UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA MIAMI DIVISION CASE NUMBER 09-CV KMW

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0 TRILOGY PROPERTIES, LLC, et al. vs. UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA MIAMI DIVISION CASE NUMBER 0-CV-0-KMW Plaintiffs SB HOTEL ASSOCIATES, LLC, et al. Defendants MOTION HEARING HELD -- BEFORE THE HONORABLE KATHLEEN M. WILLIAMS UNITED STATES DISTRICT COURT JUDGE APPEARANCES: FOR THE PLAINTIFFS: Beck & LEE JARED H. BECK, ESQ. ELIZABETH BECK, ESQ. SW th Avenue Miami, FL 0 FOR THE DEFENDANTS: REPORTED BY: RUSSOMANNO & BORELLO, ESQ. HERMAN RUSSOMANNO, ESQ. HERMAN RUSSOMANNO, III ESQ. 0 West Flagler Street. Miami, FL 0 PATRICIA SANDERS, RPR United States Court Reporter 00 North Miami Avenue, Suite - Miami, FL T: 0.. patricia_sanders@flsd.uscourts.gov.

0 0 THE COURTROOM DEPUTY: This Court calls Case No. 0-CV-0-CV-WMS, Trilogy Properties, LLC versus SB Hotel Associates, LLC, et al. Counsel, please state your appearances. MR. BECK: Good afternoon, Your Honor, Jared Beck on behalf of the plaintiffs. With me at counsel table is Elizabeth Lee Beck. THE COURT: Good afternoon, Mr. Beck; good afternoon Ms. Beck. MR. RUSSOMANNO: Good afternoon, Your Honor, Herman Russomanno, III with Herman Russomanno from the firm Russomanno and Borello on behalf of Donald Trump and the Trump Organization. THE COURT: Good afternoon, Mr. Russomanno. All right. I brought you in today because there are obviously several outstanding motions; motion for summary judgment pending resolution, but there was recently filed a motion to supplement the record, which I believe has been closed for sometime. And a motion for sanctions for failure to disclose insurance coverage. And so let me turn to counsel for defendants, Trump International and Mr. Trump. How did this happen? MR. RUSSOMANNO: Your Honor, in regard to the insurance disclosure, the Trump Defendants -- and we put it in our papers

0 0 up front and admit it -- should have been disclosed, and it was not. The Trump Defendants inadvertently did not produce it to the undersigned counsel. The very moment our law firm learned there was coverage under the Trilogy case we immediately produced it to plaintiffs' counsel the very same day. The first time that the inquiry even came up from our firm's perspective was Mr. Beck's e-mail exchange with our client and its general counsel. They were e-mailing each other regarding coverage. General counsel sent an e-mail regarding insurance; it was a surprise to our law firm that there would be coverage for this case. We inquired and learned that there was a policy, we demanded it be e-mailed to us, it was, and I immediately forwarded it to Mr. Beck. The issue is not whether or not it should have been produced; we admit it should have been produced Your Honor, but the fact is whether or not there's been prejudice. And we outline in our papers -- and we distinguish every single one of the cases that plaintiff has cited, and there are nine total, including the rules. They have cited no authority under which a party has been sanctioned with the ultimate sanction of default or dismissal.

0 0 THE COURT: Well, let's then put this in a little perspective -- I'm sorry, I am not looking at you, and I am not trying to be rude, I am trying to make this computer work. Let's assume that the default and dismissal is not really in the cards. And let's also assume I credit you, Mr. Russomanno, that when you found out you immediately advised opposing counsel. But we have a litigant of some sophistication who has had this case for sometime, and has not made this disclosure to his lawyers or opposing counsel. What kind of sanctions -- and that is what we will talk a little bit about today. But I think taking dismissal off the table, you will have to agree with me I cannot allow litigants to make those types of choices and let there be no consequences. Because, goodness, if I do that, especially with a litigant with the sophistication of this particular litigant, then I am just opening the Court up to all manner of mayhem and mischief, and I cannot have that. I also wish to address the reply, you made about sanctions not being appropriate. I am assuming, correct me if I'm wrong, in reading this that you are guaranteeing $,000,000 or the availability of $,000,000 should the case proceed to trial, and that that pleading is in essence your client's acknowledgement of the

0 0 availability of $,000,000. So let's say we go to trial and the jury awards. million dollars, there will be a check available that day from the Trump Defendants; is that correct? MR. RUSSOMANNO: That's correct. THE COURT: And Mr. Garten or someone in some position of authority, not a clerk -- and not to diminish the importance of a clerk -- but someone like that would sign a document in essence attesting to that, that is what we you are saying? Something such as, we are guarantors up to -- whatever language it wants to use. MR. RUSSOMANNO: That's correct; anyone that Your Honor would like to have sign a document from the Trump Organization or even Mr. Trump will sign it. Your Honor, Mr. Garten, so you know is not only general counsel, he is the vice president as well. So it is from someone who has a position of authority to make those representations. In regard to Your Honor's first question or comment, that you cannot let this happen, you are right, I agree with the Court. And that's why we scoured the case law, and credit the Beck and Lee Firm, they are just as good or better than our law firm in researching this issue. We looked at every case. Neither party has cited a case in which the ultimate sanction has been imposed. There is

0 0 only one case in which sanctions have been imposed, monetary sanctions, for the non disclosure of an insurance agreement -- there's two. The Government Benefits case was a case in which the Court said, please show cause -- and they didn't enter a monetary but said, please show cause why the filing of the motion should not be reimbursed. It's basically a motion to compel; which did not have to happen here because we gave it to them before they filed the motion. So then let's go to the one case the parties have looked at in great detail, which is the Ancanado (phonetic) case, which is the only case that either party has cited in which a Court has sanctioned a party for not disclosing an insurance disclosure agreement. And I would submit to Your Honor that that case is highly distinguishable in regards to the penalty that happened there. THE COURT: What was the penalty? MR. RUSSOMANNO: The penalty was a monetary penalty. I do not want to speak out of school; I think it was in the 0 to $0,000 penalty range. I would defer to the Becks to cite to that. And I have the case for Your Honor. The Ancanado case was very different. This is where a defendant failed to provide

0 0 its insurance company notice, so the insurance company never provided coverage. Therefore the defendant, knowing it did not have insurance, settled the case, and then told the plaintiff too bad, so sad, we don't have money. And there the plaintiff was not able to -- quote -- they were deprived of the opportunity to recover her judgment. And as Your Honor hit the nail on the head, Mr. Trump and Mr. Garten, or whoever it is from the Trump Organization, is assuring the Court and the plaintiffs -- I don't think the plaintiff disputes this -- any judgment in this amount, or settlement, shall be satisfied. We believe other than it being the only case relevant to these proceedings in regard to the sanctions that the case is highly distinguishable because there the plaintiffs were literally left holding the bag. Here that is certainly not the case. This case, I think it's a Middle District case, the Court felt compelled to sanction the parties because the parties were left with nothing. That certainly does not apply here. That is the only case that was found that is relevant to those proceedings. We would rest on our papers. Certainly Your Honor has the discretion to do what you wish; we agree with you. The worst case scenario was Ancanado, and our facts are nowhere near those facts. We would respectfully request if

0 0 Your Honor were to enter a monetary sanction that it be less than the Ancanado case in light of the circumstances that make it distinguishable from our case. Thank you. THE COURT: Thank you, Mr. Russomanno. Mr. Beck. MR. BECK: Yes, Your Honor, thank you. I want to start by speaking to the issue of prejudice. Because I think that's really the issue for the Court today. I think the prejudice is really extreme in this case. I tried to address this as best I could in the reply papers which we filed yesterday. I don't know if the Court has had a chance to read it. I think to understand the prejudice of this failure to disclose the insurance policy, it's important to go into somewhat of the background of the case. We believe this case could have been resolved in 0 and could have saved the Court and the parties a lot of time and effort because we had not one but two mediations. Our clients came down for two mediations. They were vigorous mediations. And without going into the specifics, the case was this close to being resolved. We had a mediation in 0 which was a hot and heavy mediation. I truly believe if we had known at that time that there was an insurance policy in the amount of $,000,000 that

0 0 the Trump Defendants had access to, we could have reached a resolution in this case. THE COURT: Let me ask you -- and I know you had the April th mediation with Mr. Lister and the February th mediation with Mr. Levine -- and I don't want to know any of the particulars obviously. But why would the fact of the insurance policy -- and, again, I have asked counsel, and I will have them file something formalizing the representation that they have made in their pleadings about the availability of funds. But I have to think that you or your clients might have figured the Trump Folk had some money somewhere, even if they did not have an insurance policy. Why was that important? Again, without revealing anything. MR. BECK: Your Honor, it does not matter how rich a defendant is, no matter who you are talking about on the other side; if they have an insurance policy that can fund a settlement, it is always easier to get that money than to have a defendant going in their pocket and funding it out of their pockets; particularly a litigant like Donald Trump who has fought us so hard in this litigation. THE COURT: You mean to say if you had been put on notice there was this policy and the insurers had been involved, as opposed to individual defendants, the insurers

0 0 0 would have made perhaps a business decision to settle as opposed to litigation decisions made by individuals and corporate entities and corporate individuals; is that what I am hearing you saying? MR. BECK: If we had known at the mediation or any of these settlement discussions that there was an insurance policy that was in the background and a source policy -- because it has to also be understood that Mr. Trump has claims all over the country -- and we cited many different projects that were competing for those assets. If we had known there was an asset in the background that would have absolutely affected how we advised our client to consider the offers that were on the table at that time. And obviously we can't go back in time and predict with certainty what would have occurred, but it would have absolutely -- I am a hundred percent confident it would have affected how we responded to those offers and how we advised our clients, and what they would have done in response, knowing that there was an insurance policy that could dry up at any moment. In other words, it may have occurred to our clients, based on our advice, the iron is hot, and take it while the getting is good in 0. Our clients, the last thing they wanted was for this litigation to drag out another two years. They have been

0 0 wanting to settle this a long time. And a number of them have told us we would rather be doing anything else than litigating with Donald Trump in 0, and they were very eager to settle. That would have absolutely affected our advice had we known that, Your Honor. We submitted a Law Review article; I think it's a well written study and gets at some important facts of some real significance and real prejudice to our clients. Typically in my experience and also empirically, and as the study we cited indicates, mediators focus on insurance policies as as a focal point at mediation. We had a very good mediator in February 0 that was putting a lot of pressure on the parties. When I say this case was on the verge of getting to a resolution, I mean it. And he was doing everything in his power to settle it. And we could have used this policy as a focal point at that mediation. We don't know what would have happened. The study we cited I think is absolutely on point that insurance policies drive settlements and drive mediations and are often a focal point for our cases being settled. We are talking about two years of wasted resources, a case that has dragged on longer than it should have, taking up the Court's resources and the parties' resources. Would it be untoward of me -- and if Mr. Russomanno wishes to object -- who represented the Trump folk at the

0 0 mediation? MR. BECK: Mr. Garten was at that mediation. THE COURT: At both of them? MR. BECK: He was certainly at the one in 0. The first one my memory of that is foggy enough that I can't say with certainty. I want to say it was. Donald Trump has never been at any of these mediations. THE COURT: Mr. Russomanno, do you recall? MR. RUSSOMANNO: To answer your question, Your Honor, Alan Garten was there with previous counsel, not with our law firm which is the -- Lynette McGuinness was previous counsel; he was at both mediations. The David Lichter mediation Mr. Garvin and Lynette were at. The Joe Levine mediation my father and I were at with Mr. Garten. THE COURT: All right. Thank you for that. MR. BECK: Just to continue, Your Honor, the study we cited I think is really relevant here; those are securities class actions that are against publicly traded corporations. Obviously those corporations have money to pay settlements, that they can reach into their operating accounts or wherever, to draw on. The whole point of the study is that knowledge of insurance is such a significant driver of settlements that it has measurable effects on how settlements are structured and

0 0 what amounts they settle for. So to not have that piece of information when we were actively negotiating this case, when we were in very active and difficult mediations that got really close -- the second one in particular got close to resolving this case -- it's absolutely prejudicial to our clients. I have not seen a shred of evidence anywhere -- I know Your Honor stated there would be a requirement to file something formal to support -- THE COURT: Oh, no. The only thing I need filed is the guarantee of the money. The inadvertence would go to whether I have an evidentiary hearing and bring Mr. Garten in. I have to think about that for a moment. Let me get back to Mr. Russomanno on this. I understand your argument, and I too have read the landscape of cases with regard to appropriate sanctions. As I said, I don't know, other than perhaps the cost of a hearing, what kind of sanctions I might impose without benefit of hearing from Mr. Garten. I don't know that that enures to anyone's benefit; certainly not Mr. Garten. I am again troubled -- the only way we're looking at this is in terms of perhaps costs. And of course the costs to litigants, prolonged litigation, these are very real and important considerations. But I am concerned about the attitude of litigants to the Court.

0 0 This is the most basic of all requests in civil litigation. I think even mom and pops would understand that Rule, do you have a policy, needs to be complied with. So maybe when this is first filed, maybe the first year, second year -- 0 takes us to the third year, our first mediation. I really don't see how we get to 0. As to the inadvertence, I don't believe the Russomanno firm has done anything untoward in terms of hiding anything. I believe, unfortunately, their clients have misapprehended the importance of being candid and complying with discovery obligations. I do take Mr. Beck's points about settlement. So this is what we're going to do. One, as to the motion to supplement the record, which we did not talk about too much; Mr. Beck, I did read the questions and answers and they do seem to have a certain global favor. I am not going to supplement this record; it's been too long closed. Should we have to go to trial, however -- again, I don't expect Mr. Trump will make an appearance, but I would allow you to ask the Court that those depo designations, inasmuch as they may impeach or change position or supplement a position he has taken, I will allow you to submit that. But for purposes of the motions, which I know have been ripe and briefed for sometime, I am going to deny that. As to the motion for sanctions, I believe sanctions are in

0 0 fact appropriate. As I said, I am troubled by this. But I am not at this juncture going to order an evidentiary hearing, and I am not going to set an amount. What I am going to do is ask that by January sixth -- I am going to enter an order that by January sixth the Trump Defendants must -- as officers of the Court I will rely on the Russomannos to put forward an affidavit from the appropriate person that the $,000,000 is a guaranteed sum. Who knows what would happen at trial, but at the very least what was available with the policy is available still. And I would like that by January sixth. Thereafter all the parties are going to participate in a Court ordered mediation with Magistrate Judge O'Sullivan, who will not be influenced by the fact of an insurance policy or not, but he will have in hand the knowledge that money is there. I am going to require that Mr. Garten attend the Court ordered mediation. You said your clients have had to fly in. I will ask Magistrate O'Sullivan to give you leave, if you wish to have them participate by phone or conference, to minimize additional costs to them. I expect everyone to go in with eyes open and minds open to whatever possibilities. Until that I will reserve on the sanctions motion. MR. BECK: Thank you, Your Honor. MR. RUSSOMANNO: Thank you, Your Honor for all of your

time here today. THE COURT: All right. Happy holidays to everyone. And I will look forward to that submission by January sixth. HEARING CONCLUDED 0 0

- - - C E R T I F I C A T E I hereby certify that the foregoing is an accurate transcription of proceedings in the above-entitled matter. 0 0 DATE FILED /S/PATRICIA SANDERS PATRICIA SANDERS, RPR

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