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Lynch v. Global Strat Inc.

Court of Appeals of New York

October 10, 2013

GLOBAL STRAT INC., also known as Global Strategies Inc., et al., Defendants, and Ezequiel Nasser et al., Appellants. (And Another Action.)

Shiboleth LLP, New York City (Charles B. Manuel, Jr., and Robert A. Rosenberg of counsel), for appellants.

Bingham McCutchen LLP, New York City (Kenneth I. Schacter, Timothy J. Stephens and Leigh M. Nemetz of counsel), and Bressler, Amery & Ross, P.C. (Brian F. Amery and Dominick F. Evangelista of counsel), for respondents.

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[999 N.E.2d 157] The order of the Appellate Division should be modified, without costs, by vacating the judgment of Supreme Court and [976 N.Y.S.2d 679] remitting to that court for further proceedings in accordance with this memorandum and, as so modified, affirmed.

Merrill Lynch, Pierce, Fenner & Smith, Inc. and Merrill Lynch Capital Services, Inc. (collectively, Merrill Lynch) commenced this action against Ezequiel, Raymond, Albert and Scarlett Nasser (collectively, the Nassers) and the Nassers' offshore personal holding companies and corporations (Nasser entities), asserting that they engaged in " high-risk" investment activities through their Merrill Lynch accounts, resulting in a net deficit balance of over $68 million. In addition to bringing claims against the Nassers in their personal capacities under an " alter ego" theory, Merrill Lynch asserted claims against certain of the

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Nassers and the Nasser entities for fraud, fraudulent conveyance and breach of fiduciary duty. The Nasser entities answered the complaint, with counterclaims; the Nassers in their personal capacities moved to dismiss the complaint for, as relevant here, lack of personal jurisdiction.

During the pendency of the motion to dismiss, Merrill Lynch served notices for discovery and inspection on the Nasser entities and the Nassers personally, excepting Scarlett. The Nassers were granted a stay of discovery on the claims against them personally pending the outcome of the motions to dismiss.

Four months after Merrill Lynch served its discovery notices, the Nasser entities had still not produced any documentation, prompting Merrill Lynch to request a court conference. At the conference and following thereafter, charges and countercharges ensued over the adequacy or inadequacy of the entities' responses to the discovery demands. Supreme Court warned that if the responses were not accurate and detailed, it would " enter a judgment in this case" and order an inquest on damages.

When discovery disputes continued, the court referred the matter to a Referee for a determination whether defendants had been forthcoming with respect to the discovery demands served on them regarding the claims against the entities. Counsel for Merrill Lynch advised the Referee that Merrill Lynch was seeking to take depositions of the Nassers and representatives of the Nasser entities to determine what steps had been taken to ensure compliance with the discovery demands, reserving the right to seek a default judgment should the facts demonstrate entitlement to such relief. In a brief report, devoid of substance, the Referee failed to address Merrill Lynch's request for depositions and concluded that while there was insufficient evidence that the Nasser entities failed to comply with the discovery demands, there was sufficient evidence that the Nassers had failed to do so.

Merrill Lynch then moved to confirm the Referee's report and sought immediate entry of a default judgment against the Nassers personally, despite the fact that the lawsuit against the Nassers had been stayed and they had yet to answer. Supreme Court granted the motion and directed the entry of a judgment against the Nassers personally on liability and ordered an inquest on damages, which subsequently resulted in the entry of a default judgment against the Nassers, excepting Scarlett, in an amount of approximately $98 million, and judgment against Scarlett in the amount of $369,125.

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Subsequent to the entry of that judgment, Supreme Court denied the motions [999 N.E.2d 158] of Ezequiel, Raymond and Scarlett Nasser seeking dismissal, but granted Albert's motion and vacated the judgment against him. The Nassers' appeal from the judgment and the order denying their motion to dismiss was consolidated with Merrill Lynch's cross appeal from the trial court's [976 N.Y.S.2d 680] order dismissing the complaint against Albert. The Appellate Division concluded that Supreme Court erred in dismissing the complaint against Albert for want of personal jurisdiction, but upheld ...

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