motion to quash arnold schroeder subpoena

EDWARD A. COPLEY AND AKIN GUMP STRAUSS HAUER & FELD LLP’S MOTION TO QUASH SUBPOENAS

UNITED STATES DISTRICT COURT FOR THE

NORTHERN DISTRICT OF TEXAS

SCI LA PAUSA, a French corporation Plaintiff v. Arnold Leon Schroeder, Jr. Defendant.

Civil Action No. __________________

(pending in the U.S. Central District of California, Cause No. 2:11-cv-1048

EDWARD A. COPLEY AND AKIN GUMP STRAUSS HAUER & FELD LLP’S MOTION TO QUASH SUBPOENAS

Pursuant to Rules 26(c) and 45(c) of the Federal Rules of Civil Procedure, third parties

Edward A. Copley and Akin Gump Strauss Hauer & Feld LLP move to quash the subpoenas

issued by this Court and served upon them by Arnold L. Schroeder, Jr. on August 1, 2012. The

reasons supporting this motion are explained in detail in the accompanying Memorandum in

Support.

Case 3:12-mc-00081-B Document 1 Filed 08/24/12 Page 1 of 1 PageID 1

MEMORANDUM IN SUPPORT OF MOTION TO QUASH SUBPOENAS

Page 1

UNITED STATES DISTRICT COURT FOR THE

NORTHERN DISTRICT OF TEXAS


Civil Action No. __________________

(pending in the U.S. Central District of California, Cause No. 2:11-cv-10483 ABC)

EDWARD A. COPLEY AND AKIN GUMP STRAUSS HAUER & FELD LLP’S MEMORANDUM IN SUPPORT OF MOTION TO QUASH SUBPOENAS

Pursuant to Rules 26(c) and 45(c) of the Federal Rules of Civil Procedure, Edward A.

Copley (“Mr. Copley”) and Akin Gump Strauss Hauer & Feld LLP (“Akin Gump”) move to

quash the subpoenas issued by this Court and served upon them by Arnold Leon Schroeder, Jr.

(“Schroeder”) on August 1, 2012, in a collection action pending in the United District Court for

the Central District of California, and would respectfully show the Court as follows:

I. INTRODUCTION

The subpoenas that are the subject of this motion are nothing more than attempts by

Schroeder to circumvent this Court’s dismissal of his suit against Mr. Copley and a separate

order by the U.S. District Court for the Central District of California in the underlying action

rejecting Schroeder’s attempts to obtain the exact discovery sought here. The underlying action,

SCI La Pausa v. Schroeder (the “California Collection Action”), is a suit by a French corporation

(SCI La Pausa) seeking to domesticate and to enforce a valid French judgment of approximately

$2.5 million against Schroeder, pursuant to the Uniform Foreign Country Money Judgments

Recognition Act. Neither Mr. Copley nor Akin Gump is a party to the California Collection

Case 3:12-mc-00081-B Document 1-1 Filed 08/24/12 Page 1 of 13 PageID 2


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Action, nor were they parties or participants in the underlying French action. Due to the limited

scope of the California Collection Action, the California court has repeatedly admonished

Schroeder regarding the scope of that action, expressly stating that Schroeder “will not be

permitted to relitigate the merits of the French judgment.” Furthermore, the California court

recently rejected Schroeder’s efforts to secure the same type of discovery he seeks here by

refusing to issue letters rogatory for a transcript of Mr. Copley’s testimony provided in another

French proceeding, calling it “irrelevant” to the California Collection Action. Nonetheless,

Schroeder continues on, demanding documents and depositions from Mr. Copley and his firm,

Akin Gump, attempting to utilize the subpoenas to relitigate not only the French judgment, but

also his failed Texas claims dismissed with prejudice by this Court last year. This end-run

around both the California court’s order and this Court’s dismissal should not be allowed, and

these subpoenas should be quashed.

II. BACKGROUND

Arnold Schroeder’s mother, Wyn-Nelle Russel Reves (“Ms. Reves” or “Wendy Reves”)

was born in Marshall, Texas and married Arnold Leon Schroeder, Sr. at the age of 18. They

divorced shortly after the birth of Schroeder in 1935. Decades later, in 1964, Ms. Reves went on

to marry Emery Reves, a noted author and art collector, and they lived together in France until

Emery’s death in 1981. Beginning in the 1940s, before marrying Ms. Reves, Emery Reves had

set up various corporate entities to hold his assets, including an entity which became a majority

shareholder in SCI La Pausa, a holding company that owned the Villa La Pausa, an estate in

France where Ms. Reves lived during the last years of her life.

Edward A. Copley, a Dallas estate lawyer who has worked at Akin Gump for over 40

years, met Ms. Reves in 1998 and performed several legal services at her request, including



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drafting and revising her will and creating a charitable foundation to further the philanthropic

goals that Ms. Reves and Emery had pursued throughout their lives.

After Ms. Reves’ death in 2007, Schroeder instituted legal actions across the globe in an

attempt to circumvent Ms. Reves’ wish that he receive a fixed-sum inheritance of $500,000 from

her estate. Schroeder attempted to claim rights as a “forced heir” under French law to one-half

of her estate, and further tried to make that estate as large as possible by claiming ownership of

assets not belonging to Ms. Reves. As part of that strategy, in 2008, Schroeder filed an adverse

possession action in Nice, France against SCI La Pausa, claiming that Villa La Pausa should be

part of the estate and thus part of his inheritance.1 (See California Application at § 10, attached

hereto as Exhibit “1.”) But in May 2009, the French court rejected Schroeder’s claim to the

Villa and further granted SCI La Pausa’s counterclaim, awarding at least 523,000 EUR in

compensatory damages against Schroeder. (Id. at §§ 11-12.) This judgment was upheld by the

French appellate court in 2011, which awarded 1,222,000 EUR in additional compensatory

damages plus interest against Schroeder. (Id. at §§ 12-15.)

After the French action failed, Schroeder came to Texas and attempted to squeeze money

from the charitable entities, such as the Dallas Museum of Art, that had benefitted from Ms.

Reves’ generosity during her lifetime by filing suit in this Court. He also sued Mr. Copley and

individuals affiliated with the Dallas Museum of Art claiming “fraud/fraud on the

estate/conspiracy.” (See Amended Complaint, attached hereto as Exhibit “2.”) Each of the

defendants in that lawsuit, including Mr. Copley, filed motions to dismiss pursuant to Federal

Rules of Civil Procedure 9(b) and 12, arguing that there were no cognizable claims against any

1 Schroeder also brought ex parte claims in New York around this time period. In 2009, a New York court rejected Schroeder’s attempts to gain control of the WERF Charitable Foundation and assessed costs against him. That decision was upheld by the New York Supreme Court. See In re Schroeder, 70 A.D.3d 583, 895 N.Y.S.2d 395 (N.Y. Sup. Ct. Feb. 25, 2010).



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of the defendants. On November 30, 2011, this Court agreed, granting those motions and

thereby dismissing with prejudice all of Schroeder’s claims. (See Memo. and Order, attached

hereto as Exhibit “3.”)

Meanwhile, SCI La Pausa, the French corporation that owns the Villa and had secured a

counterclaim judgment against Schroeder, sought to enforce its French judgment by filing the

California Collection Action in the U.S. District Court for the Central District of California

seeking entry of judgment pursuant to the Uniform Foreign Country Money Judgments

Recognition Act. (See California Application, Exhibit “1.”) SCI La Pausa’s French judgment

now equates to approximately $2.5 million. (Id. at § 16.) Schroeder has put forth several

affirmative defenses in California, but his options are strictly limited by the framework for

recognizing foreign judgments. (See Answer, attached hereto as Exhibit “4.”) In essence, the

California court may only refuse to recognize the French judgment if Schroeder proves: (1) that

it was obtained by the kind of extrinsic fraud that deprived him of an adequate opportunity to

present his case (such as purposefully serving the defendant at the wrong address and then

obtaining a default judgment); (2) that the French proceeding was not compatible with the

requirements of due process; or (3) that the judgment goes against the public policy of the United

States. See Cal. Code of Civil Proc. § 1716(c). SCI La Pausa’s application, including

Schroeder’s affirmative defenses, is pending in the Central District of California. The California

court has repeatedly admonished Schroeder that he “will not be permitted to relitigate the merits

of the French judgment.” (See April 11, 2012 Civil Minutes and Order (“April Order”) at 7,

attached hereto as Exhibit “5” (emphasis in original); see also June 15, 2012 Order Denying Ex

Parte Application For Issuance of Letter Rogatory (“June Order”) at 1, attached hereto as Exhibit

“6”; August 6, 2012 Civil Minutes and Order Denying Motion for Review of and Objections to



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Magistrate Judge’s Ruling Denying Ex Parte Application for Issuance of Letter Rogatory

(“August Order”) at 1, attached hereto as Exhibit “7.”) Confirming its strict stance on ensuring a

narrow scope of discovery, the California court recently denied Schroeder’s attempt to obtain

Letters Rogatory for a transcript of Mr. Copley’s prior testimony in a separate French

proceeding. (See August Order, Exhibit “7.”)

Notwithstanding the California court’s prohibition on relitigating the merits of the French

action and its recent ruling on Schroeder’s attempts to obtain similar discovery, Schroeder served

Mr. Copley and Akin Gump with subpoenas on August 1, 2012, seeking both their depositions

and the production of documents. (See Subpoenas, attached hereto as Exhibits “8” (Copley) and

“9” (Akin Gump).) This discovery seeks information relevant only to the merits of the

underlying French action and the dismissed Texas action. The deposition topics to Akin Gump

and the document requests to both the firm and Mr. Copley reveal Schroeder’s true intentions.

For example, the deposition topics for the Akin Gump subpoena include the following:

“The use of corporate funds or assets of SCI La Pausa for the benefit of Wendy Reves;”

“The extent to which Wendy Reves exercised control of the assets of SCI La Pausa;”

“The identification of all stock or other ownership interest in SCI La Pausa from January 1, 1998 until the death of Wendy Reves in 2007;”

“The tracing of funds and other assets of Wendy Reves to and from Cooperation Verlags AG;”

“Any and all efforts to segregate and trace funds of Wendy Reves to Beaux Arts;” and

“The source of funds used to pay for landscaping work at Villa La Pausa from January 1, 1998 until the death of Wendy Reves in 2007.”

(Subpoena to Akin Gump, Exhibit “9.”)



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Similarly, the subpoenas to Akin Gump and Mr. Copley contain document requests that

have absolutely no relevance to the California Collection Action, such as the following:

“All documents, including but not limited to invoices, checks and check stubs relating to payment of any real property taxes relating to Villa La Pausa from January 1, 1998 to the death of Wendy Reves in 2007;”

“All documents, including but not limited to invoices, checks and check stubs relating to payment for any service of food and beverages at Villa La Pausa from January 1, 1998 to the death of Wendy Reves in 2007;”

“All documents reflecting any effort made by SCI La Pausa to sell Villa La Pausa from 2007 to the present;” and

“All documents reflecting or relating to an appraisal of the value of Villa La Pausa from 2007 to the present.”

(Id.; Subpoena to Edward A. Copley, Exhibit “8.”)

This Court need look no further than the discovery sought by the subpoenas to see that

Schroeder is utilizing Federal Rule of Civil Procedure 45 to attempt what the California court has

expressly forbidden: relitigate the underlying French action (as well as the dismissed Texas

action against Mr. Copley).

III. ARGUMENT AND AUTHORITY

A. The Court Must Quash the Subpoena Because It Subjects Non-Parties to An Undue Burden.

Under the Federal Rules of Civil Procedure, a court must quash or modify a subpoena

that subjects a person to undue burden. Fed. R. Civ. P. 45(c)(3)(A)(iv). The moving party has

the burden of proof to demonstrate that compliance would be unreasonable and oppressive.

Wiwa v. Royal Dutch Petroleum Co., 392 F.3d 812, 818 (5th Cir. 2004). Whether a burdensome

subpoena is reasonable must be determined according to the individual facts of the case. Id. To

determine whether the subpoena presents an undue burden, the Fifth Circuit has held that courts

should consider the following factors: (1) relevance of the information requested; (2) the party’s



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need for the documents; (3) the breadth of the document request; (4) the time period covered by

the request; (5) the particularity with which the party describes the requested documents; and (6)

the burden imposed. Id. Importantly, non-parties are entitled to additional protection and

considerations. See id.

Courts in the Northern District of Texas routinely use these factors to protect third parties

from subpoenas that are unduly burdensome. See Cmedia, LLC v. Lifekey Healthcare, LLC, 216

F.R.D. 387 (N.D. Tex. 2003) (modifying in part and quashing in part a subpoena that subjected

third party to an undue burden because of overbroad and irrelevant requests); S.E.C. v. Brady,

238 F.R.D. 429, 438 (N.D. Tex. 2006) (sustaining third party’s objection to discovery on the

basis of undue burden when non-party would have had to review over 226 boxes of documents).

Here, all of the Fifth Circuit’s six factors weigh in favor of quashing the subpoenas to Mr.

Copley and Akin Gump. See Wiwa, 392 F.3d at 818.

1. None of the information Schroeder seeks is relevant, as confirmed by the District Court in California.

As detailed above, Schroeder’s discovery in the pending California action is limited to a

narrow set of defenses stated in the Act, and discovery into issues intrinsic to the French action is

not permitted or relevant. (See Answer, Exhibit “4”; August Order, Exhibit “7.”) Despite this

narrow query, Schroeder’s subpoenas purport to seek information from Mr. Copley and Akin

Gump that is totally irrelevant to these defenses. To begin with, neither Mr. Copley nor Akin

Gump was a party to the French action, nor did either represent any of the parties in those

proceedings. As such, the deposition testimony sought cannot shed light on any of Schroeder’s

defenses to recognition of the French judgment. Schroeder seems to ignore the limited scope of

his defenses in drafting his subpoenas. His irrelevant written requests run the gamut from

decades-old meeting minutes to “the source of funds used to pay for food and beverage service at



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Villa La Pausa.”2 Indeed, Schroeder’s document requests include such irrelevant categories as

“property maintenance work” documents,3 “landscaping work” documents,4 and any documents

of “grounds keeping work”5 performed at Villa La Pausa between 1998 and 2008. This

underlying factual information can only go to the futile substantive claims already disposed of by

the courts in France as well as Texas, and are irrelevant to the narrow defenses in the present

judgment action.

As the California court explained in its recent Civil Minutes, it had initially “expressed

reservations about allowing any discovery” at all in the present action. (August Order at 1,

Exhibit “7.”) Nonetheless, the Court did agree to allow some discovery, but cautioned that

Schroeder was “strictly limited to carrying [his] burden” under the “narrow framework” set out

in the Foreign Country Money Judgments Recognition Act. (April Order at 7, Exhibit “5.”)

Importantly, “the court made clear that Defendant [Schroeder] ‘will not be permitted to relitigate

the merits of the French judgment as he has suggested.’” (Id.)

To the extent that Schroeder asserts that the evidence is relevant to his defense that the

French judgment was somehow obtained by fraudulent means, the California court has already

ruled on that issue. In its August 6, 2012, ruling, the California court confirmed that the only

type of fraud to which this defense to the Foreign Money Judgment Act applies is “extrinsic”

fraud, i.e. fraud that deprives the unsuccessful party of the opportunity to fairly present its case to

the court. (August Order at 7, Exhibit “7.”). The California court further ruled that

“…defendant has presented nothing to indicate or support any possible contention that he was

fraudulently prevented from participating in [the French] proceeding.” (June Order at 3, Exhibit

2 Subpoena of Akin Gump, at Deposition Topic Villa La Pausa No. 5, Exhibit “9.” 3 Subpoena of Copley, at Document Request No. 4, Exhibit “8.’ 4 Id. at Document Request No. 5. 5 Id. at Document Request No. 6.



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“6”; affirmed by August Order at 8, Exhibit “7.”). The California court stated: “Thus, because

Defendant’s allegations of fraud under [the Act] implicate only intrinsic fraud not covered by the

statute, any discovery sought to prove them, including the letters rogatory, is irrelevant and

therefore beyond the scope of Rule 26(b)(1).” (August Order at 8, Exhibit “7” (emphasis

added)). The discovery sought here is obviously intrinsic to the merits of the underlying French

action and should be barred by this Court as irrelevant. This Court should follow the California

court’s thoughtful analysis, find that the discovery sought in the subpoenas to Mr. Copley and

Akin Gump is totally irrelevant to Schroeder’s defenses, and quash the subpoenas.

2. Schroeder has no need for the information.

Schroeder seeks information related to the estate planning and property rights of Ms.

Reves. As explained above, this information only relates to the underlying claims already

dismissed by courts in North America and Europe. Therefore, Schroeder has absolutely no need

for this information in the California Collection Action. By continuing to harass Mr. Copley and

his firm with discovery requests, deposition subpoenas, and the need to spend the time and

money in fending off these assaults, Schroeder’s alleged “need” for the information appears even

more attenuated.

3. Schroeder’s discovery requests and deposition topics are overbroad.

Schroeder submits 48 different deposition topics to Akin Gump along with 36 document

requests to the firm and another 33 document requests to Mr. Copley. Apart from being

irrelevant and unnecessary, these requests are so overbroad that Mr. Copley and Akin Gump

could not reasonably respond even if they needed to do so. For example, Schroeder requests:

“All of SCI La Pausa’s financial statements, profit and loss statements, balance sheets,

accounting information and tax returns for the period commencing in January 1, 1998 and ending



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March 31, 2012.”6 In essence, he requests the entirety of the corporate financial and tax records

for the last 14 years for entities which the French court has ruled are not part of Ms. Reves’

estate. Of course, financial records of SCI La Pausa are not relevant to Schroeder’s limited

defenses under the Uniform Foreign Country Money Judgments Recognition Act. This request,

and the other requests contained in the subpoenas, are patently overbroad and are the type of

discovery requests that courts disfavor, particularly when sought from a non-party. This factor,

too, weighs in favor of quashing the subpoenas.

4. The time period of Schroeder’s request is too vast.

Most of Schroeder’s requests reach back to January 1998—a full decade before the

commencement of the French proceeding.7 As outlined by the California court, the only relevant

information concerns the actual “extrinsic” goings-on of the French case, which was filed in

2008. Any information request reaching back before Ms. Reves’ death is a transparent attempt

to discover information unrelated to the California Collection Action. The time period of

Schroeder’s request shows the irrelevance of this discovery and the Court should therefore quash

the subpoena.

5. None of Schroeder’s requests and/or topics is sufficiently particularized.

Further, because none of Schroeder’s requests seek specific information about the actual

events of the French proceeding, none of them is particularized enough to pass muster under

Wiwa. See 392 F.3d at 818. The requests and topics seek general financial information about

SCI La Pausa and related corporate structures, details on officers and directors of these entities,

tracing of funds for upkeep of the Villa, and a whole host of other information related to the

6 Subpoena of Copley, at Document Request No. 17, Exhibit “8.” 7 See e.g. Subpoena of Copley, at Document Request Nos. 1-10, Exhibit “8.”



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underlying substantive claims, but none of them is aimed at discovering information about the

procedural issue of how the French trial was conducted.

6. Schroeder’s requests create a substantial burden on Mr. Copley and Akin Gump.

Lastly and most importantly, this Court should consider the heavy burden imposed upon

Mr. Copley and Akin Gump, both in time and in costs. It would take a tremendous amount of

time to prepare for and submit to two depositions demanding information from the last 14 years

and involving legal work performed in conjunction with five different corporate entities.

Further, it would take untold attorney-hours to locate, review, log, and produce all the documents

in response to the 69 different document requests from Schroeder. Couple this with the fact that

neither Mr. Copley nor Akin Gump is even a party to the California action and the burden

becomes greater still. In sum, this substantial burden, along with the other factors analyzed

above, dictate that the subpoenas to Mr. Copley and Akin Gump should be quashed.

B. The Information Sought By Schroeder Is Protected by the Attorney Client Privilege and Work Product Doctrine.

Even assuming arguendo that the subpoenas are relevant and do not present an undue

burden on Mr. Copley and Akin Gump, they are impermissible because the information sought

by Schroeder is protected by the attorney-client privilege and the work-product doctrine. See

Fed. R. Evid. 502. Many of Schroeder’s requests, such as the request for “[a]ll documents

relating to the transfer of funds between Wendy Reves” and some of the charitable organizations,

directly implicate information that is protected by the attorney-client privilege and/or work-

product doctrine.8 As the attorney of Ms. Reves, Mr. Copley and Akin Gump are not at liberty to

8 Similarly, Schroeder’s requests for production of tax returns is improper and should be quashed absent the showing of relevance and a compelling need for such information.



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disclose this confidential information. As such, the subpoenas should be quashed on this

independent ground.

IV. CONCLUSION

Edward A. Copley and Akin Gump thereby respectfully request that this Court quash the

subpoenas served upon them by Arnold Leon Schroeder, Jr. on August 1, 2012.



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Dated: August 24, 2012 Respectfully submitted,

FISH & RICHARDSON, P.C.

By: /s/ Scott C. Thomas Thomas M. Melsheimer

State Bar No. 13922550 Scott Cashion Thomas State Bar No. 24046964 Martha D. Jones State Bar No. 24061595 John Michael Gaddis State Bar No. 24069747 FISH & RICHARDSON, P.C. 1717 Main Street Dallas, TX 75201 (214) 747-5070

Counsel for Edward A. Copley and Akin Gump Strauss Hauer & Feld

CERTIFICATE OF SERVICE

The undersigned hereby certifies that a true and correct copy of the above and foregoing document will be served on August 24, 2012 by hand delivery to counsel for Mr. Schroeder.

_________/s/ Scott C. Thomas________

Scott C. Thomas


PLAINTIFF’S FIRST AMENDED COMPLAINT PAGE 1

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

ARNOLD LEON SCHROEDER, JR.,

Plaintiff,

v. KERN WILDENTHAL, EDWARD A. COPLEY, HARRY S. PARKER, III, GEORGE CHARLTON, IRVIN LEVY, and the DALLAS MUSEUM OF ART,

Defendants.

§§§§§§§§§§§§

C.A. NO. 3:11cv-00525-B (JURY DEMANDED)

PLAINTIFF’S FIRST AMENDED COMPLAINT

Plaintiff Arnold Leon Schroeder, Jr. (“Schroeder”) files this First Amended

Complaint against Defendants Kern Wildenthal, Edward A. Copley, Harry S. Parker, III,

George Charlton, Irvin Levy, and the Dallas Museum of Art (collectively, “Defendants”)

and states:

PARTIES

1. Schroeder. Arnold Leon Schroeder is a citizen of California, who may be

contacted only through the undersigned attorneys of record.

2. Defendant Kern Wildenthal (“Wildenthal”). Wildenthal is a citizen of

Texas who resides in this District and Division. Wildenthal may be served with process

by serving his attorney of record, George W. Bramblett, Jr., Haynes & Boone, LLP, 2323

Victory Avenue, Suite 700, Dallas, Texas 75219.

Case 3:11-cv-00525-B Document 16 Filed 05/17/11 Page 1 of 28 PageID 78Case 3:12-mc-00081-B Document 1-3 Filed 08/24/12 Page 1 of 28 PageID 106


3. Defendant Edward A. Copley (“Copley”). Copley is a citizen of Texas

who resides in this District and Division. Copley may be served with process by serving

his attorney of record, Thomas M. Melsheimer, Fish & Richardson, PC, 1717 Main

Street, Suite 5000, Dallas, Texas 75201.

4. Defendant Harry S. Parker, III (“Parker”). Upon information and

belief, Parker is citizen of Texas or New York. Parker may be served with process by

serving his attorney of record, Raymond E. LaDriere, II, Locke Lord Bissell & Liddell,

LLP, 2200 Ross Avenue, Suite 2200, Dallas, Texas 75201.

5. Defendant George Charlton (“Charlton”). Charlton is a citizen of Texas

who resides in this District and Division. Charlton may be served with process by

serving his attorney of record, Raymond E. LaDriere, II, Locke Lord Bissell & Liddell,

LLP, 2200 Ross Avenue, Suite 2200, Dallas, Texas 75201.

6. Defendant Irvin Levy (“Levy”). Levy is a citizen of Texas who resides in

this District and Division. Levy may be served with process by serving his attorney of

record, Raymond E. LaDriere, II, Locke Lord Bissell & Liddell, LLP, 2200 Ross Avenue,

Suite 2200, Dallas, Texas 75201.

7. Defendant Dallas Museum of Art (“DMA”). DMA is a Texas not-for-

profit corporation located in Dallas, Texas. DMA may be served with process by serving

its attorney of record, Raymond E. LaDriere, II, Locke Lord Bissell & Liddell, LLP, 2200

Ross Avenue, Suite 2200, Dallas, Texas 75201.



JURISDICTION & VENUE

8. Jurisdiction. The Court has subject-matter jurisdiction pursuant to 28

U.S.C. §1332. Schroeder is a citizen of California, and Defendants are citizens of Texas

or New York. There is complete diversity of citizenship between Schroeder and

Defendants, and the amount in controversy exceeds the sum or value of $75,000.00,

exclusive of interest and costs.

9. Venue. Venue is proper in this district and division pursuant to 28 U.S.C. §

1391(a) because a substantial part of the events or omissions giving rise to the claim

occurred in this District and Division. Alternatively, venue is proper in this district and

division because at least one of the Defendants is subject to personal jurisdiction in this

district and division at the time this action was commenced and there is no other district

in which the action may be brought.

OPERATIVE FACTS

A. Overview.

10. Defendants conspired and acted at numerous times during the life of Wyn-

Nelle Reves (“Wendy”) and following her death to defraud her estate (the “Estate”) of

hundreds of millions of dollars. Defendants contrived to evade the laws of France, which

govern the Estate, with the purpose of depriving Schroeder, Wendy’s only son and sole

heir, of his rightful heirship under French law. As set forth more fully below, one or

more of the Defendants conspired and acted in concert to cause an art collection

containing unique, irreplaceable, and invaluable pieces of art to be removed from

Wendy’s home and transported to the DMA under the guise of a donation by Wendy and



entities that held color of title, which had been created to avoid taxes. Thereafter, one or

more of the Defendants conspired and acted in concert to deplete the remainder of the

Estate of millions of dollars in cash and property. Defendants caused Wendy to sign a

will, codicils to the will, a power of attorney, and other documents and caused the

creation and operation of sham entities, all with the purpose again of evading Schroeder’s

rightful heirship under the laws of France.

B. Applicable French Heirship Laws.

11. Prior to her death, Wendy had lived in France the majority of each year for

decades, and without interruption since at least 2000. She was domiciled there. Her

Estate is governed by French law. Under French law, Wendy’s death would

automatically vest her Estate in Schroeder, as her only son, regardless of whether Wendy

had a will. Under French law, Schroeder, as Wendy’s only child, is entitled to 50% of

Wendy’s Estate. This law may not be avoided under any relevant circumstances. More

particularly, under French law, Schroeder is a “reserved heir” whose interest in the Estate

is known as a “reserved share.” As a reserved heir, Schroeder has the right to re-capture

any lifetime gifts made by Wendy within at least the thirty (30) years prior to her death

for the purposes of “reconstituting” the Estate to correctly calculate the “reserved share.”

In this process, sham arrangements to artificially shelter assets will be set aside.

Defendants have judicially admitted Schroeder’s status as a reserved heir under French

law entitled to 50% of the Estate.



C. Schroeder’s Tax Exposure.

12. Under French law, an heir remains exposed to liability for French taxes that

are attributed to his share of the estate under applicable French heirship laws. As such, as

Wendy’s sole heir, Schroeder may be held liable for any taxes assessed on the entire

Estate by French taxing authorities, including those over which the Defendants maintain

possession and control and over which they claim ownership.

D. Wendy Reves.

13. Wendy was born in Marshall, Texas, in 1916.

14. In 1934, at the age of 18, Wendy married her first husband, Arnold Leon

Schroeder, Sr. (“Schroeder, Sr.”).

15. Wendy and Schroeder, Sr. had one child together, Schroeder, who was born

on May 27, 1935.

16. Schroeder is Wendy’s only child by any marriage and her sole surviving

heir.

17. Wendy and Schroeder, Sr. divorced in approximately 1938, and Wendy

then moved from Texas to New York to pursue her international modeling career.

Although Schroeder, Sr. actually raised Schroeder, Wendy remained in contact with her

son throughout her life, even after moving abroad to live in Europe.

E. Emery Reves.

18. In the 1940s, Wendy met Emery Reves (“Emery”), an Hungarian born

author, publisher, and financier. Emery and Wendy married in 1964. They remained

married throughout his life.



19. Immediately prior to World War II, Winston Churchill became personal

friends with Emery who had fled to England from Hungary. Emery subsequently

acquired and published Churchill’s memoirs. Emery also published biographies about

Churchill and other famous individuals. Additionally, Emery was a successful author,

having written several best-selling books, including “The Anatomy of Peace,” which was

eventually translated into several languages. Through Emery’s writing and publishing

prowess, he and Wendy enjoyed considerable financial success.

F. The Collection.

20. In addition to his literary and publishing ventures, Emery became a prolific

art collector. Together with Wendy, Emery acquired a large number of paintings and

other significant pieces of art, including many by France’s most famous impressionist

artists, such as Van Gogh, Monet, Manet, Cezanne, Bonnard, and Renoir among others.

Emery and Wendy also acquired numerous sculptures and other invaluable works of art.

Over Emery’s life, they amassed an impressive collection of some 1,400 pieces of

unique, irreplaceable, and invaluable pieces of art (the “Collection”). It has been recently

estimated that the Collection could be sold for some $400,000,000.00. Through the acts

described in this pleading, the Collection is now located primarily, if not exclusively, at

the DMA.

G. Villa La Pausa.

21. Initially, Wendy and Emery housed much, if not all, of the Collection in

their French villa known as “Villa La Pausa,” which was previously beneficially owned



by the famous French fashion designer, Coco Chanel. Villa La Pausa was Wendy and

Emery’s home and remained their principal residence until their respective deaths.

22. During his lifetime, Emery set up an elaborate web of corporate entities

with the assistance of prominent attorneys, and purported to transfer title to the

Collection, Villa La Pause, and other assets to those entities likely to avoid substantial

taxation under applicable French law. For example, as was a common practice for Emery

and Wendy, rather than owning Villa La Pausa in their own names, title to La Pausa was

placed in the name of an entity owned and controlled by Emery. Specifically, in 1947,

Emery formed a publishing company originally known as Cooperation Publishing

Company SA. This Liechtenstein corporation later became known as Cooperation

Verlags AG (“CVAG”). CVAG, in turn, acquired shares of an entity known as SCI La

Pausa (“SCI”), the French company set up by Coco Chanel, which continued to hold

legal title to Villa La Pausa.

23. Wendy and Emery used Villa La Pausa as their personal residence

continuously from 1954 to Emery’s death in 1981. Wendy then lived there alone and

exclusively as her main residence from 1981 until her death in 2007. Indeed, she lived

solely and uninterruptedly at Villa La Pause for the last nine years of her life.

24. Throughout their marriage, Wendy and Emery continued to seek avenues to

avoid the heavy burden of French taxes despite residing in France at Villa La Pausa. For

example, they entered into a so-called “forfait” arrangement with Swiss authorities, an

agreement whereby Wendy and Emery claimed to be Swiss residents and paid an agreed

sum in Swiss taxes each year, which in their case was merely a sham since they initially



neither owned property, nor spent significant time, in that country at any stage. The

amount they paid in Swiss taxes was far below the taxes they would have incurred under

French law.

H. The Arts Limited.

25. In 1967, following his marriage to Wendy, Emery formed a Bahamian

entity known as The Arts Limited (“TAL”). In 1968 and again in 1972, Emery and

Wendy purported to transfer much, if not all, of the Collection into TAL in exchange for

a small number of shares of this entity, nominally valued at some $3,600.00 in Bahamian

dollars. However, as the Collection had a value far in excess of that amount at the time

of the transfer, this transaction is a sham under French law for failure to transfer

equivalent value.

26. The shares in TAL were then purportedly transferred in 1969 into a trust

with First National City Trust Company (Bahamas) Limited in New York, which later

became known as Citytrust (“Citytrust”). Notwithstanding the alleged transfer of the

TAL shares into this “trust,” Wendy and/or Emery continued to maintain complete

control of the TAL shares, subsequently causing the withdrawal of those shares in 1979.

As a result, this trust was also effectively a sham.

I. WERF (New York) – The First of Several WERF Entities.

27. In 1967, Wendy and Emery also created an entity known as the Wendy &

Emery Reves Foundation, Inc. (“WERF”) in New York, which was allegedly intended to

receive assets after their deaths. However, WERF is not a proper or valid legal entity and



should be disregarded, as should the transactions purporting to transfer assets into WERF

through Beaux-Arts and/or TAL or out of WERF.

28. Specifically, in 1968 Wendy and Emery’s estate attorney, Hans J. Frank

(“Frank”) (who was also an initial director of WERF), wrote to the Commissioner of the

Internal Revenue Service (“IRS”) about WERF’s tax-exempt status under Section

501(c)(3) of the Internal Revenue Code in which he represented that:

The Foundation [WERF], which was formed for the purpose of acquiring paintings, sculpture, and other art objects, has not yet commenced operations, but Mr. Reves is about to contribute to the Foundation a number of art objects purchased and physically located in Europe which will be displayed in France.

* * * The Foundation’s [WERF’s] primary purpose is to acquire, upon the death of Mr. and Mrs. Reves, the very extensive collection of paintings, sculpture and other art objects which Mr. Reves now owns, as well as a French country estate known as Villa “La Pausa” in Roquebrune – Cap Martin, on the French Riviera.

(emphasis added). Based upon these representations, which are in apparent conflict with

TAL’s alleged ownership of the Collection, the IRS confirmed WERF’s tax-exempt

status.

29. After Wendy and Emery formed WERF, its Articles of Incorporation and

By-Laws were effectively ignored and it sat dormant for many years. There is no

evidence of any activity in WERF from at least 1989 to 2000, when Wildenthal, Copley,

Charlton, Levy, and others purported to become WERF Directors. However, WERF

again sat dormant thereafter from 2000 through 2008. In fact, in approximately 2001, the



IRS even suspended WERF’s tax-exempt status for lack of activity and failure to

maintain a registered address with it. This status was not restored until 2010. As a result,

as of the date of Wendy’s death, the IRS did not consider WERF a tax-exempt entity.

J. Beaux-Arts: Foundation Deed and By-Laws.

30. Next, in 1970, Emery created an entity under Liechtenstein law known as

Beaux-Arts Foundation (later re-named Beaux-Arts Stiftung) (“Beaux-Arts”) into which

he purported to donate, or caused to be donated, the shares of CVAG and TAL, over both

of which he maintained control during his life.

31. For example, as set forth in the Beaux-Arts Foundation Deed dated

December 15, 1970 (“Deed”), Emery had the right to appoint all the original Foundation

Committee members and the Foundation’s President, and to revoke any Foundation

Committee member’s status as such during his lifetime. (Deed, Art. 7.) The Deed also

gave Wendy veto power over Foundation Committee members’ veto and appointment

rights. Finally, the Deed gave Emery the right to “dissolve the Foundation at any time.”

(Deed, Art. 13.) In short, Beaux-Arts was just a sham vehicle through which Emery

continued to assert control over the Collection and Villa La Pausa.

32. Beaux-Arts was also governed and controlled by Regulations or By-Laws

that appointed Emery as its President and further provided that Wendy “shall become

President” after Emery’s death. The By-Laws of Beaux-Arts were highly specific and

guaranteed that Emery had total control over the assets, bank accounts, and the corporate

life of the various entities. These By-Laws also dictated that “No decision may be

adopted against the will of the President.”



33. The By-Laws further stated that Beaux-Arts owned 11,900 of the 12,000

shares in SCI, which owned Villa La Pausa, and that if TAL lost the rights to use Villa La

Pausa, “the Foundation shall take measures to ensure that Emery Reves and Wendy

Reves, or the survivor thereof is entitled to stay and reside at the villa.” Further, if

Wendy survived Emery, and Villa La Pausa were sold, the By-Laws specified that the

Foundation had the right to direct the acquisition of another property “at the request, and

in accordance with the instructions of Wendy Reves.” It is telling that, as a holding

company, Beaux-Arts’ By-Laws contained detailed provisions relating to the assets of

what was a sub-subsidiary.

34. Likewise, the Foundation could make Villa La Pausa into a museum, “with

the consent of Wendy Reves. . . .” Further, the By-Laws directed that the Founder

(Emery) transfer additional liquid funds into Beaux-Arts, and that the capital (or corpus)

of Beaux-Arts be used “to defray any and all taxes and charges, maintenance and repair

costs, wages and salaries of personnel and all other costs and value-enhancing

expenditures for the maintenance of [Villa] ‘LA PAUSA.’” The determination as to the

making of the expenditures was to be made by Emery during his life time, and thereafter

by the board of trustees, over which Wendy retained an absolute veto power.

35. The By-Laws also contemplated the storage and display of the Collection at

Villa La Pausa. If, however, Villa La Pausa were to be sold, then the expenditures

outlined above would apply to any replacement property at which Wendy resided while

the Collection was installed and displayed there.

36. Significant to this dispute, the By-Laws provided in Article 5 that:



d) After the death of Mr. Emery Reves, Ms. Wendy Reves shall be entitled to demand that any work of art which belongs to the foundation assets be transferred to her. She may subsequently freely dispose of the works of art which are transferred to her in this manner. e) Mrs. Wendy Reves shall further be entitled to demand that all or a part of the income or capital of the foundation be distributed to her.

The only requirement regarding Wendy’s ability to exercise these rights was that she

demand it.

37. Further, the By-Laws provided that Beaux-Arts “shall be dissolved and all

its assets contributed to the Wendy and Emery Reves Foundation if Ms. Wendy Reves

survives her husband and requests dissolution in writing; it shall also be dissolved after

the death of Mr. Emery Reves and Mrs. Wendy Reves.”

38. Although both Wendy and Emery have died, Beaux-Arts has never been

dissolved.

39. Finally, upon Emery’s death, the By-Laws became “irrevocable.”

40. As a result of its Deed and By-Laws, Beaux-Arts was a sham entity.

Specifically, Emery retained unfettered control over Beaux-Arts during his life time, and

upon his death, Wendy retained the irrevocable rights to (1) demand any work of art from

Beaux-Arts and then freely dispose of the same, and (2) demand that its capital or income

be distributed to her. Therefore, Beaux-Arts was not a viable legal entity, and any

alleged transfer of assets into or out of Beaux-Arts would be disregarded and considered

as part of, and returned to, the Estate.



41. However, even if Beaux-Arts were not determined to be a sham, it has not

been dissolved at any time during the four years following Wendy’s death. Beaux-Arts

must therefore be disregarded under Lichtenstein law and its assets considered part of the

Estate.

42. In 1970, TAL also contracted with SLP to take possession of Villa La

Pausa to display the Collection and reserved the right to appoint “a couple” to act as

caretakers of the Collection. Not surprisingly, it appointed Emery and Wendy. As

“compensation” for their “care-taking,” TAL contracted to pay their entire living

expenses. Wendy, thus, was able to live in Villa La Pausa throughout her life, including

after Emery’s death, free of charge with all her expenses paid. Although such valuable

benefits in kind gave rise to an income tax liability in France, no declaration of the

existence and value of them was ever made at any time by TAL as the nominal employer.

Not were the substantial social security charges that were due on the value of the benefits

ever declared or paid.

43. Emery appears to have transferred into Beaux-Arts (the effectiveness of

which Schroeder denies) the shares in TAL, CV, and thus indirectly SLP, resulting in the

following entity structure:



44. Indeed, none of these entities appear to have ever held proper corporate

meetings or even properly recorded minutes of meetings or decisions. Accordingly, all

assets of Beaux-Arts should be returned to, and treated as part of, the Estate.

K. Emery’s Death and Wendy’s Deteriorating Health.

45. In 1981, Emery died intestate, leaving Wendy as his sole heir.

46. After Emery’s death in 1981, all of Emery’s assets passed to Wendy under

French law.

47. Wendy suffered a stroke in 1989, and her health began to decline thereafter.

Beaux-Arts Foundation (Liechtenstein)

Cooperation Verlags (Liechtenstein)

The Arts Limited (Bahamas)

SCI La Pausa (France)

99.2 %

100 % 100 %

Villa La Pausa (France)

Patricia Markovitch (Property Manager of

Villa La Pausa) (France) The Collection



48. Wendy’s health problems were compounded by her chronic alcoholism, as

documented in her medical records and her subsequent dementia. At some point, in

approximately 2000, Wendy became effectively bed-ridden at Villa La Pausa. In fact,

during the last years of her life, Wendy became incapacitated, requiring 24-hour a day

care of several specialized nurses. As a result, Wendy did not leave Villa La Pausa after

at least 2000, until her death.

L. Transfer of the Collection to the DMA.

49. In approximately 1982, after Emery’s death, three members of the DMA,

namely Parker, Charlton, and Levy (“the DMA Members”) called upon Wendy at Villa

La Pausa to make their pitch, on behalf of the DMA, for the Collection.

50. Wendy, by now a lonely widow and chronic alcoholic, was persuaded by

their Texas charm and flattery to disregard Emery’s intentions for the Collection to be

displayed at Villa La Pausa, as he had represented to the IRS would be the case to ensure

WERF’s tax-exempt status. Instead, Wendy purported to donate the Collection (or a vast

majority of it) to the DMA under a Donation Agreement dated May 31, 1983 (“Donation

Agreement”). Curiously, the Donation Agreement was signed by the DMA, Beaux-Arts,

TAL, and Wendy, individually and as a representative of WERF. Assuming arguendo

that these were valid, legal entities, the effect of the Donation Agreement under the

Beaux-Arts organizational documents was a gift by Wendy personally of nearly the entire

Collection. Beaux-Arts lacked the legal capacity to benefit any person that was not a

specified beneficiary under the Beaux-Arts Deed or By-Laws.



51. As described above, Emery had wished for Villa La Pausa to be converted

to a museum to display the Collection publicly in France within its natural surroundings.

Instead, the DMA Members convinced Wendy that Emery’s spirit would be appeased if

the DMA built a replica of several of the rooms of Villa La Pausa within the museum in

which the Collection would be displayed, which is in fact what the DMA ultimately did.

The DMA Members also promised to find a way around France’s reserved heirship rule

that protected Schroeder’s rights, as well as the restrictions set forth in Beaux-Arts’ By-

Laws, all in order to facilitate the surreptitious and unlawful transfer of the Collection to

the DMA. Indeed, it was the DMA’s acceptance of the risk to construct this replica of

Villa La Pausa that was determinative of Wendy’s decision to give the Collection to the

DMA.

52. With the assistance of various other individuals, the DMA Members

schemed to strip away the legal protections afforded to Schroeder and caused Wendy to

sign various documents to execute a series of sham transfers that purported to move the

Collection from the fictional Beaux-Arts to the DMA via another entity bearing the same

“WERF” name, all to the detriment and exclusion of Schroeder and his heirship rights

under French law.

M. WERF (Texas).

53. Specifically, also in 1983, the DMA Members (with the assistance of the

Haynes & Boone law firm) created an entity in Texas known as the Wendy and Emery

Reves Foundation (“WERF (Texas)”), presumably to serve in the place of WERF (New

York) as the remainder beneficiary of any distribution from Beaux-Arts. This beneficiary



change purported to occur notwithstanding that Beaux-Arts’ By-Laws, as set forth in

paragraphs 32-37 above, could not be altered to change the beneficiary from Emery’s

original designation.

54. Although the DMA Members and the DMA knew that the effect of any

distribution from Beaux-Arts became Wendy’s personal property (and therefore part of

her Estate subject to compulsory heirship), Wendy was then asked to sign the Donation

Agreement on behalf of herself and WERF (New York) that purportedly donated almost

all of the Collection indirectly to the DMA.

55. Notwithstanding the foregoing, the DMA actually publically represents in

the Foreword to its catalogue of the Collection that it was a gift by Wendy of “her

collection.”

56. Upon information and belief, Defendants improperly used WERF (Texas)

as an intermediate entity to hold most of the Collection for a time and conceal

Defendants’ conspiracy to transfer ownership of the Collection to the DMA,

notwithstanding Beaux-Arts’ By-Laws and Schroeder’s heirship rights. After the DMA

received nearly all of the Collection, WERF (Texas) was then dissolved in September

1989, with the result that the DMA purported to actually acquire title to nearly the entire

Collection.

57. Subsequently, the DMA caused the Collection to be packed up from Villa

La Pausa in plain boxes without identifying labels and flown by private jet to Texas.

Thus, the Collection quietly disappeared from France, neatly evading French gift taxes

that would have been as high as 60%.



58. The various entities and trusts described above, including CVAG, TAL,

Beaux-Arts, and WERF, were not proper, distinct entities because Emery and Wendy

always retained the complete right to control them, their assets, and their activities, and

Wendy and Emery treated them and their bank accounts as if the corporate or entity

structure did not exist.

59. Thus, in addition to defrauding the French government, the stealth transfer

of the Collection was designed to defraud Schroeder from his half-share of the Collection

under rigid French laws regarding lifetime gifts in the context of reserved heirship.

N. The Will and Third WERF Entity.

60. Unsatisfied at having already improperly obtained almost the entire

Collection in violation of Schroeder’s heirship rights under French law, Defendants then

conspired to obtain the remainder of Wendy’s Estate.

61. Toward that end, in 1993, Wendy first met Wildenthal at a social event in

Dallas. Wildenthal immediately realized that Wendy was a suitable “mark” for his fund-

raising. Wildenthal’s aggressive fund-raising tactics and inappropriate use of donor

funds in connection with the University of Texas Southwestern Medical Center have been

well-documented by the media as well as relatives of other elderly donors.

62. Despite Wendy’s increasingly diminishing capacity, Wildenthal continually

attempted to persuade Wendy to transfer her remaining assets to his control. He would

then funnel those assets to his personal causes in Texas. Over the next several years,

Wildenthal sought to win over Wendy’s affections and confidence, successfully

persuading her to give several million dollars to his fund-raising causes.



63. In approximately 1998, Wildenthal began to pressure Wendy to sign a Will.

During one of her last visits to Dallas before her health precluded travel, Wildenthal

introduced Wendy to Copley, an attorney with the Dallas law firm Akin Gump Strauss

Hauer and Feld, L.L.P. (“Akin Gump”).

64. After an afternoon of plying Wendy (an alcoholic) with abundant

champagne and other drinks, Wildenthal abruptly confronted Wendy and presented a

Will that had been drafted by, or at, his direction with Copley’s assistance.

65. This Will appointed Wildenthal as sole Executor of Wendy’s Estate and

purported to direct that the majority of her Estate devolve to yet another new foundation

known as The Wendy & Emery Reves Charitable Foundation (“WERCF”), discussed

below. However, WERCF would not be created until Wendy died, and it would be

totally controlled by Wildenthal, Copley, and their circle. In the absence of another

controlling provision, Wildenthal would then, as Executor, have been entitled under

Texas Law to receive up to 5% of the value of the Estate.

66. Before the day it was presented to and signed by Wendy, she had never

read the Will that Copley prepared; nor had she ever met Copley before she was asked to

execute the Will; still less had she instructed Copley to prepare it. However, under the

dual pressure of Wildenthal and Copley, Wendy signed the Will.

67. This confrontation with Copley and Wildenthal so disturbed Wendy that

she became ill and could not leave her bed for several days thereafter. Wendy also

thereafter immediately wrote to Copley and asked him to change the Will to appoint

Charlton as co-executor with Wildenthal.



68. Copley wrote back saying that since she lived abroad and spent a

considerable amount of time in France, he would have to obtain legal advice in

Switzerland and in France for which he billed her some $20,000.00.

69. In the course of his legal advice to Wendy, Copley would have learned that

Wendy lived in France, not Switzerland, although Wendy paid minimal taxes in

Switzerland. However, because of Wendy’s undeniable longtime residence at Villa La

Pausa, it was clear that French law (with its provisions regarding reserved heirship)

would apply to Wendy’s Estate. Copley therefore made several efforts to avoid French

law and Schroeder’s heirship rights.

70. Copley knew, or at least should have known, that although Switzerland has

a form of forced heirship, foreign residents may subject their estate (except for local tax)

to the law of their nationality.

71. As Wendy was now British (having renounced her US citizenship in 1978),

Copley purported to subject her Estate to “British” law, which he later corrected in 2005

to English law (presumably after learning that “British” law does not exist).

72. The laws in England permit a parent to leave his/her estate to anyone and

non-dependent children have no rights. There was absolutely no reason to do this except

to deprive Schroeder of his lawful entitlement to a share of the Estate as Wendy’s sole

heir under the laws of France.

73. It is clear, therefore, that the Defendants conspired to deprive Schroeder of

his 50% share of the Estate as Wendy’s sole heir.



O. The Invalid POA.

74. On June 29, 2000, in connection with the Will (and one or more of its

Codicils), Copley also instructed Wendy to sign a Power of Attorney (“POA”) that

purported to give Copley authority over her affairs and bank accounts.

75. Wendy signed the POA from her home at Villa La Pausa. At that time, she

was suffering from the early stages of dementia.

76. Wendy’s signature on the POA in favor of Copley was never notarized.

77. Therefore, the POA is invalid under both Texas and French law. Enduring

powers of attorney are not valid in France and to enable Copley to make gifts, which he

later would, the document had to have been signed before a French notary, which it was

not.

P. WERCF.

78. Nonetheless, Copley then used this invalid POA to, among other things,

purport to create WERCF. Specifically, in August 2003, Wendy was the purported

“grantor” under a Trust Agreement establishing WERCF, making Levy, Charlton,

Wildenthal, Copley, and Ruth Sharp Altshuler its Co-Trustees. Copley, however,

executed the Trust Agreement individually (as a “Co-Trustee”) and on behalf of Wendy,

as her “attorney in fact,” presumably under the invalid POA.

79. Through WERCF, Defendants intended to transfer to the DMA certain of

Wendy’s assets during her lifetime and assets of the Estate following her death Again,

this was intended to avoid numerous domestic and foreign tax laws and further depleting

the Estate to Schroeder’s detriment.



80. On July 13, 2004, Copley completed an “Application for Recognition of

Exemption Under Section 501(c)(3) of the Internal Revenue Code (“Application”) on

behalf of WERCF. Copley signed the Application under penalty of perjury, in which he

represented (among other things) that:

In particular, the Dallas Museum of Art has been the object of the Grantor’s [Wendy] charitable motivation. She and her late husband gave to the museum a substantial collection, as illustrated in the booklet attached hereto, which is housed in the Dallas Museum in a separate wing entitled “The Wendy and Emery Reves Collection.

(emphasis added).

81. Copley further acknowledged in the Application that Wendy “is eighty-

eight (88) years old, born May 2, 1916. She is currently bedridden and not in the best of

health.”

82. Finally, Copley represented to the IRS in the Application that WERCF was

“the successor to the Wendy and Emery Reves Foundation, Inc., a New York Foundation

[WERF].”

83. These tortious acts of fraud, conspiracy, and interference in the affairs of a

foreign domicile as described herein, including through the use of WERCF, were

calculated to defraud Schroeder by ignoring the governing laws of Texas, France, and

Switzerland upon which Schroeder now sues. These acts of fraud were intentional,

calculated, and were done with malice.

Q. Wendy’s Death.

84. Wendy died in France on March 13, 2007.



85. After Wendy’s death, the Defendants claimed that Wendy was a Swiss

resident, even though Wendy never once traveled to Switzerland in the last nine years of

her life. Defendants even attempted to open probate proceedings in that country.

However, the Court in Lausanne, Switzerland rejected this claim of Swiss residence and

found Wendy to be a French resident leaving her Estate to be governed by French law.

This judgment was later confirmed on appeal.

86. In addition to being deprived of his heirship rights under French law,

Schroeder may also be liable for estate taxes under French law for assets that French

taxing authorities contend are properly included in the Estate and regarding which there

are currently threatened collection proceedings.

RESPONDENT SUPERIOR/AGENCY/CONSPIRACY

87. The Defendants were acting for or on behalf of the DMA and in the course

and scope of their employment, agency or contract with the DMA, such that the DMA is

liable for their conduct. Although acting within the course and scope of their

employment, agency or contract with the DMA, the individual defendants are liable

jointly and severally for their tortious conduct. If any Defendant acted at any time

outside their authority for the DMA, then they conspired with the other Defendants and

the DMA to use lawful and unlawful means to achieve an unlawful end and used

unlawful means to accomplish otherwise lawful ends. In either event, all of the

Defendants are jointly and severally liable for the damages they have proximately caused

to Schroeder.



CLAIMS FOR RELIEF

FRAUD/FRAUD ON THE ESTATE/CONSPIRACY

88. Schroeder incorporates by reference all preceding paragraphs as set forth

fully herein.

89. Defendants knew that TAL or Beaux-Arts held only color of title to the

Collection. They knew that, in fact, Wendy owned and controlled the Collection or that

the only way she could donate the Collection to the DMA was by directing Beaux-Arts to

distribute the Collection to her. In any event, the Collection either was or had to become

part of her Estate. They knew that Schroeder was Wendy’s only heir, such that he had a

50% forced heirship and that French law would allow Schroeder to reconstitute the

Estate, including the Collection, upon Wendy’s death. Defendants acted and conspired to

defraud the Estate and Schroeder of his heirship by using the Donation Agreement and

related documents and other entities to launder the Collection to the DMA. Further under

the Donation Agreement, the color of title to so-called “Retained Works” worth several

millions of dollars was to remain in Beaux-Arts, with the “promise” that Beaux-Arts

would donate them to WERF upon Wendy’s death, or that if Wendy caused the Retained

Works to be distributed to her, she would donate the Retained Works to WERF. In fact,

Defendants used the invalid POA to purportedly create WERCF and, by Copley

purporting to act as Wendy’s attorney-in-fact, purportedly caused Wendy to donate the

Retained Works to WERCF rather than WERF to which it was supposedly to have been

donated under the Donation Agreement. Not only was the POA invalid, but an attorney-

in-fact cannot create a trust for his principal. As such, WERCF is not a valid trust.



Again, however, Defendants concocted this ruse to deliver to DMA color of title to the

Retained Works. Indeed, any assets that Defendants misguided to WERCF were sent

there fraudulently. Not satisfied with the Collection and the Retained Works, they

furthered their fraud and conspiracy by inducing Wendy to sign a will, codicils to the will

and other documents with the intent of unlawfully procuring the remainder of the Estate

through the acts described above. Their acts have been a proximate cause of damages to

Schroeder for which he is entitled to recover. Indeed, Texas law recognizes that efforts

to avoid forced or reserved heirships constitute constructive or legal fraud even without

proof or dishonesty of purpose or intent to deceive and any illusory trust may be

disregarded.

ACCOUNTING/CONSTRUCTIVE TRUST

90. Schroeder incorporates by reference all preceding paragraphs as if set forth

fully herein.

91. DMA has obtained, or may subsequently obtain, assets through its fraud,

constructive fraud, conspiracy, duress, or other inequitable conduct. It is unjust and

inequitable for such assets to remain with, or be conveyed to, the DMA. Schroeder is

therefore entitled to a detailed accounting of all assets that were or may be wrongfully

steered away from the Estate. And, due to the unique, irreplaceable, and invaluable

nature of the Collection, Retained Works and other assets, the Court should declare that

DMA holds these assets in constructive trust for Schroeder to fulfill his rights. Further,

the DMA should be disgorged in Schroeder’s favor of any and all profits it has realized



through its display of this art and donations it has received in anticipation of and actually

receiving the art.

TORTIOUS INTERFERENCE WITH INHERITANCE RIGHTS


fully herein.

93. Through their fraud, duress or other tortious means, Defendants intended to

prevent Schroeder’s from receiving what he would have received as Wendy’s sole heir

or, alternatively, forced heir. As such, they tortiously interfered with Schroeder’s

inheritance rights and are jointly and severally liable to him for all damages proximately

caused Schroeder.

CONVERSION


fully herein.

95. As the sole heir to Wendy’s Estate, Schroeder had a legal right to

possession of the assets that were unlawfully steered to this jurisdiction. Defendants

unlawfully and without proper authorization exercised dominion and control over those

assets inconsistent with the Schroeder’s rights as the true owner; and proximately caused

Schroeder damages.

MISAPPLICATION OF FIDUCIARY PROPERTY


fully herein.



97. Defendants intentionally, recklessly, with conscious indifference or in a

grossly negligent manner misapplied Wendy’s assets, monies, and other items that

rightfully belonged to the Estate, which resulted in a substantial loss or risk of loss to

Schroeder. Moreover, to the extent Schroeder is being held liable for taxes on assets that

have been determined to be in the Estate yet in the possession or under the control of

Defendants, Schroeder has been or will be damaged in at least that amount.

EXEMPLARY DAMAGES

98. Defendants acted intentionally, maliciously, and in reckless disregard of,

with conscious indifference to, and with gross negligence regarding, Schroeder’s rights.

As such, Schroeder is entitled to recover exemplary damages for which the Defendants

should be held jointly and severally liable.

RELIEF REQUESTED

99. Schroeder respectfully requests the following relief:

(a) Defendants be served with process and required to answer and

appear herein;

(b) The Court award Schroeder actual, compensatory, and consequential

damages, including pre- and post-judgment interest, at the highest

rate allowed by law and costs of court;

(c) The Court award Schroeder exemplary, damages;

(d) The Court impose a constructive trust and grant a full and complete

accounting not only to disgorge the DMA of its ill-gotten profits and



donations but to allow Schroeder to select the art and other assets to

satisfy his claim; and

(e) The Court grant Schroeder all such other relief whether in law or in

equity to which he may show himself justly entitled.

JURY DEMAND

100. Schroeder demands a trial by jury.

Respectfully submitted,

By: /s/ Gary D. Eisenstat Gary D. Eisenstat State Bar No. 06503200 Doug K. Butler State Bar No. 03516050 Valeri C. Williams State Bar No. 24058797

FIGARI & DAVENPORT, L.L.P. 3400 Bank of America Plaza 901 Main Street Dallas, Texas 75202 TEL: 214-939-2000 FAX: 214-939-2090

ATTORNEYS FOR PLAINTIFF ARNOLD LEON SCHROEDER, JR.

CERTIFICATE OF SERVICE

I hereby certify that on May 17, 2011, I electronically filed the foregoing with the Clerk of Court using the CM/ECF system which will send notification of such filing to all parties who have appeared and registered with CM/ECF.

/s/ Gary D. Eisenstat Gary D. Eisenstat


UNITED STATES DISTRICT COURTNORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

ARNOLD LEON SCHROEDER, JR. §§

Plaintiffs §§

v. § CIVIL ACTION NO. 3:11-CV-0525-B§

KERN WILDENTHAL, EDWARD A. §COPLEY, HARRY S. PARKER, III, §GEORGE CHARLTON, IRVIN LEVY, §and the DALLAS MUSEUM OF ART, §

§Defendant. §

MEMORANDUM OPINION AND ORDER

Before the Court are Defendants’ Motions to Dismiss Pursuant to Rule 12(b)(6) (docs. 19,

20, 21), filed June 9, 2011. For the reasons stated below, the Court finds that the Defendants’

Motions are hereby GRANTED and that Plaintiff’s claims should be and hereby are DISMISSED

with prejudice.

I.

BACKGROUND

This case arises out of a dispute over a transfer of property by Wynelle Reves (“Wendy

Reves”). Plaintiff Arnold Schroeder (“Schroeder”) is the only son of Wendy Reves, a philanthropist

who was born in America but lived most of the latter part of her life in France. Pl.’s Am. Compl.

(“Am. Compl.”) ¶¶ 10-11. Under French law, Schroeder is the “reserved heir” of Wendy Reves. Id.

at ¶ 11. Consequently, as her only child, Schroeder is entitled to 50% of her estate. Id. at ¶ 11.

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After divorcing from Schroeder’s father, Wendy Reves married Emery Reves, a wealthy

author and financier. Id. at ¶¶ 17-18. Both before and after his marriage to Wendy Reves, Emery

Reves collected numerous pieces of art (“the Collection”) with a value that was estimated as high

as $400,000,000.00. Id. at ¶ 20. Schroeder alleges that Emery and Wendy Reves established a

number of corporate sham entities during their marriage in order to avoid taxation on their

substantial property. Id. at ¶¶ 22-44. As a result, the Reves did not own all of their property in their

names; some of their property, such as the villa where they resided in France, “Villa La Pausa,” were

placed in the name of a corporate entity. Id. at ¶ 22.

Emery Reves died in 1981, and the following year, three members of the Dallas Museum of

Art (“DMA”) – Harry Parker, George Charlton, and Irvin Levy – visited Wendy Reves. Id. at ¶ 49.

On May 31, 1983, Wendy Reves signed a Donation Agreement that purported to donate a majority

of the Collection to the DMA. Id. at ¶ 50. Schroeder alleges that Wendy Reves was convinced to

donate the Collection in part because the DMA agreed to build a replica of several of the rooms of

Villa La Pausa. Id. at ¶ 51. Schroeder further alleges that, in order to validate the transfer, the DMA

Members created a number of sham corporate entities and trusts, such as the Wendy and Emery

Reves Foundation, to circumvent France’s reserved heirship rule. Id. at ¶¶ 51-58. By doing so, the

DMA laundered Wendy Reves’ possessions, notably the Collection, which deprived Schroeder of

the possibility of inheriting this property. Id. at ¶ 89.

In 1993, ten years after having donated the Collection to the DMA, Wendy Reves first met

Dr. Kern Wildenthal, who was then the President of the University of Texas Southwestern Medical

Center, at a social event in Dallas. Id. at ¶ 61. By Plaintiff’s account, Wildenthal recognized Wendy

Reves as a “mark” for his fund-raising, and persuaded her to donate millions of dollars over the next

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several years to various causes of his choice. Id. at ¶¶ 61-62. Sometime around 1998, Wildenthal

introduced Wendy Reves to Edward Copley, a Dallas attorney, and then pressured her to sign a will

(the “Will”). Id. at ¶ 63. The Will appointed Wildenthal as sole executor of Wendy Reves’ estate

and established another foundation, the Wendy and Emery Reves Charitable Foundation

(“WERCF”). Id. at ¶ 65. In the course of performing legal services for Wendy Reves, Copley allegedly

made several attempts to evade tax laws on her estate. Id. at ¶¶ 69-73. Additionally, in 2000,

Wendy Reves signed a power-of-attorney that purportedly gave Copley authority over her bank

accounts. Id. at ¶¶ 74-77. However, because the power of attorney was never notarized, Schroeder

claims that it is invalid. Id. at ¶ 77. After Wendy Reves’ death in 2007, Copley claimed that Wendy

Reves was a Swiss citizen and should be subject to Swiss estate law; however, a Swiss court rejected

this claim. Id. at ¶ 85. Thus, French law governs Wendy Reves’ estate. Id. at ¶¶ 85-86.

Schroeder’s central argument is that he has been deprived of his rightful share of his mother’s

estate as a result of actions taken by the three named Defendants: the Dallas Museum of Art, Kern

Wildenthal, Jr., and Edward Copley (together, the “Defendants”). Schroeder alleges that the

Defendants collectively committed fraud1 because they were aware that Wendy Reves owned the

Collection in her personal capacity and that the sham corporations held only color of title as to the

collection. Through such actions, the Defendants conspired to circumvent the French forced

1 Schroeder made a number of additional claims in his Amended Complaint, including claims forconversion, tortious interference with inheritance rights, and misapplication of fiduciary property. In hisResponse to the Motions to Dismiss, Schroeder “elected not to pursue these claims further,” but neverfiled an Amended Complaint or sought to dismiss these claims. Accordingly, these claims areDISMISSED and the Court will not address them in this Order.

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heirship laws, which would have led to Schroeder’s direct inheritance of 50% of the Collection.2 As

a result, Schroeder argues that DMA holds the Collection in constructive trust. Defendants deny

these allegations and each one has filed a Motion to Dismiss, arguing that Schroeder has failed to

state a claim upon which relief can be granted, and even if his claims were cognizable, they would

be barred by the relevant statutes of limitations.

II.

LEGAL STANDARD

Under the Federal Rules of Civil Procedure, a complaint must contain “a short, plain

statement of the claim showing that the pleader is entitled to relief.” FED. R. CIV. P. 8(a)(2). A

plaintiff may support his claim for relief with any set of facts consistent with the allegations in the

complaint. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 563 (2007). Rule 12(b)(6) authorizes dismissal

of a complaint that fails to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6).

In analyzing a Rule 12(b)(6) motion, the Court “accepts ‘all well-pleaded facts as true, viewing them

in the light most favorable to the plaintiff.’” In re Katrina Canal Breaches Litig., 495 F.3d 191, 205

(5th Cir. 2007)(quoting Martin K. Eby Constr. Co. v. Dallas Area Rapid Transit, 369 F.3d 464, 467

(5th Cir. 2004)). Such a motion should only be granted when the complaint does not include

“enough facts to state a clam to relief that is plausible on its face.” Twombly, 550 U.S. at 570.

A claim is plausible on its face “when the plaintiff pleads factual content that allows the court

to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft

2 For Schroeder to inherit the property in question, he would have to demonstrate that it waslegally part of Wendy Reves’ estate. This Court will not, of course, decide that question, and will assumeat this stage that the forced heirship statute would apply to the Collection.

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v. Iqbal, 129 S. Ct. 1937, 1949 (2009). “The plausibility standard is not akin to a ‘probability

requirement,’ but asks for more than a sheer possibility that a defendant has acted unlawfully.” Id.

Thus, to survive a motion to dismiss, “factual allegations must be enough to raise a right to relief

above the speculative level.” Twombly, 550 U.S. at 555. A complaint that offers “labels and

conclusions” or “a formulaic recitation of the elements of a cause of action” will not survive a motion

to dismiss. Iqbal, 129 S. Ct. at 1949. Thus, “[t]hreadbare recitals of the elements of a cause of action,

supported by mere conclusory statements, do not suffice.” Id.

The Court’s review is limited to the allegations in the complaint and to those documents

attached to a defendant’s motion to dismiss to the extent that those documents are referred to in

the complaint and are central to the claims. Causey v. Sewell Cadilac-Chevrolet, Inc., 394 F.3d 285,

288 (5th Cir. 2004). Nevertheless, it is well established that dismissal under Fed. R. Civ. P. 12(b)(6)

is warranted where an affirmative defense, such as the statute of limitations, is apparent on the face

of the plaintiff's complaint. Jones v. Alcoa, Inc., 339 F.3d 359, 366 (5th Cir.2003); Kansa Reinsurance

Co. v. Congressional Mortgage Corp. of Tex., 20 F.3d 1362, 1366 (5th Cir.1994).

III.

ANALYSIS

Defendants contend that Schroeder’s claims fail as a matter of law because he has failed to

state a claim for fraud that satisfies the pleading standard under Fed. R. Civ. P. 9(b), and has

similarly failed to plead facts that would satisfy a claim of conspiracy. Defendants further argue that

Schroeder has not alleged any fiduciary relationship, which they argue is required for a claim of

constructive fraud. Alternatively, Defendants argue that each of Schroeder’s claims for relief is time-

barred by the relevant statutes of limitations.

- 5 -


Schroeder counters that a claim of constructive fraud need not satisfy the standard

enumerated in Rule 9(b), and the applicable statutes of limitations periods are tolled by virtue of the

discovery rule. Schroeder additionally argues that a claim of civil conspiracy is cognizable because

the Defendants acted, even if separately, to obtain Schroeder’s rightful property by fraud. The Court

will address these arguments in turn.

A. Constructive Fraud

Schroeder first claims that the Defendants have committed either legal or constructive

fraud.3 Under Texas law, constructive fraud involves “the breach of some legal or equitable duty .

. . that the law declares fraudulent because of its tendency to deceive others, to violate confidence,

or to injure public interests.” Archer v. Griffith, 390 S.W.2d 735, 740 (Tex. 1965). Unlike actual

fraud, constructive fraud does not require any intent to deceive. Id. According to Schroeder, then,

each of the named Defendants has committed constructive fraud by inducing Wendy Reves to

donate her property, either personally or through a corporate entity, which has resulted in

circumventing French laws of forced heirship. Defendants argue in response that constructive fraud,

unlike actual fraud, requires the plaintiff to show a breach of some legal or fiduciary duty. Without

the allegation of facts, the Defendants claim that any claim of fraud must be dismissed.

i. Constructive Fraud and Breach of Legal Duty

Schroeder asserts that a claim of constructive fraud does not require a breach of legal duty.

Rather, Schroeder argues that a fiduciary relationship is unnecessary because constructive fraud has

“fuzzier edges.” Pl. Resp. 9. In fact, Schroeder himself concedes that this doctrine is only a

3 Texas courts, as well as both parties, have used the terms legal and constructive fraudinterchangeably. This Court will use the term “constructive fraud.”

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“shorthand for the wrong” that Defendants have committed. Id. at 16. To make this point,

Schroeder relies heavily on a concurring opinion by Judge Wiener in the Fifth Circuit that concludes

that Texas state law takes a flexible approach to constructive law, and therefore does not necessarily

require a fiduciary duty. In re Soza, 542 F.3d 1060, 1073-75 (5th Cir. 2008) (Wiener, J., specially

concurring). However, as Judge Wiener also noted in his concurrence, there was an equitable duty

at issue between the relevant parties. Id. at 1075-76. Furthermore, a number of courts have stated

unequivocally that a fiduciary duty, or at least some duty resembling a fiduciary duty, is necessary

to allege a constructive fraud cause of action. See, e.g., In re Hollis, Bankruptcy No. 09-40483,

Adversary No. 09-4066, 2011 WL 1168403, at *12 (Bankr. E.D. Tex. March 29, 2011); Ternium

Intern. USA Corp v. Consolidated Systems, Inc., No. 3:08-CV-0816-G, 2009 WL 804119, at *5 (N.D.

Tex. March 25, 2009) (Fish, J.) (dismissing a counterclaim for constructive fraud because the

defendant did not plead that it was owed a fiduciary duty); Humble Emergency Physicians, P.A. v.

Mem’l Hermann Healthcare Sys., Inc., No. 01-09-00587-CV, 2011 WL 1584854, at *8 (Tex.

App.–Houston April 21, 2011, no pet.) (noting that because the defendant did not owe a fiduciary

duty, the plaintiff could not establish a claim for constructive fraud).

Despite the doctrinal difference between actual and constructive fraud, then, Schroeder has

not pleaded any legal relationship binding the Defendants to Wendy Reves. Even if this Court were

to agree with Schroeder and find that a fiduciary duty is not required for a claim of constructive

fraud, it is undisputed that the Defendants would need to show some duty to support this claim.

Schroeder has failed to address this point. The encounters described in the Complaint allege that

both the DMA and Wildenthal preyed on Wendy Reves because she was elderly and susceptible to

flattery, not because of a relationship based on trust or confidence. Schroeder also fails to allege any

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explicit duty owed by Copley, but as Wendy Reves’ attorney, such a relationship could support a

claim of constructive fraud. But Schroeder fails to allege that Copley did not act in accordance with

Wendy Reves’ demands, and states only that she failed to read the will that Copley prepared, and

signed it after he pressured her to do so. Schroeder does not suggest that this conduct would

constitute a breach of any legal duty that Copley owed to her, nor has he offered any legal authority

to suggest that such an action would constitute constructive fraud. Thus, the claims of constructive

fraud are insufficient as a matter of law because they fail to allege a breach of any legal or equitable

duty owed to Wendy Reves.

ii. Rule 9(b) and Constructive Fraud

Defendants also argue that Schroeder’s allegations fail to satisfy the higher pleading standard

required by Rule 9(b). Schroeder, on the other hand, argues that constructive fraud need not satisfy

Rule 9(b), but even if it did, the Amended Complaint would satisfy that standard. The Court agrees

with the Defendants that Schroeder’s claim of fraud is subject to the heightened pleading

requirement, and fails to meet it.

Rule 9(b) requires that the party claiming fraud “must state with particularity the

circumstances constituting fraud or mistake.” The Fifth Circuit has clarified that a plaintiff must

“specify statements contended to be fraudulent, identify the speaker, state when and where the

statements were made, and explain why the statements were fraudulent.” Flaherty & Crumrine

Preferred Income Fund, Inc. v. TXU Corp., 565 F.3d 200, 207 (5th Cir. 2009) (quoting Williams v.

WMX Techs., Inc., 112 F.3d 175, 177 (5th Cir. 1997)); see also United States ex rel. Thompson v.

Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir.1997) (“At a minimum, Rule 9(b)

requires that a plaintiff set forth the ‘who, what, when, where, and how’ of the alleged fraud.”) If a

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complaint fails to adhere to this standard in pleading a claim of fraud, it may be dismissed at the

pleading stage for failure to plead with particularity. See United States ex rel. Doe v. Dow Chemical Co.,

343 F.3d 325, 329 (5th Cir. 2003). Although the Fifth Circuit has not decided whether a claim of

constructive fraud must satisfy the higher pleading standards under Rule 9(b), this Court has said

on several occasions that a plaintiff must do so in order to defeat a motion to dismiss. See Litson-

Gruenber v. JP Morgan Chase & Co., No. 7:09-CV-056-O, 2009 WL 4884426 (N.D. Tex. Dec. 16,

2009) (O’Connor, J.); Kougl v. Xspedius Mgmt. Co. of Dallas/Fort Worth, L.L.C., No. 3:04-CV-2518-

D, 2005 WL 1421446 (N.D. Tex. June 1, 2005) (Fitzwater, J.). This Court will not deviate from the

accepted standard enumerated by this district.

In the present case, Schroeder’s Complaint contains a long-winded, often meandering

narrative, yet it fails to put the Defendants on notice of the fraud with any degree of particularity.

The allegations can be summarized as such: the Defendants, sometimes in concert, exerted pressure

on Wendy Reves to create a series of entities for the purpose of laundering her belongings to the

DMA and other organizations in order to evade French estate laws. Yet there is a dearth of

specificity in the Amended Complaint and the allegations are both generic and conclusory.

Schroeder claims, for example, that Wildenthal encouraged Wendy Reves to sign the Will, yet fails

to address how this pressure was exerted. Am. Compl. ¶ 63. Schroeder’s allegations about Copley

are similarly general and in fact fail to explain why they constitute fraud. In the Amended

Complaint, Schroeder lists a series of actions that Copley committed on her behalf, but fails to

address in any manner how these decisions would violate any duty to Wendy Reves, or in what

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fashion they were deceptive.4 Additionally, though Schroeder argues that Copley committed fraud

when he claimed that Wendy Reves was a Swiss resident, he also states that a Swiss court rejected

this claim and found that her estate should be governed by French law. Am. Compl. ¶ 85. Given that

Copley’s claim about her residence, no matter how ill-conceived, did not result in any damage, it is

clear that Texas law does not recognize it as fraud. Accordingly, the Court finds that Schroeder’s

allegations do not satisfy the heightened pleading requirements of Rule 9(b), and his claims for

constructive fraud and breach of fiduciary duty fail under Rule 12(b)(6).

iii. Statute of Limitations

Even if Schroeder’s claims were cognizable and pleaded with particularity, they would be

time-barred. The applicable statute of limitations for a claim of fraud is four years. TEX. CIV. PRAC.

& REM. CODE ANN. § 16.004(a)(4) (West 2002). In an action for fraud, the limitations period begins

to run when the fraud is discovered, or should have been discovered in the exercise of reasonable

diligence. Woods v. William M. Mercer, Inc., 769 S.W.2d 515, 517 (Tex. 1988). Defendants argue

that the fraud complained of involves the donation of the Collection, which occurred in 1983; this

would mean that the limitations period has long expired, unless Schroeder can establish that the

fraud could not have been discovered at the time. In an attempt to evade the limitations period,

however, Schroeder claims that his cause of action for fraud could not have accrued until after

Wendy Reves died. The Court cannot agree with Schroeder’s proposition that this action for fraud

4 In his Amended Complaint, Schroeder claims that Copley instructed Wendy Reves to sign apower-of-attorney document that was never notarized, and is therefore invalid. Am. Compl. ¶¶ 74-77.Schroeder later claims that the invalid power-of-attorney was used to create WERCF. Id. at ¶ 89. Despitethis, Schroeder never claims that Copley failed to comply with Wendy Reves’ requests, or that hebreached a duty to her. Furthermore, Schroeder makes no indication that he seeks to invalidate thepower-of-attorney, or transactions made pursuant to the power-of-attorney. Therefore, the Court will notaddress these allegations separately from the above the discussion of constructive fraud.

- 10 -


did not accrue until 2007, 24 years after the Donation Agreement was signed.

Schroeder has failed to cite any case where a party that received a donation was required by

law to return it nearly thirty years later. Rather, he relies heavily on cases from the mid-19th century

that interpreted a Texas forced heirship statute that provided that parents could only disinherit their

children for specific, enumerated reasons. Epperson v. Mills, 19 Tex. 65, 1857 WL 5045 (Tex. 1857);

Crain v. Crain, 17 Tex. 80, 1856 WL 4967 (Tex. 1856). The Texas Supreme Court interpreted this

statute to guard against fraudulent “devices or donations” that effectively strip the children of the

property that is secured to them. See Crain, 1856 WL 4967, at *8. The Court later clarified that a

parent seeking to avoid the rigidity of the statute must make donations “absolutely,” so that the

donor does not merely hold the property in trust and no longer retains any interest. Epperson, 1857

WL 5045, at *3. Schroeder reads these cases to mean that any conveyance made in a jurisdiction

with a forced heirship statute is, on its face, fraudulent. But such a broad reading not only disregards

the Texas statute that the Texas Supreme Court was charged to interpret, but the subsequent

development of the doctrine of constructive fraud. Furthermore, the above cases have had almost

no discernable impact on Texas courts that have adjudicated claims of fraud. Though Schroeder

argues that the Texas Supreme Court later analogized to these cases in applying the concept of

illusory trusts, see Land v. Marshall, 426 S.W.2d 841, 847-48 (Tex. 1968), the Court subsequently

limited illusory trusts “to instances in which a non-consenting spouse’s property is used to fund a

trust.” Westerfeld v. Huckaby, 474 S.W.2d 189, 191 (Tex. 1972).

Schroeder’s understanding of constructive fraud, then, is predicated on Crain and its progeny,

but bears little relevance to the facts in this case and Texas’ current understanding of constructive

fraud. Thus, there is no basis for this Court to find that any transaction, no matter when it occurred,

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is fraudulent per se because it has resulted in Schroeder inheriting less property than he believes he

is entitled to. The effect of Schroeder’s argument is that Wendy Reves would have had a viable cause

of action against the Defendants for fraud, and even after the relevant limitations period had

expired, the cause of action would again become ripe upon her death. Such a theory would

completely evade Texas’ statute of limitations for fraud and finds no support in either case law or

under statute.

Schroeder also fails to raise any ground to establish grounds for tolling the statute of

limitations under the discovery rule. Under Texas law, though a cause of action generally accrues

when a wrongful act causes some injury, where an injury is “inherently undiscoverable and the

evidence of the injury is objectively verifiable,” the statute of limitations may begin to run only upon

discovery of the injury. Computer Assocs. Int’l, Inc. v. Altai, Inc., 918 S.W.2d 454, 455-56 (Tex.

1996). “The requirement of inherent undiscoverability recognizes that the discovery rule exception

should be permitted only in circumstances where ‘it is difficult for the injured party to learn of the

negligent act or omission.’” Id. at 456 (quoting Willis v. Maverick, 760 S.W.2d 642, 645 (Tex.1988)).

Schroeder claims that as a result of the Defendants’ fraud, he could not have known about the

relevant facts until after her death. However, as this Court has made clear, a party pleading

fraudulent conceal “must plead sufficient facts to place the defendants on notice of the tolling

theory.” Vernon v. City of Dallas, No. 3:08-CV-1068-B, 2009 WL 2486033, at *5 (N.D. Tex. Aug.

13, 2009) (Boyle, J.) (emphasis in original). The claim that the injury was “inherently

undiscoverable” until after Wendy Reves’s death is a conclusion that is unsupported by any alleged

facts that would indicate a basis for the application of the discovery rule. Indeed, the donation of the

Collection to the DMA occurred in 1983, and Schroeder cites to public filings by Copley that

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purported to establish a corporation that would inherit her assets following her death. Am. Compl.

¶¶ 78-80. The claim that these injuries were undiscoverable merely states a conclusion. Although

it may be possible that Schroeder was unaware of the Defendants’ alleged actions, he must show that

he is plausibly entitled to toll the statute of limitations period. Iqbal, 19 S. Ct. at 1949. He has failed

to do so, and thus the Court finds that the statute of limitations bars a claim of constructive fraud.

Accordingly, Schroeder’s claim for fraud must fail. He has failed to allege any legal or

equtable relationship that would give rise to a finding of constructive fraud. Even if the Court were

to find that his claims were sufficient to make a claim of constructive fraud, however, they would be

barred by the applicable statute of limitations. For these reasons, Schroeder’s claim of fraud is

DISMISSED with prejudice.

B. Conspiracy

Schroeder next argues that the Defendants conspired to defraud Wendy Reves. Under Texas

law, civil conspiracy is a derivative tort. Tilton v. Marshall, 925 S.W.2d 672, 681 (Tex. 1996) (“[A]

defendant’s liability for conspiracy depends on participation in some underlying tort for which the

plaintiff seeks to hold at least one of the named defendants liable.”) (citation omitted). Given that

the Court has dismissed his claim of constructive fraud, Schroeder’s claim of conspiracy must also

fail. However, even if civil conspiracy did not depend on an underlying tort, Schroeder’s Complaint

would fail to allege a claim of conspiracy.

To maintain an action for civil conspiracy, a plaintiff must allege facts showing: (1) two or

more persons; (2) an object to be accomplished; (3) a meeting of the minds on the object or course

of action; (4) one or more unlawful, overt acts; and (5) damage as a proximate result. Tri v. J.T.T.,

162 S.W.3d 552, 556 (Tex. 2005). Though Schroeder concedes that the named Defendants

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encountered Wendy Reves at different times, and did not actually develop a uniform plan, he claims

that they worked toward a common goal. For the claim of conspiracy to proceed, then, the Court

would have to accept the mere conclusion that the Defendants conspired together because each

wanted to benefit from her philanthropy as sufficient to defeat a motion to dismiss. Schroeder’s

failure to specify how the disparate acts, acts that occurred between 1983 and 2007, amount to a

conspiracy, or when anything resembling a “meeting of the minds” occurred, is fatal to the claim of

conspiracy. While it may be true that juries must frequently infer the existence of a conspiracy based

on circumstantial evidence, Schroeder has failed to allege any plausible collection in his Amended

Complaint. He argues, for example, that “the DMA Defendants knew and intended there to be a

future will to complete the heist . . . . [Copley and Wildenthal] then entered the picture later to

accomplish precisely that end.” Pl. Resp. 34. As the Supreme Court has made clear, a plaintiff must

plead more than “labels and conclusions” or offer a “formulaic recitation of the elements of a cause

of action” to defeat a motion to dismiss. Iqbal, 129 S. Ct. At 1949. Schroeder’s claim of conspiracy

cannot meet this threshold. Accordingly, Schroeder’s claim of conspiracy is DISMISSED.

IV.

CONCLUSION

For the foregoing reasons, Defendants’ Motions to Dismiss are hereby GRANTED and all

of Plaintiff’s claims are DISMISSED. Furthermore, Plaintiffs claims are DISMISSED with

prejudice because the Court has already given him an opportunity to amend in this case. See Moini

v. Univ. Tex. at Austin, No. A-10-CA-180-SS, 2011 WL 90472, at *13 (W.D. Tex. Jan. 10, 2011);

Swanson v. Aegis Commc’ns Group, Inc., No. 3:09-CV-041-D, 2010 WL 1779664, at *1 (N.D. Tex.

Apr. 29, 2010); Maa v. Rollins-Cross, No. 3:03-CV-2721-K, 2005 WL 81706, at *2 (N.D. Tex. Jan.

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11, 2005). Furthermore, any future amendment to Plaintiff’s Complaint would be futile, as he is

procedurally barred from bringing his claim of constructive fraud under Texas law, which thus

defeats his claim for civil conspiracy. Finally, any equitable remedy that would result from a finding

of constructive fraud, including a constructive trust, is hereby DENIED.

SO ORDERED.

DATED November 30, 2011

_________________________________JANE J. BOYLEUNITED STATES DISTRICT JUDGE

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Daniel L. Rasmussen, Bar No. 120276 [email protected] Erik M. Andersen, Bar No. 220513 [email protected] PAYNE & FEARS LLP Attorneys at Law 4 Park Plaza, Suite 1100 Irvine, California 92614 Telephone: (949) 851-1100 Facsimile: (949) 851-1212 Attorneys for Respondent Arnold L. Schroeder, Jr.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

SCI LA PAUSA, a French corporation,

Applicant,

v. ARNOLD LEON SCHROEDER, JR., an individual,

Respondent.

Case No. 2:11-cv-10483 ABC (VBK) ANSWER OF RESPONDENT ARNOLD LEON SCHROEDER, JR. DEMAND FOR JURY TRIAL The Hon. Audrey B. Collins

Pursuant to Rule 8(b) of the Federal Rules of Civil Procedure, Respondent

Arnold Leon Schroeder, Jr. (“Schroeder”) answers the Application for Entry of

Judgment of SCI La Pausa (“Applicant”). If an averment is not specifically

admitted, it is hereby denied.

ANSWER TO APPLICATION

1. Responding to Paragraph 1 of the Application for Entry of Judgment,

Schroeder admits that Applicant is a French corporation. Schroeder lacks sufficient

knowledge or information to form a belief concerning the truth of the other factual

Case 2:11-cv-10483-ABC-VBK Document 34 Filed 05/18/12 Page 1 of 14 Page ID #:906Case 3:12-mc-00081-B Document 1-5 Filed 08/24/12 Page 1 of 14 PageID 149

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-2-ANSWER OF RESPONDENT SCHROEDER

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allegations contained therein and on that basis denies such allegations. Paragraph 1

further contains legal conclusions and argument as to which no response is required.


Schroeder admits the allegations contained therein.








Schroeder denies each and every allegation contained therein.


Schroeder admits that he is the son of Wendy Russell Reves; that Wendy Russell

Reves married Schroeder’s father around 1935; that Schroeder is the only child of

Wendy Russell Reves’ first marriage; and that Wendy Russell Reves and

Schroeder’s father were divorced. Except as expressly admitted herein, Schroeder

denies each and every allegation contained therein.


Schroeder admits that Emery Reves was an author; that Emery Reves amassed a

significant art collection; that Emery Reves created Cooperation Verlags AG; that


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Emery Reves died in 1981; and that Wendy Reves died in 2007. Schroeder lacks

sufficient knowledge or information to form a belief concerning the truth of the

other factual allegations contained therein and on that basis denies such allegations.

Paragraph 8 further contains legal conclusions and argument as to which no

response is required.

9. Responding to Paragraph 9 of the Application for Entry of Judgment

(erroneously numbered as 10), Schroeder admits the allegations contained therein.


(erroneously numbered as 11), Schroeder admits the allegations contained therein.


Schroeder denies that his lawsuit precluded sale of the Villa. As to the other

allegations in Paragraph 11, Schroeder admits the allegations contained therein.










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Schroeder lacks sufficient knowledge or information to form a belief concerning the

truth of the factual allegations contained therein and on that basis denies such

allegations. Paragraph 16 further contains legal conclusions and argument as to

which no response is required.


Schroeder denies that he was given an adequate opportunity to defend himself

against SCI La Pausa’s counterclaim for damages. As to the other allegations in

Paragraph 17, Schroeder admits the allegations contained therein.


(erroneously numbered as 20), Schroeder denies each and every allegation contained

therein.


(erroneously numbered as 21), Schroeder denies each and every allegation contained

therein.

AFFIRMATIVE DEFENSES

Schroeder pleads the following separate defenses. Schroeder reserves the

right to assert additional affirmative defenses that discovery indicates are proper.

FIRST AFFIRMATIVE DEFENSE

(Failure to State a Claim)

1. As a separate and first affirmative defense to the Application, and to the

purported causes of action set forth therein, Schroeder alleges that the Application


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when taken as a Complaint fails to state facts sufficient to constitute a cause of

action.

SECOND AFFIRMATIVE DEFENSE

(Fraud: Cal. Code Of Civil Proc. §1716(c)(2))

2. As a second separate and affirmative defense to the Application and

each purported cause of action contained therein, Schroeder alleges that the French

Judgment was obtained by fraud which deprived Schroeder of an adequate

opportunity to present his case.

3. Schroeder is an elderly United States citizen who has resided in

California for nearly his entire adult life. He lives in Long Beach, where he

continues to teach a single community college class each semester; an opportunity

he has taken since retiring from full-time teaching.

4. In 1967, his mother married the man she had lived with since 1943,

Emery Reves. Reves was a multi-millionaire. Mr. and Mrs. Reves lived together in

a sumptuous mansion called Villa la Pausa (“the Villa”). After Emery Reves’ death,

Schroeder’s mother took over a vast estate measured in the hundreds of millions of

dollars and she continued residing at the Villa until her death in 2007. Mrs. Reves’

passing triggered the only thing as inevitable as death: taxes.

5. Mr. and Mrs. Reves structured their life together in a manner meant to

avoid the impact of French law (and French taxes) despite their decades-long

residence in the country, relying in particular on a fictitious domicile in Switzerland.

But after Mrs. Reves’ passing, the courts of Switzerland determined that she had her

last domicile in France with the consequence that large portions of her estate (if not

the entirety) are governed by French law which embodies very different principles


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from those found in the United States. Two such French legal principles are central

here.

6. First, Schroeder qualifies for a “reserved heirship” under French law.

This means that he is entitled, as a matter of law on these facts, to one-half of his

mother’s estate. Moreover, French law does not allow a decedent to defeat the

reserved heirship by gifting or otherwise disposing of her property in a way that

reduces the estate. Instead, the value of all such transfers above and beyond 50% of

the estate (without the transfers counting) can be reclaimed by the reserved heir.

7. Second, France lacks the hesitancy to “pierce the corporate veil” that is

a hallmark of American common law. A variety of reasons can be invoked to

disregard a corporate structure, including failure to comply strictly with corporate

formalities, such as having board meetings or keeping minutes.

8. Schroeder claimed his reserved heirship in France. That action has

spurred a wide range of litigation over Mrs. Reves’ assets (including the present

case) with several entities directed by Dr. Kern Wildenthal, George Charlton, and

Edward Copley. This non-familial group claims ownership of far more than 50% of

the assets that Mrs. Reves accumulated (including by inheritance from Emery

Reves) over her lifetime, all achieved without paying market value. One of these

assets is the Villa. Whether done as part of an effort to avoid taxes, or to avoid

French law, or to avoid Schroeder’s inheritance rights, sham arrangements were

made in which Mrs. Reves exercised complete dominion over the relevant assets

and entities, while making it seem as if the Villa did not belong to her personally.

9. After Schroeder claimed his reserved heirship, French tax authorities

began to look over the potential Reves estate to determine what Schroeder’s taxes


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should be. Among the items that French authorities ultimately determined should be

part of the estate and thus should result in a multi-million euro tax assessment to

Schroeder was the Villa. But Schroeder had a problem: SCI La Pausa denied that

he had any claim, ownership, or other rights to the Villa. Anticipating this very

conflict with the French authorities regarding whether he would be taxed on the

value of the Villa, Schroeder had already initiated the litigation giving rise to the

judgment at issue in this case (“the Nice action”) when it was confirmed that he

would be subject to the tax. While there is also an on-going criminal investigation

surrounding the entire history of Reves-related arrangements pre-dating Schroeder’s

heirship claim, it does not help Schroeder meet the taxes assessed by French

authorities.

10. With the Nice action pending, Schroeder faced being taxed for a

property that he supposedly “owned” but did not possess and could not possess

unless a French court ruled in his favor. To temporarily resolve the situation,

Schroeder asked the French taxing authorities to suspend or abate the tax while the

Nice action was pending. That request was denied. The tax authority’s reasoning is

significant as it concluded, after reviewing: (1) the Nice action, (2) information

relating to the criminal complaint, and (3) the government’s files, that:

“The reading and the analysis of the elements of the summons of 17 March

2008 and the criminal complaint against persons unknown, to which the tax

office expressly refers, as well as the data of the files of SCI La Pausa, owner

of villa la Pausa, and CooperationsVerlag, main shareholder of SCI La Pausa:

▪ Strengthens the thesis according to which Mrs. Reves was indeed the

owner, as she was living and until she passed away, through interposed


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legal entities of Villa la Pausa, and that she is at the very least the

largest economic beneficiary

▪ That this property, as far as the indirect ownership is concerned,

necessarily belongs to the estate of the deceased

▪ And that the value of this indirect ownership must necessarily be

reintegrated into the taxable estate.”

11. The tax authority also ultimately concluded:

“The case law . . . provided in proceedings of under-valuation with the

intention of making a gift, a necessary condition in the recognition of an

indirect gift. The provision of the shares from COOPERATION VERLAG to

the BEAUX ARTS Foundation resulted in Mme Reves being the true

beneficiary of the villa.”

“As a result of these legal issues and facts, the real estate called la PAUSA

should be seen as the property of the deceased at the time of her death, in a

proportion of 99.16% (=11900 shares out of 1200 shares) of the capital of SCI

LA PAUSA, held by COOPERATION VERLAG, which in turn is held by

Beaux Arts Foundation, which itself is owned by MME RUSSELL, widow

REVES. The real estate named La Pausa is therefore a part of the known

proportion (11900 shares out of 1200 shares, this being 99.16%) of her estate

assets.”

12. As a result of these findings, the French authorities imposed a tax of

$4.66 million euros upon Schroeder.


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13. The results of the Nice action, however, read like a mirror image of the

taxing authorities’ decision. Before turning to the specifics of that decision

however, it must be kept in mind that the French civil litigation system is structured

very differently from that of the United States and other common law countries.

There are no witnesses and there is no discovery. Accordingly, the documents and

assertions of an adverse party are not subject to the probing verification that is a

hallmark of justice in the United States.

14. In the Nice action, SCI La Pausa plead and presented misleading

evidence purporting to show that:

Any [adverse possession] by Mrs. Reves is therefore ruled out since Mr., and

then Mrs. Reves only ever had precarious possession of the Villa, exclusive of

all animus domini. They were nothing but sub-occupiers, authorised by a

principal occupier whose very title rules out that [adverse possession].

Mrs. Reves never intended to call into question the legal system, by virtue of

which she occupied the villa, and SCI’s property rights to it. Nor did she ever

act as an owner, for example by paying property taxes or taxes on French

properties owned by foreign corporations in France; SCI was responsible for

the former, Cooperation Verlags the latter . . . as Schroeder expressly

recognised. When Schroeder affirms that “the operation of villa LA PAUSA

has always been, and remains today, organised by SCI LA PAUSA and

financed by the various entities of the legal and tax structure”. . . he

demonstrates Mrs. Reves’s rights to SCI and above all Cooperation Verlags,

not the animus domini, which his argument contradicts.


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15. Both the Nice court and a court of appeal specifically relied on this

evidence/assertion, with the reviewing court concluding:

This agreement, which is registered in the framework of the social objects of

the two companies confers a deed of occupancy of the villa onto the Reves

couple which will never be questioned, all the charges associated with the

villa will be settled by contracting companies.

Since that date any acts of possession filed that claim Wendy Reves as owner

are not justified, given that they contradict the status of occupation and the

ownership of SCI La Pausa.

Wendy Reves never disputed this agreement after the death of her husband,

not even after the collection of paintings and artworks previously exhibited at

Villa La Pausa had been transferred to the Dallas Museum of Art by the Act

of Gift of 31st May 1983. Notably, Wendy Reves never paid out any sums

whatsoever for upkeep of the Villa or the settlement of land taxes, never

questioning either the implementation of the agreement nor the ownership

of SCI La Pausa. (emphasis added)

16. As a result, the Nice court denied any relief to Schroeder and imposed a

“damage” penalty of 523,000 euros (subsequently increased to 1,222,000 on appeal)

premised on the theory that SCI La Pausa had lost the opportunity of selling the

property and thus incurred additional upkeep expenses. The decision from the

High Court of Nice is on review to the French Supreme Court. Moreover, as part of

another pending case, the parent company of SCI La Pausa (“CVAG”) has

acknowledged that money used by SCI La Pausa and its corporate parent was


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Wendy Reves’ money, contrary to the statements in the Nice action. In a

February 12, 2012 French filing, it said the following: “

“The bank statements called upon by Mr. Schroeder . . . concern transfers

debited from the personal account of Mrs. Reves . . . and credited to the

company Cooperation Verlags’ account . . . , and therefore do not evidence

Mrs. Reves’ claimed power of disposal over the Entities. They can be

explained by the fact that Mrs. Reves did not possess a bank account in

France and had asked Cooperation Verlags if they would receive, in their

account in France, the funds necessary to settle her personal living

expenses in France, notably telephone bills, healthcare expenses,

subscription fees to a magazine she received in France, whilst reimbursing

Cooperation Verlags the same amount.” (emphasis added)

17. Substantially the whole of Wendy Reves’ personal income from

investment accounts in Switzerland was directed to the bank accounts of

Cooperation Verlags AG which has, in turn, used those same funds to fund the

“upkeep” and maintenance and operations, and taxes of the Villa – a fact that

contradicts what SCI La Pausa alleged and what the “Court of First Instance of

Nice” ruled in the arriving at the French Judgment and which was subsequently

confirmed in the Aix-en-Provence Court of Appeal.

18. Thus, SCI La Pausa provided misleading, fraudulent statements to the

French court that – compounded by various procedural limitations on discovery –

allowed SCI La Pausa to gain a judgment by fraud. The French Judgment should

not be enforced by this United States District Court.


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THIRD AFFIRMATIVE DEFENSE

(Due Process Violation: Cal. Code Of Civil Proc. §1716(c)(8))

19. As a separate and third affirmative defense to the Application and each

allegation contained therein, Schroeder alleges that the specific proceeding in the

foreign court leading to the French Judgment was not compatible with the

requirements of due process of law within the meaning of California Code of Civil

Procedure §1716(c)(8).

20. Schroeder incorporates herein by reference paragraphs 3 through 18 as

if set forth in full herein.

FOURTH AFFIRMATIVE DEFENSE

(Public Policy: Cal. Code Of Civil Proc. §1716(c)(3))

21. As a separate and fourth affirmative defense to the Application and

each allegation contained therein, Schroeder alleges that it would be against the

public policy of the United States of America and/or the State of California to

enforce the French Judgment under the circumstances where Schroeder was

allegedly found liable for “abuse of the right to sue.”

WHEREFORE, Schroeder prays for relief as follows:

1. That the Application be dismissed, with prejudice and in its entirety;

2. That Applicant take nothing and that judgment be entered against

Applicant and in favor of Schroeder;

3. That Schroeder be awarded his attorneys’ fees and costs incurred in

defending this action;


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4. That Schroeder be granted such other and further relief as the Court

may deem just and proper.

DATED: May 18, 2012 PAYNE & FEARS LLP By: /s/ Daniel L. Rasmussen DANIEL L. RASMUSSEN

Attorneys for Respondent Arnold L. Schroeder, Jr.


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DEMAND FOR JURY TRIAL

Schroeder requests a trial by jury of all issues so triable.

DATED: May 18, 2012 PAYNE & FEARS LLP By: /s/ Daniel L. Rasmussen DANIEL L. RASMUSSEN

Attorneys for Respondent Arnold L. Schroeder, Jr.

4839-9237-8895.1


UNITED STATES DISTRICT COURTCENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No. CV 11-10483-ABC (VBKx) Date June 15, 2012

Title SCI La Pausa v. Arnold Leon Schroeder, Jr.

Present: TheHonorable

Victor B. Kenton, United States Magistrate Judge

Roxanne Horan

Deputy Clerk Court Reporter / Recorder Tape No.

Attorneys Present for Plaintiffs: Attorneys Present for Defendants:

None Present None Present

Proceedings: ORDER DENYING EX PARTE APPLICATION FOR ISSUANCE OFLETTER ROGATORY

The Court has received and read Defendant Arnold Leon Schroeder, Jr.’s (“Schroeder”) Ex ParteApplication for Issuance of Letter Rogatory (“Ex Parte Application”), and Plaintiff Sci La Pausa, a FrenchCorporation’s (“Sci La Pausa”) Opposition to Ex Parte Application for Letters Rogatory (“Opposition”). Having reviewed these documents, and other matters contained in the Docket, and for the following reasons,the Court DENIES the Ex Parte Application.

This action is about Sci La Pausa’s effort to obtain a domestic judgment against Schroeder based upon aFrench money judgment for more than $2.5 million (U. S. dollars). The procedural history of the case iswell documented in Judge Collins’ Order Granting in Part Motion to Vacate Judgment, Quash Subpoenaand Receive an Award of Attorney’s Fees, issued on April 11, 2012 (Docket No. 26).

The most pertinent part of Judge Collins’ Order, for purposes of this Court’s adjudication of the current ExParte Application, is the following, contained at p. 7 thereof:

“... Defendant will not be permitted to relitigate the merits of the French judgment, as he hassuggested. Rather, the parties will be strictly limited to carrying their burdens under[California Code of Civil Procedure] sections 1715 and 1716.”

Relying on Judge Collins’ Order, Schroeder now seeks issuance of a Letter Rogatory (see Exhibit A to ExParte Application, directed to the International Mutual Judicial Assistance Civil Service from FrenchMinistry of Justice.) Sci La Pausa opposes issuance of the Letter Rogatory.

Schroeder’s Ex Parte Application appears to be founded on a misapprehension both of the scope ofdiscovery allowed by Judge Collins’ Order, and the legal standard on which that Order (insofar as it permitsdiscovery) is based. As to the latter, Judge Collins instructed that the determination with regard to theultimate establishment of the French action will be governed by §§ 1715 and 1716 of the California Codeof Civil Procedure. (See Judge Collins’ Order at 7.) In particular, the Court must focus on California Codeof Civil Procedure § 1716(c)(2), which provides discretion to a court to not recognize a foreign judgment

CV-90 (06/04) CIVIL MINUTES - GENERAL Page 1 of 3






“if ... the judgment was obtained by fraud that deprived the losing party of an adequate opportunity topresent its case.” This language in the statute came about through a 2007 amendment of the Code section.The prior provision was contained in California Code of Civil Procedure § 1713.4(b)(2), which providedthat a foreign judgment need not be recognized by a court if it was obtained by “extrinsic fraud.” While the2007 iteration of the statute does not specifically reference the phrase “extrinsic fraud,” the definition offraud provided in § 1716(c)(2) is, in fact, the prevailing and well established definition of extrinsic fraudunder California law. Indeed, legislative history cited by Sci La Pausa in its Opposition makes clear thatthe amendment of the statute was not intended to enact a new or different definition of the applicable fraud,but to clarify it. (See Opposition at 3.)

The definition of extrinsic fraud in California law has been set forth in numerous cases, many of which arecited by Sci La Pausa in its Opposition. For example, in Home Insurance Company v. Zurich InsuranceCompany, 96 Cal.App.4th 17, the Court distinguished extrinsic from intrinsic fraud in the context of anaction to set aside a release based on extrinsic fraud:

“Fraud is extrinsic where the defrauded party was deprived of the opportunity to present hisor her claim or defense to the court, that is, where he or she was kept in ignorance or in someother manner, other than from his or her own conduct, fraudulently prevented from fullyparticipating in the *27 proceeding.” (In re Marriage of Stevenot (1984) 154 Cal.App.3d1051, 1068 [202 Cal.Rptr. 116].)

Any fraud is intrinsic if a party has been given notice of the action and has not beenprevented from participating therein, that is, if he or she had the opportunity to present hisor her case and to protect himself or herself from any mistake or fraud of his or heradversary, but unreasonably neglected to do so. [¶] When a claim of fraud goes to an issueinvolving the merits of the prior proceeding which the moving party should have guardedagainst at that time, or if the moving party was guilty of negligence in failing to prevent thefraud or mistake or in contributing thereto, or failed to take advantage of liberal discoverypolicies to fully investigate his or her claim, any fraud is intrinsic fraud.” (In re Marriage ofStevenot, supra, 154 Cal.App.3d at p. 1069.) Generally, the introduction of perjuredtestimony or false documents, or the concealment or suppression of material evidence isdeemed intrinsic fraud. (Kachig v. Boothe (1971) 22 Cal.App.3d 626, 634 [99 Cal.Rptr.393].)”

This Court cannot find any contrary California authority.

Having thus provided the applicable standard by which Schroeder might seek to prevent Sci La Pausa fromobtaining a domestic judgment against him based upon the French judgment, the Court can now turn to theasserted basis for the Letter Rogatory sought by Schroeder. Schroeder states the following in his Ex ParteApplication:

“In order to fully establish the fraud to American standards, where issues such asauthenticity, admissibility and proper foundations matter, Schroeder has succeeded in his







request to conduct discovery ... In addition to discovery in the United States, Schroeder seeksto get access to the evidence developed by the criminal investigation in France through thisletter rogatory.

Schroeder intends to prove that SCI La Pausa provided misleading, fraudulent statementsto the French court that - compounded by various procedural limitations - allowed SCI LaPause to gain a judgment by fraud.” (Ex Parte Application at 8.)

As articulated by Schroeder, he is seeking to do the exact things that Judge Collins prohibited in her April11, 2012 Order, which is, to “relitigate the merits of the French judgment, ...” (Id. at 7.) What Schroederis suggesting as the basis for this discovery amounts to intrinsic, not extrinsic fraud. As Schroeder indicates,what he is seeking “includes information developed by French criminal authorities that can be obtained byissuance of letters rogatory ...” (Ex Parte Application at 3.) This is not appropriate discovery. Moreover,whether, as Schroeder contends, French legal principles which are utilized to obtain a French judgment aredifferent than American standards is of no import in this context. Schroeder appears to be seeking evidenceto support his contention that Sci La Pausa presented false evidence to the French court in order to obtainthe judgment which it is seeking to establish here. But as the case authorities clearly indicate, even if thiswere established, it would be a matter of intrinsic not extrinsic fraud, and thus is not relevant to theproceedings here. Schroeder makes no contention that in any manner he comes within the Californiadefinition of extrinsic fraud. Thus, whether or not Sci La Pausa presented what Schroeder contends to befalse or misleading evidence in the French judicial proceeding is not a concern of this Court. Schroeder haspresented nothing to indicate or support any possible contention that he was fraudulently prevented fromparticipating in that proceeding, or was kept in ignorance in some manner, other than from his own conduct.

Based on the foregoing, the Court does not require further briefing on this matter, and determines thatSchroeder’s Ex Parte Application for Letter Rogatory will be DENIED.

IT IS SO ORDERED.

:

Initials of Preparer RH





Case No. CV 11-10483 ABC (VBKx) Date August 6, 2012


Present: TheHonorable

Audrey B. Collins, Chief United States District Judge

Angela Bridges Not Present N/A

Deputy Clerk Court Reporter / Recorder Tape No.

Attorneys Present for Plaintiff: Attorneys Present for Defendants:

None None

Proceedings: ORDER DENYING Motion for Review of and Objections to MagistrateJudge’s Ruling Denying Ex Parte Application for Issuance of Letter Rogatory(In Chambers)

Pending before the Court is Defendant Arnold Leon Schroeder, Jr.’s Motion for Review of andObjections to Magistrate Judge’s Ruling Denying Ex Parte Application for Issuance of Letter Rogatory,filed on July 2, 2012. (Docket No. 43.) Plaintiff SCI La Pausa opposed on July 16, 2012 and Defendantreplied on July 23, 2012. The Court previously found this matter appropriate for resolution without oralargument and vacated the hearing date. Fed. R. Civ. P. 78; Local Rule 7-15. For the reasons below, themotion is DENIED.

BACKGROUND

This case was initiated on November 14, 2011 when Plaintiff filed an “Application for Entry forJudgment Pursuant to the Uniform Foreign Country Money Judgments Recognition Act [Cal. Code ofCivil Procedure § 1718]” (the “Act”). (Docket No. 1.) Through this application, Plaintiff intended toobtain a domestic judgment against Defendant based upon a French money judgment for more than $2.5million (U.S. dollars). Because this foreign judgment was to be treated as a “regular civil action”pursuant to section 1718, and because it was registered without service on Defendant, the Court set thejudgment aside and ordered that this case proceed as a regular civil case. (Docket No. 26.) However,the Court made clear that Defendant “will not be permitted to relitigate the merits of the Frenchjudgment, as he has suggested,” but that “the parties will be strictly limited to carrying their burdensunder sections 1715 and 1716,” which provide only a narrow framework for recognizing and refusing torecognize a foreign judgment. (Id. (emphasis in original).)

The parties later briefed the appropriate procedure for addressing the issues in this case. Although the Court previously expressed reservations about allowing any discovery, the Court alloweddiscovery to commence. (Docket No. 32.) The Court did not express an opinion on whether anyparticular type of discovery would be allowed, which was not at issue at that time. (Id.)

Defendant filed an answer on May 18, asserting defenses under subsections 1716(c)(2), (3), and(8) of the Act. (Docket No. 34.) Defendant then filed an opposed ex parte application for issuances of







letters rogatory, seeking to obtain the March 16, 2011 deposition testimony of an individual namedEdward Copley, who was involved in the French proceedings. (Mot., Ex. 1.) The application soughtthis discovery on the ground that there were inconsistent judgments in two French proceedings causedby Plaintiff’s “concealment of important evidence it should have presented to the French Court in Niceprior to entry of judgment.” (Docket No. 36 at 1.) Defendant wants this evidence to prove a fruaddefense to registration that “SCI La Pausa provided misleading, fraudulent statements to the Frenchcourt that – compounded by various procedural limitations – allowed SCI La Pausa to gain a judgmentby fraud.” (Id. at 8.)

In an Order dated June 15, 2012, but that was docketed and electronically served on June 18,2012, Magistrate Judge Kenton denied the application, finding that the information sought was notrelevant to prove fraud under section 1716(c)(2). (Docket No. 42.) After analyzing the statutoryscheme and case law, Magistrate Judge Kenton concluded that the phrase “if . . . the judgment wasobtained by fraud that deprived the losing party of an adequate opportunity to present its case” insubsection (c)(2) was intended to perpetuate the former section’s reference to “extrinsic fraud.” (Id. at1–2.) Because Defendant was seeking discovery on matters that would only prove “intrinsic fraud” inthe French proceedings, Magistrate Judge Kenton found the letters rogatory not to be “appropriatediscovery.” (Id. at 3.) In doing so, Magistrate Judge Kenton also rejected Defendant’s contention thatthe lack of discovery in the French court system impacted the analysis. (Id.) In the end, “Schroeder []presented nothing to indicate or support any possible contention that he was fraudulently prevented fromparticipating in that proceeding, or was kept in ignorance in some manner, other than from his ownconduct.” (Id.)

Despite the substantive analysis in the Order, Defendant moved ex parte to “clarify” thatMagistrate Judge Kenton only denied his ex parte application based on Plaintiff’s procedural objectionthat the request should have been brought by way of a regularly noticed motion. (Docket No. 39.) Plaintiff opposed and, unsurprisingly, Magistrate Judge Kenton denied the application, finding it wasactually an unsupported motion for reconsideration. (Docket No. 42.) Then, on July 2, 2012, Defendantfiled the pending motion for review of Magistrate Judge Kenton’s first Order.

STANDARD OF REVIEW

The parties dispute the appropriate standard of review based on their disagreement of whetherMagistrate Judge Kenton’s ruling was “dispositive” or “nondispositive” of Defendant’s fraud defense. Federal Rule of Civil Procedure 72 provides that a magistrate judge may rule on the merits of“Nondispositive Matters,” but may only prepare “Findings and Recommendations” on “a pretrial matterdispositive of a claim or defense,” absent consent by the parties to appear before the magistrate judge fordispositive issues. Fed. R. Civ. P. 72(a), (b); see also 28 U.S.C. § 636(b)(1); Local Rules 72-2, 72-3. For nondispositive matters, a party may object within 14 days after service of the order objected to, butif a timely objection is not filed, “[a] party may not assign as error a defect in the order not timelyobjected to.” Fed. R. Civ. P 72(a). When a timely objection is filed, the district court reviews themagistrate judge’s order to determine if it was “clearly erroneous” or “contrary to law.” Id. Objections







to recommendations on dispositive motions must also be made within 14 days of service of therecommendation, but the district court reviews de novo the magistrate judge’s recommendations ondispositive motions. Fed. R. Civ. P. 72(b).

Section 636(b)(1) (A) of the Federal Magistrates Act lists the types of dispositive motions thatmay not be determined by a magistrate judge; thus, “any motion not listed, nor analogous to a motionlisted in this category, falls within the non-dispositive group of matters which a magistrate maydetermine.” Maisonville v. F2 Am., Inc., 902 F.2d 746, 747–48 (9th Cir. 1990). Section 636(b)(1)(A)does not contain an exhaustive list, so it is possible that a unlisted motion may be dispositive if “theeffect of the motion” has “direct consequences on [a] defense . . . .” United States v. Rivera-Guerrero,377 F.3d 1064, 1068, 1069 (9th Cir. 2004).

Discovery-related motions are not listed in § 636(b)(1)(A) and “are ordinarily considered non-dispositive because they do not have the effect of dismissing a cause of action.” Gabriel Techs. Corp. v.Qualcomm Inc., Case No. 08CV1992 AJB (MDD), 2012 WL 849167, at *2 (S.D. Cal. Mar. 13, 2012). But because § 636(b)(1)(A) calls for an “effects” test, the question is whether the discovery motion hasthe effect of disposing of a claim or defense, that is, whether the party subject to the magistrate judge’sadverse ruling is “precluded from going forward as a legal matter” or whether the party can go “forwardon other evidence if available.” See, e.g., Shared Memory Graphics, LLC v. Apple Inc., Case No. C 10-2475 MMC, 2011 WL 5320749, at *3 (N.D. Cal. Nov. 2, 2011) (finding a motion to strike patentinfringement contentions dispositive because the ruling “as a matter of law precludes the introduction ofany evidence on the claim of infringement,” which “goes beyond the ordinary scope of discovery ordersand becomes dispositive.” (emphasis in original)). But see Jesselson v. Outlet Assocs. of Williamsburg,Ltd. P’ship, 784 F. Supp. 1223, 1228 (E.D. Va. 1991) (finding ruling excluding evidence non-dispositive, even though plaintiffs had “no evidence by which to prove their case and cannot expect toprevail”).

Both sides advance plausible arguments about the effect of Magistrate Judge Kenton’s ruling. Plaintiff believes this ruling is not dispositive because it excluded only one piece of evidence and theremight be other evidence by which Defendant could provide his section 1716(c)(2) fraud defense. FromDefendant’s perspective, he pled his section 1716(c)(2) defense narrowly, based on only the theory that“SCI La Pausa provided misleading, fraudulent statements to the French court that – compounded byvarious procedural limitations on discovery – allowed SCI La Pausa to gain a judgment by fraud.” (Docket No. 34 at 11, ¶ 18.) If Magistrate Judge Kenton’s reasoning is correct that this defenseimpermissibly challenges the judgment based on intrinsic fraud – and the letters rogatory therefore seekirrelevant information – then that could very well dispose of this entire defense, no matter how muchother evidence could be mustered to support it. In the end, the Court need not resolve the parties’dispute. Even reviewing Magistrate Judge Kenton’s ruling de novo, his denial of Defendant’s requesteddiscovery was correct.

DISCUSSION







A. Procedural Issues

Each party raises procedural issues that, if accepted, would obviate the Court’s need to reach themerits of Defendant’s motion. The Court finds none of these contentions persuasive.

1. Timeliness of Defendant’s Motion

Plaintiff initially argues that the Court should not reach the merits of Defendant’s motionbecause it was untimely. As noted above, any challenge to a magistrate judge’s ruling orrecommendation – whether dispositive or non-dispositive – must be made within 14 days of service ofthe ruling or recommendation. Fed. R. Civ. P. 72(a), (b); Local Rule 72-2.1. Here, although MagistrateJudge Kenton’s order was dated June 15, 2012, it was docketed and electronically served on June 18,2012. (Docket No. 38, Notice of Electronic Filing.) Defendant filed the instant motion on July 2, 2012,exactly 14 days after electronic service of the order. The motion is therefore timely.

2. New Arguments Raised in Motion

Plaintiff urges the Court to ignore some portions of Defendant’s brief here because they containarguments that were not raised either in Defendant’s initial ex parte application or in his ex parte requestfor clarification. (Opp. 12 (citing Mot. 12:16–13:1, 14:16–16:10, 17:1–18:7, 19:3–22:22).) The Courthas reviewed the briefing before Magistrate Judge Kenton and finds that, with one exception, thematters raised by Defendant here are sufficiently encompassed in the prior briefing to avoid waiver. Although the briefing is not identical to the briefing before Magistrate Judge Kenton, this is not acircumstance in which the parties “litigate[d] fully their case before the magistrate,” but whenunsuccessful, “change[d] their strategy and present[ed] a different theory to the district court,” whichwould “frustrate the purpose of the Magistrates Act.” Greenhow v. Sec’y of Health & Human Servs.,863 F.2d 633, 638 (9th Cir. 1988), overruled on other ground by United States v. Hardesty, 977 F.2d1347, 1348 (9th Cir. 1992) (en banc) (per curiam).

The one exception to this ruling is Defendant’s newly raised arguments that the letters rogatoryare relevant to defenses other than fraud, such as the defenses in subsections 1716(c)(3), (4), and (8). Inhis initial ex parte application for discovery, Defendant argued only that the requested discovery wasrelevant to his fraud defense. (Docket No. 36 at 3, 8–9.) In opposing the application, Plaintiff alsofocused only on the fraud defense in section 1716(c)(2). (Docket No. 37 at 2–5, 6–9.) And in denyingthe ex parte application, Magistrate Judge Kenton analyzed only section 1716(c)(2). (Docket No. 38.) Defendant cited other portions of section 1716(c) for the first time in his ex parte application to “clarify”Magistrate Judge Kenton’s ruling (and even then only in passing). (Docket No. 39 at 9.) By that time,though, it was too late because Defendant failed to show that he could not have raised these argumentsearlier, see Local Rule 7-18, and, in any case, he has not sought review of Magistrate Judge Kenton’sdenial of the motion to reconsider. Thus, the Court will only consider Defendant’s discovery request inthe context of fraud under section 1716(c)(2).







3. Scope of the Court’s Ruling Allowing Discovery

Defendant contends that this Court’s order generally allowing discovery in this case disposed ofhis specific argument here that the letters rogatory should issue. The Court rejects this argument. Eventhough Defendant referred to letters rogatory as possible discovery in the course of supporting hisrequest to open discovery, the Court expressed no opinion on the discoverability of any specificevidence. Going forward, each discovery request must be evaluated individually to determine whether itseeks relevant evidence under the limited grounds set out in section 1716(c).

4. Defendant’s Answer

Defendants contend that Plaintiff’s challenge to his discovery here should be barred becausePlaintiff has not challenged Defendant’s defenses on the merits. Defendant cites no authority for thisproposition and the Court finds it unpersuasive.

B. Merits of Defendant’s Discovery Request

“Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’sclaim or defense,” and discoverable evidence need not be admissible at trial, so long as the discovery“appears reasonably calculated to lead to the discovery of admissible evidence.” Fed. R. Civ. P.26(b)(1). Relevance in the context of discovery is broad, encompassing “any matter that bears on, orthat reasonably could lead to other matter that could bear on, any issue that is or may be in the case.” Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 (1978).

In this case, in order to determine whether the letters rogatory seek relevant evidence under Rule26(b)(1), the Court must determine the scope of Defendant’s fraud defense under section 1716(c)(2). Aspart of the scheme in California governing the recognition of foreign-country judgments, section 1716sets forth both mandatory and discretionary grounds to deny recognition of a foreign judgment. Subsection (c)(2) is one discretionary ground that allows the Court to refuse recognition if “[t]hejudgment was obtained by fraud that deprived the losing party of an adequate opportunity to present itscase.” § 1716(c)(2). The prior version of the Act provided that a foreign judgment need not berecognized if “[t]he judgment was obtained by extrinsic fraud.” Cal. Code Civ. P. § 1713.4(b)(2)(repealed Dec. 31, 2007). The statutory change did not substantively change the standard for fraudsufficiently to defeat recognition of a foreign judgment. The legislative history of this change confirmsthat it incorporates the standard for extrinsic fraud:

This provision updates existing law which provides that a judgment need not berecognized if it was obtained by extrinsic fraud. Courts have interpreted thisprovision over the years, and have described extrinsic fraud as conduct of theprevailing party that deprived the losing party of the opportunity to present itscase. Examples of extrinsic fraud are where the plaintiff deliberately served thedefendant at the wrong address, deliberately gave the defendant the wrong







information on the time and date and place of a hearing, or obtained a defaultjudgment against the defendant based on a forged confession of judgment.

Cal. Bill Analysis, S.B. 639 at 12 (May 8, 2007).

The current language is also similar to language California courts have used for decades todefine “extrinsic fraud.” See, e.g., Westphal v. Westphal, 20 Cal. 2d 393, 397 (1942) (“Fraud ormistake is extrinsic when it deprives the unsuccessful party of an opportunity to present his case to thecourt.”); Home Ins. Co. v. Zurich Ins. Co., 96 Cal. App. 4th 17, 26–27 (2002) (“‘Fraud is extrinsicwhere the defrauded party was deprived of the opportunity to present his or her claim or defense to thecourt, that is, where he or she was kept in ignorance or in some other manner, other than from his or herown conduct, fraudulently prevented from fully participating in the proceeding.’”); San Diego Cnty.Health & Human Servs. Agency v. Filiberto G. (In re Margarita D.), 72 Cal. App. 4th 1288, 1294 (1999)(“‘Extrinsic fraud usually arises when a party is denied a fair adversary hearing because he has been“deliberately kept in ignorance of the action or proceeding, or in some other way fraudulently preventedfrom presenting his claim or defense.”’”); City & Cnty. of San Francisco v. Cartagena, 35 Cal. App. 4th1061, 1067 (1995) (same); Janetsky v. Avis, 176 Cal. App. 3d 799, 811 (1986) (same); Stevenot v.Stevenot (In re Marriage of Stevenot), 154 Cal. App. 3d 1051, 1068–69 (1984) (same).

“Generally, the introduction of perjured testimony or false documents, or the concealment orsuppression of material evidence is deemed intrinsic fraud,” rather than extrinsic fraud. Home Ins. Co.,96 Cal. App. 4th at 27; see also Cedars-Sinai Med. Ctr. v. Super. Ct., 18 Cal. 4th 1, 10–11 (1998);Kachig v. Boothe, 22 Cal. App. 3d 626, 634 (1971); Bonner v. Bonner (In re Adoption of Bonner), 260Cal. App. 2d 17, 22 (1968).1 The claimed fraud here – an alleged misrepresentation by Plaintiff duringthe course of the French proceeding – is intrinsic because it had nothing to do with Defendant’s noticeor opportunity to defend himself in that court or otherwise fully litigate his case. It is precisely the kindof fraud that did not “deprive[] [Defendant] of an adequate opportunity to present [his] case,” asrequired by section 1716(c)(2).

Citing cases arising in the arbitration context and under Federal Rule of Civil Procedure 60(b),

1Defendant cites two cases to suggest that submitting false evidence is not always intrinsic fraud,but both cases are distinguishable because they involved acts beyond the mere submission of falseevidence. In Kougasian v. TMSL, Inc., 359 F.3d 1136, 1140 (9th Cir. 2004), the court treated the last-minute submission of a false declaration as extrinsic fraud when the submitting party prevented theopposing party from questioning the declarant. Likewise, in Stenderup v. Broadway State Bank of L.A.,219 Cal. 593, 596–97 (1933), allegedly fraudulent bank notes were given to the plaintiff in theunderlying action “for the fraudulent purpose of preventing information as to the status of these notesfrom reaching plaintiff,” which prevented the plaintiff from “controvert[ing] the account as tendered tothe court by the said bank.” Unlike in these cases, Defendant alleges here only that Plaintiff submittedfalse information in the French proceedings, not that Plaintiff then took other steps to preventDefendant’s full participation in the French proceedings to expose the fraudulent evidence.CV-90 (06/04) CIVIL MINUTES - GENERAL Page 6 of 8






Defendant argues that section 1716(c)(2) is no longer limited to extrinsic fraud, but instead reflects a“slight shift” from the accepted definition of extrinsic fraud outlined above to a more lenient standard. See, e.g., Pour le Bebe, Inc. v. Guess? Inc., 112 Cal. App. 4th 810, 828–29 (2003) (explaining differencebetween fraud necessary to set aside a judgment versus fraud necessary to vacate an arbitration award);Pac. Crown Distribs. v. Bhd. of Teamsters, Local 70, 183 Cal. App. 3d 1138, 1147–48 (1986) (applyingextrinsic fraud definition under statutes governing review of arbitration awards); see also Kalt v. Hunter(In re Hunter), 66 F.3d 1002, 1005 (9th Cir. 1995) (noting that Rule 60(b) largely abolished thedistinction between extrinsic and intrinsic fraud for setting aside judgments in federal court). InDefendant’s view, the fraud covered by section 1716(c)(2) should be relaxed here because discovery isnot available in the French proceedings. See, e.g., Home Ins. Co., 96 Cal. App. 4th at 27 (noting thatintrinsic fraud can arise in some cases when the defendant “failed to take advantage of liberal discoverypolicies to fully investigate his or her claim”).

This interpretation of section 1716(c)(2) is not persuasive for several reasons. First, thisinterpretation conflicts with the statutory language and the legislative history of section 1716(c)(2). Under the statute, any fraud must “deprive[] the losing party of an adequate opportunity to present itscase.” There is no reason to think that the fraud alleged here – which clearly falls outside the languageof section 1716(c)(2) – could be transformed into fraud within the statute simply because the proceduralcontext in which it arose did not include discovery. At common law, the extrinsic/intrinsic frauddistinction was based largely on equitable considerations, which could very well include consideringwhether the defendant had an adequate opportunity to discover the alleged fraud during the underlyingproceedings. See Westphal, 20 Cal. 2d at 397; Home Ins. Co., 96 Cal. App. 4th at 27. If there was anysignificance to the legislature’s change of language in section 1716(c)(2) (which the Court doubts), itwas away from this equitable balancing, and toward a straightforward test applying the statutory text.

Second, to accept Defendant’s argument would eviscerate section 1716(c)(2) by allowing adefendant to raise any type of fraud claim to defeat recognition of a judgment from any country thatdoes not allow civil discovery (such as France). This case is a perfect example: Defendant has allegedthat Plaintiff lied to the French courts on issues having nothing to do with whether Defendant couldadequately present his case. Yet he argues that the lack of discovery somehow transforms thatquintessentially intrinsic fraud into fraud that “deprived [him] of an adequate opportunity to present[his] case.” If he were correct, any allegation of fraud in the course of this or any other Frenchproceeding would defeat recognition under section 1716(c)(2). The legislature plainly did not intendthis result.

Finally, even accepting Defendant’s interpretation of section 1716(c)(2), the availability ofdiscovery is at most only one factor to consider in deciding not to recognize a foreign judgment due tofraud under section 1716(c)(2). Cf. Home Ins. Co., 96 Cal. App. 4th at 27 (noting other circumstancesamounting to merely intrinsic fraud). And as a factor it is not persuasive enough to defeat recognitionhere, since Defendant has not demonstrated that he could not have otherwise protected himself from thealleged fraud, even absent formal discovery. Id. (noting that intrinsic fraud can include fraud that “goesto an issue involving the merits of the prior proceeding which the moving party should have guarded







against at that time”).2

Thus, because Defendant’s allegations of fraud under section 1716(c)(2) implicate only intrinsicfraud not covered by the statute, any discovery sought to prove them, including the letters rogatory, isirrelevant and therefore beyond the scope of Rule 26(b)(1).

CONCLUSION

Reviewing the matter de novo, the Court AFFIRMS Magistrate Judge Kenton’s denial ofDefendant’s request for letters rogatory.

IT IS SO ORDERED.

:

Initials of Preparer AB

2The Court GRANTS Defendant’s request for judicial notice (Docket No. 44), but finds none ofthe documents persuasive in this circumstance. CV-90 (06/04) CIVIL MINUTES - GENERAL Page 8 of 8


ORDER GRANTING MOTION TO QUASH

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION


Civil Action No. __________________

(pending in the U.S. Central District of California, Cause No. 2:11-cv-10483 ABC)

[PROPOSED] ORDER QUASHING SUBPOENAS TO

EDWARD A. COPLEY AND AKIN GUMP STRAUSS HAUER & FELD LLP Before the Court is Edward A. Copley and Akin Gump Strauss Hauer & Feld LLP’s

Motion to Quash Subpoenas, filed August 24, 2012. Having considered the arguments of

counsel and the applicable law, the Court is of the opinion that the Motion to Quash should be

and hereby is GRANTED.

Therefore it is hereby ORDERED that the subpoenas served on August 1, 2012 to

Edward A, Copley and Akin Gump Strauss Hauer & Feld LLP by Arnold Leon Schroeder, Jr. are

hereby QUASHED.

SO ORDERED. DATED ______________, 2012 _________________________________ UNITED STATES DISTRICT JUDGE


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Edward A. Copley, andAkin Gump Strauss Hauer & Feld LLP

Dallas

Fish & Richardson, P.C., 1717 Main Street, Suite 5000,Dallas, TX 75201

Arnold Leon Schroeder, Jr.

Philip K. Lem, 4 Park Plaza, Ste 1100, Irvine, CA 92614

FRCP 45

Motion to Quash Subpoena under FRCP 45

Hon. Jane Boyle; Hon. Audrey Collins 3:11-cv-0525-B; cv11-10483

08/24/2012 Thomas M. Melsheimer


motion to quash arnold schroeder subpoena

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