GUSINSKI v. GENGER

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ntainer

Moore's Federal Practice 3d Ed. § 21.02[4] (2007). Accord Wyndham Assoc., 398 F.2d at 619 ("There is a strong policy favoring the litigation of related claims in the same tribunal in order that pretrial discovery can be conducted more efficiently, duplicative litigation can be avoided, thereby saving time and expense for both parties and witnesses, and inconsistent results can be avoided.").

IV. DISCUSSION

A. Similarity of the Issues Presented

With respect to the first two factors, the claims set forth in the Amended Complaint and the Third-Party Complaint are "significantly different" so as to warrant a separate trial.

Lewis v. Triborough Bridge and Tunnel Auth., No. 97 Civ. 0607, 2000 WL 423517, at *2 (S.D.N.Y. Apr. 19, 2000) (noting that one of the factors in determining whether severance is appropriate is "whether the issues sought to be tried separately are significantly different from one another").

1. Factual Origins

Despite Genger's assertion that his third-party claims are based on "identical facts" as the underlying action, the pleadings indicate that they "arise out of separate incidents by separate actors." On the one hand, the Amended Complaint references only transactions conducted by companies within the umbrella of AG Holdings, and "solely involves actions Defendant took after he assumed management" of these entities." Gusinski alleges that, under Genger's direction, AG Holdings and its affiliates engaged in fraudulent conveyances amongst themselves in order to frustrate repayment of the Loan and to serve Genger's personal interests. On the other hand, the Third-Party Complaint "relates to actions taken by the Third-Party Defendants from 2001 to 2005 before Defendant assumed control and without Defendant's knowledge." Genger asserts that third-party defendants "funnel[ed] proceeds" from AG Holdings and its affiliates to outside entities, for reasons unknown and with the apparent effect of enriching Sharon.

Defendant's Memorandum of Law in Opposition to Plaintiff's Motion to Sever Defendant's Claims Against All Third-Party Defendants ("Def. Mem.") at 3.

Cestone, 2002 WL 424656, at * 3 (granting separate trials where planitiffs both brought claims alleging sexual harassment by defendant's employees, but did not work at the same location or with the same people). Accord In re Merrill Lynch, 214 F.R.D. at 156 (finding severance appropriate where "[t]here are two sets of defendants and two sets of claims").

Plaintiff's Memorandum of Law in Support of Plaintiff's Motion to Sever Defendant's Claims Against All Third-Party Defendants ("Pl. Mem.") at 6.

Id.

Ans. Third-Party Compl. ¶ 104.

Because the third-party claims involve different actors and refer to different transactions, severance will not result in duplicative litigation or impede the efficiency of pre-trial discovery. Rather, severance will "avoid the specter of exceedingly expensive and lengthy international discovery against third-parties" whose acts cannot offset the determination of whether defendant Genger is liable to plaintiff.

Pl. Mem. at 2.

2. Legal Issues

Genger argues that the allegations set forth in the Third-Party Complaint also constitute an affirmative defense to Gusinski's claims and must therefore be tried simultaneously. "An affirmative defense is defined as `a defendant's assertion raising new facts and arguments that, if true, will defeat the planitiff's or prosecution's claim, even if all allegations in the complaint are true.'" According to Genger:

My conclusion that the third-party claims are independent and distinct from the underlying action undermines Genger's argument in support of consolidation, which rests on his belief that "the Third-Party Complaint and the affirmative defense arise out of precisely the same transactions, raise identical issues of fact and similar legal issues as pleaded, and require proof from the same witnesses and documents." Def. Mem. at 6.

Saks v. Franklin Covey Co., 316 F.3d 337, 350 (2d Cir. 2003) (quoting Black's Law Dictionary 430 (7th ed. 1999)).

if proven, the affirmative defense would clearly affect, if not eliminate any [of his] personal liability. Had [Arie Genger] not effectuated the illegitimate and fraudulent transfers to Gilad Sharon, AG Properties would undoubtedly have been able to provide its parent AG Holdings with sufficient funds to make the 2008 payments to [Gusinski] that AG Holdings could not in fact make.

However, even assuming, arguendo, that Genger ultimately prevails on his third-party claims, only the amount or share of his obligation for the Loan — not the fact of his liability — would be affected.

Any fraud committed by third-party defendants is extrinsic to Gusinski's claim that Genger personally and intentionally depleted AG Holdings' assets to avoid repaying the Loan. As Gusinski points out,"[a] finding that Defendant engaged in a fraudulent transaction when he depleted AG Properties' interests in Riverside in 2006, for example, would not be defeated by a finding that in 2005, the Third-Party Defendants improperly siphoned money from AG Properties." Because Genger would be liable for his own culpable conduct, whether or not third-party defendants participated in efforts to frustrate the Loan, the third-party claims do not present an affirmative defense that must necessarily be considered in tandem with Gusinski's claims.

Plaintiff's Reply Memorandum of Law in Further Support of Plaintiff's Motion to Sever Defendant's Claims Against All Third-Party Defendants at 4.

To the contrary, the legal issues presented in the underlying claims for fraudulent conveyance and alter ego liability are distinct from those in the third-party claims for indemnification and contribution. Moreover, Gusinski seeks both legal and equitable relief, while Genger seeks only damages. Consolidation would only result in delay.

B. Settlement and Judicial Economy

Considerations of judicial economy also counsel in favor of severance. The possibility of settlement would be furthered by severing Genger's third-party claims. The Amended Complaint involves two private individuals who share "only a business relationship, [and] who have already agreed to take their dispute to a private mediator." Because the parties appear to prioritize professional efficiency and have already embraced the possibility of settlement, there is a reasonable likelihood that mediation may be successful. In contrast, the Third-Party Complaint "raise[s] personal and political issues by bringing in Arie Genger, [Genger's] father, and Gilad Sharon, the son of the former Prime Minister of Israel." Indeed, Genger admits that he and his father "have been estranged for years and are on opposite sides of a number of lawsuits." Settlement of the third-party claims will likely be hindered by emotional and political considerations outside the scope of the instant dispute.

Pl. Mem. at 6-7.

Id.

Def. Mem. at 2.

Judicial economy also favors severance because resolution of Gusinski's claim will "limit or streamline the remaining issues" raised by Genger. The Third-Party Complaint acknowledges that Genger will pursue his third-party indemnification and contribution claims only if he is found to be liable. Genger can escape liability on Gusinski's claims — and eliminate the need for his third-party claims — by demonstrating that he did not exercise control over the Company during the relevant time period or that the contested transactions were not fraudulent. Thus, unlike the majority of cases in which separate trials are granted, Genger's liability is not "derivative of the conduct and liability of another," but is in fact "a predicate for the imposition of liability" against third-party defendants. To this end, the Second Circuit has noted that severance is appropriate "where litigation of one issue may obviate the need to try another issue."

Lewis, 2000 WL 423517, at *4 (citation and quotation omitted). Accord United States v. Alcan Aluminum Corp., 990 F.2d 711 (2d Cir. 1993) ("Bifurcation . . . provide[s a] powerful legal tool [] which, by effectively isolating the issues to be resolved, avoid lengthy and perhaps needless litigation.").

Lewis, 2000 WL 423517, at *4 n. 2.

Vichare v. AMBAC Inc., 106 F.3d 457, 466 (2d Cir. 1996) (quotation and citation omitted). Cf. Compania Embotelladra Del Pacifico, S.A. v. Pepsi Cola Co., 256 F.R.D. 131, 133 (S.D.N.Y. 2009) (rejecting severance where it "would do nothing to promote judicial economy, convenience, or fairness, but would instead render nugatory the substantial time, effort, and resources . . . already devoted to litigating the instant claims").

C. Prejudice to the Parties

Moreover, consolidation of the claims would prejudice Gusinski. Resolution of the third-party claims is not necessary for the adjudication of Gusinski's claims, and subjecting him to the expense and delay of international discovery is wasteful and unfair — particularly as Gusinski has already waited over a year to collect the judgment due on the Loan.

See, e.g., In re Merrill Lynch, 214 F.R.D. at 156 (granting severance and noting that "[d]iscovery burdens and associated expenses would operate expansively absent a severance").

Moreover, the transactions underlying the alleged fraud in both the Amended Complaint and the Third-Party Complaint are exceedingly complex, and likely to become conflated or confused by the jury. Consequently, consolidating the claims may increase Gusinski's burden of proof — instead of demonstrating that Genger engaged in improper conduct as the alter ego of AG Holdings, plaintiff will also have to effectively disprove Genger's claim that AG Holdings' default on the Loan is properly traceable to the actions of third-party defendants.

See, e.g., Monaghan v. SZS 33 Assocs., 827 F. Supp. 233, 245 (S.D.N.Y. 1993) ("A district court may order separate trials to prevent the factfinder from being exposed to evidence admitted for the purpose of addressing one claim that would contaminate his mind regarding a different claim.").

D. Evidentiary Proof

Finally, the claims do not depend upon the same evidentiary proof. The Amended Complaint seeks to prove that Genger improperly impeded payment of the Loan. Thus, on plaintiff's case, "the witnesses will be Plaintiff and Defendant," both of whom reside in the United States, and the "documentary evidence will relate solely to the fraudulent transfers effected by Defendant through the corporations he owns and controls." By contrast, the dispositive question in the Third-Party Complaint is whether Arie Genger and Sharon engaged in fraud. Trial of the third-party claims will require at least these foreign parties to appear as witnesses, and will depend on documentary evidence in possession of the foreign entities they directed.

See, e.g., Deajess Med. Imaging, P.C. v. Travelers Indem. Co., 222 F.R.D. 563, 564 (S.D.N.Y. 2004) (granting severance for claims relying on different evidence than the underlying action).

Pl. Mem. at 8.

V. CONCLUSION

For the foregoing reasons, Gusinski's motion to sever Genger's Third-Party Complaint is granted. The Clerk of the Court is directed to close this motion [Docket No. 10]. A conference is scheduled for December 15, 2010 at 4:30 p.m.

SO ORDERED:

Dated: New York, New York November 29, 2010