Richard Lerner, left, and Frederick Oberlander. (Rick Kopstein)
Several law firms are again being sued alongside real estate development firm Bayrock and its associates in a lawsuit alleging a series of state tax frauds, according to a newly unsealed lawsuit in Manhattan Supreme Court.
The attorneys who filed the state court case, solo practitioners Frederick Oberlander and Richard Lerner, were co-counsel on a similar suit filed six years ago in federal court and in the meantime have faced intense scrutiny by federal court judges, including one who referred them to authorities for a criminal contempt investigation.
For the state court case, unsealed last week, the attorneys said they might add Donald Trump, who worked with Bayrock on real estate deals, as a defendant in an amended complaint.
Lerner and Oberlander said Trump is a “material witness” and since the state court case complaint was first filed, “new, relevant Trump and Bayrock information has surfaced … which, in our opinion, may have changed that calculus sufficiently to require inclusion of Mr. Trump as a defendant.”
The state court lawsuit prompted criticism from the attorney representing ex-Bayrock executive Felix Sater. Sater is a defendant in the unsealed case and the case filed six years ago in federal court.
Sater’s attorney, Robert S. Wolf, a partner with Moses & Singer, said in an emailed statement that “the only fraud being committed is by Oberlander and Lerner with these bogus and baseless claims.”
The lawsuit in Manhattan Supreme Court, brought as a whistleblower action on behalf of the state of New York, was filed by Lerner and Oberlander last August on behalf of the “Bayrock Qui Tam Litigation Partnership.”
Lerner and Oberlander said clients who make up that partnership want to remain anonymous. But at least one partner is known: Oberlander’s complaint states his own law office is part of the partnership.
“My firm is a stakeholder in the litigation entity formed for this case,” Oberlander confirmed to the Law Journal.
The case, The People of the State of New York ex rel. the Bayrock Litigation Partnership v. Bayrock, 101478/2015, is being prosecuted under New York’s qui tam law. The attorney general declined to intervene in December 2015.
Acting Manhattan Supreme Court Justice James d’Auguste ordered the case unsealed and it was made public last week.
The lawsuit names 21 defendants, including law firms Kramer Levin Naftalis & Frankel; Akerman; Nixon Peabody; Duval & Stachenfeld and Roberts & Holland.
Other defendants include Bayrock Group, affiliate companies and what the complaint calls its operators, Tevfik Arif, Julius Schwarz and Sater.
The lawsuit alleges knowing and fraudulent false statements of “certain defendants,” causing loss of revenue to the state and local governments by failing to account for $100 million of income and by failing to account for and pay a real estate transfer tax.
The lawsuit briefly describes several schemes. For instance, the lawsuit claims one scheme was carried out through a disguised sale of partnership interests. In late 2003, the lawsuit said, Arif and Sater caused Bayrock Group LLC to form Bayrock Ocean Club for the purpose of developing a Trump project in Fort Lauderdale. The lawsuit alleges that, after one investor bought 4 percent of the entity for $1 million, they caused the club to “lend” the money to its parent company, Bayrock Group.
The suit said this resulted in Bayrock Group’s evasion of reporting a $920,000 gain on the disguised sale.
The suit claims Kramer Levin, Roberts & Holland and Duval & Stachenfeld facilitated alleged tax fraud by Sater, Schwarz and Arif.
However, the exact role of these firms and other defendants isn’t detailed in the complaint. Instead, it “incorporates” allegations in a lawsuit Oberlander filed in the Southern District of New York in May 2010.
The state court case makes similar allegations as the federal complaint, except it alleges state tax fraud in place of federal tax fraud.
The May 2010 federal court complaint, Kriss v. Bay Rock Group, 10-cv-3959, was filed by Oberlander on behalf of former Bayrock finance director Jody Kriss and developer Michael Ejekam, suing many of the same defendants that are in the state case.
In particular, Kriss and Ejekam initially sued in 2010 Bayrock, Arif, Schwarz, Sater, Akerman, Duval & Stachenfeld, Nixon Peabody and Roberts & Holland, among others.
But the 2010 federal complaint and its exhibits were immediately sealed because Oberlander attached confidential information from a 1998 guilty plea by Sater. That year, Sater pleaded guilty in the Eastern District of New York to a charge relating to a RICO violation arising out of securities fraud and money laundering at a brokerage firm.
Sater’s plea was under a cooperation agreement with the U.S. Attorney’s Office for the Eastern District. His entire criminal case was sealed for many years.
Although Oberlander’s May 2010 federal complaint was sealed, it was made public after it was filed in an Israeli court. A redacted version of the 2010 complaint was ultimately unsealed this May in the Southern District.
The May 2010 complaint appears to never have been served on the law firm defendants and most of them never made an appearance in federal court.
Oberlander and Lerner, now representing the anonymous whistleblowers in the state case, have faced intense scrutiny from federal judges and opposing counsel for litigation tactics in federal court while representing Kriss and Ejekam.
In 2012, Sater’s attorneys moved to have Oberlander and Lerner held in contempt for disclosing sealed information about Sater’s cooperation with the government. Eastern District Judge Brian Cogan referred the allegations to prosecutors to determine whether to pursue charges for criminal contempt.
Cogan again referred Sater’s allegations to hold Oberlander and Lerner in contempt to federal prosecutors in 2015. In both instances, the matter was sent to the U.S. Attorney’s Office in the Northern District, possibly due to a conflict in the Eastern District.
In an interview, Lerner said he doesn’t know the status of the investigation, although “it’s been apparently ongoing for five years now.” Lerner, who is representing himself in the matter, said neither he nor Oberlander have been interviewed by federal authorities.
In addition, Oberlander, Lerner and their clients have been accused of trying to extract money from the law firm defendants in the federal case.
Sater’s attorneys complained in a March 2015 letter to Southern District Judge Lorna Schofield that among the 19 defendants there, the plaintiffs’ “main target all along have been the ones with ‘deep pockets,’ including four law firms, namely, Nixon Peabody LLP, Roberts & Holland LLP, Duval & Stachenfeld LLP, and Akerman Senterfitt LLP, which had all done work for Bayrock.”
“Their scheme all along has been to threaten dissemination of Mr. Sater’s sealed (and stolen) documents as a means to extract a huge, multi-million dollar settlement from these defendants,” said Sater’s attorneys in March 2015.
In the same month, Schofield affirmed a magistrate judge’s recommendation to sanction the plaintiffs by striking every allegation that Bayrock claimed was obtained unlawfully through a former employee. “Plaintiffs have repeatedly and vexatiously defied the court’s orders,” Schofield said at the time.
Shortly after this decision and Bayrock’s request to pursue disqualification of Lerner and Oberlander in the federal suit, Kriss and Ejekam replaced them with new counsel, Bradley Simon.
Simon filed a third amended complaint in the federal suit, naming Roberts & Holland as the only law firm defendant. Bayrock, Sater, Arif and Schwarz also remain as defendants in the suit, which alleges that Bayrock constituted a RICO enterprise.
The defendants in the Southern District action have moved to dismiss this complaint.
Simon, on behalf of Kriss and Ejekam, voluntarily dismissed another action in Southern District against many of the same parties and others, including Trump, alleging fraud based on concealing Sater’s 1998 conviction.
Spokesmen for Kramer Levin and Duval & Stachenfeld declined to comment on the state court case, as did Roberts & Holland’s attorney, John Brewer, a partner at Storch Amini & Munves. Representatives for Akerman and Nixon Peabody did not return messages seeking comment.
Bayrock, in a statement, called the state court lawsuit baseless and unsubstantiated. “The tax treatment of the transactions at issue was determined to be appropriate by the Internal Revenue Service following an exhaustive review,” Bayrock added.
Walter Saurack, a partner at Satterlee Stephens Burke & Burke, represents Bayrock, Arif and Schwarz.
A spokeswoman for the Trump Organization said, “Mr. Trump has absolutely nothing to do with this matter.”
Wolf, Sater’s attorney, noted that other litigation brought by Oberlander and Lerner involving Sater has been dismissed.
“This Bayrock ‘tax fraud’ litigation is an old, identical retread of those dismissed cases,” Wolf said. “Oberlander and Lerner’s misconduct regarding these related and identical ‘Bayrock’ cases has been uniformly condemned” by federal judges and appeals courts.
Wolf added that Sater provided “extraordinary assistance” to the government during his cooperation, including “crucial intelligence information and assistance to numerous U.S. national security, intelligence and law enforcement agencies” about terrorist organizations.
Oberlander, when asked if the new suit recycles older claims from prior litigation, said, “The merits of the 2010 complaint were never reached or litigated.”