FILED: NEW YORK COUNTY CLERK 07/07/ :54 PM INDEX NO /2016 NYSCEF DOC. NO. 13 RECEIVED NYSCEF: 07/07/2016

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1 FILED: NEW YORK COUNTY CLERK 07/07/ :54 PM INDEX NO /2016 NYSCEF DOC. NO. 13 RECEIVED NYSCEF: 07/07/2016 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: Part 61 NAXOS ART INC., Index No E Plaintiff, v. NICHOLAS ZOULLAS, Defendant. MEMORANDUM OF LAW IN OPPOSITION TO PLAINTIFF'S PRELIMINARY INJUNCTION AND TEMPORARY RESTRAINING ORDER Defendant, MR. NICHOLAS ZOULLAS, through counsel, submits this Memorandum of Law in Opposition to Plaintiff's preliminary injunction and temporary restraining order [TRO], asserting that Plaintiff's Order to Show Cause [OSC] must be dismissed, as the bases for this extraordinary provisional remedy under CPLR 6301 and 7109(a) are meritless. I. FACTS Defendant, Mr. Nicholas Zoullas, is the custodian of a comprehensive array of artwork owned by Plaintiff. See Zoullas Aff. at 1. Plaintiff is a company based in the British Virgin Islands and holds artwork for purposes of long-term investment, by way of shares that are held for a trust. Id. at 1. 1 Mr. Anthony Cashen is the director of the company [Plaintiff]. See Cashen Aff. at 1. Not only is Mr. Zoullas the custodian of the subject artwork, but he is also the agent for Plaintiff and handles sophisticated and complex art acquisition and consignment 1 As Plaintiff correctly states, the shares are directly held by Moore Stephens Trust Co. Ltd. which is the sole corporate trustee of Plaintiff. See Complaint at of 10

2 of sale for the benefit of Plaintiff. See Zoullas Aff. at 5. This is memorialized in the "Custodian Agreement" between Plaintiff and Mr. Zoullas, which was fully executed on or about December 16, See Cashen Aff. at Exh. 1. Throughout the years, the Custodian Agreement was updated whenever Plaintiff acquired new artwork. On or about January 19, 2016, Mr. Zoullas ed Plaintiff about his selling Inventory No. 46 to 2 See Zoullas Aff. at 7. It was an unintended sale on Mr. Zoullas's part. See Chadwick Aff. at Exh. 9. This inadvertent sale provoked massive, yet easily explainable, misunderstanding between Plaintiff and Mr. Zoullas regarding missing artwork, and more importantly, his role and function as custodian and agent for Plaintiff. 3 Nevertheless, this correctable confusion resulted in Plaintiff's unilateral termination of the Custodian Agreement on or about May 3, 2016, see Nicyper Aff. at Exh. 2, and ultimately culminated in Plaintiff filing this OSC for preliminary injunction and TRO against Mr. Zoullas on June 17, This Honorable Court signed the OSC, crossing out the substantive "So ordered" paragraphs. On June 23, 2016, at the brief court appearance, Mr. Zoullas's attorney assured this Honorable Court that Mr. Zoullas is temporarily enjoined from selling, loaning, transferring, pledging as collateral, encumbering, assigning, gifting, and/or disposing of, [or anything in similar vein], any action with the subject artwork. See June 23, 2016 Court Transcript at p. 4, lines The parties also agreed that pending outcome of the July 21, 2016 hearing, Mr. Zoullas is enjoined from using, transferring, gifting, or 2 This is a painting by Georges Braque, Les oeufs dans la poele. See Complaint at Plaintiff prepared a "Missing Inventory" list. See Cashen Aff. at Exh On or about June 17, 2016, Plaintiff filed its Summons and Complaint, asserting five causes of action: [1] replevin; [2] breach of contract; [3] conversion; [4] bmreach of fiduciary duty; and [5] injunctive relief. 2 2 of 10

3 otherwise disposing of any of the sale proceeds regarding the subject artwork. Id. at p. 4, lines The parties convene for a hearing on Plaintiff's OSC before this Honorable Court on Thursday, July 21, 2016, at 9:30 a.m. II. PRELIMINARY INJUNCTION AND TRO MUST BE DENIED When there are key facts in dispute, preliminary injunction should be denied. Faberge Int'l Inc. v. Di Pino, 109 AD2d 235, 240 (App Div, 1st Dept 1985). Such is the case here, as the extent of Mr. Zoullas's discretion and his willingness to recover the missing artwork has been questioned without warrant by Plaintiff. A. Preliminary Injunction Is A Drastic Remedy A preliminary injunction is an extraordinary provisional remedy to which a plaintiff is entitled only on a special showing. Margolies v. Encounter, Inc., 42 NY2d 475, 479 (App Ct 1977). As such, a party seeking the drastic remedy of a preliminary injunction must show a clear right to that relief under the law and the undisputed facts upon the moving papers. La Cara Mia Bar Lounge, Inc. v. Great Locations, Inc., 22 Misc3d 1107(A) at *8 (Sup Ct, Bronx Cty 2009); C.A. Gambrill Mfg. Co. v. E.R. Shelburne Co., 194 AD 425, 432 (App Div, 1st Dept 1920). Here, Plaintiff is not entitled to a preliminary injunction against Mr. Zoullas because it cannot in good faith prove a clear right to this extraordinary provisional remedy, especially since it has already been affirmed before this Honorable Court that Mr. Zoullas intends to continue his compliance with Plaintiff's demands of having a complete inventory of the missing artwork. As such, Plaintiff's supposed clear right to this remedy has been blunted by Mr. Zoullas's willingness to cooperate, and Plaintiff 3 3 of 10

4 shows no signs of prejudice as a result of Mr. Zoullas's concerted effort to comply to its demands. B. Plaintiff Fails To Meet The Three-Point Criteria Under CPLR 6301 Because It Has No Proof That It Has Been Prejudiced. Under CPLR 6301 ["Grounds for preliminary injunction and temporary restraining order"], a temporary restraining order may be granted "pending a hearing for preliminary injunction where it appears that immediate and irreparable injury, loss, or damage will result unless the defendant is restrained before the hearing can be had." The elements of a preliminary injunction are as follows: [1] probability of success on the merits; [2] danger of irreparable injury in the absence of an injunction; and [3] a balance of the equities in the movant's favor. U.S. Re Companies, Inc. v. Scheerer, 41 AD3d 152, 154 (App Div, 1st Dept 2007); Aetna Ins. Co. v. Capasso, 75 NY2d 860, 862 (App Ct 1990). As discussed below, Plaintiff fails to meet the criteria with respect to its causes of action. 1. Probability of success on the merits Plaintiff claims that Mr. Zoullas committed conversion of the subject artwork for personal enrichment. See Complaint at 94. Moreover, Plaintiff has the burden of proof and must show a likelihood of success on the merits by way of affidavits and other proof in evidentiary detail. To maintain a cause of action for conversion, a plaintiff must show legal ownership or an immediate superior right of possession to a specific identifiable thing and that a defendant with intent to interfere with such ownership or possession exercised dominion or actually interfered with the property to the exclusion of or in defiance of the plaintiff's rights. Interested Lloyd's Underwriters v. Ross, 2005 WL at *6 4 4 of 10

5 (S.D.N.Y. 2005). Plaintiff cannot claim probability of success on the merits based on its conversion and replevin claims because pursuant to the Custodian Agreement, Mr. Zoullas was exactly that: the custodian of artwork who possesses the artwork acquired at his direction and discretion. Furthermore, conversion is concerned with possession, and not title. State v. Seventh Regiment Fund, 98 NY2d 249, 259 (App Ct 2002). But where possession is originally lawful, a conversion does not occur until the owner of the property makes a demand for the return of the property and the person in possession of the property refuses to return it. In re Vogel, 23 Misc3d 512, 516 (Surrogate's Court, Westchester Cty 2009). Here, Mr. Zoullas is not refusing to return any missing artwork; in fact, the opposite is true, as he has made diligent strides in organizing an Inventory Log. Although Plaintiff contends that Mr. Zoullas converted the artwork in his rightful possession for his personal use, Mr. Zoullas did not treat the inadvertent sale as such, because he has already agreed to cooperate with Plaintiff to take careful inventory of the subject artwork. As such, Plaintiff's replevin claim is defeated because Mr. Zoullas, through counsel, has duly informed this Honorable Court that the sale and consignment of sale of certain subject artwork was inadvertent, and that he has already taken proactive steps to account for the artwork. Furthermore, it is essential to a cause of action for return of chattel that the plaintiff is entitled to possession by virtue of facts set forth. See CPLR 7102(c)(1); In re Peters v. Sotheby's Inc., 34 AD3d 29, 35 (App Div, 1st Dept 2006). Here, Plaintiff owns the subject artwork by way of Mr. Zoullas's role as custodian and agent, because he has the possessory right of the subject artwork, as expressly 5 5 of 10

6 outlined in the Custodian Agreement, which repeatedly underscores that Mr. Zoullas is entitled to possession. See Custodian Agreement at Cashen Aff. at Exh. 1. Thus, there has been no breach of contract or breach of fiduciary duties on Mr. Zoullas's part because he has simply been performing his duties as custodian of the artwork. 2. Danger of irreparable injury without the injunction Irreparable harm is a threshold requirement for preliminary injunctive relief; absent a showing that the plaintiff will imminently suffer immediate harm, a preliminary injunction cannot be granted. Chicago Research and Trading v. NY Futures Exchange Inc., 84 AD2d 413, 416 (App Div, 1st Dept 1984). Here, Plaintiff is not in peril of losing artwork; nor is there any prejudice against Plaintiff to wait for the completed Inventory Log from Mr. Zoullas, who in good faith, has been diligently preparing the log. Plaintiff failed to factually show by way of affidavits from art consultants, art merchants, and employees from Art Loss Register that it would be irreparably damaged if the injunction were denied. More importantly, a temporary injunction must be denied unless the plaintiff shows a clear legal right and shows that s/he would be irreparably damaged if an injunction were denied before trial. De Candido v. Young Stars, Inc., 10 AD2d 922 (App Div, 1st Dept 1960). Here, Plaintiff erroneously relied on Plaintiff's reliance on Kozar v. Christie's, Inc., 31 Misc3d 1228(A) at *12 (Sup Ct, Westchester Cty, 2011). In Kozar, the plaintiffs asserted that it was the true and lawful owner of a painting that the defendants had in their possession and that the defendants had no authority to sell [which the plaintiffs claimed was sold on the black market]. Id. at *3. As found in the Custodian Agreement, 6 6 of 10

7 Mr. Zoullas is authorized to use his discretion to buy and sell artwork for Plaintiff's benefit. See Zoullas Aff. at 5. Moreover, ownership of the subject artwork is not at issue, unlike in Kozar. Thus, Plaintiff's reliance on Kozar is misplaced. A preliminary injunction must be denied when a plaintiff's alleged damages can be compensated with monetary compensation. Matter of J.O.M. Corp. v. Dept. of Health of the State of NY, 173 AD2d 153, 154 (App Div, 1st Dept 1991). Here, any loss by Plaintiff can be quantified, calculated, and therefore compensable. In fact, Plaintiff seeks at least ten million USD in money damages. See Complaint at 123(h); see also Cashen Aff. at Exh. 3. Again, Mr. Zoullas, has been tirelessly working to painstakingly prepare the Inventory Log so that Plaintiff knows exactly where the subject artwork is located. Plaintiff therefore has not been prejudiced by Mr. Zoullas's role as custodian and agent because proof of irreparable injury is lacking. Plaintiff has not given any proof of immediate, pending loss of a sale. Nor has it provided grievances from merchants or notices from the Art Loss Register regarding any of the subject artwork. Plaintiff has only shown perceived monetary loss, which is insufficient to warrant injunctive relief. Accordingly, Plaintiff has not been prejudiced whatsoever, and any claim of irreparable injury is a fiction because Mr. Zoullas, through counsel, has attested that he is enjoined from selling any artwork in his possession. 3. Balance of the equities in the movant's favor The balancing of the equities requires the movant to show that the harm it would suffer, absent the injunction, is greater than the harm to be imposed on the non-movant by the injunction. Sommers Assoc. v. Corvino, 156 AD2d 218, (App Div, 1st Dept 7 7 of 10

8 1989). Additionally, a plaintiff's claims of anticipated damages should be dismissed as speculative. See Hoppmann v. Sargent Stein, Inc., 141 AD2d 332, 334 (App Div, 1st Dept 1988) (where the First Department found that the threatened damage to the plaintiff is speculative and easily compensable, whereas the hardship to the defendant [in this case, the inability to commence construction of a large project] would far be more harmful). Here, Mr. Zoullas has cultivated his professional relationships with global art and auction houses, along with influential individuals and investors in the art world. See Zoullas Aff. at 10. Plaintiff has wittingly or unwittingly stymied Mr. Zoullas's crucial networks with this OSC. To strip Mr. Zoullas of his duties as custodian and agent to Plaintiff would be to his detriment, one which would impact him more profoundly than Plaintiff's alleged claims of irreparable harm. In fact, the success of Plaintiff and the trust is a direct by-product of Mr. Zoullas's consistent hard work to seek sales and consignment of sales of artwork that will benefit Plaintiff. As such, the balancing of equities is actually in Mr. Zoullas's favor, and not Plaintiff's, because the harm of losing credibility in the art world is far greater than Plaintiff's claims of monetary loss. C. The TRO Under CPLR 6313(a) Is Wholly Moot Under CPLR 6313 ["Temporary restraining order"], if, on a motion for preliminary injunction, the plaintiff shall show that immediate and irreparable harm, loss, or damages will result unless the defendant is restrained before a hearing can be held, a temporary restraining order may be granted without notice. In short, a TRO maintains the status quo. Likewise, the sole mission of the TRO is to effect a restraint against the 8 8 of 10

9 defendant during that brief interim. See 330 ["Temporary Restraining Order"], Siegel New York Practice, 4th ed. (2005). Here, the status quo in this instant action has not been disturbed because Mr. Zoullas is refrained from selling any subject artwork and is steadfastly taking inventory of any missing artwork; thus, there should be no restraint against Mr. Zoullas because again, he has represented to this Honorable Court, through counsel, on June 23, 2016, that he is making every concerted effort to carefully inventory the subject artwork. See Zoullas Aff. at 13 and 14. His affirmative duty to cooperate with Plaintiff should therefore be given great weight. Even prior to the filing of Plaintiff's OSC, Mr. Zoullas has shown that any transaction he made was not for his personal enrichment, but rather, for the benefit of Plaintiff and the trust's enrichment. Id. at 5. Plaintiff therefore makes this application for preliminary injunction and TRO with unclean hands. She who comes into equity must come with clean hands. See 4 A.L.R. 44; Amarant v. D'Antonio, 197 AD2d 432, 434 (App Div, 1st Dept 1993). Under this doctrine, a litigant who is guilty of inequitable conduct with reference to the subject matter of the transaction in suit is not entitled to recover. Levy v. Braverman, 260 NYS2d 681, 683 (App Div, 1st Dept 1965). Here, an example of Plaintiff's unclean hands revolve around Inventory No. 207, Jean Béraud's painting, L'escrimeuse. Upon information and belief, Plaintiff did not account for this supposed sale to Sotheby's New York. See Chadwick Aff. at Exh. 12. To date, there has been no response by Plaintiff as to No Accordingly, this showing of unclean hands estops Plaintiff from prevailing on its OSC. Not only has Plaintiff shown unclean hands because it knows that every sale that 9 9 of 10

10 Mr. Zoullas makes ultimately benefits Plaintiff, but Plaintiff is also well aware that Mr. Zoullas simply needs ample time to take careful inventory of the subject artwork, given the parties' longstanding professional relationship with each other. Plaintiff simply fell short of exercising the implied covenant of good faith and dealing with Mr. Zoullas. III. CONCLUSION Plaintiff failed to meet its burden of proof regarding its OSC for preliminary injunction and TRO because Plaintiff failed to show enough to warrant a preliminary restraint, as the evidence presented by Plaintiff was unconvincing to prove that it was prejudiced by Mr. Koullas's actions as the custodian of the subject artwork. WHEREFORE it respectfully requested that Plaintiff's OSC for preliminary injunction and TRO against Mr. Zoullas be denied, together with such other and further relief as this Honorable Court deems just and proper. Dated: July 7, 2016 New York, NY By: /s/ Rannylin Stephanie Dalley Esq. Rannylin Stephanie Dalley, Esq. Attorney for Defendant R.S. Dalley PLLC 260 Madison Avenue, 8th Floor New York, New York (o) (f) of 10