Wimbledon Financing Master Fund LTD. v. Bienert Miller & Katzman, PLC et al
OPINION AND ORDER re: 67 MOTION for Summary Judgment . filed by Wimbledon Financing Master Fund LTD., 73 MOTION for Summary Judgment in favor of Defendants. filed by Bienert Miller & Katzman, PLC, 72 MOTION for S ummary Judgment in favor of Defendants. filed by Bienert Miller & Katzman, PLC. For the foregoing reasons, the Court (1) grants defendants' motion for summary judgment as to Wimbledon's negligence and gross negligence claims arisi ng from Bergstein's $2.412 million payment to Class TT, and denies plaintiffs' motion for summary judgment as to this payment; and (2) denies both parties' motions for summary judgment as to Wimbledon's claims of negligenc e and gross negligence arising from Bergstein's $5 million payment to Class TT. By separate order, the Court will commission from the parties a joint letter with their views as to next steps, in particular, as to the causation element SO ORDERED. (Signed by Judge Paul A. Engelmayer on 8/2/2022) (jca)
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 1 of 41
UNITED STATES DISTRJCT COURT
SOUTHERN DISTRJCT OF NEW YORK
WIMBLEDON FINANCING MASTER FUND LTD.,
18 Civ. 8004 (PAE)
BIENERT MILLER & KATZMAN, PLC and STEVEN J.
OPINION & ORDER
PAUL A. ENGELMAYER, District Judge:
This case arises from competing claims by creditors to recover money from a convicted
fraudster, David Bergstein ("Bergstein"). The plaintiff here, Wimbledon Financing Master Fund
Ltd. ("Wimbledon"), a creditor ofBergstein's, obtained an $8,497,578.75 money judgment
against Bergstein and others. After Wimbledon had served a restraining notice on Bergstein, but
before it took other steps to secure its priority, Bergstein, through his lawyer Steven J. Katzman
("Katzman"), negotiated a settlement agreement with a different Bergstein creditor, The
Wimbledon Fund, SPC ("Class TT"). Katzman then facilitated two sequential wire transfers
from Bergstein to Class TT to satisfy the settlement agreement, one for $2.412 million, the next
for $5 million. As pled, these transfers left Bergstein without funds to pay the judgment against
Wimbledon initially sought relief in New York state court against Katzman, his law firm,
Bienert Miller & Katzman PLC ("BMK"), and Bergstein. Wimbledon moved for contempt
against them, based on the first of the wire transfers to Class TT. Wimbledon did not then know
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 2 of 41
about the second, larger wire transfer. That action resulted in a finding of contempt against
Katzman, BMK, and Bergstein. But the state court declined to order Katzman and BMK to pay
to Wimbledon the $2.412 million they had caused their client to divert in violation of the
restraining notice. It found that remedy excessive. To the extent the contempt sanction had a
monetary component, it required Katzman and BMK only to pay Wimbledon's attorneys fees
and associated costs.
Wimbledon now sues Katzman and BMK in federal court, for negligence and gross
negligence. As relief, it seeks the sums ($2.412 million and $5 million) that Katzman and BMK
caused Bergstein to pay in violation of its restraining notice.
Pending now are the parties' cross-motions for summary judgment. These raise, among
others, issues of res judicata. For the following reasons, the Court grants defendants' summary
judgment motion in part. This ruling precludes Wimbledon's claims that seek recovery from
Katzman and BMK arising from the $2.412 million transfer. The Court denies the remaining
motions. This leaves standing, and to be tried to a jury, Wimbledon's claims against Katzman
and BMK arising from the $5 million transfer.
Factual Background 1
This litigation is the latest installment in a contest between two victims ofBergstein's
fraud-plaintiff Wimbledon and non-party Class TT-to recover their losses from the same pot
The Court's account of the underlying facts of this case is drawn from the parties' submissions
in support of and in opposition to the instant motion-specifically, the parties' Joint Statement of
Undisputed Facts, Dkt. 66 ("JSF"); Wimbledon's Local Rule 56.1 statement of material facts,
Dkt. 70 ("Wimbledon 56.1 "); the declaration of Joseph A. Matteo in support of Wimbledon's
motion, Dkt. 71 ("Matteo Deel."), and exhibits attached thereto; defendants' Local Rule 56.1
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 3 of 41
of money. Wimbledon and Class TT each sought to enforce judgments against Bergstein and his
fraudulent transferees. In July 2017, after securing its judgment in the supreme court of New
York County for more than $8 million, Wimbledon served restraining notices on Bergstein and
his lawyers to prevent disbursement ofBergstein's funds, including funds held in BMK's client
trust account on behalf of Bergstein that had been enjoined in the Class TT litigation. The next
month, Katzman-Bergstein's lawyer in a suit brought by Class TT in California federal courtnegotiated and executed a settlement with Class TT. In connection with that settlement,
Bergstein, despite having received Wimbledon's restraining notices, participated, in August 2017
and in December 2017, respectively, in sending $2.412 million and $5 million ofBergstein's
restrained funds to Class TT.
In February 2018, Wimbledon moved in New York state supreme court in Manhattan for
contempt against Bergstein and his professional legal corporation, BMK. The court found the
two in contempt, a judgment affirmed on appeal in June 2019. In March 2019, Wimbledon also
counter-statement and additional statement of material facts, Dkt. 74, Ex. I ("Def. 56.1"); the
declaration of Richard A. Hubell in support of defendants' motion, and exhibits attached thereto,
Dkt. 72 ("Hubell Deel."); Wimbledon's Local Rule 56.1 counter-statement and additional
statement of material facts, Dkt. 83 ("Wimbledon Reply 56.1 "); the declaration of Joseph A.
Matteo in opposition to defendants' motion, Dkt. 82 ("Matteo Opp. Deel."); and Defendants'
Local Rule 56.1 counter-statement to Wimbledon's statement of additional material facts, Dkt.
86 ("Def. Reply 56.1 ").
Citations to a party's 56.1 Statement incorporate by reference the documents cited therein.
Where facts stated in a party's 56.1 Statement are supported by testimonial or documentary
evidence, and denied by a conclusory statement by the other party without citation to conflicting
testimonial or documentary evidence, the Court finds such facts to be true. See S.D.N.Y. Local
Rule 56.l(c) ("Each numbered paragraph in the statement of material facts set forth in the
statement required to be served by the moving party will be deemed to be admitted for purposes
of the motion unless specifically controverted by a correspondingly numbered paragraph in the
statement required to be served by the opposing party."); id at 56.l(d) ("Each statement by the
movant or opponent ... controverting any statement of material fact must be followed by
citation to evidence which would be admissible, set forth as required by Fed. R. Civ. P. 56(c).").
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 4 of 41
sued Class TT to recover the second $5 million installment of the settlement funds, which was
dismissed by the New York state supreme court. Class TT and Wimbledon later settled while an
appeal was pending. In this lawsuit, Wimbledon seeks to hold Bergstein and BMK liable for the
sum it would have received had Bergstein and BMK not, as alleged, negligently permitted
Bergstein's restrained funds to be delivered to Class TT.
Parties and Relevant Non-Parties
Wimbledon is an exempted liability company organized under the laws of the Cayman
Islands. JSF ,r I. On July 17, 2014, the Grand Court of the Cayman Islands, Financial Services
Division, appointed Chris Johnson and Russell Homer as joint official liquidators to conduct a
court-supervised liquidation of Wimbledon. Id
BMK was a California professional legal corporation with its office located in San
Clemente, California. Id
Katzman was a BMK shareholder. Id.
Non-party Bergstein resided in Hidden Hills, California, and is currently incarcerated in
On March 1, 2018, a jury in this District found Bergstein guilty of seven
counts of securities fraud, investment advisor fraud, wire fraud, and conspiracy to commit those
offenses against three entities: Wimbledon, Class TT, and Weston Capital Partners Master Fund
II, Ltd. ("Partners II"). Id
Class TT is a Cayman Islands segregated portfolio company. Id
investment fund organized under Cayman Islands law. Id
Partners II is an
Katzman and BMK represented Bergstein and non-party Graybox LLC ("Graybox") in a
civil suit brought by Class TT to enforce a judgment against Bergstein and Gray box. Graybox is
a limited liability company organized under Nevada laws. Id
and officer of Graybox. Wimbledon 56.1
Bergstein is the sole owner
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 5 of 41
Events Leading to Class TT's Claim to Bergstein's Fnnds
a. Background ofBergstein 's liability to Class TT
In December 2010, Bergstein and Kiarash Jam ("Jam") established Swartz IP Services
Group, Inc. ("SIP"). See Hubell Deel., Ex. Q at 2. In November 2011, Class TT entered into a
note purchase agreement ("NP A") with SIP, pursuant to which Class TT was to pay SIP in
exchange for notes and warrants to purchase stock in a separate company. See Hubell Deel., Ex.
I. On February 8, 2013, Class TT sued SIP for breach of contract arising out of the NPA in New
York supreme court, county of New York. See Wimbledon Fund, SPC, v. Advisory IP Services
Inc., Index No. 650446/2013; JSF
10; Hubell Deel., Ex. L. On November 24, 2015, Class TT
obtained a judgment in the amount of$23,051,971.31 against SIP (the "Class TT Judgment").
21; Hubell Deel., Ex. M.
b. Class TT sues Bergstein and Graybox in Texas and California to
enforce its judgment
On July 30, 2015, Class TT sought a judicial declaration in the Southern District of Texas
to hold SIP's directors, officers, and shareholders-including Bergstein and Jam-jointly and
severally liable for the Class TT Judgment (the "Texas Action"). See JSF
13. On August 28,
2015, Class TT filed a separate lawsuit in the Central District of California seeking monetary and
injunctive relief to recover its investments in SIP from alleged fraudulent transferees, including
Graybox (the "California Action"). See JSF
14; Hubell Deel., Ex. P. Graybox was alleged to
have received $2.412 million as a result of fraudulent transfers of Class TT' s investments in SIP.
14. In both the Texas and California actions, Class TT did not assert a claim for
breach of contract, either express or implied. Wimbledon 56.1
2-3. On April 1, 2016, the
Texas Action was transferred to the Central District of California and consolidated with the
California Action. See JSF
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 6 of 41
c. Graybox, a fraudulent transferee, enters into an unrelated settlement
in a bankruptcy proceeding, pursuant to which it receives $2.9 million
On August 15, 2015, Bergstein and Graybox settled claims that they had with Aramid
Entertainment Fund, Ltd. ("Aramid") and its former counsel in Aramid's bankruptcy proceeding
(the "Aramid bankruptcy"). See JSF ,r 15; Katzman Deel. ,r,r 6-7. Pursuant to the settlement,
Graybox was to receive $2.9 million (the "Graybox settlement proceeds"). JSF ,r 15. Bergstein
and Graybox were represented by BMK in that proceeding; thus, the Graybox settlement
proceeds were to be delivered to BMK's client trust account. Id.
,r 16; Katzman Deel. ,r,r 6-7;
Hubell Deel., Exs. 0, Q. Wimbledon, through its counsel in this action, Kaplan Rice, appeared
and participated in the Aramid bankruptcy. See Def. 56.1
,r 77; Hubell Deel., Ex.Eat 105.
d. Class TT obtains against the Graybox settlement fimds a preliminary
injunction, which is affirmed by the Ninth Circuit
On September 9, 2015, after Graybox's claims in the Aramid bankruptcy were settled but
before the funds had been transferred to BMK's client trust account, Class TT filed a motion for
a preliminary injunction in the California Action to enjoin the Graybox settlement proceeds from
being disbursed to Graybox. JSF ,r 17. On September 29, 2015, the court enjoined Graybox
from transferring $2.412 million out of its accounts upon receipt of the $2.9 million in settlement
funds (the "Preliminary Injunction"). Id.
injunction to BMK's client trust account. Id.
affirmed the injunction. Id.
On October 20, 2015, the court extended the
On April 18, 2016, the Ninth Circuit
,r 27; Katzman Deel. ,r 14; Hubell Deel., Ex. R.
e. Bergstein is indicted; the California Action is stayed
In November 2016, while the California Action was pending, Bergstein was indicted in
this District. JSF ,r 28. He was charged with seven counts, including investment advisory fraud,
securities fraud, wire fraud, and conspiracy to commit those offenses. Id.
On December 7,
2016, Bergstein moved to stay the California Action pending resolution of his criminal case. Id.
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 7 of 41
On January 17, 2017, that motion was granted. Id.
The California Action remained
stayed until August 2017, when the settlement with Class TT was reached. Id.
Events Leading to Wimbledon's Claim to the Funds
a. Wimbledon is assigned and seeks to enforce the Arius Libra judgment
On April 4, 2013, Partners II obtained a judgment against Arius Libra, Inc. ("Arius
Libra") in the amount of $6,619,586.77, in New York state supreme court in Manhattan (the
"Arius Libra judgment"). See id.
As of October 16, 2015, Partners II had assigned the
Arius Libra Judgment to Wimbledon. Id.
,r,r 19, 28.
On January 22, 2016, Wimbledon commenced a special proceeding in the commercial
division of the New York state supreme court in Manhattan, captioned Wimbledon Financing
Master Fund, Ltd. v. David Bergstein et al., No. 150584/2016, against Bergstein and Graybox,
among others, to enforce the Arius Libra judgment (the "Turnover Proceeding"). Id.
satisfy the Arius Libra judgment, Wimbledon sought an order under sections 5225 and 5227 of
the New York Civil Practice Law and Rules (the "CPLR") directing Bergstein and others to tum
over the proceeds of various conveyances each had received. Id.
In December 2016, Bergstein and Graybox's counsel at Sills Cummis & Gross, P.C.
("Sills Cummis"), moved to admit Katzman pro hac vice in the Turnover Proceeding on behalf
ofBergstein and Graybox. Id.
In connection with that motion, Katzman submitted an
affidavit attesting that he had "become familiar with the standards of professional conduct
imposed upon members of the New York Bar and relevant statutes, rules and procedures and will
abide by them." Wimbledon 56.1
Katzman also "agree[d] to be subject to the jurisdiction of
the Courts of the State of New York with respect to any acts occurring during the course of [his]
participation in this matter." Id.
On January 10, 2017, the supreme court admitted Katzman
pro hac vice in the Turnover Proceeding. Id.
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 8 of 41
b. The New York state supreme court grants summary judgment to
Wimbledon and judgment is entered against Bergstein and Graybox
On July 17, 2017, the New York state supreme court granted summary judgment in
Wimbledon's favor in the Turnover Proceeding. See id.
On July 21, 2017, judgment was
entered in Wimbledon's favor against (a) Graybox and Bergstein, jointly and severally for
$765,068.49, including prejudgment interest; (b) Iskra Enterprises LLC and Bergstein, jointly
and severally for $227,560.27, including prejudgment interest; (c) Henry N. Jannol and
Bergstein, jointly and severally for $3,365,097.95, including prejudgment interest; (d) Spillane
Weingarten LLP and Bergstein, jointly and severally for $303,068.49, including prejudgment
interest; (e) Weston Capital Asset Management, LLC and Bergstein, jointly and severally for
$1,383,558.90, including prejudgment interest; (f) Gerova Management Inc. and Bergstein,
jointly and severally for $765,068.49, including prejudgment interest; (g) K Jam Media, Inc. and
Bergstein, jointly and severally for $612,054.79, including prejudgment interest; and (h)
Bergstein for $1,076,101.37, including prejudgment interest (the "Turnover Judgment"). Id.
On November 20, 2018, the New York state appellate division affirmed the summary
judgment decision and the related judgment in the Turnover Proceeding. See Wimbledon
Financing Master Fund, Ltd. v. Bergstein, 166 A.D.3d 496 90 N.Y.S.3d 12 (N.Y. App. Div.I st
Dep't 2018). JSF ,r 76.
The Restraining Notices and Subsequent Events
a. Wimbledon serves, and Katzman receives, the Restraining Notices
On July 21, 2017-the same day the judgment was entered in the Turnover ProceedingWimbledon's connsel served restraining notices on Bergstein and Graybox via certified mail,
return receipt requested, pursuant to CPLR § 5222 (the "Restraining Notices"). Id.
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 9 of 41
Restraining Notice stated that Bergstein and Graybox were "hereby forbidden to make or suffer
any sale, assignment, transfer, or interference with any property in which You have an interest,
except upon direction of the sheriff or pursuant to an order of the court, until the Judgment is
satisfied or vacated." Wimbledon 56.1
Each Restraining Notice stated that "disobedience of
this Restraining Notice is punishable as contempt of court." Id ,i 9. And each Restraining
Notice included the text of CPLR § 5222(b ), which provides in part that
a judgment debtor or obligor served with a restraining notice is forbidden to make
or suffer any sale, assignment, transfer or interference with any property in which
he or she has an interest, except as set forth in subdivisions (h) and (i) of this section,
and except upon direction of the sheriff or pursuant to an order of the court, until
the judgment or order is satisfied or vacated.
Id. ,i 10. On July 25, 2017, the Restraining Notices were delivered to Bergstein by certified mail.
JSF ,r 42.
At 6:03 p.m. on July 21, 2017, Wimbledon's counsel also emailed the Restraining
Notices to attorneys at Sills Curnmis. Id ,i 38. Ten minutes later, Andrew Sherman, a Sills
Cummis attorney, forwarded the Restraining Notices to Katzman and Bisconti. Id ,i 39.
Katzman received Sherman's email and the attached Restraining Notices on July 21, 2017. Id ,i
40. Katzman has admitted under oath that, "upon receipt, I briefly glanced through the
Restraining Notices," but, he has claimed, he "did not review them or analyze them in depth."
Bisconti also received the Restraining Notices on July 21, 2017. JSF ,r
41. He read the Restraining Notices when he received them. Wimbledon 56.1
b. Katzman and BMK negotiate a settlement with Class TT and transfer
funds pursuant to the settlement
On August 10, 2017-three weeks after receiving the Restraining Notices-Katzman and
Bergstein participated in person in a settlement meeting with representatives of Class TT in New
York, New York. JSF ,r 43. During that meeting, Graybox, Bergstein and Class TT drafted and
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 10 of 41
executed a settlement term sheet (the "Term Sheet"). Id. Katzman and Bisconti assisted
Bergstein in negotiating the terms of the Term Sheet. Wimbledon 56.1
The Term Sheet provided a total settlement payment to Class TT in the amount of $9.4
million, payable in three installments: first, the "immediate" release of the Enjoined Funds by
wire transfer to a client Trust Account; second, SIP to wire $5 million to a client trust account
within thirty days of execution of the written settlement agreement by Bergstein, Graybox, SIP
and Class TT; and third, SIP to pay $2 million to a client trust account within twelve months of
the execution of the parties' written settlement agreement. Id. 114. The Term Sheet
contemplated that the parties would enter into a final written settlement agreement: "At the
option of the parties, this Term Sheet and the parties' contemplated settlement shall
automatically become null and void if the Settlement Agreement is not executed and the Frozen
Funds are not wired to [Class TT] by August 25, 2017." Id.
1 15; Hubel! Deel., Ex. Z.
On August 16, 2017, BMK filed a joint stipulation in the California Federal Action by
Bergstein, Graybox, and Class TT advising the court of the parties' confidential settlement, and
stipulating, subject to court approval, to an order directing BMK to deliver the Enjoined Funds to
Class TT. JSF 1 47. The California Federal Action had been stayed since January 2017, when
the California Federal Court granted Bergstein's and Graybox's motion to stay the action
pending Bergstein's criminal trial in this District. Wimbledon 56.1116. The stipulation
accordingly asked the California Federal Court to lift the stay "for the sole and limited purpose
of modifying the terms of the Preliminary Injunction to allow BMK to release the full amount of
the Frozen Funds to the [Class TT]." JSF 1 48.
Katzman, BMK, Bergstein, and Gray box did not inform the California Federal Court that
the Turnover Judgment had been entered against Bergstein and Graybox, or that Bergstein and
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 11 of 41
Graybox had received and were subject to the Restraining Notices. Wimbledon 56.1
Nor did Katzman, BMK, Bergstein, and or Graybox seek permission from the New York state
supreme court to release the Enjoined Funds to Class TT. Id. ,i 19. Katzman, BMK, Bergstein,
and Graybox also did not inform Wimbledon of the application to the California Federal Court
for permission to transfer the Enjoined Funds to Class TT. Id. ,i 20.
On August 17, 2017, the California Federal Court entered an order approving the joint
stipulation. JSF ,r 49. The California Federal Court ordered that "[t]he stay of this case, entered
by this Court on January 9, 2017 ... , is lifted for the sole and limited purpose of modifying the
terms of the preliminary injunction entered by this Court on October 20, 2015 ... , to allow
[BMK] to release the amount of$2,412,000 (the 'Frozen Funds') to the Fund in furtherance of
the parties' settlement of this case." Id. ,i 50. The California Federal Court ordered that "[u]pon
entry of this Order, BMK is directed to pay the Frozen Funds to the Fund pursuant to instructions
to be provided by the Fund's undersigned counsel." Id. ,i 51.
On August 21, 2017, BMK transferred the formerly enjoined funds to Class TT by wiring
those funds to the client trust account of its lawyer. Id. ,i 52. Between November 16 and 21,
2017, Graybox, Bergstein and Class TT executed a "Confidential Compromise Settlement and
Release Agreement" (the "Confidential Settlement Agreement"). Id.
The Civil Contempt Motion
a. Wimbledon's discovery of the Restraining Notice violation
On November 27, 2017, Sills Cummis filed a motion to withdraw as counsel to Bergstein
and Graybox, among others, in the Turnover Proceeding. See Wimbledon 56.1
December 5, 2017 hearing on Sills Cummis's motion, Wimbledon's counsel, Howard Kaplan,
notified the New York state supreme court that "[w]e just discovered this week that Grayboxwe have a judgment against Graybox that your Honor entered for $800,000. Gray box had
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 12 of 41
money sitting in [Katzman's], Bienert's escrow account in California that was frozen by court
order out there that was also subject to our restraining notice. We just learned that they
transferred that to a third-party." Id. ,i 26; Matteo Deel., Ex. 15 at 24. Counsel for Sills Cummis
told the supreme court that "[w]hen Mr. Kaplan brought this up in the hallway, it's the first time
that Sills Cummis learned ofit. We did not know of this issue." Wimbledon 56.1 ,i 27; Matteo
Deel., Ex. 15 at 25. The supreme court granted Sills Cummis's motion to withdraw, but denied
Sills Cummis's oral request to permit Katzman to withdraw his pro hac vice admission.
Wimbledon 56.1 ,i 28; Matteo Deel., Ex. 15 at 26; id., Ex. 16.
b. Wimbledon's communications with Katzman and the second settlement
Through a letter dated December 8, 2017, Kaplan informed Katzman that "[it] recently
became aware that, notwithstanding the restraining notices, the $2,412,000 belonging to
Bergstein and Graybox was distributed to the TT Fund." Wimbledon 56.1 ,i 29; Matteo Deel.,
Ex. 17 at 2. Kaplan's letter stated that the distribution of the Enjoined Funds, "which post-dated
service of Wimbledon's restraining notices by four weeks, was in violation of the restraining
notices." Wimbledon 56.1 ,i 30; Matteo Deel., Ex. 17 at 2.
Kaplan asked Katzman to (i) provide BMK's communications with others concerning the
Judgment and Restraining Notices; (ii) produce the settlement agreement among Bergstein,
Graybox and Class TT; and (iii) explain the circumstances surrounding the distribution to Class
TT. Wimbledon 56.1 ,i 31; Matteo Deel., Ex. 17 at 2. By letter dated December 14, 2017,
Katzman refused these demands. Wimbledon 56.1 ,i 32; Matteo Deel., Ex. 18.
The Settlement Agreement provided that SIP or its designee shall wire $5 million to a
Class TT client trust account within 30 days of the agreement's execution. Wimbledon 56.1 ,i
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 13 of 41
33. Because the Settlement Agreement was fully executed on November 21, 2017, the $5
million payment was due on or before December 21, 2017. Id.; Matteo Deel. Ex. 19 at 4.
Citing Katzman's declaration, defendants claim that "without any prior knowledge of or
involvement by the [d]efendants," Xanadu Media Group, Inc. ("Xanadu") wired $5 million to
Class TT. See Def. 56.11109. That factual claim is refuted by documentary evidence. On
December 14, 2017, Katzman emailed Jim Walker, counsel for Class TT, copying Bisconti,
stating: "Our client is planning on making the 5 mm payment per the settlement agreement. Are
the wire instructions you provided to us for the funds held per the preliminary injunction,
attached, the ones we should use? If not, please provide different wire instructions."
Wimbledon 56.1 134; Matteo Deel., Ex. 20. On December 15, 2017, Bisconti emailed Walker,
copying Katzman, stating: "Attached are drafts of the proposed stipulation and order dismissing
the action pursuant to paragraph A.5. of the confidential settlement agreement. Let us know if
you have any changes. If not, once receipt of the $SM payment is confirmed, we can circulate to
the other defendants being dismissed to confirm they authorize to use their electronic signatures,
and we can file with the court. Thanks." Wimbledon 56.1135; Matteo Deel., Ex. 21.
On December 19, 2017, Xanadu wired a $5 million payment to the client trust account of
Class TT' s lawyer. JSF 1 61.
On December 22, 2017, Kaplan sent Katzman a letter in which he stated: "We would like
to provide you with another opportunity to provide the information requested in our December
8th letter before we move forward with our motion for contempt. Please promptly provide this
information." Wimbledon 56.1 136. Wimbledon did not receive a response to this letter. Id. 1
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 14 of 41
Wimbledon's contempt motion-and the contempt decision
On February 5, 2018, Wimbledon moved in New York state supreme court for an order
of civil contempt against Bergstein, Gray box, Katzman, and BMK in the Turnover Proceeding
concerning the transfer of the Enjoined Funds to Class TT. 2 JSF i! 63. On March 31, 2018,
Katzman and BMK submitted their opposition to that motion. Wimbledon 56.1 ,i 42; Matteo
Deel., Ex. 24. Bergstein and Graybox also submitted opposition papers. Wimbledon 56.1 ,i 44;
See Matteo Deel., Ex. 2.
At argument on April 4, 2018, the supreme court ordered Katzman and BMK to produce
the Confidential Settlement agreement to Wimbledon; it was produced the following day. JSF ,i,i
65-66. On April 20, 2018, the supreme court ordered Katzman and Sills Cummis to submit
affirmations "indicating if, when, and how Mr. Katzman and/or BMK were notified of and/or
provided with the restraining notices that were served on Bergstein [and] Graybox on 7/25/17."
Wimbledon 56.1 ,i 48; Matteo Deel., Ex. 27. The supreme court directed that Katzman's counsel
"may file a 7-page brief concerning said affirmations." Wimbledon 56.1 ,i 49.
On May 10, 2018, the supreme court issued a decision and order on Wimbledon's
contempt motion. JSF ,i 68. It held Bergstein, Graybox, Katzman, and BMK in civil contempt
for violating the Restraining Notices by transferring the Enjoined Funds to Class TT. It
specifically found that "[t]here is no question of fact that the Bergstein Parties knowingly and
willfully violated the Restraining Notices." Matteo Deel., Ex. 34. It ordered them to pay
Wimbledon "the reasonable attorneys' fees expended in connection with the instant motion,
which will be calculated by a Special Referee." Wimbledon 56.1 ,i 58; Matteo Deel., Ex. 34.
Wimbledon had sought an order of contempt only as to the first $2.412 million settlement
payment because it did not learn that the second payment had been made until after it had filed
its motion for contempt. See Dkt. 99 at 40. It learned of the $5 million payment about a month
before the Contempt Order was entered. See Hubell Deel., Ex. LL.
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 15 of 41
Important here, as to actual damages, the court found that, although "a party held in contempt for
violating a restraining notice may be ordered to pay the full amount of money that would have
been available to satisfy the judgment but for its contempt," holding Katzman liable for the full
$2.412 million would be "far too harsh." Matteo Deel., Ex. 34 (internal quotations omitted).
The court explained that "[t]his public admonishment, placing restrictions on his future pro hac
vice applications, and compelling him to pay Wimbledon's attorneys' fees, is punishment
On May 17, 2018, BMK filed a copy of the contempt order with the court in the
California Federal Action, as directed by the New York state supreme court. JSF 169.
On June 4, 2019, the New York Appellate Division, First Department, affirmed the
Contempt Order in part and modified it in part. See Wimbledon Financing Master Fund, Ltd. v.
Bergstein, et al., 173 A.D.3d 401, 103 N.Y.S.3d 378 (N.Y. App. Div. 2019). Id. 177.
On October 3, 2019, the Appellate Division denied Katzman's and BMK's motion to
reargue their challenge to Wimbledon's motion for civil contempt or, in the alternative, for leave
to appeal the Contempt Order to the New York Court of Appeals. Id. 181
Wimbledon's Litigation Against Class TT
On March 7, 2019, Wimbledon filed suit against Class TT in New York state supreme
court in Manhattan, seeking to set aside the $5 million conveyance to Class TT that is a subject
of this action. See Hubell Deel., Ex. LL; Wimbledon Fin. Master Fund, Ltd., v. The Wimbledon
Fund, SPC (Class TT), Index No. 651376/2019. On October 28, 2019, the supreme court
granted Class TT's motion to dismiss Wimbledon's suit. JSF 181. It held: "Wimbledon's
petition is dismissed because CPLR § 5202(b) is the only basis on which Wimbledon challenges
the $5 million transfer to Class TT ... [,] [and] CPLR § 5202(b ), by its terms, does not support
even potentially granting the relief sought." Hubell Deel., Ex. MM at 8. CPLR § 5202(b), the
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 16 of 41
court stated, "gives judgment creditors who have obtained a turnover order priority over
subsequent creditors and permits the imposition of liability on subsequent creditors who receive
assets of the judgment debtor in bad faith and while on notice of the other creditor's priority."
Id. at 2. But, it noted, Wimbledon's judgment against Bergstein and his confederates was a
monetary judgment, and did not direct delivery, turnover, or any other article 52 relief within the
meaning of CPLR § 5202(b). Id. at 8-9. As such, the court held, Wimbledon's judgment was
not entitled to priority over Class TT' s settlement. Id. at 9.
Status of Wimbledon's Efforts to Collect from Bergstein
The record does not establish what, if any, remaining assets the incarcerated Bergstein
has. The parties have represented that, although Wimbledon has reached a settlement in
principle with Bergstein, Bergstein has stated "that he will not sign the settlement agreement
until he reaches certain agreements with the government in connection with his criminal case,
but to date has not been able to do so." Dkt. 97. The terms of the settlement in principle are not
part of the record. Id. Wimbledon has advised Bergstein that it plans to recommence postjudgment enforcement proceedings against him. Id.
On August 31, 2018, defendants removed this action from the New York supreme court
in Manhattan, where Wimbledon had brought suit. Dkt. 1. On September 27, 2018, the Court
stayed the case pending a resolution of a motion pending in the Central District of California, in
which defendants sought to enjoin this suit. Dkt. 9. On November 14, 2018, the Court lifted the
stay following that court's ruling transferring the California action to this District. Dkt. 11. On
December 14, 2018, defendants filed an answer to the complaint. Dkt. 17.
As to the summary judgment motions, on November 5, 2019, after fact discovery closed,
the parties filed a joint statement of undisputed facts. Dkt. 66. Thereafter, between November
- - - - - -- --- --------
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 17 of 41
22, 2019, and January 27, 2020, the parties filed their respective summary judgment motions,
oppositions, and supporting materials, as listed above. See note 1, supra.
Applicable Legal Standards
Standards Governing Motions for Summary Judgment
To prevail on a motion for summary judgment, the movant must "show that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter of
law." Fed. R. Civ. P. 56(a). The movant bears the burden of demonstrating the absence of a
question of material fact. In making this determination, the Court must view all facts "in the light
most favorable" to the non-moving party. Holcomb v. Iona Coll., 521 F.3d 130, 132 (2d Cir.
2008); see also Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
To survive a summary judgment motion, the opposing party must establish a genuine
issue of fact by "citing to particular parts of materials in the record." Fed. R. Civ. P. 56(c)(l)(A);
see also Wright v. Goard, 554 F.3d 255, 266 (2d Cir. 2009). "A party may not rely on mere
speculation or conjecture as to the true nature of the facts to overcome a motion for summary
judgment," because "conclusory allegations or denials cannot by themselves create a genuine
issue of material fact where none would otherwise exist." Hicks v. Baines, 593 F.3d 159, 166
(2d Cir. 2010) (internal citation omitted). "Only disputes over facts that might affect the
outcome of the suit under the governing law" will preclude a grant of summary judgment.
Anderson v. Liberty Lobby Inc., 477 U.S. 242,248 (1986). In determining whether there are
genuine issues of material fact, the Court is "required to resolve all ambiguities and draw all
permissible factual inferences in favor of the party against whom summary judgment is sought."
Johnson v. Killian, 680 F.3d 234,236 (2d Cir. 2012) (citing Terry v. Ashcroft, 336 F.3d 128, 137
(2d Cir. 2003)).
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 18 of 41
The parties cross-move for summary judgment on each of Wimbledon's four claims.
These are for negligence and gross negligence with respect to both the $2.412 and $5 million
payments to Class TT.
As to the $2.412 million tranche, Wimbledon moves for summaty judgment on the
ground of issue prelusion, based on the ruling of the New York state supreme court finding
Katzman and BMK in contempt. It argues that that court necessarily found the defendants
willfully negligent in violating the Restraining Notices. As to both tranches, Wimbledon argues
that the evidence shows that defendants were both negligent and grossly negligent in actively
facilitating the payments in violation of the Restraining Notice.
Defendants cross-move for summary judgment on all claims. They argue that the claims
as to the $2.412 million transfer are precluded by the contempt order and the claims as to the $5
million transfer are precluded by the Class TT litigation. They also argue that they did not owe a
duty to Wimbledon; that Wimbledon has not adduced sufficient evidence as to causation; and
that defendants' conduct was protected by the California litigation privilege.
Defendants' Motions Based on Claim and Issue Preclusion
The Court first addresses the extent to which this Court's review is precluded by New
York state supreme court's (1) contempt order against Katzman and BMK; and (2) decision
resolving the Class TT litigation.
Applicable Legal Standards
"Under the doctrine of res judicata, or claim preclusion, 'a final judgment on the merits
of an action precludes the parties or their privies from relitigating issues that were or could have
been raised in that action."' Flaherty v. Lang, 199 F.3d 607,612 (2d Cir. 1999) (quoting Rivet v.
Regions Bank ofLa., 522 U.S. 470, 476 (1998)) (emphasis omitted); see also Federated Dep 't
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 19 of 41
Stores, Inc. v. Moitie, 452 U.S. 394, 398 (1981 ). "Res judicata (claim preclusion) is distinct
from the related doctrine of collateral estoppel (issue preclusion), which 'refers to the preclusive
effect of a judgment that prevents a party from litigating, for a second time, an issue of fact or
law that has once been decided."' MFW Assocs., LLC v. Plausteiner, No. 15 Civ. 2513 (PAE),
2017 WL 2418277, at *8 (S.D.N.Y. June 2, 2017), aff'd, 729 F. App'x 51 (2d Cir. 2018)
(summary order) (quoting Yeiser v. GMAC Mortgage Corp., 535 F. Supp. 2d 413,421 (S.D.N.Y.
"[T]he defense of res judicata ... may be brought, under appropriate circumstances,
either via a motion to dismiss or a motion for summary judgment." Sassower v. Abrams, 833 F.
Supp. 253,264 n.18 (S.D.N.Y. 1993). The party moving to dismiss on resjudicata grounds
must show that "(1) the previous action involved an adjudication on the merits; (2) the previous
action involved the plaintiffs or those in privily with them; [and] (3) the claims asserted in the
subsequent action were, or could have been, raised in the prior action." Monahan v. NYC Dep 't
of Corr., 214 F.3d 275, 285 (2d Cir. 2000) (citations omitted).
Under the defense of collateral estoppel, any "issue raised in a subsequent suit" is
precluded if it "was 'actually and necessarily determined' in a prior litigation; this precludes a
party from relitigating the same issue based on a different cause of action." Montana v. United
States, 440 U.S. 147, 153 (1979). To determine whether such estoppel applies, a court examines
whether "(1) the identical issue was raised in a previous proceeding; (2) the issue was 'actually
litigated and decided' in the previous proceeding; (3) the party had a 'full and fair opportunity' to
litigate the issue; [and] (4) the resolution of the issue was 'necessary to support a valid and final
judgment on the merits."' Interoceanica Corp. v. Sound Pilots, Inc., 107 F.3d 86, 91 (2d Cir.
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 20 of 41
1997) (quoting Cent. Hudson Gas & Elec. v. Empresa Naviera Santa S.A., 56 F.3d 359,368 (2d
Does the Contempt Proceeding and Order Preclude Wimbledon's
Claims as to the $2.412 Million Transfer?
Defendants argue that claim and/or issue preclusion bar Wimbledon's negligence and
gross negligence claims for $2.412 million-the money released in the first tranche of the Class
TT settlement, and which was the object of Wimbledon's contempt proceeding in state court.
Defendants argue that because the contempt proceeding addressed the same "transaction," i.e.,
the $2.412 million transfer, Wimbledon is precluded from now asserting a new claim to recover
on that transaction. Alternatively, defendants argue that Wimbledon's bid to relitigate the issue
of the actual damages it is due from BMK and Katzman is barred by issue preclusion, because
the state court considered-and rejected-Wimbledon's bid to recover its claimed actual
damages of$2.412 million, awarding it only the fees and costs it incurred in bringing the
In general, an earlier contempt proceeding can preclude a later suit for damages, to the
extent the petitioner in the contempt proceeding could there have brought additional claims to
recover damages from the allegedly contumacious conduct. Compare Nabisco, Inc. v. Amtech
Int'!, Inc., No. 95 Civ. 9699 (LBS), 2000 WL 35854, at *8 (S.D.N.Y. Jan. 18, 2000) (claim for
damages not barred by res judicata based on earlier contempt proceeding because claim could
not have been brought in that proceeding) with Dep 't of Haus. Pres. & Dev. of City ofNY. v.
Ieraci, 156 Misc. 2d 646,652,594 N.Y.S.2d 574,578 (Civ. Ct. 1992) (claim barred by res
judicata based on prior contempt proceeding); Culver v. Culver, 37 Misc. 3d 123 l(A), 966
N.Y.S.2d 345 (Sup. Ct. 2012) (same); cf Porter v. Shah, 606 F.3d 809, 814 (D.C. Cir. 2010);
Lee v. Spoden, 290 Va. 235, 249-50 (2015).
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 21 of 41
The res judicata analysis here is complicated by the fact that Wimbledon brought its
contempt proceeding in supreme court under New York Judiciary Law§ 753 and was awarded
damages under§ 773. Section 753 authorizes contempt proceedings for, inter alia, violations of
restraining notices. Once a court has made a finding of contempt under that statute, as the state
court did as to BMK and Katzman here, it must then determine the "amount of fine" under N. Y.
Judiciary Law§ 773, which provides:
If an actual loss or injury has been caused to a party to an action or special
proceeding, by reason of the misconduct proved against the offender, and the case
is not one where it is specially prescribed by law, that an action may be maintained
to recover damages for the loss or injury, a fine, sufficient to indemnify the
aggrieved party, must be imposed upon the offender, and collected, and paid over
to the aggrieved party, under the direction of the court. The payment and
acceptance of such a fine constitute a bar to an action by the aggrieved party, to
recover damages for the loss or injury.
Wimbledon argues that normal claim preclusion principles do not apply here based on
§ 773. It asserts that "[u]nder New York law, a plaintiff may pursue a party for contempt in one
proceeding and concurrently proceed against that same party for damages in another action."
See Dkt. 81 ("PL Oppo. Memo") at 16-17.
In support, Wimbledon relies primarily on Jos. Riedel Glass Works v. Francis W Kurtz
& Co., 260 A.D. 163, 20 N.Y.S.2d 938 (N.Y. App. Div. 1940), order aff'd, 287 N.Y. 636, 39
N.E.2d 270 (1941). In Riedel, the plaintiff had prevailed in a contempt proceeding but ultimately
was unable to recover the fine the proceeding set. See id. at 167. 3 That, however, did not
prevent the plaintiff from recovering its actual losses, the First Department explained. Id.
"Contempt," it explained, "was not intended to be in any way a substitute for the right to proceed
by action, but was intended to be a concurrent remedy," id. (cleaned up), and because § 773
Under§ 773, as the First Department explained, "[a]: "fine fixed in an order adjudging one
guilty of contempt may not be docketed as a judgment where, as here, the contemnor is serving a
term in jail for failure to pay the fine." Id.
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 22 of 41
made the acceptance of a fine a bar to recovering damages, the plaintiff, having not accepted the
fine, was statutorily free to bring another cause of action for damages. Id. (noting that § 773
"provides that the payment and acceptance of a fine (referring to a fine in contempt proceedings)
constitute a bar to an action by the aggrieved party to recover damages for loss or injury"). In
other words, the statute permitting contempt sanctions, and even the pursuit of a contempt
sanction, did not bar a plaintiff from pursuing money damages, provided the defendant had not
accepted a contempt fine.
Riedel does not assist Wimbledon, as it is readily distinguishable. The First Department
in Riedel explicitly recognized that, under § 773, the payment and acceptance of a fine was a bar
to an action for damages for the same wrong. Here, it is undisputed that BMK and Katzman
have paid the fine the supreme court held warranted in the contempt proceeding. In its decision,
that court considered Wimbledon's bid for an award of actual damages, but chose to award only
actual losses from the contempt proceeding itself (attorneys' fees) as the fine. See Matteo Deel.,
Ex. 34 (quoting Gottlieb v. Gottlieb, 137 A.D.3d 614,618, 28 N.Y.S.3d 37 (N.Y. App. Div.
2016) ("Legal fees that constitute actual loss or injury as a result of a contempt are routinely
awarded as part of the fine." (cleaned up)). And the parties have stipulated that "On March 5,
2020, the BMK parties paid to Wimbledon the amount of $96,181.15 by wire transfer to Kaplan
Rice LLP, in full satisfaction of the reasonable attorneys' fees and interest thereon." See Dkt. 97.
Wimbledon has not cited any case--and this Court has found none-in which an action
for damages was permitted to proceed after a contempt fine based on the same wrong had been
both awarded and paid. See Est. ofRothko, 84 Misc. 2d 830,870,379 N.Y.S.2d 923,963 (Sur.
1975), decree modified sub nom. Will ofRothko, 56 A.D.2d 499,392 N.Y.S.2d 870 (N.Y. App.
Div. 1977), aff'd sub nom. Matter ofRothko 's Est., 43 N.Y.2d 305,372 N.E.2d 291 (1977)
- ~ ~ - - -- ------------- ----- ----
- - - - - - ----------- -- -
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 23 of 41
("Judiciary Law § 773 specifically recognizes this by virtue of its provision that payment and
acceptance of a fine imposed as indemnity for a civil contempt constitutes a bar to an action by
the aggrieved party to recover damages for the loss or injury. There can be no double
recovery."); cf Smith v. Mclver, 22 U.S. 532 (1824) ("Admitting, then, the concurrent
jurisdiction of the Courts of equity and law ... we think the cause must be decided by the
tribunal which first obtains possession of it, and that each Court must respect the judgment or
decree of the other."). The Court thus holds that Wimbledon is precluded from pursuing
negligence claims against BMK and Katzman based on their actions facilitating the $2.412
Although not necessary to the Court's ruling, the justice of this result is reinforced by an
aspect of Wimbledon's litigation before the supreme court: In the same proceeding in which it
pursued contempt, Wimbledon also actually pursued damages for negligence. It told the
supreme court that its negligence claim should be heard alongside its contempt motion, stating:
While some courts have held that a claim for negligent violation of a restraining
notice must be asserted in a separate action or special proceeding, Wimbledon is
not "relegated to either a plenary action for damages or a motion ... for contempt."
Mazzuka v. Bank of N Am., 53 Misc. 2d 1053, 1056, 280 N.Y.S.2d 495 (Civ. Ct.
1967). Rather the "form should give way to sound justice," and both requests for
relief should be considered together, particularly where (as here) requiring
Wimbledon to commence a new proceeding would waste judicial and party
resources. Id (citation omitted). See also CPLR § 103.
Hubel! Deel., Ex. GG. For reasons the record does not clarify, the supreme court did not rule on
Wimbledon's negligence theory (or refer to that theory in its ruling as to contempt damages).
Wimbledon did not challenge that lapse before the supreme court. And when Wimbledon filed a
cross appeal of the contempt decision, seeking a greater damages award, it did not challenge the
supreme court's inaction on its claim of negligence. See Hubel! Deel., Ex. JJ. After the First
Department upheld the supreme court's ruling limiting contempt damages to reasonable
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 24 of 41
attorneys' fees, Wimbledon did not seek leave to further appeal that order. Dkt. 74 at 14. Under
these circumstances, Wimbledon's renunciation of damages for negligence follows not merely
under § 773 from its acceptance of the contempt fine awarded by the supreme court. It follows
too under basic principles of res judicata-Wimbledon not only could have pursued a negligence
claim, but it actually did, in the contempt proceeding, only to abandon it. See Magassouba v.
Cascione, Purcigliotti & Galluzzi, P.C., No. 20 Civ. 10996 (PAE) (BCM), 2021 WL 4198219, at
*7 (S.D.N.Y. Sept. 15, 2021); Aghaeepour v. N. Leasing Sys., Inc., 378 F. Supp. 3d 254,265
(S.D.N.Y. 2019) (citing Restatement (Second) of Judgments§ 24(2) (1982)) ("In other
words, res judicata exists to ensure that litigants to do not get two bites at the apple and waste
judicial resources relitigating issues that have or could have already been decided.").
The Court's holding under§ 773 is in accord with the two § 773 cases Wimbledon cites.
Each reinforces that a plaintiff may proceed by law, equity, or both. Neither supports that, after
pursuing contempt sanctions and accepting payment of them, a party like Wimbledon can pursue
negligence damages for the same wrong.
In Mazzuka v. Bank ofN. Am., 53 Misc. 2d 1053 (Civ. Ct. 1967), the plaintiff pursued a
damages action based on a third-party bank's alleged violation of a restraining notice. The bank
argued that plaintiff was limited to bringing a contempt proceeding, which he had not. The court
upheld plaintiffs election as proper under Riedel: "Here, plaintiff elected not to proceed to
punish the defendant for contempt as authorized by the underlying statutes, CPLR Sections 5222
and 5251, which are geared to the contempt machinery under the Judiciary Law, including 773
thereof. Instead, plaintiff chose to have recourse to an action for damages. That he has a right so
to do is the holding of the Riedel case." Id. at 1057 (emphasis added).
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 25 of 41
In Kanbar v. Goldberg, 1995 WL 17961038 (N.Y. Sup. Ct. Mar. 23, 1995), the court
permitted the plaintiff to amend his complaint to include a claim for negligence after a contempt
motion had been denied in an earlier proceeding. The court noted that the standard for contempt
is a "refusal or willful neglect," a higher standard than negligence. Id. (citing N.Y. CPLR
§ 5251) (emphasis added)). In permitting to pursue a negligence claim in his later suit, the court
noted that although "negligence, without more, is not enough to hold someone in contempt ... ,
plaintiff is not trying to re litigate the contempt issue." Id. Here, of course, as to the $2.412
million transfer, Wimbledon seeks to do the opposite. The contempt proceeding was decided in
its favor, which, as it itself argues, would collaterally estop BMK and Katzman from contesting
their negligence with respect to that transfer. See Pl. Memo at 19-20 ("In holding Katzman and
BMK in contempt for willfully neglecting the Restraining Notices, the supreme coutt therefore
necessarily decided that their actions met the less demanding standard of negligence."). And,
fatefully, Wimbledon made the choice to accept payment of the fine awarded by the supreme
court for that contempt. That, under § 773, bars it from pursuing a damages action based on the
Accordingly, as to Wimbledon's gross negligence and negligence claims arising from the
$2.412 million transfer, the Court grants BMK and Katzman's summary judgment motion, and
denies Wimbledon's summary judgment motion.
Does the Class TT Litigation Preclude Wimbledon's Claims as to the
$5 Million Transfer?
Defendants make a different preclusion argument as to the $5 million transfer. As noted,
to prevail, Wimbledon must establish, inter alia, that defendants' negligent conduct with respect
to that transfer caused it actual damages. That means showing that, but for defendants' conduct,
Wimbledon would have received all or some of the $5 million. Defendants argue that that issue
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 26 of 41
was decided in its favor in the Class TT litigation, barring Wimbledon from litigating it here.
See Def. Mot. at 16.
That is wrong, because the Class TT decision does not resolve the causation issue here.
In the Class TT litigation, which Wimbledon brought against Class TT to recover the $5 million
payment, the New York supreme court held that Wimbledon was not entitled to set aside such
payment to Class TT. Its basis was that Wimbledon did not have priority over Class TT's New
York money judgment. Id But the issue there was different. Acting after the $5 million had
been disbursed to Class TT, the court there evaluated whether Wimbledon had priority over
Class TT to that money; it held (and was affirmed on this ground) that Wimbledon did not. 4 But
Wimbledon's claim here presupposes that BMK and Katzman abided by the Restraining Notice,
such that the $5 million transfer to Class TT had not been made. The causation question in that
scenario, as to Class TT, is whether it had priority over Wimbledon, such that the restrained
funds would have gone to Class TT regardless. The Class TT litigation did not have occasion to
resolve that issue. It was enough to resolve that litigation that Wimbledon lacked priority over
Class TT, and thus did not have a basis to set aside the transfer. Critically, the Class TT
litigation left open the possibility that these two creditors ofBergstein's had equal priority. In
that scenario, Wimbledon would be at liberty to assert here, as to causation, that, but for
defendants' breach of the Restraining Notice, it would have received some or all of the $5
Wimbledon Fin. Master Fund, 2018 WL 2163586, at *6-7 & n.17. In affirming, the First
Department affirmed noted that "Katzman and BMK cite no authority in support of their
contention that the California action has a superior interest in the settlement proceeds." In re
Wimbledon Fin. Master Fund, 173 A.D.3d at 402.
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 27 of 41
Put in CPLR terms, Wimbledon's claim in the Class TT litigation was under CPLR §
5202(b), which governs priorities between a judgment creditor and a subsequent transferee of the
judgment debtor's property. It provides:
Once a judgment creditor secures certain orders issued pursuant to article 52, such
as a delivery order or an order directing an appointed receiver to take possession of
specified property, the judgment creditor will obtain priority and prevail over any
transferee except for one who does not know of the order and has paid fair
consideration for the property.
See Wimbledon Fin. Master Fund, Ltd. v. The Wimbledon Fund (Class TT), Index No.
651376/2019, 2019 WL 5547030, at *3 (N.Y. Sup. Ct. Oct. 28, 2019). The supreme court held
that Wimbledon had obtained only an "ordinary monetary judgment," id. at *4, not a turnover
order that would give it priority over Class TT as a "transferee," id. at *4 n.4. That
determination, however, does not resolve the disposition of the $5 million had Class TT not
benefitted from BMK and Katzman' s breach of the restraining notice.
The Court accordingly denies BMK and Katzman's motion for summary judgment as to
the $5 million, to the extent that motion is based on collateral estoppel.
Cross-Motions for Summary Judgment as to the Elements of Negligence,
With Respect to the $5 Million Transfer
Having found Wimbledon not precluded from pursuing damages claims as to the $5
million transfer, the Court turns to the cross-motions for summary judgment on that claim. For
the reasons that follow, the Court denies both parties' motions. That is because, although the
negligence elements of duty and breach can be resolved in Wimbledon's favor as a matter of
law, the issue of causation cannot be resolved, on the present record, in either party's favor on
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 28 of 41
a. Applicable legal standards
Under New York law, to prevail on a negligence claim, "a plaintiff must demonstrate (1)
a duty owed by the defendant to the plaintiff, (2) a breach thereof, and (3) injury proximately
resulting therefrom." Pasternackv. Lab 'y Corp. ofAm. Holdings, 27 N.Y.3d 817, 825, 59
N.E.3d 485,490 (2016) (quoting (Solomon v. City ofNew York, 66 N.Y.2d 1026, 1027, 499
N.Y.S.2d 392,489 N.E.2d 1294 (1985)).
b. Duty and breach
Defendants argue that, even after receiving the restraining notice, they did not owe a duty
to Wimbledon to refrain from participating in disbursing the settlement funds to Class TT. On
the summary judgment record, that is clearly wrong.
"[T]o prevail on [a] claim of common-law negligence, there must first be a legal duty
owed by defendant to" the plaintiff. D 'Amico v. Christie, 71 N. Y.2d 76, 87, 518 N.E.2d 896
(1987). "The definition and scope of an alleged tortfeasor's duty owed to a plaintiff is a question
of law." Pasternack, 27 N.Y.3d at 825 (citing Palka v. Servicemaster Mgmt. Servs. Corp., 83
N.Y.2d 579,585 611 N.Y.S.2d 817,634 N.E.2d 189 (1994)). Courts "fix the duty point by
balancing factors, including the reasonable expectations of the parties and society generally, the
proliferation of claims, the likelihood of unlimited or insurer-like liability, disproportionate risk
and reparation allocation, and public policies affecting the expansion or limitation of new
channels ofliability." 532 Madison Ave. Gourmet Foods v. Finlandia Ctr., 96 N.Y.2d 280, 727
N.Y.S.2d 49, 750 N.E.2d 1097 (2001) (cleaned up).
The undisputed facts here easily establish a duty on BMK and Katzman's part-and
running to Wimbledon's benefit-not to assist their client, Bergstein, in violating the Restraining
Notices once they had actual notice of them. Under CPLR § 5222, a "restraining notice is not a
----- - ----- - - - - - - - - - -
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 29 of 41
mere notice but a form of process issued out of court intended to have the effect of injunction."
Sumitomo Shoji NY., Inc. v. Chem. Bank a/New York, 47 Misc. 2d 741, 746 (Sup. Ct. N.Y.
Cnty. 1965), ajf'd, 267 N.Y.S.2d 277 (N.Y. App. Div. 1966). And under New York law, the
statutory duty owed to a judgment creditor to comply with a restraining notice is not limited to
the judgment debtor. A third party "may be held liable to a judgment creditor for its negligence
in complying with a restraining notice." CSX Transp., Inc. v. Errifay Env 't Recycling, Ltd., No.
12 Civ. 1865 (JS) (AKT), 2016 WL 755630, at *5 (E.D.N.Y. Feb. 25, 2016) (quoting Mazzuka,
53 Misc. 2d at 1057) (collecting cases), ajf'd in relevant part sub nom. CSX Transp., Inc. v.
Island Rail Terminal, Inc., 879 F.3d 462, 470-72 (2d Cir. 2018). Apposite here, New York
courts have found that the duty extends to a lawyer who, with actual knowledge of a restraining
notice, assists their client in violating it. See, e.g., Kanbar v. Quad Cinema Corp., 195 A.D.2d
412,414,600 N.Y.S.2d 702, 704 (N.Y. App. Div. 1993) ("[A]n attorney whose refusal or willful
neglect of [a restraining notice] is responsible for his or her client's disobedience may also be
held in contempt").
In response, Katzman contends, factually, that no such duty attached to him because he
was not personally served with the Restraining Notice until April 5, 2018-long after both the
$2.412 and $5 million tranches had been disbursed to Class TT. But on the record here, the
service is not decisive, as it is undisputed that Katzman had actual notice of the restraining
notices as of July 21, 2017, when they were emailed to him. JSF ,r,r 39---41; Wimbledon 56.1
11 (quoting Katzman admitting under oath that "upon receipt, I briefly glanced through the
Restraining Notices," but did not "review them or analyze them in depth"). Moreover, on
December 8, 2017, six days before he confirmed the wire instructions for the $5 million payment
to Class TT, Katzman was explicitly warned by letter that any disbursement ofBergstein's funds
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 30 of 41
violated Wimbledon's Restraining Notices. See Wimbledon 56.1
,r,r 29-30 (letter from
Wimbledon stating that the distribution of the Enjoined Funds, "which post-dated service of
Wimbledon's restraining notices by four weeks, was in violation of the restraining notices").
And on December 14, 2017, the day that he confirmed the wire transfer instructions, Katzman
responded by letter to Wimbledon. The letter declined to provide further information regarding
Bergstein's settlement with Class TT, but, salient here, it necessarily confirmed Katzman's
receipt of Wimbledon's letter reminding him of his obligations under the restraining notices. Id.
Moreover, in the contempt order she issued, supreme court Justice Kornreich rejected
exactly the same argument by BMK Katzman, when made in connection with the earlier, $2.412
Neither CPLR 5222(b) nor any case cited by the BMK Parties (and none found by
this court) indicates that counsel of record in an action with actual knowledge of a
restraining notice having been served upon its client is free to act as its client[' s]
agent and cause that restraining notice to be violated. The case law, in fact, is to
the contrary .... There is no ambiguity here. No reasonable attorney should expect
that helping a client violate a restraining notice is acceptable.
Id. 9-10 (collecting cases) (emphasis added). The Appellate Division affirmed, finding that,
despite not having been formally served, Katzman had been "sufficiently aware" of the
restraining notices to be held in contempt. See In re Wimbledon Master Fund, Ltd., 173 A.D.3d
at 401-02; see also Darby v. Compagnie Nat'/ Air France, 96 N.Y.2d 343, 347, 753 N.E.2d 160,
162 (2001), opinion after certified question answered sub nom. Darby v. Compagnie Nat. Air
France, 13 F. App'x 37 (2d Cir. 2001) (summary order) ("[I]t is for the courts first to determine
whether any duty exists .... In so doing, courts identify what people may reasonably expect of
one another. In assessing the scope and consequences of civil responsibility, they define the
boundaries of 'duty' to comport with what is socially, culturally and economically acceptable."
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 31 of 41
(citations omitted)); Ivor B. Clark Co. v. Hogan, 296 F. Supp. 407,412 (S.D.N.Y. 1969) (thirdparty's claim that "it did not receive a restraining notice but rather a notice that restraining orders
had been served upon the judgment debtors herein is of no particular significance in that a person
not served with a restraining notice can be punished for contempt if he, with knowledge of the
existence and the terms of a restraining notice served on another, wilfully participates in a
The element of breach can also be resolved in Wimbledon's favor on summary judgment.
There is no factual dispute as to defendants' role in causing the disbursal of the restrained $5
million to Class TT, in violation of the restraining notices. On December 8, 2018, Wimbledon's
counsel had informed Katzman that the transfer of the $2.412 million of restrained funds to Class
TT had violated the notices. Six days later, Katzman, rather than acting to stop the imminent
transfer of $5 million, facilitated that transfer by reaching out to Class TT' s counsel to confirm
wire transfer instructions. See Wimbledon 56.1
,r 34 ("Our client is planning on making the 5
mm payment per the settlement agreement. Are the wire instructions you provided to us for the
funds held per the preliminary injunction, attached, the ones we should use? If not, please
provide different wire instructions."). 5
The element of causation as to the $5 million transfer, however, cannot be resolved on
the present record, requiring denial of both parties' cross-motions.
Katzman also inhibited Wimbledon from learning about Bergstein's $5 million until it had been
disbursed to Class TT. On December 8, 2017-in the same letter notifying Katzman that a
disbursal ofBergstein's funds to other creditors would violate the Restraining NoticesWimbledon's counsel asked Katzman to provide a copy of the settlement agreement between
Bergstein and Class TT. Id ,r 31. On December 14, 2017-the same day he confirmed the wire
instructions-Katzman refused to provide it, claiming that the document was privileged. Id. ,r
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 32 of 41
Wimbledon argues that "[h]ad Katzman and BMK not helped Bergstein and Graybox
violate the Restraining Notices, the funds transferred to Class TT would have been available to
satisfy Wimbledon's Turnover Judgment against Bergstein and Graybox." See Dkt. 68 ("Pl.
Memo") at 23. Defendants counter by noting that Wimbledon lacked priority over Class TT to
the funds, and arguing that, assuming the two creditors had equal priority, it is speculative to
assume that Wimbledon was destined to receive the $5 million.
Under New York law, "the plaintiff has the burden of proving each element of their
negligence claim, including causation." Hackl Enters. Inc. v. Dresser Rand Co., No. 96 Civ.
127, 2004 WL 1745788, at *1 (W.D.N.Y. Aug. 3, 2004). "Causation incorporates at least two
separate but related concepts: cause-in-fact and proximate cause. Cause-in-fact refers to those
antecedent events, acts or omissions, which have so far contributed to the result that without
them it would not have occurred ..... Proximate cause serves to limit, for legal or policy reason,
the responsibility of an actor for the consequences of his conduct." Aegis Ins. Servs. Inc. v. 7
World Trade Co., L.P., 737 F.3d 166, 178 (2d Cir. 2013) (citation omitted). The "bedrock
principle of tort law [is] that for there to be a recovery for an injury, it must be established that
defendant's act was a cause-in-fact of an injury." Id. at 179. A defendant's conduct is "not a
cause-in-fact of an injury or loss if the injury or loss would have occurred regardless of the
conduct." Id. In addition, "mere speculation regarding causation is inadequate to sustain [the]
cause of action." Segretti v. Shorenstein Co., E. L.P., 256 A.D.2d 234, 235, 682 N.Y.S.2d 176
(N.Y. App. Div. 1998); see also Lynn v. Lynn, 216 A.D.2d 194,195,628 N.Y.S.2d 667 (N.Y.
App. Div. 1995).
The causation analysis here turns on the legal character of the restraint on Bergstein's
money here. Wimbledon's judgment against Bergstein and Graybox, as defendants rightly note,
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 33 of 41
was a money judgment only. See Wimbledon Fin. Master Fund, 2019 WL 5547030, at *4
("There can be no dispute that the July 2017 Judgment is solely a monetary judgment and was
affirmed as such by the Appellate Division." (citation omitted)). The judgment did not give
Wimbledon priority over other creditors ofBergstein's. Accordingly, the restraining notice
issued pursuant to that judgment did not create a lien or give Wimbledon a special priority,
either. It "prevented [defendants] from transferring funds but gave [Wimbledon] no priority as
to the distribution of the funds." Mid/antic Nat. Bank/N v. Fed. Rsrv. Bank ofN Y., 814 F. Supp.
1195, 1197 (S.D.N.Y. 1993)(citingAspen Indus. v. Marine Midland Bank, 52 N.Y.2d 575,439
N.Y.S.2d 316 (1981)). For Wimbledon's judgment to attain priority, it would have had to take
additional steps, such as securing a turnover order, or an execution levy. See Aspen Indus., 52
N.Y.2d at 580. It is undisputed that, as the supreme court found as to the $5 million, Wimbledon
did not take such steps, or secure any such priority, here.
Where a violation of a restraining notice based on a monetary judgment is at issue, the
Second Circuit has instructed, "damages cannot be assessed without delineating the relative
priority of [all relevant] judgment creditors." CSX Transp., 879 F.3d at 474 (district court
abused its discretion when it failed to assess damages "in light of the priority of [the debtor's]
various creditors pursuant to C.P .L.R. § 5234-because if other creditors had superior claims to
the restrained funds before Garnishees violated the Restraining Notices, then CSX did not suffer
damages."). In other words, the mere availability of funds, although a necessary showing, see
Aspen Indus., 52 N.Y.2d at 581, is not sufficient. The creditor must also demonstrate that her
placement in line relative to other creditors entitled her to the sum she seeks.
Applying these principles here, summary judgment cannot be granted on this element as
to either defendants or Wimbledon, because, on the record at hand, it cannot be determined with
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 34 of 41
certainty whether, and to what extent, Wimbledon would have secured the $5 million from the
Bergstein had Katzman and BMK not unlawfully facilitated its exit from Bergstein's account.
The two sides can posit versions of events that could have transpired under which Wimbledon
either would have received, or would have been denied, in whole or part, the $5 million.
Defendants note that Bergstein's account holding the $5 million itself was not restrained.
The restraint ran instead to Bergstein and agents of his (like BMK and Katzman) with notice of
the Restraining Notices. Defendants can accordingly posit that, even had BMK and Katzman not
facilitated the transfer of the $5 million, various events might have resulted in the lawful release
of the $5 million to Class TT, or perhaps the release of some of it to another Bergstein creditor.
Defendants can note, too, that Wimbledon did not then know of the $5 million and might not
have discovered it for some time. Finally, defendants can note, it is possible that, in time, Class
TT could have converted its settlement into a judgment, and therefore attained priority for it via a
turnover order or execution levy.
Wimbledon, for its part, notes that, once it learned of the Class TT settlement at the
December 5, 2017 hearing, it was demonstrably in motion, seeking to discover the terms of that
settlement and the scope and location ofBergstein's assets. Through discovery, it can argue, it
would have secured that information in due course, and taken further steps to restrain the release
of the $5 million to Class TT. Wimbledon can note, too, that it had the capacity to attain priority
for its judgment. It can argue that it was better positioned to do so more expeditiously than Class
TT, whose settlement had been converted into a court judgment, and thereafter to pursue an
order releasing those funds to its benefit.
There is, finally, a scenario unaddressed by either party: the one in which the funds
remained in Bergstein's account because Bergstein and his agents abided by the Restraining
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 35 of 41
Notices; and the competing claims by Wimbledon and Class TT (and perhaps others) to the $5
million eventually came before a court of competent jurisdiction, with neither creditor having
priority over the other. The parties have not addressed, how, in those circumstances, Bergstein' s
funds would have been allocated, including whether the allocation of debtor Bergstein's limited
funds among his creditors might have become the province of a bankruptcy proceeding.
In these circumstances, the element of causation cannot be resolved on summary
The parties also cross-move on Wimbledon's claim for gross negligence as to the $5
a. Applicable legal standards
Gross negligence is "conduct that evinces a reckless disregard for the rights of others or
smacks of intentional wrongdoing." Am. Tel. & Tel. Co. v. City a/New York, 83 F.3d 549, 556
(2d Cir. 1996) (quotation omitted). To constitute gross negligence, "the act or omission must be
of an aggravated character, as distinguished from the failure to exercise ordinary care." Curley v.
AMR Corp., et al., 153 F.3d 5, 13 (2d Cir. 1998) (quoting 79 N.Y. Jur. 2d Negligence§ 37
(1989)). To establish a primafacie claim of gross negligence, a plaintiff"must prove by a fair
preponderance of the credible evidence" that the defendant "not only acted carelessly in making
The Court recognizes the unusual nature of the causation issue here, which appears to turn on
competing projections about how events would have played out but for defendants' breach of the
restraining notices. Because this issue-and the need for attention to priority among debtorswas only thinly addressed by the summary judgment briefs, the Court will, by separate order,
invite the parties to confer and submit a joint letter as to the manner in which this issue is to be
litigated. Cf CSXTransp., 879 F.3d at 474 (hearing on damages necessary where record left a
"lack of clarity as to the order of or priority of judgment creditors").
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 36 of 41
a mistake, but that it was so extremely careless that it was equivalent to recklessness." Hong
Kong Export Credit Ins. Corp. v. Dun & Bradstreet, 414 F. Supp. 153, 160 (S.D.N.Y. 1975).
Under New York law, a mistake or series of mistakes alone, without a showing of
recklessness, is insufficient for a finding of gross negligence. Am. Tel., 83 F.3d at 549 (citing
Sommer v. Fed Signal Corp., 79 N.Y.2d 540,555,583 N.Y.S.2d 957, 963-64, 593 N.E.2d 1365,
1371-72 (1992)). "The issue of gross negligence is ordinarily a question of fact for a jury to
determine." Charter Oak Fire Ins. Co. v. Trio Realty Co., No. 99 Civ. 10827 (LAP), 2002 WL
123506, at *5 (S.D.N.Y. Jan. 31, 2002) (citing Travelers Indem. Co. v. Losco Grp., Inc., 136 F.
Supp. 2d 253,256 (S.D.N.Y. 2001) (other citations omitted)).
Defendants do not contest defendants' gross negligence as applied to Katzman's enabling
the $5 million transfer from Bergstein's account. Nor could they, in light of Wimbledon's
counsel's having explicitly notified Katzman that any transfer from Bergstein to a third party
would violate the restraining notices. See Dkt. 74 ("Def. Oppo. Memo") at 22-23 (addressing
only $2.412 million transfer); Dkt. 85 ("Def. Reply Memo") at 11-12. 7
Defendants instead make the same arguments as on the negligence claim-that Katzman
and BMK did not have (and thus could not have breached) a duty to Wimbledon because they
defendants' decision not to contest this issue, the Court has independently
reviewed the evidence on this pointe, as is necessary even when a summary judgment motion is
unopposed. See D.H Blair & Co., Inc. v. Gottdiener, 462 F.3d 95, 110 (2d Cir. 2006). There is
ample evidence ofKatzman's reckless disregard for Wimbledon's rights with respect to the $5
million transfer. This includes that Katzman received actual notice of the restraining notice via
email on July 21, 2017, see JSF i! 40; Wimbledon 56.1 ,r 11, and later was notified in explicit
terms by Wimbledon's counsel-after counsel had learned of the $2.412 million transfer-that a
further transfer on behalf ofBergstein would again be "in violation of its restraining notices."
Wimbledon 56.1 ,r 30. Nevertheless, Katzman--on the same day, December 14, 2017, that he
refused Wimbledon's request for information about the Class TT settlement-facilitated the $5
million transfer by confirming wire instructions with Class TT' s counsel. Id ,r,r 34-3 5; JSF ,r 61.
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 37 of 41
"never represented Wimbledon," Def. Reply Memo at 11-12, and that causation has not been
The Court's resolution of these arguments above, in connection with Wimbledon's
negligence claim, equally applies to the gross negligence claim. As to duty, as Justice Kornreich
and the First Department each held, BMK and Katzman had a duty not to aid their client's
violation of restraining notices. As to breach, defendants breached this duty by facilitating the
$5 million transfer to Class TT. As to whether defendants' breach caused Wimbledon actual
damages, however, summary judgment cannot be granted.
The Court accordingly denies the cross-motions for summary judgment on Wimbledon's
gross negligence claim.
The California Litigation Privilege
In seeking summary judgment, defendants make a final argument, independent of the
quality and quantity of evidence as to Wimbledon's claims. They argue that their conduct was
protected by the California litigation privilege. Wimbledon counters that California law does not
apply here, and that even ifit did, the privilege would not shelter defendants' conduct.
a. Choice of law
The threshold question is whether, as defendants urge, California substantive law, and its
litigation privilege, apply, or whether, as Wimbledon urges, its claims are governed solely by
New York law.
Applicable legal standards
First, the Court must determine whether New York and California law conflict, thereby
requiring a determination as to whose law applies. See Matter ofAllstate Ins. Co. (Stolarz), 81
N.Y.2d 219,223,597 N.Y.S.2d 904,613 N.E.2d 936 (1993) ("The first step in any case
presenting a potential choice of law issue is to determine whether there is an actual conflict
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 38 of 41
between the laws of the jurisdictions involved."). There is a clear and actual conflict, because
California's litigation privilege is much broader than its New York analogue.
The litigation privilege codified by California Civil Code§ 47(b) is broad. It "generally
protects from tort liability any publication made in connection with a judicial proceeding" and
shields communicative statements that have "some relation" to a lawsuit, including settlement
negotiations. Rubin v. Green, 4 Cal. 4th 1187, 1193-94 (1993); Pac. Gas & Elec. Co. v. Bear
Stearns & Co., 50 Cal. 3d 1118, 1132-33 (1990). "The privilege is 'an "absolute" privilege, and
it bars all tort causes of action except a claim of malicious prosecution.'" Kenne v. Stennis, 230
Cal. App. 4th 953,965 (2014) (quoting (Hagberg v. Calif. Fed Bank, 32 Cal. 4th 350,360
(2004) (emphasis added in Kenne)).
By contrast, the New York litigation privilege applies only in the context of"defamation,
slander, and libel actions." Michela v. Nat'! Collegiate Student Loan Trust 2007-2, 18 Civ. 1781
(PGG), 18 Civ. 7692 (PGG), 2019 WL 5103885, at *12 (S.D.N.Y. Oct. 11, 2019). Thus, were
New York law to apply, the litigation privilege would be inapplicable, "because [Wimbledon]
ha[s] not claimed defamation." Sykes v. Mel Harris & Assocs., LLC, 757 F. Supp. 2d 413,429
In determining which state's law applies in the context of tort cases, New York applies
the "most significant interest test," which distinguishes between "conduct regulating" and "loss
allocating"rules. Lee v. Bankers Tr. Co., 166 F.3d 540,545 (2d Cir. 1999). "Ajudicialproceeding privilege is conduct-regulating." AroChem Int'!, Inc. v. Buirkle, 968 F.2d 266,270
(2d Cir. 1992). Where conduct-regulating rules conflict, New York looks to the ''.jurisdiction
[that] has the greatest interest in regulating behavior within its borders"-usually the state where
the tort occurred. Cooney v. Osgood Mach., Inc., 81 N.Y.2d 66, 72 (1993).
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 39 of 41
Under the circumstances of this case, New York has a far greater interest than does
California in the privilege law to be applied. Katzman's tortious conduct, as alleged here, was
centered in New York. Wimbledon's claims arise from his participation in helping his and
BMK's client avoid restraining notices to enforce a judgment entered by a New York court in a
New York action, in a New York court to which Katzman had been admitted pro hac vice. And
a New York court has already found that Katzman and BMK acted in contempt when they
facilitated one of those transfers. New York has an obvious, substantial interest in ensuring that
its orders and judgments are not subverted by attorneys to whom it has extended the privilege of
practicing in its courts. See Block v. First Blood Assocs., 691 F. Supp. 685, 698 (S.D.N.Y. 1988)
(applying New York privilege law because "New York has a compelling interest in policing
tortious conduct committed in New York, by a New York attorney, with reference to future or
pending litigation in New York" even though the alleged tortious conduct occurred in the course
of California proceedings). Moreover, the events giving rise to Wimbledon's claims largely
occurred in New York. The settlement agreement between Class TT and Bergstein was
negotiated, reached, and executed during a settlement conference in New York City. JSF ,r 43.
Katzman participated in that conference in person. Id. Indeed, a California federal court
recognized in denying BMK's motion to enjoin Wimbledon from pursuing claims in this action:
"this is a New York-centric dispute." See Matteo Opp. Deel., Ex. 2 at 5.
The Court, accordingly, holds that New York law applies.
Defendant's conduct is not immunized by any litigation privilege, for two reasons.
First, as reviewed above, New York's litigation privilege does not protect against the
claims here, which are for negligence and gross negligence, and not for defamation. See Conti v.
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 40 of 41
Doe, 535 F. Supp. 3d 257,281 (S.D.N.Y. 2021) (collecting cases in which New York litigation
privilege did not apply outside of defamation context).
Second, even assuming arguendo that California law did apply, the California litigation
privilege would not extend to the tortious conduct here-facilitating a transfer of a client's funds
in violation of a restraining notice-because is non-communicative.
"Because the litigation privilege protects only publications and communications, a
'threshold issue in determining the applicability' of the privilege is whether the defendant's
conduct was communicative or noncommunicative." Jacob B. v. Cnty. ofShasta, 40 Cal. 4th
948, 957 (2007) (citing Rusheen v. Cohen, 37 Cal. 4th 1048, 1058 (2006)). The distinction
between communicative and noncommunicative conduct turns on the gravamen of the action.
See Rubin, 4 Cal. 4th at 1195; Pac. Gas & Elec. Co., 50 Cal. 3d at 1132, n. 12. "[I]fthe
gravamen of the action is communicative, the litigation privilege extends to noncommunicative
acts that are necessarily related to the communicative conduct. ... Stated another way, unless it
is demonstrated that an independent, noncommunicative, wrongful act was the gravamen of the
action, the litigation privilege applies." Jacob B., 40 Cal. 4th at 957, (citing Rusheen, 37 Cal. 4th
Here, Wimbledon claims injury not from any statement or publication made in relation to
the Class TT settlement, but from defendants' actions in disbursing client funds in violation of its
restraining notices. See Kimmel v. Go/and, 51 Cal. 3d 202, 212 (1990); see also Susan S. v.
Israels, 55 Cal. App. 4th 1290, 1299 (1997). And contrary to defendants' portrayal, Wimbledon
does not challenge the Bergstein/Class TT settlement agreement. It challenges the transfer of
Case 1:18-cv-08004-PAE Document 102 Filed 08/02/22 Page 41 of 41
funds to effectuate that agreement to the extent these transfers were in knowing violation of its
restraining notices .. 8
For the foregoing reasons, the Court (1) grants defendants' motion for summary
judgment as to Wimbledon's negligence and gross negligence claims arising from Bergstein's
$2.412 million payment to Class TT, and denies plaintiffs' motion for summary judgment as to
this payment; and (2) denies both parties' motions for summary judgment as to Wimbledon's
claims of negligence and gross negligence arising from Bergstein's $5 million payment to Class
By separate order, the Court will commission from the parties a joint letter with their
views as to next steps, in particular, as to the causation element
Paul A. Engelmayer
United States District Judge
Dated: August 2, 2022
New York, New York
Defendants' portrayal of the case as turning on communications-i. e.. , the negotiation and
execution of the Class TT settlement agreement-as opposed to the facilitation of a financial
transaction is also in conflict with defendants' theory that the California litigation applies. These
communications occurred in New York.
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?