FILED: NEW YORK COUNTY CLERK 01/30/ :02 PM INDEX NO /2015 NYSCEF DOC. NO. 53 RECEIVED NYSCEF: 01/30/2017

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1 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK THE PEOPLE OF THE STATE OF NEW YORK ex rel. Qui tam The Bayrock Qui tam Litigation Partnership, Plaintiff, v. Part 45 (Hon. Anil C. Singh) Index No /15 Motion Sequence No. 004 BAYROCK GROUP LLC; TEVFIK ARIF; JULIUS SCHWARZ; FELIX SATER; BRIAN HALBERG; ALEX SALOMON; JERRY WEINRICH, SALOMON & COMPANY P.C.; AKERMAN SENTERFITT LLP; DUVAL & STACHENFELD LLP; KRAMER LEVIN NAFTALIS AND FRANKEL LLP; BRUCE STACHENFELD; NIXON PEABODY LLP; ADAM GILBERT; ROBERTS & HOLLAND LLP; ELLIOT PISEM; BAYROCK SPRING STREET LLC; BAYROCK WHITESTONE LLC; BAYROCK CAMELBACK LLC: BAYROCK MERRIMAC LLC; and BAYROCK GROUP INC., Defendants. SUPPLEMENTAL MEMORANDUM OF LAW OF JULIUS SCHWARZ AND BRIAN HALBERG IN SUPPORT OF MOTION TO DISMISS THE COMPLAINT AS AGAINST THEM PURSUANT TO 189(4)(a) OF THE NEW YORK FALSE CLAIMS ACT 1 of 9

2 TABLE OF CONTENTS PRELIMINARY STATEMENT...1 ARGUMENT...2 THE COMPLAINT SHOULD BE DISMISSED WITH RESPECT TO THE INDIVIDUAL DEFENDANTS...2 A. The Relevant Standards...2 B. The Affirmations of The Individual Defendants Are Documentary Evidence...3 C. The Affirmations of the Individual Defendants Conclusively Show They Are Not Proper Defendants Under the New York State False Claims Act...5 CONCLUSION...5 i 2 of 9

3 TABLE OF AUTHORITIES Page(s) Cases Biondi v. Beekman Hill House Apartment Corp., 257 A.D.2d 76 [1st Dept 1999] affd on other grounds, 94 N.Y.2d 659 [1st Dept 2000]...3, 4 Duration Mun. Fund, L.P. v. J.P. Morgan Sec. Inc., 25 Misc. 3d 1203(A) [Sup Ct NY County 2009], affd, 77 A.D.3d 474 [1st Dep t 2010]...3 Fontanetta v John Doe 1, 73 A.D.3d 78 [2d Dept 2010]...3 Goshen v. Mut. Life Ins. Co. of N.Y., 98 N.Y.2d 314 [2002]...2 Johnson v. Proskauer Rose LLP, 129 A.D.3d 59 [1st Dept 2015]...3 Lleshanaku v. Kenmore Assocs., L.P., 4 Misc. 3d 143(A) [App. Term 1st Dept 2004]...3 McGuire v. Sterling Doubleday Enterprises, L.P., 19 A.D.3d 660 [2d Dept 2005]...3 Simkin v. Blank, 19 N.Y.3d 46 [2012]...3 Taylor v. Pulvers, Pulvers, Thompson & Kuttner, P.C., 1 A.D.3d 128 [1st Dept 2003]...3 Tsimerman v. Janoff, 40 A.D.3d 242 [1st Dep t 2007]...3 Wilhelmina Models, Inc. v. Fleisher, 19 A.D.3d 267 [1st Dep t 2005]...3 Statutes New York Civ. Prac. Law & Rules , 2, 3, 5 New York Finance Law (False Claims Act)...1, 2, 4, 5 ii 3 of 9

4 This memorandum of law is submitted on behalf of individual defendants Julius Schwarz and Brian Halberg (the Individual Defendants ) and as a supplement to Defendants Joint Memorandum of Law in Support of Their Motion to Dismiss the Complaint and for Other Relief filed contemporaneously on behalf of all defendants (the Master Brief ). The Individual Defendants respectfully submit this memorandum of law to address that portion of the joint motion to dismiss on behalf of all defendants (the Joint Motion ) which requests dismissal of the complaint in this action (Docket No. 3) (the qui tam Complaint or Complaint ) against them pursuant to CPLR 3211(a) and/or CPLR 3211(c) and Finance Law 189(4)(a) (the False Claims Act ) on the additional ground that Plaintiff Bayrock Qui Tam Litigation Partnership cannot maintain a claim for violation of the False Claims Act against them because their net income did not satisfy the statutory threshold set forth in Finance Law 189(a)(4)(i) in any relevant year. The relevant facts are set forth in the Affirmation of Julius Schwarz, dated January 27, 2017 (the Schwarz Aff. ) and the Affirmation of Brian Halberg, dated January 27, 2017 (the Halberg Aff. and with the Schwarz Aff., the Affirmations ). 1 PRELIMINARY STATEMENT As set forth below, the Individual Defendants should be dismissed from this qui tam action because they do not meet the threshold income requirement to be defendants in a False Claims Act suit: neither of them had net income which equaled or exceeded $1 million for any 1 Contemporaneously with the filing of the Joint Motion, a motion to file personal financial information under seal is also being filed. Copies of relevant parts of the Individual Defendants personal tax returns and other personal financial information have not been filed as exhibits to their Affirmations pending a decision on the motion to seal. As stated in their Affirmations, the Individual Defendants are prepared to supplement their filings by submitting relevant parts of their federal income tax returns upon entry by this Court of an order permitting filing under seal. In the alternative, the Individual Defendants are prepared to provide relevant parts of their personal financial information to the Court for in camera inspection. 1 4 of 9

5 of the years which is the subject of the qui tam Complaint. Specifically, Plaintiff has failed to allege any factual basis to support its speculative allegation that the net income of the Individual Defendants satisfies the statutory threshold of the False Claims Act. (The history of this action is set forth in the Statement of Facts in the Master Brief and is not repeated herein.) The Complaint seeks judgment against all defendants pursuant to the False Claims Act, N.Y. State Finance Law, 187, et seq. (Complaint at 67), and alleges that each of the Individual Defendants had net income equaling or exceeding $1,000,000 in at least one of the years 2004 through 2010 inclusive (Id. at 19). The Complaint further states [a]s to Julius Schwarz and Brian Halberg, the fact that their salaries at Bayrock were, on information and belief and as at least partially confirmed by Schwarz as to himself at least in 2010, $720,000 and $500,000 per annum plus bonus, respectively, supports this allegation. (Id. at 19, note 3). As set forth in the Affirmations, neither Mr. Schwarz nor Mr. Halberg had income equal to or exceeding $1 million dollars in any of the years 2004 through 2010 (Halberg Aff. at 7, 9; Schwarz Aff. at 7, 9). Accordingly, the Complaint must be dismissed as to each of them. A. The Relevant Standards ARGUMENT THE COMPLAINT SHOULD BE DISMISSED WITH RESPECT TO THE INDIVIDUAL DEFENDANTS This motion is made under CPLR 3211(a)(1) and 3211(a)(7). To succeed on a motion to dismiss pursuant to CPLR 3211(a)(1), the documentary evidence relied on by the defendant must refute the factual allegations in the complaint and conclusively establish a defense as a matter of law (Goshen v. Mut. Life Ins. Co. of N.Y., 98 N.Y.2d 314, 326 [2002] (citing Leon v. Martinez, 84 N.Y.2d 83, 88 [1994]); see Biondi v. Beekman Hill House Apartment Corp., 257 A.D.2d 76 [1st Dept 1999] affd on other grounds, 94 N.Y.2d 659 [1st Dept 2000]). 2 5 of 9

6 Under CPLR 3211(a)(7), the Court must accept the allegations of the complaint as true (Johnson v. Proskauer Rose LLP, 129 A.D.3d 59, 67 [1st Dept 2015], but factual claims which are flatly contradicted by documentary evidence are not entitled to such consideration and dismissal is warranted where documentary proof disproves an essential allegation (Simkin v. Blank, 19 N.Y.3d 46, 52 [2012] (citation and internal quotation marks omitted); McGuire v. Sterling Doubleday Enterprises, L.P., 19 A.D.3d 660, [2d Dept 2005]). B. The Affirmations of The Individual Defendants Are Documentary Evidence The term documentary evidence is not explicitly defined in CPLR 3211(a)(1); as used in the statute it is a fuzzy term, and what is documentary evidence for one purpose, might not be documentary evidence for another (Fontanetta v John Doe 1, 73 A.D.3d 78, 84 [2d Dept 2010]. Indeed, there is nothing in CPLR 3211(a)(1) which specifies or limits the form or character of the documentary evidence upon which a motion to dismiss is based. Weinstein- Korn-Miller, NY Civ Prac [2d Ed. 2005] (internal quotations omitted)). Affidavits which conclusively establish that plaintiff has no cause of action are properly considered on motion to dismiss (Taylor v. Pulvers, Pulvers, Thompson & Kuttner, P.C., 1 A.D.3d 128 [1st Dept 2003]; Tsimerman v. Janoff, 40 A.D.3d 242, 242 [1st Dep t 2007] (citing Leon v. Martinez 84 N.Y.2d at 88); Lleshanaku v. Kenmore Assocs., L.P., 4 Misc. 3d 143(A) [App. Term 1st Dept 2004]). Allegations in a complaint which are presumed true may properly be negated by affidavits and documentary evidence (Wilhelmina Models, Inc. v. Fleisher, 19 A.D.3d 267, 269 [1st Dep t 2005] (citing Biondi, 257 A.D.2d at 81); Duration Mun. Fund, L.P. v. J.P. Morgan Sec. Inc., 25 Misc. 3d 1203(A) [Sup Ct NY County 2009], affd, 77 A.D.3d 474 [1st Dep t 2010]). The Affirmations of the Individual Defendants clearly establish that the Individuals Defendants net income in the years at issue never rose to the minimum $1-million threshold 3 6 of 9

7 which would make them subject to claims under the False Claims Act, thus conclusively establishing a defense as a matter of law (see Halberg Aff. at 7, 9; Schwarz Aff. at 7, 9). Additionally, as stated in their Affirmations, the Individual Defendants are prepared to submit relevant information from their federal tax returns upon entry by this Court of an order to file their personal financial information under seal, providing further documentary evidence to refute plaintiff s allegations (see Halberg Aff. at 10; Schwarz Aff. at 10). The question of fact at issue here is a straightforward one and is easily negated by the Individual Defendants documentary evidence. Plaintiff alleges that the Individual Defendants incomes were equal to or more than $1-million, i.e., at least in 2010, $720,000 and $500,000 per annum plus bonus, respectively, for Schwarz and Halberg. Complaint at 19, note 3. Based on information and belief plaintiff extrapolates from salaries which are well less than $1-million by means of some unknown bonus in an effort to reach the threshold which would permit claims against the Individual Defendants under the False Claims Act. Negating plaintiff s allegations, the Individual Defendants each a member of the Bar of the State of New York provide affirmations under penalty of perjury which state their net income for each of the years in question was below the $1-million threshold (see Halberg Aff. at 7, 9; Schwarz Aff. at 7, 9). Plaintiff s allegations which are either inherently incredible or flatly contradicted by documentary evidence should not be presumed to be true, nor accorded any favorable inference Biondi 257 A.D.2d at 81). Accordingly, while the Individual Defendants submit that their Affirmations standing alone should be treated as documentary evidence for the purposes of the motion to dismiss, the Affirmations plus the exhibits which will be filed upon entry of an order permitting them to be filed under seal, clearly show that their net income was at all times less than $1-million during the years 2004 through 2010, thus conclusively establishing their defense. 4 7 of 9

8 C. The Affirmations of the Individual Defendants Conclusively Show They Are Not Proper Defendants Under the New York State False Claims Act Section 189(4)(a) of the False Claims Act provides that [t]his section shall apply to claims, records, or statements made under the tax law only if (i) the net income or sales of the person against whom the action is brought equals or exceeds $1 million dollars for any taxable year subject to any action brought pursuant to this article (Finance Law 189(a)(4)). This income limitation was enacted so that government resources would be expended only on matters of potentially significant impact and with respect to taxpayers of considerable financial stature, Letter from Acting Comm'r Jamie Woodward to Governor David Paterson [Aug. 4, 2010], reprinted in Bill Jacket for ch. 379 [2010], at 13. As conclusively established by the Affirmations submitted by the Individual Defendants, their net incomes never exceeded $1 million dollars for any of the years at issue in this action (see Halberg Aff. at 7, 9; Schwarz Aff. at 7, 9). Plaintiff s unsupported speculation is insufficient to overcome the Individual Defendants Affirmations under penalty of perjury that their net income in any of those years did not meet the statutory threshold of $1 million. Accordingly, the qui tam Complaint must be dismissed as against the Individual Defendants. CONCLUSION WHEREFORE, for the foregoing reasons, Defendants Julius Schwarz and Brian Halberg request that their motion to dismiss the Complaint against them pursuant to CPLR 3211(a) and/or CPLR 3211(c) and Finance Law 189(4)(a) be granted. Dated: New York, New York January 30, 2017 SATTERLEE STEPHENS LLP By: /s/ Walter A. Saurack Walter A. Saurack, Esq. 5 8 of 9

9 Attorneys for Defendants Brian Halberg and Julius Schwarz 230 Park Avenue, Suite 1130 New York, New York Telephone: v of 9