Irving H. Picard v. Saul B. Katz et al

Filing 27

DECLARATION of DANA M. SESHENS in Support re: 20 MOTION to Dismiss THE AMENDED COMPLAINT OR, IN THE ALTERNATIVE, FOR SUMMARY JUDGMENT.. Document filed by Charles 15 Associates, Charles 15 LLC, Charles Sterling LLC, Charles Sterling Sub LLC, College Place Enterprises LLC, Coney Island Baseball Holding Company LLC, Estate of Leonard Schreier, FFB Aviation LLC, FS Company LLC, Fred Wilpon Family Trust, Arthur Friedman, Ruth Friedman, Iris J. Katz and Saul B. Katz Family Foundation, Inc., Judy and Fred Wilpon Family Foundation, Inc., Amy Beth Katz, David Katz, Dayle Katz, Gregory Katz, Howard Katz, Iris Katz, 157 J.E.S. LLC, Air Sterling LLC, BAS Aircraft LLC, Jason Bacher, Bon Mick Family Partners LP, Bon-Mick, Inc., Brooklyn Baseball Company LLC, C.D.S. Corp., Michael Katz, Saul B. Katz, Todd Katz, Katz 2002 Descendants' Trust, Heather Katz Knopf, Natalie Katz O'Brien, Mets II LLC, Mets Limited Partnership, Mets One LLC, Mets Partners, Inc., Minor 1 (REDACTED), Minor 2 (REDACTED), L. Thomas Osterman, Phyllis Rebell Osterman, Realty Associates Madoff II, Red Valley Partners, Robbinsville Park LLC, Ruskin Garden Apartments LLC, Saul B. Katz Family Trust, Michael Schreier, Deyva Schreier Arthur, See Holdco LLC, See Holdings I, See Holdings II, Sterling 10 LLC, Sterling 15C LLC, Sterling 20 LLC, Sterling Acquisitions LLC, Sterling American Advisors II LP, Sterling American Property III LP, Sterling American Property IV LP, Sterling American Property V LP, Sterling Brunswick Corporation, Sterling Brunswick Seven LLC, Sterling Dist Properties LLC, Sterling Equities, Sterling Equities Associates, Sterling Equities Investors, Sterling Heritage LLC, Sterling Internal V LLC, Sterling Jet II Ltd., Sterling Jet Ltd., Sterling Mets Associates, Sterling Mets Associates II, Sterling Mets LP, Sterling Pathogenesis Company, Sterling Third Associates, Sterling Thirty Venture LLC, Sterling Tracing LLC, Sterling Twenty Five LLC, Sterling VC IV LLC, Sterling VC V LLC, Edward M. Tepper, Elise C. Tepper, Jacqueline G. Tepper, Marvin B. Tepper, Valley Harbor Associates, Kimberly Wachtler, Philip Wachtler, Bruce N. Wilpon, Daniel Wilpon, Debra Wilpon, Fred Wilpon, Jeffrey Wilpon, Jessica Wilpon, Judith Wilpon, Richard Wilpon, Scott Wilpon, Valerie Wilpon, Wilpon 2002 Descendants' Trust, Robin Wilpon Wachtler. (Attachments: # 1 Exhibit T, # 2 Exhibit U, # 3 Exhibit V, # 4 Exhibit W, # 5 Exhibit X, # 6 Exhibit Y, # 7 Exhibit Z, # 8 Exhibit AA, # 9 Exhibit BB)(Wagner, Karen)

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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SECURITIES INVESTOR PROTECTION
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CORPORATION,
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Plaintiff-Applicant,
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- against :
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BERNARD L. MADOFF INVESTMENT
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SECURITIES LLC,
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Defendant.
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In re:
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BERNARD L. MADOFF,
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Debtor.
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IRVING H. PICARD,
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Plaintiff,
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- against :
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SAUL B. KATZ, et al.
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Defendants.
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Adv. Pro. No. 08-01789 (BRL)
SIPA LIQUIDATION
(Substantively Consolidated)

Adv. Pro. No. 10-05287 (BRL)

SUPPLEMENTAL DECLARATION OF DANA M. SESHENS
IN FURTHER SUPPORT OF STERLING DEFENDANTS’
MOTION TO DISMISS THE AMENDED COMPLAINT OR,
IN THE ALTERNATIVE, FOR SUMMARY JUDGMENT

I, DANA M. SESHENS, declare pursuant to 28 U.S.C. § 1746, that the following is true:
1.

I am an attorney with the firm of Davis Polk & Wardwell LLP, attorneys

for the Sterling Defendants. I submit this supplemental declaration in further support of
the Sterling Defendants’ motion to dismiss the amended complaint pursuant to
Bankruptcy Rule 7012 or, in the alternative, for summary judgment pursuant to
Bankruptcy Rule 7056.
2.

Specifically, I submit this declaration to address the Trustee’s assertions

regarding the nature and scope of his Rule 2004 investigation of the Sterling Defendants,
set forth in his opposition brief (“Trustee Opp.”) and the accompanying declaration of his
counsel, Fernando A. Bohorquez, Jr. (“Bohorquez Decl.”). Many of the Trustee’s
assertions are inaccurate or omit material information.
3.

In my role as counsel for the Sterling Defendants, I was involved in and

responsible for the Sterling Defendants’ response to the Trustee’s discovery requests,
including, but not limited to, the production of documents and witnesses. As a result, I
am personally familiar with the facts set forth herein.
A.

The Broad Scope of the Trustee’s Discovery Demands

4.

Contrary to the Trustee’s insinuation that his subpoenas did not focus on

what he deems the “critical issues” in this case, inquiry notice and due diligence (Trustee
Opp. at 48), his subpoenas sought, among other things, information about “the legality of
Madoff’s operations” and the “feasibility of Madoff’s returns.” At no time during the
course of the Trustee’s Rule 2004 investigation did the Sterling Defendants prevent the
Trustee from supplementing, modifying, or expanding his document requests.

5.

As a result of the parties’ meet-and-confer process, during which they

addressed the Sterling Defendants’ responses and objections to the Trustee’s document
requests, the parties agreed upon the requests to which Sterling would respond and the
scope of those requests. At no time did the parties fail to reach agreement, and the
Sterling Defendants complied with all agreed-upon requests.
B.

Hard-Copy Document Production Was Fully Responsive

6.

The Trustee asserts that the majority of the documents contained in the 70

boxes of hard-copy documents produced by the Sterling Defendants included BLMIS
account statements, wire transfers, check requests, and portfolio management reports.
(Trustee Opp. at 48-49; Bohorquez Decl. ¶¶ 11-13).
a.

These are all among the hard-copy documents that were responsive

to the Trustee’s document requests.
b.

The Sterling Defendants also produced non-privileged, responsive

hard-copy documents from every Sterling Partner, among other Sterling personnel, who
possessed them, including records of hard-copy correspondence with BLMIS dating back
several years.
c.

At no time during the course of the Trustee’s Rule 2004

investigation did the Sterling Defendants refuse to provide non-privileged hard-copy
documents responsive to any of the agreed-upon requests, and at no time did the Trustee
seek judicial intervention to compel the Sterling Defendants to do so.
C.

Electronic Document Production Was Fully Responsive

7.

The Trustee asserts that the Sterling Defendants’ production of electronic

documents was limited. (Trustee Opp. at 49-50; Bohorquez Decl. ¶¶ 8-10, 16-21, 24.)

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a.

The Sterling Defendants’ electronic document productions

included emails; electronic documents from the individual network folders of the Sterling
Partners, among other Sterling personnel; electronic documents from among twelve
folders on Sterling’s shared network drives that, on their face, appeared to contain
potentially responsive information; and documents from Sterling’s PDF document
library.
b.

Pursuant to the Trustee’s request, the Sterling Defendants applied

each of ninety-seven search terms provided by the Trustee to documents collected from
the electronic mailboxes and individual network folders of every Sterling Partner, among
other Sterling employees, and produced all non-privileged electronic documents culled
by those search terms and responsive to the agreed-upon document requests.
c.

At no time during the course of the Trustee’s Rule 2004

investigation did the Sterling Defendants prevent the Trustee from supplementing,
modifying, or expanding his requested search terms.
d.

Pursuant to the agreed-upon requests, any document concerning

any warning about Madoff’s or BLMIS’ legitimacy from Sterling Stamos, Merrill Lynch,
Bank of America, or any other third-party referenced in the Complaint would have been
responsive. The Sterling Defendants produced no such document.
e.

In one of a number of instances where the Trustee supplemented

the agreed-upon document requests, in July 2010 the Trustee sought from the Sterling
Defendants documents concerning Sterling Stamos’ decision to withdraw funds from
Bayou. Reserving their relevance objection, the Sterling Defendants agreed to run the
search term “Bayou” through all unproduced documents collected from the Sterling

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custodians and to review those documents to identify any responsive to the supplemental
request. One responsive document, a general Sterling Stamos email update about the
Bayou litigation involving Sterling Stamos, was produced.
f.

The Trustee’s assertion that the Sterling Defendants did not collect

or produce any electronic documents from any employees or officers of the New York
Mets is incorrect. (Trustee Opp. at 49; Bohorquez Decl. ¶ 9.) Documents were produced
from Fred Wilpon, Mets Chief Executive Officer, Saul Katz, Mets President, Jeff
Wilpon, Mets Senior Executive Vice President and Chief Operating Officer, and Mark
Peskin, Mets Chief Financial Officer.
g.

The Sterling Defendants provided the Trustee with access to

Sterling’s books and records, including the records of Sterling’s Partnership
Accounting department, through the production of (i) numerous iterations of Sterling’s
“Hell sheet,” which details the balances held in the Sterling Defendants’ BLMIS
accounts; (ii) accounting records for Sterling’s internal bank, Sterling Equities Funding;
(iii) bank account statements for numerous Sterling-related BLMIS account holders; and
(iv) various liquidity and other financial analyses maintained by Partnership Accounting
in the ordinary course of business.
h.

Fred Wilpon testified to his limited use of email and electronic

communications, including that he does not send email.
i.

The approximately 30,000 pages the Trustee contends were

produced by the Sterling Defendants after September 1, 2010 comprised 685 documents,
inclusive of attachments. Of these approximately 30,000 pages and 685 documents,
19,000 pages and 312 documents were produced from Mark Peskin’s files, which were

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first requested in July 2010. The majority of the remainder of the documents consisted of
accounting records, bank statements, personal files of certain Sterling Partners, and real
estate-related documents.
j.

At no time did the Sterling Defendants refuse to produce non-

privileged electronic documents responsive to any of the agreed-upon requests, and at no
time did the Trustee seek judicial intervention to compel the Sterling Defendants to do so.
D.

All Requested Deponents Were Made
Available for Examination under Oath

8.

The Trustee asserts that he did not examine certain of the Sterling Partners

as part of his Rule 2004 investigation. (Bohorquez Decl. ¶¶ 22-23.)
a.

The Sterling Defendants made every Sterling witness that the

Trustee sought for deposition available, including Sterling principals Fred Wilpon and
Saul Katz. At no time did the Sterling Defendants refuse to produce a requested witness,
nor did the Trustee seek judicial intervention to compel the Sterling Defendants to do so.
b.

Sterling counsel placed no time or subject matter limitations on the

depositions. For example, Arthur Friedman’s deposition ran more than seventeen hours
on the record.
c.

The Sterling witnesses who sat for deposition were the Sterling

principals most knowledgeable about Madoff and BLMIS.

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E.

The Trustee Took Extensive Discovery
Related to the $54 Million Bridge Loan

9.

Depositions were taken of both Saul Katz and Fred Wilpon, the two

Sterling Partners principally involved in the $54 million bridge loan from Madoff. Both
were questioned extensively about the transaction.
10.

At the Trustee’s request, Sterling Partner Marvin Tepper, Sterling’s then-

general counsel, submitted a proffer regarding the transaction.
11.

The Sterling Defendants undertook a diligent search for hard copy and

electronic documents regarding the transaction and produced any such non-privileged
documents.
F.

Attached Exhibits

12.

Attached hereto as Exhibit T is a true and correct copy of excerpts from

the deposition of Saul Katz, dated August 4, 2010.
13.

Attached hereto as Exhibit U is a true and correct copy of excerpts from

the deposition of Arthur Friedman, dated June 22-24, 2010.
14.

Attached hereto as Exhibit V is a true and correct copy of excerpts from

the deposition of David Katz, dated August 31, 2010.
15.

Attached hereto as Exhibit W is a true and correct copy of excerpts from

the deposition of Ashok Chachra, dated October 8, 2010.
16.

Attached hereto as Exhibit X is a true and correct copy of a Letter from

Arthur Friedman to Frank DiPascali, dated October 28, 2004, which was produced by
Sterling to the Trustee in the course of discovery.
17.

Attached hereto as Exhibit Y is a true and correct copy of excerpts from

the deposition of Fred Wilpon, dated July 20, 2010.
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18.

Attached hereto as Exhibit Z are true and correct copies of three monthly

account statements issued for BLMIS account 1KW300, which were produced by
Sterling to the Trustee in the course of discovery.
19.

Attached hereto as Exhibit AA is a true and correct copy of an excerpt

from the trial transcript in In re Bayou Group, LLC, 09 CV 2340 (S.D.N.Y. May 11,
2011).
20.

Attached hereto as Exhibit BB is a true and correct copy of excerpts from

the deposition of Mark Peskin, dated July 29, 2010.

I declare under penalty of perjury that the foregoing is true and correct.

Dated: New York, New York
June 20, 2011
s/ Dana M. Seshens
Dana M. Seshens

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