Attorneys representing leading antique watch expert Osvaldo Patrizzi are asking Manhattan Supreme Court Justice Shirley Kornreich (See Profile) to recuse herself from a lawsuit over a deal in which Patrizzi claims he was cheated out of his stake in his auction house.
The attorneys, Kerry Gotlib and Michael Haskel, filed their motion to recuse on Monday in AQ Asset Management v. Levine, 652367/10, saying that Kornreich’s rulings in the case so far created “not only the appearance, but the reality of partiality.”
They pointed to what they called disparate treatment of the two sides in the case. They also referred to an Appellate Division, First Department decision last year that reversed Kornreich on issues which the attorneys claim she refused to consider on reargument.
The complex dispute dates back to 2006, when a Japanese company, Artist House Inc., bought antique watch auction house Antiquorum SA and related entities for $30 million.
Antiquorum, based in Manhattan and Geneva, is a leading global watch auctioneer. Before the sale, it was owned partly by Patrizzi and by Habsburg Holdings Ltd., a company owned by Patrizzi’s partner, Simon Verhoeven. They were introduced to the Japanese buyers by an attorney named Evan Zimmerman.
Patrizzi and Habsburg were advised on the transaction by Michael Levine, a New York attorney, who ultimately drew up the stock purchase agreement. The agreement provided that Patrizzi would own half of the entity that acquired Antiquorum.
Separately, Patrizzi entered into an agreement under which he transferred half of his shares in the post-acquisition company to Zimmermann and agreed to share the proceeds of any of Antiquorum’s inventory with him and Levine.
Patrizzi claims that Zimmermann took advantage of his limited knowledge of English to get this agreement.
When the sale closed, Habsburg initially did not turn over all of its shares because some of them were frozen in connection with a criminal investigation in Switzerland. As a result, Levine, who acted as escrow agent for the sale, held some of the proceeds until those shares could be turned over. Most of the proceeds, however, were distributed according to the agreement.
Soon after the sale, Zimmermann and the buyer replaced all of Antiquorum’s board of directors and ousted Patrizzi. They claimed that most of the proceeds from the sale should have been paid not to Patrizzi and Habsburg, but to the Antiquorum entities that technically owned the shares, which Zimmermann and the Japanese buyer now controlled.
In 2010, AQ Asset Management LLC, an Antiquorum-related entity, sued Levine, in his capacity as escrow agent, to recover the money it claimed it was owed. Patrizzi and Habsburg also filed claims seeking to recover the sale proceeds and to enjoin Antiquorum from disbursing the proceeds from any of its inventory, among other relief.
Kornreich denied Patrizzi and Habsburg’s claims, but the First Department partly reversed, ordering Antiquorum to turn over about $3.4 million in proceeds from the sale (NYLJ, Oct. 8, 2013).
In court papers file Monday, Patrizzi and Habsburg’s attorneys argued that Kornreich had shown partiality to Antiquorum and Levine in several ways.
One of them involved $2 million in what they say were inventory sale proceeds—separate from the $3.4 million that were the subject of the First Department order—which were sent to Levine’s escrow account. Verhoeven asked for this money to be sent back to Antiquorum soon after it was sent to Levine, and later testified that he did this because the parties wanted to structure the transaction differently in a way that would avoid taxes in Switzerland.
Kornreich ruled in April 2013 that this was an attempt to defraud the Swiss government, and therefore Habsburg, could not make any claim on that money because of unclean hands.
However, Habsburg and Patrizzi’s attorneys said in the recusal motion that they had provided evidence that Levine had disbursed some of that money without authorization, which they said would be worse misconduct. Furthermore, they said, there had been no showing that their plan for avoiding taxes was fraudulent or illegal.
“The Court’s approach to the alleged illegality of the contract/unclean hands aspect of H/P’s conduct, its draconian punishment for H/P, and its imposing no consequences upon Plaintiffs and Levine for their more serious misconduct, underscores serious bias,” they wrote in the recusal motion.
They further pointed to Kornreich’s quick denial of a motion to reargue issues on which the First Department reversed her as evidence of her “unwillingness to hear argument from H/P even when H/P’s position is correct as a matter of law.”
They also pointed to language Kornreich used in court that they claimed showed bias.
For example, they quoted a transcript of a hearing on a motion for discovery on what happened to the escrow funds held by Levine in which the judge said, “There are issues here that are, as usual, frivolous and have made the record just unbearable.”
Gotlib and Haskel are solo practitioners. Gotlib declined to comment.
Zimmerman and Antiquorum are represented by Leo Kailas of Reitler, Kailas & Rosenblatt.
“I think it’s an unreasonable request,” Kailas said if the recusal motion. “Judge Kornreich has been eminently fair throughout this proceeding, and the lawyers and the other side have just run afoul of her by misstating facts and misstating positions.”
Levine, who represents himself, could not be reached for comment.