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  • Harry Mohinani, Vijay Mohinani v. Tzili Doron Charney in her capacity as guardian for Leon H. Charney, Warren Gleicher in his capacity as guardian for Leon H. Charney, Lhc Club Llc Commercial Division document preview
  • Harry Mohinani, Vijay Mohinani v. Tzili Doron Charney in her capacity as guardian for Leon H. Charney, Warren Gleicher in his capacity as guardian for Leon H. Charney, Lhc Club Llc Commercial Division document preview
  • Harry Mohinani, Vijay Mohinani v. Tzili Doron Charney in her capacity as guardian for Leon H. Charney, Warren Gleicher in his capacity as guardian for Leon H. Charney, Lhc Club Llc Commercial Division document preview
  • Harry Mohinani, Vijay Mohinani v. Tzili Doron Charney in her capacity as guardian for Leon H. Charney, Warren Gleicher in his capacity as guardian for Leon H. Charney, Lhc Club Llc Commercial Division document preview
						
                                

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FILED: NEW YORK COUNTY CLERK 06/08/2020 02:50 PM INDEX NO. 653229/2012 NYSCEF DOC. NO. 316 RECEIVED NYSCEF: 06/08/2020 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK HARRY MOHINANI and VIJAY MOHINANI, Plaintiffs, Index No. 653229/2012 -against- (Part 54, Hon. Jennifer Schecter) TZILI CHARNEY, as the personal representative of the Estate of Leon H. Charney, and LHC CLUB LLC, Defendants. PLAINTIFFS’ POST-TRIAL MEMORANDUM OF LAW OFFIT KURMAN P.A. 10 East 40th Street 35th Floor New York, New York 10016 Tel. No. (212) 545-1900 Attorneys for Plaintiffs 1 of 37 FILED: NEW YORK COUNTY CLERK 06/08/2020 02:50 PM INDEX NO. 653229/2012 NYSCEF DOC. NO. 316 RECEIVED NYSCEF: 06/08/2020 Table of Contents Table of Authorities ....................................................................................................................... ii, iii Table of Citational Abbreviations ....................................................................................................... iv Statement of Facts ................................................................................................................................ 1 Terms of the Agreement ................................................................................................................... 2 The Purchase of the Properties ......................................................................................................... 5 Charney’s Duplicity and Self-Dealing .............................................................................................. 6 Charney’s Demands for More Capital .............................................................................................. 8 Charney’s Other Attempts to Change the Deal............................................................................... 10 Foreclosure and Sale ....................................................................................................................... 10 Buyout of Dr. Laor and the Fischer Brothers ................................................................................. 12 Argument ........................................................................................................................................... 13 Point I.............................................................................................................................................. 14 CHARNEY HAD A FIDUCIARY DUTY TO PLAINTIFFS WHICH, AS A MATTER OF LAW, INCLUDED THE OBLIGATION TO OFFER TO BUY THE MOHINANIS ON THE SAME TERMS OFFERED TO HIS FRIEND, DR. LAOR, AND HIS TENANTS, THE FISCHER BROTHERS Point II ............................................................................................................................................ 17 CHARNEY BREACHED HIS ORAL AGREEMENT TO OFFER TO BUY OUT THE MOHINANIS ON THE SAME TERMS OFFERED TO OTHER INVESTORS Point III ........................................................................................................................................... 20 CHARNEY BREACHED HIS AGREEMENT TO PUT AT LEAST $4.5 MILLION OF HIS OWN MONEY INTO THE PROJECT, AND ALSO BREACHED HIS AGREEMENT NOT TO DRAW ANY MONEY OUT OF THE PROJECT UNTIL THE MOHINANIS ARE REPAID WITH INTEREST Point IV ........................................................................................................................................... 25 CHARNEY FRAUDULENTLY MISREPRESENTED KEY ELEMENTS OF THE INVESTMENT Point V ............................................................................................................................................ 29 CHARNEY BREACHED HIS FUDICIARY DUTY TO PLAINTIFFS BY FAILING TO OBTAIN THEIR CONSENT TO THE FEES PAID TO HIM i 2 of 37 FILED: NEW YORK COUNTY CLERK 06/08/2020 02:50 PM INDEX NO. 653229/2012 NYSCEF DOC. NO. 316 RECEIVED NYSCEF: 06/08/2020 Table of Authorities Cases 105 E. Second St. Assoc. v. Bobrow, 175 A.D.2d 746, 573 N.Y.S.2d 503 (1st Dept 1991) ......... 17 Birnbaum v. Birnbaum, 157 A.D.2d 177 (4th Dep’t 1990) ........................................................... 31 Birnbaum v. Birnbaum, 73 N.Y.2d 461 (1989) .................................................... 14, 15, 21, 29, 30 Blue Jeans U.S.A., Inc. v. Basciano, 286 A.D.2d 274 (1st Dep’t 2001) ....................................... 20 Chiu v. Chiu, 71 A.D.3d 621, 896 N.Y.S.2d 132 (2d Dept 2010) ................................................ 14 Dunn v. Bautista, 47 Misc.3d 1207(A), 15 N.Y.S.3d 711 (Sup. Co., N.Y. Co. 2012) ................. 29 Estate of Spitz v. Pokoik, 2010 N.Y. Misc. Lexis 3886, 2010 NY Slip Op 32176(U) (Sup. Co., N.Y. Co. 2010)......................................................................................................... 15 First Bank of the Americas v. Motor Car Funding, Inc., 257 A.D.2d 287, 690 N.Y.S.2d 17 (1st Dep’t 1999) ........................................................................................................................ 26 Gibbs v. Breed, Abbott & Morgan, 181 Misc. 2d 346, 693 N.Y.S.2d 426 (Sup. Co., N.Y. Co. 1999)................................................................................................... 17, 32 GoSmile, Inc. v. Levine, 81 A.D.3d 77 (1st Dep’t 2010) .............................................................. 26 Herman v. Herman, 162 A.D.3d 459, 79 N.Y.S.3d 116 (1st Dep’t 2018) ................................... 17 Huang v. Sy, 18 Misc. 3d 1141(A), 859 N.Y.S.2d 903 (Sup. Co., Queens Co. 2008) ................. 30 Inchaustegui v. 666 5th Ave. Ltd. Partnership, 268 A.D.2d 121, 706 N.Y.S.2d 396 (2000) ....... 19 J. D'Addario & Co., Inc. v. Embassy Indus., Inc., 20 N.Y.3d 113 (2012).............................. 19, 25 Kalikow v. Shalik, 43 Misc. 3d 817, 986 N.Y.S.2d 762 (Sup Ct, Nassau County 2014) ............. 14 Khandalavala v. Artsindia.com, LLC, 2014 N.Y. Misc. LEXIS 1675 (Sup. Co., N.Y. Co. 2014)......................................................................................................... 29 Knox, LLC v. Lakian, 2018 NY Slip Op 32191(U), 2018 N.Y. Misc. LEXIS 3804 (Sup. Co., N.Y. Co. Sept. 5, 2018) ........................................................................................... 30 Lederberg v. Hindo, 14 Misc. 3d 1230(A), 836 N.Y.S.2d 493, 2006 N.Y. Misc. Lexis 4183 (Sup. Co., N.Y. Co. 2006)........................................................................................................ 24 Levy v. Leavitt, 257 N.Y. 461 ....................................................................................................... 30 Levy v. Keslow, 213 A.D.2d 276 (1st Dep’t 1995) ....................................................................... 18 Matter of Rothko, 43 N.Y.2d 305 (1977) ................................................................................ 15, 17 MBIA Ins. Corp. v. Countrywide Home Loans, Inc., 87 A.D.3d 287 (1st Dep’t 2011) ................ 28 Meinhard v. Salmon, 249 N.Y. 458 (1928)................................................................................... 15 ii 3 of 37 FILED: NEW YORK COUNTY CLERK 06/08/2020 02:50 PM INDEX NO. 653229/2012 NYSCEF DOC. NO. 316 RECEIVED NYSCEF: 06/08/2020 Mohinani v. Charney, 2016 N.Y. Misc. LEXIS 801 (Sup. Co., N.Y. Co. 2016), aff’d, 156 A.D.3d 443 (1st Dep’t 2017) .................................................................................... 15 Myers v. Bolton, 157 N.Y. 393 ..................................................................................................... 30 NRAM PLC v. Société Générale Corp., 2014 N.Y. Misc. LEXIS 3654 (Sup. Co., N.Y. 2014) .. 28 Pokoik v. Pokoik, 115 A.D.3d 428 ................................................................................................ 14 Roni LLC v. Arfa, 74 A.D.3d 442 (1st Dep’t 2010) ...................................................................... 14 Sheen v. Frank, 2009 N.Y. Misc. LEXIS 4584 (Sup. Co., N.Y. Co.) .......................................... 21 Steinhardt Group, Inc. v. Citicorp, 272 A.D.2d 255 (1st Dep’t 2000) ......................................... 28 Stern v. Ardachev, 133 A.D.3d 502 (1st Dep’t 2015) ................................................................... 18 Stutman v. Chemical Bank, 95 N.Y.2d 24 (2000) ......................................................................... 28 Statutes and Rules CPLR 5001(a) ............................................................................................................................... 20 CPLR 5001(b) ............................................................................................................................... 32 Other Authorities 5 Corbin, Contracts § 992 ............................................................................................................. 19 11 Williston, Contracts § 1338 [3d ed] ......................................................................................... 19 Farnsworth, Contracts § 12.8 ........................................................................................................ 19 McCormick, Damages 561 ........................................................................................................... 19 iii 4 of 37 FILED: NEW YORK COUNTY CLERK 06/08/2020 02:50 PM INDEX NO. 653229/2012 NYSCEF DOC. NO. 316 RECEIVED NYSCEF: 06/08/2020 Table of Citational Abbreviations Abbreviation Description Bitton Direct Gabriel Bitton’s Direct Testimony Affirmation (NYSCEF Doc. No. 308) Block Cross Cross-examination section of Stipulated Testimony of Bruce Block in Lieu of Live Testimony (NYSCEF Doc. No. 311) Block Direct Bruce Block’s Direct Testimony Affidavit (NYSCEF Doc. No. 304) Block Re-Direct Re-direct section of Stipulated Testimony of Bruce Block in Lieu of Live Testimony (NYSCEF Doc. No. 311) DTX Defendants’ Trial Exhibit Essex Cross Robert Essex’s trial cross-examination Essex Direct Robert Essex’s Direct Testimony Affidavit (NYSCEF Doc. No. 305) Harry Direct Plaintiff Harry Mohinani’s Direct Testimony Affirmation (NYSCEF Doc. No. 302) PTX Plaintiffs’ Trial Exhibit TT, 2/3/20 Trial Transcript, February 3, 2020 (NYSCEF Doc. No. 312) TT, 2/4/20 Trial Transcript, February 3, 2020 (NYSCEF Doc. No. 313) TT, 2/5/20 Trial Transcript, February 3, 2020 (NYSCEF Doc. No. 314) Vijay Direct Plaintiff Vijay Mohinani’s Direct Testimony Affirmation (NYSCEF Doc. No. 303) iv 5 of 37 FILED: NEW YORK COUNTY CLERK 06/08/2020 02:50 PM INDEX NO. 653229/2012 NYSCEF DOC. NO. 316 RECEIVED NYSCEF: 06/08/2020 Statement of Facts In March 2007, Hong Kong residents and brothers Harry Mohinani (“Harry”) and Vijay Mohinani (“Vijay”) invested $4.5 million with real estate developer Leon Charney (“Charney”) for a fifteen percent interest in a real estate project (the “Project”) involving two Manhattan properties (PTX 1). The two properties consisted of an office building at 119 West 40th Street, New York, New York (the “Office Property”) and an adjoining mostly vacant smaller building at 120 West 41st Street, New York, New York that Charney said he intended to develop into a boutique hotel (the “Hotel Property”)(Id.). Charney had no direct contact with the Mohinanis prior to the investment (Harry Direct, ¶11; Vijay Direct, ¶5). Instead, Charney dealt with the Mohinanis’ friend and business colleague Gabriel (Gaby) Bitton (“Bitton”), whose company was a tenant of Charney at the building, 1441 Broadway, where Charney maintained his office (Bitton Direct, ¶¶ 8, 16; Block Direct, ¶9). Charney and Bitton had a close personal connection (Bitton Direct, ¶ 9). That connection was founded in part on a common religious background and in part on a common interest in certain charitable causes and their common modest upbringings (Id., ¶ 9). Charney was an impressive person. Between a real estate empire that eventually put him in the Forbes 400, bond holdings that allegedly made him the biggest bond trader in the United States, the plaques in Charney’s office showing real estate financings in the hundreds of millions of dollars, his role as a cantor in his synagogue, and his alleged role as a broker in the Camp David Accords between Egypt and Israel, Charney struck Bitton as an extraordinarily worldly person with a Midas touch for making money and a person of the highest integrity (Bitton Direct, ¶¶ 10–13). -1- 6 of 37 FILED: NEW YORK COUNTY CLERK 06/08/2020 02:50 PM INDEX NO. 653229/2012 NYSCEF DOC. NO. 316 RECEIVED NYSCEF: 06/08/2020 Bitton shared his feelings about Charney with Vijay and Harry, and they went into the investment with the belief that it was an honor to invest with Charney, and that he was an honest man who could be trusted to take care of the two of them (Vijay Direct, ¶6; Harry Direct, ¶8). The Terms of the Agreement The particulars of the Project were first discussed by Charney with Bitton in February, 2007 (Bitton Direct, ¶16). Charney explained that the Project involved the purchase of the two buildings for approximately $180 million, that he would get a large mortgage of approximately $200 million, and that there would be approximately $30 million in additional equity from him and other investors (Id.). Bitton understood, based on those numbers and Charney’s statements to him, that the Project would be fully self-sustaining (Id.). Neither of defendants’ witnesses offered any inconsistent testimony. In fact, Charney’s CFO, Robert Essex (“Essex”), acknowledged that he has no knowledge of any projections having been prepared, much less provided to Bitton or the Mohinanis, before their investment (Essex Direct, ¶9-10; Essex Cross, TT, 2/5/20, p. 387, lines 10-23), and Charney’s other right-hand man, Bruce Block (“Block”), acknowledged that he does not believe that any private placement memorandum or other risk disclosure document was ever provided to Bitton or the Mohinanis before execution of the March 20, 2007 letter agreement (Block Cross, ¶1[xii]; Block Direct, ¶5). Charney also told Bitton that he would take in partners with respect to the approximately $30 million in additional equity, but that he would take the biggest chunk for himself (Bitton Direct, ¶16). This gave Bitton comfort knowing that Charney would be starting with a substantial personal stake in the Project (Id.). It was during this early period that Bitton first discussed the investment with Harry, who was Bitton’s primary contact as between the two Mohinani brothers (Bitton Direct, ¶17; Harry Direct, ¶10; Vijay Direct, ¶5). -2- 7 of 37 FILED: NEW YORK COUNTY CLERK 06/08/2020 02:50 PM INDEX NO. 653229/2012 NYSCEF DOC. NO. 316 RECEIVED NYSCEF: 06/08/2020 In late February or March 2007, Charney met with Bitton in New York to discuss some of the additional particulars of the investment (Bitton Direct, ¶18). In these discussions Charney said that of the approximately $30 million in invested equity in the Project (on top of the excess mortgage money), his share was approximately $9 million and there was a $4.5 million stake available to the Mohinanis (Id.). Charney also told Bitton several times over the course of their discussions in February and March 2007 that he would not be drawing any money out of the Project for himself until the Mohinanis were repaid all of their investment with interest (Bitton Direct, ¶19). Between this representation by Charney about no payments to himself until the Mohinanis were repaid, and Charney’s substantial initial cash investment, Bitton was persuaded that Charney would do whatever it took to ensure that the Project would be a success (Id.). Beginning in or around mid-March, 2007, Charney started telling Bitton that the closing was imminent and that it was important for his friends to get their money in right away if they wanted in on this great opportunity (Id., ¶20). In the course of Bitton’s discussions with Charney over the following days they agreed on the following key terms: (a) that the Mohinanis would put in $4.5 million in exchange for a 15% interest in the two properties; (b) that the Mohinanis were in the deal for profits only, and that they would not be called for additional funds and could not be diluted (except as described immediately below once the Mohinanis’ initial investment was returned with interest); (c) that once their initial investment of $4.5 million plus interest of 2% over prime had been returned to them, their 15% interest in the Project would be reduced by 25%; (d) that, as was his practice, if Charney bought out any partners, he would make the same offer to the Mohinanis; Project; and (e) finally that (other than reimbursement to Charney of a pro-rata share of the attorneys’ fees incurred by him in connection with the acquisition of the two properties) Charney would not take any money out of the Project until the Mohinanis had received back their $4.5 million plus interest of 2% over prime (Id., ¶21). -3- 8 of 37 FILED: NEW YORK COUNTY CLERK 06/08/2020 02:50 PM INDEX NO. 653229/2012 NYSCEF DOC. NO. 316 RECEIVED NYSCEF: 06/08/2020 Bitton relayed these terms to Harry in mid-March, and Harry agreed to them on his and Vijay’s behalf (Id., ¶22). Neither of defendants’ witnesses has any direct or indirect knowledge to refute the oral agreement between Charney and Bitton (Essex Cross, TT, 2/5/20, p. 389, lines 22-25; Block Cross, ¶1[x]). On March 20, 2007 Bitton was in Charney's office when Charney dictated to his secretary what became the March 20, 2007 letter agreement (Bitton Direct, ¶24). Bitton called Harry to relay the terms to him, and Harry authorized him to sign it on the Mohinanis’ behalf (Id.). Bitton then signed the agreement on March 21, 2007 (PTX 1), and the Mohinanis then wired $4.5 million to Charney eight days later on March 29, 2007 (PTX 2). The March 20, 2007 letter agreement, although it does not memorialize all of the terms and conditions of the parties’ agreement, makes clear that it was not meant as a complete statement of the parties’ agreement. It contains no merger clause and provides that it will be followed “in the very near future” by “more formal documentation reflecting your membership in an LLP which will represent your equity” (PTX1). At no point before the investment did Charney provide any document laying out the projected financial operations of the properties, the risks involved in the investment, the physical condition of the properties, the future need for more capital, or any of the other facts that a reasonable investor should know about an investment of this kind (Bitton Direct, ¶26). The only material Charney ever provided to Bitton before the investment was a one or two page teaser pamphlet with pictures of the two buildings and almost no text (Id., ¶17). This is fully consistent with the evidence from both of defendants’ witnesses, neither of whom has any knowledge of any other material having been given to Bitton or the Mohinanis before the investment (Essex Cross, TT, 2/5/20, p. 384, lines 5-12, p. 386, lines 22-25; Block Cross, ¶1[xii]). -4- 9 of 37 FILED: NEW YORK COUNTY CLERK 06/08/2020 02:50 PM INDEX NO. 653229/2012 NYSCEF DOC. NO. 316 RECEIVED NYSCEF: 06/08/2020 Charney’s lack of disclosure to Bitton was not limited to the lack of adequate capital for the Project or other risks associated with the Project. At no point during his discussions with Bitton before the investment did Charney disclose to Bitton that he had sold off additional membership interests which had the effect of reducing his personal stake from $4.5 million to $2.5 million or that he had already secretly arranged to have millions of dollars in special distributions, acquisition fees, and other amounts paid to himself before the Mohinanis would receive a dime (Bitton Direct, ¶¶18, 23). Had Charney disclosed any of these facts to Bitton, Bitton would have rejected the deal on Harry and Vijay’s behalf because it would have been completely contrary to Charney’s representations to him about the investment, and also because it would have made clear to Bitton that Charney was intent on profiting at Harry and Vijay’s expense without regard for how their investment ultimately turned out for them (Id., ¶23). The Purchase of the Properties The closing on the purchase of the two subject properties closed on March 30, 2007 (PTX 3), the very next day after the Mohinanis’ payment (PTX 2). Six days later, on April 5, 2007, Charney sent a post-closing memo to Bitton (PTX 3) in which he provided additional information about the Project, mainly the fact that Charney and the Mohinanis’ share was to be held in a limited liability company called LHC Club LLC (“LHC Club”), which was to hold a 30% interest in the Project, and that the other two partners in the Project were Fortis Property Group (“Fortis”), which was to hold a 50% share, and George Comfort & Sons (“Comfort”), which was to hold a 20% share. Like the March 20, 2007 letter agreement (PTX 1) the April 5, 2007 memo (PTX 3) contains no disclosure of any of the fees paid or to be paid to Charney in connection with the Project, or that, even before those fees, he had already reduced his initial personal stake in the Project from $4.5 million to $2.5 million. -5- 10 of 37 FILED: NEW YORK COUNTY CLERK 06/08/2020 02:50 PM INDEX NO. 653229/2012 NYSCEF DOC. NO. 316 RECEIVED NYSCEF: 06/08/2020 Charney’s Duplicity and Self-Dealing The “Sources and Uses” document from the March 30, 2007 closing – first received by plaintiffs during discovery in the litigation -- shows that upon the purchase of the two properties on the very next day after taking the Mohinanis’ money, Charney took $1,505,625 in special distributions from the Project (PTX 40). Charney’s CFO, Essex, acknowledged on cross- examination at trial that – contrary to the limited partnership agreements calling for payment of those special distributions to LHC Club (PTX 6, §3.1(D), at p. 7, PTX 7, §3.1(D), at p. 7) – this $1,505,625 payment was made to Charney personally (Essex Cross, TT, 2/5/20, p. 398, lines 9- 11, p. 402, lines 7-9, p. 403, lines 8-12). Charney’s secret profiteering at the Mohinanis’ expense was not limited to the $1,505,625 in special distributions. A secret side letter, also never disclosed until discovery, reveals that a $1 million acquisition fee was payable to LHC Club at the closing on the purchase of the properties in consideration for Charney’s work in securing the properties (PTX 41, ¶7). Like the $1,505,625 in special distributions, that acquisition fee was diverted from LHC Club to Charney (Essex Direct, ¶22). 1 1 In his trial affidavit, Essex acknowledges payment of the $1 million acquisition fee to Charney, but seemingly takes the position that such fee was part of the $1,505,625 in special distributions paid to Charney (Essex Direct, ¶22). This suggestion on his part flies in the face of the written evidence, which clearly shows two different payments in two different amounts for two different purposes. The $1 million acquisition fee was payable solely to LHC Club pursuant to the February 14, 2007 side letter between LHC Club, Fortis and Comfort for Charney’s role in facilitating the acquisition of the two properties (PTX 41, ¶7), while the $1,505,625 in special distributions was payable to LHC Club as part of a package of pro-rata special distributions payable to LHC Club and holding companies for Fortis and Comfort in strict proportion to their respective interests in the Project without regard for any role in securing the two properties (PTX 6, §3.1(D), at p. 7, PTX 7, §3.1(D)). In all events, there is no dispute that at least $1.5 million was paid directly to Charney at the closing, and that these facts were not knowable on the face of the relevant agreements, because those agreements provided that such fees were payable to LHC Club, not Charney. -6- 11 of 37 FILED: NEW YORK COUNTY CLERK 06/08/2020 02:50 PM INDEX NO. 653229/2012 NYSCEF DOC. NO. 316 RECEIVED NYSCEF: 06/08/2020 There is no written or oral evidence that Bitton or the Mohinanis were put on notice of any of the above fees and distributions before the Mohinani investment (Essex Cross, TT, 2/5/20, p. 397, lines 1-8, p. 398, line 25 to p. 400, line 9; Block Cross, ¶1[vii]). In addition, within two months of the closing on the purchase of the properties Charney began collecting, through L.H. Charney Associates, Inc. (“Charney Associates”) management, leasing, and construction fees from the two properties. Under two management agreements dated April 2, 2007 Charney Associates was to receive a fee of two-and-one-half percent of the rental income and construction charges from the properties, plus leasing fees (PTX 11; PTX 12). None of these fees were disclosed to Bitton or the Mohinanis (Bitton Direct, ¶¶23, 54-55; Block Cross, ¶ 1[ix]). Charney Associates simultaneously entered into a sub-management agreement (PTX 42) under which it delegated all of the management and leasing responsibilities to Comfort in exchange for just half the management, leasing and construction fees (PTX 42, ¶3), thus entitling Charney Associates to keep half the management, leasing and construction fees generated for no actual services on its part (Block Cross, ¶ 1[ix]). Astonishingly, at trial, it was further revealed that contrary to what the agreements actually called for, Charney Associates and Comfort took and evenly split a five percent management fee, instead of the two-and-one-half percent fee called for by the governing agreements (Essex Cross, TT, 2/5/20, p. 410, line 20 to p. 412, line 3). Over the life of the Project, Charney collected through Charney Associates $196,059.34 in management fees, $518,755.45 in leasing commissions, and $140,907.13 in construction fees (PTX 13). 2 2 The $196,059.34 in management fees has two pieces, $4,714.29 in fees on the smaller property (page one of PTX 13) and $191,345.05 in fees on the larger property (page 2 of PTX 13). The entries on page one of PTX 13 which are coded as invoices, as opposed to deposits, are excluded from these figures. -7- 12 of 37 FILED: NEW YORK COUNTY CLERK 06/08/2020 02:50 PM INDEX NO. 653229/2012 NYSCEF DOC. NO. 316 RECEIVED NYSCEF: 06/08/2020 Defendants have failed to come forward with any evidence to rebut the showing by plaintiffs that they were never put on notice of any of these additional fees before the Mohinani investment (Bitton Direct, ¶23; Essex Cross, TT, 2/5/20, p. 412, lines 15-16; Block Cross, ¶ 1[ix]). In their pre-trial memorandum of law, defendants argue that all of Charney’s self-dealing is irrelevant because he took from investors at the broader Project level, not from the investment vehicle, LHC Club, which he used to hold the Mohinani investment. This is a distinction without a difference. By the terms of their agreement, the Mohinanis put down $4.5 million in exchange for a 15% interest in the broader Project that was acquiring the two properties (PTX 1). It wasn’t until after their investment that Charney announced a complicated alternate investment structure under which the Mohinanis would instead hold a 46.875% interest in LHC Club, which would, in turn, hold a 30% interest in another investment vehicle which would hold title to the two Properties (compare PTX 1 to PTX 3). The fact is that, even under this changed investment structure, the payment of various fees to Charney, had the same effect – to deplete the assets of the broader Project in which the Mohinanis thought they were acquiring a 15% interest, and allow Charney to profit at the expense of the very investors to whom he owed a duty of undivided loyalty. Charney’s Demands for More Capital The March 20, 2007 letter agreement provided that the Mohinanis were in “for profits only.” (PTX 1). Essex acknowledged at trial that this meant that the Mohinanis could not be called for more money (Essex Direct, ¶13). Even so, in February 2008, Charney began hitting up the Mohinanis for more money. The first request was for funding for the purchase of air rights over the Hotel Property (DTX K). -8- 13 of 37 FILED: NEW YORK COUNTY CLERK 06/08/2020 02:50 PM INDEX NO. 653229/2012 NYSCEF DOC. NO. 316 RECEIVED NYSCEF: 06/08/2020 Through Bitton the Mohinanis reluctantly agreed to fund an additional $74,539 (Harry Direct, ¶18; Bitton Direct, ¶32; PTX 29; PTX 47). Four months later, Charney sent a letter stating that LHC Club, Fortis and Comfort were in arrears on the payment of the mortgages on the Hotel Property, but that the property was “an excellent property with great location and is something very worthwhile to pursue with a greater ownership,” and demanding an additional $509,190.16 from the Mohinanis for the buyout of Fortis because Fortis was allegedly getting in the way of Charney’s negotiations with the two lenders (DTX N). Charney warned that such $509,190.16 payment was necessary to ensure that the Mohinanis’ “equity will not be diminished” (DTX N), despite the absence of any provision in the March 20, 2007 letter agreement providing for capital calls, or that their stated 15 percent interest would be subject to dilution if they didn’t meet capital calls. Again, the Mohinanis paid the additional sum demanded by Charney (PTX 48), but only reluctantly (Harry Direct, ¶18; Bitton Direct, ¶35) and without countersignature of the letter from Charney seeking to memorialize Charney’s purported right to dilute the Mohinanis’ interest if they did not fund Charney’s unauthorized capital demands (DTX N). Charney thereafter made additional requests for money to complete the buyout of Fortis (e.g., DTX Q) and to repurchase a mortgage on the Hotel Property (DTX S) but these requests were declined by Bitton on behalf of the Mohinanis (Bitton Direct, , ¶¶36-37), as were Charney’s requests to have Bitton change the deal from “for profits only” to “for profits and losses.” (PTX 63; DTX AA; Bitton Direct, ¶ 41). 3 Charney even tried to charge the Mohinanis interest up to 18 percent per annum on loans he purported to make on their behalf to effect the mortgage repurchase, although the March 20, 2007 letter agreement makes clear that they were not 3 At one point during this period Charney got Vijay on the telephone and persuaded him to agree to contribute more money to complete the buyout of Fortis (DTX DD), but Vijay then discussed the issue with Gaby, and those additional funds were never paid (Vijay Direct, ¶13). -9- 14 of 37 FILED: NEW YORK COUNTY CLERK 06/08/2020 02:50 PM INDEX NO. 653229/2012 NYSCEF DOC. NO. 316 RECEIVED NYSCEF: 06/08/2020 obligated to make any further contributions and had not agreed to any such loans, much less interest at such an exorbitant rate (PTX 1; DTX W; DTX CC; DTX DD; DTX FF). Charney’s Other Attempts to Change the Deal Charney’s efforts to serve himself were not limited to asking for more funds. Over the course of two years he sought to solidify his position as managing member of LHC Club. The first proposed operating agreement, circulated in or around July, 2008 (PTX 4), provided that the managing member could be removed by a vote of a majority in interest of the members (PTX 5, ¶ 5.1). Subsequently, by letter dated February 20, 2009, Charney circulated a revised LHC Club operating agreement, which provided that “Leon Charney shall continue to serve as Managing Member until his death, disability or resignation” (PTX 8, ¶ 5.8). And finally, only four months later, in June 2009 Charney circulated yet another version of the LHC Club operating agreement which allowed for removal only for conduct amounting to “fraud, bad faith, willful misconduct, gross negligence, or breach of the Managing Member’s standard of care ….” (PTX 33, ¶¶ 5.9, 5.10). None of these operating agreements were ever signed or approved by Bitton or the Mohinanis (Bitton Direct, ¶33; Harry Direct, ¶18; Essex Cross, TT, 2/5/20, p. 418, line 22 to p. 420, line 20; Block Cross, ¶1[xiv]). Foreclosure and Sale By late 2009 the Office Property had been placed in receivership, and in early 2010 negotiations to refinance it were coming to an unsuccessful end (DTX ZZZZ; DTX CCC). Charney entered into negotiations with the lenders on the Hotel Property, which resulted in the satisfaction of one of the mortgages by LHC Club and Charney purchasing, through a company called Tadas Capital (“Tadas”), the mortgage held by the other lender (Block Direct, ¶ 33; DTX NNNNN). - 10 - 15 of 37 FILED: NEW YORK COUNTY CLERK 06/08/2020 02:50 PM INDEX NO. 653229/2012 NYSCEF DOC. NO. 316 RECEIVED NYSCEF: 06/08/2020 Following Charney’s incapacity in February 2010 (DTX YY) and various unsuccessful efforts to refinance the Hotel Property, a decision was made in the summer of 2011 to sell that property (DTX NNN), but without the boutique hotel that Charney said he would be building there (Block Direct, ¶34; Block Cross, ¶1[vi]). The closing on the sale of that property took place on November 10, 2011 (DTX LLLLL; DTX RRR; DTX TTT). Block devised a number of different scenarios for distributing the money from the sale of the Hotel Property (PTX 19; PTX 20), but none that involved the repayment in full of the Mohinanis with interest before the payment of anything to Charney (Id.). Of the $21,104,170.38 realized from the sale of the Hotel Property (DTX LLLLL), $2,312,011.50 was paid out in transfer taxes and other closing expenses (Id.). That left $18,792,158.80 for payment to investors, the first $10,103,400.53 was paid to the Charney Family Trust to satisfy Charney’s own mortgage through Tadas (Id.). That left just $8,688,758.26 for Comfort and LHC Club, of which LHC Club’s 60 percent share came to $5,213,254.95 (Id.). On Block’s advice the Guardians decided -- without the benefit of any supporting documents -- to distribute that $5,213,254.95 in proportion to the amounts paid in by Charney, the Mohinanis and other investors subsequent to their initial capital contributions without regard for the agreement between Charney and the Mohinanis, or even the respective amount of the investors’ initial contributions (Block Direct, ¶37; Block Cross, ¶1[xvi]); Block Re-Direct, ¶2[i]). The result was the payment of an additional $2,917,000 to Charney in respect of his “post-closing fundings,” and just $292,000 to each of the Mohinanis (DTX RRR, p.LHC 00002954), all without any promissory note, loan agreement or other instrument supporting such $2,917,000 distribution (Block Direct, ¶37; Block Cross, ¶ 1[xvi]); Block Re-Direct, ¶2[i]; Essex Cross, TT, 2/5/20, p. 425, lines 9-12). - 11 - 16 of 37 FILED: NEW YORK COUNTY CLERK 06/08/2020 02:50 PM INDEX NO. 653229/2012 NYSCEF DOC. NO. 316 RECEIVED NYSCEF: 06/08/2020 In short, of the $21.1 million available for disbursement from the sale of the Hotel Property, a little more than $13 million was paid out for the benefit of Charney – approximately $10.1 million in respect of the Tadas mortgage and $2,917,000 in respect of his “post-closing fundings.” Defendants’ summary unsupported claim that Charney’s own losses far exceeded the Mohinanis is irrelevant as a matter of law under the authority set forth below, and, in any event, baldly misstates the facts. Defendants’ own records show that Charney diverted no less than $16,381,122.50 to himself over the course of the Project, including: (a) the