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JSC FOREIGN ECONOMIC ASS. v. INT. DEVELOPMENT AND TRADE

August 16, 2005.

JSC FOREIGN ECONOMIC ASSOCIATION TECHNOSTROYEXPORT, Plaintiff,
v.
INTERNATIONAL DEVELOPMENT AND TRADE SERVICES, INC., et al., Defendants.



The opinion of the court was delivered by: ANDREW PECK, Magistrate Judge

OPINION AND ORDER

Plaintiff JSC Foreign Economic Association Technostroyexport ("JSC") submitted Proposed Findings of Fact and Conclusions of Law to further support this Court's prior award from the bench of attorneys' fees against defendant Brigette R. Jossem ("Jossem") for failing to produce relevant documents in response to JSC's discovery requests. Defendant Jossem filed an Opposition to Plaintiff's Proposed Findings of Fact and Conclusions of Law. (Dkt. No. 427.)

For the reasons set forth below, the Court awards plaintiff JSC attorneys' fees of $108,946 against Jossem pursuant to Fed.R.Civ.P. 37 and, to the extent necessary, the Court's inherent power. FINDINGS OF FACT

  JSC seeks sanctions against Jossem for failing to produce documents concerning, inter alia, Jossem's involvement with Christie's, the famed auction house.

  Jossem has been a regular customer of Christie's since approximately 1993, when she began to make auction purchases with money that JSC alleges was looted by Jossem's mother, defendant Edith Reich, from defendant IDTS. (See JSC Findings of Fact ["FOF"] ¶ 1.)*fn1 In July 1996, four months after the arbitration awards in the underlying case between JSC and defendant IDTS became final, Jossem, who until that time maintained a Christie's account in her own name, directed Christie's to use the name Burnett Trading Ltd. for all future transactions. (JSC FOF ¶ 2; Tiska Aff. Ex. 2: Dep. Ex. Christie's 19.) Jossem told Christie's that the name change was an "extremely urgent matter" and directed that the name Jossem "should not be associated with any stock number whatsoever" in Christie's computerized files. (Tiska Aff. Ex. 2: 7/11/96 Christie's Message.) From 1996 until the end of 2003, Jossem, using the name Burnett Trading, sold items at Christie's for more than $9.1 million and made purchases of about $1.7 million. (JSC FOF ¶ 3 n. 2; Tiska Aff. Ex. 4: Christie's Sale Summaries.) On October 16, 2003, JSC served its first request for production of documents in this action. (JSC FOF ¶ 4; Tiska Aff. Ex. 7: JSC First Request for Production of Documents.) Among other things, JSC requested the following:
58. All documents concerning any purchase or sale by Reich, Jossem or Barnett Trading through Christie's or Sotheby's.
. . . .
92. Documents sufficient to identify all artwork, jewelry or other items purchased or sold by Reich, Jossem or B[u]rnett Trading through Christie's or Sotheby's.
. . . .
94. Documents sufficient to show the disposition of funds received by Reich, Jossem or B[u]rnett Trading for any sale of artwork, jewelry or other item through Christie's or Sotheby's.
(Id.)

  On November 12, 2003, a little over a month after the first discovery request, Jossem stopped using the name Burnett in her dealings with Christie's and entered into a new consignment agreement under the name Hackney Group Limited ("Hackney"). (JSC FOF ¶¶ 5-6; Tiska Aff. Ex. 9: Hackney Consignment Agreement.) In December 2003, Jossem attempted to consign belongings from her East 72nd Street residence to Christie's under the Hackney name, with the help of one of her foreign attorneys, Michael Shine. (JSC FOF ¶ 7; Tiska Aff. Ex. 3: McGorry Dep. at 71-73.) In light of this lawsuit, however, Christie's declined to enter into the agreement with Hackney, and Jossem was forced to use her own name in the transaction. (Id. at 71-73, 75-76; Triska Aff. Ex. 12: 1/15/2004 Jossem Consignment Agreement.) In January 2004, Jossem met with Edward McGorry and Simon Teakle, executives at Christie's, and informed them that "she was going to be consigning property to Christie's over the course of the next few months, and would like an advance against those funds." (JSC FOF ¶ 9; Tiska Aff. Ex. 3: McGorry Dep. at 54, 66.) A few days after the meeting with McGorry and Teakle, Jossem met with Melissa Gagen, a Christie's representative, to show her the furniture that she wished to consign, as well as the receipts for the many pieces she had purchased at Sotheby's auctions in England in 1993. (JSC FOF ¶ 10; Tiska Aff. Ex. 3: McGorry Dep. at 104-05; Tiska Aff. Ex. 13: Gagen Aff. ¶ 4.) Gagen told Jossem in a January 24, 2004 letter that Christie's would include most of Jossem's items in furniture auctions scheduled for April 8 and May 19, 2004. (Tiska Aff. Ex. 14: Gagen Letter.)*fn2

  Despite an Order to Show Cause for an attachment order signed by Judge Koeltl on February 3, 2004 and sent to counsel for Jossem that day, on February 4, 2004, Jossem arranged for another Christie's advance for $275,000 against twenty-one pieces of furniture. (JSC FOF ¶ 12; Tiska Aff. Ex. 15: 2/4/2004 Advance.) On February 10, 2004, Jossem's counsel Shine sent Christie's McGorry an e-mail providing him with "the bank co-ordinates for remitting the advance proceeds from time to time in the current situation," and directed Christie's to wire the funds to an account in the name of "Herzog, Fox Neeman" at the United Mizrahi Bank in London. (JSC FOF ¶ 13; Tiska Aff. Ex. 16: 2/10/2004 Shine e-mail; Tiska Aff. Ex. 3: McGorry Aff. at 158-60.) On February 12, 2004, Christie's wired $275,000 to the Herzog, Fox Neeman's London account. (JSC FOF P13; Tiska Aff. Ex. 17.) No documents concerning these transactions were produced to JSC by Jossem. (JSC FOF ¶ 13.) Herzog, Fox Neeman is defendants' Israeli law firm, which acted more as a banker than as counsel.

  Over the next month, Jossem continued to dispose of her property through Christie's, receiving another advance of $165,000 which Christie's wired to the Herzog, Fox Neeman account. (JSC FOF ¶ 14; Tiska Aff. Ex. 17.) On March 13, Judge Koeltl issued the Attachment Order and notified counsel for Jossem. (JSC FOF ¶ 15; Tiska Aff. Ex. 21: 3/13/04 Attachment Order.) However, on March 17, 2004, Jossem ignored the order and consigned jewelry and art to Christie's and arranged for yet another advance of $180,000 from Christie's into the Herzog, Fox Neeman account. (JSC FOF ¶ 15; Tiska Aff. Ex. 3: McGorry Dep. at 139-40, 141-43; Tiska Aff. Ex. 22: 3/17/2004 Advance.) All told, Christie's paid Jossem $970,000 in advances under the January 15, 2004 Consignment Agreement, all of which Christie's wired overseas at Jossem's direction to accounts not in Jossem's name. (JSC FOF ¶ 15; Tiska Aff. Ex. 22.)

  On April 2, 2004, the United States Marshal Service served Jossem with the Attachment Order. (JSC FOF ¶ 16; Tiska Aff. Ex. 23: 4/2/2004 Attachment Order.) On April 8, Jossem allowed Christie's auction of her furniture to go forward and two of her items were sold, although the funds remain at Christie's pursuant to an agreement among Christie's, JSC and defendants in connection with this suit. (JSC FOF ¶ 16; Tiska Aff. Ex. 26: 2d Am. Garnishee's Statement; Tiska Aff. Ex. 27, Ex. A: 4/16/2004 Christie's Agreement.) After JSC had learned that Jossem had consigned property to Christie's, supplemental discovery requests were served on Christie's, which led to the production of approximately 3,000 documents relating to Christie's dealings with Jossem, Burnett, and Hackney. (JSC FOF ¶ 17.) On April 20, 2004, JSC served its second request for production of documents on Jossem. (JSC FOF ¶ 17; Tiska Aff. Ex. 28.)

  JSC also filed an ex parte motion for a supplemental order in aid of the attachment order, which Judge Koeltl granted, authorizing JSC and the U.S. Marshal to seize Jossem's personal property at her East 72nd Street Manhattan apartment and her home in Amagansett. (JSC FOF ¶ 18.) During the seizure, JSC's counsel found "hundreds of documents relating to transactions between Ms. Jossem and various auctions houses, including Christie's and Sotheby's. Some of those documents involved or related to Burnett Trading. . . . Ms. Jossem has never produced any documents in this action regarding her transaction with Christie's, Sotheby's or any other auction house. No documents concerning Ms. Jossem's dealings or involvement with Christie's, Sotheby's or Burnett were produced to [JSC] in this action before Christie's April 2004 production." (Tiska Aff. Ex. 29: Dunn Aff. ¶ 19.) Defense counsel, however, prevented JSC's counsel from taking the documents found in the apartment.

  On May 14, 2004, JSC moved for an order holding Jossem in contempt based on her violations of the attachment order and seeking sanctions for her failure to produce documents; Judge Koeltl referred that motion to this Court. (Tiska Aff. Ex. 1: 5/14/2004 Koeltl Conf. at 15-18.) At the May 21, 2004 conference before this Court, JSC raised Jossem and Reich's failure to produce the responsive documents found in defendants' Manhattan apartment — in essence, seeking to compel the production of the Apartment Documents. (Dkt. No. 197: 5/21/2004 Peck Conf. Tr.; see JSC FOF ¶ 20.) During the conference, this Court ordered that (1) any assertion of the Fifth Amendment by defendants "needs to be a sufficiently asserted Fifth Amendment privilege that the court can rule on, not just a blanket, I assert the Fifth now, find me 6 weeks later . . ."; and (2) to the extent any of the documents in the apartment were covered by JSC's first document request, all objections were "waived . . . no new objections so to speak." (Id. at 11-12, 21; see JSC FOF ¶ 20.)

  On June 14, 2004, however, Jossem's counsel (David Newman of the firm Sonnenschein Nath & Rosenthal) submitted a letter to the Court on behalf of Jossem and Reich, stating simply:
My clients object to the requests to the extent that they seek documents or information that might tend to incriminate them and whose required production would violate their constitutional rights pursuant to the Fifth Amendment of the United States Constitution.
  In light of the foregoing, my clients will not be producing any documents at this time. (Tiska Aff. Ex. 31: 6/14/2004 Newman Letter; see JSC FOF ¶ 21.) The letter, obviously, did not comply with the Court's directive.

  The issue was next raised at the June 28, 2004 conference with the Court. (See 6/28/04 Peck Conf. Tr.; see also Dkt. No. 378: Kawatra Aff. Ex. A: 6/24/04 Tiska Letter to Court.) Because JSC asserted that Jossem's predecessor counsel waived any Fifth Amendment privilege, the Court required Jossem to submit an affidavit from predecessor counsel as to whether the Fifth Amendment privilege was asserted or waived in conversations with JSC's counsel in response to the first document requests. (Dkt. No. 292: Delfin Aff. Ex. B: 6/28/04 Peck Conf. Tr. at 6-8.) Jossem's counsel also was directed to personally review the thousands of withheld Apartment Documents and put in further submissions supporting the Fifth Amendment assertion. (Id. at 10-12, 16-18.) The Court also specifically warned Jossem's counsel that if the Court had to review many documents to see if the privilege claim was valid and if Jossem lost on the issue, Rule 37 cost sanctions would be imposed. (Id. at 18.) After that conference, JSC submitted additional information which the Court required Jossem's counsel to respond to. (Delfin Aff. Ex. C: 7/2/04 Memo Endorsed Order.) The Court also directed Jossem to provide a formal privilege log and to provide the withheld Apartment Documents to the Court for in camera review. (Delfin Aff. Ex. D: 7/12/04 Memo Endorsed Order.)

  At the next conference, on July 15, 2004, this Court again took up the issue of the four boxes of Apartment Documents that defendant Jossem was declining to produce on Fifth Amendment grounds. (See generally Delfin Aff. Ex. E: 7/15/04 Peck Conf. Tr. at 17-28.) The Court noted that based on its review of one box of withheld documents, many of the documents appeared to be corporate documents, and corporations have no Fifth Amendment privilege. (Id. at 17-18.) The Court noted that Jossem's "privilege log" was not sufficient to support her Fifth Amendment claim. (Id. at 19.) When Jossem's counsel responded that while a "lot of these documents, as you are aware, appear to be corporate documents because of the letterhead. . . . But the fact of the matter is is that this is an alter ego case and possession —" (id. at 22-23), the Court responded that "[w]hat you are basically saying is if I [order you to] produce any of these documents I may help prove the plaintiff's [alter ego] case," but that is not a basis to assert the Fifth Amendment. (Id. at 23.) Because Jossem's prior counsel, Williams & Connolly, had represented in response to the first document request that no documents were withheld on the basis of the Fifth Amendment privilege, the Court ruled that it needed an affidavit as to when Jossem obtained the Apartment Documents, and whether the subjects of the Apartment Documents were the same as any documents that Williams & Connolly actually provided:
THE COURT: Give me an affidavit from Ms. Reich or Ms. Jossem or anybody else with direct, personal knowledge as to when these documents came into their custody, as compared to the date that Williams and Connolly made their representation that they were not withholding any documents on the basis of the Fifth Amendment.
In addition, I want an affidavit from counsel stating that you have reviewed the prior document production and whether these documents are on any of the same subject matters or the same issues of fear of criminal prosecution. Because if so, then [the Fifth Amendment privilege is] waived.
(Id. at 25-26; see also id. at 27-28.)
  On July 26, 2004, Jossem's counsel submitted an affidavit concluding "that of the 8,474 pages of documents that they initially claimed were privileged, close to 6,000 were, in fact, not privileged." (JSC FOF ¶ 27; see Delfin Aff. Ex. H: Akbar 7/26/04 Aff. ¶¶ 15-16; Kawatra Aff. Ex. C: Newman 7/26/04 Letter to Court.) Jossem, however, now claimed that some of the documents that were not protected by the Fifth Amendment were covered by the attorney-client privilege. (Akbar 7/26/04 Aff. ¶ 17; Newman 7/26/04 Letter to Court at 1.) Jossem's counsel also informed the Court that Jossem would not be providing an affidavit as to when she obtained possession of the Apartment Documents, but instead would be filing objections with Judge Koeltl. (JSC FOF ¶ 27; Newman 7/26/04 Letter to Court at 2.) In light of Jossem's objections, the Court issued a written order further explaining its reasoning, as follows:
While Reich's and Jossem's prior counsel did not withdraw the general objection of Fifth Amendment privilege, he did represent to plaintiff's counsel that no responsive documents were being withheld on that basis. If defendants obtained possession of these documents at a later time, that withdrawal of the general objection, in fairness, should not apply to those documents. If, on the other hand, defendants possessed the documents now in issue, at that time, their counsel's representation that no documents were being withheld on Fifth Amendment grounds should apply to those documents and thus the documents would need to be produced. Counsel represents and speaks for the client, and if defendants withheld these documents from their counsel,¹ causing counsel to not assert the privilege, defendants should not obtain an advantage.
The Court notes moreover, that defendants and their current counsel were quite prepared to assert a blanket privilege as to all four boxes of documents, on an ipse dixit basis; only after the more careful review ordered by the Court were defendants forced to withdraw their privilege assertion as to 90% of the withheld documents. That, and other conduct by defendants, supports the Court's concern of "gamesmanship" by defendants Reich and Jossem.
The Court reiterates that absent some showing that defendants Reich and Jossem did not possess the withheld documents at the time their prior counsel represented to plaintiffs that no responsive documents were being withheld on Fifth Amendment privilege grounds, the documents need to be produced.²
¹ The "assuming arguendo" suggestion in defendants' objections that the earlier non-production was through "inadvertence" is totally unsupported by the record. It is as likely, if not more so, that defendants intentionally did not provide these documents to their counsel for review and production because the documents may be proof of plaintiff's alter ego claims.
² The affidavit need not come from Reich and Jossem. If, hypothetically, Professor Moriarty was holding these documents and turned them over to defendants after the document production by prior counsel, Professor Moriarty can provide an affidavit. Thus, the Court's requirement of an affidavit from someone with personal knowledge does not require defendants, who have generally asserted their Fifth Amendment rights, to provide an affidavit.
(Kawatra Aff. Ex. D: 7/27/04 Peck Order.)
  Jossem (and Reich) declined to produce an affidavit as to when they obtained the Apartment Documents (Kawatra Aff. Ex. G: 8/2/04 Akbar Letter to Court), and the Court therefore found that any Fifth Amendment privilege in the remaining Apartment Documents was waived:
The Court finds waiver of the privilege as to these documents because prior counsel waived (or did not assert) the privilege for the original document production. In the absence of information to the contrary, the Court finds that defendants Reich & Jossem had "possession, custody or control" of the documents at that time and thus they should have been provided, or the privilege asserted, at that time. . . . (Since defense counsel knew defendants would/could not provide an affidavit, one wonders why counsel wasted my and Judge Koeltl's time with extensions and stays.)
(Kawatra Aff. Ex. G: 8/3/04 Peck Memo Endorsed Order.) The Court now explicitly finds ...

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