united states district court southern district of new … · then convinced a third-party company,...

UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK--------------------------------------------------------------X

:LAURO REZENDE,

Plaintiff, : 09 Civ. 9392 (HB) (DF)

-against- : REPORT ANDRECOMMENDATION

:CITIGROUP GLOBAL MARKETS INC.,

:Defendant.

--------------------------------------------------------------X:

CITIGROUP GLOBAL MARKETS INC.,:

Counterclaimaint,:

-against-:

LAURO REZENDE, COMPANHIA SIDERURGICA NACIONAL, and :INTERNATIONAL INVESTMENTFUND LTD., :

Counterdefendants. :--------------------------------------------------------------X

TO THE HONORABLE HAROLD BAER, JR., U.S.D.J.:

Currently referred to me for a report and recommendation are two motions filed by

counterdefendant Companhia Siderurgica Nacional (“CSN”) against counterdefendant Lauro

Rezende (“Rezende”), as well as one cross-motion filed by Rezende.1 In its first motion

(Dkt. 95), CSN asks the Court to award summary judgment in its favor on all of Rezende’s

claims and on some of CSN’s own claims, under Rule 56 of the Federal Rules of Civil

1 CSN’s motions are stated to be brought not only by CSN, but also by counterdefendantInternational Investment Fund Ltd. (“IIF”), although the ownership of IIF is at issue in this case. For ease of reference, the Court will refer to the parties to the pending motions only as CSN andRezende.

Case 1:09-cv-09392-HB -DCF Document 137 Filed 03/11/11 of 71

Procedure. In its second motion (Dkt. 111), CSN asks the Court to dismiss Rezende’s claims

and also to enter judgment against him on all of CSN’s claims against him, not on the merits, but

rather as a sanction for Rezende’s alleged fraud on the Court. Finally, in response to CSN’s

sanctions motion, Rezende has cross-moved for sanctions against CSN, contending that it is

actually CSN that has perpetrated a fraud in this case. Like CSN, Rezende seeks fully case-

dispositive sanctions, i.e., entry of judgment in his favor on his own claims and dismissal of

CSN’s claims. (Dkt. 130.)

For the reasons discussed herein, with respect to each of the three motions before the

Court (shown below in a Table of Contents for ease of reference), I recommend that (1) CSN’s

motion for summary judgment (Dkt. 95) be denied; (2) that CSN’s sanctions motion (Dkt. 111)

be granted, but that a lesser sanction than that sought by CSN be imposed on Rezende; and

(3) that Rezende’s cross-motion for sanctions (Dkt. 130) be denied.

TABLE OF CONTENTS

I. CSN’S MOTION FOR SUMMARY JUDGMENT ...........................................................5

A. Background .............................................................................................................5

1. The Parties ..................................................................................................7

2. CSN’s Investment in MRS .........................................................................8

3. Ownership of IIF ........................................................................................9

a. The Formation of IIF ....................................................................10

i. Communications with Bufete Valdés ...............................10

ii. Payments Made to Bufete Valdés .....................................11

iii. Signing of the Formation Documents ..............................12

iv. CSN’s Board’s Approval of IIF Formation ......................13

v. Restrictions under Brazilian Law .....................................14

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b. Possession of the IIF Formation Documents ................................15

c. IIF’s Operations ............................................................................18

i. IIF’s Purchase of MRS Stock ...........................................18

ii. Payment of IIF’s Legal and Regulatory Fees ...................19

iii. Registration with the Central Bank of Brazil ...................20

d. The Parties’ Representations Regarding Ownership ....................21

i. CSN’s Failure To Make Public Disclosure of Any Ownership of IIF ................................21

ii. Rezende’s Failure To Disclose Ownership of IIF ............22

4. Rezende’s Alleged Contradictions and Inconsistent Statements ..............22

B. Legal Standard Under Rule 56(c) .........................................................................23

C. Summary Judgment on Claims Related to Ownership of IIF ...............................25

1. Choice of Law ...........................................................................................25

2. There Is a Genuine Issue of Fact as to Who Owns IIF. ............................26

D. Summary Judgment on Rezende’s Assault and Battery Claims ...........................29

II. CSN’S MOTION FOR SANCTIONS ..............................................................................32

A. Background ...........................................................................................................32

B. The Factual Record ...............................................................................................36

1. The Swiss Letter .......................................................................................36

a. Rezende’s Account of the Letter’s Creation .................................36

b. The Letter’s Production To CSN ..................................................37

2. CSN’s Initial Investigation into the Swiss Letter’s Authenticity .............38

a. Karsten and S&F’s Lack of Registration To Practice Law .......................................................39

b. The Post Office Box Referenced in the Swiss Letter ...................40

c. The Mailing of the Swiss Letter ...................................................41

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3. Rezende’s Attempts To Authenticate the Swiss Letter ............................42

a. The Karsten Affidavit ...................................................................42

b. Rezende’s November 22, 2010 Submissions ................................44

i. Karsten’s Supposed Telephone Number ...........................45

ii. Karsten’s Supposed Business Address .............................46

iii. Rezende’s Bank Statements ..............................................46

4. Additional Information Obtained by CSN in Discovery or Produced by Rezende at the Hearing ..................................47

a. Karsten’s Supposed E-mail Address .............................................47

b. Karsten’s Driver’s License ...........................................................48

c. Karsten’s Utility Bill and Home Address ...........................................50

d. Additional Bank Records ..............................................................51

C. Applicable Legal Standards ..................................................................................51

1. Fraud on the Court ....................................................................................51

2. Evidence That May Be Considered by the Court .....................................53

D. This Court’s Findings ...........................................................................................56

E. Appropriate Sanctions ...........................................................................................64

III. REZENDE’S CROSS-MOTION FOR SANCTIONS ......................................................67

A. CSN’s Alleged Misconduct ..................................................................................68

B. Sufficiency of the Evidence of Fraud ...................................................................69

CONCLUSION .............................................................................................................................70

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I. CSN’S MOTION FOR SUMMARY JUDGMENT

A. Background2

CSN’s claims against Rezende arise from two separate instances of alleged misconduct

by Rezende. The first of these, Rezende’s alleged theft of $2.2 million from IIF’s bank accounts

in 2002, is not at issue in CSN’s summary judgment motion.3 (Cross-Claim Plaintiffs’

Memorandum Law in Support of their Motion for Summary Judgment, dated Dec. 17, 2010

(“CSN S.J. Mem.”) (filed under seal), at 1 n.1; see generally Amended Cross-Claims, dated

Apr. 27, 2010 (“CSN Am. Cross-Claims”) (Dtk. 27), at ¶¶ 20, 23, 24 (alleging Rezende’s theft of

$2.2 million).) The second instance of Rezende’s claimed misconduct allegedly occurred

sometime after 2002, when, according to CSN, Rezende stole IIF’s “bearer share certificates,”

and used those certificates to pose as IIF’s owner and open a bank account in IIF’s name (the

“Rezende IIF Account”). (CSN Am. Cross-Claims at ¶¶ 3, 34-35.) CSN contends that Rezende

then convinced a third-party company, MRS Logistica S.A.(“MRS”) – in which IIF held a

substantial equity stake – to pay more than $14 million in dividends (the “Dividends”), due to

IIF, into the Rezende IIF Account. (Id. at ¶¶ 3, 4, 36-38.) Furthermore, CSN claims that

2 The undisputed facts set forth herein are taken from the parties’ respective Rule 56.1statements and, where appropriate, evidence and affidavits submitted by the parties inconnection with this motion. (See, e.g., CSN’s Statements of Undisputed Facts Pursuant to Rule56.1, dated Dec. 17, 2010 (“CSN 56.1 Stmt.”) (filed under seal); Response ofPlaintiff/Counterdefendant Lauro Rezende to CSN’s Statement of Undisputed Facts Pursuant toRule 56 of the Federal Rules of Civil Procedure, dated Jan. 19, 2011 (“Rezende 56.1 Stmt.”)(filed under seal); Declaration of Jessica A. Rose, Esq., dated Dec. 17, 2010 (filed under seal);Declaration of Lauro Rezende, dated Jan. 19, 2011 (“Rezende 1/19/11 Decl.”) (filed under seal).) To the extent the parties dispute particular facts, the Court has attempted to ascertain whether theevidentiary record reveals any actual conflict.

3 CSN does, however, seek judgment in its favor on its claims arising from this allegedtheft as a sanction for Rezende’s alleged fraud on the Court. (See Section II, infra.)

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Rezende diverted at least $6 million of the Dividends from the Rezende IIF Account into his

own personal accounts. (Id. at ¶ 40.)4 Based on Rezende’s alleged misconduct regarding IIF,

CSN asserts cross-claims against him for declaratory judgment, conversion, tortious interference

with contractual relations, and constructive trust.5 (See CSN Am. Cross-Claims at ¶¶ 43-60,

68-72, 91-97.)

Rezende maintains that he was, and still is, the rightful owner of IIF. (See Memorandum

of Law of Lauro Rezende in Opposition to Counterdefendants’ Motion for Summary Judgment,

dated Jan. 19, 2011 (“Rezende S.J. Opp.”) (filed under seal), at 1.) Based on his contention that

he owns IIF, Rezende has filed his own cross-claims against CSN for declaratory judgment,

conversion, tortious interference with contract, and unjust enrichment. (See generally Lauro

Rezende’s Answer to Amended Cross-Claims, Defenses and Cross-Claims Against CSN, dated

Dec. 1, 2010 (“Rezende Answer”) (Dkt. 86), at 28-33.) Rezende also asserts assault and battery

claims against CSN, seeking to hold it vicariously liable for injuries Rezende allegedly sustained

at the hands of CSN’s Chairman and Chief Executive Officer, Benjamin Steinbruch

(“Steinbruch”), during an unfortunate physical altercation that took place at a deposition in this

matter. (See id. at 33-35.)

On its summary judgment motion, CSN seeks judgment in its favor on all claims arising

from the parties’ dispute as to who owns IIF and, hence, who is entitled to the Dividends. (See

4 It is undisputed that, after Rezende opened the Rezende IIF Account in 2005, heinstructed MRS to pay dividends into that account (CSN 56.1 Stmt. at ¶¶ 77, 83-84, 94-96;Rezende 56.1 Stmt. at ¶ 77, 83-84, 94-96), and, between May 25, 2005 and May 15, 2008, MRSdeposited more than $14 million in cash into the account (CSN 56.1 Stmt. at ¶ 98; Rezende 56.1Stmt. at ¶ 98).

5 CSN also asserted a fraud claim, but that claim was dismissed in an Order datedNovember 18, 2010 (Dkt. 83).

6


generally CSN S.J. Mem. at 15-27.) CSN contends that the only necessary factual inquiry in this

regard is who owns IIF: if the evidence shows that CSN owns IIF, and that no reasonable jury

could conclude otherwise, then, according to CSN, summary judgment must be granted in its

favor on all relevant claims. (See Def. S.J. Mem. at 2.) Rezende agrees that, for all claims

relating to IIF but one, the only question on summary judgment is whether there exists a triable

issue of fact as to IIF’s ownership.6 (See Rezende S.J. Opp. at 1, 11-18.)

CSN also seeks summary judgment on Rezende’s assault and battery claims, on the

ground that the Court lacks subject matter jurisdiction over those claims, or, alternatively, should

decline to exercise supplemental jurisdiction over them. (See CSN S.J. Mem. at 28-30.)

1. The Parties

CSN is a large, multinational steel company based in Brazil. (CSN 56.1 Stmt. at ¶ 1.)

Rezende was CSN’s Financial Director (or Chief Financial Officer) from 1996 until June 2002,

and was CSN’s Executive Director for Investments from 2003 until June 2005. (Id. at ¶¶ 3-5;

Rezende 56.1 Stmt. at ¶¶ 3-5; see also Rezende 1/19/11 Decl. at ¶ 8 (stating that he was CSN’s

Chief Financial Officer from 1996 to 2002, and was CSN’s Executive Director for Investments

from 2003 to 2005).) As Executive Director for Investments, Rezende had “top-line

responsibility for making . . . investments by the CSN Group” and was “directly involved in the

management of the company’s accounting functions, the preparation of its financial statements

and its treasury operations.” (CSN 56.1 Stmt. at ¶¶ 5-6; Rezende 56.1 Stmt. at ¶¶ 5-6.) From

1996 to June 2002 and from 2003 to June 2005, Rezende was one of CSN’s most trusted

6 With respect to CSN’s claim for a constructive trust, Rezende argues that, in addition tothe question of who owns IIF, there are triable issues of fact as to whether Rezende “stood in afiduciary relationship with CSN regarding IIF” and whether Rezende was unjustly enriched. (Rezende S.J. Opp. at 16.)

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executives, and had access to CSN’s most confidential and sensitive information. (CSN 56.1

Stmt. at ¶¶ 5, 7-8; Rezende 56.1 Stmt. at ¶¶ 5, 7-8.)

IIF is a Belize corporation. (See CSN Am. Cross-Claims at ¶ 9; Rezende Answer at ¶ 9.)

The circumstances of its creation and the identity of its owners are heavily disputed, as set forth

below.

2. CSN’s Investment in MRS

In the 1990s, CSN acquired a block of shares of MRS, a Brazilian railway company.

(CSN 56.1 Stmt. at ¶ 9; Rezende 56.1 Stmt. at ¶ 9.) It is undisputed that MRS was an “important

strategic asset” to CSN because CSN needed access to MRS’s railway system in order to

transport iron ore. (CSN 56.1 Stmt. at ¶¶ 10, 12; Rezende 56.1 Stmt. at ¶¶ 10, 12.) It is further

undisputed that, under Brazilian law, MRS was required to have at least five owners, none of

which could individually own more than 20% of the voting stock of MRS. (CSN 56.1 Stmt. at

¶ 13; Rezende 56.1 Stmt. at ¶ 13; see also Declaration of Isabel Galvão Bueno Cintra Franco,

dated Jan. 18, 2011 (“Franco Decl.”) (filed under seal), at ¶¶ 36-46.)

CSN contends that, in 1999, it “desired to acquire” additional shares of MRS that were

being offered for sale. (CSN 56.1 Stmt. at ¶ 16.) Rezende maintains that CSN was in fact

obligated to purchase these additional shares.7 (Rezende 56.1 Stmt. at ¶¶ 15-16.) In any event,

7 According to Rezende, CSN had entered into a “put” agreement with certain third-partycompanies that owned voting shares of MRS stock. (Rezende Decl. at ¶ 19.) Under thisagreement, Rezende claims, CSN was obligated to purchase those third-party companies’ votingshares upon demand. (Id.) Further, Rezende states, the third-party companies were expected tobe selling their voting shares in late 1999, thus, at that time, CSN ran the risk of exceeding the20% limit on ownership of voting shares of MRS stock. (See id. at ¶ 22.) Because CSN couldnot find a prospective buyer for the potential excess shares, Rezende maintains, “CSN was facedwith the likely scenario of being forced to liquidate MRS voting shares at a fire sale price.” (Id.at ¶ 23.)

8


because of the 20% ceiling on ownership of MRS voting stock, CSN realized that it needed to

divest itself of a portion of its MRS stock in order to be able to purchase additional MRS stock.

(See CSN 56.1 Stmt. at ¶ 17; Rezende 56.1 Stmt. at ¶ 17.) According to CSN, it formed IIF as

an “offshore affiliate” and transferred a portion of its MRS stock to IIF. (CSN 56.1 Stmt. at

¶ 17.) Rezende, however, contends that he and another CSN officer, Jose Alves (“Alves”),

reached an agreement with CSN’s Chairman, Steinbruch, under which “Rezende and Alves

would form IIF for their own personal benefit, and that CSN would sell a portion of its MRS

stock to IIF.” (Rezende 56.1 Stmt. at ¶ 17.)

3. Ownership of IIF

CSN claims that it has been IIF’s sole owner since IIF’s formation. Rezende, however,

claims that he formed IIF, and that he and Alves were IIF’s sole owners until Rezende bought

Alves’s stake in or around 2004. Importantly, each party to the current dispute claims to have

been IIF’s owner, without interruption, since IIF’s formation in 1999. Thus, neither party

contends that it now owns IIF because of any transfer of ownership (except that Rezende claims

that he purchased his co-owner Alves’s stake).8 For this reason, the key factual inquiry is who

formed and initially owned IIF.

Despite this, both parties have submitted a good deal of evidence concerning what

occurred after IIF’s formation. This evidence – such as the payment of IIF’s subsequent legal

fees, the appointment of IIF’s directors, and CSN’s failure to disclose IIF in its public filings –

8 As noted below, CSN contends that Rezende stole the bearer share certificates fromCSN’s legal files in 2003. No reasonable juror could conclude that this theft resulted in atransfer of ownership from CSN to Rezende and, indeed, Rezende’s position in this lawsuit isthat he possessed the bearer share certificates all along, not that any alleged theft could haveconferred ownership. (See Rezende 56.1 Stmt. at ¶¶ 28-29.)

9


may, in some instances, shed light on what the parties believed, at the time, regarding the

ownership of IIF. Thus, while the factual summary below focuses primarily on IIF’s initial

formation, the Court will also summarize evidence concerning IIF’s subsequent operations, to

the extent that such evidence may undermine or bolster each party’s ownership claim.

a. The Formation of IIF

CSN maintains that it asked the Panamanian law firm of Bufete Valdés to form IIF (CSN

56.1 Stmt. at ¶ 19), while Rezende claims that he himself directed the formation of IIF (Rezende

56.1 Stmt. at ¶ 19). It is undisputed that, regardless of who directed the formation of IIF, Bufete

Valdés ultimately directed another law firm (“Morgan & Morgan”) to incorporate IIF in Belize,

and IIF was, in fact, incorporated in Belize on November 29, 1999. (CSN 56.1 Stmt. at

¶¶ 22-24; Rezende 56.1 Stmt. at ¶¶ 22-24.)

i. Communications with Bufete Valdés

CSN’s general counsel at the time, Cláudia De Azeredo Santos (“Santos”), has submitted

a declaration under penalty of perjury stating that she contacted Bufete Valdés to set up IIF on

behalf of CSN, and that she did so while acting in her capacity as CSN’s general counsel.

(Declaration of Cláudia De Azeredo Santos, dated Dec. 10, 2010 (“Santos Decl.”) (filed under

seal), at ¶ 8.) Further, Eduardo Valdés Aleman (“Valdés”), a partner at Bufete Valdés, has

declared under penalty of perjury that Bufete Valdés received a call from Santos on

November 25, 1999, at which time Santos asked the firm to form IIF for CSN. (Declaration of

Eduardo Valdés Aleman, dated Dec. 14, 2010 (“Valdés Decl.”), at ¶¶ 4-8.) Valdés has submitted

a contemporaneous memorandum, dated November 25, 1999, reflecting a “[c]all from Cláudia

De Azeredo Santos . . . in which she asked that we incorporate a BVI company and a Belize

Fund.” (Id., Ex. 1.) Further, Valdés has stated that, on November 26, 1999, he contacted an

10


attorney at Morgan & Morgan to incorporate a Belizean corporation under the name

International Investment Fund (id. at ¶¶ 6-7), and he has submitted copies of the faxes and e-

mails containing those communications (id. at Exs. 2, 3). None of these documents, however,

specifically state that this request came from CSN. (See id. at Exs. 1-3.)

Although there is no evidence or testimony that Rezende himself instructed Bufete

Valdés to form IIF (see Rezende 56.1 Stmt. at ¶ 19), Rezende maintains that any

“correspondence with CSN personnel and the Bufete Valdés law firm . . . [was] created and or

generated under [Rezende’s] direction.” (Rezende 1/19/11 Decl. at ¶ 26.)

ii. Payments Made to Bufete Valdés

According to Valdés’s declaration, “[a]ll of the expenses in connection with the

formation of IIF, including Bufete Valdés’s fee, the fees of Morgan & Morgan and the fee

charged by the government of Belize to register IIF were billed to CSN and paid by the CSN

Group, as we understand, through Bufete Valdés.” (Valdés Decl. at ¶ 12.) Valdés includes in

his declaration a copy of a legal bill, dated December 3, 1999, which, according to Valdés,

reflects all of these fees in the total amount of $14,450. (See id. at ¶ 12.) That bill, however,

does not specifically mention IIF. (See id. at Ex. 7 (bill for “General Expenses”).)9

An auditor for CSN has submitted the same legal bill to the Court, stating that the

$14,450 bill relates to the formation of IIF as well as “other legal services.”10 (Declaration of

Piedade Mota Da Fonseca, dated Dec. 13, 2010 (“Fonseca Decl.”) (filed under seal), at ¶ 4.)

This auditor also provides a copy of a wire transfer record which, according to the auditor,

9 It is undisputed that around the time of IIF’s formation, Bufete Valdés provided legalservices to CSN on matters unrelated to IIF. (See CSN 56.1 Stmt. at ¶ 27.)

10 The auditor does not indicate what these other legal services might have been. (See id.)

11


reflects CSN’s payment of that legal bill on December 8, 1999 (see id.); this document is largely

illegible (see id. at Ex. 2).

iii. Signing of the Formation Documents

The parties do not dispute that Alves – who Rezende claims was the co-owner of IIF

along with Rezende – signed IIF’s formation documents as IIF’s sole director. (See CSN 56.1

Stmt. at ¶ 31; Rezende 56.1 Stmt. at ¶ 31.) Rezende contends, however, that Alves “signed the

documents on behalf of himself and Rezende, not on behalf of CSN.” (Rezende 56.1 Stmt. at

¶ 31). For its part, CSN contends that Alves signed these documents in his capacity as CSN’s

Executive Officer of Infrastructure and Energy (see Declaration of José Paulo De Oliviera Alves,

dated Dec. 14, 2010 (“Alves Decl.”) (filed under seal), at ¶ 22), and cites Alves’s sworn

statement that, at a meeting with Rezende and Santos in late 1999, he “reviewed and signed a

number of documents related to the formation of IIF that had been prepared by counsel in

Panama on Ms. Santos’s instructions” (id. at ¶ 20). While the documents themselves do not

indicate whether Alves was signing on his own personal behalf or on behalf of CSN, and none

refer to CSN (see id. at Exs. 1-5), Alves flatly denies ever owning any personal stake in IIF, and

states that “it is [his] unequivocal testimony that the CSN group of companies has always owned

100% of IIF since the day IIF was formed in 1999” (id. at ¶ 25).

One of the five documents that Alves claims he signed in late 1999, the Subscriber’s

Resignation Letter” (see Alves Decl., Ex. 2), is alleged by Rezende to be inauthentic (see

Rezende S.J. Opp. at 6-8). Rezende has submitted another version of the same document, which

he claims to be the original, and which bears his own signature. (See Rezende S.J. Opp. at 6-8.)

Rezende’s forensic expert, Erich Speckin, has submitted a declaration stating that the

Subscriber’s Resignation Letter signed by Alves was “created from [the version signed by

12


Rezende] by use of a photocopying process” (Declaration of Erich J. Speckin, dated Jan. 17,

2011 (“Speckin Decl.”) (filed under seal), at ¶ 5), and, furthermore, that Rezende’s signature was

likely “‘whited out’” and replaced with Alves’s signature (id. at Ex. A, at 3). The expert also

concludes that Rezende’s version of the document bears the original signature of a representative

of Morgan & Morgan, the firm that incorporated IIF, whereas CSN’s version of the document

contains a copy of that signature. (Id. at Ex. A, sheet 4.) These conclusions are consistent with

Rezende’s contention, described below (see infra at Section A(3)(b)), that he himself received

the original IIF formation documents, including the original Subscriber’s Resignation Letter, and

that he has retained these documents in his possession ever since IIF’s formation.

iv. CSN’s Board’s Approval of IIF Formation

Rezende maintains that CSN’s board meeting minutes are inconsistent with CSN’s claim

that it formed IIF. Rezende supports this contention with a sworn declaration from Isabel

Galvão Bueno Cintra Franco (“Franco”), a Brazilian attorney retained by Rezende in this matter.

According to Franco, CSN’s creation of IIF without proper board approval would have violated

CSN’s own bylaws. (See Rezende 56.1 Stmt. at pp. 23-25, ¶¶ 11-27.) Based on his analysis of

CSN’s relevant bylaws, Franco concludes that the bylaws would have required CSN’s Board of

Directors to approve “the creation of any entity to be controlled by CSN, [as well as] the

appointment of the officers and directors of [CSN’s] subsidiaries.” (Franco Decl. at ¶ 16.)

Despite this requirement, Franco’s review of all of CSN’s board meeting minutes did not reveal

“any corporate resolution taken by CSN’s Board of Directors authorizing the creation,

incorporation, or acquisition of IIF, nor [any] appointment of any of IIF’s officers or directors.”

(Id. at ¶ 22 (emphasis in original).)

13


In response, CSN claims that “the undisputed record here shows that the CSN Board did

approve IIF’s creation, regardless of whether it was memorialized.” (Cross-Claim Plaintiffs’

Reply Memorandum of Law in Further Support of Their Motion for Summary Judgment, dated

Jan. 24, 2011 (“CSN S.J. Reply”) (filed under seal), at 6 (citing Declaration of Hilary R.

Ormond, Esq., dated Jan. 24, 2011 (“Ormond Decl.”) (filed under seal), at Ex. 2, at 101:16-

107:14).) The deposition testimony that CSN cites in support of this assertion, however, does

not expressly indicate that CSN’s Board of Directors ever approved IIF’s creation.11 (See

Ormond Decl., Ex. 2, at 101:16-107:14.)

v. Restrictions under Brazilian Law

Rezende contends that CSN would not have formed IIF for its own benefit because doing

so would have violated Brazilian law. According to Franco, the MRS Shareholders’ Agreement

stated that “no shareholder may hold, directly or indirectly, more than 20% of the total[] shares

with voting rights . . . .” (Franco Decl. at ¶ 45 (emphasis in original).) Rezende asserts that,

given this provision, Brazilian law would not have permitted CSN to form “an offshore vehicle

for the purpose of beneficially holding MRS shares in excess of the twenty-percent threshold.”

(See Rezende 56.1 Stmt. at ¶ 18.)

Further, it is undisputed that, in June 2009, Brazil’s national ground transportation

agency, the Agéncia Nacional de Transportes Terrestres (“ANTT”), issued a resolution which

explicitly granted CSN permission to acquire IIF’s shares in MRS without violating the 20%

ownership limit, subject to certain conditions – including CSN’s waiver of the voting rights

11 Rather, this testimony merely states that, in some instances, CSN’s Board did notmemorialize the creation of so-called “off balance” companies – i.e., companies that would“have special treatment[] in relation to accounting.” (Id. at Ex. 2, at 105:5-106:8.) Thetestimony does not indicate whether IIF was such an “off balance” company.

14


associated with the additional shares, and conditions related to certain “corporate governance

issues.” (Declaration of Fernando Quintana Merino, dated Dec. 16, 2010 (filed under seal);

Franco Decl. at ¶ 46.) According to Franco, this “confirms that, prior to such express and

specific authorization, CSN was not authorized to hold such indirect interest in MRS” in order to

avoid the 20% ownership limit. (Franco Decl. at ¶ 46.) Rezende maintains that this is further

evidence that he, not CSN, formed IIF.

b. Possession of the IIF Formation Documents

The parties dispute whether, in the days following IIF’s formation, the original

documents reflecting IIF’s formation were sent to CSN or to Rezende. (CSN 56.1 Stmt. at ¶ 28;

Rezende 56.1 Stmt. at ¶ 28.)12 These original documents included IIF’s original “bearer shares,”

which consituted IIF’s share capital. (CSN 56.1 Stmt. at ¶ 29; Rezende 56.1 Stmt. at ¶ 29.)

It is undisputed that Morgan & Morgan delivered the original formation documents to

Bufete Valdés. (Rezende 56.1 Stmt. at ¶ 25.) Valdés, an attorney with Bufete Valdés, has

declared under penalty of perjury that he then “sent originals of all of the [formation] documents

that [he] received from Morgan & Morgan regarding IIF to Ms. Santos at CSN’s offices, via

Courier.” (Valdés Decl. at ¶ 10.) Valdés, though, purportedly sent the original formation

documents to Santos under a cover letter, dated December 3, 1999, that was not personally

addressed not to her. (See Santos Decl., Ex. 1.) Rather, the salutation on the letter was “Dear

Sirs,” and the letter was merely addressed “TO WHOM IT MAY CONCERN,” Rio de Janeiro,

Brazil. (Id., Ex. 1.) In any event, the letter stated that it was enclosing the following documents:

12 It is undisputed that Bufete Valdés faxed the IIF formation documents to CSN’s legaldepartment on December 2, 1999. (CSN 56.1 Stmt. at ¶ 26; Rezende 56.1 Stmt. at ¶ 26; see alsoSantos Decl. at ¶ 10, Ex. 2.)

15


(1) Memorandum and Articles of Incorporation, (2) Certificate of Incorporation, (3) Subscriber’s

Resignation Letter, (4) Minutes of the First Meeting of Directors, (5) Appointment of First

Directors, (6) Share Certificates and Shares Register, and (7) Corporate Seal. (Id.) Santos,

CSN’s General Counsel at the time, declares that she did, in fact, receive the original documents

from Bufete Valdés. (Santos Decl. at ¶ 9.)

Rezende, however, contends that the original formation documents, including the bearer

shares, were sent to him, and were “at all times either in [Rezende’s] possession or Alves’

possession.” (Rezende Decl. at ¶ 34.) He further states that these documents were “never in (or

even supposed to be in) the possession of CSN.” (Id.) As noted above, Rezende’s position finds

some support in the declaration of Rezende’s forensic expert, which concludes that Rezende

signed the original Subscriber’s Resignation Letter and that the version submitted by CSN on

this motion is a falsified document, based on a photocopy of the version signed by Rezende.

(See Section A(3)(a)(iii), supra.)

CSN does not appear to contest that Rezende currently has the original IIF formation

documents (including the original bearer shares) in his possession, but maintains that Rezende

stole these documents from CSN’s legal files in 2003. (See CSN 56.1 Stmt. at ¶¶ 29, 59-64.) It

is undisputed that CSN maintained a file for IIF in a vault during the relevant time period, and

that only CSN’s senior executives and managers could borrow the IIF file. (CSN 56.1 Stmt. at

¶¶ 35-37; Rezende 56.1 Stmt. at ¶¶ 35-37.) The parties, however, dispute whether CSN’s file

ever contained the original IIF formation documents; while CSN claims that the file contained

those documents and that Rezende stole them, Rezende maintains that CSN never possessed any

of the original IIF formation documents. (See CSN 56.1 Stmt. at ¶ 32; Rezende 56.1 Stmt. at

¶ 32.)

16


CSN’s legal librarian at the time, Elaine Rios (“Rios”), who the parties agree was the

only person authorized to provide access to the materials in the vault (CSN 56.1 Stmt. at ¶ 38;

Rezende 56.1 Stmt. at ¶ 38), has stated under penalty of perjury that she remembers receiving a

call from Rezende in September 2003, requesting the IIF file (Rios Decl. at ¶¶ 1, 7). Rios states

that, “given the confidential nature of the file and the fact that it contained original incorporation

documents,” she delivered the file personally to Rezende in São Paulo, and noted this delivery in

CSN’s file registry. (Id. at ¶ 7.)13 She further states that she left CSN in April 2004, and that she

did not receive the IIF file back from Rezende before her departure from CSN. (Id. at ¶¶ 1, 8.)

Without explaining how or when the file was returned, CSN contends that Otavio Lazcano

(“Lazcano”), CSN’s Financial Director at the time, checked it out in 2005 and discovered that

the bearer shares were “missing.” (CSN 56.1 Stmt. at ¶ 64.)14

Rezende categorically denies that he ever called Rios to request the IIF file, or that he

ever borrowed any IIF files from CSN’s vault. (Rezende Decl. at ¶ 39.) He further questions

why there is a record of him checking out the file in 2004 but no record of him later returning it,

even though CSN admits that Lazcano checked out the file in 2005. (Id.)

13 Although Rios declares that “the note [she] made about the IIF file [in 2003] isreflected on the registry exhibit attached as Exhibit 1,” the untranslated exhibit attached to herdeclaration is clearly a record that was modified after 2003, as it reflects activity that occurred in2005. (See Rios Decl., Ex. 1.)

14 Lazcano declares that, when he called Rezende in 2005 to inquire into the whereaboutsof the bearer shares, Rezende claimed not to know where they were. (CSN 56.1 Stmt. at¶¶ 70-71.) Rezende denies ever having had a telephone call with Lazcano about this. (Rezende56.1 Stmt. at ¶¶ 70-71.)

17


c. IIF’s Operations

CSN has submitted a fair amount of evidence about IIF’s operations, following its initial

formation, in an effort to corroborate CSN’s claim that it formed and owns IIF. This evidence,

according to CSN, demonstrates that “CSN treated IIF as a subsidiary.” (CSN S.J. Mem. at 18.)

i. IIF’s Purchase of MRS Stock

It is undisputed that, from 1999 to 2002, IIF acquired approximately $3.5 million worth

of MRS shares from CSN. (CSN 56.1 Stmt. at ¶ 47; Rezende 56.1 Stmt. at ¶ 47.) CSN claims

that IIF acquired these shares “[u]sing funds provided by a CSN affiliate.” (CSN 56.1 Stmt. at

¶ 47.) To support its position, CSN provides a declaration from Alves in which he states that

“the funding for IIF’s purchase of MRS shares was provided exclusively by CSN.” (Alves Decl.

at ¶ 32.) Alves’s declaration annexes purchase agreements between CSN and IIF which indicate

that IIF purchased MRS stock from CSN, but those agreements do not indicate where the

funding originated to enable IIF to make the stock purchases. (See id., Exs. 6-13.)

Rezende maintains that he himself paid for these stock purchases with loans financed by

CSN, as well as with $200,000 of his own cash. (Rezende 56.1 Stmt. at ¶ 47; Rezende 1/19/11

Decl. at ¶¶ 45-49.) Rezende claims that Alves “was supposed to be responsible for one-half of

the $200,000 cash payment, but he only paid [Rezende] about $40,000.” (Rezende 1/19/11 Decl.

at ¶ 45.) Rezende has not come forward with any documentary evidence to corroborate these

assertions; rather, he maintains that “there were loan documents evidencing each of these four

purchase transactions . . . [but he] did not retain them after the loans were paid off in full.” (Id.

at ¶ 49.) Alves denies putting any of his own money into IIF’s purchase of the MRS shares, or

paying Rezende for this purpose. (Alves Decl. at ¶ 32.)

18


ii. Payment of IIF’s Legal and Regulatory Fees

CSN also claims that, following IIF’s formation, CSN paid IIF’s legal and regulatory

fees. (See CSN 56.1 Stmt. at ¶ 43.)

According to a declaration by Valdés, of Bufete Valdés, CSN paid all fees associated

with the maintenance of IIF, including corporate registration fees charged by the government of

Belize. (Valdés Decl. at ¶ 13; see also CSN 56.1 Stmt. at ¶¶ 39-42.) Further, Valdés has

submitted annual invoices, dated March 2000 through March 2005, which are addressed to CSN

and demand payment for “Agent Resident Fees and Government Tax” for various companies

including, specifically, IIF. (See Valdés Decl., Exs. 8-13.) An auditor from CSN has submitted

wire transfer reports showing CSN’s payments on these invoices. (See Fonseca Decl. at Exs. 5,

7, 10, 12, 14.) Furthermore, a May 2003 e-mail from Bufete Valdés to a CSN employee shows

that, in the view of Bufete Valdés, CSN owned IIF. (See Santos Decl., Ex. 5 (naming IIF in a list

of CSN “companies and funds that have bearer shares”).)

Rezende declares that he personally paid the fees required to maintain IIF as a

corporation in good standing. (Rezende 1/19/11 Decl. at ¶ 40.) He further declares that he

“periodically receive[d] communications from [Bufete Valdés] . . . telling [him] of the amount of

fees to be paid,” and, upon receipt of these bills, he withdrew funds from his personal bank

account and delivered them to Bufete Valdés via courier. (Id.) Rezende purports to submit two

e-mails “evidencing [his] communications with the Bufete law firm regarding these payments,”

but the e-mails do not indicate that Rezende actually paid any IIF legal bills. (Id. at Ex. I.)15

15 Rather, these e-mails – from Rezende – merely inform the recipient, who appears to beValdés, of Rezende’s new contact information, and briefly discuss “arrangements” for “offshoreexpenses.” (Id., Ex. I.)

19


Rezende also declares that he “remember[s] being invoiced by the Bufete firm for the formation

of IIF back in 1999, but [he] no longer [has] a copy.” (Id. at ¶ 40.)

Valdés flatly denies that Rezende was ever a client of Bufete Valdés. (Valdés Decl. at

¶ 21.) Valdés states that any dealings between Bufete Valdés and Rezende were in Rezende’s

capacity as an employee of CSN, and, further, that Bufete Valdés “has never represented

Mr. Rezende in his own personal or business affairs.” (Id.) Valdés also denies that Bufete

Valdés ever billed Rezende directly for any services related to IIF. (Id. at ¶ 22.)

iii. Registration with the Central Bank of Brazil

CSN claims that its legal department “handled certain legal needs of IIF, such as IIF’s

registration with the Central Bank of Brazil.” (CSN 56.1 Stmt. at ¶ 43.) According to Santos,

CSN’s legal department prepared the necessary paperwork to effect this registration in October

2003. (See Santos Decl. at ¶ 18.) In the course of preparing this paperwork, Santos sent an

e-mail to Rezende asking him who he believed should be listed on the registration form as “the

IIF representative in Brazil.” (Santos Decl. at Ex. 6 (e-mail asking Rezende, “Whom do you

suggest?”); id. at ¶ 18.) According to Santos, the three individuals suggested by Rezende were

all senior executives of CSN. (Id. at ¶ 18; see also id. at Ex. 6.)16 Based on this, CSN maintains

that it appointed its own executive, in his or her capacity as a CSN executive, as IIF’s

representative to the Brazilian Central Bank. (See CSN 56.1 Stmt. at ¶ 43.) According to

16 Furthermore, later that year, CSN filed a document with the Central Bank of Brazilstating that IIF was a legally constituted company, existing validly under the laws of Belize (id.at ¶ 19, Ex. 7); CSN contends that this is further proof of its ownership of IIF.

20


Rezende, however, he himself appointed IIF’s representatives to the Brazilian Central Bank,

after CSN asked him who should be appointed. (See Rezende 56.1 Stmt. at ¶ 43.)17

d. The Parties’ Representations Regarding Ownership

CSN and Rezende each argue that the other’s claim of ownership of IIF is undermined by

a persistent failure to disclose, to non-parties, that purported ownership.

i. CSN’s Failure To Make Public Disclosure of Any Ownership of IIF

Rezende contends that, had CSN really owned IIF, its failure to disclose its ownership

would have violated Brazilian securities regulations. (See Rezende 56.1 Stmt. at p. 26, ¶¶ 29,

34.) According to Franco, CSN would have been required to disclose its ownership of IIF to the

Comissão de Valores Mobiliários (“CVM”)18 in CSN’s Annual Forms and in the prospectuses of

its public offerings (Franco Decl., ¶ 26), but CSN failed to do so prior to 2008 (id. at ¶¶ 29-35).

Rezende argues that CSN’s failure to make these disclosures contradicts CSN’s claim that it

actually owned IIF at that time.

CSN argues that, even if Rezende is correct about Brazil’s disclosure requirements,

CSN’s failure to disclose IIF would merely would have been a regulatory violation, and “would

not negate CSN’s ownership of IIF.” (CSN S.J. Reply at 7.)

17 In addition to these disputes about the parties’ respective roles in IIF’s operations, theparties also dispute whether Rezende is a director of IIF. (See CSN 56.1 Stmt. at ¶ 54-57;Rezende 56.1 Stmt. at ¶ 54-57; Rezende 1/19/11 Decl. at ¶ 59-60, Ex. L; Declaration of MarcosMarinho Lutz, dated Dec. 14, 2010, at ¶ 9.) The Court notes that the identity of IIF’s directorshas little bearing on the question of who owns IIF. (See Declaration of Rishi Alain Mugal, datedJan. 21, 2011 (filed under seal) (stating that, under Belize law, serving as director of a companydoes not confer ownership).)

18 Franco describes the CVM as the “Brazilian equivalent” of the United States Securitiesand Exchange Commission. (Franco Decl. at ¶ 9 n. 14.)

21


ii. Rezende’s Failure To Disclose Ownership of IIF

CSN contends that Rezende failed to disclose his ownership of IIF to his wife, tax

authorities, or MRS.

It is undisputed that Rezende has never disclosed his purported ownership of IIF on his

personal tax returns (Rezende 56.1 Stmt. at ¶ 129), nor has he ever told his wife that he owned

IIF (id. at ¶ 133). Nor did Rezende disclose his purported personal interest in IIF to MRS, even

though he sat on MRS’s board during a period in 2005 when it became apparent that MRS was

going to start paying dividends to its shareholders. (CSN 56.1 Stmt. at ¶¶ 90, 93; Rezende 56.1

Stmt. at ¶¶ 90, 93; see also Rezende 1/19/11 Decl. at ¶ 58.) Rezende claims that he “was under

no obligation to make such a statement” to MRS. (Rezende 56.1 Stmt. at ¶ 93.)

4. Rezende’s Alleged Contradictions and Inconsistent Statements

It is undisputed that the funds deposited into the Rezende IIF Account (a Citigroup

Global Markets, Inc. (“Citigroup”) account) were primarily dividends from MRS. (See CSN

56.1 Stmt. at ¶ 98; Rezende 56.1 Stmt. at ¶ 98). CSN contends that, despite that fact, Rezende

represented to Citigroup that the funds deposited into the account represented “a bonus payment

from [CSN],” “family money,” proceeds of a settlement, and profits from the sale of shares in an

export business. (CSN 56.1 Stmt. at ¶¶ 103-106.) Rezende contends that the initial funds

deposited into this account were indeed funds from a bonus payment from CSN, and he denies

that he ever told Citigroup that the funds came from family money, a settlement, or the sale of

shares in an export business. (See Rezende 56.1 Stmt. at ¶¶ 103-06.)

CSN also claims that when Rezende opened the Citigroup account, he told a Citigroup

employee that IIF had been formed by CSN, not by Rezende himself. (CSN 56.1 Stmt. at ¶ 81.)

22


B. Legal Standard Under Rule 56(c)

Under Rule 56(c) of the Federal Rules of Civil Procedure, a motion for summary

judgment may be granted when the parties’ sworn submissions show that “there is no genuine

issue as to any material fact and . . . the movant is entitled to judgment as a matter of law.”

Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Holt v.

KMI-Continental, Inc., 95 F.3d 123, 128 (2d Cir. 1996). The moving party bears the burden of

showing that no genuine issue of material fact exists. Adickes v. S.H. Kress & Co., 398 U.S.

144, 157 (1970). Accordingly, the Court must “view the evidence in the light most favorable to

the party against whom summary judgment is sought and must draw all reasonable inferences in

his favor.” L.B. Foster Co. v. Am. Piles, Inc., 138 F.3d 81, 87 (2d Cir. 1998) (citing Matsushita

Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).

Nonetheless, the party opposing summary judgment “may not rely merely on allegations

or denials in its own pleading,” but “must . . . set out specific facts showing a genuine issue for

trial.” Fed. R. Civ. P. 56(e)(2). This means that “[t]he non-moving party may not rely on

conclusory allegations or unsubstantiated speculation,” Scotto v. Almenas, 143 F.3d 105, 114

(2d Cir. 1998) (citing D’Amico v. City of New York, 132 F.3d 145, 149 (2d Cir. 1998)), but,

rather, must present “significant probative evidence tending to support the complaint.” Smith v.

Menifee, No. 00 Civ. 2521 (DC), 2002 U.S. Dist. LEXIS 4943, at *9 (S.D.N.Y. Mar. 25, 2002)

(citing First Nat’l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 290 (1968)). “If the evidence

is merely colorable, or is not significantly probative, summary judgment may be granted.”

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986) (citations omitted).

District courts generally “‘may not weigh evidence or assess the credibility of witnesses

at the summary judgment stage.’” Bennett v. Falcone, No. 05-CV-1358 (KMK)(LMS), 2009

23


U.S. Dist. LEXIS 25182, at *21 (S.D.N.Y. Mar. 25, 2009) (quoting Jeffreys v. City of New York,

426 F.3d 549, 551 (2d Cir. 2005)); see also Phaneuf v. Fraikin, 448 F.3d 591, 595 (2d Cir. 2006)

(on summary judgment, “[t]he Court is not to weigh the evidence but is instead required

to . . . eschew credibility assessments” (internal quotation marks and citation omitted));

Caraballo v. City of New York, No. 05 Civ. 8011 (GEL), 2007 U.S. Dist. LEXIS 39911, at *19

(S.D.N.Y. May 31, 2007) (“It is axiomatic that ‘[a]ssessments of credibility and choices between

conflicting versions of the events are matters for the jury, not for the court on summary

judgment.’” (quoting Rule v. Brine, Inc., 85 F.3d 1002, 1011 (2d Cir. 1996))). Only in rare

instances will summary judgment be appropriate where a party’s credibility is at issue. See

Jeffreys, 426 F.3d at 554 (affirming grant of summary judgment where the non-movant’s

testimony was “largely unsubstantiated by any other direct evidence” and was “so replete with

inconsistencies and improbabilities that no reasonable juror would undertake the suspension of

disbelief necessary to credit [it]”); see also Rossi v. Stevens, No. 04-CV-01836 (KMK), 2008

U.S. Dist. LEXIS 76868, at *19 (S.D.N.Y. Sept. 30, 2008) (“While courts have granted summary

judgment based on the incredulity of a plaintiff’s testimony, they have done so sparingly.”);

Medinol Ltd. v. Guidant Corp., 412 F. Supp. 2d 301, 322 n.158 (S.D.N.Y. 2005) (“[I]t is well

established that credibility determinations are almost never appropriate at summary judgment.”

(citing Jeffreys, 426 F.3d at 553-54)); Caraballo, 2007 U.S. Dist. LEXIS 39911, at *21 (denying

summary judgment because, “[d]espite the seeming unlikelihood of [plaintiff]’s version of

events, it cannot be said that this is the ‘rare’ case in which the only factual issues are created by

[uncredible] testimony of the plaintiff”).

In sum, the Court “cannot try issues of fact; it can only determine whether there are

issues to be tried” on the evidence presented. Am. Mfrs. Mut. Ins. Co. v. Am. Broad.-Paramount

24


Theatres, Inc., 388 F.2d 272, 279 (2d Cir. 1967); accord Sutera v. Schering Corp., 73 F.3d 13,

15-16 (2d Cir. 1995). Where there is no genuine issue of material fact, viewing the evidence in

the light most favorable to the nonmoving party, summary judgment is appropriate. See Liberty

Lobby, 477 U.S. at 248.

C. Summary Judgment on Claims Related to Ownership of IIF

With respect to the parties’ claims arising from their dispute about the true ownership of

IIF, the only substantial question before the Court is whether a rational jury could conclude that

Rezende owns IIF. Although the weight of the evidence appears to favor CSN on this issue, this

Court concludes, for the reasons set forth below, that there is a genuine issue of material fact as

to the ownership of IIF, as to which a trial is needed.

1. Choice of Law

According to CSN, the question of who owns IIF is governed by the law of Belize. (See

CSN S.J. Mem. at 16 (citing In re BP p.l.c. Derivative Litig., 507 F. Supp. 2d 302, 307 (S.D.N.Y.

2007); United Cigarette Mach. Co. v. Canadian P. R. Co., 12 F.2d 634 (2d Cir. 1926);

Restatement (Second) Conflict of Laws § 303 (2010)).) CSN contends that, under Belizean law,

the possession of a bearer share certificate is “prima facie evidence of title to the share it

represents.” (Declaration of E. Andrew Marshalleck, dated Dec. 15, 2010 (“Marshalleck

12/15/10 Decl.”) (Dkt. 96), at ¶ 16.) CSN further maintains that “[l]egal ownership [under

Belizean law] of a bearer share certificate, and by extension the share it represents, is to be

ascertained in the first instance by reference to the certificate itself and, where ownership as

disclosed by the certificate is challenged, by reference to the law governing title to and

possession of personal property generally.” (Id. at ¶ 22.) Based on these principles, CSN asserts

that “[t]he owner of a bearer share is . . . the one who paid for or purchased the share[,] or who

25


holds it as the intended transferee of such a person.” (CSN S.J. Mem. at 16 (citing Marshalleck

12/15/10 Decl. at ¶¶ 30-40).)

It is not entirely clear whether, on the critical issue of the determination of IIF’s

ownership, it is Rezende’s view that the law of some jurisdiction other than Belize should

control. (See Rezende S.J. Opp. at 19 (“There is no dispute that IIF was formed under the laws

of Belize. However, for purposes of the instant motion, there is an issue of fact as to who is the

true owner of IIF, regardless of whether the law of Belize, Brazil or New York applies.”).) It is

also unclear whether, in any material respect, Rezende disagrees with CSN’s characterization of

the substance of Belizean law. (See Rezende S.J. Opp. at 19-22.)19

Nonetheless, Rezende is correct in his apparent suggestion that the Court need not decide

any choice of law question on this motion. Even if CSN is correct that Belizean law applies, and

even if CSN has correctly set forth all relevant principles of Belizean law, CSN would not be

entitled to summary judgment under that law. In short, CSN has failed to demonstrate that,

under the Belizean law principles it has identified, there is no triable issue of fact as to IIF’s true

ownership.

2. There Is a Genuine Issue of Fact as to Who Owns IIF.

Based on the record before the Court, there is a triable issue of fact as to which party

received the original IIF formation documents – including the bearer share certificates – in early

December 1999. If Rezende, not CSN, was sent the original IIF formation documents, then this

19 Contrary to Rezende’s argument that disputed issues about the substance of foreignlaw may preclude summary judgment (see Rezende S.J. Opp. at 19-22 (arguing that there aretriable issues of fact as to the law of Belize)), a question of foreign law constitutes a question oflaw, not of fact, see Euromepa v. R. Esmerian, 154 F.3d 24, 29 n.2 (2d Cir. 1998) (citingFed. R. Civ. P. 44.1).

26


would suggest, even under the Belizean legal principles urged by CSN, that Rezende may have a

valid ownership claim to IIF. (See CSN S.J. Mem. at 16 (“[t]he owner of a bearer share is . . .

the one who paid for or purchased the share[,] or who holds it as the intended transferee of such

a person.” (citation omitted)).) CSN appears to concede as much, dedicating a full subsection of

their moving brief to arguing that “record evidence demonstrates beyond genuine dispute that

Rezende stole the bearer shares from CSN’s file.” (Id. at 19.)

As set out above, Rezende contends that he was sent the original documents. To greater

or lesser degrees, his testimony is contradicted by declarations from (1) Alves, IIF’s first

director, who signed many of the original documents, (2) Santos, CSN’s general counsel at the

time, who asserts that she received the original documents, and (3) Valdés, an attorney with the

law firm that mailed the original documents. Yet, although Rezende’s testimony on this issue is

contradicted by these witnesses’ statements, his testimony does not stand entirely alone. Rather,

his position finds some substantiation in his expert’s forensic analysis of one of the original

documents that was, in late 1999, either mailed to CSN or to Rezende.

As explained above, Rezende’s expert concludes that Rezende appears to have signed the

original Subscriber’s Resignation Letter and that the version signed by Alves was created via a

“photocopying process,” in which Rezende’s signature was likely “whited out” and replaced

with Alves’s. (See supra at Section A(3)(a)(iii); see also Speckin Decl.) This expert opinion,

the substance of which is essentially unchallenged by CSN, except by ad hominem attacks on

Mr. Speckin (see CSN Reply Mem. at 8 n.5), casts some doubt on the declaration of Santos, who

states that (1) she received the original formation documents from Valdés, (2) she had Alves sign

those documents – including, according to Alves, the Subscriber’s Resignation Letter – and

(3) she then turned the documents over to CSN’s legal department. (See Santos Decl. at

27


¶¶ 9-12.) It similarly casts doubt on whether Alves actually signed the Subscriber’s Resignation

Letter in late 1999, as he claims to have done (see Alves Decl. at ¶¶ 20-21), and whether Bufete

Valdés indeed sent the original documents specifically to Santos (Valdés Decl. at ¶ 10

(declaring, under penalty of perjury, that he sent originals of the IIF formation documents to

Santos at CSN’s offices)). In other words, this Court rejects CSN’s conclusory assertion that

“Rezende’s allegation that the Subscriber’s Resignation Letter was forged cannot logically call

into question the testimony of” Valdés, Santos, and Alves. (See CSN S.J. Reply at 9-10.)

Although, as set forth above, the Court generally may not weigh evidence or assess the

credibility of witnesses on summary judgment, CSN asks the Court to depart from that general

rule in this case. (See Def. S.J. Mem. at 14). Relying on Jeffreys, CSN argues Rezende’s

account of IIF’s formation is so “‘largely unsubstantiated by any other direct evidence’ and it is

‘so replete with inconsistencies and improbabilities’” that it should be held incredible as a matter

of law. (Def. S.J. Mem. at 14 (quoting Jeffreys, 426 F.3d at 554).) The record before the Court,

however, does not demonstrate that this case presents “the rare circumstance” where summary

judgment is warranted, based on a party’s evident lack of credibility on key issues. Jeffreys, 426

F.3d at 554.

To the contrary, the relevant documentary evidence here is ambiguous as to whether CSN

or Rezende initially received the original IIF formation documents. Although certain documents

appear to corroborate the testimony of Alves, Valdés and Santos, such corroboration is

insufficient to warrant summary judgment where, as here, Rezende’s own testimony also finds

corroboration in certain documentary evidence.

Moreover, CSN has not demonstrated that alleged “inconsistencies” in Rezende’s

account of events – especially with respect to the formation of IIF – justify the entry of judgment

28


in CSN’s favor. Many of Rezende’s allegedly inconsistent statements, as identified in CSN’s

moving brief, concern representations (or omissions) through which Rezende suggested that he

did not own IIF. (See CSN S.J. Mem. at 22 (noting, for example, Rezende’s failure to disclose

his purported ownership of IIF to tax authorities); see also id. at 10-11 (claiming that Rezende

told Citigroup the Rezende IIF Account was for family money, bonus payments, settlement

proceeds, and profits from the sale of an export business).) Yet, the evidence in this case

suggests that CSN, too, made representations suggesting that it did not own IIF – in particular,

by failing to disclose its purported ownership of IIF to CVM, the Brazilian regulatory agency. In

such circumstances, where there is evidence that both parties have made inconsistent statements

of a similar nature, it would be inappropriate to grant summary judgment on the ground that the

non-moving party is incredible as a matter of law.20

For the reasons set forth above, I respectfully recommend that CSN’s summary judgment

motion be denied, with respect to all claims concerning IIF’s ownership.

D. Summary Judgment on Rezende’s Assault and Battery Claims

CSN also moves for summary judgment on Rezende’s assault and battery claims, on the

ground that the Court lacks subject matter jurisdiction over these claims. In essence, CSN

argues that the Court cannot exercise supplemental jurisdiction over the assault and battery

claims because they are “unrelated to the claims in this action over which the Court has original

20 The Court also notes that many of the statements made by Rezende that seemimplausible – his contentions, for example, that he borrowed millions of dollars from CSN andthat he paid IIF’s legal fees for five years, all without keeping any records of such transactions –relate to matters subsequent to the formation of IIF, and thus do not directly relate to thequestion of IIF’s ownership. Even if a jury were to find Rezende to lack credibility on suchpoints, that would not require the jury to conclude that CSN owned IIF, as the jury would remainfree to credit other aspects of his testimony.

29


jurisdiction” – i.e., the parties’ respective claims based upon purported ownership of the funds

deposited in the New York bank that was once a party to this action (and, hence, the source of

the Court’s original jurisdiction in this action). CSN’s argument fails for exactly the reasons set

forth in the Court’s prior Order, dated November 18, 2010 (Dkt. 83 (Baer, J.)), in which the

Court concluded that it had subject matter jurisdiction over CSN’s claims regarding Rezende’s

alleged theft of $2.2 million. There, the Court held that CSN’s claims regarding the $2.2 million

“clearly arise out of a separate transaction or occurrence from the claims asserted in the original

action,” but that the Court retained jurisdiction pursuant to Rule 18(a):

“[U]nder Rule 18(a) . . . a party asserting a proper cross-claimwithin Rule 13(g) may join with it as many independent, unrelatedcross-claims as he has against an opposing party.” First Nat’lBank of Cincinnati v. Pepper, 454 F.2d 626, 635 (2d Cir. 1972);see also TIG Ins. Co. v. Century Indem. Co., No. 08 Civ. 7322,2009 WL 959653 at * 3 (S.D.N.Y. Apr. 8, 2009). As the balanceof this opinion shows, CSN and IIF have properly asserted anumber of crossclaims against Rezende that meet the transaction-or-occurrence requirement of Rule 13(g); thus CSN and IIF’sunrelated claims may piggyback here pursuant to Rule 18(a).

(Order, dated Nov. 18, 2010 (Dkt. 83), at 4.)

Not only is CSN’s current argument inconsistent with the reasoning of the Court’s prior

Order, but there are particular factors here that militate in favor of the Court exercising

supplemental jurisdiction over Rezende’s assault and battery claims. First, the alleged assault

occurred during the course of proceedings held in this case (specifically, at a deposition), and

thus the Court has an interest in having the matter adjudicated before it. Second, when Rezende

moved for sanctions based on this event, arguing that the Court has inherent authority to sanction

abusive conduct engaged in by a party during the course of discovery, this Court denied the

motion without prejudice, on the ground that the relevant facts should first be determined by a

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jury, given that Rezende had chosen to plead the matter as tort claims. It could now substantially

delay the ultimate resolution of Rezende’s request for sanctions, if he were unable to renew that

request in this Court until after he had litigated his assault and battery claims in the state court.

Such an inefficient result would make little sense. Third, the incident that gave rise to Rezende’s

assault and battery claims was apparently quite brief, and the facts regarding the incident are

undoubtedly few, so that placing the facts before the jury for determination should only

minimally extend the length of the trial in this action.

Finally, this Court notes that, while CSN has raised concerns regarding the potential

prejudice that it could suffer if the assault and battery were tried together with the parties’ other

claims, some of CSN’s arguments in this regard are unpersuasive, and others can be addressed

by the manner in which the trial is conducted. CSN’s expressed need for additional discovery in

advance of trial (see CSN S.J. Mem. at 29) is not persuasive. Not only should little, if any,

discovery be needed to uncover the facts of what transpired, in just moments, at a deposition, but

CSN has taken no steps to seek any discovery on these claims, since Rezende first asserted them,

more than three months ago. Of somewhat greater concern is the potential for the assault and

battery claims (which, after all, accuse CSN’s Chairman and Chief Executive Officer of

engaging in an act of personal violence against Rezende) to distract or confuse the jury in its

consideration of the main issues to be tried in this action. (See id.) The trial Court, however,

should be able to address such concerns through an appropriate jury instruction, or, alternatively,

by bifurcating the trial, so as to place the discrete evidence regarding the assault and battery

claims before the jury after the jury resolves the other claims in the case.21 In any event, to the

21 Birfurcation might also be a useful tool here, because of the possibility, noted by CSN,that its trial counsel witnessed at least part of the incident in question, and thus could be called asa fact witness. (See id.)

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extent CSN raises legitimate concerns regarding undue prejudice, the Court is capable of

addressing such concerns within the context of this case, and CSN has not demonstrated

sufficient cause for the Court to engage in the inefficient course of declining to exercise

supplemental jurisdiction, at this late date.

II. CSN’S MOTION FOR SANCTIONS

A. Background

The genesis of CSN’s sanctions motion was a letter produced by Rezende in discovery on

October 8, 2010. The letter, dated October 8 (the same day as it was produced), seemed to have

been written on the letterhead of a Swiss law firm with offices in Zürich and Zug. (See

Declaration of Lauro Rezende, dated Jan. 28, 2011 (“Rezende 1/28/11 Decl.”) (Dkt. 120), at

Ex. A (Copy and Certified Translation of Letter to Bernardo Figueiredo and Others, dated Oct. 8,

2010), at 1.)22 No attorney’s name was printed on the letterhead or typed below the signature

line, but the letter appeared to have been signed by a Swiss attorney named Dr. Franz Karsten

(“Karsten”), as counsel for “the real shareholders and legitimate representatives of IIF.” (See

id.) Although this letter has been referred to in this case as the “Swiss Letter” (see Patterson

Dep. at 52), it was written in Portuguese, and it was addressed to numerous Brazilian authorities,

including the Brazilian transportation authority, ANTT. (Rezende 1/28/11 Decl. at Ex. A). The

letter suggested that, through its investigation, the law firm had determined that CSN and its

officers had committed various crimes in Brazil, including bribery of public officials (id. at 4, 7),

22 See also Declaration of Jessica A. Rose, Esq., dated Jan. 20, 2010 [sic] (“Rose 1/20/11Decl.”) (Dkt. 116), at Ex. B (Deposition of Maria M. Patterson, Esq., dated Jan. 7, 2011(“Patterson Dep.”)), at 52-53 (testifying that the letter was produced by Rezende to CSN onOctober 8).

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illegal donations to political campaigns (id. at 8), misappropriation of funds (id. at 6), fraud (id.

at 7), and violation of Brazilian securities laws (id. at 5).

In early November, CSN informed the Court that it had investigated the provenance of

the Swiss Letter and had developed serious doubts about its legitimacy. (See, e.g., Letter to the

Court from Michael B. Carlinsky, Esq., dated Nov. 11, 2010 (“Carlinsky 11/11/10 Ltr.”)

(Dkt. 79), at 1-2.) Among other things, CSN informed the Court that it had learned, through its

investigation, that (1) neither Karsten nor any law firm by the name identified in the letter’s

letterhead (“S&F Rechtsanwälte – Advokatur”) were licensed to practice law in Switzerland, and

(2) the mailing address provided in the letter represented a post office box that had been opened

only one day prior to the date of the letter. (Id. at 1-2.)

CSN requested leave to conduct discovery regarding the letter’s authenticity on the

ground that “the authenticity of a document produced in discovery is generally a permissible

topic of discovery,” and, in this case, CSN had “a good faith basis to question the authenticity of

the Swiss Letter.” (Carlinsky 11/11/10 Ltr. at 2 (citing Bazak Intern. Corp. v. Tarrant Apparel

Group, 378 F. Supp. 2d. 377, 381 (S.D.N.Y. 2005); Imperial Chem. Indus., PLC v. Barr Labs,

Inc., 126 F.R.D. 467, 474 (S.D.N.Y. 1989)). On November 15, 2010, the Court ordered Rezende

to produce Karsten’s business address and telephone number, all non-privileged documents

relating to the substance of the Swiss Letter, and all non-privileged documents relating to

Rezende’s retention of Karsten in the matter. (Dkt. 79 (Mem. Endors.).)

Shortly thereafter, Rezende began providing to CSN – and, in some cases, to the Court –

various documents and information that purported to verify the existence and/or legitimacy of

Karsten, including an affidavit from Karsten (which Rezende’s counsel submitted to the Court,

with a cover letter stating that this affidavit “should put the matter of the Swiss Letter to rest”); a

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copy of Rezende’s bank statement, purportedly reflecting a wire transfer of legal fees from

Rezende to Karsten; a copy of Rezende’s phone records, purportedly reflecting phone calls made

from Rezende to Karsten in Switzerland; and an office address in Switzerland, at which Karsten

purportedly rented space to meet with clients. Yet, each time that Rezende provided such

documents or information, CSN reported to the Court, as further set forth below, that, upon

investigation, the submitted evidence was revealed to be either false or itself suspicious. Finally,

in a letter to the Court dated December 2, 2010, Rezende’s counsel, the firm of Reavis Parent

Lehrer (“Reavis”), admitted that it could not confirm the authenticity of the Karsten affidavit that

it had previously submitted to the Court and stated that it was therefore “withdrawing” that

affidavit. (See Letter to the Court from Maria M. Patterson, Esq., dated Dec. 2, 2010 (“Patterson

12/2/10 Ltr.”).) With leave of Court, Reavis then withdrew as Rezende’s counsel of record in

this action. (See Stipulation and Order Substituting Attorneys, filed Dec. 20, 2010 (Dkt. 99).)

CSN then argued that there was probable cause to believe that Rezende had attempted to

commit fraud and that his communications with his counsel about both the Swiss Letter and

Karsten had been made with the intent to facilitate or conceal his misconduct. (See Letter to the

Court from Michael B. Carlinsky, Esq., dated Dec. 23, 2010, at 2-4.) CSN therefore asked the

Court to compel production of certain privileged documents and testimony, on the ground that

the “crime-fraud exception applies to vitiate any attorney-client and/or work-product privilege

that might otherwise attach to documents and communications concerning the Swiss Letter, the

law firm S&F Rechtsanwälte-Advokatur, Franz Karsten and the affidavit of Franz Karsten.”

(Proposed Order, dated Jan. 3, 2011 (see Dkt. 105).) The Court (Baer, J.) granted that request on

January 3, 2011. (Id.)

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On January 20, 2011, following the completion of this further discovery – which revealed

still more documents and information that, in CSN’s view, supported the conclusion that

Rezende had committed a fraud on the Court – CSN moved against Rezende for case-dispositive

sanctions. (See Notice of Motion in Support of Cross-Claim Plaintiffs’ Motion for

Case-Dispositive Sanctions, dated Jan. 20, 2011 (Dkt. 111); Rose 1/20/11 Decl. (Dkt. 116);

Memorandum of Law in Support of CSN’s and IIF’s Motion for Case-Dispositive Sanctions,

dated Jan. 20, 2011 (“CSN Sanctions Mem.”) (Dkt. 118).) Rezende filed his opposition, as well

as his cross-motion, on January 28, 2011. (See Memorandum of Law of Lauro Rezende in

Opposition to Counterdefendants’ Motion for Sanctions, dated Jan. 28, 2011 (“Rezende

Sanctions Opp.”) (Dkt. 129); Rezende 1/28/11 Decl. (Dkt. 120); Notice of Motion in Support of

Plaintiff Lauro Rezende’s Motion for Sanctions Against CSN and IIF, dated Jan. 28, 2011

(Dkt. 130).) CSN filed reply papers, as well as an opposition to Rezende’s cross-motion, on

February 1, 2011. (See Cross-claim Plaintiffs’ Reply Memorandum of Law in Further Support

of their Motion for Case-Dispositive Sanctions, dated Feb. 1, 2011 (“CSN Sanctions Reply”)

(Dkt. 131).)

As part of his written submissions in opposition to CSN’s sanctions motion, Rezende

submitted a declaration made under penalty of perjury, in which he flatly denied any

wrongdoing. (See generally Rezende 1/28/11 Decl.) Based on this declaration, viewed together

with submissions from CSN that cast doubt on the veracity of Rezende’s statements, this Court

determined that an evidentiary hearing would be necessary to assess Rezende’s credibility. The

Court thus held a hearing on February 9 and 14, 2011, at which Rezende testified. The Court

also heard testimony from Rezende’s former counsel Maria Patterson, Esq. (“Patterson”), of the

Reavis firm, and a Swiss attorney, Dr. Cristoph Peter (“Peter”), who had assisted CSN with its

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investigation into the identity of “Karsten.” The factual record, as presented in the parties’

motion papers and developed through testimony given at the hearing, is summarized below.23

B. The Factual Record

1. The Swiss Letter

a. Rezende’s Account of the Letter’s Creation

According to Rezende’s testimony at the hearing before this Court, Karsten had done

legal work for Rezende’s father, roughly 30 years ago, assisting him with Brazilian regulators.

(Transcript of Hearing held on Feb. 9 and Feb. 14, 2011 (“Hrg. Tr.”), at 38-42.) By chance,

Rezende ran into Karsten at a restaurant in Brazil, in August 2010, after Rezende’s father’s

death. (Id. at 28, 39-42.) Karsten told Rezende that he had a law office in Switzerland and had

been spending a lot of time there. (Id. at 29, 41.) Rezende spoke to Karsten briefly, but, as both

Rezende and Karsten had other people with them in the restaurant, and as Rezende did not wish

to be “indiscrete,” Karsten testified that he gave Rezende his phone number and suggested that

Rezende call him later. (Id. at 266-67.) At some point, either in person or by phone, Rezende

claims to have asked Karsten to assist him in his dispute with CSN, by sending a letter (that

Rezende would write) to Brazilian authorities, accusing CSN of improper conduct. (See

Rezende 1/28/11 Decl. at ¶¶ 28, 29; Hrg. Tr. at 46, 274.)24

23 Much of the evidence submitted by CSN at the hearing, and described herein, wasreceived by the Court subject to a ruling on Rezende’s hearsay objections. (See generallydiscussion infra at Section C(2).)

24 According to the declaration submitted by Rezende in opposition to CSN’s sanctionsmotion, Rezende arranged to meet Karsten a second time in Brazil, and it was at their secondmeeting that Rezende asked Karsten for his assistance. (Rezende 1/28/11 Decl. at ¶ 28.) At thehearing, however, Rezende testified that this portion of his declaration was “wrong” and that“[t]here was no second meeting.” (Hrg. Tr. at 62-63.) Rather, Rezende seemed to suggest in hishearing testimony that he and Karsten had this follow-up conversation by phone. (See id. at32-33, 267-68.)

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Rezende testified that he received no written engagement letter from Karsten (id. at 47),

but, for sending the letter they had discussed and representing IIF to the Brazilian authorities,

Karsten purportedly asked Rezende for an initial fee of $7,500 (id. at 46). Rezende claims that

he sent Karsten that fee by wire transfer. (Id. at 47.)

As for the actual preparation of the Swiss Letter, Rezende testified that he drafted

90-95% of the letter on his own computer, and that, while he put in certain changes that Karsten

suggested, those changes were “small.” (Id. at 42, 44.) Rezende testified that he sent the initial

draft of the letter to Karsten by fax (id. at 44); he conceded, however, that he had no record

showing that fax transmission, and that he did not retain any drafts of the letter (id. at 45-46).

According to Rezende, when the letter was complete, he traveled to Geneva, where Karsten met

him, traveling from Zurich to do so. (See id. at 63-64.) At that meeting, Rezende purportedly

provided Karsten with a CD containing a electronic copy of the letter, as well as the exhibits that

would need to be attached to the letter. (See id. at 44, 66-67.) Rezende then testified that, while

he was on a second trip to Geneva, Karsten again met him there on October 7, 2010 (again

traveling from Zurich for this purpose), and Karsten gave him a copy of the final letter. (Id. at

47, 114.)

b. The Letter’s Production To CSN

The Swiss Letter, as noted above, was dated October 8, 2010, and was produced to CSN

on that date. (See Rezende 1/28/11 Decl. at Ex. A; Patterson Dep. at 52-53.) Rezende

apparently produced the Swiss Letter to CSN at the outset of a witness’s deposition in New

York, following a brief, but unsuccessful, settlement discussion between the parties. (See Hrg.

Tr. at 212.) In CSN’s view, the letter was likely produced by Rezende in an attempt to extort a

favorable settlement. (See CSN Sanctions Mem. at 1, 3-5.) Patterson, however, who was

37


representing Rezende at the time, and who was actually the one who handed the Swiss Letter to

CSN’s attorney (Hrg. Tr. at 212-13), testified that the letter was not used “as a threat” (Patterson

Dep. at 18-19), as it was her understanding, at the time, that the letter had already been sent to

Brazilian authorities (see id.). According to Patterson, she simply determined – following

Rezende’s representation that the letter had actually been sent – that it “probably ought to be

produced,” because it was responsive to CSN’s document requests. (See Patterson Dep. at 55

(testifying that the document was related to IIF, and that CSN had “a fairly broad document

request that called for the production of anything related to IIF”); see also Patterson Dep. at 72

(testifying that, when Patterson handed the document to CSN’s counsel, Patterson stated

something to the effect of, “look, we’re producing this document. I understand it’s been sent.

It’s responsive to your document request.”).)

2. CSN’s Initial Investigation into the Swiss Letter’s Authenticity

In certain respects, the Swiss Letter appeared unusual on its face. According to Peter,

himself a licensed Swiss attorney, the letterhead on the letter was “highly unusual” because (1) it

contained no individual’s name, (2) it contained no mailing address, phone number, or e-mail

address, and (3) it used the uncommon phrase “Schweizerische Eidgenossenschaft” to indicate

Switzerland. (Hrg. Tr. at 347-48; see also Declaration of Dr. Cristoph Peter, dated Jan. 19, 2011

(“Peter 1/19/11 Decl.”) (Dkt. 117), at ¶ 4 (“The letterhead on which this letter is printed is unlike

any letterhead I have ever seen for an attorney-at-law licensed to practice law in Zurich or Zug,

Switzerland.”).) With respect to the phrase “Schweizerische Eidgenossenschaft,” Peter testified

that this phrase was generally used only by the Swiss government in documents such as

international treaties, and that he “c[ould]n’t imagine a Swiss attorney putting such a description

38


in his letterhead.” (Hrg. Tr. at 349.) Under the circumstances, Peter, at CSN’s request, began to

investigate the legitimacy of the letter. (See id. at 345.)

a. Karsten and S&F’s Lack of Registration To Practice Law

Peter testified that he checked to see whether either Karsten or the law firm identified on

the letterhead of the Swiss Letter was registered to practice law in Switzerland. Peter checked

relevant registries for Zürich and Zug, the two Swiss Cantons listed on the Swiss Letter’s

letterhead, but found no record of either Karsten or the S&F firm (see Hrg. Tr. at 349-50; Peter

Decl. at ¶¶ 6-7), a fact that Rezende does not now dispute (see CSN Sanctions Mem., Ex. A

(Memorandum from The Reavis Team to Lauro Rezende, dated Nov. 30, 2010 (“Reavis

11/30/10 Mem.”), at 1). Rezende has also offered no evidence that anyone by the name of

Franz Karsten, nor any firm by the name of S&F Rechtsanwälte, was registered or licensed to

practice law anywhere in Switzerland.

Rezende’s counsel tried to explain the absence of any apparent attorney registration by

informing the Court that, according to Karsten (with whom she claimed to have spoken by

telephone (see infra at Section 3(b)(i))), he and the other partners in his firm did not appear in

tribunals in Switzerland, but rather worked on managing relationships between their clients and

banks in “selected financial areas.” (Patterson Dep. at 156-57.) According to Patterson, Karsten

informed her that, because he did not appear in tribunals, he was not required to be registered as

an attorney in Switzerland. (Id.) Patterson also testified that Karsten told her that his firm did

not advertise or maintain a website, but rather was a “very private sort of business” that relied on

word of mouth for publicity. (Id. at 159-60.)

According to Patterson’s testimony, Karsten, at one point, indicated that there was

“probably a corporate registry in Switzerland where the firm might be registered.” (Id. at 157.)

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Karsten, however, never provided the Reavis firm with any documents reflecting this registry,

despite Patterson’s written request that he do so. (Id. at 164-65; see also Reavis 11/30/10 Mem.

at 2 (“as of this time, we have no proof that S&F exists”).)25

b. The Post Office Box Referenced in the Swiss Letter

The Swiss Letter provided a post office box number, to which a response could be

directed. Through Peter’s investigation, CSN reportedly discovered that this post office box was

set up to receive mail for Karsten only one day before the date on the Swiss Letter. (Peter Decl.

at ¶ 7 (stating that Georg Raschle, an officer of the post office box service, told Peter via e-mail

that the box had been opened on October 7, 2010).) This was not seriously disputed by Rezende.

Indeed, his own counsel conceded, in a memorandum directed to Rezende, that the box was

arranged only shortly before the Swiss Letter was supposedly sent (Reavis 11/30/10 Mem. at 2),

and Rezende has submitted nothing to the Court to suggest otherwise.

Further, Peter testified that, when he inquired of the postal box service as to how and

when the Karsten box was opened, Peter learned that the service had, on file, contact information

for Rezende, as well as a copy of Rezende’s driver’s license. (See Peter Decl. at ¶ 11, Exs. C,

D.) Further, according to Peter, the service informed him that Rezende, not Karsten, had opened

the post office box. (Id. at ¶ 11.) Peter obtained a copy of Rezende’s license from the service,

and Rezende has conceded that the copy does, in fact, show his own driver’s license (Hrg. Tr. at

25 The Reavis firm has also noted that its own Internet searches yielded “no confirminginformation” concerning Dr. Karsten, his supposed assistant, his law firm, or his supposedpartners. (Reavis 11/30/10 Mem. at 2.)

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107), although he denies he had anything to do with obtaining the post office box (id. at 107-08;

Rezende 1/28/11 Decl. at ¶ 54).26

c. The Mailing of the Swiss Letter

CSN has also presented evidence, which is unrefuted by Rezende, that the Swiss Letter

was not actually mailed until October 21, and that it was mailed from a post office in

Rio de Janeiro near where Rezende, himself, resides. A Brazilian attorney hired by CSN has

declared, under penalty of perjury, that he went to the ANTT (the Brazilian transportation

agency to which the letter was addressed), and obtained from the ANTT a copy of the envelope

in which the Swiss Letter was mailed. (Declaration of Luis Carlos Cazetta, dated Jan. 18, 2011

(Dkt. 113), at ¶¶ 3-4.) The postmark stamp on that envelope – a copy of which has been

submitted to the Court – appears to indicate that the Swiss Letter was sent from the “ACF Rivera

Center” branch of the Brazilian post office on October 21, 2010.27 (Id. at ¶ 5, Ex. A.)

26 At the hearing before this Court, Rezende objected on hearsay grounds to theadmission of evidence regarding Raschle’s statements to Peter on the subject of who set up theKarsten post office box. (See Hrg. Tr. at 105-06, 365-66.) The Court notes that the fact thatPeter procured a true copy of Rezende’s driver’s license from Raschle enhances the reliability of Raschle’s purported statements regarding Rezende’s involvement in obtaining the box. In anyevent, Peter’s testimony that he obtained a copy of Rezende’s license from Raschle would not beexcludable as hearsay, nor would the copy of the license itself be objectionable on such grounds.

27 The Court takes judicial notice that ACF Rivera Center is approximately a 10-minutedrive from Rezende’s home address. (See Deposition of Lauro Rezende, dated Jan. 10, 2011,at 5:7-9 (stating Rezende’s home address); Google Maps Driving Directions,http://maps.google.com/maps?f=d&source=s_d&saddr=Avenida+Sernambetiba+3606,+Rio+de+Janeiro,+Brasil&daddr=ACF+Riviera+Center.)

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3. Rezende’s Attempts To Authenticate the Swiss Letter

a. The Karsten Affidavit

In a letter dated November 11, 2010, Rezende, though counsel, submitted to the Court a

copy of an affidavit, purportedly from Karsten (the “Karsten Affidavit”), which, according to

Rezende’s counsel, would “resolve CSN’s spurious claim that Mr. Rezende submitted a false

document in discovery and should, as far as this Court is concerned, put the matter to rest.”

(Rose 1/20/11 Decl., Ex. L (Letter to the Court from Maria M. Patterson, Esq. (“Patterson

11/11/10 Ltr.”)), at 2.) No original of the Karsten Affidavit has ever been produced to the Court.

(See Reavis 11/30/10 Mem. at 4.)

The affidavit, on its face, indicated that Karsten was a lawyer and a partner at S&F, that

he represented IIF (which Rezende claims to own in this lawsuit, see Section I(A), supra), and

that, at IIF’s request, he sent a letter to Brazilian authorities on October 8, 2010. (See Patterson

11/11/10 Ltr., Ex. A (Affidavit of Franz Karsten, sworn to Nov. 5, 2010 (“Karsten Aff.”)),

¶¶ 1-5.) The affidavit also contained a representation from Karsten that he had spoken via

telephone with Peter, CSN’s Swiss attorney, on November 3, 2010 (id. at ¶ 6), a conversation

that Peter, on the stand, categorically denied ever took place.28

A few days after submitting the Karsten Affidavit, Rezende’s counsel explained to the

Court, in greater detail, why this affidavit should end CSN’s inquiry into Karsten and the Swiss

Letter:

We understand that in Brazil, a civil law country, the notarizationprocess is more formal than in the United States: Notaries work inoffices that are government concessions, they keep records of

28 Although Patterson reportedly asked Karsten “for phone records showing that the callwas in fact made” (Reavis 11/30/10 Mem. at 2-3), no such records have been produced.

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when they notarize a signature and their notarization is based upona pre-filed record of the signature or by comparison with apassport or similar document. Third-party confirmation ofnotarized documents is, we understand, a well-recognizedprocedure that is a standard part of commercial, governmental andother transactions in Brazil. Indeed, during [a] discussion withCSN’s counsel, I briefly outlined the notarial process andencouraged counsel to verify Dr. Karsten’s notarization . . . . I alsostated [to CSN’s counsel] that “I would think you have beenadvised on the significance of a signature in front of a Braziliannotary, and that should put the matter of the Swiss Letter to rest.” [CSN’s counsel] has never responded to that suggestion. Contactwith the notary no doubt would demonstrate that Dr. Karsten isreal and that he signed his affidavit.

(Rose 1/20/11 Decl., Ex. O (Letter to the Court from Maria M. Patterson, Esq., dated Nov. 22,

2010), at 2; see also Rose 1/20/11 Decl., Ex. II (e-mail from Maria Patterson, Esq., to CSN’s

counsel, dated Nov. 16, 2010).)

It seems that, despite describing the ease with which the authenticity of documents

notarized in Brazil could be verified, Rezende’s own counsel did not, itself, take such steps prior

to submitting the Karsten Affidavit to this Court. On November 23, 2010 – one day after

Rezende’s counsel urged the Court to appreciate the “significance of a signature in front of a

Brazilian notary” – CSN represented to the Court that it had investigated the matter and, based

on its investigation, it appeared that the notary’s office had no record of notarizing Karsten’s

signature. (Rose 1/20/11 Decl., Ex. R (Letter to the Court from Michael B. Carlinsky, Esq.,

dated Nov. 23, 2010), at 1-2.29) Rezende’s own counsel subsequently confirmed that fact in a

memorandum to Rezende. (Reavis 11/30/10 Mem. at 4 (“All three representatives of the notary

29 CSN’s counsel also represented that, when the notary attempted to check her recordsfor the unique serial number appearing on the Karsten Affidavit, that number appeared to matchanother document. (See Letter to the Court (Baer, J.) from Michael B. Carlinsky, Esq., datedDec. 6, 2010, at 4.)

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denied there being any notarization on record concerning Dr. Karsten.”); see also Hrg. Tr. At

180 (Rezende testifying that the Reavis firm had advised him that they had looked into the

matter, and that the notary’s office had no record of the notarization).)

At this point, it is undisputed that the notary office in question has claimed to have no

record of Karsten. Nonetheless, Rezende denies that he had any role in fabricating the so-called

Karsten Affidavit (Rezende 1/28/11 Decl. at ¶ 45; see also Rezende Sanctions Opp. at 7), and,

while he states that he has “no explanation for the notary’s statement [that there is no record of

Karsten]” (Rezende 1/28/11 Decl. at ¶ 45), he speculates that perhaps “CSN used its power in

Brazil to intimidate or coerce the notary to pretend that Karsten never appeared before her to get

his affidavit notarized” (id.).

As noted above, Rezende, through counsel, ultimately “withdrew” the Karsten Affidavit

from the Court’s consideration via a letter dated December 2, 2010. (See Patterson 12/2/10 Ltr.;

see also Rezende Sanctions Opp. at 7.) In its December 2 letter, Rezende’s counsel, the Reavis

firm, conceded that it could not verify the authenticity of the Karsten Affidavit or the existence

of a Swiss lawyer named Franz Karsten, and informed the Court that it would be moving to

withdraw from its representation of Rezende in this action. (Patterson 12/2/10 Ltr.)

b. Rezende’s November 22, 2010 Submissions

After the submission of the so-called Karsten Affidavit, and before Rezende’s withdrawal

of that submission, the Court, as noted above, granted a request by CSN for discovery related to

Karsten and the Swiss Letter. By Order dated November 14, 2010, the Court directed Rezende

to produce, among other things, Karsten’s telephone number and business address. Rezende did

so, through counsel, by letter dated November 22, 2010. At the same time, Rezende also

44


produced copies of certain of bank records, purportedly showing his payment of legal fees to

Karsten. These submissions are described in more detail below.

i. Karsten’s Supposed Telephone Number

In response to the Court’s directive to produce Karsten’s telephone number, Rezende

submitted to the Court portions of his own telephone records, which, he claimed, reflected

certain telephone calls between him and Karsten. (See Rose 1/20/11 Decl., Ex. N (Letter to the

Court from Maria M. Patterson, Esq., dated Nov. 22, 2010 (“Patterson 11/22/10 Ltr.”)), at 2; id.

at Exs. A, B.) These records showed that calls of varying duration had been made to and from a

phone number, bearing a Swiss exchange; Rezende represented that this was Karsten’s number

in Switzerland. (See id.)

It is now undisputed that this telephone number was actually an Internet-based number,

arranged through the website Skype.com. (Hrg. Tr. at 37.) According to CSN, one implication

of this is that the supposed Swiss number could have been set up from anywhere in the world,

through the Internet, and need not have had any actual association with Switzerland. (See Peter

Decl. at ¶ 17.)

Although Patterson testified that, by calling the Skype number, she had reached someone

holding himself out as Karsten, as well as a woman claiming to be an assistant to Karsten named

Eva Heinz (“Heinz”) (see, e.g., Patterson Dep. at 22-23 (on October 28, before speaking to

Karsten, Patterson spoke briefly to a woman identifying herself as Heinz, who answered the

phone)), there is no evidence in the record that shows that the individuals with whom Patterson

spoke were actually in Switzerland at the time of those calls.

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ii. Karsten’s Supposed Business Address

Rezende, though counsel, also provided the Court with an address in Zurich, Switzerland,

where Karsten purportedly arranged to rent space “for occasional meetings.” (Patterson

11/22/10 Ltr. at 1.) In her explanatory letter to the Court, Patterson stated that “Karsten

generally work[ed] from home” and maintained no “formal business address,” but that he did use

space at the stated address to meet with clients. (Id.) The following day, Patterson further

informed the Court that Karsten had “only made the arrangement for that office within the last

few days.” (Rose 1/20/11 Decl., Ex. P. (Letter to the Court from Maria P. Patterson, Esq., dated

Nov. 23, 2010), at 1.)

iii. Rezende’s Bank Statements

Through counsel, Rezende also submitted a bank statement, purportedly reflecting his

payment of legal fees to Karsten. (See Patterson 11/22/10 Ltr. at 2 and Ex. C; see also Patterson

Dep. at 42:13-19.) The bank statement reflected a transfer by Rezende of 12,059.59 Brazilian

Reals, on September 6, 2010, to a Cayman Islands account, which, according to Rezende, was

Karsten’s account. (See Patterson 11/22/10 Ltr. at Ex. C.) According to Rezende, this transfer

represented his payment to Karsten of 7,500 U.S. dollars, for Karsten’s legal services. (See Hrg.

Tr. at 55-56.)

The Court takes judicial notice, however, that, on September 6, 2010, one U.S. dollar was

trading in the range of 1.7262 to 1.7825 Brazilian Reals.30 Based on this exchange rate,

30 OANDA Currency Converter, http://www.oanda.com/currency/converter/; accordExchange-Rates.org, http://www.exchange-rates.org/Rate/USD/BRL/9-6-2010 (value of oneU.S. Dollar on Sept. 6, 2010 was 1.7299 Brazilian Reals); X-rates.com Historical Lookup,http://www.x-rates.com/cgi-bin/hlookup.cgi (value of one U.S. Dollar on Sept. 6, 2010 was1.73621 Brazilian Reals); XE.com Historical Rate Tables, http://www.xe.com/ict/?basecur=BRL&historical=true&month=9&day=6&year=2010 (at noon Eastern Time on Sept.

46


Rezende’s wire transfer was worth, at the time, between 6,765.55 and 6,986.21 U.S. dollars. The

Court further notes that, for Rezende’s wire transfer of 12,059.59 Brazilian Reals to have been

worth 7,500 U.S. dollars, the dollar would have had to have been trading at the rate of

approximately 1.608 Brazilian Reals. It appears that the exchange rate has not been that low

since July 2008.31

4. Additional Information Obtained by CSN in Discovery or Produced by Rezende at the Hearing

In the course of the discovery permitted by the Court regarding the provenance of the

Swiss Letter and the existence of Karsten, CSN uncovered certain additional information on

these subjects. In addition, Rezende came forward with additional information at or around the

date of the evidentiary hearing conducted by the Court.

a. Karsten’s Supposed E-mail Address

In an e-mail dated October 28, 2010, Rezende apparently provided Patterson with e-mail

addresses for Karsten and Heinz. (Patterson Dep. at 135.) In his message to Patterson, Rezende

made clear, however, that the Karsten and Heinz e-mail addresses should not be provided to

CSN. (Id.) At her deposition, Patterson testified that Rezende had expressed concerns that

“CSN, if they knew how to contact Karsten, would try to intimidate him [or] bribe him.”

(Patterson Dep. at 137, 138.) Patterson also testified that Rezende had told her that, in the past,

CSN had “rais[ed] purported conflicts . . . preventing Mr. Rezende from using the lawyers that

he wanted to [use].” (Id.)

6, 2010, one U.S. Dollar was worth 1.7277 Brazilian Reals).

31 See MSN Money Index Chart, http://moneycentral.msn.com/investor/charts/chartdl.aspx?symbol=%2fBRLUSD&CP=0&PT=8.

47


The Reavis firm attempted to ascertain who owned the “sfadvokatur.com” domain name

associated with the e-mail addresses for Karsten and Heinz that Rezende had provided.

(Patterson Dep. at 169-70.) Although Patterson testified that Reavis was unable to determine

who owned the domain name, she further testified that the firm’s investigation revealed that the

domain name had only been registered on October 28, 2010 – the very day that Patterson had

received the purported Karsten and Heinz e-mail addresses from Rezende. (Id. at 170-71; see

also Rose 1/20/11 Decl. at Exs. E, G; Reavis 11/30/10 Mem. at 2 (stating that the domain name

associated with Karsten’s purported e-mail address was “set up only a day or so prior to the day

[that Rezende] provided the e-mail address to [Patterson]”).)

b. Karsten’s Driver’s License

In a memorandum dated November 30, 2010, which Patterson sent to Rezende, Patterson

herself expressed concerns about Karsten’s existence and about the authenticity of the Swiss

Letter and the Karsten Affidavit. (Reavis 11/30/10 Mem. at 4.) According to this memorandum,

Rezende had “indicated [to Reavis] that Dr. Karsten ha[d] refused to provide any supporting

information showing that he exists, such as his passport, driver’s license, utility bill, etc.” (Id.)

In the memorandum, Patterson stated that it was very “puzzling” that “Karsten – a family

friend – ha[d] not come forward with evidence to clear his name and yours, and to set the record

straight.” (Id. at 4.)

The next day, a Federal Express package containing a copy of a driver’s license and

utility bill was sent to the Reavis firm, supposedly by Karsten from his home address in Brazil.32

32 The Patterson memorandum to Rezende also noted that Reavis had instructed Heinzthat any such documentation, confirming Karsten’s existence, should be sent directly to it (i.e.,not to Rezende). (Id.)

48


(See Rezende 1/28/11 Decl. at ¶ 48, Exs. I (Federal Express International Air Waybill dated

Dec. 1, 2010); id. at Exs. J, K; see also Rezende Sanctions Opp. at 8; Hrg. Tr. at 184-85.)

Patterson testified that she asked a Brazilian attorney to investigate the authenticity of the

driver’s license. (Hrg. Tr. at 224-25.) This attorney reportedly informed Patterson that there

was a registry that could be used to determine whether a particular driver’s license was valid.

(See id.) Because Karsten’s license number was not listed on this registry, the attorney

concluded that it was not an authentic driver’s license. (Id. at 225; see also Rezende 1/28/11

Decl. at ¶ 50.) Rezende does not seriously dispute this conclusion, and admits in his declaration

that the Karsten driver’s license “appear[s] to be invalid.” (Rezende 1/28/11 Decl. at ¶ 8.)

Further, each of the various identification numbers on the Karsten driver’s license are

strikingly similar to the numbers that appear on Rezende’s own driver’s license. (Compare

Rezende 1/28/11 Decl., Ex. K (Karsten license), with Peter Decl., Ex. D (Rezende’s license); see

also Hrg. Tr. at 107.) The nine-digit serial numbers differ by only two digits (237299150 versus

217291150), the ten-digit so-called “renach form” numbers differ by only two digits (206656890

versus 406456890), and the ten-digit registration numbers differ by only three digits

(02398093325 versus 00395092325). (See Rezende 1/28/11 Decl., Ex. K; Peter Decl., Ex. D;

CSN Sanctions Mem., Ex. B.) In addition, the supposed dates when each license was initially

issued (in 1958, in the case of Karsten, and in 1980, in the case of Rezende) differ by only one

day (August 19, as opposed to August 29). (See Rezende 1/28/11 Decl., Ex. K; Peter Decl.,

Ex. D.) Finally, Karsten’s license shows a “validity” date (presumably an expiration date)

exactly one year apart from the validity date shown on Rezende’s license (June 15, 2011 and

June 15, 2012, respectively), which is especially suspect, in light of the fact that the licenses

49


show issuance dates that are six weeks apart (November 13, 2009 and December 23, 2009). (See

Rezende 1/28/11 Decl., Ex. K; Peter Decl., Ex. D.)

c. Karsten’s Utility Bill and Home Address

The Federal Express package sent to Patterson also contained a purported copy of

Karsten’s home utility bill, which listed an address at Block 8 of 350 Avenida Eugenio Lira

Neto; the same address appeared on the package’s waybill. (See Rezende 1/28/11 Decl. at

¶¶ 48-49, Ex. I, K.) The parties do not dispute that this address is part of a building complex

called “Barra Golden Green.” (See Declaration of Marlan de Moraes Marinho, Jr. (“Marinho

Decl.”) (Dkt. 114), at ¶ 21.)

CSN and Rezende now dispute, however, whether the stated address even exists, with

both Rezende and an agent of CSN (a Brazilian attorney) claiming to have visited the location in

person. CSN contends that the entire development has no “Block 8,” and supports this

contention with a declaration from its agent (Marinho Decl. at ¶ 21), as well as an unsworn

statement supposedly obtained from the building manager (id. at Ex. J; Hrg. Tr. at 198).

Rezende, on the other hand, claims to have seen the relevant “Block 8” with his own eyes (Hrg.

Tr. at 199-200), and offers, in support of his assertions, an excerpt of the offering documents for

the Barra Golden Green building complex, which indicates that the complex consists of 14

buildings (Rezende 1/28/11 Decl. at ¶ 53, Ex. L).

Regardless of the reliability of the written statement reportedly obtained by CSN from

the building manager (Marinho Delc., Ex. J), the Court does note that this statement contains a

spelling of the street address in question that is different from the spelling on both the purported

Karsten utility bill and the Federal Express waybill that were supposedly sent by Karsten to the

Reavis firm (compare id. (identifying street in question as “Eugenio Lyra Neto) with Rezende

50


Decl., Exs. I, K (showing street as “Eugenio Lira Neto”)). The Court’s cursory, independent

investigation on this topic supports the conclusion that neither the utility bill nor the Federal

Express waybill purportedly produced by Karsten contain an accurate spelling of the street

address of the building complex in question. (See http://maps.google.com.)

d. Additional Bank Records

The day of the hearing, Rezende produced an additional bank record, purportedly

verifying that his wire transfer of 12,059.59 Brazilian Reals was for “Legal Fees” and that the

funds were deposited in a bank account in the Cayman Islands on September 6, 2010. (See Hrg.

Tr. at 57-58.) Since the date of the hearing, CSN has made a further submission, challenging the

authenticity of this additional record on the basis of a letter that CSN’s general counsel claims to

have received from an employee of the bank. (See Declaration of Fernando Quintana Merino,

dated Feb. 23, 2011, at ¶ 3, Ex. C.)

C. Applicable Legal Standards

1. Fraud on the Court

“A fraud on the court occurs where it is established by clear and convincing evidence that

a party has sentiently set in motion some unconscionable scheme calculated to interfere with the

judicial system’s ability impartially to adjudicate a matter by . . . unfairly hampering the

presentation of the opposing party’s claim or defense.” Passlogix, Inc. v. 2FA Tech., LLC, 708

F. Supp. 2d 378, 393 (S.D.N.Y. 2010) (internal quotation marks and citations omitted). “The

essence of fraud on the court is ‘when a party lies to the court and his adversary intentionally,

repeatedly, and about issues that are central to the truth-finding process.’” Id. (quoting

McMunn v. Mem’l Sloan-Kettering Cancer Ctr., 191 F. Supp. 2d 440, 445 (S.D.N.Y. 2002)).

Thus, “[a]s opposed to a fraud against an adverse party, a fraud upon the court will only be found

51


where the misconduct at issue ‘seriously affects the integrity of the normal process of

adjudication.’” Sanchez v. Litzenberger, No. 09 Civ. 7207 (THK), 2011 U.S. Dist. LEXIS

18528, at *9 (S.D.N.Y. Feb. 24, 2011) (quoting Gleason v. Jandrucko, 860 F.2d 556, 559 (2d

Cir. 1988)). “Perjury alone does not constitute fraud upon the court.” Id. (Internal quotation

marks and citation omitted).

“The Court has inherent authority ‘to conduct an independent investigation in order to

determine whether it has been the victim of fraud.’” Passlogix, 708 F. Supp. 2d at 394 (quoting

Chambers v. NASCO, Inc., 501 U.S. 32, 44 (1991)). It is within the Court’s discretion, for

example, to hold an evidentiary hearing on a sanctions motion. See Shah v. Eclipsys Corp., No.

08-CV-2528 (JFB) (WDW), 2010 U.S. Dist. LEXIS 67700, at *50-51 (E.D.N.Y. July 7, 2010)

(“Although an evidentiary hearing is not always necessary before finding a party has committed

fraud on the court, many courts in this circuit and elsewhere have exercised their discretion to

hold evidentiary hearings before imposing sanctions on that basis.” (citing cases)).

Upon finding that a party has engaged in misconduct that rises to the level of fraud on the

court, the court may impose sanctions. Indeed, under its inherent authority, the Court may “‘do

whatever is reasonably necessary to deter abuse of the judicial process and assure a level playing

field for all litigants,’” id. (quoting Shangold v. The Walt Disney Co., No. 03 Civ. 9522 (WHP),

2006 U.S. Dist. LEXIS 748 (S.D.N.Y. Jan.12, 2006), aff’d, 2008 U.S. App. LEXIS 9181 (2d

Cir., Apr. 28, 2008)), and this means that the court may impose sanctions on the offending party

ranging from a jury charge, to an attorneys’ fee award, to the dismissal of a party’s claims. See

Chambers, 501 U.S. at 44-45; Passlogix, 708 F. Supp. 2d at 394 (citation omitted). Yet, while

the sanction of dismissal of a party’s claims is within the court’s discretion, Roadway Express,

Inc. v. Piper, 447 U.S. 752, 765 (1980)), the imposition of any sanctions can “implicate[] due

52


process concerns,” and such concerns “are particularly strong when the sanction sought is an

outright dismissal,” Sanchez, 2011 U.S. Dist. LEXIS 18528, at *10 (citing Roadway Express,

447 U.S. at 767 n.14).

Generally, in determining whether to sanction a party with the dismissal of its claims, the

court considers five factors: “(1) whether the misconduct was the product of intentional bad

faith; (2) whether and to what extent the misconduct prejudiced the other party; (3) whether there

is a pattern of misbehavior, rather than an isolated instance; (4) whether and when the

misconduct was corrected; and (5) whether further misconduct is likely to continue in the

future.” McMunn, 191 F. Supp. 2d at 446; accord Shangold, 2006 U.S. Dist LEXIS 748, at

*11-12; Sanchez, 2011 U.S. Dist. LEXIS 18528, at *11. Ultimately, however, “dismissal is

permissible only when the deception relates to matters in controversy in the action, and even

then is so harsh a remedy that it should be imposed only in the most extreme circumstances.”

Sanchez, 2011 U.S. Dist. LEXIS 18528, at *11-12 (internal quotation marks and citation

omitted). Thus, even though a court plainly has the inherent authority to sanction parties who

fabricate evidence and make misrepresentations to the court, Jung v. Neschis, No. 01 Civ. 6993

(RMB) (THK), 2009 U.S. Dist. LEXIS 126950, at *40 (S.D.N.Y. Mar. 6, 2009) (Report and

Recommendation), adopted by 2009 U.S. Dist. LEXIS 23348 (S.D.N.Y. Mar. 23, 2009), less

drastic sanctions than dismissal may be appropriate, where the false evidence in question is not

“the ‘linchpin’” of the party’s claims, see id. at *70; see generally id. at *68-78.

2. Evidence That May Be Considered by the Court

In this case, while the parties agree that a fraud on the court must be demonstrated by

clear and convincing evidence (see Rezende Sanctions Opp. at 11; CSN Sanctions Reply at 2;

see also, e.g., DAG Jewish Directories, Inc. v. Y&R Media, LLC, No. 09 Civ. 7802 (RJH), 2010

53


U.S. Dist. LEXIS 82388, at *10 (S.D.N.Y. Aug. 12, 2010) (citing Shangold), they differ as to

what evidence may properly be presented to the Court to prove such a fraud. In particular, they

dispute whether it would be appropriate for the Court to consider hearsay evidence that would be

inadmissible at trial. To some extent, both parties have submitted such evidence to the Court,

although CSN has relied more heavily than Rezende on hearsay submissions. Subsequent to the

evidentiary hearing held by the Court (at which Court received all of the parties’ proffered

evidence, subject to any hearsay objections), the Court requested that the parties brief their

respective positions on this issue. By submissions dated February 14, 2011, both parties set out

their reasoning as to whether the Court should consider, or disregard, the hearsay evidence

placed before it. (See Memorandum of Law of Lauro Rezende Regarding Hearsay, dated Feb.

14, 2011 (“2/14/11 Rezende Mem.”) (Dkt. 136); Letter to the Court from Michael B. Carlinsky,

Esq., dated Feb. 14, 2011 (“2/14/11 Carlinsky Ltr.”) (Dkt. 135).)

Rezende maintains that hearsay evidence is not admissible on a motion for case-

dispositive sanctions, as, in his view, such a motion is akin to a motion for summary judgment,

and thus must be subject to the same evidentiary constraints. (See 2/14/11 Rezende Mem.)

CSN, for its part, contends that, by not explicitly objecting to the exhibits submitted with CSN’s

written motion, Rezende waived any hearsay objections. (See 2/14/11 Carlinsky Ltr. at 2-3.)

Alternatively, CSN argues that the Court need not be bound by the Federal Rules of Evidence on

a sanctions motion, or, if the Court determines that it is so bound, that the evidence in question

54


should be found admissible under Rule 807, the so-called “residual exception” to the hearsay

rule.33 (Id. at 3-6.)

This Court does not accept Rezende’s argument that a sanctions motion – even a case-

dispositive one – should be viewed as equivalent to a summary judgment motion, as the

purposes of summary judgment and sanctions motions, and their governing standards, are

analytically distinct. (See supra at Sections I(B), II(C).) Nonetheless, the fact that a fraud on the

court must be established by clear and convincing evidence, and the further fact that courts must

be cautious in imposing the extreme sanction of dismissal, militate in favor of this Court’s

disregarding any evidence put forward by CSN that does not, at a minimum, bear substantial

indicia of reliability. See Sentis Group, Inc. v. Shell Oil Co., 559 F.3d 888, 901 (8th Cir. 2009)

(holding that, “[w]hile the Federal Rules of Evidence do not necessarily apply in the context of a

motion for sanctions, evidence relied upon must, at a minimum, bear indicia of reliability,”

33 Rule 807 provides:

A statement not specifically covered by Rule 803 or 804[regarding hearsay exceptions] but having equivalentcircumstantial guarantees of trustworthiness, is not excluded by thehearsay rule, if the court determines that (A) the statement isoffered as evidence of a material fact; (B) the statement is moreprobative on the point for which it is offered than any otherevidence which the proponent can procure through reasonableefforts; and (C) the general purposes of these rules and theinterests of justice will best be served by admission of thestatement into evidence. However, a statement may not beadmitted under this exception unless the proponent of it makesknown to the adverse party sufficiently in advance of the trial orhearing to provide the adverse party with a fair opportunity toprepare to meet it, the proponent’s intention to offer the statementand the particulars of it, including the name and address of thedeclarant.

Fed. R. Evid. 807.

55


especially when the requested sanction “is the draconian sanction of dismissal with prejudice”

(citations omitted)); see also Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of

Am. Sec., LLC, 685 F. Supp. 2d 456, 481 n.108 (S.D.N.Y. 2010) (considering, on a sanctions

motion, only those portions of hearsay attorney declaration that were substantiated by

documentary evidence).

Indeed, the due process concerns inherent in a case-dispositive sanctions motion suggest

that the better course, on this motion, would be for the Court to disregard hearsay evidence,

where such evidence would not be admissible under the Federal Rules of Evidence. See Eastern

Fin. Corp. v. JSC Alchevsk Iron & Steel Works, 258 F.R.D. 76, 84 n.10 (S.D.N.Y. 2008)

(concluding that the Court “cannot consider” hearsay on motion to set aside judgment based

upon alleged fraud on the Court). Further, given the seriousness of the potential sanctions at

issue, the Court declines to find that Rezende has waived his right to assert hearsay objections to

CSN’s evidence. Not only is it unclear from the record whether Rezende actually intended to

waive his objections (see Rezende Sanctions Opp. at 13 (arguing that “unsworn hearsay

testimony” could not be deemed “clear and convincing evidence” of fraud)), but a party’s failure

to object does not, in any event, obligate the Court, as fact-finder, to consider evidence that it

deems insufficiently reliable, cf. Smith v. Islamic Emirate of Afg., 262 F. Supp. 2d 217 (S.D.N.Y.

2003) (Baer, J.) (declining to consider hearsay evidence in a damages inquest, even though

defendants had made no hearsay objection).

D. This Court’s Findings

CSN claims to have presented a “mountain of evidence” that demonstrates that Karsten

never existed, that Rezende himself wrote the so-called “Swiss Letter,” and that, when pressed to

authenticate the letter, Rezende proceeded both to fabricate documents supporting Karsten’s

56


supposed existence and to set up the false physical trappings of Karsten’s supposed legitimacy.

(See Hrg. Tr. at 10.) Even if portions of CSN’s case are based on hearsay that should be

disregarded, many of the facts CSN asserts are, at this point, undisputed.

For example, Rezende now admits that he authored the Swiss Letter and that no Swiss

attorney ever investigated the matters stated in the letter. It is also undisputed that no attorney

named Franz Karsten is listed on any relevant Swiss registry, and that no law firm by the name

shown on the letterhead of the Swiss Letter is licensed to practice law anywhere in Switzerland.

It is further undisputed that Karsten’s supposed post office box number was set up the day before

the date on the Swiss letter, and that his supposed e-mail address and rented conference room

space were obtained only after CSN started investigating that letter’s provenance. It is also

undisputed that the Brazilian notary who supposedly notarized the Karsten Affidavit (initially

submitted by Rezende’s counsel to the Court to try to put the question of Karsten’s existence to

rest) reported to both parties that she had no record of Karsten ever appearing before her.34 It is

also undisputed that, after Rezende’s counsel asked that Karsten provide her with some form of

identification, counsel received in the mail a copy of what appeared to be a driver’s license

bearing Karsten’s name, which was a fake document, bearing several numbers that were only

minimally different from the numbers on Rezende’s own driver’s license. It is also undisputed

that no individual identifying himself as Karsten has ever made himself available to meet with

CSN’s counsel, to appear at a deposition, or to address this Court.

34 While Rezende now suggests that perhaps the notary was bribed by CSN to say thatshe had no such records, Rezende, through counsel, has conceded that the authenticity of theaffidavit could not be confirmed.

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The purpose of the evidentiary hearing held by the Court was for the Court to assess

Rezende’s credibility, to the extent he has continued to deny that he invented Karsten from

whole cloth and that he deliberately submitted a string of false documents and information to the

Court to mislead it on this subject. Before commenting on Rezende’s credibility, however, the

Court notes that it found his former counsel, Patterson, to be entirely credible on the stand. At

the hearing, Patterson described having had lengthy conversations on the phone with a person

who held himself out as Karsten, and she remarked that, if the man she spoke with was not

Karsten, then he was “incredible actor or story teller or liar.” (Hrg. Tr. at 253; see also Patterson

Dep. at 332 (“If the person I spoke to is not a Swiss lawyer named Franz Karsten, he is one of

the finest writers and actors I’ve ever come across.”).) She also testified to her perception that

the man with whom she was speaking, on those occasions, was not Rezende himself, pretending

to be Karsten. (See Hrg. Tr. at 228 (testifying that the man did not sound like Rezende).) In

addition, Patterson credibly testified that she spoke on more than one occasion with a woman

who held herself out as Karsten’s assistant. (Hrg. Tr. at 228-29.) The Court thus accepts that a

man who was willing to identify himself as Karsten, as well as a woman who was willing to

identify herself as Heinz, spoke to Patterson. Who they actually were, however, is a good

question.

The Court finds two scenarios equally plausible: first, that Rezende signed the Swiss

letter himself in the name of a fictitious person, and then asked people he knew to play the roles

of Karsten and his assistant, or, second, that there really was a person, whether actually named

Karsten or not (and whether an actual attorney or not), with whom Rezende collaborated at the

beginning of this episode in the case. In the second scenario, Rezende may, as he testified, have

known a person who was “extremely private” (Hrg. Tr. at 40) and who had assisted Rezende’s

58


father with some sort of regulatory work; Rezende may, as he claimed, have run into this person

after his father’s death; and he may have asked this person for a favor35 (and/or offered to pay

him) to assist Rezende in sending a letter about CSN to the Brazilian authorities that, rather than

appearing to be from Rezende, would appear to be from a law firm representing the

“shareholders . . . and representatives” of IIF.36 Playing out this scenario, though, it is not

plausible that Rezende would have believed this individual to be a bona fide attorney. Rather,

Rezende would unquestionably have known that this “extremely private” individual, in agreeing

to “put[] on his letterhead” a letter that he did not write, containing serious criminal allegations

that he did not investigate (although the letter said he did), could not have been anything other

than unscrupulous. Thus, either way – whether Rezende authored the letter for his own signature

or for the signature of someone called Karsten – Rezende had to have known that the letter itself

lacked legitimacy.

Furthermore, even if the Court were to credit Rezende’s testimony that there was an

individual he called “Karsten” who initially assisted him with the Swiss Letter, but then refused

to cooperate to satisfy CSN’s inquiries (see, e.g., Rezende 1/28/11 Decl. at ¶ 8 (“[Karsten] has

refused to provide me with a copy of his passport, to give a deposition, or to cooperate in any

other way with my efforts to prove that he is a real person”); see also id. at ¶ 22 (“once my

American lawyers began probing him about what he does and who he is, he ‘ran to the hills’ and

35 See Hearing Tr. at 244 (Patterson testifying that Karsten told her that “the initial letterhad been done as a favor to [Rezende] because of [Karsten’s] past relationship withMr. Rezende’s father”).

36 While Rezende testified that he was the sole owner of IIF, he also conceded at thehearing that, in drafting the Swiss Letter, he used the plural words “shareholders” and“representatives” throughout. (See Hrg. Tr. at 118-19.) His explanation that the letter onlyappeared to read in the plural because it was in Portuguese (see id.) was not credible.

59


cut off all communications with me and them”)), this would be of little help to Rezende on the

core question of whether he (Rezende) deliberately placed false evidence and information before

the Court. If the Court were to accept Rezende’s representations that Karsten existed, but that,

given the secretive, sensitive, and potentially illegal nature of his work, he wanted to avoid

becoming embroiled in this litigation or even contacted by anyone connected to this case,37 it

would still be entirely plausible that, left on his own to try to satisfy CSN’s and the Court’s

demands for information about Karsten, Rezende would have invented such information. It is

simply not plausible that Karsten, if he existed, would himself have supplied a falsified affidavit,

when he could, more easily, have provided a genuine one; nor is it plausible that Karsten would

have created a false driver’s license bearing his name, when it would have been simpler for him

to copy his actual license or passport.

Overall, the Court cannot credit Rezende’s testimony regarding his supposed lack of

involvement in placing false evidence and information before the Court. Certainly, the Court

finds incredible his testimony that CSN must have somehow injected itself in the middle of all

this, and either threatened Karsten or bribed him to create false documents – all so as to frame

Rezende. Apart from Rezende’s ranting accusations in this regard (see Rezende 1/28/11 Decl. at

7, 10, 45), there is not a shred of evidence in the record that anyone associated with CSN had any

role whatsoever in creating the false Karsten Affidavit, the false Karsten driver’s license, or any

of the other documents or information now challenged by CSN in this proceeding. Nor is there

any evidence that anyone from CSN interfered with, for example, Peter’s investigation as to how

37 See Rezende 1/28/11 Decl. at ¶ 10 (asking the Court “to consider the fact that Karstenhas turned against me because he does not want to be under the scrutiny of a United States Courtdue to his involvement in setting up tax havens that may violate US law”).

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and when Karsten’s supposed post office box was opened. On the other hand, Rezende has

admitted that the copy of his driver’s license that Peter obtained through that investigation was,

in fact, his own driver’s license, and has offered no credible explanation as to how anyone from

CSN could have obtained access to it.38 Rezende could also give no credible explanation as to

why the fake Karsten license that was supposedly provided to his counsel by Karsten was so

similar, in so many respects, to his own.

Thus, whether Rezende did, or did not, initially obtain the assistance of someone called

Karsten is ultimately of no moment. The credible evidence shows – clearly and convincingly –

that, at least by the time CSN started probing for more information about Karsten, Rezende

began manufacturing evidence about him, in an apparent effort to persuade the Court that, by

questioning the authenticity of the Swiss Letter, CSN was barking up the wrong tree.

Specifically, the Court finds, by clear and convincing evidence:

1. that Rezende produced the Swiss Letter to CSN in discovery, with knowledge thatthe document was not actually authored, as it appeared, by a legitimate Swissattorney, with a legitimate Swiss law firm;

2. that the Karsten Affidavit was submitted by Rezende, to the Court, for thepurpose of trying to end CSN’s inquiry into the authenticity of the Swiss Letter,and with Rezende’s knowledge that the affidavit was either fabricated or, at aminimum, intended to mislead the Court as to Karsten’s legitimacy;

3. that the Swiss post office box referred to in the Swiss Letter was obtained eitherby Rezende or with his knowledge, for the purpose of furthering the deception ofthe Swiss Letter;

4. that Karsten’s rented office space in Switzerland, as well as his law firm e-mailaddress were all set up, either by Rezende himself or with his knowledge, afterCSN started investigating the Swiss Letter, and for the purpose of persuading

38 While Rezende testified that a good deal of information regarding Brazilian drivers’licenses is available online, he essentially conceded at the hearing that not all of the informationon the licenses could be accessed that way. (See Hrg. Tr. at 192-94.)

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CSN and the Court that Karsten had a legitimate Swiss law practice, whichRezende knew he did not;

5. that the Karsten driver’s license was fabricated, that it was modeled on Rezende’sown license, and that, while Rezende did not submit the fake Karsten driver’slicense to the Court, he provided it to his then-counsel, with knowledge of itsfalsity, for the purpose of submitting it to the Court;

6. that, in these proceedings, Rezende has made numerous statements under oath orunder penalty of perjury that were knowingly false when made, including at leastthe following:

• “The circumstantial evidence of my alleged involvement in securing anaddress, phone number, and email address for Karsten is a mystery to me. It is possible that Karsten used my identity. It is possible that CSN orsomeone under its control fabricated the alleged evidence. I, however,had nothing to do with any of this alleged improper conduct.” (Rezende1/28/11 Decl., ¶ 16.)

• “I did not have any role in the opening of the Swiss box, no.” (Hrg. Tr. at102)

• “I had nothing to do with any alleged falsification of the Karstenaffidavit.” (Rezende 1/28/11 Decl., ¶ 46.)

• “CSN’s motion papers . . . claim that Karsten’s driver’s license is not real. I have no explanation for this. If anyone fabricated the driver’s license, itwas Karsten and not me. I never saw his driver’s license before it recentlysurfaced in this case.” (Rezende 1/28/11 Decl., ¶ 50.)

Given the speculative and hearsay character of some of the evidence proffered by CSN,

this Court cannot find by clear and convincing evidence that no individual called “Karsten” ever

existed, that Rezende made no payment by wire transfer to such an individual, or that such an

individual did not actually have a Swiss “Skype” telephone number or a residence in Brazil. The

Court notes, however, that serious questions have been raised by CSN about each of these

additional points, and the Court finds nothing about Rezende’s narrative account of the relevant

events to be particularly persuasive. The Court further notes that internal inconsistencies in

Rezende’s testimony generally render his testimony less than credible. While CSN highlighted a

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number of such inconsistencies at the evidentiary hearing (see 1/28/11 Tr. at 42-43, 48-49,

165-66, 329), the Court found it particularly striking that, at that hearing, Rezende completely

disavowed the account in his declaration regarding the meeting in Brazil at which he purportedly

sat down with Karsten and prevailed upon him to sign, and to send to Brazilian authorities, a

letter that Rezende would write. (Compare 1/28/10 Rezende Decl. at ¶ 28 (after first running

into Karsten in Brazil in August 2010, “I then arranged a meeting with him a few weeks later at a

restaurant in Brazil at which I asked him if he could help me in my dispute with CSN by sending

a letter that I would write to the Brazilian authorities about CSN, which he agreed to do”) with

Hrg. Tr. at 61-63 (testifying that the second meeting at a restaurant never happened, and that this

account was just “wrong”).)

Finally, the Court notes that the so-called “withdrawal” by Reavis of the Karsten

Affidavit does little to mitigate Rezende’s pattern of misconduct, given that Rezende concedes

that he would not have withdrawn the letter but for his former counsel’s insistence, and that he

did so “reluctant[ly].” (Rezende1/28/11 Decl. at ¶ 11.) In fact, in his opposition to CSN’s

sanctions motion, Rezende seems to suggest that the Court should consider that affidavit after

all, positing – without any support – that the notary was bribed by CSN to deny that Karsten

came before her. (See Rezende 1/28/11 Decl. at ¶ 8 (“Karsten is the one who prepared the

affidavit and had it notarized”); ¶ 45 (“I have no explanation for the notary’s statement except to

note that Brazil has a long history of problems with its notaries, a number of whom have been

bribed or somehow convinced to make false statements about documents. It is possible that

CSN used its power in Brazil to intimidate or coerce the notary to pretend that Karsten never

appeared before her to get his affidavit notarized.”).) Rezende should not have submitted a

fabricated affidavit in the first instance, to try to legitimize the illegitimate Swiss Letter, and,

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after withdrawing that affidavit from the Court’s consideration because of its apparent lack of

authenticity, he certainly should not be continuing to maintain that it is authentic. See Jung,

2009 U.S. Dist. LEXIS 126950, at *58 (criticizing plaintiff, where, even after defendants

discovered that evidence had been fabricated and sought sanctions, plaintiff, rather than

“acced[ing] to the obvious,” attempted to maintain his position that the evidence in question was

authentic, by soliciting and submitting a further affidavit that he should have known was false).

E. Appropriate Sanctions

Rezende’s conduct, as described above, warrants sanction. See Jung, 2009 U.S. Dist.

LEXIS 126950, at *62-63 (summarizing false evidence and statements made to the court that

plaintiff knew or should have known were false, and concluding that such conduct was “clearly

sanctionable”). The question remains, however, whether case-dispositive sanctions would be

appropriate.

The five factors set out above (see supra at Section II(C)(1)), largely, but do not entirely,

weigh in favor of the sanction of dismissal. It is evident to this Court that Rezende’s conduct

over the “Karsten” matter has been the product of intentional bad faith. It is also apparent that

Rezende has displayed a “pattern of misbehavior,” given that he has steadily – indeed,

relentlessly – been submitting a stream of false evidence to CSN, to the Court, or to his own

counsel (for the intended purpose of submission to CSN or the Court) for at least the last three

months. The misconduct has also not been adequately corrected, and, given that Rezende has

now given false testimony about the Swiss Letter by deposition, by declaration, and on the stand

before the Court, his misconduct seems likely to continue at the same unabated pace in the

future, with respect to any further inquiry by CSN into the “Karsten” matter.

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It is less evident, though, that CSN has been seriously prejudiced by Rezende’s conduct.

Certainly, CSN has gone to great expense to ferret out the details of Rezende’s fraud, but this is

a matter of money, which can be addressed by an award of attorneys’ fees and costs to reimburse

CSN for its investigation. What CSN has not shown is that it has been prejudiced in its ability to

defend itself against Rezende’s claims in this case, or to prosecute its own cross-claims, given

that the Swiss Letter is not central to either. To the contrary, the letter was written well after the

events that gave rise to the parties’ claims, and does nothing to establish IIF’s ownership. In

fact, the entire “Karsten” affair – i.e., the efforts by Rezende to authenticate the Swiss Letter, and

the efforts by CSN to prove that document inauthentic – is collateral to this case.39

As noted above, a finding that a party has committed perjury is not, in itself, sufficient to

justify dismissal as a sanction for a “fraud on the court.” Rather, the wrongdoer’s scheme must

be calculated to interfere with the court’s ability to adjudicate a claim or defense fairly, and the

subject of any false statement must be “central to the truth-finding process.” Passlogix, 708

F. Supp. 2d at 393. Here, while the Court finds that Rezende engaged in a scheme of deceit,

directed to both CSN and the Court, all of his conduct in this regard has related to a single

collateral matter: his effort to make it appear that a person who purportedly authored a

39 CSN has not argued that the Swiss Letter, or any of the information about Karsten, isactually relevant to any of the claims or defenses raised in this action. Rather, CSN tries toargue that the Swiss Letter was critical to the integrity of these proceedings because, in CSN’sview, Rezende used it as a threat against CSN, to try to extort a more favorable settlement. (CSN Sanctions Mem. at 3-5.) Regardless of whether this could render the document “central tothe truth-finding process” (and the Court has doubts that it could), the Court does not find, byclear and convincing evidence, that Rezende’s purpose in producing the letter was to threatenCSN. In producing the letter, Patterson told CSN’s counsel that, to her understanding, it hadalready been sent to the letter’s addressees. (See Patterson Dep. at 18-19; see also Hrg. Tr. at252.) Patterson further testified that, although Rezende appeared to her to be angry at CSN (seePatterson Dep. at 67), she was unaware of “any threat or extortion or intimidation intended by”the Swiss Letter (Hrg. Tr. at 252).

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document that, itself, is not central to this case (and is perhaps even irrelevant to the claims and

defenses asserted in this case) was a real person, a legitimate attorney, and the actual author of

the document in question. Although his credibility has unquestionably been tarnished,

Rezende’s current pattern of conduct this does not necessarily mean that he has lied, or will lie,

about matters central to the parties’ underlying claims. Nor does it mean that CSN will be

unable to receive a fair trial on those claims.

Under the circumstances, I do not recommend the extraordinary sanction of dismissal of

Rezende’s claims and judgment in CSN’s favor, as a consequence for Rezende’s fraud. See

Jung, 2009 U.S. Dist. LEXIS 126950, at *68-73 (concluding that, despite clear and convincing

evidence that plaintiff made false statements and submitted false evidence to the court, a lesser

sanction than dismissal was warranted). In lieu of such sanctions, I recommend that:

1. CSN be awarded the full amount of the attorneys’ fees, deposition

costs, investigator fees, and any other fees and expenses it incurred (a) in

investigating the provenance of the Swiss Letter and the existence/legitimacy of

Karsten, and (b) in making its sanctions motion, including preparing for and

participating in the Court’s evidentiary hearing; and

2. at the close of the trial in this action, the trial court give the jury

the following charge, in words or substance: “There has been a prior finding by

the Court that Lauro Rezende, who testified at this trial, deliberately lied under

oath at a previous proceeding. I must warn you that the testimony of any witness

who did previously and deliberately lie under oath should be viewed cautiously

and weighed with great care. It is, however, for you to decide how much of his

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testimony, if any, you wish to believe.” See 4 Leonard B. Sand, et al., Modern

Federal Jury Instructions – Civil, § 76-8 (2009).

These measures should be sufficient to sanction Rezende for his serious misconduct, and should

eliminate any actual prejudice to CSN resulting from Rezende’s introduction of false evidence in

this case.

III. REZENDE’S CROSS-MOTION FOR SANCTIONS

By way of cross-motion, Rezende argues that case-dispositive sanctions should be

granted in his favor, based on CSN’s purported falsification of the “Subscriber’s Resignation

Letter” produced by CSN in discovery. (See Rezende Sanctions Opp. at 20-23.) CSN, in

opposition, argues that the cross-motion is procedurally flawed because it fails to comply with

Judge Baer’s Individual Practices, which require a party filing a sanctions motion to contact

Chambers prior to filing the motion in order to, among other things, apprise the Court of the

nature of the motion and to propose a briefing schedule. (See CSN Sanctions Reply at 14-15;

Individual Practices of Judge Harold Baer, Jr. at § 5(A).) According to CSN, Rezende did not

follow these rules, and also failed to inform the Court of its intent to file a motion during a Court

conference specifically addressing the briefing schedule for sanctions motions in this matter.

(See CSN Sanctions Reply at 15 and n.12.)

This Court was not involved in the scheduling conference referenced by CSN. Further,

this Court prefers to leave to Judge Baer the interpretation and enforcement of his own

Individual Practices. Nonetheless, this Court notes that, regardless of whether the cross-motion

should be allowed as a procedural matter, Rezende cannot, in any event, prevail on the merits of

his arguments, for the following reasons.

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A. CSN’s Alleged Misconduct

In support of his cross-motion, Rezende argues that the Subscriber’s Resignation Letter

“is central to this case,” but that CSN failed to attach a “true” copy of the document to its

summary judgment motion papers. (Id. at 21.) Rezende states that CSN instead “attached [to its

papers] a forged Subscriber’s Resignation Letter in which Rezende’s name was deleted, the

signature of Morgan & Morgan’s representative was cut and pasted from the true original,

Rezende’s signature was deleted, and the signature of Alve[s] was affixed.” (Id.)

In support of his assertion that CSN deliberately falsified the version of this document

that appears to bear Alves’s signature, Rezende has submitted, as noted above, a declaration of a

forensics expert. (See supra at Section I(A)(3)(a)(iii); see also Speckin Decl.) In that

declaration, the expert states his opinion that the document produced by CSN is “not genuine,”

but rather is a “classic ‘white out’ job where someone’s genuine signature is ‘whited out’ and

then someone else signs the document in place of the genuine signature. (Speckin Decl. at ¶ 5.)

Attached as Exhibit A to the expert’s declaration is a full copy of his expert report, as apparently

provided to CSN under Rule 26(a)(2)(B) of the Federal Rules of Civil Procedure. In that report,

the expert states the following about the document in question:

It is clear that [the version of the Subscriber’s Resignation Letterbearing Alves’s signature] was created from [the version of thesame letter bearing Rezende’s signature] by use of a photocopyingprocess. It is further my opinion based on the evidence detailedabove that more likely than not, the original beneficiary signaturefrom [the document signed by Rezende] was ‘whited out’ in thisprocess and a new signature placed on [the document signed byAlves].

(Speckin Decl., Ex. A (Letter to Ira N. Glauber, Esq., from Erich J. Speckin, dated Dec. 24,

2010, at p. 3).)

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Despite Rezende’s characterizations, his expert does not state that the CSN document

was “forged,” or that any part of it was “cut and pasted.” Moreover, despite the expert’s

suggestion that Rezende’s signature was “whited out,” Rezende has not shown, based on his

expert’s report, that fraud sanctions are warranted against CSN.

B. Sufficiency of the Evidence of Fraud

As discussed above, a party seeking sanctions for a fraud on the court must demonstrate,

by clear and convincing evidence, that such a fraud was committed. As Rezende

acknowledges – and, in fact, stresses in the portion of his memorandum addressed to CSN’s

sanctions motion – a fraud on the court is generally found where a party has engaged in a scheme

and pattern of conduct that involves not only a central issue in the litigation, but the party’s

“repeated[]” lies to his adversary and the court. (Rezende Sanctions Opp. at 14 (quoting

Passlogix, 708 F. Supp. 2d at 393).) Here, there is a real question as to whether CSN could be

found to have engaged in “repeated” misconduct, given the single document at issue. Yet, even

if that document were, as Rezende maintains, “central” enough to these proceedings to warrant

sanctions, Rezende has not shown, by clear and convincing evidence, that the document was

deliberately falsified.

When read closely, Rezende’s expert report merely concludes that, in the expert’s

opinion, it is “more likely than not” that a representative of CSN “whited out” Rezende’s

signature and replaced it with his own. (Speckin Decl., Ex. A, at p. 3 (emphasis added).) While,

if credited, this would be sufficient to meet a “preponderance of the evidence” standard, the

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expert’s opinion, on its face, is insufficient to meet the “clear and convincing” standard

necessary to establish fraud.40

As Rezende has not satisfied his burden of demonstrating, by clear and convincing

evidence, that CSN has committed a fraud on the court, I recommend that his cross-motion for

sanctions be denied.

CONCLUSION

For the foregoing reasons, I respectfully recommend that the Court deny CSN’s motion

for summary judgment (Dkt. 95). I further recommend that the Court grant CSN’s motion for

sanctions (Dkt. 111), but that the Court impose the sanctions described above in lieu of the case-

dispositive sanctions sought by CSN. Finally, I recommend that the Court deny Rezende’s

cross-motion for sanctions (Dkt. 130).

Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil

Procedure, the parties shall have fourteen (14) days from service of this Report to file written

objections. See also Fed. R. Civ. P. 6. Such objections, and any responses to objections, shall be

filed with the Clerk of Court, with courtesy copies delivered to the chambers of the Honorable

Harold Baer, Jr., United States Courthouse, 500 Pearl Street, Room 1310, New York, New York

10007, and to the chambers of the undersigned, United States Courthouse, 500 Pearl Street,

Room 525, New York, New York 10007. Any requests for an extension of time for filing

objections must be directed to Judge Baer. FAILURE TO FILE OBJECTIONS WITHIN

40 While Rezende’s expert states that it is “clear” that CSN’s document was “created byuse of a photocopying process” (Specking Decl., Ex. A, at p. 3), this is also not sufficient toestablish fraud by “clear and convincing evidence,” especially in light of the fact that CSN hasoffered evidence that Rezende may have stolen the original IIF formation documents from theCSN library (see CSN 56.1 Stmt. at ¶¶ 33-38, 59-68), and, thus, in the absence of an originaldocument, Alves might have legitimately signed a photocopy of the document in question.

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FOURTEEN ( 14) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL

PRECLUDE APPELLATE REVIEW. See Thomas v. Arn, 474 U.S. 140, 155 (1985); IUE AFL

CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1054 (2d Cir. 1993); Frank v. Johnson, 968 F.2d

298,300 (2d Cir. 1992); Wesolekv. Canadair Ltd., 838 F.2d 55,58 (2d Cir. 1988); McCarthy v.

Manson, 714 F.2d 234, 237-38 (2d Cir. 1983).

Dated: New York, New York March 11,2011

Respectfully Submitted,

DEBRA FREEMAN United States Magistrate Judge

Copies to:

Hon. Harold Baer, U.S.DJ.

All counsel (via e-mail and ECF)

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