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, 2013New York County Clerk’s Index No. 601012/08 Court of Appeals 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. >> >> To Be Argued By: Charles B. Manuel, Jr. Time Requested: 30 Minutes APPELLANTS’ REPLY BRIEF SHIBOLETH LLP One Penn Plaza, Suite 2527 New York, New York 10019 212-244-4111 CharlesM@Shiboleth.com RobertR@Shiboleth.com Attorneys for Defendants-Appellants Of Counsel: Charles B. Manuel, Jr. Robert A. Rosenberg (Additional Caption On the Reverse) Date Completed: April __, 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. TABLE OF CONTENTS PART ONE: THE DEFAULT JUDGMENT THIS DEFAULT JUDGMENT A GROSS MISCARRIAGE OF JUSTICE…………...………….………….1 A. Appellants Received Only One Warning Simultaneous With the Only Discovery Order Ever Issued, And Merrill Cannot Support Its Exaggerated Account.………...…...3 B. The Reasonable Excuse Set Forth by the Appellants For Their Alleged Non-Compliance Has Been Disregarded at Every Stage Without Any Explanation……….…..….5 1. Appellants Have Never Conceded That They “Produced No Documents at All.”…………………..………6 2. The Spangenberg Decision………………..…………………..…..8 3. Scarlett Nasser Was Never Served With Document Demands……9 C. Counsel Made No Willful Misrepresentation, And Misrepresentations by Counsel Are An Insufficient Basis for a Default Judgment…...……………..........11 D. Merrill Fails to Provide Persuasive Law to Refute Appellants’ Argument that JHO Gammerman Has Once Again Exceeded His Authority Under CPLR § 3126…........…13 E. Assuming, Arguendo, That Any Sanction Was Warranted, This Default Judgment Was Legally Improper and Grossly Excessive…………..…….……15 i PART TWO: JURISDICTION THE DECISION SHOULD BE REVERSED AND THE COMPLAINT SHOULD BE DISMISSED AS AGAINST ALBERT NASSER, WHO IS NOT SUBJECT TO NEW YORK JURISDICTIO...................………..…..17 A. Merrill Failed to Carry Its Burden and the Record Does Not Support the Appellate Division’s Holding………….…….18 B. Albert Nasser’s Actions Do Not Amount to a Purposeful Transaction Under CPLR § 302(a)(1) And Merrill’s Failure to Support This Threshold Issue Highlights the Error in the Appellate Division’s Decision……….....20 C. Merrill Fails to Rebut the Argument that the Alleged Trades, Inferred by Merrill’s Counsel, Fail to Establish Purposeful Transactions By Albert Nasser, Sufficient to Satisfy Personal Jurisdiction Under CPLR § 302(a)(1)……………………..23 D. Merrill Does Not Dispute That Albert Nasser’s Involvement in the March 18, 2008 Meeting Was Not Purposeful and Does Not Satisfy Personal Jurisdiction Under CPLR § 302(a)(1)……...……………...26 E. The Appellate Division’s Reliance on Kreutter v. McFadden Is Misplaced and There is No Bases for Imputing Personal Jurisdiction Over Albert Nasser Based on Agency Theory…………28 CONCLUSION………………...............................................................................31 ii TABLE OF AUTHORITIES CASES 275 Linden Realty Corp. v. Caraballa, 5 Misc 3d 32 (App Term 2004)………………………………………...…………..……..…10 Acme Bus Corp. v. Board of Educ. of Roosevelt Union Free Sch. Dist., 91 N.Y.2d 51, 666 N.Y.S.2d 996 (1997) .................................................................................26 A.G. Ship Maintenance Corp. v Lezak, 69 N.Y.2d 1, 511 N.Y.S.2d 216 (1986)………….……………………………………..……13 Barington Capital Group v. Arsenault, 281 A.D.2d 166, 721 N.Y.S.2d 58 (1st Dep’t 2001) .........................................................18, 25 Bako v. V.T. Trucking Co., 143 A.D.2d 561, 532 N.Y.S.2d 767 (1st Dep’t 1988) .............................................................11 Bear, Stearns & Co., Inc. v. Enviropower, LLC, 21 A.D.3d 855, 804 N.Y.S.2d 54 (1st Dep't 2005) ..................................................................14 C-Life Group Ltd. v. Generra Co., 235 A.D.2d 267, 652 N.Y.S.2d 41 (1st Dep’t 1997) ......................................................... 27-28 Christian v. City of New York, 269 A.D.2d 135, 703 N.Y.S.2d 5 (1st Dep't 2000) ..................................................................15 Corporate Campaign, Inc. v. Local 7837, United Paperworkers Intern. Union, 265 A.D.2d 274, 697 N.Y.S.2d 37 (1st Dep’t 1999) ................................................... 18-19, 27 Crawford v. Merrill Lynch, Pierce, Fenner & Smith, 35 N.Y.2d 291, 361 N.Y.S.2d 140 (1974)………………………………………..………….10 Deutsche Bank Sees., Inc. v. Montana Bd. of Investments, 7 N.Y.3d 65, 818 N.Y.S.2d 164 (2006) ...................................................................................20 Ehrlich-Bober Kulas v. Adachi, 1997 WL 256957 (S.D.N.Y. 1997)…………………………………...…………….…….….21 Federal Deposits Ins. Corp. v. Allcity Ins. Co., 228 A.D.2d 275, 644 N.Y.S.2d 36 (1st Dep’t 1996) ………………………..………………15 Fischbarg v Doucet, 9 N.Y.3d 375, 849 N.Y.S.2d 501 (2007) ..................................................................... 17, 20-21 iii Gutierrez v. Bernard, 267 A.D.2d 65, 699 N.Y.S.2d 396 (1st Dep't 1999) ................................................................14 Hellman v. Genova, 2009 NY Slip Op 32236(U), 2009 N.Y. Misc. LEXIS 6146 (2009) ..................................... 8-9 Hot & Tasty Corp. v. IOB Realty Inc., 270 A.D.2d 67, 704 N.Y.S.2d 816 (1st Dep't 2000) ................................................................14 Islar v New York City Bd. of Educ., 64 AD3d 405, 882 N.Y.S.2d 110 (1st Dep’t 2009) ……………………………..………..…16 Kreutter v. McFadden Oil, 71 N.Y.2d 460, 522 N.E.2d 40 (1988) .............................................................................. 28-29 Lehman Gov't Sec. v. Enhanced Treasury Returns Corp., 216 A.D.2d 255, 629 N.Y.S.2d 13 (1st Dep't 1995) ................................................................14 Libra Global Tech. Servs. (UK) v. Telemedia Int’l., 279 A.D.2d 326, 719 N.Y.S.2d 53 (1st Dep’t 2001) ...............................................................27 Licci v. Lebanese Can. Bank, 20 N.Y.3d 327 (2012)……………………………..…………………………………..….17,22 Longines-Wittnauer Watch Co. v. Barnes & Reinecke, Inc. 15 N.Y.2d 443, 261 N.Y.S.2d 8 (1965) ............................................................................. 21-22 Lowitt v. Korelitz, 152 A.D.2d 506, 544 N.Y.S.2d 14 (1st Dep’t 1989) …………………………………..…4, 11 Marks v. Vigo, 303 A.D.2d 306, 756 N.Y.S.2d 568 (1st Dep't 2003) ..............................................................16 Orlando v. Arcade Cleaning Corp., 253 A.D.2d 362, 676 N.Y.S.2d 164 (1st Dep’t 1998) .............................................................16 People v Henriques & Co., 267 N.Y. 398 (1935)……….………………………………………………..…………...........7 Palmenta v. Columbia University, 266 A.D.2d 90, 698 N.Y.S.2d 657 (1st Dep't 1999) ..................................................................5 Rakauskas v. Grace Olivia, LLC, 29 A.D.3d 355, 813 N.Y.S.2d 657 (1st Dep't 2006) ................................................................13 iv v Stark v. Reliance Nat'l Indem. Co., 273 A.D.2d 148, 710 N.Y.S.2d 893 (1st Dep't 2000) .............................................................14 Stanfill Plumbing & Heating Corp. v. Dravo Constructors, 216 A.D.2d 101, 627 N.Y.S.2d 689 (1st Dep't 1995) ..............................................................14 Seneca Ins. Co., Inc. v. Boss, 256 A.D.2d 175, 681 N.Y.S.2d 529 (1st Dep't 1998) .................................................. 18-19, 27 Spangenberg v. Chapoluka, 229 AD2d 482, 645 N.Y.S.2d 514 (2d Dep’t 1996) ..................................................................8 Turk Eximbank-Export Credit Bank of Turkey v. Bicakcioglu, 81 A.D.3d 494, 916 N.Y.S.2d 502 (1st Dep't 2011) ................................................................15 Walkovszky v. Carlton, 18 N.Y.2d 414, 276 N.Y.S.2d 585 (1966) ...............................................................................30 Zapco 1500 Inv. L.P. v. Wiener, 299 A.D.2d 206, 749 N.Y.S.2d 138 (1st Dep't 2002) ..............................................................14 STATUTES CPLR § 302(a)(1) .................................................................................................................. passim CPLR § 3211(a)(8) ........................................................................................................................19 CPLR § 3126.......................................................................................................................... passim TREATISES 1 Weinstein-Korn-Miller, N.Y. Civ. Prac., ¶ 302.06) ........................................................................................................22 CPLR § 3126 Commentary CPLR 3126, C3126:10 .............................................................................................................16 N.Y. Advisory Comm. Rep., N.Y. Legis. Doc. 1958, No. 13, at 39-40 .................................................................................22 ARGUMENT PART ONE: THE DEFAULT JUDGMENT THIS DEFAULT JUDGMENT IS A GROSS MISCARRIAGE OF JUSTICE. Our opening brief -- with ample citation to the law, the sparse record in the courts below, and the adumbrated “decisions” of the referee, the judicial hearing officer, and the appellate division -- established that: • A referee assigned to hear and report upon the defendants’ alleged failure to produce documents – after defendants had produced over eleven thousand pages of documents and attested that they had produced everything they could find in their files after a diligent search – never held a hearing on the disputed matter and never communicated with counsel for either side after an introductory conference, and then after more than ten and a half months rendered his “report.” • That “report” included one sentence of “analysis” that cited a single case inapposite to the matter at hand. • The judicial hearing officer, who had been reversed time and again, in far less egregious circumstances, for entering “default” judgments for amounts that never exceeded one percent of the judgment at bar, almost literally rubber-stamped the referee’s barren “report” and furnished zero analysis of his own in doing so. The decision-making by the judicial hearing officer consisted of a statement that he was adopting the so-called “report” of the referee and entering judgment thereon. • The appellate division, which had been furnished 130 pages of briefs and a 1,224-page record, rendered a two-page decision, two sentences of which addressed the default judgment, with unexplained citation to two cases and zero analysis of the matter at issue. • Amazingly, the plaintiffs did not even request a default judgment: During the May 5, 2009 conference before referee Lancelot Hewitt, plaintiff’s 1 counsel stated for the record that, “To repeat what we said in our initial submission, at this point, what Merrill Lynch is seeking are depositions of Ezequiel Nasser, Albert Nasser, Raymond Nasser, and anyone acting on behalf of the Nasser Entities, to ascertain what steps were taken to comply with Merrill Lynch’s document requests and Judge Gammerman’s orders. Merrill Lynch is not now asking the Special Referee to recommend that Judge Gammerman enter a default judgment against the defendants.” (Emphasis added.) (R. 934-35.) The judgment granted at this stage by JHO Gammerman was not even requested by the Plaintiffs. • At no stage did any court give consideration to a lesser sanction (even assuming that any sanction would have been appropriate at this stage). The referee, who dedicated one sentence of “analysis” to a $100 million case, made no recommendation of sanction. The judicial hearing officer simply entered his usual default judgment. The appellate division simply ignores appellant’s arguments in its 3 sentence decision. • The lawsuit is between contracting companies that had done business as companies. Plaintiffs later added the individual defendants on a piercing- the-corporate-veil theory. At an early stage, the JHO opined that plaintiffs had a weak foundation, at best, for this theory. Yet, in all of this, through the date of judgment, no adjudicative entity has even considered the fact that the individual defendants had made a strong case that no cause of action had even been stated against them. Merrill’s opposition brief falls well short of addressing any of the legal and factual errors in the appellate division’s decision. Merrill's response largely disregards the transparent errors of the referee and the JHO, rubber-stamped in the appellate division's two-sentence decision, and instead seeks to place this case of gross injustice and clear error into the realm of other case law that has no bearing whatsoever on what happened here. Conspicuously absent from Merrill’s brief are any specific facts that would support Merrill’s argument that appellants were given “multiple opportunities” or “repeated warnings.” (Merrill Br. 28-29.) This 2 omission distinguishes the present case from those cited by Merrill, in which sanctions were deemed appropriate based on evidence in the record of repeated violations of multiple discovery orders, warnings and opportunities. A. Appellants Received Only One Warning Simultaneous With the Only Discovery Order Ever Issued, And Merrill Cannot Support Its Exaggerated Account. In arguing that appellants’ conduct was willful and contumacious, Merrill’s brief is in equal parts disingenuous and deficient. Merrill is unable to reference more than two instances in the 1,245-page record in support of its claim that appellants received “repeated warnings and multiple opportunities for compliance.” (Merrill Br. 29, citing R.1051-56, 1062.) The first reference is to the February 4, 2009 transcript, in which the JHO issued its only discovery order and simultaneously decreed that even the slightest deficiency in defendants’ responses would result in the ultimate sanction. At this time the trial court also announced that there would be no opportunity to correct any deficiency. (R.1051-57.) The second reference is to the February 25, 2008 transcript, at which time the lower court, without hearing any arguments, and based entirely on a pre-motion letter by Respondents which merely sought depositions to address the issue of compliance, referred the issue of discovery compliance to the Referee. (Merrill Br. 3 29-30, citing R. 1062.) Quoting the relevant sections of the transcript in their entirety: As I understand it the attorneys for the plaintiff maintain that the defendants have not complied with the discovery demands that were served. I am referring that issue 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. So at this point I am just marking the case referred to a referee. (R.1062.) The remainder of Merrill’s argument that appellants’ conduct was willful and contumacious focuses once again on the unrelated “package” issue, which is not only factually irrelevant but also a legally deficient basis for CPLR § 3126(3) sanction. See Lowitt v. Korelitz, 152 A.D.2d 506, 507-8, 544 N.Y.S.2d 14 (1st Dep’t 1989) (striking an answer is inappropriate when the contumacious behavior is attributable to defendant's counsel rather than to the defendant). (Internal citations omitted.) This issue is address in the opening brief (Br. 31-33) and below. 4 B. The Reasonable Excuse Set Forth by the Appellants For Their Alleged Non-Compliance Has Been Disregarded at Every Stage Without Any Explanation. It is beyond comprehension how the appellate division could infer that appellants failed to offer a “reasonable excuse” for the alleged deficiencies in responding to Merrill’s discovery demands. (R.1228.) Defendants denied that there were any deficiencies, listing the corresponding Bates numbers where responsive documents had been produced or stating that the requested documents could not be found. (R.1206-19.) Defendants also specifically addressed the production, along with an explanation of the stay order. (R.1203.) The facts in this case do not differ from prior rulings where the First Department, even when the moving party had met its initial burden of establishing willful and contumacious conduct, rejected CPLR § 3126(3) sanctions where a reasonable excuse for the alleged failure to comply is offered, including that the documents could not be located. See Palmenta v. Columbia Univ., 266 A.D.2d 90, 91, 698 N.Y.S.2d 657 (1st Dep’t 1999) (sanctions were an improvident exercise of discretion where movant failed to carry burden and reasonable excuse given). It must be remembered that appellants – the individual defendants – were only required to produce documents responsive to the claims against the company defendants. Ultimately, if the company defendants were found to have complied, and appellants’ production was limited to documents responsive to claims against 5 the company defendants, then logic dictates that appellants could not have withheld any responsive documents. This is the most conspicuous error in the referee’s report – which the appellate division failed to address in its decision. 1. Appellants Have Never Conceded That They “Produced No Documents at All.” Merrill’s entire argument to this Court is once again predicated on the same conclusory allegations and blatant misstatements of the Record. Merrill’s claim that appellants have “conceded that the [appellants] produced no documents at all” (Br. 36, citing R. 1078) is a perfect example as Merrill is here citing to its own contention in the Referee’s report, not the referee’s finding. (Id.) This argument is also beyond logic as it asks this Court to disregard defendants’ production and conclude that appellants, who have not been joined in this action and against whom discovery had been stayed, should have presumably served a separate copy of documents. This was neither part of the trial court’s order nor a finding of the referee. Merrill’s submissions to this Court fail to cite to any of the allegedly “numerous exhibits … in their possession relating to the claims at issue.” (Merrill Br. 36.) Looking at all of the “non-produced” documents identified in Merrill’s brief (Merrill Br. 36, citing R. 409-11) it should be clear how preposterous Merrill’s allegations are of willful and contumacious conduct are. The “non- produced” documents consist of: 6 1. Email from Ray Nasser to Adrianna Nasser and other family members asking for information about chartering a boat. This document does not discuss Merrill or the company defendants or have any relevance to the underlying claim in this action. (R. 409.) 2. Email from Merrill employee Edgar Kanno, in the Sao Paulo office, containing Claudia Srour’s contact information in New York. This email was blind copied to Ray Nasser, and has no relevance to the underlying claim in this action. (R. 410, translation at R. 411.) Merrill offers no other evidence to support its claims against appellants. Merrill’s citation to People v Henriques & Co., 267 N.Y. 398 (1935), in support of its claim that appellants must have documents because they managed the company defendants (Merrill Br. 36-38), is fatally flawed and fails to support their inference. Merrill fails to explain that the Henriques & Co. decision was based on evidence that the specific documents being sought existed. Id. at 404-05. In this case the alleged “non-produced” documents have not been identified by Merrill and no decision has been made that that appellants possessed such documents. Merrill also disregards that this Court reversed the sanction order in Henriques & Co., which was decided based on the Civil Practice Act which “favors adjudication of the merits over dismissing an action for discovery violation.” Id. at 409. And perhaps most important, Merrill disregards the fact that defendants in the case at bar did not maintain separate personal files for the companies – the only company files were the company files. 7 The conclusions in Merrill’s brief cannot be inferred from the referee’s report or from the unsupported decisions from the trial court and appellate division. (Merrill Br. 36-40.) Merrill simply concocts the conclusion that the Referee “rejected” appellants’ arguments (Merrill Br. 37-38) or that the Referee “decided [that depositions] were unnecessary.” (Merrill Br. 39-40.) Any question about appellants’ explanation (Br. 30-31) about where documents originated, how appellants conducted their search (of the company files or their personal files), or what documents (if any) were not produced based on the stay order, should have been determined by the referee by way of hearings and depositions. Merrill’s only request was for depositions to address these questions (R.1070; 1082-1103; 934- 35), but the referee never responded. 2. The Spangenberg Decision Spangenberg v. Chapoluka, 229 A.D.2d 482, 645 N.Y.S.2d 514 (2d Dep’t 1996), the sole legal authority cited by the referee, addresses the issue of service of process which has absolutely nothing whatsoever to do with the discovery issue that was given to the referee. Merrill now cites Hellman v. Genova, 2009 NY Slip Op. 32236(U), 2009 N.Y. Misc. LEXIS 6146 (1st Dep’t 2009), in support of Spangenberg. However, Hellman bears as little connection and relevance to the discovery reference as Spangenberg. In Hellman, an unreported Slip Opinion, JHO Gammerman referred a $25,000 attorneys’ fees issue to referee Hewitt. The 8 referee was to determine only the amount of the legal fees to be awarded to plaintiff law firm, not to determine whether a $100 million default judgment should be entered. In Hellman, Referee Hewitt actually held a hearing to determine the $25,000 legal fee issue. It was easy for Hewitt to consider and make a ruling upon all of the evidence submitted because only plaintiff appeared at the inquest. The only evidence was that submitted by the plaintiff along with plaintiff’s testimony. Id. n.2-3. In contrast, in the case at bar, defendants hotly contested every issue, provided detailed responses to the discovery requests and the alleged deficiencies, and identified issues of fact as to the relevance of the documents sought. Yet the referee never held any hearings to resolve these issues. The referee’s report fails to explain the basis of its finding that appellants failed to comply with Merrill’s discovery demands. 3. Scarlett Nasser Was Never Served With Document Demands. Scarlett Nasser was a 19-year-old attending college in Boston at all relevant times and her only connection to the company defendants is that she holds a beneficial ownership interest in the Scarlett Trust, which has an interest in the company defendant Global Strat. Merrill admits that it did not serve document demands upon Scarlett. (Merrill Br. 7-8.) This is the most obvious example of how utterly flawed the 9 lower court's decision was and the lack of judicial oversight given by the trial court, referee and the appellate division. Merrill has not once made a single allegation that Scarlett possessed any documents or acted in willful, contumacious or in bad faith. Scarlett is also not mentioned once in the Referee's report, the trial court’s decision or the appellate division’s decision. Simple logic dictates that she would not be in possession of any documents related to the company defendants. It is within this Court’s authority, in reviewing the question presented, to review the validity of judgment against Scarlett Nasser. Reliable documents and information outside the record can be considered, “even for the purposes of modifying or reversing the order under review.” 275 Linden Realty Corp. v. Caraballa, 5 Misc. 3d 32, 34 (App. Term 2004), citing Crawford v. Merrill Lynch, Pierce, Fenner & Smith, 35 N.Y.2d 291, 299, 361 N.Y.S.2d 140 (1974) (narrow exception to the general rule where plaintiff does not deny truth and acceptance would not generate factual questions). It is therefore incumbent upon this Court to exercise its jurisdiction to reverse a blatant error of law where a discovery sanction, resulting in a final judgment, is imposed against Scarlett Nasser who has never been served with document demands and does not appear in any decisions or judgments below. 10 C. Counsel Made No Willful Misrepresentation, And Misrepresentations by Counsel Are An Insufficient Basis for a Default Judgment. It was error on the part of the appellate division to impute a finding of willful and contumacious conduct based on alleged misrepresentations by appellants’ counsel. Lowitt v. Korelitz, 152 A.D.2d 506, 508, 544 N.Y.S.2d 14 (1st Dep’t 1989) (“Striking a defendant's answer is a drastic remedy and is inappropriate when the contumacious behavior or noncompliance is attributable to defendant's counsel rather than to the defendant.”) (citing Bako v. V.T. Trucking Co., 143 A.D.2d 561, 532 N.Y.S.2d 767 (1st Dep’t 1988)). To date, there has never been a finding of willful and contumacious conduct against appellants, who are simply the victims of this improper sanction. The appellate division committed reversible error in drawing “an inference of willful and contumacious conduct warranting the entry of the judgment” (R. 1228) based on counsel’s error. Merrill’s assertion that the trial court gave any credence to this error is mere conjecture and not supported by the record. Merrill improperly omits from its recitation of counsel’s explanation to the court the final exchange, which not only clarifies counsel’s statements but also shows that the trial court ultimately dismissed this issue: JHO GAMMERMAN: There was in fact no package that was ready to go on Thursday. 11 MR. MANUEL: That’s not technically correct. We had it ready. The documents were ready on the computer. JHO GAMMERMAN: Now, when is the second wave going to come? (R.1051). The trial court never discusses the alleged misrepresentations after the February 4th conference. There was no intentional misrepresentation by counsel. Counsel had believed in good faith that a package was ready for delivery or pick-up. The file was ready on the computer, but apparently the button had not been pressed to download the documents onto disks. The undersigned counsel erred, for which he apologizes, but there was no intentional deception involved, and neither the referee nor the JHO issued any order suggesting that this relatively minor mistake was of the moment that Merrill attributes to it. Even if there had been a misrepresentation, which there was not, Merrill has failed to allege let alone prove that a delivery delay of two business days caused it any prejudice or warranted a default judgment against appellants. There can be no inference that the 11,000 documents, Bates- stamped and grouped by company defendant, were somehow being secreted or deliberately withheld. The disks had simply not been cut, and that is it. 12 Merrill’s conclusory arguments regarding candor and an attorney’s duty of care (Merrill Br. 31-4) are irrelevant to the issue before this Court.1 Merrill could have requested, or the JHO could have ordered, further inquiry if the matter were of the moment that Merrill now seeks to attribute to it. D. Merrill Fails to Provide Persuasive Law to Refute Appellants’ Argument that JHO Gammerman Has Once Again Exceeded His Authority Under CPLR § 3126. The record overwhelmingly supports appellants’ argument that this case is the most egregious example in a history of erroneous default judgments issued by JHO Gammerman for discovery defaults. (Br. 34-39.) Merrill’s failure to cite repeated, willful defiance by appellants of multiple orders undercuts its attempt to present this action as analogous to the cases in which the appellate division upheld sanctions imposed by JHO Gammerman. Almost all the cases cited by Merrill involve the offending party producing no documents or willfully failing to comply with multiple warnings and discovery orders. • In Rakauskas v. Grace Olivia, LLC, 29 A.D.3d 355, 355-56, 813 N.Y.S.2d 657 (1st Dep't 2006), defendants repeatedly failed to comply with the referee's repeated directives to produce specifically identified data. The decision notes that the referee repeatedly advised defendants that she would recommend striking their answer if they did not provide the documents. 1 These conclusory allegations are also legally improper since they have not been previously alleged. See, e.g., A.G. Ship Maintenance Corp. v Lezak, 69 N.Y.2d 1 (1986). 13 • In Bear, Stearns & Co., Inc. v. Enviropower, LLC, 21 A.D.3d 855, 856, 804 N.Y.S.2d 54 (1st Dep't 2005), the decision highlights that “the court repeatedly warned defendant that its answer might be stricken if it did not produce the demanded documents.” • Zapco 1500 Inv. L.P. v. Wiener, 299 A.D.2d 206, 206, 749 N.Y.S.2d 138 (1st Dep't 2002), addresses preclusion, not an order striking out pleadings. In Zapco the plaintiff failed to comply with three discovery orders resulting in a preclusion order that rendered plaintiff unable to establish a prima facie case and justified dismissal of the complaint. • Stark v. Reliance Nat'l Indem. Co., 273 A.D.2d 148, 148, 710 N.Y.S.2d 893 (1st Dep't 2000), and Hot & Tasty Corp. v. IOB Realty Inc., 270 A.D.2d 67, 67, 704 N.Y.S.2d 816 (1st Dep't 2000), are both void of any discussion of the facts. In Stark, this Court found that the referee’s report was property confirmed since it was “amply supported by the record, and, in light of the clear proof of plaintiffs’ willful noncompliance with discovery obligations.” In Hot & Tasty, sanction were appropriate were plaintiff “deliberately failed to comply with discovery orders despite numerous opportunities to do so and warnings of the consequences of non-compliance.” • In Gutierrez v. Bernard, 267 A.D.2d 65, 66, 699 N.Y.S.2d 396 (1st Dep't 1999), sanctions were appropriate where defendant failed to provide any documents, despite receiving multiple opportunities to comply, including a hearing during which the defendant refused to provide information related to the unproduced documents. • In Stanfill Plumbing & Heating Corp. v. Dravo Constructors, 216 A.D.2d 101, 101, 627 N.Y.S.2d 689 (1st Dep't 1995), sanctions were appropriate where plaintiff repeatedly failed to comply with multiple court orders directing responses to interrogatories. • In Lehman Gov't Sec. v. Enhanced Treasury Returns Corp., 216 A.D.2d 255, 255, 629 N.Y.S.2d 13 (1st Dep't 1995), sanctions striking defendants’ answer were appropriate where defendants repeatedly refused to comply with court orders to produce their expert witness and documents. 14 • In Federal Deposits Ins. Corp. v. Allcity Ins. Co., 228 A.D.2d 275, 275, 644 N.Y.S.2d 36 (1st Dep’t 1996), sanctions were appropriate where plaintiff failed to respond to interrogatories or provide an excuse for the repeated failure to comply with discovery obligations. • In Turk Eximbank-Export Credit Bank of Turkey v. Bicakcioglu 81 A.D.3d 494, 494, 916 N.Y.S.2d 502 (1st Dep’t 2011), (which is distinguished in the opening brief (Br.26-27)), the $77,000 sanction was appropriate based on defendants’ “repeated failure to offer a reasonable excuse for their noncompliance with discovery requests, gives rise to an inference of willful and contumacious conduct.” In this case, defendants produced approximately 11,800 pages of documents plus scores of pages of complete (and unchallenged) interrogatory answers from each defendant. (R. 327-41, 606-700.) Furthermore, prior to entering a default judgment against appellants, the court issued only one warning, simultaneous with its only discovery order. E. Assuming, Arguendo, That Any Sanction Was Warranted, This Default Judgment Was Legally Improper and Grossly Excessive. JHO Gammerman failed to give a single warning of lesser sanctions, or even reconsider the magnitude of his warning before confirming the referee’s report and entering a default judgment against appellants without any review or analysis of his own. (R.522.) This was clear error perpetuated by the appellate division. A sanction “should be commensurate with the nature and extent of the disobedience.” Christian v. City of New York, 269 A.D.2d 135, 137, 703 N.Y.S.2d 5 (1st Dep’t 2000). CPLR § 3126 provides a range of options for a court to utilize 15 in addressing disobedience of a discovery order. Orlando v. Arcade Cleaning Corp., 253 A.D.2d at 363 (the court should have made specific rulings on movant’s objections instead of striking answer). Where non-disclosure would not prejudice the demanding party, then a lesser sanction, or no sanction, is appropriate. Marks v. Vigo, 303 A.D.2d 306, 307, 756 N.Y.S.2d 568 (1st Dep't 2003) (the moving party “failed to substantiate any claim of prejudice and remaining belated discovery responses did not warrant outright dismissal of the complaint, particularly in view of counsel’s explanation.”). The most extreme sanctions permissible under CPLR § 3126(3) are not appropriate when compliance with a discovery order can be shown to be impossible or if striking a pleading provides the opposing party with more relief than is necessary to protect its interests. See CPLR § 3126, Commentary C3126:10; Islar v New York City Bd. of Educ., 64 AD3d 405, 406, 882 N.Y.S.2d 110 (1st Dep’t 2009) (court exercised discretion in imposing a lesser sanction than that requested where excuses given). Merrill fails to address this issue in its brief, presumably to preserve this improper judgment that clearly grants much more relief for the alleged nondisclosure than is reasonably necessary to protect any interests that Merrill may claim. 16 PART TWO: JURISDICTION THE DECISION SHOULD BE REVERSED AND THE COMPLAINT SHOULD BE DISMISSED AS AGAINST ALBERT NASSER, WHO IS NOT SUBJECT TO NEW YORK JURISDICTION. Albert Nasser is not subject to New York jurisdiction under CPLR § 302(a)(1) and it was error for the appellate division to reverse the lower court’s order which had granted Albert Nasser’s motion to dismiss. In order to determine whether personal jurisdiction exists under CPLR § 302(a)(1), “a court must decide (1) whether the defendant ‘transact[ed] any business’ in New York and, if so, (2) whether [the] cause of action ‘aris[es] from’ such a business transaction.” Licci v. Lebanese Can. Bank, 20 N.Y.3d 327, 334 (2012) (internal citations omitted). The court must examine the particular facts in each case, looking not only at what facts constitute “purposeful availment,” which is an objective inquiry, but also at the quality of defendant’s contacts. Id. at 338 (citing Fischbarg v. Doucet, 9 N.Y.3d 375, 380, 849 N.Y.S.2d 501 (2007)).2 The decision of the appellate division was based on inaccurate statements and unsupported facts, and if left unchanged it would improperly expand the reach of CPLR § 302(a)(1). 2 For a full recitation of the legal standards for long-arm jurisdiction under CPLR § 302(a)(1), see Br. 41-44. 17 A. Merrill Failed to Carry Its Burden and the Record Does Not Support the Appellate Division’s Holding. In our opening brief we argued that Merrill failed to establish a prima facia case of personal jurisdiction over Albert Nasser. Neither the few alleged telephone calls between Albert Nasser and Merrill (Br. 45-50), nor the March 18, 2008 meeting held by Merrill in New York, during which Albert Nasser was on the telephone in Argentina (Br. 50-53), was purposeful activity by Albert Nasser that would satisfy the statutory requirements to establish jurisdiction under CPLR § 302(a)(1). See Barington Capital Group v. Arsenault, 281 A.D.2d 166, 721 N.Y.S.2d 58 (1st Dep’t 2001) (five phone calls to plaintiff’s office in New York to place orders for the purchase of stock did not constitute purposeful activity); Seneca Ins. Co. v. Boss, 256 A.D.2d 175, 175, 681 N.Y.S.2d 529 (1st Dep’t 1998) (meetings attended by defendant at plaintiff’s New York office did not amount to purposeful activity). Merrill has failed to address this issue in its brief, and it has not disputed the arguments raised in the opening brief that the allegations are based on the opinion of their counsel without any supporting evidence in the record. (Br. 45-46.) The telephone calls and the meeting were unilateral acts initiated or carried out by Merrill, and they are legally insufficient to establish intent by Albert Nasser to avail himself of the privilege of transacting business in New York. Corporate Campaign, Inc. v. Local 7837, United Paperworkers Intern. Union, 265 18 A.D.2d 274, 275, 697 N.Y.S.2d 37 (1st Dep't 1999) (jurisdiction cannot be predicated solely on the plaintiff's acts within the state). Merrill has failed to refute the central legal and factual arguments raised in the opening brief. The first eight paragraphs in Merrill’s argument are limited to unsupported, conclusory statements. (Merrill Br. 46-50.) The case law and limited references to the record by Merrill simply fail to support the appellate division’s holding that Merrill satisfied its burden under CPLR § 3211(a)(8) that Albert Nasser transacted business in New York giving rise to the case of action. Noticeably missing from Merrill’s brief are any facts or citations to the record that refute the facts recited in the opening brief or that would support the finding of “purposeful activity” by Albert Nasser. Merrill’s single argument that Albert’s presence in Argentina during the March 18, 2008 meeting “is not determinative of whether he is subject to personal jurisdiction” (Merrill Br. 49) fails to address the central issue of whether Albert’s involvement in this meeting satisfies the statutory requirements of CPLR § 302(a)(1). Merrill admits that the meeting was held “to discuss the events” (Merrill Br. 5) but Merrill does not recite one word spoken by Albert Nasser in the “discuss[ion],” and Merrill makes no supported claim that would refute our argument that this meeting did not rise to the level of purposeful activity. See Seneca, 256 A.D.2d at 175. 19 Albert Nasser cannot be subject to New York long-arm jurisdiction when Merrill, the very entity which would have carried out the alleged transactions that jurisdiction is being predicted upon, is unable to reference a single document or a single spoken word, among the one thousand, two hundred and forty five pages in the record, even suggesting, let alone proving, that Albert Nasser transacted business in New York. B. Albert Nasser’s Actions Do Not Amount to a Purposeful Transaction Under CPLR § 302(a)(1), And Merrill’s Failure to Support this Threshold Issue Highlights the Error in the Appellate Division’s Decision. Merrill’s brief recital of general case law regarding long-arm jurisdiction under CPLR § 302(a)(1) bypasses any application of the “purposeful activities” identified in those cases to the facts in this case. Merrill generally cites the same case law already distinguished in our opening brief without any counter-argument. As set forth in the opening brief, in each of the cases cited the court was able to impute personal jurisdiction over the out-of-state defendant based on specific purposeful actions taken by the defendant within the state. In Deutsche Bank Sec., Inc. v. Montana Bd. of Investments, 7 N.Y.3d 65, 71- 72, 818 N.Y.S.2d 164 (2006), an out-of-state investor sought out, initiated and pursued negotiations with plaintiff’s New York based securities broker and thereafter engaged in negotiations over the next thirteen months. Id. at 71. In Fischbarg, the out-of-state defendant engaged a New York-attorney in the 20 “purposeful creation of a continuing relationship.” Id. at 380-81. In Ehrlich-Bober Kulas v. Adachi, 1997 WL 256957 (S.D.N.Y. 1997), defendant University of Houston sought out a New York-based securities broker and executed 22 separate transactions, including one transaction made by defendant’s employee while present in plaintiff’s New York office during one of several visits to New York. Id. at 577. This court’s decision in Ehrlich-Bober is also distinguished as it was based on principles of comity. However, Albert Nasser did not seek out or contract with a New York-based securities broker. Contacting Merrill’s previously São Paulo-based financial advisor in New York, after she was moved by Merrill, to carry out the same transactions she had performed while located in São Paulo, is not tantamount to taking advantage of a benefit particular to New York, such as the New York bond market particularly sought in Deutsche Bank, the individual attorney’s services sought in Fischbarg, or the unique commercial resources identified in Ehrlich- Bober. Merrill’s critique of Longines-Wittnauer Watch Co. v. Barnes & Reinecke, Inc. 15 N.Y.2d 443, 456-57, 261 N.Y.S.2d 8 (1965) is simply ludicrous since “purposeful activity” is the basis for demonstrating a “transaction” within the meaning of CPLR § 302(a)(1). (Merrill Br.53.) In Longines, this court held that the “transact[ion of] any business within the state,” as expressed by the Advisory 21 Committee, was to apply to a non-resident defendant who had engaged in some purposeful activity in this state in connection with the matter in suit. See N.Y. Advisory Comm. Rep. (N.Y. Legis. Doc. 1958, No. 13) at 39-40; see also, 1 Weinstein-Korn-Miller, N.Y. Civ. Prac. ¶ 302.06. Finally, comparing this case to the facts in Licci v. Lebanese Canadian Bank, SAL, 20 N.Y.3d 327 (2012), which deals with terrorist feeder accounts, is baseless. (Merrill Br. 53-55.) In Licci, this Court held that defendant’s “purposeful” acts of seeking out a New York bank account “on behalf of a client” was, in effect, a “course of dealing” sufficient to show 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. Id. at 339 (internal citations omitted). Licci and Merrill’s unsupported allegations fail to overcome the argument that Albert did not seek out a New York-based account, when in fact the Inversiones account was opened and operated in São Paulo. Licci is further distinguished by the fact that Albert did not receive any benefit from the account being held and traded in New York. 22 C. Merrill Fails to Rebut the Argument that the Alleged Trades, Inferred by Merrill’s Counsel, Fail to Establish Purposeful Transactions By Albert Nasser, Sufficient to Satisfy Personal Jurisdiction Under CPRL § 302(a)(1). The appellate division’s misinterpretation of the facts in this case can be inferred from Merrill’s inability to provide any evidence in the record in support the appellate division’s finding that Albert’s actions met the requisite “purposefully activity” needed to impute personal jurisdiction under CPLR § 302(a)(1). Merrill cites to the record ten times in the fourteen pages addressing jurisdiction. (Merrill Br.46-60.) Not a single reference addresses the allegations of transactions conducted through Merrill’s New York office during the first three months of 2008 or at the March 2008 telephone conference. Two of the nine references are to the decision by the appellate division. (R.1229, cited at Merrill Br. 52, 60.) Merrill actually cites the decision to support its argument that the decision was appropriate. The remaining eight references are to affidavits of Merrill employees, submitted in support of Merrill’s opposition to appellants’ motion to dismiss the complaint.3 First, the Affidavit of Ricardo Morean, dated April 16, 2008 (R. 519, cited at Merrill Br. 49, 57) only goes as far as claiming that on March 18, 2008 Merrill 3 The Affidavits of Ricardo Morean and Renata Schop-Klein were originally submitted in support of Merrill’s failed attempt to freeze appellants’ personal accounts at the beginning of this action. (R.81-142.) 23 demanded payment from the company defendants at a meeting which Albert Nasser attended by teleconference. It does not claim that Albert Nasser transacted business at this meeting but does serve as an admission that Albert Nasser attended the meeting on behalf of Inversiones, and not personally. (R. 519 ¶ 9.) Second, the Affidavit of Renata Schop-Klein,4 dated April 25, 2008 (R.498-500, cited at Merrill Br. 48-49, 57 n. 20), addresses the formation and activity of company defendants Inversiones and Saluc between 2005 and 2007, in a failed attempt to establish Albert Nasser’s personal liability for Inversiones’s losses. There is no mention of any activity in 2008. Third, the Affidavit of Robert Zavell, dated October 31, 2008 (R. 569, cited at Merrill Br. 54) is improper and the related arguments by Merrill are dishonest, based on Mr. Zavell’s own statement that he only serviced the accounts of Ezequiel and Raymond Nasser. (R.70, ¶ 3.) Neither Albert Nasser nor Inversiones nor Saluc is mentioned once in Mr. Zavell’s affidavit. This affidavit refutes any inference that Inversiones and Saluc transacted business in New York. Merrill’s brief fails to address, let alone refute, any of the factual arguments raised in our opening brief specific to the alleged five telephone calls, including: • That these alleged five telephone calls were based on an unsupported opinion by their counsel. (Br. 45-6.) This includes no explanation of the alleged documents their counsel relied on in reaching his opinion that, 4 Renata Schop-Klein was fired by Merrill days after signing this affidavit. 24 “during the period from December 2007 through April 2008 there were … five (5) calls between Albert Nasser and Ms. Srour.” (R. 383). As previously noted, even if counsel’s statements were accepted as truth, the five alleged telephone calls do not establish the requisite purposeful activity sufficient to establish jurisdiction over Albert Nasser. Barington, 281 A.D.2d at 166 (five phone calls to plaintiff’s office in New York to place orders for the purchase of stock were not sufficient purposeful activity to support personal jurisdiction). • That Albert did not seek out New York and conversely that the accounts were never actually transferred to New York after the broker was relocated (Br. 47-50). The record is silent as to the exact date in February on which Merrill claims that the corporate accounts were transferred from Brazil to New York. It has been argued that the accounts could not have been in New York, if at all, for longer than a month and a half, not the three months claimed by Merrill and simply repeated by the appellate division. (Br. 48, n.10.) Merrill’s bare conclusory allegations5 that defendants knew the accounts were being transferred or that they could have pulled the accounts from Merrill are not only meritless but undercut by the affidavit of Albert Nasser (R. 1231-235) and the evidence in the record indicating that the accounts were never transferred after Merrill relocated their financial advisor. (R. 1238-44.) As clearly set forth in Albert Nasser’s sworn affidavit, it was his understanding and belief that “even after Merrill Lynch transferred to New York its financial advisor, Claudia Srour, the corporate accounts … remained with the São Paulo Merrill Lynch Branch.” (R. 1232 ¶ 4.) Merrill’s unsupported, conclusory claims also fail to account for the 5 Let us respectfully tell it like it is: The allegations are nonsense. 25 fact that had the accounts been moved, they would have resulted in numerous early termination penalties. Merrill’s arguments in the footnote on page 57 are directly refuted in the sworn affidavit of Albert Nasser (R. 554-63), which was submitted in opposition to Merrill’s failed attempt to attach his personal assets. This same affidavit supports the very arguments made in our opening brief (Br. 48-49) which Merrill is attempted to refute. Conversely, Merrill’s arguments are beyond the review of this court as they related to certain documents, which presumably would be in Merrill’s control, yet are absent from the record. E.g., Acme Bus Corp. v. Board of Educ. of Roosevelt Union Free Sch. Dist., 91 N.Y.2d 51, 56 n.1, 666 N.Y.S.2d 996 (1997). The omission of any arguments or evidence regarding the alleged transactions, which should be readily accessible to Merrill, not only validates those arguments but also strongly suggests that the decision of the appellate division is erroneous. D. Merrill Does Not Dispute That Albert Nasser’s Involvement in the March 18, 2008 Meeting Was Not Purposeful and Does Not Satisfy Personal Jurisdiction Under CPRL § 302(a)(1). Merrill admits in its opposition brief that the purpose of the March 18, 2008 meeting was “to discuss the events that are the subject of the underlying litigation.” (Merrill Br.5.) There is no mention of any transactions by Albert Nasser during this meeting and other than two bare statements that Albert participated by 26 telephone from Argentina, Merrill’s brief is silent as to the events that took place during this meeting. The Affidavit of Ricardo Morean, cited by Merrill as evidence of the March 18, 2008 meeting (Merrill Br. 49, 58), does not claim that any transactions were carried out during the meeting. (R. 519.) Nor does it refer to one word spoken by Albert Nasser during this meeting. The only probative value this affidavit has is as an admission that Albert Nasser attended the meeting on behalf of Inversiones; not in his individual capacity. (Id.) Merrill does not refute or distinguish any of the case law offered in opposition to the appellate division’s flawed conclusion that Albert Nasser’s participation in the March 18, 2008 meeting (by telephone from Argentina), satisfies the statutory requirements of CPLR § 302(a)(1). (Br. 50-52.) 6 Merrill also does not dispute that there is no nexus between Albert’s presence at the meeting, by telephone, and the causes of action alleged in this action.7 (Br. 52-53.) Merrill does attempt to distinguish Corporate Campaign, 265 A.D.2d 274, 697 N.Y.S.2d 37 (1st Dep’t 1999), but fails to distinguish any of the facts and provides 6 Libra Global Tech. Servs. (UK) v. Telemedia Int’l., 279 A.D.2d 326, 327, 719 N.Y.S.2d 53 (1st Dep’t 2001) (corporate defendant did not “project” itself into New York for jurisdictional purposes via a 45-minute video-conference); C-Life Group Ltd. v. Generra Co., 235 A.D.2d 267, 267, 652 N.Y.S.2d 41 (1st Dep’t 1997) (45-minute meeting in New York that was exploratory in nature, leading to nothing more than a proposal that was later negotiated, was insufficient to constitute the transaction of business under CPLR 301(a)(1)). 7 Seneca Ins. Co., Inc. v. Boss, 256 A.D.2d 175, 175, 681 N.Y.S.2d 529 (1st Dep’t 1998) (presence at plaintiff’s New York office did not amount to purposeful activity). 27 a flawed conclusion which is inapposite to appellants’ arguments. (Compare Br. 42 and 52; Merrill Br. 50-51.) The Appellate Division should have followed its prior decision in C-Life Group v. Generra Co., 235 A.D.2d 267, 267, 652 N.Y.S.2d 41 (1st Dep’t 1997), where the court found that the meeting that took place in New York, which was “clearly exploratory in nature, leading to nothing more than a proposal that was itself the subject of further negotiations over the phone, by mail, and in meetings outside of New York” did not amount to a transaction of business from which the cause of action arose. As in C-Life, the March 18, 2008 meeting in New York was unquestionably exploratory in nature (Merrill Br. 5) and no transactions were completed by Albert Nasser or Inversiones at that time. E. The Appellate Division’s Reliance on Kreutter v. McFadden Is Misplaced and There is No Basis for Imputing Personal Jurisdiction Over Albert Nasser Based on Agency Theory. The Appellate Division erred in its unexplained citation of Kreutter v. McFadden Oil Corp, 71 N.Y.2d 460, 527 N.Y.S.2d 195 (1988), as the sole precedent for personal jurisdiction. The facts in Kreutter are fundamentally different from those in the present case. In Kreutter, an individual – a primary actor in an undisputed business transaction within New York – was held subject to New York jurisdiction on the basis of his transaction of business in New York, taken on behalf of a non-domiciliary corporation also transacting business in New 28 York. Effectively, this Court declined to extend the “fiduciary shield” doctrine based on facts contained in the record identifying sufficient contacts with New York. Id at 470. However, in the present case, Merrill claims that a non- domiciliary individual who has not transacted business in New York should nevertheless be subject to New York jurisdiction because of the alleged actions of his non-domiciliary affiliate corporation, which also did not transact business in New York. Thus, it is unclear how the appellate division extended the holding of Kreutter, with its rejection of the doctrine of “fiduciary shield,” to the present facts. Merrill has failed to demonstrate that Inversiones engaged in purposeful activities in New York in relation to the underlying transaction for the benefit of and with the knowledge and consent of Albert Nasser, and that Albert Nasser exercised some control over the corporation in the matter. Merrill also continues to improperly characterize the company defendants as “personal holding companies” (cf. R. 149-51.) to support its claim. This is yet another flaw in the appellate division’s decision, blindly accepting Merrill’s self- serving and unsupported characterizations as truth. This is especially baffling given the court’s prior ruling to uphold the trial court decision vacating Merrill’s attempt to attach appellants’ personal accounts. (R.106.) A decision that was supported by a sworn affidavit from Albert Nasser directly refuting this unfounded 29 characterization was part of the record before the appellate division. (R. 554-63, ¶¶ 13-26) As the trial court stated at that time, the simple fact is that every corporation must act through individuals, and if the corporation is closely held, there will be few individuals through whom it can act, but that does not justify a finding that the company defendants were “personal holding companies.” (R. 203- 04.) And almost five years later, Merrill has still failed to put forth any evidence that would suggest that the corporate reality of Inversiones should be rejected as a sham cover for an individual. Walkovszky v. Carlton, 18 N.Y.2d 414, 418, 276 N.Y.S.2d 585 (1966). 30 31 CONCLUSION The appellate division’s affirmance of a $99 million default judgment as a sanction for an alleged discovery default is a gross injustice which, we respectfully submit, must be corrected. The appellate division’s error in reversing the dismissal of Albert Nasser in this case would create a precedent that would vastly, and unjustly, expand the personal jurisdiction of the New York courts beyond the scope envisioned by the long-arm statute and the Due Process Clause. We respectfully ask this Court to correct that error. Dated: April 12, 2013 Respectfully submitted, ______________________________ Charles B. Manuel, Jr. Robert A. Rosenberg SHIBOLETH LLP One Penn Plaza, Suite 2527 New York, New York 10019 T: 212.244.4111 F: 212.563.7108 CharlesM@Shiboleth.com Robertr@Shiboleth.com Attorneys for Defendants-Appellants Ezequiel Nasser, Raymond Nasser, Albert Nasser and Scarlett Nasser