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Lauro Rezende v. Citigroup Global Markets

April 27, 2011

LAURO REZENDE, PLAINTIFF,
v.
CITIGROUP GLOBAL MARKETS, INC.,
DEFENDANT. CITIGROUP GLOBAL MARKETS, INC.,
COUNTERCLAIMANT,
v.
LAURO REZENDE, COMPANHIA
SIDERURGICA NACIONAL AND INTERNATIONAL INVESTMENT FUND LTD., COUNTERDEFENDANTS.



The opinion of the court was delivered by: Hon. Harold Baer, Jr., U.S.D.J.:

OPINION AND ORDER

This action involves a dispute over the rightful owner of certain funds and securities. Compania Siderurgica Nacional ("CSN") filed a motion for summary judgment on December 17, 2010 and a motion for case dispositive sanctions on January 20, 2011, and Lauro Rezende ("Rezende") filed a motion for sanctions on January 28, 2011.*fn1 On March 11, 2011, Magistrate Judge Freeman issued a Report and Recommendation ("R & R"), in which she recommends (1) denying CSN's motion for summary judgment; (2) granting CSN's motion for sanctions but for a lesser sanction than dismissal; and (3) denying Rezende's motion for sanctions. Both parties filed objections to the R & R pursuant to 28 U.S.C. § 636(b)(1) and Federal Rule of Civil Procedure 72, to which both parties responded on April 1, 2011. After considering the parties' arguments, this Court approves, adopts, and ratifies Magistrate Judge Freeman's R & R with respect to its factual findings and recommendation regarding the summary judgment motion, and adopts in part and rejects in part the R & R with respect to the recommendation regarding the sanctions motion. Several other issues not dealt with in the R & R, including bifurcation and the order of the trial, were briefed by the parties for the convenience of all concerned, and decisions on those issues are included at the foot of this opinion.

I.Background

The facts that follow are described more fully in Magistrate Judge Freeman's R & R, which is incorporated herein by reference. CSN is a large, multinational steel company based in Brazil. Rezende was CSN's Financial Director from 1996 until June 2002, and was CSN's Executive Director for Investments from 2003 until June 2005. In the 1990s, CSN acquired a block of shares in M.R.S. Logistica S.A. ("MRS"), a Brazilian railroad company, which was required by law to have at least five owners, none of which could individually own more than 20% of the voting stock. Because of this cap, in order to obtain additional shares of MRS, CSN needed to divest itself of a portion of its MRS stock. IIF, a Belize corporation, was created to receive a portion of CSN's stock in MRS, which would then allow CSN to acquire additional stock in MRS. The parties dispute whether CSN or Rezende created IIF and is its present owner.

A. Magistrate Judge Freeman's R & R

In Magistrate Judge Freeman's R&R, she recommends (1) denying CSN's motion for summary judgment; (2) granting CSN's motion for sanctions but for a lesser sanction than dismissal; and (3) denying Rezende's motion for sanctions. Here is a summary of her findings conclusions.

1. Denying CSN's motion for summary judgment

CSN's claims against Rezende arise from Rezende's alleged theft of $2.2 million from IIF's bank accounts and Rezende's alleged theft of IIF's bearer share certificates. CSN contends that Rezende convinced MRS to place more than $14 million in dividends, due to IIF, into the Rezende IIF Account, of which Rezende transferred $6 million into his personal account. The legality of these occurrences hinge on whether CSN or Rezende is the actual owner of IIF. CSN and Rezende each claim to have formed and to be the present owner of IIF. Magistrate Judge Freeman recommends denying CSN's motion for summary judgment because material issues of fact are posed by both parties.

Rezende also asserts assault and battery claims against CSN for injuries that Rezende allegedly sustained at the hands of CSN's Chairman and CEO during a physical altercation that took place during a deposition. CSN argues that the Court lacks jurisdiction to hear this claim. Magistrate Judge Freeman recommends denying CSN's motion for summary judgment on Rezende's assault and battery claim, finding that the Court retains jurisdiction under Rules 18(a) and 13(g) of the Federal Rules of Civil Procedure.

2. Granting in part of CSN's motion for sanctions

CSN's sanctions motion arises out of a letter that Rezende produced in discovery on October 8, 2010, purportedly written by a Swiss lawyer, Franz Karsten, to numerous Brazilian authorities and suggests that CSN had committed various crimes in Brazil, including bribery of public officials. CSN requested leave to conduct discovery regarding the letter's authenticity, which resulted in Rezende submitting further documents that CSN contends amount to a fraud on the court; the documents include Franz Karsten's purported affidavit, bank statements, driver's license, utility bill, and evidence of a post office box opened in his name.

Magistrate Judge Freeman found that Rezende made a number of statements and submitted documents that he knew to be false and misleading, but that these were not central to the substantive issues in the case, and recommends that dismissal be denied but that CSN be awarded the full amount of attorney's fees, deposition costs, investigator and other fees, and that the jury be given an instruction that Rezende "deliberately lied under oath at a previous proceeding."

3. Denying Rezende's motion for sanctions

Rezende also moves for sanctions based on CSN's purported falsification of a "Subscriber's Resignation Letter." An expert testified that CSN more likely than not forged a name on the letter. Magistrate Judge Freeman recommends denying the motion because the expert's opinion does not amount to clear and convincing evidence.

B. Objections to the R & R

CSN objects to Magistrate Judge Freeman's recommendation that summary judgment be denied and as well to her recommendation not to impose case dispositive sanctions, and in the alternative, that the recommended jury charge is not adequate. Rezende objects to the portion of the R & R that recommends granting CSN's sanctions motion, the proposed jury instruction, and that Rezende be ...


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