John Wiley & Sons, Inc. v. Supap Kirtsaeng et al

Filing 15

BRIEF re: 14 Brief ISRAEL DECLARATION. Document filed by Supap Kirtsaeng. (Attachments: # 1 Exhibit Israel aff exh 1, # 2 Exhibit Israel decl exh 2, # 3 Exhibit ISRAEL DECL EXH 3, # 4 Exhibit ISRAEL DECL EXH 4, # 5 Exhibit ISRAEL DECL EXH 5, # 6 Exhibit ISRAEL DECL EXH. 6, # 7 Exhibit ISRAEL DECL EXH. 7)(Israel, Sam)

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ISRAEL DECLARATION EXHIBIT 3
31 of 223 DOCUMENTS
LEHMAN BROTHERS FINANCE S.A., Plaintiff, -against- GRIGORY
SHENKMAN (individually and in his capacity as Trustee of the Shenkman Family
Trust), SHENKMAN FAMILY TRUST, YELENA SHENKMAN (in her capacity as
Trustee of the Shenkman Family Trust) and MILOSLAVSKY PARTNERS, A
CALIFORNIA LIMITED PARTNERSHIP, Defendants.
01 Civ. 7701 (MBM)
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK
2001 U.S. Dist. LEXIS 13446

August 31, 2001, Decided
September 4, 2001, Filed
DISPOSITION:
[*1] Defendants' motion to modify
or dissolve TRO on several grounds granted and TRO
vacated.

COUNSEL: For Plaintiff: SUSAN F. DICICCO, ESQ.,
JEFFREY Q. SMITH, ESQ., King & Spalding, New
York, NY.
For Defendants: DAVID SPEARS, ESQ., BRIAN S.
FRASER, ESQ., H. ROWAN GAITHER IV, ESQ.,
CHRISTOPHER W. DYSARD, ESQ., Richards Spears
Kibbe & Orbe, New York, NY.
JUDGES: Michael B. Mukasey, U.S. District Judge.
OPINION BY: Michael B. Mukasey
OPINION
OPINION AND ORDER
MICHAEL B. MUKASEY, U.S.D.J.
This is an action to recover damages that allegedly
resulted from defendants' failure to deliver shares of Alcatel, S.A., a French telecommunications equipment
manufacturer, that were the subject of certain transactions between the parties. Plaintiff claims that defendants
breached a contractual obligation to deliver such shares
in connection with a hedge transaction known as a prepaid-variable-forward-share-purchase contract, and that
as a result plaintiff sold short and suffered damages of
approximately $ 2.6 million (Cohen Aff. of 8/10/ 01 P
26), exclusive of costs and fees. Plaintiff commenced
this case in Supreme Court, New York County, and de-

fendant removed to this court on August 17, 2001 with a
[*2] temporary restraining order ("TRO") in place that
plaintiff has used to attach money and property of defendants in the hands of certain New York investment
banks. The TRO was obtained ex parte pursuant to N.Y.
C.P.L.R. 6201 (McKinney 1980 & Supp. 2001), which
provides in relevant part that an order of attachment
"may be granted" in any action for money damages when
"the defendant is a nondomiciliary residing without the
state, or is a foreign corporation not qualified to do business in the state[.]"
Plaintiff is a New York entity; defendants are natural
persons who are domiciliaries of California, and entities
formed pursuant to the laws of California; defendants
apparently are not qualified to do business in New York.
Jurisdiction is based on diversity of citizenship. Defendants have conceded in personam jurisdiction, such that
plaintiffs have no need to rely upon any attached assets
for the purpose of establishing quasi in rem jurisdiction.
Defendants have moved to modify or dissolve the
TRO on several grounds, including that it purports to
attach assets located outside the State of New York, that
it is over-broad and has the effect of tying up assets far
beyond the [*3] amount of any judgment plaintiff might
obtain, and that it is actually unnecessary because defendants are persons and entities with the means to respond
to any judgment in the amount demanded.
For the reasons summarized below, the motion is
granted and the TRO is vacated.
Plaintiff's arguments in favor of retaining the TRO
have varied somewhat since the outset of this proceeding. Plaintiff argued in New York Supreme Court that

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2001 U.S. Dist. LEXIS 13446, *

unless the attachment was granted, defendants might
remove assets from New York and thereby prejudice
plaintiff's ability to collect a judgment once obtained.
Plaintiff argued as well that defendants "may have very
little, if any, remaining equity in the Alcatel shares."
(Cohen Aff. of 8/10/ 01 P P 28, 29; DeCicco Aff. of
8/13/ 01 P 6). More recently, plaintiff has noted that defendants allegedly reneged on an agreement to settle the
dispute between the parties (Donini Aff. of 8/23/ 01 PP
3-6) as further evidence that plaintiff cannot be relied
upon to satisfy a judgment. Most recently, plaintiff has
argued that although defendants have presented to the
court evidence that they have and control substantial
liquid assets in [*4] brokerage accounts, there is no evidence presented of their liabilities, and the assets themselves are shares of Alcatel that have been in steep decline.
The statute that authorizes the attachment plaintiff
obtained in New York Supreme Court, C.P.L.R. 6201,
subdivision 1, provides for the remedy of attachment to
serve both jurisdictional and security interests of plaintiffs. See, e.g., David D. Siegel, New York Practice §
313, at 475 (3d ed. 1999). Thus, quasi in rem jurisdiction
can be obtained by attachment of property belonging to
an out-of-state defendant, and both the jurisdictional and
the security interests of a plaintiff are thereby served.
The provision for attachment of the property of an outof-state defendant does not address solely jurisdictional
interests.

New York courts have long recognized
that provisions for attachment against
nonresidents are based on the assumption
that "there is much more propriety in requiring a debtor, whose domicile is without the state, to give security for the debt,
than one whose domicile is within. Such a
debtor, pending litigation, might sell his
property, and remain at home, in which
event he could not be reached [*5] by any
of the provisional remedies or supplementary proceedings provided by [New York]
laws."

ITC Entertainment, Ltd. v. Nelson Film Partners, 714
F.2d 217, 220 (2d Cir. 1983), cited with approval in
Elton Leather v. First Gen. Resources, 138 A.D.2d 132,
136, 529 N.Y.S.2d 769, 771-72 (1st Dep't 1988) (rejecting specifically the holding in Brastex Corp. v. Allen
Intern., Inc., 702 F.2d 326 (2d Cir. 1983), that a foreign
corporation's post-attachment, pre-confirmation applica-

tion to do business in New York automatically removes
the statutory basis for an attachment).
However, as the statute itself suggests when it provides that an attachment "may" be granted against the
assets of an out-of-state defendant in an action for money
damages, there should be more to a successful application for an attachment than a showing that money damages are sought from an out-of-state defendant. Although
this minimal showing empowers the court to exercise its
discretion to grant the remedy, that discretion must be
guided by both an assessment of the need for an attachment and a keen awareness of the effect of this remedy.
Attachment has been [*6] recognized to entail
"harsh consequences" and courts have been advised to
grant it "only upon a showing that drastic action is required for security purposes." Incontrade, Inc. v. Oilborn
Int'l., S.A., 407 F. Supp. 1359, 1361 (S.D.N.Y. 1976).
Here, defendants have informed the court through counsel that because their accounts are cross-collateralized,
the attachment thus far obtained by plaintiff has had the
effect of tying up assets well beyond even the full value
of the damages plaintiff seeks.
As to the need for the attachment, defendants' counsel has submitted to the court account statements of defendant Grigory Shenkman and defendant Shenkman
Family Trust that show a value as of July 31, 2001 in
excess of $ 8 million. (Gaither Aff. of 8/31/01 PP 2, 3,
Ex. 1). In addition, he has submitted account statements
that show, at a minimum, that Alec Miloslavsky, represented to be "a general and limited partner of Defendant
Miloslavsky Partners, A California Limited Partnership,"
(id. P 8), had a joint account with his wife that showed a
portfolio value of more than $ 3.8 million as of August
30, 2001 (id. P 9, Ex. 4), and that defendants Grigory
and Yelena Shenkman, [*7] as trustees of defendant
Shenkman Family Trust, had an account that showed a
portfolio value of more than $ 1.1 million as of July 29,
2001 (id. P 6).
Defendants' counsel has submitted as well copies of
account statements that appear to show substantial balances in accounts "controlled, either directly or indirectly," by defendants, their partners, and/or their families. (Id. PP 2, 4). These accounts also show, in the aggregate, substantial balances.
Although I am mindful that account balances can
change from day to day, that assets can be moved, and
that these defendants, even on the evidence they have
submitted in the form of account statements, have substantially leveraged their balances, they appear to have
assets significantly in excess of what may be necessary
to satisfy any judgment in this case, even with a generous
allowance for costs and attorney fees. It also bears emphasis that although plaintiff succeeded in obtaining the

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2001 U.S. Dist. LEXIS 13446, *

TRO in the first instance, the burden remains on plaintiff
to show that it is necessary; defendants are not obligated
to prove that it is not. On this record, plaintiff has not
shown a need for the TRO directing an attachment. Accordingly, the [*8] TRO is vacated.
SO ORDERED:

Dated: New York, New York
August 31, 2001
Michael B. Mukasey,
U.S. District Judge