to testify falsely to which even
Ms. Habib and Ms. Benharbon testified that she was not a party. (R4058-59,
R6966). Allegria Aich had previously traveled to the United States on two
separate occasions, giving 733 pages of testimony over four days. (R706-816,
R817-1051, R6681-722, R6724-77). It would have been unreasonable to require
her to come to New York again to testify.
CDR next criticizes the submission of "conclusory affidavits" to counter the
hearing testimony. (E.g., CDR Br. at 65). In addition to ignoring Appellants'
actual very extensive admitted prior testimony and its own ample opportunities for
cross-examination noted above, CDR does not say what more Appellants should
have said other than that the scheme did not exist, as they have. And despite its
criticism of Appellants' use of affidavits, CDR admits that the trial court accepted
them into evidence (R7124-25), and CDR is more than willing to rely on the
affidavits of third parties-George Pavia, Simon Elias and even its own counsel-
without any showing that those witnesses were unavailable. (See CDR Br. 21, 37-
38). If CDR can rely on such evidence, certainly Appellants can.
25
2. Even If the Court Were Weighing the Evidence, No Adverse
Inference Was Proper
It is by no means clear that the trial court drew an adverse inference in
deciding the default motion. Although the trial judge referred to taking such an
inference for affidavits from Ms. Aich and Mr. Maraboeuf (R7124-25), Appellants
argued against that inference in their brief and the trial court did not address the
issue in its ruling.
In any event, an adverse inference was entirely illogical here. The most that
can be inferred from the absence of a witness "is that the witness would not have
contradicted the proof offered by the adverse party ... or that the witness would
not have corrobated or supported the proof offered by the party in whose control he
was". Laffin v. Ryan, 4 A.D.2d 21, 27 (3d Dep't 1957). Here, it is illogical to
draw that inference given that Appellants have submitted sworn testimony and
other sworn statements denying any agreement to testify falsely. Therefore it
cannot rationally be said that Appellants' hearing testimony "would not have
contradicted" CDR's allegations.
Moreover, given their prior trial testimony, deposition testimony and
affidavits, all of which were properly received in evidence, the witnesses have by
no means absented themselves from these proceedings, and there is no reason to
draw any adverse inference against them. See Northville Indus., Corp. v.
NORSEMAN, No. 85 Civ. 5375, 1989 WL 120148, at *4 (S.D.N.Y. Oct. 4, 1989)
26
(inference "is not of great evidentiary weight" when uncalled witness has been
deposed); 2 McCormick on Evid. § 264 (7th ed. 2013) ("the availability of modem
discovery and other disclosure procedures serves to diminish both its justification
and the need for the inference") (footnotes omitted).
III. CDR'S CONTENTIONS REGARDING OTHER DISCOVERY
VIOLATIONS ARE BOTH SUBSTANTIVELY IRRELEVANT AND
FACTUALLY INCORRECT
CDR seeks to buttress the support for the default by alleging various
additional discovery misconduct, which Appellants strenuously contest, that was
unrelated to the supposed fraud on the court. As noted, the parties agree that the
trial court's finding that there was an agreement to testify falsely was "the key" to
its default determination. (CDR Br. at 62). Thus, it is undisputed that had there
been no such finding, the trial court would not have granted CDR's motion. That
being the case, all of this other misconduct that CDR (erroneously) claims is, at
best, collateral to this appeal. In any event, as discussed below, CDR's contentions
regarding this other alleged misconduct are without merit.
A. CDR Relies on Plainly Erroneous Trial Court Rulings
The section of the trial court's ruling regarding Appellants' supposed
violation of discovery orders (R22-23) is premised on one demonstrable error after
another.
27
First, the trial court accepted CDR's false assertion (repeated here) (CDR
Br. at 11), that when CDR sought to purse these actions in early 2008, "defendants
were in default" of discovery obligations. (R22). However, the fact is that the
cases were stayed on consent, pending the resolution of other proceedings. (See
R5371 (CDR brief stating that actions were on hold pending foreclosure
proceeding)). CDR's only record citation for these alleged pre-exiting "defaults"
is to a March 4, 2008 preliminary conference order that says nothing at all about
discovery violations. (CDR Br. at 9 (citing R2332-33)).
Second, the trial court erroneously stated that the Cohens avoided their
depositions, in violation of court orders, until Spring 2010 (R23)-in fact, the
Cohens appeared for their depositions as directed in July 2009 and gave over seven
days of testimony until their depositions were concluded pursuant to court order.
(R5433-34, R1052-1986, R5843-62).7
In fact, before the trial court's default ruling, there was never any finding
that Appellants violated their discovery obligations after the Appellate Division's
reversal of the default entered in 2008 by Justice Tolub. Indeed, after that ruling
Appellants bent over backwards to comply with discovery, despite their strong
7 The other support that the trial court used for its ruling is that, prior to the earlier default,
certain Appellants had not complied with discovery requirements. (R22). That is not in dispute;
nor is the fact that the Appellate Division previously ruled that the default on that basis was not
justified. CDR Creances S.A.S. v. Cohen, 62 A.D.3d 576, 577 (1st Dep't 2009). And CDR
finally acknowledges that Ms. Aich and Mr. Maraboeuf were previously defaulted not for
violating discovery orders, but for not answering the complaint at all. (CDR Br. at 13). So those
two Appellants cannot be faulted for prior discovery violations that they did not commit.
28
view that the one-sided discovery regime imposed by the court was wholly unfair.
Appellants spent enormous amounts of effort complying with CDR's overbroad
and extraordinarily burdensome disclosure requests. To summarize just some of
Appellants' extensive compliance with CDR's demands (none of which were
referenced by the courts below):
• Maurice, Leon and Sonia Cohen, Allegria Aich and Robert Maraboeuf
were each deposed; with the exception of Mrs. Cohen each was deposed
for multiple days, and in fact together they have been examined for 16
days, totaling 2,219 pages of testimony (R2327