Amusement Industry, Inc. v. Stern
293 F.R.D. 420
S.D.N.Y.2013Background
- Amusement Industry, Inc. and Practical Finance Co. allege Stern and affiliated entities diverted $13 million from a Colonial Realty deal.
- Plaintiffs seek to compel disclosure of communications between Stern and his attorneys (BIR, Herrick, HSR) under the crime-fraud exception to privilege and work-product protection.
- Stern invoked the Fifth Amendment at deposition; court evaluates adverse inferences as part of privilege analysis.
- The court analyzes four alleged fraudulent schemes: financing from J.P. Morgan, financing from Citigroup, acquisition and use of Amusement’s $13 million, and financing from Petra.
- Evidence includes forged or suspicious documents, forged Safrin signatures, and emails connecting Stern and his attorneys to the transactions.
- Court grants the motion to compel to the extent that communications related to the four schemes are not privileged.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether crime-fraud exception applies to Stern's attorney communications | Crime-fraud applies; communications were in furtherance of fraud. | Privilege should protect communications; no permissible breach shown. | Yes; communications related to the four schemes are not privileged. |
| Whether the adverse inference from Stern's Fifth Amendment claims supports the crime-fraud finding | Fifth Amendment silence allows adverse inferences to support fraud claims. | No inference should be drawn against Stern beyond the record. | Yes; adverse inferences may be drawn to support the crime-fraud analysis. |
| Whether there is probable cause Stern committed wire fraud and conspiracy in obtaining financing from J.P. Morgan and Citigroup | Evidence shows false documents and intent to defraud; conspiracy supported. | Insufficient direct proof of fraud or conspiracy by Stern. | Yes; probable cause exists for wire fraud and conspiracy related to those financings. |
| Whether there is probable cause Stern forged Joshua Safrin's signatures on loan documents | forged signatures and related emails indicate fraud; probable cause shown. | Lack of direct knowledge of forgery by Stern. | Yes; probable cause exists for forgery. |
| Whether Stern's actions post-close (loss of Amusement funds, additional financings) show further fraud; and whether money laundering or Petra financing claims succeed | Additional misrepresentations and wire transfers indicate a broader scheme. | Some claims lack sufficient proof of concealment or laundering; Petra claims are contested. | Probable cause supports wire fraud related to Petra financing; money laundering shown insufficient evidence. |
Key Cases Cited
- In re Grand Jury Subpoenas Duces Tecum Dated Sept. 15, 1983, 731 F.2d 1032 (2d Cir.1984) (crime-fraud exception limited to communications in furtherance of fraud)
- Jacobs, 117 F.3d 82 (2d Cir.1997) (probable cause standard for crime-fraud requires reasonable basis to suspect fraud)
- In re John Doe, Inc., 13 F.3d 633 (2d Cir.1994) (testing that probable cause may rely on non-definitive evidence)
- Clark v. United States, 289 U.S. 1 (1933) (attorney may be innocent; client’s improper purpose triggers crime-fraud exception)
- Siembida, 604 F. Supp. 2d 589 (S.D.N.Y. 2008) (use of wires in fraud context; district court analysis of evidence)