Merrill Lynch, Pierce, Fenner & Smith, Incorporated, et al., Respondents,v.Global Strat Inc.,, et al., Defendants, Ezequiel Nasser, et al., Appellants.BriefN.Y.September 10, 2013To be Argued by: KENNETH I. SCHACTER (Time Requested: 30 Minutes) New York County Clerk’s Index No. 601012/08 Court of Appeals of the State of New York MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED and MERRILL LYNCH CAPITAL SERVICES, INC., Plaintiffs-Respondents, – against – GLOBAL STRAT INC. a/k/a GLOBAL STRATEGIES INC., EXCEL GLOBAL OPPORTUNITIES FUND, LTD., INVERSIONES PATAGONIA INTERNATIONAL, S.A., SALUC LIMITED, TAFFER COMPANY and JOHN AND JANE DOES (1-50), Defendants, – and – EZEQUIEL NASSER, RAYMOND NASSER, ALBERT NASSER and SCARLETT NASSER, Defendants-Appellants. ––––––––––––––––––––––––– (For Continuation of Caption See Inside Cover) BRIEF FOR PLAINTIFFS-RESPONDENTS BRIAN F. AMERY DOMINICK F. EVANGELISTA BRESSLER, AMERY & ROSS, P.C. 17 State Street, 34th Floor New York, New York 10004 Tel.: (212) 425-9300 Fax: (212) 425-9337 KENNETH I. SCHACTER TIMOTHY J. STEPHENS LEIGH M. NEMETZ BINGHAM MCCUTCHEN LLP 399 Park Avenue New York, New York 10022 Tel.: (212) 705-7000 Fax: (212) 752-5378 Attorneys for Plaintiffs-Respondents Date of Completion: March 7, 2013 GLOBAL STRAT INC. a/k/a GLOBAL STRATEGIES INC., EXCEL GLOBAL OPPORTUNITIES FUND, LTD., INVERSIONES PATAGONIA INTERNATIONAL, S.A. and SALUC LIMITED, Counterclaim Plaintiffs, – against – MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED and MERRILL LYNCH CAPITAL SERVICES, INC., Counterclaim Defendants, – and – MERRILL LYNCH & CO., INC., BANCO MERRILL LYNCH DE INVESTIMENTOS S.A., MERRILL LYNCH REPRESENTACOES LTDA, DANIEL SONTAG, DARCIE BURK, RICHARDO MOREAN, CARLA LUALDI PIMENTEL, RENATA SCHOP-KLEIN, RENATO MALZONI and GUY MOSZKOWSKI, Additional Counterclaim Defendants. COURT OF APPEALS OF THE STATE OF NEW YORK MERRILL LYNCH, PIERCE, FENNER & SMITH INC ORP ORA TED and MERRILL LYNCH CAPITAL SERVICES, INC., Plaintiffs-Respondents, -against- GLOBAL STRA T INC. a/k/a GLOBAL STRATEGIES INC., EXCEL GLOBAL OPPPORTUNITIES FUND, LTD., INVERSIONES Index No. 601012/08 PATAGONIA INTERNATIONAL, S.A., SALUC LIMITED, T AFFER COMPANY, and JOHN and JANE DOES (1-50), Defendants, -and- EZEQUIEL NASSER, RAYMOND NASSER, ALBERT NASSER and SCARLETT NASSER, Defendants-Appellants. DISCLOSURE STATEMENT PURSUANT TO RULE 500.1(f) Pursuant to Rule 500.l(f) of the Rules of the Court of Appeals of the State of New York, Plaintiffs-Respondents Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Capital Services, Inc. state that Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Capital Services, Inc. are wholly-owned subsidiaries of Merrill Lynch & Co., Inc. Merrill Lynch & Co., Inc. is a direct subsidiary of Bank of America Corporation, which owns all of the common stock of Merrill Lynch & Co., Inc. Bank of America Corporation is a N75413681.1 publicly held company whose shares are traded on the New York Stock Exchange. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Capital Services, Inc. have hundreds of corporate affiliates, which are too numerous to list. Dated: New York, New York March 7,2013 N75413681.1 BINGHAM McCUTCHEN LLP Kenneth I. Schacter Timothy J. Stephens Leigh M. Nemetz 399 Park Avenue New York, NY 10022 (212) 705-7000 - and- BRESSLER AMERY & ROSS P.C. Brian F. Amery Dominick F. Evangelista 17 State Street New York, NY 10004 (212) 425-9300 Attorneys for Plaintiffs-Respondents Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Capital Services, Inc. TABLE OF CONTENTS Page -i- A/75372234.7 TABLE OF AUTHORITIES .................................................................................. iii COUNTERSTATEMENT OF QUESTIONS ON APPEAL ................................... 1 NATURE OF THE CASE ........................................................................................ 1 COUNTERSTATEMENT OF FACTS AND PROCEDURAL HISTORY ............ 5 A. Factual Background ................................................................... 5 B. The Discovery Proceedings and the Nassers’ Discovery Abuses ........................................................................................ 7 C. Proceedings Before the Referee ............................................... 12 D. Confirmation of the Referee’s Report and Entry of the Judgment .................................................................................. 13 E. The Motion to Dismiss ............................................................. 14 F. Proceedings in the Appellate Division ..................................... 14 G. The FINRA Arbitration and the Status of Discovery in the Litigation ............................................................................ 17 ARGUMENT .......................................................................................................... 20 I. THE TRIAL COURT PROPERLY ENTERED JUDGMENT AGAINST THE NASSERS AS A RESULT OF THEIR WILLFUL FAILURE TO COMPLY WITH THE TRIAL COURT’S DISCOVERY ORDERS ............................................................................... 20 A. CPLR § 3126 Vests Courts with Broad Discretion to Make and Enforce Discovery Orders ....................................... 20 B. This Court’s Jurisprudence Supports the Entry of Sanctions, Including the Striking of Pleadings, for Willful and Contumacious Violations of Discovery Orders ....................................................................................... 24 C. The Trial Court Properly Entered, and the Appellate Division Properly Affirmed Entry of, Judgment Against the Nassers ............................................................................... 28 TABLE OF CONTENTS (continued) Page -ii- A/75372234.7 1. The Nassers’ Failures to Comply With Their Discovery Obligations Were Willful and Contumacious ................................................................ 28 2. The Referee’s Report Is Supported by the Record and the Trial Court Properly Confirmed the Report...... 34 3. The Appellate Division Properly Determined that Judge Gammerman Did Not Exceed His Authority ...... 42 II. THE APPELLATE DIVISION PROPERLY REINSTATED THE COMPLAINT AGAINST ALBERT NASSER IN LIGHT OF MERRILL LYNCH’S PRIMA FACIE SHOWING THAT HE IS SUBJECT TO PERSONAL JURISDICTION IN NEW YORK ................. 46 A. The Legal Standard for Establishing Personal Jurisdiction ..... 47 B. Albert Nasser Had Sufficient Personal Contacts with New York ................................................................................. 48 C. Albert Nasser Is Also Subject to Personal Jurisdiction in New York Based on the Trading Activities of Inversiones, His Personal Holding Company .......................... 57 CONCLUSION ....................................................................................................... 61 -iii- A/75372234.7 TABLE OF AUTHORITIES Page(s) CASES Acme Bus Corp. v. Board of Educ. of Roosevelt Union Free School Dist., 91 N.Y.2d 51 (1997) ........................................................................................... 17 Allen v. Crowell-Collier Publishing Co., 21 N.Y.2d 403 (1968) ......................................................................................... 20 Amalfitano v. Rosenberg, 12 N.Y.3d 8 (2009) ....................................................................................... 33, 34 Anonymous v. High School for Envtl. Studies, 32 A.D.3d 353 (1st Dep’t 2006) ........................................................................... 8 Arts4All, Ltd. v. Hancock, 54 A.D.3d 286 (1st Dep’t 2008), aff’d, 12 N.Y.3d 846 (2009), 13 N.Y.3d 812 (2009) ..................................................................................................... 21, 23 Bear Stearns & Co., Inc. v. Enviropower, LLC, 21 A.D.3d 855 (1st Dep’t 2005) ......................................................................... 43 Cabasso v. Holtzman, 122 A.D.2d 944 (2d Dep’t 1986) .......................................................................... 8 Christian v. City of New York, 269 A.D.2d 135 (1st Dep’t 2000) ....................................................................... 37 Commerce & Ind. Ins. v. Lib-Com, Ltd., 266 A.D.2d 142 (1st Dep’t 1999) ....................................................................... 45 Copp v. Ramirez 62 A.D.3d 23 (1st Dep’t 2009) ........................................................................... 47 Corner Realty 30/7, Inc. v. Bernstein Management Corp., 249 A.D.2d 191 (1st Dep’t 1998) ....................................................................... 44 Corporate Campaign v. Local 7837, United Paperworkers Int’l Union, 265 A.D.2d 274 (1st Dep’t 1999) ................................................................. 50, 51 -iv- A/75372234.7 Crawford v. Merrill Lynch, Pierce, Fenner & Smith, 35 N.Y.2d 291 (1974) ......................................................................................... 17 Deutsche Bank Secs., Inc. v. Montana Bd. of Investments, 7 N.Y.3d 65 (2006) ......................................................................................passim Ehrlich-Bober & Co., Inc. v. University of Houston, 49 N.Y.2d 574 (1980) ................................................................................... 50, 55 Elias v. City of New York, 87 A.D.3d 513 (1st Dep’t 2011) ......................................................................... 23 Falow v. Cucci, 2003 WL 22999458 (S.D.N.Y. Dec. 19, 2003) .................................................. 58 Federal Deposit Ins. Corp. v. Allcity Ins. Co., 228 A.D.2d 275 (1st Dep’t 1996) ....................................................................... 44 Ferrante Equipment Co. v. Lasker-Goldman Corp., 26 N.Y.2d 280 (1970) ......................................................................................... 59 First Bank of the Americas v. Motor Car Funding, Inc., 257 A.D.2d 287 (1st Dep’t 1999) ....................................................................... 45 Fischbarg v. Doucet, 9 N.Y.3d 375 (2007) ............................................................................... 49, 50, 60 Friedman v. 125 Division Realty, Inc., 195 A.D.2d 497 (2d Dep’t 1993) .......................................................................... 7 Gibbs v. St. Barnabas Hospital, 16 N.Y.3d 74 (2010) ..................................................................................... 27, 28 Glasburgh v. Port Authority of N.Y. and N.J., 193 A.D.2d 441 (1st Dep’t 1993) ....................................................................... 23 Gould v. McCarty, 11 N.Y. 575 (1854) ....................................................................................... 24, 25 Gutierrez v. Bernard, 267 A.D.2d 65 (1st Dep’t 1999) ......................................................................... 43 -v- A/75372234.7 Hellman v. Genova, 2009 N.Y. Slip Op. 32236(U) (Sup. Ct. N.Y. Co., September 25, 2009) ......... 40 Henderson-Jones v. City of New York, 87 A.D.3d 498 (1st Dep’t 2011) ................................................................... 22, 23 Hertz, Newmark & Warner v. Fischman, 53 Misc. 2d 418 (N.Y. Civ. Ct. 1967) .......................................................... 55, 56 Hot & Tasty Corp. v. IOB Realty Inc., 270 A.D.2d 67 (1st Dep’t 2000) ......................................................................... 43 Indosuez Int’l Fin. B.V. v. National Reserve Bank, 98 N.Y.2d 238 (2002) ......................................................................................... 55 Kaplan v. KCK Studios, Inc., 238 A.D.2d 264 (1st Dep’t 1997) ....................................................................... 45 Kihl v. Pfeffer, 94 N.Y.2d 118 (1999) ....................................................................... 26, 27, 28, 39 Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460 (1988) ............................................................................. 57, 58, 59 Laufer v. Ostrow, 55 N.Y.2d 305 (1982) ................................................................................... 52, 57 Laverne v. Incorporated Village of Laurel Hollow, 18 N.Y.2d 635 (1966) ......................................................................................... 26 Lehman Gov’t Secs., Inc. v. Enhanced Treasury Returns Corp., 216 A.D.2d 255 (1st Dep’t 1995) ....................................................................... 43 Licci v. Lebanese Canadian Bank, SAL, 2012 N.Y. Slip Op. 07854 (N.Y. Nov. 20, 2012) ................................... 48, 53, 54 Longines-Wittnauer Watch Co. v. Barnes & Reinecke, Inc., 15 N.Y.2d 443 (1965) ......................................................................................... 53 M. Katz & Son Billiard Prods., Inc. v. G. Correale & Sons, Inc., 20 N.Y.2d 903 (1967) ......................................................................................... 55 -vi- A/75372234.7 Matter of Schildhaus, 23 A.D.2d 152 (1st Dep’t 1965), aff’d 16 N.Y.2d 748 (1965) ........................... 33 Merrill Lynch, Pierce, Fenner & Smith Inc. v. Alexiou, 397 F. Supp. 1292 (S.D.N.Y. 1975) ............................................................. 55, 56 People v. Henriques & Co., 267 N.Y. 398 (1935) ..................................................................................... 25, 37 Rakauskas v. Grace Olivia, LLC, 29 A.D.3d 355 (1st Dep’t 2006) ......................................................................... 42 Reynolds Secs., Inc. v. Underwriters Bank and Trust Co., 44 N.Y.2d 568 (1978) ................................................................................... 23, 26 Rosenbloom v. Gurary, 59 A.D.3d 274 (1st Dep’t 2009) ......................................................................... 42 Shiboleth v. Yerushalmi, 268 A.D.2d 300 (1st Dep’t 2000) ....................................................................... 45 Spangenberg v. Chapuluka, 229 A.D.2d 482 (2d Dep’t 1996) ........................................................................ 40 Spectrum Sys. Int’l Corp. v. Chemical Bank, 78 N.Y.2d 371 (1991) ......................................................................................... 20 Spiegel v. Ferraro, 73 N.Y.2d 622 (1989) ......................................................................................... 57 Stanfill Plumbing & Heating Corp. v. Dravo Constructors, Inc. 216 A.D.2d 101 (1st Dep’t 1995) ....................................................................... 43 Stark v. Reliance Nat'l Indem. Co., 273 A.D.2d 148 (1st Dep’t 2000) ....................................................................... 43 Those Certain Underwriters at Lloyds, London v. Occidental Gems, Inc., 11 N.Y.3d 843 (2008) ............................................................................. 21, 22, 42 Turk Eximbank-Export Credit Bank of Turkey v. Bicakciouglu, 81 A.D.3d 494 (1st Dep’t 2011) ................................................................... 45, 46 -vii- A/75372234.7 UBS AG v. Geecee Exportaciones LTDA., 277 A.D.2d 17 (1st Dep’t 2000) ......................................................................... 22 Walker v. Walker, 51 A.D.2d 1029 (2d Dep’t 1976) ........................................................................ 58 Walker v. Walker 82 N.Y. 260 (1880)……. .................................................................................... 24 Wilson v. Galicia Contracting & Restoration Corp., 10 N.Y.3d 827 (2008) ........................................................................................... 7 Zapco 1500 Inv. L.P. v. Wiener, 299 A.D.2d 206 (1st Dep’t 2002) ....................................................................... 43 Zletz v. Wetanson, 67 N.Y.3d 711 (1986) ......................................................................................... 21 STATUTES AND RULES CPLR § 302 ............................................................................................ 47, 52, 53, 59 CPLR 3122 ................................................................................................................. 8 CPLR § 3126 .....................................................................................................passim N.Y. Judiciary Law § 487 .................................................................................. 33, 34 22 N.Y. Comp. Codes R. & Regs., tit. 22, § 1200.0 ................................................ 32 Rules of Professional Conduct, Rule 3.3 ................................................................. 32 1 A/75372234.7 COUNTERSTATEMENT OF QUESTIONS ON APPEAL 1. Whether the Appellate Division properly affirmed judgment against the Appellants (the “Nassers”) where, as the record makes clear, as determined by a Referee and as confirmed by the trial court, the Nassers willfully failed to comply with the trial court’s discovery orders notwithstanding clear warnings concerning the consequences of non-compliance and their counsel made blatant misrepresentations to the trial court in an attempt to excuse those failures. The Appellate Division properly affirmed the trial court’s entry of judgment. 2. Whether the Appellate Division properly vacated the portion of the trial court’s order that dismissed the complaint as against Albert Nasser for lack of personal jurisdiction where Merrill Lynch made a prima facie showing of jurisdiction by demonstrating that Albert Nasser transacted business within New York both personally and through the acts of his personal holding company, which traded extensively through Merrill Lynch. The Appellate Division properly modified the trial court’s order in holding that Albert Nasser is subject to personal jurisdiction in New York. NATURE OF THE CASE Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Capital Services, Inc. (collectively, “Merrill Lynch”) respectfully submit this brief in opposition to the appeal of Appellants Ezequiel Nasser, Raymond 2 A/75372234.7 Nasser, Albert Nasser, and Scarlett Nasser (collectively, the “Nassers” or “Appellants”) from the April 10, 2012 decision and order of the Appellate Division of the Supreme Court of New York, First Judicial Department (the “Decision”). The Decision (a) unanimously affirmed the judgment entered by the Supreme Court, New York County (Gammerman, JHO) on August 9, 2010 against the Nassers and in favor of Merrill Lynch (Record on Appeal (“R.”) 7-9) (the “Judgment”) and (b) unanimously reversed an order of the Supreme Court entered on January 31, 2011 (R. 26-47) granting Albert Nasser’s motion to dismiss for lack of personal jurisdiction and vacating the Judgment as against Albert Nasser. (R. 1227-29). The Decision should be upheld in its entirety. The gravamen of this appeal is whether a trial court of this State is within its authority to assess a meaningful sanction under § 3126 of the New York Civil Practice Law and Rules (“CPLR”) in the face of a party’s sustained failures to comply with the court’s discovery orders, coupled with counsel’s willful misrepresentation to the court designed to cover up that failure. CPLR § 3126 states that a court may enter a “judgment of default” against a party who “refuses to obey an order for disclosure.” Id. § 3126(3). The Nassers refused to comply with their discovery obligations and were warned repeatedly by the trial court that their gamesmanship and flouting of the court’s discovery orders would result in the severest of sanctions—a finding of liability against them. In light of this history of 3 A/75372234.7 non-compliance and false statements, and with the trial court’s clear warnings in mind, the Nassers can hardly be heard to complain now that the “the record does not support the Appellate Division’s inference of willful, contumacious and bad faith conduct.” (Appellants’ Brief (“Br.”) 24). The trial court did not act precipitously in imposing the sanction. Instead, the court unambiguously warned the Nassers of the consequence of their failure to comply with Merrill Lynch’s discovery requests and the trial court’s orders directing compliance with those requests. The trial court held multiple hearings and, as it alerted Nassers that it would, referred the matter to a referee to render a report. All parties had a full and fair opportunity to make submissions to the referee, who considered the submissions and heard argument before issuing his reasoned report and recommendation. Further, after the filing of the referee’s report, the trial court afforded the Appellants an opportunity to oppose confirmation of the report, and later, another opportunity to contest the amount of the Judgment. The sanction imposed was entirely proper under the circumstances, as the Appellate Division held in affirming—unanimously and in the strongest terms—the entry of the Judgment. The Appellate Division correctly upheld the Judgment against the Nassers as a remedy for their willful and contumacious failure to comply with the trial court’s discovery orders and their counsel’s blatant misrepresentation to the 4 A/75372234.7 trial court concerning those discovery failures. Indeed, the Nassers concede, as they must, that they never produced a single document in response to the discovery orders, even though it is readily apparent that they, not merely their shell companies, have documents that were responsive to Merrill Lynch’s discovery requests yet were never produced, such as personal emails and wire transfer documents. The Court should firmly reject the Nassers’ hyperbolic characterization of the lower courts’ rulings as “[o]ne of the grossest injustices in civil litigation in the history of this state,” (Br. 3) and akin to “the wrongful conviction and execution of an innocent person.” (Br. 18). The substantial amount of the Judgment—not a penny of which has been paid to Merrill Lynch to date—is simply the product of the enormous debt owed by the Nassers to Merrill Lynch as a result of the substantial volume of the risky trades executed by these sophisticated, wealthy investors. Indeed, the size of the debt owed to Merrill Lynch only serves to underscore the necessity of the trial court’s enforcement of its discovery orders, and to justify its refusal to suffer counsel’s misrepresentations. The Nassers’ hyperbole notwithstanding, there is nothing sensational, or even remarkable, in the entry of sanctions against a party for its blatant violations of discovery orders. The Appellate Division also correctly held that Merrill Lynch made a prima facie showing that Albert Nasser was subject to jurisdiction in New York, 5 A/75372234.7 and that the Judgment against him therefore should be affirmed. Albert Nasser actively traded in the New York-based Merrill Lynch accounts of his personal holding company, had multiple contacts with his New York-based Merrill Lynch broker, and participated by telephone in a meeting held in New York to discuss the events that are the subject of the underlying litigation. In light of this record, the Appellate Division’s ruling was consistent with well-established precedent of this Court and should be affirmed. COUNTERSTATEMENT OF FACTS AND PROCEDURAL HISTORY A. Factual Background The underlying litigation arises from the Nassers’ high risk trading in naked put options of The Bear Stearns Companies Inc. (“Bear Stearns”), which led to significant losses when Bear Stearns’s stock price collapsed in March 2008. The losses resulted in a substantial debt owed, and still unpaid, to Merrill Lynch. The Nassers, natives of Brazil and Argentina, are very experienced investors with extensive financial resources. Ezequiel Nasser is the patriarch of the Nasser family, who are relatives of the late banker Edmond Safra. Ezequiel is an affluent, successful businessman who made a fortune in banking. Raymond Nasser, who is a financial professional, is Ezequiel’s son. Scarlett Nasser is Ezequiel’s daughter and Albert Nasser his uncle. (R. 389-391). The Nassers began trading with Merrill Lynch as early as 2001, 6 A/75372234.7 largely through their offshore personal holding companies, including Inversiones Patagonia, which is Albert Nasser’s personal holding company, and the other corporate defendants (the “Nasser Entities”).1 The Nassers’ trading activities included selling “naked” options contracts2 on the stock of large companies like Bear Stearns—an inherently risky trading strategy—as well as interest rate swaps,3 another complex investment strategy freighted with risk. (R. 147). The Nassers’ trading was profitable for years, but turned disastrous in March 2008, when over the weekend of March 15-16, the U.S. government engineered the sale of Bear Stearns to J.P. Morgan Chase & Co. for a price of $2 per share (later adjusted upwards). When the markets opened on Monday, March 17, 2008, the value of Bear Stearns stock plummeted below $5 per share. With enormous short put option positions on Bear Stearns, the Nassers’ accounts at Merrill Lynch, including swaps with Merrill Lynch Capital Services, Inc., not only incurred significant losses, but generated a $78 million margin debit that is still owed to Merrill Lynch and has never been satisfied by the Nassers. (R. 146). 1 The Nasser Entities are Global Strat Inc. a/k/a Global Strategies Inc.; Excel Global Opportunities Fund, Ltd.; Inversiones Patagonia International, S.A.; and Saluc Limited. 2 An uncovered or “naked” put option—the Nassers’ trading instrument of choice—is one in which the option seller does not own the underlying security, which would help mitigate risk. 3 An interest rate swap is an agreement between two parties where one stream of future interest payments is exchanged for another based on a specified principal, or “notional,” amount. Interest rate swaps often exchange a fixed payment for a floating payment that is linked to an interest rate index. 7 A/75372234.7 Merrill Lynch commenced this action on April 6, 2008 to recover the amounts owed, and served an Amended Complaint on June 17, 2008. (R. 146). The Amended Complaint asserted causes of action against the Nassers individually and against the Nasser Entities, the Nassers’ personal investment vehicles. (R. 146-147). The Amended Complaint also asserted claims to recover on certain unlawful transfers of funds from the Nasser Entities into the Nassers’ personal accounts, and beyond, in the days immediately following the collapse of Bear Stearns’ stock price and resulting debit balances in the Entities’ accounts. (R. 159- 164). B. The Discovery Proceedings and the Nassers’ Discovery Abuses On September 17, 2008, Merrill Lynch served its First Notice for Discovery and Inspection of Documents on the Nassers.4 The Nassers did not 4 The Nassers observe in the Statement of Facts section of their brief that Merrill Lynch did not serve a document request on Scarlett Nasser (Br. 10), against whom the Judgment was entered in the amount of $305,000 plus interest, but do not present any argument based on this fact. To the extent they are now arguing that the Judgment against Scarlett should be vacated for this reason, such an argument would be without merit. First, prior to filing their motion for leave to appeal to this Court, the Nassers had never raised the issue of whether Scarlett was required to produce documents in response to the document requests served by Merrill Lynch. They did not make this argument before the Referee, the trial court, or the Appellate Division, and thus they have waived it. Wilson v. Galicia Contracting & Restoration Corp., 10 N.Y.3d 827, 829 (2008) (affirming order which struck defendant’s answer and refusing to consider argument defendant “failed to raise ... in its prior motions”). Second, although the Nassers correctly state that document requests were not served on Scarlett Nasser in her individual capacity, they do not and cannot dispute that she is a beneficiary of the trust that owned Global Strat. Therefore, she was required to participate in discovery and respond to the document requests served on Global Strat by producing any responsive documents she had. See Friedman v. 125 Division Realty, Inc., 195 A.D.2d 497, 499 (2d Dep’t 1993) 8 A/75372234.7 serve their written responses until November 21, 2008, nearly six weeks after the deadline to serve responses imposed by CPLR 3122.5 (R. 1037). The Nassers’ late, pro forma written responses were unaccompanied by any production of documents. On October 8, 2008, the Nassers moved for a stay of discovery based on their motion to dismiss the claims against them. The trial court resolved the Nassers’ motion to stay by order dated December 22, 2008, permitting discovery to proceed in connection with the claims against the Nasser Entities, but staying discovery “in connection with the claims against the [Nassers].” (R. 1033). The trial court later clarified that, under the December 22, 2008 order, discovery directed to the individual Nassers could proceed to the extent it related to the claims against the Nasser Entities. (R. 1035). By January 2009, four months after Merrill Lynch had served the discovery requests, the Nassers still had not produced a single document. On January 22, 2009, Merrill Lynch wrote to the trial court pursuant to Rule 14 of the (upholding trial court’s striking of pleadings of corporate defendants and their principals where “the court based its determination that the subpoena was violated on the continuing failure by [corporate defendants and their principals] to produce the demanded records and documents of the corporate defendant”); Cabasso v. Holtzman, 122 A.D.2d 944, 945 (2d Dep’t 1986) (individual recipient of subpoena directed to him in his capacity as employee of petitioner corporation was required to produce documents). Like the other Nassers, Scarlett Nasser produced no documents whatsoever. 5 By failing to timely respond to the document requests, the Nassers waived any objections thereto. See Anonymous v. High School for Envtl. Studies, 32 A.D.3d 353, 359 (1st Dep’t 2006) (“[F]ailure to comply with any provision of [CPLR] article 31 constitutes a waiver of any objections to disclosure”). 9 A/75372234.7 Commercial Division Rules to request a conference in advance of filing a motion to compel. (R. 1034). A conference was held on January 26, 2009, during which Charles B. Manuel, Jr., counsel for the Nassers, represented to the trial court that the Nassers and the Nasser Entities would produce their “first wave” of documents by January 29, 2009. (R. 1037). However, they did not produce any documents on that day. (Id.) Merrill Lynch wrote to the trial court again on February 2, 2009, to advise that, despite Mr. Manuel’s representation to the court that documents would be produced by January 29, 2009, nothing was produced. (R. 1037). Several hours after Merrill Lynch sent its February 2 letter to the trial court, with a copy to Mr. Manuel, the Nasser Entities produced four CD-ROMs containing what they identified as their “first wave” of documents, mostly consisting of documents and account statements for the Entities that had been generated by Merrill Lynch; in other words, the Nasser Entities produced Merrill Lynch’s own documents back to Merrill Lynch. By letter to the trial court dated February 2, 2009, Mr. Manuel conceded that the Nassers had failed to produce documents by January 29, as required (R. 1040), but represented to Judge Gammerman that there was a legitimate excuse for the failure to meet the deadline: according to Mr. Manuel, he had instructed that the documents be delivered on January 29, “but the package inadvertently did not go out.” (Id.) (emphasis added). This representation was 10 A/75372234.7 false. At a conference before the trial court on February 4, 2009, under questioning by Judge Gammerman, Mr. Manuel ultimately conceded that the representation in his February 2 letter that a “package inadvertently did not go out” on January 29 was false. Judge Gammerman established during the conference that no “package” of CD-ROMs even existed on January 29 because the CD- ROMs were not created until February 2. (R. 1048-1051). During the February 4 conference, Judge Gammerman, having been lied to by the Nassers’ counsel, warned them that his patience was at an end. But he gave the Nassers one last chance to comply with the discovery requests, urging them not to “play any games” and alerting them as to exactly what would happen if full compliance was not made. (R. 1052). Judge Gammerman ordered the Nassers “to fully respond to all the discovery demands” by no later than February 20, 2009—a date for compliance that was selected by the Nassers’ counsel himself: MR. MANUEL: . . . We’re dealing with interrogatories and document demands. And we are confident that we can have everything by the 20th. JHO GAMMERMAN: Of this month? MR. MANUEL: Correct. JHO GAMMERMAN: Not a package that will be inadvertently on somebody’s desk and not delivered? MR. MANUEL: No. 11 A/75372234.7 JHO GAMMERMAN: Let me tell you. If there is not a full and accurate and detailed response, that will be it. I will strike the answer and enter a judgment in this case, I am telling you that right now. So that this case will be over as far as the liability aspect of the case, we’ll take an inquest on damages and it will be over. So I urge you not to play any games but to fully respond to all the discovery demands. * * * I warn you again, Mr. Manuel, if there is a problem and whatever you file and serve and submit, if it is deficient you will not have an opportunity to secure that deficiency, so do it now. If there is a deficiency, this case is over as far as I am concerned. (R. 1051-1057) (emphasis added). On February 20, 2009, the Nasser Entities produced some documents;6 once again, the majority of those consisted of copies of their Merrill Lynch account statements, and other materials that Merrill Lynch already had. (R. 1077-1078). However, in violation of the trial court’s February 4 order, the Nassers did not produce any documents on February 20—and to this day, more than four years later, have never produced a single document in discovery. This fact is not disputed; the Nassers admit in their brief to this Court that they produced no documents whatsoever, while claiming that they somehow “in fact complied” with the discovery requests and orders. (Br. 28-29) (emphasis in original). 6 The February 2, 2009 CD-ROM production was similarly by the Nasser Entities, not the Nassers. 12 A/75372234.7 C. Proceedings Before the Referee During a February 25, 2009 discovery conference before the trial court, held to discuss whether the Nassers had complied with the discovery requests and February 4 discovery order by the final February 20 deadline, the trial court referred to a referee the determination of whether the Nassers and the Nasser Entities had complied. As the court ruled on that day, the Nassers’ time to cure their discovery failures had passed: I am referring [the matter of the Nassers’ compliance] to a referee to hear and report with recommendations, and to the extent that the discovery vis-a-vis by way of deposition be necessary, I will leave it for the referee to make that determination. I’ve made it very clear that I take a very dim view of people that don’t comply with discovery demands, but we’ll find out what the situation here is via a reference in this matter. (R. 1062) (emphasis added). By order dated March 2, 2009, the trial court referred the matter to Referee Lancelot B. Hewitt. (R. 1058). A hearing before Referee Hewitt was held on May 5, 2009. During the hearing, counsel for Merrill Lynch and counsel for the Nassers made oral presentations (largely off the record) regarding the Nassers’ failure to respond to Merrill Lynch’s discovery demands.7 (R. 1066-1073). Both 7 At the time of the May 5 hearing, the Nassers were also represented by John O’Connor of Anderson Kill & Olick, P.C. as co-counsel. During the May 5 hearing, both Mr. Manuel and Mr. O’Connor made presentations to Referee Hewitt on behalf of the Nassers and the Nasser 13 A/75372234.7 parties later submitted detailed memoranda and hundreds of pages of exhibits to the referee in support of their positions. On March 19, 2010, after considering “the voluminous materials submitted by the parties,” Referee Hewitt issued his Report. (R. 1074-1079). The Report concluded that “there is insufficient evidence that the Nasser [E]ntities failed to comply with plaintiffs’ discovery demands with regard to the Nasser [E]ntities, but that there is sufficient evidence that the Nassers failed to comply with such discovery demands . . . .” (R. 1078) (emphasis added). D. Confirmation of the Referee’s Report and Entry of the Judgment On July 14, 2010, the trial court confirmed the Referee’s Report and directed entry of judgment against the Nassers—a consequence that the court repeatedly warned the Nassers would follow if they continued to disobey discovery orders. (R. 66; R. 1051, 1056). Although the Nassers’ counsel was present at the hearing on the motion to confirm the report, he presented no substantive argument, stating only, “I take it we’re well beyond argument.” (R. 53). On July 29, 2010, the trial court held an inquest to determine the amounts to be paid to Merrill Lynch by the Nassers. Again, the Nassers’ counsel was present at the inquest, and, while reserving the Nassers’ objection to entry of the Judgment, did not dispute its amount or calculation. (R. 70). On August 9, 2010, the clerk entered the Judgment against the Nassers in the aggregate amount Entities. (R. 1067). 14 A/75372234.7 of $99,013,769. (R. 7-9). The Judgment states that Merrill Lynch shall recover from Ezequiel Nasser, Raymond Nasser and Albert Nasser, jointly and severally, the amount of $98,644,644, inclusive of interest, and shall recover from Scarlett Nasser the amount of $369,125, inclusive of interest.8 (R. 8-9). E. The Motion to Dismiss On August 14, 2008, prior to the discovery dispute described above, the Nassers filed a motion to dismiss the Amended Complaint. (R. 169-70). The only issue raised in the motion to dismiss that is relevant to the instant appeal is the argument that the trial court lacked personal jurisdiction over the Nassers. On January 27, 2011, the trial court decided the Motion to Dismiss, finding jurisdiction over Ezequiel, Raymond and Scarlett Nasser, but granting the motion as to Albert Nasser for lack of personal jurisdiction. (R. 29-47). The court determined that, notwithstanding numerous contacts between Albert, a resident of Argentina, and Merrill Lynch in New York concerning the trading in his personal holding company account, and his participation by telephone in a key meeting in New York in March 2008, the court lacked jurisdiction over him. (R. 46). F. Proceedings in the Appellate Division On August 10, 2010, the Nassers filed a notice of appeal from the 8 The portion of the Judgment against Albert Nasser was later vacated by the trial court on its determination that the court lacked personal jurisdiction over him. That determination was reversed by the Appellate Division and is the subject of Part II of this brief. 15 A/75372234.7 entry of the Judgment (R. 5-6) and simultaneously sought a stay of enforcement of the Judgment pending the appeal. A single Justice of the Appellate Division entered an interim stay of limited duration. On September 21, 2010, the Appellate Division directed entry of a further stay, conditioned on the Nassers’ posting an undertaking of $500,000 within 30 days. The Nassers failed to post the required undertaking and the stay of enforcement was vacated. On March 14, 2011, the Nassers and the Nasser Entities filed a Notice of Appeal from the trial court’s rulings on the motion to dismiss Merrill Lynch’s Amended Complaint against them. (R. 12-17). Merrill Lynch served its Notice of Cross-Appeal on March 25, 2011, by which it appealed the trial court’s ruling that it lacked personal jurisdiction over Albert Nasser. (R. 23). The appeals were consolidated and oral argument took place before the Appellate Division on January 25, 2012. On April 10, 2012, the Appellate Division unanimously affirmed the Judgment. (R. 1227). The Appellate Division held that “[t]he Nassers’ repeated failure to comply with discovery deadlines or offer a reasonable excuse for their noncompliance,” coupled with “their counsel’s misrepresentations in open court” gave rise to “an inference of willful and contumacious conduct warranting the entry of judgment against them”—a consequence of which, the Appellate Division noted, the Nassers had been “appropriately warned.” (R. 1228-1229). 16 A/75372234.7 The Appellate Division affirmed the trial court’s denial of the personal jurisdiction motion as to Ezequiel, Raymond, and Scarlett Nasser.9 As to Albert Nasser, the court modified the trial court’s order on the motion to dismiss to hold that Albert is subject to jurisdiction where Merrill Lynch made a prima facie showing that Albert is subject to jurisdiction in New York through evidence that in the first three months of 2008, he actively traded in the New York-based Merrill Lynch accounts of Inversiones, his personal holding company, and that he participated by telephone in a March 2008 meeting with Merrill Lynch in New York concerning the trading activities at issue in this case. (R. 1228). Based on that holding, the Appellate Division reinstated the Judgment as against Albert Nasser. (Id.). Notice of Entry of the Appellate Division’s order was served on April 10, 2012. On May 10, 2012, the Nassers petitioned this Court for leave to appeal the unanimous ruling of the Appellate Division. On August 28, 2012, this Court granted the Nassers’ motion for leave to appeal. (R. 1230). To date, Merrill Lynch has been unable to collect one penny of the Judgment from the Nassers. 9 Ezequiel, Raymond, and Scarlett Nasser have not appealed from this aspect of the Appellate Division’s decision. 17 A/75372234.7 G. The FINRA Arbitration and the Status of Discovery in the Litigation The Nassers include in the background section of their brief two subsections that are not relevant to the instant appeal. While the Court need not consider such extraneous information,10 as it is neither in the record before the Court nor relevant to the arguments presented on appeal, Merrill Lynch will respond to those sections to correct the Nassers’ mischaracterizations. First, the Nassers grossly mischaracterize a FINRA arbitration between Merrill Lynch and another entity (Sophin Investments, an offshore company whose beneficial owner is Ezequiel Nasser’s sister Camelia) which is not a party to this litigation. (Br. 16-18). The Nassers assert that the FINRA arbitration panel denied all of Merrill Lynch’s claims against Ezequiel Nasser and state that those claims were “the very same claims brought by Merrill [Lynch] against” the Nassers here. (Br. 17). That is inaccurate. Sophin’s central claim in the arbitration, by which it sought more than $21 million from Merrill Lynch, was that the trading in its brokerage account for over six years had been conducted by Ezequiel Nasser himself without his sister’s knowledge or authority and that Merrill Lynch was responsible for permitting this to occur. The arbitration panel 10 It is a well-established general rule that this Court will not consider factual materials not contained in the record. See e.g., Acme Bus Corp. v. Board of Educ. of Roosevelt Union Free School Dist., 91 N.Y.2d 51, 56 n. 1 (1997) (citing Board of Educ. v. Gootnick, 49 N.Y.2d 683, 687 (1980)); Crawford v. Merrill Lynch, Pierce, Fenner & Smith, 35 N.Y.2d 291, 298 (1974). 18 A/75372234.7 denied those claims in their entirety. In the Sophin case, Merrill Lynch did not sue Ezequiel, or anyone else, on a theory of piercing the corporate veil, alter ego, or any other similar theory. Instead, Merrill Lynch had asserted a third-party claim against Ezequiel Nasser for indemnification or contribution in the event that the panel found Merrill Lynch liable to Sophin on the claims arising out of the brokerage activity. However, because the panel denied those underlying claims, there was no basis for Merrill Lynch to obtain indemnification or contribution from Ezequiel Nasser. Thus, contrary to the Nassers’ assertion (Br. 18), in the Sophin arbitration, there was no adjudication of the Nassers’ liability for the financial obligations of their personal holding companies. Second, although the Nassers correctly note that discovery is ongoing in the trial court in connection with claims and counterclaims involving the Nasser Entities, their description of events (Br. 18-19) is once again false. First, they state that “Merrill [Lynch’s] production of documents” in that case “did not begin until October 2[0]12, nearly 4½ years after the case began.” (Br. 12 n. 2). This is incorrect. Prior to October 2012, Merrill Lynch produced in excess of 14,000 pages of documents in three separate productions — November 23, 2010 (11,328 pages), January 18, 2011 (1,560 pages), and July 25, 2012 (1,212 pages) — in response to Appellants’ first and second requests for production of documents. 19 A/75372234.7 The more recent production described by the Nassers (Br. 18-19) was in response to a set of supplemental document demands served by Appellants in May 2012. Merrill Lynch timely served its objections and responses to the supplemental demands, and subsequently made a production of responsive documents in July 2012. The parties had another conference before the trial court in July 2012 during which the court granted the Nasser Entities’ request to obtain documents from a total of 21 Merrill Lynch email custodians (Merrill Lynch having already agreed to provide documents from 11 custodians), and also granted their request to expand the date range for responsive documents. Responding to the supplemental requests was a substantial undertaking, involving the collection and processing of archived electronic data and multiple levels of privilege and responsiveness review prior to production, and resulting in the now-completed production, which in its entirety (including the three previously noted productions) consists of more than 51,000 pages of responsive documents. Contrary to the Nassers’ assertions, Merrill Lynch did not fail to meet any discovery deadlines (Br. 19), as there were no discovery deadlines ordered by the trial court. At a status conference held on February 4, 2013, Judge Gammerman flatly rejected complaints by counsel for the Nasser Entities concerning the pace of document production by Merrill Lynch. 20 A/75372234.7 ARGUMENT I. THE TRIAL COURT PROPERLY ENTERED JUDGMENT AGAINST THE NASSERS AS A RESULT OF THEIR WILLFUL FAILURE TO COMPLY WITH THE TRIAL COURT’S DISCOVERY ORDERS A. CPLR § 3126 Vests Courts with Broad Discretion to Make and Enforce Discovery Orders One of the cornerstones of litigation is the requirement that parties exchange documents in discovery. In business cases like this one, document discovery is particularly important as such cases often turn on what is contained in the documents. For document discovery to function in the manner intended, each party must make a timely, complete and good faith production of documents in its possession that the other party has requested, and if there is a discovery dispute that the trial court has resolved, the parties must obey the court’s direction. As this Court has explained, the disclosure rules of this State embody the “policy determination that liberal discovery encourages fair and effective resolution of disputes.” Spectrum Sys. Int’l Corp. v. Chemical Bank, 78 N.Y.2d 371, 376 (1991); Allen v. Crowell-Collier Publishing Co., 21 N.Y.2d 403, 407 (1968) (the disclosure procedures serve to “advance the function of a trial to ascertain truth and to accelerate the disposition of suits”). If a party does not comply with an order requiring it to provide discovery, the trial court must have discretion to enforce its orders, including by striking the recalcitrant party’s 21 A/75372234.7 pleading if necessary. To insure that parties take their discovery obligations seriously, the Legislature has conferred broad discretion upon the trial courts to enter and direct compliance with discovery orders, and to determine the nature and degree of sanctions to be imposed for a party’s willful failure to comply. CPLR § 3126 provides that, in the event any party “refuses to obey an order for disclosure or willfully fails to disclose information which the court finds ought to have been disclosed, pursuant to this article, the court may make such orders with regard to the failure or refusal as are just, among them . . . an order striking out pleadings or parts thereof . . . or rendering a judgment by default against the disobedient party.” See Arts4All, Ltd. v. Hancock, 54 A.D.3d 286, 286 (1st Dep’t 2008), aff’d, 12 N.Y.3d 846 (2009), and 13 N.Y.3d 812 (2009) (holding that trial courts are afforded “considerable discretion to compel compliance with discovery orders, and, absent clear abuse, a penalty imposed in accordance with CPLR 3126 should not readily be disturbed”); Those Certain Underwriters at Lloyds, London v. Occidental Gems, Inc., 11 N.Y.3d 843, 845 (2008) (“Generally, the trial court is afforded broad discretion in supervising disclosure”) (internal quotations omitted); Zletz v. Wetanson, 67 N.Y.3d 711, 713 (1986) (affirming dismissal of complaint as against defendant after plaintiff’s failure to obey court order compelling response to that defendant’s interrogatories). 22 A/75372234.7 Consistent with this endowment of broad discretion in supervising disclosure, a trial court’s discovery determinations “will not be disturbed unless that discretion has been clearly abused.” Those Certain Underwriters at Lloyds, London, 11 N.Y.3d at 845. The discretion of the trial court extends to its decision to confirm a referee’s report, so long as there is support for the referee’s report in the record. Id. (citing Di Mascio v. General Elec. Co., 307 A.D.2d 600, 601 (3d Dep’t 2003) (internal citations omitted)). The Appellate Division, too, is vested with discretion, which includes the “corresponding power to substitute its own discretion for that of the trial court, even in the absence of abuse” by the trial court. Id. (citing Andon v. 302-304 Mott St. Assoc., 94 N.Y.2d 740, 745 (2000) (internal citations omitted)). Entering judgment against a party is an appropriate sanction where the party’s failure to comply with a disclosure order was the result of willful and contumacious conduct. See Henderson-Jones v. City of New York, 87 A.D.3d 498, 504 (1st Dep’t 2011); UBS AG v. Geecee Exportaciones LTDA., 277 A.D.2d 17, 17 (1st Dep’t 2000) (court properly struck defendants’ answers where defendants’ failure to comply with court orders was found “to constitute willful and contumacious conduct warranting the default sanction finally imposed”). The offending party’s willful and contumacious conduct can be inferred from a pattern of non-compliance and “from a failure to comply with court orders, in the absence 23 A/75372234.7 of adequate excuses.” Henderson-Jones, 87 A.D.3d at 504; see also Glasburgh v. Port Authority of N.Y. and N.J., 193 A.D.2d 441, 441 (1st Dep’t 1993) (“The willful and contumacious character of appellant’s failure to disclose can be inferred from its year-long noncompliance with three separate court orders directing depositions and document production, coupled with inadequate excuses for these defaults”). Where a finding of “willful and contumacious conduct” in failing to comply with discovery has been made by the motion court and is supported by the record, appellate courts have held that it “would not be appropriate … to substitute [their] discretion for that of the Justice sitting in the IAS Court.” Arts4All, Ltd. v. Hancock, 54 A.D.3d at 288, aff’d 12 N.Y.3d 846 (citations omitted). As the Appellate Division has explained, “[a]s drastic as the penalty of striking an answer is, it serves the important function of deterring obstreperous litigation behavior.” Henderson-Jones, 87 A.D.3d at 504. See also Elias v. City of New York, 87 A.D.3d 513, 517 (1st Dep’t 2011) (holding that “the history of defendant’s untimely, unresponsive and lax approach to complying with the court’s previous orders warrants the striking of defendant’s answer”) (internal citations omitted). Correspondingly, this Court has held that where a trial court struck a defendant’s answer upon his willful failure to comply with discovery notices and court orders, “the court was more than eminently justified in following that course.” Reynolds Secs., Inc. v. Underwriters Bank and Trust Co., 44 N.Y.2d 568, 24 A/75372234.7 571-72 (1978). B. This Court’s Jurisprudence Supports the Entry of Sanctions, Including the Striking of Pleadings, for Willful and Contumacious Violations of Discovery Orders This Court has long recognized the crucial role that compliance with discovery requests and orders plays in litigation, and the necessity of punishing willful noncompliance. For centuries, the authority to enforce discovery orders by refusing to hear the plea of a disobedient party has been accepted as a necessary, inherent power of a trial court. See Walker v. Walker, 82 N.Y. 260, 264 (1880) (“[t]here has long been exerted by the Court of Chancery in England the power to refuse to hear the defendant when he was in contempt of court by disobeying its orders, and that power was in the Courts of Chancery in this country.”) More than 150 years ago, this Court acknowledged that trial courts possessed both the authority to enter orders requiring discovery and the necessary corollary of that authority—the power to sanction parties for failing to obey, including the ultimate sanction of striking a party’s pleading. In Gould v. McCarty, 11 N.Y. 575, 580 (1854), the defendant had failed to comply with a discovery order requiring him to deliver certain “books, papers and documents relating to the merits of the action, containing entries, writing and memoranda of purchases, sales, loans or hypothecations of stock of the New-York and Erie Railroad Company.” Id. at 576. On appeal, this Court upheld the lower court’s 25 A/75372234.7 striking of the defendant’s answer “upon his neglect to comply with [the discovery order’s] provisions.” Id. at 581 (emphasis in original). In describing the statutory basis of this authority, the Court explained that the Revised Statutes of 1841 provided “‘that the supreme court shall have power in such cases as shall be deemed proper, to compel any party to a suit pending therein, to produce and discover books, papers and documents in his possession or power, relating to the merits of any such suit, or of any defense therein.’” Id. at 580 (quoting 2 R. S. 199, § 21). Another provision of the same statute (section 26) provided “for the case of a party neglecting or refusing to obey an order for such discovery, and among other things, authorizes the court to strike out any plea or notice that may be given.” Id. Those provisions, this Court held long ago, fully authorized the trial court’s striking of the defendant’s answer. The same authority exists today under CPLR § 3126. In the intervening century and a half since Gould, this Court has affirmed this basic principle repeatedly by upholding the striking of parties’ pleadings for discovery violations. See People v. Henriques & Co., 267 N.Y. 398, 403 (1935) (“the power of the court to strike out an answer and to grant judgment pro confesso as punishment for disobedience of its mandate to produce evidence is inherent in the nature of the judicial function,” and is properly exercised where there has been “due consideration and after opportunity for a hearing accorded to 26 A/75372234.7 all parties”); Laverne v. Incorporated Village of Laurel Hollow, 18 N.Y.2d 635, 638 (1966) (affirming dismissal of complaint where “totality of [plaintiff’s] conduct evidenced a willful failure ‘to purge himself of his prior disobedience,’ a factual determination supported by the record and beyond the scope of this court’s review”); Reynolds Secs. Inc. v. Underwriters Bank & Trust Co., 44 N.Y.2d at 571-72 (where defendant refused to comply with discovery notices and court orders, this Court held that “Defendant does not, and indeed cannot successfully, quarrel with the order to the extent that it struck the answer and directed the entry of a default judgment on liability, for the court was more than eminently justified in following that course (CPLR 3126)”); Kihl v. Pfeffer, 94 N.Y.2d 118, 123 (1999) (upholding dismissal of complaint where plaintiff failed to comply with discovery order and observing, “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.”). This Court’s jurisprudence on the importance of the discovery process and the need for compliance with discovery orders could hardly be clearer, yet too often parties, and their counsel, flout discovery orders with disturbing flagrancy. In Kihl, this Court observed that litigants’ failures to comply with discovery orders was a “scenario that is all too familiar,” pointed out that “the Legislature, recognizing the need for courts to be able to command compliance with their 27 A/75372234.7 disclosure directives, has specifically provided that a ‘court may make such orders … as are just,’ including dismissal of an action (CPLR 3126),” and took care to “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.” Kihl, 94 N.Y.2d at 122-123. As recently as 2010, this Court reiterated the imperative that parties comply with disclosure deadlines and orders. In Gibbs v. St. Barnabas Hospital, 16 N.Y.3d 74, 79 (2010), this Court stressed that the ability of the courts of this State to fairly adjudicate disputes is dependent on parties’ compliance with such deadlines and orders, and on the trial courts’ ability to enforce their orders when parties fail to comply. In that case, the trial court had entered a $500 monetary sanction for a party’s failure to comply with a court-ordered deadline for service of a bill of particulars, and the Appellate Division affirmed. In reversing the Appellate Division, this Court made clear that such a modest sanction sent precisely the wrong message and emphasized that disregard of court orders and deadlines cannot be countenanced. If it were, the system would cease to function: As this Court has repeatedly emphasized, our court system is dependent on all parties engaged in litigation abiding by the rules of proper practice (see e.g. Brill v City of New York, 2 NY3d 648 [2004]; Kihl v. Pfeffer, 94 NY2d 118 [1999]). The failure to comply with deadlines not only impairs the efficient functioning of the courts and the adjudication of claims, but it places jurists unnecessarily in the position of having to order enforcement remedies to respond to the delinquent conduct of 28 A/75372234.7 members of the bar, often to the detriment of the litigants they represent. Chronic noncompliance with deadlines breeds disrespect for the dictates of the Civil Practice Law and Rules and a culture in which cases can linger for years without resolution. Furthermore, those lawyers who engage their best efforts to comply with practice rules are also effectively penalized because they must somehow explain to their clients why they cannot secure timely responses from recalcitrant adversaries, which leads to the erosion of their attorney-client relationships as well. For these reasons, it is important to adhere to the position we declared a decade ago that “[i]f the credibility of court orders and the integrity of our judicial system are to be maintained, a litigant cannot ignore court orders with impunity” (Kihl, 94 NY2d at 123). Id. at 79. C. The Trial Court Properly Entered, and the Appellate Division Properly Affirmed Entry of, Judgment Against the Nassers There was no abuse of discretion by the trial court or the Appellate Division. The record irrefutably shows that the Nassers flouted the trial court’s discovery orders, made misrepresentations to the trial court, and failed to heed the trial court’s warnings that such disobedience would have severe consequences. The Judgment was a proper exercise of the trial court’s discretion, as the Appellate Division unanimously found. 1. The Nassers’ Failures to Comply With Their Discovery Obligations Were Willful and Contumacious The Judgment entered here was a considered response to the Nassers’ repeated and prolonged discovery abuses and was particularly appropriate in light of the clear misrepresentation to the court by the Nassers’ counsel. The Nassers’ 29 A/75372234.7 history of non-compliance began with their failure even to respond to Merrill Lynch’s September 2008 discovery requests for more than two months, followed by service of boilerplate objections without producing a single document. The trial court afforded the Nassers multiple opportunities to comply, and it explicitly and repeatedly warned them and their counsel of the consequences of non-compliance. (R. 1051-1056, 1062). Appellants attempt to refute those facts, stating that Merrill Lynch “would have this Court believe that appellants received ‘multiple,’ ‘numerous,’ ‘repeated’ opportunities to comply with ‘repeated warnings’ and ‘Orders,” as if somehow the record were devoid of those repeated warnings. (Br. 27). In fact, the record plainly reflects the repeated warnings and multiple opportunities for compliance afforded the Nassers, to no avail. On January 26, 2009, the Nassers’ counsel represented to the trial court that their document production would begin by January 29, but they failed to meet this deadline. On February 4, 2009, in the wake of their counsel’s misrepresentations concerning why the deadline was missed, the trial court directed the Nassers to comply with the outstanding discovery requests fully by February 20, and cautioned their counsel that if they did not, the consequences would be severe. (R. 1056-1057). Three weeks later, on February 25, 2009, the trial court again expressly warned the Nassers’ counsel that non-compliance with Merrill Lynch’s discovery requests would result in the severest possible sanctions. 30 A/75372234.7 (R. 1062). Yet they still failed to comply. No more warnings were necessary. The record shows that the Nassers and their counsel flagrantly misled the trial court about what efforts, if any, they made to comply with Merrill Lynch’s discovery requests. As noted above, on February 2, 2009, in response to a letter from counsel for Merrill Lynch advising Judge Gammerman of the Nassers’ failure to comply with the January 29, 2009 deadline for production, the Nassers’ counsel represented in writing, falsely, to Judge Gammerman, that his office had prepared a package of CD-ROMs containing the discovery materials “but the package inadvertently did not go out.” (R. 1040). Under questioning by Judge Gammerman, the Nassers’ counsel admitted that not only was there no “package” that “inadvertently did not go out,” but that the CD-ROMs in the “package” were not even created until the following week. (R. 1048-1052). The Nassers now claim there was “no intentional misrepresentation” based on a tortured definition of the word “package,” which the Nassers assert should have been construed to mean “a computer folder” rather than “an actual ‘postal’ package.” (Br. 31-32). The trial court rightfully saw through counsel’s purported “slight misapprehension” and recognized the misrepresentation for what it was: JHO GAMMERMAN: . . . What package was created on Thursday? 31 A/75372234.7 MR. MANUEL: The same package ultimately that was delivered on Monday. JHO GAMMERMAN: But the package that was created on Thursday could not have contained discs that were created on [the following] Monday, correct? MR. MANUEL: Your Honor, as of Thursday the material, the package, was ready to go. * * * JHO GAMMERMAN: A package is something that is prepared and ready to be picked up and transmitted. Where was it supposed to be picked up from? MR. MANUEL: They were going to be transmitted as discs, as computer files. * * * JHO GAMMERMAN: So there was no package ready to go on Thursday, then. MR. MANUEL: With the press of a button there would have been. JHO GAMMERMAN: But there wasn’t. MR. MANUEL: That’s right. The disks were not physically created. (R. 1049-1051). Defendants now contend that it is “irrelevant” whether the phantom “package” was created on January 29, 2009 or on February 2, after Merrill Lynch’s counsel had complained to the trial court, and assert that “Merrill was not 32 A/75372234.7 prejudiced by this minor delay.” (Br. 32). These statements betray a breathtaking misunderstanding of the gravity of this incident, in which counsel lied to the trial judge in writing, and then obfuscated under the court’s questioning, about why the Nassers had missed the discovery deadline before finally being caught in, and admitting, this lie. By contrast, the Appellate Division fully appreciated the importance of this event, and underscored it in its Decision, ruling that the Nassers’ “counsel’s misrepresentations in open court as to the cause of one of their violations” gave rise to “an inference of willful and contumacious conduct warranting the entry of the” Judgment. (R. 1228). Debating the degree to which Merrill Lynch was prejudiced misses the point entirely. An attorney’s duty of candor to a tribunal is not cabined by the metric of prejudice. New York’s ethical canons, whether embodied in the former Code of Professional Responsibility, DR 7-102(A)(5) (effective until April 1, 2009), or in the current Rules of Professional Conduct, Rule 3.3, prohibit attorneys from knowingly making false statements of fact to a tribunal. See 22 N.Y. Comp. Codes R. & Regs., tit. 22, § 1200.0. That prohibition is not contingent upon whether there was lasting harm created by the lie, or by whether the judge ultimately was able to smoke it out. “An attorney is to be held strictly accountable for his statements or conduct which reasonably could have the effect of deceiving or misleading the court in the action to be taken in a matter pending before it. The 33 A/75372234.7 court is entitled to rely upon the accuracy of any statement of a relevant fact unequivocally made by an attorney in the course of judicial proceedings.” Matter of Schildhaus, 23 A.D.2d 152, 155-56 (1st Dep’t 1965), aff’d 16 N.Y.2d 748 (1965). That counsel’s false statement was ultimately revealed, by the forensic work of Merrill Lynch’s counsel and cross-examination by Judge Gammerman, does not mitigate it. In a related context, this Court rejected the contention that an attorney who had practiced “an attempted but unsuccessful deceit” on a trial court could escape liability under N.Y. Judiciary Law § 487 simply because “the trial judge was concededly never fooled by [counsel’s] misrepresentations.” Amalfitano v. Rosenberg, 12 N.Y.3d 8, 11 (2009). In Amalfitano, after prevailing as defendants in a prior fraud action, plaintiffs sued their opposing party’s attorney, alleging that he violated N.Y. Judiciary Law § 487, which provides in relevant part that “[a]n attorney or counselor who … [i]s guilty of any deceit or collusion … with intent to deceive the court or any party … i[s] guilty of a misdemeanor, and in addition to the punishment therefor by the penal law, he forfeits to the party injured treble damages, to be recovered in a civil action.” N.Y. Jud. Law § 487. After recounting the long history of the applicable statute and its precedents,11 the Court 11 The Court observed that Section 487 of the Judiciary Law “descends from the first Statute of Westminster, which was adopted by the Parliament summoned by King Edward I of 34 A/75372234.7 held that a finding of “deceit” under the statute does not turn on whether the trial court actually believed the misrepresentation. Id. at 14 (“The operative language at issue – ‘guilty of any deceit’ – focuses on the attorney’s intent to deceive, not the deceit’s success.”). “Further, to limit forfeiture under section 487 to successful deceits would run counter to the statute’s evident intent to enforce an attorney’s special obligation to protect the integrity of the courts and foster their truth-seeking function.” Id. The State’s court system cannot function fairly and effectively if attorneys are permitted to evade their “special obligation to protect the integrity of the courts and foster their truth-seeking function” as casually as the Nassers now urge. 2. The Referee’s Report Is Supported by the Record and the Trial Court Properly Confirmed the Report The Referee’s finding that the Nassers had not complied with Merrill Lynch’s discovery requests and Judge Gammerman’s discovery orders was entirely England in 1275” and quoted the arrestingly similar relevant portion of that ancient statute: [I]f any Serjeant, Pleader, or other, do any manner of Deceit or Collusion in the King’s Court, or consent [unto it,] in deceit of the Court [or] to beguile the Court, or the Party, and thereof be attainted, he shall be imprisoned for a Year and a Day, and from thenceforth shall not be heard to plead in [that] Court for any Man; and if he be no Pleader, he shall be imprisoned in like manner by the Space of a Year and a Day at least; and if the Trespass require greater Punishment, it shall be at the King’s Pleasure [citations omitted]. Id. at 12. Clearly, the gravity of deceit upon a court by its officers was recognized in the time of Edward Longshanks. The institutional integrity of the State’s court system is no more immune to that peril today. 35 A/75372234.7 proper and amply supported by the evidence before the Referee. Although Appellants would have this Court believe that the Referee held no hearings and made no “true report” (Br. 31, 33), in fact the Referee held a hearing, provided the parties with the opportunity to submit materials in support of their positions, and considered those submissions in rendering his report. The parties appeared before the Referee on May 5, 2009, whereupon they presented their arguments and submitted “voluminous materials” for his consideration. (R. 1076). The Referee’s Report confirms, among other things, that “the parties were directed to submit memorand[a] of law with regard to their respective contentions,” that Merrill Lynch “was directed to identify and itemize the documents [the Nassers] allegedly failed to produce,” and that the Nassers “were directed to itemize documents produced in response to [Merrill Lynch’s] demands.” (R. 1076). Both Merrill Lynch and the Nassers submitted detailed memoranda with hundreds of pages of exhibits. These memoranda and exhibits detailed the parties’ positions with respect to the issue that the trial court referred for determination: i.e., whether the Nassers had complied with Merrill Lynch’s discovery requests and the trial court’s orders requiring full compliance therewith. To make that determination, Referee Hewitt reviewed and analyzed the “voluminous materials submitted by the parties.” (R. 1078). Merrill Lynch’s submission identified with particularity numerous 36 A/75372234.7 categories of documents that the Nassers failed to produce—and, it seems, did not even bother to search for. In fact, it was conceded that the Nassers produced no documents at all. (R. 1078). Merrill Lynch demonstrated by proffering numerous exhibits, including personal email communications, wire transfer requests signed by several of the Nassers, and other documents—none of which the Nassers produced—that, contrary to their assertions to the Referee and to the trial court, the Nassers necessarily have documents in their possession relating to the claims at issue, but produced none of them. (R. 1094-1100). For example, the Nassers produced no email correspondence between them and Merrill Lynch or between one another. (R. 409-411). It strains credulity beyond measure for sophisticated investors, who traded and lost millions of dollars over the course of years of trading through shell personal holding companies, to claim not to have a single responsive document in their possession.12 The Nassers’ argument that they had no responsive documents to produce is simply not credible, as both the trial court and the Referee found. This Court, too, has found implausible the argument that a corporate defendant and the individual defendant who managed and controlled the corporate defendant, failed 12 Incredibly—and improperly, to the extent they seek to reargue factual issues that were properly within the province of the trial court and Referee—the Nassers continue to claim that they “complied” with the discovery requests, despite having produced no documents. (Br. 28) (emphasis in original). 37 A/75372234.7 to produce requested “papers, documents, books, and records,” because those documents were not in defendants’ possession: Businessmen who have nothing to conceal ordinarily safeguard carefully the records and books of their business transactions, at least for a reasonable time. Only under extraordinary circumstances does a business man lose or part with control of his business records. Thus unless a credible explanation is given for failure to produce, the inference is almost irresistible that a failure to produce books and records is willful. The burden of producing evidence which would constitute explanation or excuse then shifts to the parties who alone have knowledge of the actual facts. People v. Henriques & Co., 267 N.Y. at 404. In Henriques, a referee rejected the defendants’ attempted explanation for not having those documents in their possession, and this Court subsequently held, “[w]ithout analysing in detail the testimony of the defendants, we state our conclusion that the finding of the referee was fully justified.” Id. at 405. In the record before Referee Hewitt, the Nassers submitted only self- serving, unsworn assertions by their counsel—not by the Nassers themselves—to the effect that they had no responsive documents.13 Referee Hewitt rejected the 13 The Nassers cite Christian v. City of New York, and state that the Appellate Division held in that case that the trial court abused its discretion in entering discovery sanctions against the defendant “where defendant filed affidavit stating that the requested documents were not in its possession and there was no indication that failure to disclose was willful, contumacious or in bad faith.” (Br. 23, citing 269 A.D.2d 135, 137 (1st Dep’t 2000)). However, in Christian, the entry of a default judgment was not against the defendant that submitted an affidavit indicating it could not locate the documents; it was entered against a defendant that had “averred on an item- by-item basis that it was not in possession of the remaining documents.” 269 A.D.2d at 136. 38 A/75372234.7 argument that they had no documents based on his review of each party’s submissions, finding “that there is sufficient evidence that the Nassers failed to comply” with their discovery obligations. (R. 1078). The Nassers argue that their behavior could not be willful or contumacious because, they claim, they produced 11,800 pages which “encompassed every responsive document in their possession, custody and control.” (Br. 28). But the Nassers omit to note that the 11,800 pages were produced by the Nasser Entities—not by the individual Nassers, who produced nothing. Furthermore, the vast majority—over 80%—of the 11,800 pages which the Nasser Entities did produce, were created by or originated with Merrill Lynch itself. (R. 1077-1078). The ipse dixit statements in the Nassers’ brief that “the company defendants’ files contained all documents in defendants’ possession, custody and control,” that “all of these documents were turned over to Merrill’s counsel,” and that the “individual defendants did not have separate files responsive to Merrill’s claims against the company defendants and hence there were no additional documents to turn over” (Br. 29) are the very arguments that have been made and rejected at every turn—by the Referee, by the trial court and by the Appellate Here, the Nassers neither averred on an item-by-item basis nor submitted sworn statements attesting that they had no documents in their possession. 39 A/75372234.7 Division. The Nassers had the opportunity to challenge the validity of the Referee’s finding before the trial court, but did not do so. (R. 50-54). Determining whether the Nassers and the Nasser Entities had complied was the very purpose of the Referee proceeding, and it is too late now to re-litigate this claim.14 The Nassers note that Merrill Lynch asked Referee Hewitt to order depositions of the Nassers and did not immediately seek entry of a default judgment. (Br. 34). Merrill Lynch requested depositions so that it would have the opportunity to explore what steps, if any, the Nassers and the Nasser Entities took to comply with its requests. The fact that Referee Hewitt concluded that the Nassers did not comply with their discovery obligations without needing the type of additional information that might have been developed in depositions only underscores how clear and unambiguous was the Nassers’ failure. When he referred the matter of the Nassers’ non-compliance to the Referee, Judge Gammerman noted that “to the extent that the discovery vis-a-vis by way of deposition be necessary, I will leave it for the referee to make that determination.” (R. 1110). The Referee had the discretion to order depositions, but decided they 14 The Nassers also point to their interrogatory responses as evidence that their discovery abuses were not willful or contumacious, and that they provided substantive information in discovery. (Br. 26). But, with the exception of a single substantive response provided by Ezequiel Nasser, the interrogatory responses consist of nothing more than the very same objections and responses that were provided by the Nasser Entities. (See R. 772, 776, 780, 783). As this Court has held, “compliance with a disclosure order requires both a timely response and one that evinces a good-faith effort to address the requests meaningfully.” Kihl v. Pfeffer, 94 N.Y.2d at 123. 40 A/75372234.7 were unnecessary given the clear evidence of the Nassers’ non-compliance. Again, the Nassers did not, and do not now, dispute that they did not produce any documents. The documentary evidence presented to the Referee was more than sufficient to support his findings without the need for depositions. The Nassers also attack Referee Hewitt’s citation to Spangenberg v. Chapuluka, 229 A.D.2d 482, 483 (2d Dep’t 1996), as inapposite and assert that Spangenberg “has absolutely nothing to do with the case at bar.” (Br. 33). The Nassers are wrong once again. Spangenberg stands for the principle that “[t]he parties must establish by a fair preponderance of the credible evidence that the claim they are making is true.” Hellman v. Genova, 2009 N.Y. Slip Op. 32236(U), *5 (N.Y. Sup. Ct. September 25, 2009) (Hewitt, Referee) (citing Spangenberg). Referee Hewitt properly cited Spangenberg in his Report to support his finding that Merrill Lynch had demonstrated the Nassers’ non-compliance by a preponderance of the credible evidence. The Nassers’ contention that the Appellate Division “disregarded the deficiencies in the referee’s report, which the lower court inappropriately and exclusively relied upon without any findings of its own” (Br. 33) is grossly inaccurate. On July 14, 2010, the parties appeared before Judge Gammerman on Merrill Lynch’s motion to confirm the report. The Nassers submitted a lengthy written opposition to Merrill Lynch’s motion to confirm the Referee’s Report. (R. 41 A/75372234.7 1196-1220). During the hearing, Judge Gammerman noted that he had “read the papers” and that “there is no reason not to confirm the report of the referee.” (R. 50). At no time during the conference did the Nassers’ counsel even attempt to present any argument or make any objection. Instead, the Nassers’ counsel merely stated to the court, “I take it we’re well beyond argument.” In response, Judge Gammerman stated: JHO GAMMERMAN: I read the papers. It seems to me that there is no reason for me not to do what I’m doing. Look, somehow in litigation in this court parties have the feeling that orders mean nothing and they don’t comply with orders, particularly discovery orders. And it’s been my practice to make sure that there is compliance by the process in which we employed in this case. And the litigants and their attorneys took the chance of not complying with the order. Represented that the order had been complied with. The matter was referred to a referee, who I think did a very careful job here, and concluded that the order had not been complied with by the defendants, whose answer I’m striking.15 (R. 53-54) (emphasis added). The Nassers had a full opportunity to present their arguments to both the trial court and the Referee. There is no reason, and the Nassers have provided none, to doubt that the trial court properly confirmed the Referee’s Report and the 15 Although the Nassers cite the trial court’s statement that it was “striking the defendants’ answer” (Br. 26) as an indication of error, they fail to note that, when their counsel pointed out that the Nassers had not yet answered the Amended Complaint, Judge Gammerman immediately corrected this ruling to state that he was directing entry of judgment against the Nassers. (R. 56) (“Then I’m not striking the answer. I’m directing an entry of a judgment….”). 42 A/75372234.7 Appellate Division properly upheld that confirmation in affirming the Judgment. See Those Certain Underwriters at Lloyds, London v. Occidental Gems, Inc., 11 N.Y.3d at 845 (trial courts have discretion to confirm referee’s report when supported by record); Rosenbloom v. Gurary, 59 A.D.3d 274, 274 (1st Dep’t 2009) (confirming referee report where “the referee had clearly defined the issues, resolved matters of credibility, and made findings substantially supported by the record”). 3. The Appellate Division Properly Determined that Judge Gammerman Did Not Exceed His Authority As the Nassers point out, the Appellate Division has had the opportunity to review Judge Gammerman’s discovery decisions on a number of occasions, which is not surprising given Judge Gammerman’s long tenure on the bench. (Br. 34). The cases cited by the Nassers (which, as discussed below, are distinguishable) illustrate only that the Appellate Division has not hesitated to reverse Judge Gammerman’s discovery rulings where it has found the sanctions imposed to be unwarranted. Hence, those reversals support affirmance of the Decision because the First Department — the court most familiar with Judge Gammerman’s previous discovery and sanctions orders — unanimously upheld entry of the Judgment here, as it has in numerous other cases. See, e.g., Rakauskas v. Grace Olivia, LLC, 29 A.D.3d 355, 355 (1st Dep’t 2006) (unanimously affirming Judge Gammerman’s order striking the answer where defendants failed 43 A/75372234.7 to comply with the Referee’s repeated directives to produce financial data); Bear Stearns & Co., Inc. v. Enviropower, LLC, 21 A.D.3d 855, 855-56 (1st Dep’t 2005) (unanimously affirming Judge Gammerman’s order striking defendant’s answer for failure to produce demanded documents); Zapco 1500 Inv. L.P. v. Wiener, 299 A.D.2d 206, 206 (1st Dep’t 2002) (unanimously affirming Judge Gammerman’s dismissal of complaint where party repeatedly and inexcusably failed to comply with discovery orders); Stark v. Reliance Nat'l Indem. Co., 273 A.D.2d 148, 148 (1st Dep’t 2000) (unanimously affirming Judge Gammerman’s order confirming the referee’s report and dismissing the complaint for repeated and willful failures to comply with discovery obligations); Hot & Tasty Corp. v. IOB Realty Inc., 270 A.D.2d 67, 67 (1st Dep’t 2000) (unanimously affirming Judge Gammerman’s order dismissing the complaint where the party deliberately failed to comply with discovery orders despite being warned of the consequences of non-compliance); Gutierrez v. Bernard, 267 A.D.2d 65, 65-66 (1st Dep’t 1999) (affirming Judge Gammerman’s striking of defendants’ answer for their “willful failure to comply with a prior order” directing production of certain documents); Stanfill Plumbing & Heating Corp. v. Dravo Constructors, Inc., 216 A.D.2d 101, 101 (1st Dep’t 1995) (unanimously affirming Judge Gammerman’s order dismissing plaintiff’s complaint and granting defendants’ cross-motion confirming a portion of Referee’s report); Lehman Gov’t Secs., Inc. v. Enhanced Treasury Returns Corp., 216 44 A/75372234.7 A.D.2d 255, 255 (1st Dep’t 1995) (unanimously affirming Judge Gammerman’s order striking a defendant’s answer after plaintiffs were “repeatedly forced to seek court intervention relative to discovery” and “counsel was unable to be consistent about the whereabouts of the witness”); Federal Deposit Ins. Corp. v. Allcity Ins. Co., 228 A.D.2d 275, 275 (1st Dep’t 1996) (unanimously affirming Judge Gammerman’s order striking the complaint for plaintiff’s failure to comply with disclosure obligations). The facts and circumstances in the cases cited by the Nassers in which the Appellate Division found Judge Gammerman “too precipitous in striking a party’s pleadings” are markedly different from the facts here. (Br. 35-38). In Corner Realty 30/7, Inc. v. Bernstein Management Corp., 249 A.D.2d 191, 193- 194 (1st Dep’t 1998), the Appellate Division found that the plaintiff’s initial lack of diligence in following up on discovery requests was “understandable in light of plaintiff’s change of counsel.” Here, the Nassers have been represented by the same counsel throughout the duration of this litigation. More importantly, the Appellate Division in this case distinguished Corner Realty by pointing out how the “Nassers were appropriately warned that judgment would be entered against them if their discovery responses were found by the Referee to be noncompliant with plaintiff’s requests.” (R. 1229) (comparing quoted statement with Corner Realty, 249 A.D.2d at 194, where noncompliant party “without warning, was told 45 A/75372234.7 that if a Referee found any noncompliance its complaint would be dismissed”) (emphasis added).16 In its order unanimously affirming the Judgment here, the Appellate Division cited Turk Eximbank-Export Credit Bank of Turkey v. Bicakciouglu, 81 A.D.3d 494, 494 (1st Dep’t 2011), in support of its finding that “[a]ppellants’ repeated failure to offer a reasonable excuse for their noncompliance with discovery requests” gave rise to “an inference of willful and contumacious conduct that warranted the striking of the answer.” (R. 1228-1229). The Nassers contend that Turk is distinguishable because in that case, they argue, the referee’s report showed “a detailed and thorough analysis of the defendant’s document production and recommendations for the court.” (Br. 39). As described above, the Report 16 Other cases cited by the Nassers also involve very different facts. In First Bank of the Americas v. Motor Car Funding, Inc., 257 A.D.2d 287, 293 (1st Dep’t 1999), the defendants had produced the majority of the documents within a relatively short time even though they had not been able to meet the court’s deadlines. By contrast, to date, the Nassers still have not produced any documents in response to a document request that was served three years ago. In Kaplan v. KCK Studios, Inc., 238 A.D.2d 264, 264-265 (1st Dep’t 1997), unlike here, the non-complying party was proceeding pro se, the referee concluded that the responses were “satisfactory as to the vast majority of demands,” and the causes of action relevant to the plaintiff’s non-compliance were withdrawn. In Commerce & Ind. Ins. v. Lib-Com, Ltd., 266 A.D.2d 142, 143 (1st Dep’t 1999), the plaintiff’s noncompliance involved two of twenty interrogatories: one was answered in part, the other was objected to on relevance and confidentiality grounds. In that case, the Appellate Division concluded that the trial court erroneously disregarded the discovery referee’s finding of compliance. Id. at 145. Here, however, Judge Gammerman confirmed the referee’s conclusion that the Nassers had not complied with discovery. In Shiboleth v. Yerushalmi, 268 A.D.2d 300, 300 (1st Dep’t 2000), the Appellate Division found that the lower court should not have struck the defendant’s answer because, unlike here, there was no showing of a pattern of non-compliance by the defendants. Indeed, in none of the cases cited by the Nassers was the party repeatedly warned by the court to comply with discovery, and none involved a finding of non-compliance by a Referee that was subsequently confirmed by the trial court. 46 A/75372234.7 here was issued after voluminous submissions by both parties and takes particular care to distinguish between the various Nasser Entities and the Nassers themselves. Indeed, to the extent that Referee Hewitt’s Report does not contain a “detailed and thorough analysis of the defendants’ document production” (Id.) that is only because it is undisputed that the individual Nassers made no production whatsoever. There was no need for the Referee to provide any further analysis. As in Turk, Judge Gammerman provided the Nassers with numerous warnings not to violate the court’s discovery orders, but they repeatedly disregarded his admonitions. The Nassers’ persistent, well-documented and uncontroverted violations of the trial court’s discovery orders, coupled with their counsel’s misrepresentations to the trial court, amply justify affirmance of the Appellate Division’s unanimous order upholding the trial court’s entry of the Judgment. II. THE APPELLATE DIVISION PROPERLY REINSTATED THE COMPLAINT AGAINST ALBERT NASSER IN LIGHT OF MERRILL LYNCH’S PRIMA FACIE SHOWING THAT HE IS SUBJECT TO PERSONAL JURISDICTION IN NEW YORK The Appellate Division properly reinstated the Amended Complaint as against Albert Nasser based on its holding that Merrill Lynch met the standard for alleging that Albert is subject to personal jurisdiction in New York. The record reflects that each of the Nassers, including Albert, engaged in extensive, purposeful activity in New York which forms the basis of the claims in the 47 A/75372234.7 underlying litigation. The exercise of personal jurisdiction over Albert Nasser is entirely consistent with this Court’s jurisprudence and should be upheld. A. The Legal Standard for Establishing Personal Jurisdiction The exercise of jurisdiction over Albert Nasser is thoroughly warranted by established precedent of this Court, and does not, as the Nassers incorrectly assert, improperly expand the reach of CPLR § 302(a)(1). (Br. 40). CPLR § 302(a)(1) provides that a court may exercise personal jurisdiction over any non-domiciliary who, in person or through an agent, “transacts any business within the state,” when the cause of action arises from the transaction of such business. It is a “single act statute” and proof of one transaction in New York is sufficient to invoke jurisdiction—even if the defendant never enters New York—“so long as the defendant’s activities here were purposeful and there is a substantial relationship between the transaction and the claim asserted.” Copp v. Ramirez 62 A.D.3d 23, 28 (1st Dep’t 2009) (citing Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 467 (1988)). Long-arm jurisdiction will be found pursuant to CPLR § 302(a)(1) over commercial actors and investors who use electronic and telephonic means to project themselves into New York to conduct business transactions. See Deutsche Bank Secs., Inc. v. Montana Bd. of Investments, 7 N.Y.3d 65, 71-72 (2006). While jurisdiction ultimately must be shown to exist with respect to each cause of action asserted against a defendant, CPLR § 302(a)(1) “does not 48 A/75372234.7 require that every element of every cause of action pleaded must be related to the New York contacts; rather, where at least one element arises from the New York contacts, the relationship between the business transaction and the claim asserted supports specific jurisdiction under the statute.” Licci v. Lebanese Canadian Bank, — N.Y.3d —, 2012 N.Y. Slip Op. 07854, *5, 2012 WL 5844997 (Nov. 20, 2012). As all of the claims asserted by Merrill Lynch against Albert Nasser relate to Albert’s trading in his Merrill Lynch accounts or in those of his company, and as those accounts and trading activity were the subject of his contacts with New York, this requirement is clearly satisfied. B. Albert Nasser Had Sufficient Personal Contacts with New York In 2006, this Court held in Deutsche Bank that the New York court had jurisdiction over an out-of-state investor who, via an instant messaging system, engaged in a single bond transaction with a New York counterparty, without ever setting foot in the state. 7 N.Y.3d at 72. This Court quoted with approval Professor Siegel’s observation that where a defendant “deals directly with the broker’s New York office by phone or mail [or e-mail] in a number of transactions instead of dealing with the broker at the broker’s local office outside New York, long-arm jurisdiction may be upheld.” Id. (quoting D. Siegel, N.Y. Practice § 86, at 152 [4th ed.]). The analysis in Deutsche Bank reflects the realities of conducting business in the modern age, including the fact that “technological advances in 49 A/75372234.7 communication . . . enable a party to transact enormous volumes of business within a state without physically entering it.” Id. at 71 (citing Kreutter, 71 N.Y.2d at 467). The circumstances of this case are similar to those of Deutsche Bank. Albert Nasser communicated with his Merrill Lynch broker while she was in New York and participated in a telephonic meeting on March 18, 2008 with Merrill Lynch in New York. (R. 519). The fact that Albert Nasser resides in Argentina and was not physically present in New York (Br. 41 n. 7) is not determinative of whether he is subject to personal jurisdiction in the State. This Court held in Deutsche Bank that an out-of-state defendant should reasonably expect to defend an action in New York “even though the defendant never enters New York, so long as the defendant’s activities here were purposeful and there is a substantial relationship between the transaction and the claims asserted.” Id. at 71. Other decisions of this Court stand for the same principle. In Fischbarg v. Doucet, this Court held that there was personal jurisdiction over Californians who, by telephone, retained a New York attorney to represent them in a copyright infringement action in Oregon and then failed to pay the attorney. In that case, the clients communicated with their attorney regularly by telephone, e- mail and fax but never physically entered New York. 9 N.Y.3d 375, 381-82 (2007). In upholding jurisdiction in Fischbarg, this Court observed that “the case 50 A/75372234.7 before us concerns defendants’ purposeful attempt to establish an attorney-client relationship here and their direct participation in that relationship via calls, faxes, and e-mails that they projected into this state over many months.” Id. at 380. In Ehrlich-Bober & Co., Inc. v. University of Houston, this Court held that New York courts had personal jurisdiction over a Texas university that, over a several month period, engaged in multiple securities transactions with a New York broker-dealer, most of which arose out of telephone calls to the plaintiff’s New York office, although on one occasion, an order was placed in person in New York by an employee of the defendant university. 49 N.Y.2d 574, 577 (1980). In upholding jurisdiction over the university in that case, this Court invoked “New York’s recognized interest in maintaining and fostering its undisputed status as the preeminent commercial and financial nerve center of the Nation and the world,” which interest naturally embraces a very strong policy of assuring ready access to a forum for redress of injuries arising out of transactions spawned here. Indeed, access to a convenient forum which dispassionately administers a known, stable, and commercially sophisticated body of law may be considered as much an attraction to conducting business in New York as its unique financial and communications resources. Id. at 581. Albert Nasser cites both Deutsche Bank and Fischbarg, but ignores the fact that those cases strongly support the finding that he is subject to personal jurisdiction in New York. (Br. 42). Corporate Campaign v. Local 7837, United 51 A/75372234.7 Paperworkers Int’l Union, 265 A.D.2d 274 (1st Dep’t 1999), which Albert also cites (Br. 42), similarly supports the exercise of jurisdiction here. See id. at 274-75 (while noting that “jurisdiction cannot be predicated solely on the plaintiff’s acts within the State,” the court held defendant was subject to jurisdiction based on his contacts with New York in connection with the subject matter of the litigation and where he had requested performance of acts by plaintiff in New York for his benefit). To the extent Albert is arguing that Corporate Campaign means that the New York acts of Merrill Lynch, alone, cannot be the basis for jurisdiction over him, that is inapposite because it is the acts of Albert himself directed to or touching New York—not the acts of Merrill Lynch—that form the basis for personal jurisdiction. Albert Nasser had substantial contacts with Merrill Lynch in New York in connection with the trading activity of Inversiones, of which he was the beneficiary, and thus he is subject to jurisdiction in this State. Furthermore, Albert had a personal account with Merrill Lynch, which he opened in 2005 and funded with transfers from Global Strat, Inc. (R. 498). In connection with his individual account with Merrill Lynch, Albert executed a Global Derivative Eligibility Form, which set forth his personal financial information, and a Standing Letter of Authorization, authorizing Merrill Lynch to transfer up to $5,000,000 per transaction from his individual account to the Global Strat, Inc. account without 52 A/75372234.7 further written authorization. (R. 499). That Standing Letter of Authorization was used, among other things, to transfer funds from Albert’s personal account to satisfy margin calls in the account of Global Strat, Inc. (R. 499). Thus, it is again clear that Albert’s connections with New York were purposeful and have a substantial relationship to the claims in this litigation. Albert Nasser argues that the Appellate Division’s jurisdiction holding was based merely on “two actions” by him and that these “two actions” do not satisfy Merrill Lynch’s obligation to make a prima facie showing of jurisdiction. (Br. 44). This argument is flawed for several reasons. First, one of the “two actions” identified by the Appellate Division consisted of the finding that “in the first three months of 2008, he actively traded in the New York-based Merrill Lynch accounts of Inversiones, his personal holding company.” (R. 1228). “Actively traded” signifies more than one trade, and thus more than one “action.” Second, as stated above, CPLR § 302(a)(1) is a “single act statute.” Even if Albert’s contacts with New York were limited to “two actions”—and they are not—those two actions would be enough for personal jurisdiction because they were purposeful and bear a substantial relationship to the claims asserted in the underlying litigation. See Laufer v. Ostrow, 55 N.Y.2d 305 (1982).17 17 Laufer, which is cited by Albert Nasser (Br. 45, 53), also supports the exercise of personal jurisdiction. In Laufer, this Court noted that the lower court’s finding that defendant’s 53 A/75372234.7 Albert Nasser points to this Court’s discussion of the legislative history of New York’s long-arm jurisdiction statute in Longines-Wittnauer Watch Co. v. Barnes & Reinecke, Inc. (Br. at 46, citing 15 N.Y.2d 443, 456-57 (1965)). While jurisdiction must be based, as Albert points out, on “purposeful activity,” in discussing the history of CPLR § 302, this Court noted that “the Legislature chose not to fix precise guidelines, as other states have done … and decided, instead, to follow the broad, inclusive language of the Illinois provision, adopting as the criterion the ‘transact(ion of) any business within the state.’” Id. (emphasis added; emphasis of “any” in original). Albert’s contacts with New York easily fit within that provision. This Court recently addressed the issue of personal jurisdiction based on commercial transactions involving an out of state party. In Licci v. Lebanese Canadian Bank, SAL, the Second Circuit certified two questions regarding the exercise of long-arm jurisdiction to this Court. — N.Y.3d —, 2012 N.Y. Slip Op. 07854, 2012 WL 5844997 (Nov. 20, 2012). In Licci, plaintiffs, a group of American and Israeli citizens residing in Israel who were injured or whose family members were injured or killed in rocket attacks in Israel, brought suit against the multiple calls to plaintiff in New York constituted “purposeful and continuing” activity, and held that where the Appellate Division had affirmed and there was support in the record for the finding, that finding was beyond the review of this Court. 55 N.Y.2d at 311-312. Accordingly, the Appellate Division’s finding in this case, which is supported by the record, that Albert’s activities in New York were sufficient to confer jurisdiction should not be disturbed by this Court. 54 A/75372234.7 Lebanese Canadian Bank (“LCB”) and American Express Bank (“AmEx”), claiming the banks assisted the attacks by facilitating international monetary transactions on behalf of Hizballah. Id. The assertion of long-arm jurisdiction was based on LCB’s maintenance of a correspondent banking account with AmEx in New York, which plaintiffs alleged LCB used to make “dozens” of international wire transfers. Id. at *3. This Court held that defendant’s repeated use of a New York bank account established, “in effect, a ‘course of dealing,’” and “show[ed] purposeful availment of New York’s dependable and transparent banking system, the dollar as a stable and fungible currency, and the predictable jurisdictional and commercial law of New York and the United States,” and thus supported the exercise of jurisdiction. Id. at *9. The parallels to the instant case are striking. The Nassers, including Albert Nasser, entered into agreements to transact business with Merrill Lynch, a New York financial institution, by executing numerous trades in their brokerage accounts with Merrill Lynch, and by entering into swap agreements with New York-based Merrill Lynch Capital Services as the counterparty to those transactions (See R. 569, Affidavit of New York-based Merrill Lynch options trader who executed trades on behalf of the Nasser accounts), thus establishing a similar “course of dealing,” and purposefully taking advantage of New York’s sophisticated and reliable financial infrastructure, including the “predictable 55 A/75372234.7 jurisdictional and commercial law” of New York. See also Ehrlich-Bober & Co., 49 N.Y.2d at 581 (New York courts’ reliable administration of commercially sophisticated body of law considered “as much an attraction to conducting business in New York as New York’s unique financial and communications resources”); Indosuez Int’l Fin. B.V. v. National Reserve Bank, 98 N.Y.2d 238, 247 (2002) (upholding jurisdiction over a Russian bank that maintained an account in New York, which it regularly used in connection with options transactions, thus establishing a “course of dealing” in New York). Albert Nasser ignores this Court’s controlling decisions and instead relies on a Civil Court decision and a federal decision, both decided more than 35 years ago. See Hertz, Newmark & Warner v. Fischman, 53 Misc. 2d 418 (N.Y. Civ. Ct. 1967), and Merrill Lynch, Pierce, Fenner & Smith Inc. v. Alexiou, 397 F. Supp. 1292 (S.D.N.Y. 1975). (Br. 57-58). These cases are irrelevant for two reasons. First, this Court has now definitively articulated a different standard for personal jurisdiction in cases like this, establishing in Deutsche Bank that physical presence in this State is not required for jurisdiction over an out-of-state resident to exist. To the extent that Hertz and Alexiou stand for the proposition that physical presence is necessary, they are no longer good law.18 Second, neither Hertz nor 18 The Nassers also rely on M. Katz & Son Billiard Prods., Inc. v. G. Correale & Sons, Inc., 20 N.Y.2d 903 (1967) (Br. 43), in which this Court held that defendant’s calls to plaintiff in 56 A/75372234.7 Alexiou involves facts similar to the present case.19 Unlike in Hertz and Alexiou, the basis of jurisdiction in this case is not Merrill Lynch’s activities in New York, but Albert Nasser’s own activities and communications in New York. Albert Nasser argues that he did not seek out or contract with a New York securities broker because the broker was based in Brazil when she first began executing transactions for him. (Br. 47). This argument is meritless, as there is no dispute that the Nassers were aware that their accounts were being transferred to New York soon after their broker moved here, and the Nassers, including Albert, continued to trade actively through Merrill Lynch after the transfer. As noted above, Albert made multiple calls to his broker and executed multiple trades after she had moved to New York. The Nassers could have transferred their accounts to another firm in Brazil, but they chose not to do so. By continuing to trade in his New York for the purpose of ordering billiard products did not amount to transaction of business in New York. That case, too, was decided many years before this Court established in Deutsche Bank that physical presence in the State is not required for personal jurisdiction based on transaction of business. 19 In Hertz, the customer-defendant’s account was maintained at plaintiff’s New Jersey branch office, and defendant placed the trades at issue by telephoning his broker in New Jersey; he neither telephoned nor physically came into New York on any matter relating to the transactions. The Hertz court held that the broker’s subsequent actions directed to New York— calling the trading desk in New York to execute the orders—did not create jurisdiction over the defendant. 53 Misc. 2d at 421. Similarly, in Alexiou, the account of the customer-defendant, a Greek national, was in a London office and his trading instructions were provided to his broker in London, who, in turn, transmitted instructions to others in New York, who executed the trades on a New York exchange. The court held that jurisdiction over the Greek defendant did not exist merely because the transactions were ultimately consummated on a New York exchange. 397 F. Supp. at 1294. 57 A/75372234.7 account once it had been transferred to New York, Albert sought to take advantage of the privilege of transacting business in New York, and he cannot now avoid the consequences of that decision. C. Albert Nasser Is Also Subject to Personal Jurisdiction in New York Based on the Trading Activities of Inversiones, His Personal Holding Company Albert Nasser is subject to jurisdiction based not only on his own contacts with New York—including his communications with his Merrill Lynch broker while she was in New York and his presence by telephone during the March 18 meeting with Merrill Lynch (R. 519)—but because the New York acts of his personal holding company, Inversiones, may be imputed to him.20 In Kreutter v. McFadden Oil Corp., this Court held that to 20 The Nassers include in their brief a lengthy recitation of what they allege are “facts that were suppressed in Merrill’s briefs and presumably disregarded by the appellate division in its analysis.” (Br. 48). These “facts” regarding the Inversiones Patagonia account are listed almost entirely without reference to the record and are refuted by facts contained in the record. For example, the brief asserts, without citation, that the “beneficial owner of Inversiones is the Twin Stars Trust, which Albert holds no beneficial interest in.” (Br. 48). However, the Affidavit of a Merrill Lynch Vice President and Administrative Manager that is contained in the Record states that Inversiones was a personal holding company “used by Albert Nasser to manage his personal assets, including funds he received” by transfer from Nasser Entity accounts. (R. 500). The affidavit also states that Albert is identified as the “beneficial owner” of Inversiones on the International Client Account Information Form dated March 2007 and the Standard Option Agreement Institutional Accounts and Personal Holding Companies, dated April 2007, and that when the latter agreement was sent to Inversiones’ address of record along with a letter asking that any inaccuracies be reported, no one informed the affiant of any inaccuracy, including the designation of Albert as the beneficial owner of Inversiones. (R. 498-501). Moreover, because there is support in the record for the Appellate Division’s finding that Inversiones is Albert’s “personal holding company,” that factual finding is beyond the review of this Court. Laufer, 55 N.Y.2d at 311; Spiegel v. Ferraro, 73 N.Y.2d 622, 627 (1989) (Appellate Division’s finding, supported by record, is beyond review of the Court on appeal). 58 A/75372234.7 demonstrate jurisdiction over an out-of-state corporate officer, the plaintiff “need only convince the court that [the corporation] engaged in purposeful activities in this State in relation to [plaintiff’s] transaction for the benefit of and with the knowledge and consent of the . . . defendants and that they exercised some control over [the corporation] in the matter.” 71 N.Y.2d at 467. Albert Nasser argues that the Appellate Division’s reliance on Kreutter in partial support of its determination that the New York courts have jurisdiction over him is “misplaced” and cites in support of that claim Falow v. Cucci, which he says “distinguished the holding in Kreutter.” (Br. 56-57, citing 2003 WL 22999458, 2003 U.S. Dist. LEXIS 23019 (S.D.N.Y. Dec. 19, 2003, No. 00 CV 4754 (GBD))). However, even if the federal district court in Falow had disapproved or declined to follow Kreutter—and it did not—that has no bearing on this case, and Falow does not support Albert Nasser’s argument against finding jurisdiction in this case. First, the facts of Falow bear no resemblance to those here. The claims in Falow arose out of “a contractual agreement between a New Jersey based architectural firm and two New Jersey corporations for the renovation of property located in New Jersey,” thus the federal court held that where “the essence of defendants’ contractual obligations were to be performed in New Jersey, … the New York communications, related thereto, were of minor importance.” 2003 WL 22999458 at *4. Second, this Court need not adhere to 59 A/75372234.7 interpretations of the CPLR by federal trial courts; to the contrary, in diversity cases, federal courts apply New York law as interpreted by the New York State courts. See Walker v. Walker, 51 A.D.2d 1029, 1030 (2d Dep’t 1976) (holding that the Appellate Division was not bound by a federal district court’s interpretation of a New York statute). Other cases cited by Albert Nasser in his argument that Kreutter and the agency theory are inapplicable to a finding of personal jurisdiction over him (Br. 53-59) are similarly distinguishable, and, in any event, the majority of those are determinations by the lower courts that are not binding on this Court. Only Ferrante Equipment Co. v. Lasker-Goldman Corp. was decided by this Court, and that case, too, supports the finding of jurisdiction over Albert Nasser. 26 N.Y.2d 280 (1970). In Ferrante, the question before this Court was not, as Albert Nasser asserts, whether a non-resident can be subject to jurisdiction based on his actions in his home state which affect performance of work by others in New York (Br. 59). Rather, the question was “whether the record reveals an adequate showing of a cause of action arising from the transaction by respondent of any business within this State”—that is, whether the “substantial relationship” prong of CPLR § 302(a)(1) was met. 26 N.Y.2d at 283 (emphasis added). As this Court explained in that case, “[r]espondent’s domicile was in New Jersey and his personal business activities, from which appellant’s alleged cause of action arose, occurred in that 60 A/75372234.7 State. The only activities conducted by respondent which are related to appellant’s cause of action were the negotiation and execution of the indemnity agreement in New Jersey.” Id. at 284. Those facts are significantly different from the facts of the instant case, where, as the Appellate Division found, Albert’s contacts with New York were directly related to the subject matter of the underlying dispute, and thus the exercise of jurisdiction over him is appropriate. (R. 1228). Whether based on activities for his own direct benefit, or those undertaken on behalf of his company, Inversiones, for his ultimate benefit, under the precedent established by Deutsche Bank and Fischbarg, Albert Nasser’s activities are more than sufficient to confer jurisdiction over him in New York. CONCLUSION F or the foregoing reasons, the Appellate Division's unanImous Decision, affirming the entry of the Judgment against the Nassers and in favor of Merrill Lynch, and reinstating the Amended Complaint as against Albert Nasser based on its holding that he is subject to personal jurisdiction in New York, should be affirmed. Dated: March 7, 20 13 61 N75372234.7 BINGHAM McCUTCHEN LLP Kenneth l. Schacter Timothy J. Stephens Leigh M. Nemetz 399 Park A venue New York, NY 10022-4689 Tel. (212) 705-7000 Fax (212) 752-5378 - and- • BRESSLER AMERY & ROSS P.C. Brian F. Amery Dominick F. Evangelista 1 7 State Street New York, NY 10004 (212) 425-9300 4ttorneys for Plaintiffs-Respondents Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Capital Services, Inc.