FILED: NEW YORK COUNTY CLERK 11/13/2013 INDEX NO /2013 NYSCEF DOC. NO. 47 RECEIVED NYSCEF: 11/13/2013

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1 FILED: NEW YORK COUNTY CLERK 11/13/2013 INDEX NO /2013 NYSCEF DOC. NO. 47 RECEIVED NYSCEF: 11/13/2013 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK X GERALD CHAMBERS, JOCELYN CHAMBERS, JULIAN CHAMBERS, and SASKATOON FINANCIAL LIMITED, Index No.: /2013 Plaintiffs, -against- ELIYAHU WEINSTEIN, FREDERICK TODD, 148 INVESTMENTS, LLC, TODD, FERENTZ, & EDELSTEIN, LLP, ALEX SCHLEIDER, DAVID SCHLEIDER, AARON MUSCHEL, MEND-AM LLC, SHEL-AM CORP, DAVID STEINMETZ, NAFTALI KUNSTLINGER, KUNSTLINGER STEINMETZ LLP, AARON GLUCKSMAN, DIVERSIFIED HOLDINGS, LLC, FREDERICK TODD, as trustee of the ERASTINO TRUST, PARK 121 REALTY LLC, CONGREGATION KAHAL MINCHAS CHINUCH, CHAIM BABAD, NEW YORK LOSS MITIGATION, INC., ARTHUR GOLDEN, GREENBURG TRAURIG, LLP, MICHAEL BURNBAUM, PROSKAUER ROSE LLP., and HENOCH PEARL, Motion Sequence 001 AFFIRMATION IN OPPOSITION TO DEFENDANT PROSKAUER ROSE LLP S MOTION TO DISMISS Defendants X DANIEL H. RICHLAND, ESQ., an attorney duly admitted to the bar of the State of New York, does hereby affirm the following under penalty of perjury: 1. I am a principal of Paykin, Richland & Falkowski, PC, attorneys for the Plaintiffs. I make this affirmation upon personal knowledge, discussions with my client, and a review of my file. 2. I make this affirmation in opposition to Defendant Proskauer Rose LLP s ( Proskauer ) Motion to Dismiss the Verified Complaint pursuant to NY CPLR 3211(a)(7) ( Motion to Dismiss ) seeking to dismiss the Twenty-Third Cause of Action for aiding and Page 1 of 21

2 abetting fraud, the Twenty-Fourth Cause of Action for conversion, the Twenty-Fifth Cause of Action for accounting, and the Twenty-Seventh Cause of Action for fraudulent conveyance. 3. The genesis of this action is in the undisputed fraudulent scheme perpetrated by Defendant Eliyahu Weinstein ( Weinstein ), Defendant Alex Schleider ( Schleider ), Defendant Frederick Todd ( Todd ), and Defendant Aaron Muschel ( Muschel ) against the Plaintiffs whereby Plaintiffs were induced to invest millions in pre-ipo Facebook transactions which did not and never existed. 4. Then, Defendant Weinstein, Defendant Schleider, Defendant Todd, and Defendant Muschel, by and through Defendant 148 Investments, LLC ( 148 ), and other entities, diverted the funds and laundered the money. 5. A crucial part of the scheme was the laundering of money through other willing entities, such as Defendant Chaim Babad and Defendant Congregation Kahal Minchas Chinuch (the Babad Defendants ), and these wrongs continued through at least February 16, 2013, when the maturity date for the last loan matured, and was unpaid. 6. As Defendant Weinstein has admitted, and contrary to Defendant Proskauer s subtle attempts to diminish the scope of the fraudulent scheme, the scheme included the diversion of assets from the stated purpose to the personal benefit of the defendants, such as into Defendant Proskauer s operating account to pay for Defendant Weinstein s personal legal fee. The Relevant Factual Background 7. This action seeks civil damages for a fraudulent scheme perpetrated between September 2011 and continuing to the present by Defendant Weinstein, Defendant Schleider, Defendant Todd, and Defendant Muschel, by and through Defendant 148 and other entities Page 2 of 21

3 against Plaintiffs to obtain and divert Plaintiffs funds. Exhibit A (hereinafter the Verified Complaint ); Exhibit B ( hereinafter the Ubellacker Aff. ). A key part of the fraudulent scheme was the diversion of moneys to other entities and the laundering of funds through those entities back to Defendant 148 Investments, LLC, to other entities, or for their direct use by Defendant Weinstein, Defendant Schleider, Defendant Todd, or Defendant Muschel. 8. Between 2004 and 2011, prior to the transactions detailed in the Verified Complaint, Defendant Weinstein engaged in a $200 million Ponzi scheme among the Orthodox Jewish community. Verified Complaint 227; Exhibit C. 9. On August 11, 2011, still prior to the transactions detailed in the Verified Complaint, the United States commenced a criminal action against Defendant Weinstein and non-party Vladimir Siforov in the United States District Court, District for New Jersey, under Docket No. 3:11-cr JAP. Ubellacker Aff.; Exhibit C. 10. On October 7, 2011, Defendant 148 Investments, LLC ( 148 ) was formed in Delaware by Defendant Todd. Exhibit D. Although Defendant Todd is the sole member, Defendant Weinstein in reality is in control of 148. Exhibit B. This entity was the initial vehicle for the fraudulent scheme. 11. On October 14, 2011, Defendant Weinstein was released pursuant to a Consent Order, which prohibited Defendant Weinstein from engaging in financial transactions in excess of $1, without the approval of a Special Counsel. Exhibit E; Verified Complaint At or around the time of his release, Defendant Weinstein, Defendant Schleider, Defendant Todd, and Defendant Muschel targeted Plaintiffs in a fresh scheme. Verified Complaint Defendant Schleider was friendly with the Plaintiffs from a prior matter which, at Page 3 of 21

4 this time, is not believed to be related to the scheme detailed in the Verified Complaint. 14. On February 1, 2012, Defendant Schleider ed Plaintiffs, Eli has an interesting deal involving Facebook s IPO let me know if you guys have an appetite? Exhibit F; Verified Complaint 35; Ubellacker Aff [I]n truth and in fact, and as defendants WEINSTEIN, SCHLEIDER and MUSCHEL, and [Todd], well knew, they did not have access to large blocks of pre-ipo Facebook shares. Ubellacker Aff. 2; Verified Complaint Defendant Schleider retained Defendant Kunstlinger & Steinmetz to represent Plaintiffs in the expected transactions. Verified Complaint 219; Ubellacker Aff Between February 6, 2012 and March 4, 2012, Plaintiffs lent an aggregate of $4.675 million to Defendant 148 upon promises that Defendant Muschel, Defendant Todd, or Defendant 148 would acquire pre-ipo shares of Facebook. Verified Complaint 38; Ubellacker Aff. 6, None of the funds were used to purchase shares of Facebook and Defendants had no access to pre-ipo shares of Facebook. Verified Complaint 39; Ubellacker Aff Various written instruments were executed between Plaintiffs and Defendant Muschel, Defendant Todd, and Defendant 148, but in each instance, the promised security was already encumbered, non-existent, or not as described, despite warranties and representations to the contrary. Verified Complaint 40, 43, 49, 67, , ; Ubellacker Aff , 28, 30, In addition to these transactions, on February 23, 2012, Plaintiffs invested $2.5 million with Defendant Schleider in the Belle Glade Gardens project. Verified Complaint 124, et seq. Defendant Schleider misrepresented that he was investing the same amount as Page 4 of 21

5 Plaintiff in the transaction. Verified Complaint The monies paid to Defendant Greenberg Traurig for the Belle Glade Gardens project were wired into an escrow account for Defendant Schleider and a sub-account for the Belle Glade Gardens. Verified Complaint Defendant Greenberg Traurig, without authorization from or knowledge of Plaintiffs, disbursed the funds to Defendant 148. Verified Complaint Between June 2012 and February 16, 2013, the various loans to Defendant 148 began to mature. Verified Complaint Immediately after receipt of wires from Plaintiffs, Defendant Todd, Defendant Schleider, Defendant Muschel, and Defendant Weinstein began to launder the funds through the assistance of various coconspirators, using a vast array of entities, employing diverse tactics, and engaging in a wide variety of fraudulent transactions. Exhibit G, p. 5. The ultimate disposition of much of the money is unknown. 25. One instance of money laundering occurred on December 20, 2012, when Defendant Congregation Kahal Minchas Chinuch paid $1 million, purportedly as a loan repayment to Defendant 148, to Defendant Proskauer for the criminal defense of Defendant Weinstein in the 2011 Criminal Action. Verified Complaint 227; Exhibit H. 26. On or about December 26, 2012, defendant WEINSTEIN informed [Todd] that a partner from [Proskauer] was going to contact him to inquire about the origins of the $1 million check and that [Todd] should inform the partner that the money being forwarded to [Proksauer] related to a transaction involving Rappaport and Rottenberg although defendant WEINSTEIN and [Todd] well knew that the loans that Rabbi [Babad] and [Congregation Kahal Minchas Chinuch] were repaying were originally funded by money fraudulently obtained from Page 5 of 21

6 [Plaintiffs]. Ubellacker Aff. 44; Verified Complaint On or about December 26, 2012, the [Proskauer] partner contacted [Todd] about the $1 million check from Rabbi [Babad] and [Congregation Kahal Minchas Chinuch]. The partner informed [Todd] that the government had informed [Proskauer] that it would seek to forfeit any funds associated with defendant WEINSTEIN if they were connected to his fraudulent activities. The partner then asked [Todd] about the $1 million check, and [Todd] informed him that the money was from Rappaport and Rottenberg as defendant WEINSTEIN had directed him. The partner then asked [Todd] if he had ever met Rappaport or Rottenberg, and [Todd] stated that he had met Rottenberg once. The entire conversation lasted minutes. Ubellacker Aff. 45; Verified Complaint On December 31, 2012, Defendant Proskauer appeared in the 2011 Criminal Action on behalf of Defendant Weinstein. Verified Complaint On December 31, 2012, Defendant Proskauer filed a two page letter in the 2011 Criminal Action requesting modification of Defendant Weinstein s conditions of release. Exhibit I. 30. On December 31, 2012, Defendant Proskauer filed form jury instructions. Exhibit I. 31. On January 3, 2013, Defendant Weinstein changed his plea from not guilty to guilty pursuant to a Plea Agreement whereby Defendant Weinstein admitted to wire fraud and money laundering. Exhibit J. 32. On January 17, 2013, Defendant Proskauer filed another three page letter regarding modification of Defendant Weinstein s conditions of release. Exhibit I. Page 6 of 21

7 33. On January 28, 2013, Defendant Proskauer filed a five page letter in response to the United States letter opposing modification of Defendant Weinstein s conditions of release. Exhibit K. 34. In that letter, Defendant Proskauer knowingly and falsely stated to the Court, Mr. Weinstein has not engaged in any criminal conduct while on release, completed any financial transactions in violation of his bail, or had any improper interactions with victims or witnesses. Exhibit K. 35. This statement was materially false as Defendant Proskauer had just engaged in a $1 million financial transaction with Defendant Weinstein whereby Defendant Proskauer was paid by Defendant 148. The Special Counsel did not approve this transaction or know about the same. Ubellacker Aff. 36. This statement was demonstrably false as Defendant Proskauer was aware that Defendant Weinstein had control over Defendant 148 and that Defendant 148 had engaged in a financial transaction for at least $1 million, in violation of the Consent Order. 37. On February 11, 2013, Defendant Proskauer engaged in a half hour telephone conference regarding their application to modify the conditions of Defendant Weinstein s release. Exhibit I. 38. There are no other docket entries involving Defendant Proskauer, other than Court Orders, between February 11, 2013 and May 29, Exhibit I. On May 13, 2013, the United States filed new criminal charges against Defendant Weinstein in United States v. Weinstein, Index No.: (MCA) ( 2013 Criminal Action ). Page 7 of 21

8 39. On May 20, 2013, the Law Office of Alexander Paykin, PC contacted Defendant Proskauer with respect to the 2013 Criminal Action and demanded that Defendant Proskauer cease utilizing the funds and provide a statement of the amount remaining. Exhibit L. 40. On May 24, 2013, Defendant Proskauer acknowledged receipt of the letter, regarding certain funds related to this Firm s representation of Mr. Eliyahu Weinstein. We will review it and contact you in due course. Exhibit M. 41. On May 29, 2013, Defendant Proskauer moved the District Court in the 2011 Criminal Action to be relieved as attorneys for Defendant Weinstein due to the allegations in the 2013 Criminal Action. Verified Complaint Thereafter, my office contacted Defendant Proskauer to follow up with respect to the May 20, 2013 letter and were advised that Defendant Proskauer spent the entirety of the $1 million. Verified Complaint Defendant Proskauer also advised me that any settlement would necessarily need to include the United States Attorney s office. 44. On August 26, 2013, the instant action was commenced by the filing of the Summons and Verified Complaint. Exhibit A. 45. Unknown to the Plaintiffs at the time the action was commenced, the Federal Government has been pursuing a similar theory to the one advanced in this action with respect to attorneys for Defendant Weinstein, including Henry Klingeman, Esq. and David Schoen, Esq. Exhibit N. Both attorneys were subpoenaed for grand jury testimony about their billing and payment records relative to Defendant Weinstein and Defendant 148. Id. 46. It is unknown to Plaintiffs whether Defendant Proskauer was similarly subpoenaed, but as Defendant Proskauer was named in the 2013 Criminal Action, it is probable. Page 8 of 21

9 A. The Legal Standard on a Motion to Dismiss Pursuant to NY CPLR 3211(a)(7). 47. Upon a [NY CPLR 3211(a)(7)] motion to dismiss a cause of action we look to the substance rather than to the form. Such a motion is solely directed to the inquiry of whether or not the pleading, considered as a whole, fails to state a cause of action. Looseness, verbosity and excursiveness, must be overlooked on such a motion if any cause of action can be spelled out from the four corners of the pleading. Foley v. D Agostino, 21 A.D.2d 60, 65 (1 st Dept. 1964). 48. Accordingly, [o]n a motion to dismiss pursuant to CPLR 3211, the pleading is to be afforded a liberal construction (see, CPLR 3026). We accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable influence, and determine only whether the facts as alleged fit within any cognizable legal theory. Leon v. Martinez, 84 N.Y.2d 83, (1994) (citing Morone v. Morone, 50 N.Y.2d 481, 484; Rovello v. Orofino Realty Co., 40 N.Y.2d 633, 634). 49. In assessing a motion under CPLR 3211(a)(7), however, a court may freely consider affidavits submitted by the plaintiff to remedy any defects in the complaint and the criterion is whether the proponent of the pleading has a cause of action, not whether he has stated one. Id. (citing Rovello, 40 N.Y.2d at ; Guggenheimer v. Ginzburg, 43 N.Y.2d 268, 275). Page 9 of 21

10 B. Plaintiffs Have a Cause of Action for Aiding and Abetting Fraud Against Defendant Proskauer. 50. A plaintiff alleging an aiding-and-abetting fraud claim must allege the existence of the underlying fraud, actual knowledge, and substantial assistance. Oster v. Kirschner, 77 A.D.3d 51, 55 (1 st Dept. 2010); see also Proskauer s Memorandum of Law p. 6 (in accord). 51. Defendant Proskauer does not seem to dispute the existence of the underlying fraud and Plaintiffs have provided substantial details for said allegations in this affirmation. Memorandum of Law p. 7, see also FN 1 ( The elements of the underlying fraud claim are well established ). The fraud has also been admitted by Defendant Weinstein. Exhibit G. 52. Hence, Defendant Proskauer merely disputes whether Plaintiffs have sufficiently alleged (1) actual knowledge and (2) substantial assistance. 1. Defendant Proskauer Had Actual Knowledge of the Fraud. 53. Plaintiffs have pled that Defendant Proskauer had actual knowledge of the fraud. Verified Complaint 229, 231, 235, The First Department has stated, that actual knowledge need only be pleaded generally, cognizant, particularly at the prediscovery stage, that a plaintiff lacks access to the very discovery materials which would illuminate a defendant s state of mind. Oster v. Kirschner, 77 A.D.3d at Participants in a fraud do not affirmatively declare to the world that they are engaged in the perpetration of a fraud.an intent to commit fraud is to be divined from surrounding circumstances. Id. (citing Eurycleia Partners, LP, 12 N.Y.3d at 553). 56. Defendant Proskauer s fraudulent intent is inferable from the following facts: a. Defendant Proskauer had actual knowledge of the allegations against Defendant Page 10 of 21

11 Weinstein in the 2011 Criminal Action. Verified Complaint 231. b. Defendant Proskauer knew that Defendant Weinstein was prohibited from engaging in financial transactions in excess of $1, without the approval of a Special Counsel. Verified Complaint 231. c. Defendant Proskauer knew that the criminal allegations in the 2011 Criminal Complaint stretch back to 2004 and that any funds to be used for a retainer were probably directly or indirectly fraudulent proceeds. Exhibit C; Verified Complaint 229. d. Notwithstanding this knowledge, Defendant Proskauer engaged in an indirect financial transaction with Defendant Weinstein to pay their legal fee, whereby Defendant Congregation Kahal Minchas Chinuch and Defendant Babad paid $1 million to Defendant Proskauer for Defendant Weinstein s legal bills. Verified Complaint 228. The $1 million check was notated as a Loan Return for 148 LLC, but never passed through the hands of Defendant 148 or paid to Defendant 148, being instead diverted to Defendant Weinstein s personal legal bills. Exhibit H; Verified Complaint 228. e. Defendant Proskauer also knew that Defendant 148 was not owned by Defendant Weinstein. Verified Complaint 31. f. Defendant Proskauer therefore knew that moneys of Defendant 148 were being diverted to Defendant Weinstein s personal legal expenses, just as Defendant Weinstein had diverted funds between 2004 and 2011 as per the 2011 Criminal Complaint. Verified Complaint 251. g. Defendant Proskauer accepted $1 million as a minimum, non-refundable legal fee Page 11 of 21

12 for representing Defendant Weinstein in the 2011 Criminal Case. Verified Complaint 232. This fee was co-mingled with other moneys and purportedly spent within two weeks of receipt. Verified Complaint 239. h. After learning that the United States might try to seize these funds, Defendant Proskauer, concerned about representing Defendant Weinstein without being paid, was advised by Defendant Weinstein to contact Defendant Todd to source the funds. Verified Complaint 230; Ubellacker Aff i. Defendant Proskauer then minimally inquired about the source of the funds with Defendant Todd, who responded in the manner requested by Defendant Weinstein. Ubellacker Aff. 45; Verified Complaint 230. j. Then, Defendant Proskauer performed minimal legal services, and certainly not $1 million in legal services, until it withdraw from the case voluntarily on May 29, 2013 due to the 2013 Criminal Complaint. Verified Complaint 232. k. Defendant Proskauer did not return any funds, despite the voluntary withdrawal. Verified Complaint 253. l. Now, as Plaintiffs have learned, other law firms have been subpoenaed to testify by the United States about monies received from Defendant Weinstein because it is believed they were the results of fraudulent proceeds obtained from Defendant 148. Exhibit N. 57. It is hard to imagine a scenario more calculated to be fraudulent than this. Defendant Proskauer took money, belonging to Defendant 148, from Defendant Congregation, to pay the personal legal bills of Defendant Weinstein. Defendant Proskauer knew that Defendant Weinstein had engaged in fraudulent conduct between 2004 through 2011, that the scheme had Page 12 of 21

13 included exactly this scenario and the diversion of funds, and that Defendant Weinstein was prohibited from engaging in financial transactions, directly or indirectly, in excess of $1, without the consent of a Special Counsel. 58. Defendant Proskauer asserts that there are no facts supporting the claim that they knew of the fraudulent scheme and attempts to separate the 2011 Criminal Action from the 2013 Criminal Action. 59. However, it is Defendant Weinstein who asserts that the two schemes are related and that the diversion of funds was a key component of both: [Weinstein] operated with the assistance of various coconspirators, using a vast array of entities, employing diverse tactics, and engaging in a wide variety of fraudulent transactions. The unifying theme in [the] seven-year multi-faceted conspiracy was that Weinstein and others raised funds from victims for specific real estate transactions and used material portions of the raised funds for other purposes without disclosing these diversions of funds to victims. The purported object of the conspirators was to enrich themselves by making false and fraudulent representations relating to purported investments. The manner and means by which Weinstein accomplish [sic] the scheme allegedly included.(iv) inducing an investor to provide substantial capital to Weinstein based on false representations about the nature of the investments; and (v) convincing an investor to invest in transactions that he fabricated. Exhibit G, p. 1 (emphasis added). 60. Further, Defendant Weinstein has claimed that this fraud does not differ from the frauds he perpetrated in 2004 through 2011: The conduct alleged in the [2013 Criminal] Complaint does not differ in any meaningful way from the transactions that preceded it and were incorporated in the charged conspiracy to which Weinstein pled guilty. Exhibit G, p Hence, Defendant Proskauer s premise that there is little to no factual basis for their actual knowledge is demonstrably false. Page 13 of 21

14 62. Further, their equally false premise that there is a division between the 2011 Criminal Action and the 2013 Criminal Action is belied by their own client s admissions. 63. Ultimately, their participation in an obviously questionable transaction for their own enrichment in the sum of $1 million, subsequent withdrawal, and even more questionable refusal to account or return any of the funds, is a clear basis from which to infer they had actual knowledge of Defendant Weinstein s fraudulent scheme. 2. Defendant Proskauer Substantially Assisted the Fraudulent Scheme by Cooperating in the Laundering of Funds. 64. The final element of a claim of aiding and abetting fraud is substantial assistance, which occurs when a defendant affirmatively assists, helps conceal or fails to act when required to do so, thereby enabling the breach to occur. However, the mere inaction of an alleged aider and abettor constitutes substantial assistance only if the defendant owes a fiduciary duty directly to the plaintiff. Kaufman v. Cohen, 307 A.D.2d 113, 126 (1 st Dept. 2003) (citations omitted). 65. Courts have recognized that the acts of the fraud itself encompass more than just the misrepresentation or the payment of money. 66. In Rostuca Holdings, Ltd. v. Polo, the defendant allegedly rendered substantial assistance in furtherance of her then husband s fraud on April 7, 1988, by sending 22 cases of valuable art and furnishings, acquired by Polo with the investments funds, to Rosa Franco in Paris, France 231 A.D.2d 402, 403 (1 st Dept. 1996). 67. The point of Rostuca Holdings is that actions taken to secrete assets or funds and prevent their recovery is substantial assistance with a fraud sufficient to aid and abet said fraud. 68. Here, Defendant Weinstein has admitted that the 2013 Criminal Action is a Page 14 of 21

15 continuation of the fraudulent scheme in the 2011 Criminal Action. 59, supra. 69. Assuming the allegations in the Verified Complaint are true, and granting all possible favorable inferences, as this Court must, there can be no question that the laundering of $1 million to disburse to persons unknown for the benefit of Defendant Weinstein would clearly establish a substantial assistance of the fraudulent scheme. 70. Merely even placing the $1 million beyond the reach of Plaintiffs and diverting the funds to the benefit of Defendant Weinstein also constitutes substantial assistance, as noted in Rostuca Holdings. 71. In sum, Plaintiffs have amply set forth factual detail to establish that Defendant Proskauer substantially assisted Defendant Weinstein. 3. There is No Heightened Pleading Standard Pursuant to NY CPLR 3016(b) Applicable to this Action. 72. Defendant Proskauer erroneously asserts that there is a heightened pleading standard and that the same has not been met here. Memorandum of Law p. 7 (citing Nat l Westminster Bank U.S.A. v. Weksel, 124 A.D.2d 144, 150 (1 st Dept. 1987). 73. However, Defendant Proskauer has neglected to cite to Eurycleia Partners, LP v. Seward & Kissel, LLP, a recent Court of Appeals decision interpreting and guiding CPLR 3016 s effects on pleadings. 12 N.Y.2d 553 (2009). 74. [T]he purpose underlying [CPLR 3016] is to inform a defendant of complainedof incidents. We cautioned that the statute should not be so strictly interpreted as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud. Id. at 559. Page 15 of 21

16 75. Although there is certainly no requirement of unassailable proof at the pleading stage, the complaint must allege the basic facts to establish the elements of the cause of action. Id. 76. CPLR 3016(b) is satisfied when the facts suffice to permit a reasonable inference of the alleged misconduct. And, in certain cases, less than plainly observable facts may be supplemented by the circumstances surrounding the alleged fraud. Id. 77. Here, that pleading requirement has been met. There is no question that Plaintiffs have alleged the existence of the underlying fraud. Further, Plaintiffs have explicitly alleged Defendant Proskauer s actual knowledge of the fraudulent activities. While Defendant Proskauer s knowledge is a question of fact for discovery, it is also inferable from the facts set forth in the Verified Complaint and as set forth herein at 56, supra. 78. Further, Defendant Proskauer s laundering of funds for the benefit of Defendant Weinstein is an affirmative action substantially assisting the fraud. C. Defendant Proskauer Converted Plaintiffs Funds By Taking $1 Million That Belonged to Plaintiffs From the Babad Defendants. 79. Defendant Proskauer asserts that Plaintiffs are unable to establish that the $1 million received from Defendant Congregation was the specific funds of Plaintiffs. Memorandum of Law, p This argument is best answered by the source of Plaintiffs allegations against Defendant Proskauer, the FBI. 81. According to Special Agent Karl Ubellacker of the Federal Bureau of Investigation, defendant WEINSTEIN obtained the approximately $3.88 million that he Page 16 of 21

17 loaned to [Defendant Babad] and [Defendant Congregation] by defrauding [Plainttiffs]. Ubellacker Aff. 39; 1(l). 82. Defendant Congregation has even provided a purported schedule of payments and receipts from Defendant 148 disclosing the $1 million payment to Defendant Proskauer, which money was received, as stated by Special Agent Ubellacker, prior to May Exhibit O. 83. Defendant Proskauer s argument is incredibly speculative, that at some unspecified time which may well have been before they invested funds with Weinstein he made a $3.88 million loan to the Congregation, which in turn paid Proskauer $1 million. Memorandum of Law, p In short, Defendant Proskauer asks this Court to infer facts about the transactions, which the Court cannot do under the procedural posture of a motion to dismiss. To the contrary, the Plaintiffs are entitled to the inference that all of the funds sent to Defendant Congregation by Defendant 148 were Plaintiffs funds. Verified Complaint In addition, the actual documentary evidence available belies this very position. Exhibit O. According to Defendant Congregation, these funds were all paid after the Plaintiffs payments to Defendant 148. Id. D. Defendant Proskauer Is a Fiduciary to Plaintiffs Insofar as Plaintiffs Have Rights to the Unearned Portion of the $1 million Defendant Proskauer Took as a Legal Fee. 86. The Twenty-Sixth Cause of action seeks an accounting for the $1 million received by Defendant Proskauer and for which they have no entitlement. 87. Defendant Proskauer, like the Babad Defendants, seek to dismiss this cause of action because of a lack of fiduciary relationship between the parties. In fact, there is a fiduciary Page 17 of 21

18 relationship between Defendant Proskauer and the Plaintiffs insofar as Defendant Proskauer is in possession of monies belonging to Plaintiffs. 88. Although Defendant Proskauer s retainer purportedly made the fee a minimum, non-refundable $1 million retainer, the fact remains that Defendant Proskauer voluntarily withdrew from representation without completing its representation, thereby vitiating its entitlement to its retainer. See, e.g. Abreu v. Ferrer, 239 A.D.2d 249 (1 st Dept. 1997) ( Since appellant withdrew from the case without representing plaintiff on appeal, he breached the retainer agreement and is not entitled to compensation ); see also J.M. Heinike Associates, Inc. v. Liberty Nat. Bank, 142 A.D.2d 929, 930 (4 th Dept. 1988). 89. Further, even if Defendant Proskauer has a right to a legal fee, it may be only upon quantum meruit. Shalom Toy, Inc. v. Each and Every one of the Members of the New York Property Ins. Underwriting Ass n, 239 A.D.2d 196, 198 (1 st Dept. 1997). 90. Defendant Proskauer, as a law firm, is held to a higher obligation with respect to the monies of third parties in its possession than ordinary defendants. NY Rules of Professional Conduct 1.15(a) ( A lawyer in possession of any funds or other property belonging to another person is a fiduciary ). 91. In short, there can be no question that Defendant Proskauer voluntary withdrawal as counsel and immediate notice thereafter by Plaintiffs as to their claims to the $ 1 million, makes Defendant Proskauer a fiduciary with respect to any unearned portion of the $1 million. 92. On that basis, Plaintiffs are entitled to an accounting as Defendant Proskauer is a fiduciary with respect to any unearned portion of the $1 million which they improperly retained as a fee. Page 18 of 21

19 E. Plaintiffs Fraudulent Conveyance Claim Clearly States a Cause of Action. 93. The crux of Defendant Proskauer s motion with respect to the twenty-seventh cause of action is that Plaintiff has failed to plead intent on the part of Defendant Congregation to defraud Plaintiffs. 94. In fact, Plaintiffs specifically pled that Defendant Congregation and Defendant Babad agreed to assist Defendant Weinstein, Defendant Todd, and Defendant 148 with their scheme to defraud Plaintiffs. Verified Complaint As for the claim of lack of detail, Plaintiffs have also fully established their intent, circumstantially, in 56, herein and in opposition to Defendant Babad s motion to dismiss filed November 12, Specifically, Plaintiffs pointed to the questionable circumstances of the assignments of that certain $6 million mortgage encumbering Park Avenue, New York, New York. See, e.,g. Affirmation of Daniel H. Richland dated November 12, 2013 ( Richland Aff. ) 51 et seq. 97. Plaintiffs also pointed to the varying explanations, differing amounts, and questionable schedule produced by the Babad Defendants on that motion. 98. Finally, Plaintiffs pointed to the $1 million payment to Defendant Proskauer as further evidence of their fraudulent intent. Richland Aff Clearly, there is a basis for believing the Babad Defendants intentionally sought to defraud Plaintiffs and that they were part of Defendant Weinstein s, Defendant Todd s, Defendant Muschel s, and Defendant Schleider s fraudulent scheme Accordingly, this Court must deny Defendant Proskauer s motion to dismiss the twenty-seventh cause of action. Page 19 of 21

20 F. Plaintiffs Have Stated a Cause of Action Against Defendant Proskauer for Unjust Enrichment Defendant Proskauer further asserts that a claim for unjust enrichment does not lie because of the lack of privity between Defendant Proskauer and Plaintiffs. This argument must fail because Defendant Proskauer is in possession of funds to which Plaintiffs have made claim, and, as a fiduciary, not requiring Defendant Proskauer to return the funds to Plaintiffs would unjustly enrich Defendant Proskauer A cause of action for unjust enrichment is stated where plaintiffs have properly asserted that a benefit was bestowed by plaintiffs and that defendants will obtain such benefit without adequately compensating plaintiffs therefor. Seargents Benevolent Ass n Annuity Fund v. Renck, 19 A.D.3d 107, 111 (1 st Dept. 2005) (citing Wiener v. Lazard Freres & Co., 241 A.D.2d 114, 119 (1 st Dept. 1998) (quoting Tarrytown House Condominiums v. Hainje, 161 A.D.2d 310, 313 (1 st Dept. 1990)) As noted in 91-92, Defendant Proskauer retained a $1 million legal fee which they did not earn by voluntarily withdrawing as counsel The monies in question have been claimed by Plaintiffs. Verified Complaint 234, 252. Defendant Proskauer has refused to return the funds because it alleges it spent all of the money, even though it clearly had no right to do so. Verified Complaint There can be little doubt that a law firm does not have a right to retain a fee it spends prior to earning merely because it spent it As the source of the payment to Defendant Proskauer was Plaintiffs, Defendant Proskauer has received a benefit from Plaintiffs and their retention of an unearned legal fee, for their own profit, would be grossly inequitable. Ubellacker Aff. 38, et seq. Page 20 of 21

21 107. Accordingly, Plaintiffs have pled a cause of action for unjust enrichment against Defendant Proskauer For all of the foregoing reasons, Defendant Proskauer s motion to dismiss should be denied in its entirety. DATED: November 13, 2013 New York, NY Respectfully Submitted, Paykin, Richland & Falkowski, P.C. By: Daniel H. Richland, Esq th Avenue, 59 th Floor New York, NY Phone: x 802 Fax: (not for service of process) Attorneys for Plaintiffs Page 21 of 21