Leonard Cohen's Opposition To Plaintiffs' Motion For Attorneys' Fees

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Civil Action No. 05-CV-01233-LTB-MJW

NATURAL WEALTH REAL ESTATE, INC., a/k/a Greenberg & Associates, Inc., d/b/a Agile Advisors, Inc., a Colorado corporation; TACTICAL ALLOCATION SERVICES, LLC, d/b/a Agile Allocation Services, LLC, a Colorado limited liability company; AGILE GROUP, LLC, a Delaware limited liability company; GREENBERG & ASSOCIATES SECURITIES, INC., d/b/a Agile Group, a Colorado corporation; and NEAL R. GREENBERG, a Colorado resident,

Plaintiffs and Defendants-on-counterclaim,

v.

LEONARD COHEN, a Canadian citizen residing in California; KELLEY LYNCH, a United States citizen residing in California; and JOHN DOE, Nos. 1-25,

Defendants,

and,

LEONARD COHEN, a Canadian citizen residing in California,

Counterclaim Plaintiff,

v.

TIMOTHY BARNETT, a Colorado citizen,

Counterclaim Defendant.

LEONARD COHENS OPPOSITION TO PLAINTIFFS AND BARNETTS MOTION FOR AWARD OF ATTORNEYS FEES AND COSTS

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TABLE OF CONTENTS TABLE OF CONTENTS ..... i I. INTRODUCTION ....... 1

II. PLAINTIFFS, WHO INITIATED THIS LITIGATION, HAVE

NEITHER PREVAILED NOR BEEN EXEMPT FROM THE COURTS CRITICISM ... 3

III. THE COURT SHOULD DENY PLAINTIFFS REQUEST FOR

SANCTIONS AND ATTORNEYS FEES UNDER COLO. REV. STAT. 13-17-101 ET SEQ. BECAUSE THE STATES STATUTE IS PREEMPTED BY RULE 11 .... 5

IV. THE COURT SHOULD DENY PLAINTIFFS REQUEST FOR

SANCTIONS UNDER FED.R.CIV.P. 56(g) BECAUSE THE ALLEGEDLY OFFENDING AFFIDAVITS DID NOT PREJUDICE THE OUTCOME OF PLAINTIFFS SUMMARY JUDGMENT MOTION .. 7

A. Adjudication of Plaintiffs Motion for Summary Judgment Was

Not Delayed By the Allegedly Offending Rule 56(f) Affidavit, Nor Did the Consideration of Cohens Affidavit Prejudice the Favorable Disposition of Plaintiffs Summary Judgment Motion ..... 8

B. Plaintiffs Have Not Delineated What Portion of Their

Requested Fees and Costs are Reasonable Expenses Which the Filing of the Affidavits Caused the Other Party to Incur As Required by the Language of Rule 56(g) ....... 9

V. THE COURT SHOULD ALSO DECLINE TO AWARD

PLAINTIFFS ANY FEES OR COSTS UNDER ITS INHERENT AUTHORITY 10

A. Legal Standard for Application of the Bad Faith Exception

To the American Rule ...... 10

B. Awarding Plaintiffs Sanctions Against Cohen Under The Courts Inherent Authority Would Not Further Dominating Reasons of Justice. . 11

1. Plaintiffs Have Not Met Their Burden to Establish

Cohens Bad Faith as a Basis for Fee Shifting . 11

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a. Cohens Pursuit of Tort Counterclaims Does Not Merit An Award of Sanctions Under the Courts Inherent Power 13

b. Cohens Motion for Leave to File Certificate

of Review ..... 17

c. Cohens Motion for Leave to Amend .. 18 d. Cohens Opposition to Plaintiffs Motion for

Summary Judgment . 19

e. Cohens Litigation Conduct Does Not Merit Sanctions Under This Courts Inherent Powers .. 23

2. Plaintiffs Own Bad Faith Litigation Conduct Justifies

a Denial of An Award of Requested Fees and Costs ... 24

3. Plaintiffs Unnecessarily Sought to Multiply and Delay These Proceedings to Impose Significant and Unnecessary Costs Upon Cohen and Kory .. 31

VI. PLAINTIFFS CANNOT SEEK INDEMNITY UNDER EITHER

THE LPA OR THE SA AGAINST COHEN .... 33

A. Plaintiffs Did Not Plead Claims for Indemnification .. 34 B. The Court Cannot Hold Cohen Liable Under the LPA or the SA

Because Cohen is Not a Party to Either of Those Contracts .... 36

C. The Court Cannot Enter a Judgment for Indemnity Against Traditional Holdings Under the LPA or the SA Because Traditional Holdings is Not a Party to this Case .. 39

D. Plaintiffs Have Not Demonstrated an Indemnifiable Loss Under the LPA or the SA Because Plaintiffs Do Not Have a Claim For Indemnity to the Extent Their Insurer Paid the Litigation Costs, And Plaintiffs Have Failed to Identify What Amounts They, As Opposed to Their Insurer, Paid .... 39

E. Plaintiffs Claim Under the LPA Fails for the Additional Reason That Agile Safety Fund, LPNot CohenIs The Indemnitor Under Section 3.04(b) of the LPA, and No Judgment for Indemnity Against Agile Safety Fund Exists ... 40

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F. Plaintiffs Claim Under the SA Fails for the Additional Reason That Plaintiffs Have Not Sufficiently Demonstrated the Existence of Events That Give Rise to an Indemnity Obligation . 43

1. Plaintiffs Do Not Provide Competent Evidence to Support

Their Claims Under the SA .. 44

2. None of the Actions Identified By Plaintiffs Give Rise to An Indemnity Obligation Under the SA .. 44

VII. THE COURT SHOULD NOT AWARD ATTORNEY FEES OR

COSTS AGAINST COHEN UNDER ANY OF PLAINTIFFS THEORIES, BUT IF IT DOES, PLAINTIFFS SHOULD RECOVER SUBSTANTIALLY LESS THAN THE $294,618.25 IN FEES SOUGHT; THE AMOUNTS CHARGED ARE UNREASONABLE .. 46

VIII. CONCLUSION .. 47

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Defendant and Counterclaim Plaintiff, Leonard Cohen (Cohen) hereby submits his

Memorandum in Opposition to Plaintiffs and Barnetts Motion for Award of Attorneys Fees

and Costs.

I. INTRODUCTION

After filing a lawsuit against Cohen which this Court has called a pre-emptive suit,1

and thereafter having all but one2 of their ten claims dismissed pursuant to either

FED.R.CIV.P. 12(b)(6)3 or FED.R.CIV.P. 41(a)(2)4, Plaintiffs, audaciously declaring

themselves to be prevailing parties,5 now move for attorneys fees against Cohen.

Plaintiffs seek fees for seven discrete filings which Plaintiffs claim are the result of the

purportedly frivolous, dilatory, and vexatious litigation conduct of Cohen and his lawyers.

(Plaintiffs Motion for Award of Fees and Costs, 49(a)-(g), p. 23, hereinafter, Motion).

Notable at the outset is that the appropriate procedure to address Cohens alleged

litigation misconduct, would have been to file one or more timely motions in conformity with

the safe-harbor provisions of FED.R.CIV.P. 11. At no time during the course of this three-

year litigation, however, have Plaintiffs ever served a proposed motion for sanctions upon

1 See Order (Dec. 4, 2006), Natural Wealth Real Estate, Inc. v. Cohen, 2006 WL 3500624 *6 (D. Colo. 2006). 2 Plaintiffs interpleader claim between Cohen and Lynch as to the ownership of the remaining Traditional Holdings funds is Plaintiffs sole surviving claim. Plaintiffs opposed Cohens Motion for Summary Judgment as to this claim and the Court has yet to rule upon Cohens motion. 3 See Dec. 4, 2006 Order dismissing Plaintiffs claims for intentional interference with a prospective business relation, civil extortion, civil conspiracy and violation of and conspiracy to violate COCCA. (Doc. No. 131). 4 See June 2, 2008 Order dismissing Plaintiffs claims for defamation, commercial disparagement, unjust enrichment, declaratory judgment and injunction with prejudice under FED. R. CIV. P. 41(a)(2). (Doc. No. 205). 5 See Plaintiffs Motion to Dismiss Certain Claims Pursuant to Fed. R. Civ. P. 41(a)(2) wherein Plaintiffs proclaim: after three years of extensive motion practice, Plaintiffs have prevailed. (Doc. No. 194, 7.).

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Cohens counsel to challenge either a pleading or a motion for which they now seek punitive

sanctions.6

In their Motion, Plaintiffs seek to shift $294,618.25 of their attorneys fees and

$13,947.67 of their costs onto Cohen under four separate theories: (i) Colorado Revised

Statute 13-17-101 et seq.; (ii) FED.R.CIV.P. 56(g); (iii) the inherent authority of the Court to

award fees as a sanction on an equitable basis for dominating reasons of justice; and (iv)

the indemnity provisions of the Agile Safety Fund, LP Limited Partnership Agreement

(LPA) and the Subscription Agreement (SA) between Traditional Holdings, LLC and

Agile Group, LLC. Each of these arguments fail either as a matter of law or as a result of

Plaintiffs failure to show how Cohens litigation conduct is subject to punitive sanctions.

Further, given Plaintiffs appeal to this Courts equitable inherent power to sanction

misbehaving litigants, it becomes incumbent on Cohen to advise the Court of Plaintiffs own

bad faith conductnot to pursue Cohens own motion for feesbut rather to counter

Plaintiffs wholly one-sided and misleading rendition of the facts.

Cohen opposes Plaintiffs Motion on six separate grounds. First, Plaintiffs effort to

characterize themselves as prevailing parties, and Cohen as the sole party castigated by the

Court for prolix motions and dilatory tactics, is simply wrong on the face of the record.

Second, Plaintiffs appeal to Colorado Revised Statute 13-17-101 et seq. is misguided

because in a federal diversity action, the States statute is preempted by FED.R.CIV.P. 11.

Third, Plaintiffs request for sanctions under FED.R.CIV.P. 56(g) is inappropriate because

Plaintiffs have not shown how the allegedly offending affidavits prejudiced the outcome of

6 Plaintiffs (through Scheid) first notified Cohens counsel of Plaintiffs intention to file a motion for fees and sanctions on May 20, 2008, two days before Plaintiffs response to Cohens Motion for Summary Judgment was due. (Exhibit A-1.). Plaintiffs filed their Motion a day later on May 21, 2008. (Doc. Nos. 197, 199).

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Plaintiffs Motion for Summary Judgment. Fourth, with respect to Plaintiffs invitation for

this Court to invoke its inherent power to sanction Cohen, Plaintiffs have failed to show that

Cohens conduct meets the applicable Tenth Circuit test for bad faith in this context; and

Plaintiffs have conveniently omitted to call the Courts attention to their own bad faith

litigation conduct which would preclude recovery of fees and costs under the equitable

unclean hands doctrine. Fifth, Plaintiffs claims under the LPA and SA fail because,

among other reasons, they are unpled and because Cohen is not a party to either contract.

Finally, if the Court elects to award fees, it should award an amount far less than Plaintiffs

request; the fees charged are unreasonable.

II. PLAINTIFFS, WHO INITIATED THIS LITIGATION, HAVE NEITHER PREVAILED NOR BEEN EXEMPT FROM THE COURTS CRITICISM Throughout the course of this litigation, the Court has consistently characterized both

parties litigation conduct as unnecessarily fractious and vexatious. In their efforts to pursue

attorney fees under various theories, Plaintiffs attempt to characterize Cohen as the sole

source of this misbehavior. They meticulously document all of the perceived favorable

language culled from the Courts previous Orders in an effort to portray Cohens and his

attorneys litigation conduct as solely deserving of this Courts invoking its inherent power to

sanction. (Motion, at pg. 4).

A closer (and more accurate) examination of the record, however, reveals that the

Court has chastised both parties for their litigation conduct. Early in the litigation, the Court

noted the fractiousness of the litigants and the attorneys inability to agree on anything.

Order (Dec. 4, 2006), Natural Wealth Real Estate, Inc. v. Cohen, 2006 WL 3500624 *1 (D.

Colo. 2006). The Court even noted that the parties had filed a plethora of motions and

asked at one point that no more motions by either party be filed. Id.

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When ruling on Cohens Motion to Dismiss in December 2006, the Court observed

that Plaintiffs eighty-six page Second Amended Complaint (the SAC) contained

extraneous and salacious content. Id. As the litigation wore on, the Court in its February

21, 2008 Order granting Plaintiffs Motion for Summary Judgment on Cohens contract

counterclaim noted that Plaintiffs complaint contained considerable extraneous and

salacious content. Order (Feb. 21, 2008), Natural Wealth Real Estate, Inc. v. Cohen, 2008

WL 511761 *1 (D. Colo. 2008)(emphasis supplied).

In its January 23, 2007 Order, the Court chastised both parties Plaintiffs and

Cohen for historically induc[ing] a wasteful expenditure of resources by [the] court []

and litigating parties. Order (Jan. 23, 2007), Natural Wealth Real Estate, Inc. v. Cohen,

2007 WL 201252 *4 (D. Colo. 2007). The Court further admonished both parties: before

filing any more motions, the parties would be well-advised to examine my numerous orders

in this case and to avoid issues previously culled. (Id.) (emphasis supplied.)

The Court in its October 26, 2007 Order denying Cohens Motion for Leave to

Amend, found that both parties had engaged in vexatious litigation conduct: after

consideration of the parties circumlocutory, prolix, and splenetic papers and found that

both parties insist on pursuing obfuscatory tactics to postpone the resolution of this matter

on the merits. Order (Oct. 26, 2007)(emphases supplied)(Doc. No. 175).

The Supreme Court found in Chambers v. NASCO that the imposition of sanctions

under the Courts inherent powers depends not on which party wins the lawsuit, but on how

the parties conduct themselves during litigation. Chambers v. NASCO, Inc., 501 U.S. 32, 53

(1991). Thus, sanctions can be awarded for the bad faith conduct of either party in litigation.

Because the underlying rationale of fee shifting is, of course, punitive, Chambers, supra,

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501 U.S. at 53, it would be inequitable and not in furtherance of dominating reasons of

justice to punish Cohen, given Plaintiffs own misconduct.

III. THE COURT SHOULD DENY PLAINTIFFS REQUEST FOR SANCTIONS AND ATTORNEYS FEES UNDER COLO. REV. STAT. 13-17-101 ET SEQ. BECAUSE THE STATES STATUTE IS PREEMPTED BY RULE 11

Plaintiffs move pursuant to COLO. REV. STAT. 13-17-101 et seq. for sanctions and

attorneys fees, asserting that Cohens pursuit of tort and contract counterclaims, motion to

file a late certificate of review, motion for leave to amend and opposition to Plaintiffs

motion for summary judgment were substantially frivolous, substantially groundless and/or

substantially vexatious within the meaning of C.R.S. 13-17-102(4). (Motion IV (A-C),

at pp. 24-31)(Doc. No. 199.).

The Court should deny Plaintiffs request for sanctions under C.R.S. 13-17-101 et

seq. because the Colorado statute does not provide a basis for recovery of attorneys fees and

expenses in a federal diversity action. Hantz Air, LLC v. J. Mesinger Corp. Jet Sales, Inc.,

2007 WL 1520106 *1 (D.Colo. 2007). In federal diversity actions, as here, courts refuse to

apply Colorados sanctioning statute because to the extent COLO.REV.STAT. 13-17-101 et

seq. is inconsistent with the procedural safe-harbor provisions of Rule 11, it is preempted.

Spratt v. Leinster, 2007 WL 2412826 *1 (D.Colo. 2007) (citing to McCoy v. West, 965 F.

Supp. 34, 35 (D.Colo. 1997) (finding that a federal district court in a diversity case is neither

required, nor indeed permitted, to apply state law to a matter covered by a Federal Rule of

Civil Procedure.).

An important distinction between the federal and state statutes is that Rule 11

includes a safe-harbor provision not included within the Colorado statutes. See McCoy,

965 F. Supp. at 36; see also, FED.R.CIV.P.11(c)(1)(A). Rule 11(c)(1)(A) provides that a

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motion for sanctions may not be filed with the court until 21 days after it has been served

upon the opposing party and only if the opposing party has not withdrawn the challenged

allegation or paper. Id. The language of the Rule requires that a request for sanctions must

be made as a separate motion, not simply included as an additional prayer for relief in

another motion. Roth v. Green, 466 F.3d 1179, 1192 (10th Cir. 2006). The Rule also requires

a copy of the motion be served on the adverse party; a letter alone is insufficient to satisfy the

notice requirements of subsection (c)(1)(A). Id.

The Tenth Circuit has found that the safe-harbor provisions of Rule 11 were intended

to:

protect[ ] litigants from sanctions whenever possible in order to mitigate Rule 11s chilling effects, formaliz[e] procedural due process considerations such as notice for the protection of the party accused of sanctionable behavior, and encourag[e] the withdrawal of papers that violate the rule without involving the district court.

Roth, 466 F.3d at 1192 (citing 5A Charles Alan Wright and Arthur R. Miller, FEDERAL

PRACTICE AND PROCEDURE 1337.2, at 722 (3d ed. 2004)). Further, courts have also

rejected motions for sanctions after a district court has dismissed a claim or granted summary

judgment because it prevents giving effect of the safe harbor provision or the policies or

procedural protections it provides. Roth, 466 F.3d at 1193 (and cases cited therein).

The matters for which Plaintiffs now seek sanctions under Colo.Rev.Stat. 13-17-

101 et seq. are squarely within the scope of the subject matter addressable by the Federal

Rule. Steinert v. Winn Group, Inc., 440 F.3d 1214, 1223 (10th Cir. 2006) (Rule 11 focuses

only on a challenged pleading or written motion.). But at no prior time during the course of

this nearly three-year litigation did Plaintiffs counsel ever serve Cohens counsel with a

copy of a proposed motion for sanctions under FED.R.CIV.P. 11(c)(1)(A) challenging

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Cohens counterclaims, motions or pleadings as frivolous, groundless or vexatious.7 This

fact is determinative. To quote from a recent decision in the District of Colorado: if

Defendants legal positions were as abusive as Plaintiff[s] make them out to be, [they] w[ere]

free to file a timely motion for sanctions under Rule 11. Wind v. Aegis Security Ins. Co.,

2007 WL 2045504 *1 n.1 (D.Colo. 2007) (denying motion for attorneys fees brought under

C.R.S. 13-17-101 et seq. and 28 U.S.C. 1927 because Defendant could have, but failed, to

bring a timely motion under Rule 11 for the allegedly offending conduct.) (emphasis in

original).

Because Plaintiffs had ample opportunity during the course of this litigation to

challenge Cohens counterclaims and pleadings under Rule 11, but did not, their Motion for

Fees and Costs brought under C.R.S. 13-17-101 et seq. should be denied.

IV. THE COURT SHOULD DENY PLAINTIFFS REQUEST FOR SANCTIONS UNDER FED.R.CIV.P. 56(g) BECAUSE THE ALLEGEDLY OFFENDING AFFIDAVITS DID NOT PREJUDICE THE OUTCOME OF PLAINTIFFS SUMMARY JUDGMENT MOTION

Plaintiffs also seek sanctions pursuant to FED.R.CIV.P. 56(g) for Cohens affidavit

and Horowitzs Rule 56(f) affidavit submitted in support of Cohens Opposition to Plaintiffs

Motion for Summary Judgment on Cohens First Counterclaim. (See Motion, at IV (C)).

Plaintiffs allege that Cohen submitted these affidavits in bad faith within the meaning of

Rule 56(g). (Id., at pg. 29.) As a basis for seeking sanctions for Horowitzs affidavit,

Plaintiffs point to the Courts Order denying Cohens request to delay the adjudication of the

summary judgment motion because it found the 56(f) affidavit inexplicably late. (Id., at

pg. 30.) As a basis for its request for 56(g) sanctions for Cohens affidavit, Plaintiffs list

7 Plaintiffs asserted C.R.S. 13-17-101 et seq. as an affirmative defense to Cohens counterclaims. (Pls. Reply to Counterclaims, Aug. 10, 2006, Doc. No. 112, Affirmative Defense No. 31). In federal diversity actions, the states statute is preempted. Rule 11 has been found to govern frivolous, groundless and vexatious conduct in federal district courts.

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alleged factual discrepancies and contradictions in Cohens affidavit and various pleadings

submitted in this litigation (including a Proposed Amended Counterclaim, see 44(c)) as

well as in Cohens NASD Statement. (Motion, at IV (K), 43-44(a)-(e)).

A. Adjudication of Plaintiffs Motion for Summary Judgment Was Not Delayed By the Allegedly Offending Rule 56(f) Affidavit, Nor Did the Consideration of Cohens Affidavit Prejudice the Favorable Disposition of Plaintiffs Summary Judgment Motion

Sanctions under Rule 56(g) are proper only if the affidavit is submitted in bad faith

and prejudices the disposition of the summary judgment motion. See Jaisan, Inc. v. Sullivan,

178 F.R.D. 412, 417 (S.D.N.Y. 1997) (finding that Plaintiffs conduct herein, while far from

exemplary, was simply not of the type which has been found to warrant an award of

attorneys fees under Rule 56(g)even if it were egregiousit did not affect the outcome

of the case and Rule 56(g) sanctions would be inappropriate for that reason.); Faberge v.

Saxony Products, Inc., 605 F.2d 426, 429 (9th Cir. 1979) (Rule 56(g) sanctions not applied

where affidavit did not prejudice disposition of motion even if court assumed it was

submitted in bad faith.); United Energy Corp. v. United States of America, 622 F. Supp. 43,

47 (N.D.Cal. 1985) (finding that even though challenged declaration unquestionably

contained factual errors[] failure to recall accurately the events as they occurred, however,

does not constitute bad faithno matter what version of the facts is employed, the United

States is entitled to summary judgment.).

Here, the allegedly offending affidavits of Cohen and Horowitz did not prejudice the

outcome of Plaintiffs Motion for Summary JudgmentPlaintiffs won the summary

judgment motion. Therefore, even if the Court were to agree with Plaintiffs argument that

the two offending affidavits were submitted in bad faith, the award of attorneys fees under

Rule 56(g) would be inappropriate.

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B. Plaintiffs Have Not Delineated What Portion of Their Requested Fees and Costs Are Reasonable Expenses Which the Filing of the Affidavits Caused the Other Party to Incur As Required by the Language of Rule 56(g)

Even if the Court were to find the allegedly offending affidavits sufficiently egregious

to merit award of sanctions under Rule 56(g), Plaintiffs would not be entitled to recover all of

their requested attorneys fees and costs for the Reply brief on the Motion for Summary

Judgment as to Cohens First Counterclaim ($69,519.25 in fees and $3,880.36 in costs), but

rather only the amount of the reasonable expenses which the filing of the affidavits caused

the other party to incur, including reasonable attorneys fees as the language of the Rule

requires. FED.R.CIV.P. 56(g); (Motion, at III (M), 49 (g), pg. 23); See Jaisan, 178 F.R.D.

at 417 n. 3 (finding that if Sullivans motion were granted, the attorneys fees recoverable

would be de minimis in any event. The only expenses arguably necessarily incurred by

Sullivan as a result of the conduct of plaintiffappear to have been those associated with

simply pointing out again in his reply memorandum that plaintiffs charter had been revoked

and reiterating the arguments already set forth in his moving papers.).

Thus, Plaintiffs would be entitled to at most fees and costs associated with

preparing those portions of the Reply brief devoted to pointing out the alleged factual

discrepancies and contradictions within Cohens affidavit proffered in opposition to

Plaintiffs Motion for Summary Judgment on Cohens First Counterclaim and in opposing

Cohens 56(f) request for a stay pending discovery. Plaintiffs, however, have not done the

work of itemizing those fees and costs that relate to that work only. Instead they improperly

ask for their fees and costs for the entire Reply. Therefore, the Court should deny Plaintiffs

request for fees and costs under 56(g) on this additional basis. (Motion, at III M, 49(f)-

(g), p. 23; Posel Aff. 5(d); Given Aff. 5(g); Scheid Aff. 5(g)).

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V. THE COURT SHOULD ALSO DECLINE TO AWARD PLAINTIFFS ANY FEES OR COSTS UNDER ITS INHERENT AUTHORITY

As an alternative basis for an award of the requested fees, Plaintiffs ask the Court to

exercise its equitable inherent power to sanction Cohen for filing his 1) Motion for Leave to

Amend which Plaintiffs describe as substantially frivolous, substantially groundless, and

substantially vexatious within the meaning of C.R.S. 13-17-102(4) and represented bad

faith subject to redress under the Courts inherent authority and 2) pursuit of his contract

counterclaim which Plaintiffs describe as substantially frivolous, substantially groundless,

and substantially vexatious within the meaning of C.R.S. 13-17-102(4) and having

involved the use of affidavits submitted in bad faith within the meaning of Rule 56(g) and

involved matters subject to redress under the Courts inherent authority. (Motion, at

IV(B-C), pp. 27-29).

A. Legal Standard for Application of the Bad Faith Exception to the American Rule

Sanctions under the Courts inherent power are appropriate when a party has acted

in bad faith, vexatiously, wantonly, or for oppressive reasons. Chambers, 501 U.S. at 45-46.

This is the case when a partys entire conduct throughout the lawsuit evidenced bad faith

and an attempt to perpetrate a fraud on the court, id. at 51, and when a party attempts

through tactics of delay, oppression, harassment and massive expense to reduce plaintiff to

exhaustive compliance. Id. at 41. However, [a] court must, of course, exercise caution in

invoking its inherent power and it must comply with the mandates of due process, both in

determining that the requisite bad faith exists and in assessing fees. Id. at 50. Further, when

there is bad-faith conduct in the course of litigation that could be adequately sanctioned

under the rules, the court ordinarily should rely on the rules rather than the inherent power. It

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is in cases when neither the statute nor the Rules are up to the task, [that] the court may

safely rely on its inherent power. Id.

The Tenth Circuit has found that a party acts in bad faith only when the claim

brought is entirely without color and has been asserted wantonly, for purposes of

harassment or delay, or for other improper reasons. Sterling Energy, Ltd. v. Friendly Natl

Bank, 744 F.2d 1433, 1435 (10th Cir. 1984) (emphasis supplied) (holding that it was unable

to affirm the award of attorneys fees because the district court failed to provide enough

information from which it could determine that a finding of conscious wrongdoing was

made.) The award of attorneys fees under the bad faith exception is punitive and can be

imposed only in exceptional cases for dominating reasons of justice. U.S. Industries, Inc. v.

Touche Ross & Co., 854 F.2d 1223, 1241 (10th Cir. 1998) (emphasis supplied); see also,

Autorama Corp. v. Stewart, 802 F.2d 1284, 1287 (10th Cir. 1986) (citing to Sterling, 744 F.2d

at 1437.) Because inherent powers are shielded from direct democratic controls, they must

be exercised with restraint and discretion. U.S. Industries, Inc., 854 F.2d at 1241 (quoting

Roadway Express, Inc. v. Piper, 447 U.S. 752, 764 (1980)). Moreover, the Tenth Circuit has

also cautioned that the bad-faith exception to the general rule that attorneys fees may not be

recovered requires more than a showing of a weak or legally inadequate case, and more than

a finding of negligence, frivolity, or improvidence. It is a narrow exception indeed.

Dreiling v. Peugeot Motors of Am., Inc., 850 F. 2d 1373, 1382-83 (10th Cir. 1988).

B. Awarding Plaintiffs Sanctions Against Cohen Under The Courts Inherent Authority Would Not Further Dominating Reasons of Justice. 1. Plaintiffs Have Not Met Their Burden to Establish Cohens Bad

Faith as a Basis for Fee Shifting

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The party seeking the award of fees must demonstrate that the imposition of fees is

required by dominating reasons of justice, showing that the opponents claim was entirely

without color and undertaken for reasons of harassment or delay. Dreiling, 850 F.2d at 1373.

In the Tenth Circuit, the test for bad faith is conjunctive it requires clear evidence of both a

complete lack of color and an improper purpose. F.T.C. v. Kuykendall, 466 F.3d 1149, 1153

(10th Cir. 2006). Whether a bad faith exception applies turns on the partys subjective bad

faith. Id. at 1152.

In addressing the initial question of whether an action was entirely without color,

the Tenth Circuit has said we resist the urge to undertake a full merits review of the case.

F.T.C. v. Freecom Comm., Inc., 401 F.3d 1192, 1201 (10th Cir. 2005). In determining

whether an action is without color, the question is whether, viewed in light of the record

evidence and underlying substantive law, the losing partys claims lacked any legal or factual

basis:

A claim is entirely without color when it lacks any legal or factual basis. Conversely, a claim is colorable when it has some legal and factual support, considered in light of the reasonable beliefs of the [party] making the claim. The question is whether a . . . reasonable plaintiff . . . could have concluded that facts supporting the claim might be established, not whether such facts actually had been established. Thus, . . .we note that a claim that fails as a matter of law is not necessarily lacking any basis at all. A claim is colorable when it reasonably might be successful, while a claim lacks a colorable basis when it is utterly devoid of a legal or factual basis.

Id.

In addition to the required finding that a claim is entirely without color, the Tenth

Circuit also insists that the trial judge make a specific finding of bad intent or improper

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motive by the misbehaving party before there can be an award of attorneys fees. Id. at

1200.

a. Cohens Pursuit of Tort Counterclaims Does Not Merit an Award of Sanctions under the Courts Inherent Power

Plaintiffs challenge Cohens pursuit of tort counterclaims and the late certificate of

review only as being substantially frivolous and substantially groundless within the meaning

of C.R.S. 13-17-102(4). (Motion, at IV A, pp. 24-25). Because, as discussed above, the

Colorado statute does not provide a substantive basis for relief in federal diversity actions,

and Plaintiffs failed to challenge the tort counterclaims and the motion for the late certificate

of review through a timely motion under FED.R.CIV.P.11, the Court for this reason alone

should deny Plaintiffs request for sanctions.

Additionally, the Court should decline to sanction Cohen under its inherent power for

his tort counterclaims because Plaintiffs have not proffered clear evidence that the dismissed

tort claims meet both prongs of the conjunctive bad faith test that is, the claims lacked

color and they were brought with an improper motive. F.T.C. v. Kuykendall, 466 F.3d at

1153.

On June 30, 2006, Cohen filed his Answer to Plaintiffs Second Amended Complaint

and asserted nine counterclaims against Plaintiffs. Cohens counterclaims included claims

for breach of contract, breach of fiduciary duty, fraud, negligent misrepresentation,

professional negligence, aiding and abetting breach of fiduciary duty, aiding and abetting

fraud, negligence, and accounting. (Doc. No. 100). Plaintiffs Second Amended Complaint

against Cohen included ten claims for relief: defamation, commercial disparagement,

interference with prospective business advantage, quantum meruit/unjust enrichment, civil

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extortion, civil conspiracy, violations of COCCA, injunction, declaratory judgment and

interpleader. (Doc. No. 93).

Randall Livingston, Cohens Colorado counsel, drafted and filed Cohens

counterclaims on behalf of Cohen. Livingston drafted Cohens counterclaims, in large part,

from the factual analysis and statement of potential claims included in the April 10, 2005

claims letter Kory sent to Sherab Posel.8 The claims letter Kory sent Posel in response to

Posels invitation and repeated requests for a private mediation of Cohens claims against

Plaintiffs was drafted after Kory undertook an intensive five-month investigation of

Cohens potential claims against Plaintiffs. Kory put enormous effort into reviewing and

organizing the evidence and conducted interviews with a wide variety of people.

(Motion, at III A (1), pg.10.). Thus, Cohens counsel exercised reasonable inquiry into the

factual and legal foundation of Cohens tort counterclaims.9

Plaintiffs filed a Motion for Judgment on the Pleadings on October 19, 2006 seeking

dismissal of Cohens tort claims under the economic loss rule and for failure to file a timely

certificate of review. (Doc. No. 122.) In the Courts Order granting Plaintiffs Judgment on

the Pleadings, the Court dismissed Cohens claims for negligence, professional negligence

and breach of fiduciary duty for failing to file a timely certificate of review in compliance

with COLO.REV.STAT. 13-20-602 and the remainder of Cohens asserted tort claims (fraud,

aiding and abetting breach of fiduciary duty, aiding and abetting fraud, negligent

8 The April 10, 2005 claims letter asserted Korys good faith belief, after diligent investigation of all the evidence available to him at the time, that in addition to state and federal securities claims, Cohen had potential tort claims for breach of fiduciary duty, common law fraud, and negligent misrepresentation against Plaintiffs. (Pls. Opp. to Korys Motion to Dismiss, Doc. No. 32, Exh. A.) These tort claims were asserted by Cohen as counterclaims in this action. 9 FED.R.CIV.P. 11 requires attorneys to make reasonable inquiry into both the facts and the law relevant to their pleadings and motions prior to signature.

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misrepresentation) under the economic loss rule. See Order (Jan. 23, 2007), Natural Wealth

Real Estate, Inc. v. Cohen, 2007 WL 201252 (D.Colo. 2007).

The Court rejected Cohens argument that he should be able to plead his tort and

contract theories in the alternative. (Id. at *6.) The Court found that in the typical case,

Mr. Cohen would be permitted to pursue alternative theories until summary judgment. (Id.)

(emphasis supplied.) However, because of Cohens prior motion practice, Mr. Cohen has

backed himself into a corner by filing motions to compel arbitration, to dismiss the

complaint, to dismiss the Second Amended Complaint, to file a late certificate of review at

every development of the pleadings. (Id.)

Plaintiffs argue that when Cohen filed his tort counterclaims in June 2006, the law

of the case had already established the 2002 Agreements as the governing documents and

that there existed no rational argument to circumvent the economic loss rule. (Motion, at

pp. 26-27.) However, in its January 23, 2007 Order on Plaintiffs Motion for Judgment on

the Pleadings, the Court declared I will not revisit my previous ruling on the force and

subject matter of the 2002 Agreements, which now comprises the law of the case [citation

omitted] absent substantial and relevant evolution of the record. Order (Jan. 23,

2007)(emphasis applied), 2007 WL 201252 *4. Thus, the Court left open the possibility that

it would revisit its December 2005 ruling on the force and effect of the 2002 Agreements if

the evidentiary record were to subsequently evolve through discovery, which had not been

undertaken by either party.

The Court did not find that Cohens tort counterclaims dismissed in the January 23,

2007 Order for failure to file a certificate of review (negligence, professional negligence and

breach of fiduciary duty) were lacking in color, or were interposed in subjective bad faith or

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for an improper purpose. The Court, without passing upon the three claims legal or factual

sufficiency, found that the claims must be dismissed through Cohens counsels inexcusable

neglect for failing to comply with the procedural requirements of COLO.REV.STAT. 13-20-

602. Order (Jan. 23, 2007), 2007 WL 201252 *5 (D.Colo. 2007). Negligence is not

sufficient to support a finding of bad faith. Dreiling, 850 F. 2d at 1382-83 (the bad-faith

exception to the general rule that attorneys fees may not be recovered requires more than a

showing of a weak or legally inadequate case, and more than a finding of negligence,

frivolity, or improvidence.) (citing to Cornwall v. Robinson, 654 F.2d 685, 687 (10th Cir.

1981) (emphasis supplied).

Likewise, with respect to the remaining tort counterclaims dismissed under the

economic loss rule, the Court found that because of the procedural posture of the case and the

Courts prior rulings, the law of the case doctrine subjected Cohens tort claims to

dismissal prior to summary judgment, but did not find that Cohens tort counterclaims were

filed for an improper purpose, the required second prong of the conjunctive bad faith test.

Order (Jan. 23, 2007), 2007 WL 201252 (D.Colo. 2007).

With regard to Cohens fraud counterclaim, the Court found that Cohen had identified

particular alleged omissions from periodic communications. (Id. at *8). The Courts

statements regarding the factual inadequacies as to Cohens fraud counterclaim that Plaintiffs

point out10 cannot be interpreted as a finding that Cohen acted with an improper purpose in

10 Plaintiffs point to the Courts finding that Cohens alleged communications pre-dating the 2002 Agreements were irrelevant. (Pls. Motion for Fees and Costs, 24, p. 15.) Plaintiffs also point to the language in the Courts January 23, 2007 Order regarding Cohens fraud allegations and claim that the Court agree[d] that Mr. Cohens account seems implausible, yet stated: I am obliged to accept all of his allegations as true, including the allegation that [Agile] divined that he would not receive the letters. (Pls. Motion for Fees and Costs, 25, p.15.)(emphases in original). It should be noted that Plaintiffs claim that Cohen never did present evidence that Agile somehow divined he would not receive them [the purported warning letters] is manifestly untrue. (Pls. Motion for

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bringing this claim. F.T.C. v. Kuykendall, 466 F.3d at 1153 (Our statements regarding the

factual inadequacies in the FTCs case do not shed light on whether the FTC subjectively

acted with an improper purpose. In fact there is no evidence to suggest as much.). Thus, the

Court should decline to exercise its equitable inherent powers to sanction Cohen for the filing

of his tort counterclaims.

b. Cohens Motion for Leave to File Certificate of Review

Plaintiffs cite to this Courts Order denying Cohen leave to file a late certificate

which found Cohens arguments manifestly frivolous and found that Cohen had provided

only a subjective, frivolous, and post facto justification for not needing to file a certificate.

(Motion, at III E 19-20, pg. 14.) Cohens failure to file a timely certificate of review,

while arguably an act of professional negligence and inexcusable neglect on the part of

Cohens counsel, which redounded to Plaintiffs benefit, does not support a finding of

subjective bad faith sufficient to invoke the Courts inherent power to sanction. A finding of

frivolity or negligence is not enough to merit sanctions. Dreiling, 850 F. 2d at 1382-83.

Further, the Court noted that if Cohens proffered certificate were allowed, Plaintiffs and

Barnett would not suffer prejudice as a result of the late filing. Order (Dec. 27, 2006), 2006

WL 3833893 *1 (D.Colo. 2006).

Thus, the Court should decline to exercise its equitable inherent power to sanction

Cohen for his counsels failure to file a certificate of review.

Fees and Costs, 25, p.15.) In Cohens Answer and Counterclaims, at paragraphs 25-26, Cohen pointed to an e-mail communication dated February 3, 2004 with Tim Barnett in which Lynch admitted that Cohen had not received the January 16, 2004 warning letter because Cohen was traveling and Lynch didnt know when he would return. (Doc. No. 100, 25-26). Cohen also produced the February 3, 2004 e-mail as an exhibit to his affidavit in Opposition to Plaintiffs Motion for Summary Judgment (Cohens Opp. to Pls. Motion for Summary Judgment, Cohen Aff. 51, Exh. 37, Doc. No. 180.) (Exhibit A-2.). If Plaintiffs knew Cohen did not receive the January 16, 2004 warning letter because he was traveling and Lynch advised Plaintiffs I do not know when he will be back, they could have suspected that there was also a chance that Cohen would not receive the subsequently sent June 25, 2004 warning letter.

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c. Cohens Motion for Leave to Amend

In the Order denying Cohens Motion for Leave to Amend, the Court found that:

both parties insist on pursuing obfuscatory tactics to postpone the resolution of this matter

on the merits. Order (Oct. 26, 2007)(emphasis supplied)(Doc. No. 175). Prior to filing his

motion for leave to amend on May 10, 2007, Cohen had not previously sought amendment of

his answer and counterclaims, whereas Plaintiffs had amended their complaint twice after

Korys removal from the Boulder District court. (Id.) The Courts reference to both parties

obfuscatory tactics to postpone the resolution of the matter on the merits could equally

apply to Plaintiffs Motion for Leave to File a Second Amended Complaint in February

2006. (Doc. No. 85). In that motion, Plaintiffs challenged this Courts prior Order of

December 4, 2005 dismissing all claims against Kory for lack of personal jurisdiction by

attempting to reinstate three previously dismissed claims (outrageous conduct, civil

conspiracy and extortion) and to add seven new ones against Kory.

Through Plaintiffs second amendment, Plaintiffs also successfully added seven new

claims against Cohen which delayed Cohens filing of his Answer and Counterclaims by four

months because Cohen and Kory were forced to file separate briefs opposing Plaintiffs

Motion for Leave to Amend to File a Second Amended Complaint. Ultimately the claims

added through Plaintiffs second amendment were either dismissed upon Cohens motion to

dismiss under Fed.R.Civ.P.12(b)(6) for failure to state a claim upon which relief can be

granted or were voluntarily dismissed with prejudice by Plaintiffs under FED.R.CIV.P.

41(a)(2) when faced with Cohens Motion for Summary Judgment. Plaintiffs attempt to

reinstate three previously dismissed claims against Kory and to add seven additional claims

against Cohen, including an ill-founded claim of criminal conduct under COCCA, all of

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which were ultimately dismissed (with the exception of Plaintiffs interpleader claim

between Cohen and Lynch), unnecessarily delayed the resolution of the case and

unnecessarily increased the costs of this litigation.

Because the Court chastised both parties in its Order denying Cohens leave to amend

for pursuing obfuscatory tactics to delay the resolution of the litigation, the Court should

decline to exercise its equitable inherent power to sanction Cohen for his Motion for Leave to

Amend his Answer and Counterclaims because of Plaintiffs own dilatory tactics. To

sanction Cohen without also sanctioning Plaintiffs for unnecessarily delaying this proceeding

would be inequitable and not in the furtherance of dominating reasons of justice.

d. Cohens Opposition to Plaintiffs Motion for Summary Judgment

Plaintiffs filed their Motion for Summary Judgment on May 4, 2007 after Cohens

prior counsel, Jay Horowitz, sought to comply with Local Rule 7.1 to confer with Plaintiffs

regarding Cohens intention to file a Motion for Leave to Amend Cohens Answer and

Counterclaims. Horowitz and Peter Forbes of the Denver law firm Horowitz and Forbes,

entered their appearance on behalf of Cohen prior to Plaintiffs filing their Motion for

Summary Judgment. (Doc. Nos. 146, 147, 148.). In a transparent effort to cut-off Cohens

opportunity for amendment and knowing that motions for leave to amend are subject to

additional scrutiny following a summary judgment motion,11 Plaintiffs immediately filed for

summary judgment on Cohens contract counterclaim on the same day Cohens new counsel

entered their appearance. (See Motion, 29).

In dismissing Cohens tort counterclaims in its January 23, 2007 Order, the Court

found that Mr. Cohen is seeking tort damages for alleged conduct that constitutes a breach

11 In this Courts Order denying Cohens Motion for Leave to Amend, the Court found that motions to amend are subject to additional scrutiny when filed in response to a motion for summary judgment. Order (Oct. 26, 2007)(Doc. No. 175).

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of contract. Order (Jan. 23, 2007), 2007 WL 201252 *9 (D.Colo. 2007). The Court in its

Order granting Plaintiffs summary judgment as to Cohens contract counterclaim, did not

find that Cohens breach of contract counterclaim, in a case which was framed as a breach of

contract case through the Courts prior rulings, lacked color, that is, it lacked any legal or

factual basis, the first prong of the subjective bad faith test. The Court found that Cohens

counsel had not marshaled the supporting evidence in the record or in Cohens various

submissions (including the exhibits supporting Cohens affidavit) to defend his breach of

contract counterclaim.12 Order (Feb. 21, 2008), 2008 WL 511761 *6 (D.Colo. 2008).

The Court found that Cohen fail[ed] to offer any specific facts that support his

contention that Plaintiffs should have disregarded Lynchs authority or instructions to re-

modif[y] Cohens alleged March 21, 2002 oral agreement with Greenberg to require the

inclusion of details of the loans. (Id. at *5.) In Cohens Answer and Counterclaims,

Cohen had alleged that Lynch told Greenberg in an e-mail dated January 23, 2003 to not

report her self-dealing loans to Cohen, which was subsequent to her purported September 27,

2002 directive to Plaintiffs to not include the details of the loans.13 What is more, there

was other evidence that Plaintiffs themselves produced as exhibits to their summary

judgment motion that suggested that Plaintiffs knew (or at the very least suspected) that

12 The Court found that while there may have been other withdrawals of funds Greenberg did not report to Cohen, it is the duty of Cohen not the Court to provide and point to evidence in the record supporting this position. Order (Feb. 21, 2008), 2008 WL 511761 *6. Further, the Court strongly castigated Cohens counsel saying It is not this Courts task to comb through Cohens submissions in an effort to link alleged facts to his arguments. (Id.). 13 Lynch told Greenberg in January 23, 2003:

I need to borrow $100,000 from [the account] as well. I made $28,000 from Leonard last year and when he is back [from traveling in India] we will negotiate something because he is basically retired. I know I have taken another loan this year and both of these must stay on the statements as Shareholders Loans and not be deducted when Leonard receives his e-mails. (Cohens Answer and Counterclaims, 21, Doc. No. 100, Pls. Motion for Summary Judgment, Exh. O, AG13441)(emphasis supplied).

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Lynch was self-dealing, acting contrary to Cohens interests and without his authority when

she requested that the loans she took for her benefit not be reported to Cohen.14 In particular,

there was an e-mail from Greenberg to Lynch in August 21, 2003 in which Greenberg

questioned Lynch about whether she had discussed the loans she made for her benefit from

Traditional Holdings with Cohen: I presume all of the loans have been discussed with him

[Cohen] thus far. I dont need to independently talk to him. Is that right? (Exhibit A-4.).

(Pls. Motion for Summary Judgment, Exh. O, AG13257.) Lynch responded: Dear Neal,

Thats correct. All the best. Kelley. Id.

The first prong of the subjective bad faith test is to determine whether an asserted

claim lacks color. F.T.C. v. Freecom Communs., Inc., 401 F.3d at 1201 (finding that the

question is whether a . . . reasonable plaintiff . . . could have concluded that facts supporting

the claim might be established, not whether such facts actually had been established.)

(emphasis supplied). Further, a claim that fails as a matter of law is not necessarily lacking

any basis at all. A claim is colorable when it reasonably might be successful, while a claim

lacks a colorable basis when it is utterly devoid of a legal or factual basis. Id. 14 See, e.g., selected e-mail communications from Plaintiffs Motion for Summary Judgment Exhibit O, attached hereto as Exhibit A-3: x In an e-mail dated January 27, 2003, Lynch told Greenberg: Im desperate and need to know

when I can write the check from Rydex. (Pls. MSJ, Exh. O, AG13429)(emphasis supplied). x The next day, on January 28th, Lynch writes: Just let me know when I can write the check.

Whats the problem [sic] Id be curious to knowWhats up? Is there a problem? (Id. AG13426)(emphasis supplied).

x In an e-mail to Barnett on February 20, 2003, Lynch writes: The 100k is what needs to be discussed with Neal [Greenberg] and should be listed as Shareholder Loan and not deducted [from account balances in Cohens monthly e-mail reports] (Id. AG14569)(Cohens Opp. to Pls. Motion for Summary Judgment, Cohen Aff., Exh. 42.).

What is more, there was a cryptic reference to the need for a side agreement with Lynch: x In an e-mail dated May 21, 2004, Barnett wrote Lynch in an e-mail with the subject line:

Disbursements going forward: This will mean planning ahead as much as possible. In reviewing the withdrawal history of TH, the most that has been withdrawn in any given month is $295k. Accordingly, I suggest that $300k be wired to Rydex at the end of this month to cover. There will also be a special side agreement that we will have to send to you in connection with this request. Do you think $300k will be enough? (MSJ, Exh. O, AG13905)(emphasis supplied).

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Cohens breach of contract claim ultimately failed because of a failure by counsel to

marshal existing supporting evidence in the record to defend Cohens breach of contract

claim, not because Cohens contract claim lacked legal or factual basis. Evidence existed in

the record to support Cohens claim of breach(es) of the alleged March 21, 2002 agreement

Cohen formed with Greenberg to report all withdrawals to Cohen in his monthly e-mails

during the relevant time period framed by the Court in its February 21, 2008 Order.15 Thus,

15 The Court found that excluding the time before Cohens March 20, 2002 directive and after Lynchs September 27, 2002, directive, leaves a six-month period in which Plaintiffs could have breached a contract, had one existed. Order (Feb. 21, 2008) Attached as Exhibit A-5 are two e-mails contained in Exhibit O of Plaintiffs Motion for Summary Judgment which support a claim of breach of the March 21, 2002 agreement with Greenberg during the March 21, 2002-September 27, 2002 time period. x On June 27, 2002 Lynch wrote to Bettsee Robertson an e-mail directing:

for the sum of $150,000 to be sent, in a check to my address as below listed. For Neals [Greenbergs] records, I will put a copy of the promissory note in the mail tomorrow. The address Lynch gave was care of Kelley Lynch, 419 N. Larchmont Blvd, #9, LA CA 90004. (Exhibit A-5).

This disbursement of $150,000 from Traditional Holdings was not reported to Cohen in his July 2002 monthly e-mail report. (Cohens Opp. to Pls. Motion for Summary Judgment, Cohen Aff., Exh. 27). In the e-mail Greenberg sent Cohen dated July 19, 2002 reporting upon the previous months account performance (the month which Lynch took the loan from Traditional Holdings), Greenberg wrote Cohen without reporting Lynchs withdrawal of $150,000 to pay her personal income taxes:

Good news for you. In spite of terrible market performance, we managed to show a modest profit of $3,988.

Current Balance: $5,876,435 Expenditures: $68,700 for trust distributions $44,000 for Promisory [sic] note payment (Exhibit A-5.). Furthermore, there is no evidence that Lynch ever followed through on the promise of sending Neal Greenberg a promissory note for her loan to pay her personal income tax obligation to the IRS. x In an e-mail dated September 4, 2002, Lynch told Greenberg:

I need to take the profit [from Traditional Holdings] now; log it as part of the loan; and well settle up when my commissions come in. (Exhibit A-5.).

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the first prong of the two-pronged conjunctive bad faith test is not met because there was

some evidence supporting Cohens claim. The Court should decline to sanction Cohen for

his breach of contract counterclaim.

e. Cohens Litigation Conduct Does Not Merit Sanctions Under This Courts Inherent Powers

In sum, Cohen respectfully submits that his litigation conduct does not merit

sanctioning under the Courts inherent powers. Plaintiffs cite to the U.S. Supreme Courts

decision in Chambers v. NASCO, Inc., for the standard for invocation of a courts inherent

power to sanction a litigant for bad faith conduct. (Motion, at II. B, pg. 8.) The Chambers

court found that the district court properly invoked its inherent power in awarding fees and

costs to NASCO because Chambers bad faith conduct included a clear fraud perpetrated on

the court, the fraudulent transfers of properties in defiance of a district courts orders, and the

extraordinary costs imposed on NASCO throughout the litigation. Chambers, 501 U.S. at 32.

Chambers conduct was found to be fraudulent and brazenly unethical. Id. at 58.

Chambers filed a series of meritless motions and pleadings and delaying actions, id. at 38,

and ignored repeated timely warningsthat his conduct was sanctionable. Id. at 56.

This is hardly the case here, where Cohens litigation conduct did not involve

fraudulent and brazenly unethical efforts. Perhaps Cohens litigation conduct for which

Plaintiffs now seek sanctions could be described as a series of unfortunate negligent acts on

the part of his counsel or misguided judgment in litigation strategy. But, courts applying

their inherent powers have consistently refused to issue a punitive sanction for litigation

The distribution for Lynchs advance on her commissions requested in September 2002 were not reported to Cohen in the monthly e-mail report sent to Cohen reporting upon account activity in September 2002. (Cohens Opp. to Motion for Summary Judgment, Cohen Aff. Exh. 31) (Exhibit A-5.).

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conduct that was merely frivolous, negligent or improvident without clear and convincing

evidence of subjective bad faith intent. As discussed in Section II above, both parties

received rather stern rebukes from the Court regarding dilatory and obfuscatory tactics to

postpone a final judgment on the merits. The Court stopped short, however, of notifying

Cohen or his counsel that Cohens conduct was sanctionable.

Cohen respectfully submits that Cohens litigation conduct falls far short of meeting

the requirements for invoking the bad faith exception to the American Rule as set out in

Chambers, and the Court should decline to exercise its inherent power to sanction Cohen.

Further, the alleged litigation misconduct for which Plaintiffs now seek redress through the

Courts inherent powers, could have been addressed through timely Rule 11 motions.

2. Plaintiffs Own Bad Faith Litigation Conduct Justifies a Denial of An Award of Requested Fees and Costs

Plaintiffs appeal to the Courts equitable inherent powers to award sanctions against

Cohen for Cohens litigation conduct. The maxim he who comes into equity must come

with clean hands is:

a self-imposed ordinance that closes the doors of a court of equity to one tainted with inequitableness or bad faith relative to the matter in which he seeks relief, however improper may have been the behavior of the defendant. That doctrine is rooted in the historical concept of a court of equity as a vehicle for affirmatively enforcing the requirements of conscience and good faith. This presupposes a refusal on its part to be the abettor of iniquity. Thus while equity does not demand that its suitors shall have led blameless lives, as to other matters, it does require that they shall have acted fairly and without fraud or deceit as to the controversy in issue.

United States v. Kilgore, 1994 WL 401066 *3 (D. Kan. 1994) (quoting from Precision

Instrument Manuf. Co. v. Automotive Maintenance Machinery, Co., 324 U.S. 806, 814-815

(1945))(emphasis supplied).

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The equitable relief Plaintiffs seek should be denied under the unclean hands doctrine

because of Plaintiffs own bad faith litigation conduct. See Fakhri v. United States, 507 F.

Supp. 2d 1305, 1321 (C.I.T. 2007) (denying claimaints request for recovery of expenses and

fees under the Equal Access to Justice Act (EAJA) under the unclean hands doctrine,

despite finding the Governments position in the case was without merit, because of Fakhris

series of misrepresentations to this court and fail[ure] to disclose existence of its

corporation.); Litton Sys. v. American Tel. & Tel. Co., 700 F.2d 785, 826 (2nd Cir. 1983)

(finding that Littons attorneys had engaged in a pattern of intentional concealment of

evidence and willful misconduct and denied Litton recovery of all costs and attorneys

fees to which it would otherwise be entitled as a matter of law, including those under Section

4 of the Clayton Act, 15 U.S.C. 15.)

It is also recognized that even a prevailing party may be denied costs it would

otherwise be entitled to under FED.R.CIV.P. 54(d)16, in the exercise of the Courts discretion,

if that party acted in bad faith during the course of the litigation. Cantrell v. Intl

Brotherhood of Electrical Workers, 69 F.3d 456, 459 (10th Cir. 1995) (recognizing the

exception and citing to Sheets v. Yamaha Motors Corp., U.S.A., 891 F.2d 533, 539 (5th Cir.

1990); McFarland v. Gregory, 425 F.2d 443, 449 (2nd Cir. 1970)).

Plaintiffs misconduct in this case is so egregious as to merit this Court, sitting in

equity, denying Plaintiffs their requested relief. First, Plaintiffs unnecessarily instituted this

action against Cohen and his attorney, Kory, notwithstanding Plaintiffs protestations to the

16 FED. R. CIV. P. 54(d) creates a presumption that the district court will award costs to a prevailing party absent a persuasive reason for not doing so. Cantrell v. Intl Brotherhood of Electrical Workers, 69 F.3d 456, 458-9 (10th Cir. 1995). Plaintiffs have indicated in their Motion for Award of Fees and Costs Against Cohen that to date no final judgment has been entered pursuant to Rule 54(d) or 79(b).As to taxable expenses, Agile reserves its right to file a bill of costs within 10 days after entry of final judgment. (Doc. No. 197, 9). This Court has not yet declared who is the prevailing party in this litigation.

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26

Court that they were forced to file this litigation to foreclose an extortionate scheme. The

fact is that Posel told Kory in February 2005 that Cohens claims against Greenberg were

subject to mandatory arbitration in Colorado.17 As a result, Kory agreed to mediate

confidentially and prepared a detailed claims letter on behalf of Cohen at Posels invitation.

There is no evidence that Plaintiffs were forced to litigate.

There is evidence, however, that Plaintiffs filed this lawsuit, intentionally alleging

nonarbitrable tort claims for the improper purpose of frustrating Cohens legitimate efforts to

pursue his claims through alternative dispute resolution, rather than litigation. Posel had

promised Kory a written response to Korys claims letter in anticipation of a planned

mediation in Colorado.18 Posels written response sent on the eve of the planned mediation

was not a mediation brief as promised, but rather a surprise draft complaint alleging claims of

outrageous conduct, civil conspiracy and extortion against Cohen and Kory. The draft

complaint, sent by e-mail to Kory, also referenced an exhibits binder (containing over 100

pages of exhibits). Shortly after the exhibits arrived on June 6th, Kory proposed to Posel by

email on June 9th to reschedule the mediation in view of a transmittal letter suggesting that 17 See Exhibit A-6, February 10, 2005 e-mail wherein Posel told Kory: I promised to get back to you about the investment advisory and financial planning agreements between LC and Agile (formerly TAS). As anticipated, there is a binding choice of forum and choice of law clause in both contracts, requiring AAA arbitration in Boulder, Colorado. Thus, Posel affirmed as early as February 2005 that Cohens potential claims, arising out of Plaintiffs provision of services to Cohen under the investment advisory agreements, would be subject to mandatory confidential arbitration. 18 See the following e-mail exchanges between Cohens counsel and Posel: x On May 12, 2005, merely three weeks before filing of the pre-emptive Boulder complaint on June

5th, Posel e-mailed Kory informing him that he was transitioning his law practice [from Boies Schiller & Flexner LLP] and would be hanging out his shingle (as of May 16). Posel further reassured Kory that this transition should have no impact on the schedule for our response to your recent letter on behalf of Leonard Cohen. (Exhibit A-7) (emphasis supplied.).

x In an e-mail from Michelle Rice to Sherab Posel June 1, 2005, Rice told Posel: In anticipation of Sundays meeting, it is my understanding through your previous e-mails and phone conversations with Robert [Kory] that you agreed to provide us with your initial written response to our April 10, 2005 letter a few days in advance so as to make Sundays discussion as productive as possible for all parties. Posel responded: We are anticipating faxing you something Friday afternoon, most likely with a list of exhibits, and then sending a full set by fedex for Saturday delivery, if that works for you. (Exhibit A-7.).

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the draft complaint had not been filed.19 Unbeknownst to Kory when he sent the June 9th

email, the Plaintiffs had electronically filed their complaint on June 5th and later issued a

press release the evening of June 9th publicizing its contents.

Ample evidence suggests that Plaintiffs filed their initial complaint alleging extortion,

civil conspiracy and outrageous conduct without any legal or factual basis for these claims.

Plaintiffs knew or should have known that there is no legal basis to allege a conspiracy

between an attorney and his client under the agent-immunity rule, and that there is no civil

claim for extortion in Colorado.20 These claims were the heart of Plaintiffs complaint and

were without any legal basis.

The so-called factual allegations predicating their extortion, civil conspiracy, and

outrageous conduct claims contained in their Boulder complaint were largely on

information and belief and according to Lynch. (See, e.g., Boulder Complaint, 122-

123(a)-(f)); FAC 129(a)-(f); SAC 142-146.) Plaintiffs never proffered credible evidence

during the course of this litigation which substantiated these purportedly factual allegations.

To the contrary, Plaintiffs concealed from the Court communications that would cast serious

doubt on all of the purported factual allegations in the Complaint. That evidence includes

private e-mail communications between Posel and Lynch, which were forwarded by Lynch

19 See e-mail June 9, 2005, in which Kory told Posel:

I am writing to follow-up on the materials that you sent in advance of our meeting that had been planned for this past Sunday. Needless to say, we are surprised by the allegations in the draft complaint and, of course, deny all of those allegations. Our communications about a confidential mediation involving all the parties were clear on their face. We have at all times acted in a good faith effort to address the loss of my clients life savings managed by your client. We have also at all times proceeded on a path of confidentiality at your clients behest in the hope of a reasoned, confidential discussion.

(Exhibit A-8.). 20 See Order (Dec. 4, 2006), Natural Wealth Real Estate, Inc. v. Cohen, 2006 WL 3500624 (D. Colo. 2006).

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to others, to the effect that Posel knew Lynch to be a liar21 and in which Lynch accused Posel

of using and taking advantage of her emotionally to manipulate her testimony and to

gain information on behalf of his client, Greenberg.22

Fourth, Plaintiffs then compounded their bad faith deceit with a defamatory press

release issued just four days after filing of the Boulder District Court complaint. To this day,

Plaintiffs persist in their fraud upon the Court by failing to admit to this Court that they

published a defamatory press release five days before Cohen made any public comment

about Plaintiffs, much less this litigation. Plaintiffs issued their press release for the sole

purpose of provoking a public response from Cohen and procuring defamation, commercial

21 In August 2005, Posel called into question Lynchs fundamental veracity and repeatedly called Lynch a liar. In an e-mail dated August 1, 2005, Posel accused Lynch of:

telling highly slanted and edited, redacted and distorted versions of stories to whoever will listen, for whatever purposes you imagine in the moment you tell the story.

(See Exhibit A-9, p. 4 of 4.). 22 For example, in an August 11, 2005 e-mail Lynch told Posel: I am not talking about Neal [Greenberg] until you and I have sorted out our personal relationship. I am in love with Sherab. You know this. You said you were in love with me. (See Exhibit A-10, p. 5 of 5.). Lynch asked Posel:

Do you love me or not? If you love me then I will not feel betrayed. I just started to feel as though you were taking advantage of me. For instance, when you came to California to translate for Hung-ri, you said you would see me. Then, when you called me, it just seemed as though you wanted an Affidavit for Neal [Greenberg]. You were aware of my feelings for you and I thought they were reciprocal. Were they lies? You said you were madly in love with me.

(Exhibit A-10., p. 4 of 5.).

Posel also tells Lynch: there is not one unkind word about you anywhere in our lawsuit quite the opposite. To which Lynch responds:

That wasnt and isnt my perception of your lawsuit. It feels, to me, as though you have used me all over your lawsuit. Why would you have said to me that in order to avoid a slander suit by Leonard, you need an affidavit from me? Can you clarify this? (Exhibit A-10, p. 2 of 5.).

Despite Posel having called Lynch a liar with a penchant for telling stories, Plaintiffs moved to amend their complaint in February 2006 to add additional allegations which state with greater particularity the unlawful means used to accomplish the unlawful purposes which form the bases for the civil conspiracy claim asserted against Cohen and Kory. (Pls. Motion for Leave to Amend Caption and File Second Amended Complaint, Doc. 85-1, 2.). Several of the additional allegations purportedly supporting Plaintiffs amended conspiracy claim against Cohen added in 245(c)-(e) of the SAC involved allegations of witness tampering based upon Lynchs fanciful and wholly unfounded accusations.

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disparagement and injunction claims against Cohen.23 After Cohen publicly responded on

June 14th to the accusations of criminal conduct in Plaintiffs June 9th press release, Plaintiffs

amended their complaint to assert claims for defamation against Cohen and Kory. (Pls. First

Amended Complaint, Doc. No. 8, 156-163).

Plaintiffs also sought through a second amendment of their complaint against Cohen

to add a claim for injunctive relief, which sought to silence Cohen. (SAC 259-264). This

claim is remarkable because at the end of June 2005, Posel had granted an interview

(declined by Cohen) to a reporter for the DENVER WESTWORD NEWS declaring that Agile

had decided to take [its] chances with the court of public opinion.24 Notwithstanding

Posels public declaration, Plaintiffs injunction claim appealed to this Courts equitable

powers to issue an order suppressing Cohens speech regarding Plaintiffs, ostensibly

preventing Cohen from defending himself in the court of public opinion against Plaintiffs

unfounded accusations of criminal conduct. This request for injunctive relief can only be

seen as interposed in bad faith and for the improper purpose of harassment and oppression.

When Cohen brought Plaintiffs deliberate concealment of their June 9th defamatory

press release to the Courts attention in Cohens Motion for Summary Judgment, Plaintiffs

turned tail and quickly sought an exit strategy which would minimize their exposure to an

award of fees to Cohen for the dismissed claims and even possible sanctions from this

Court.25 See Cooter & Gell v. Hartmax Corp., 496 U.S. 384, 390 (1990) (finding that

23 See (Cohens Motion for Summary Judgment, Statement of Undisputed Facts, 5-14, Exhibit A-2) ( Doc. No. 186-1.) 24 See (Cohens Motion for Summary Judgment, Statement of Undisputed Facts 16-17, Cohen Aff. 11-12, Exh. B-8)(Doc. No. 185). 25 See (Plaintiffs Motion to Dismiss Certain Claims Pursuant to Rule 41(a)(2))(Doc. No. 194).

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sanctions must be available in appropriate circumstances notwithstanding a private party's

effort to cut its losses and run out of court, using Rule 41 as an emergency exit.).26

Merely two weeks after this Courts June 2, 2008 Order granting Plaintiffs motion to

voluntarily dismiss their defamation, disparagement, unjust enrichment, injunction and

declaratory relief claims under FED.R.CIV.P. 41(a)(2) with prejudice, Plaintiffs issued on

June 17, 2008, through Stephen Erwin of Agile Group, another press release (Agiles June

17, 2008 Press Release) once again through Business Wire, disseminated on the Internet by

Bloomberg News, entitled Federal Court Rejects and Dismisses All Counterclaims by

Recording Artist Leonard Cohen against Agile Group; Agile Group Voluntarily Dismisses Its

Defamation and Disparagement Claims. (Exhibit A-11.).

The June 17, 2008 Press Release, falsely proclaimed that the U.S. Federal Court in

Denver had dismissed all of Cohens counterclaims against Agile Group. (Id.)27 The Press

Release also repeats the defamatory allegations contained in the complaint filed in June 2005

that accused Cohen and Kory of threaten[ing] to tarnish Agile Groups professional

reputation in order to extract millions of dollars from Agile Group and its insurers. (Id.).

Plaintiffs do not mention that the legally unsustainable and factually unsubstantiated claims

of wrongdoing leveled against Cohen and Kory in the complaint were dismissed by the Court

in December 2006.

26 Plaintiffs expressly conditioned their voluntary dismissal upon Cohen relinquishing his right to seek fees and costs for the dismissed claims which were improperly brought and maintained against him. See (Plaintiffs Motion to Dismiss Certain Claims Pursuant to Fed. R. Civ. P. 41(a)(2), 2 )(Doc. No. 194). 27 Cohens counterclaim for an accounting against Plaintiffs has not been dismissed.

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3. Plaintiffs Unnecessarily Sought to Multiply and Delay These Proceedings to Impose Significant and Unnecessary Costs Upon Cohen and Kory

Plaintiffs assert that Cohen filed pleadings which unnecessarily delayed these

proceedings (namely Cohens Leave to Amend his Answer and Counterclaims and Cohens

Opposition to Plaintiffs Summary Judgment on Cohens Breach of Contract Counterclaim).

(Motion, at IV B, C, pp. 27, 31.). Plaintiffs also sought to unnecessarily delay and multiply

these proceedings. Once this case was removed by Kory from the Boulder District court to

this Court on July 1, 2005, Plaintiffs amended their complaint twice, once in August 2005 to

add a defamation claim against Kory and Cohen for Korys June 14th Response to Agiles

June 9th Press Release28 and again on May 2006 to add seven additional claims against

Cohen.29

Plaintiffs animosity and vindictiveness towards Cohen and Kory was further

demonstrated through Plaintiffs attempt to abuse the liberal amendment standards of

FED.R.CIV.P. 15(a) to assert seven additional claims against Kory through a second

amendment to their complaint two months after Kory had been dismissed for lack of

jurisdiction under FED.R.CIV.P. 12(b)(2) and after this Court dismissed all of Plaintiffs

claims against him. See Order (Dec. 5, 2005)(Doc. No. 65).

Plaintiffs, through Posel, did not confer in good faith and did not inform Cohens and

Korys counsel that Plaintiffs would seek to 1) reassert additional claims against Kory who

had been previously dismissed from the litigation; and 2) add seven additional claims against

28 See (Cohens Motion for Summary Judgment, Statement of Undisputed Facts, 20-21.)(Doc. No. 185). 29 Through the SAC, Plaintiffs added claims for commercial disparagement, interference with contract, interference with prospective business advantage, quantum meruit/unjust enrichment, violations of the Colorado Organized Crime Control Act (COCCA), injunction and declaratory relief against Cohen.

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Cohen, including a COCCA claim, allegedly supported by criminal predicate acts of mail and

wire fraud, suborning false testimony and witness tampering.30

Posel sent a letter to Joel Feuer of Gibson Dunn on January 13, 2006 informing him

that in light of other recent Orders by the Court,31 Plaintiffs intend to move for leave to file

a Second Amended Complaint. Such amendment, in all likelihood, would eliminate one or

more of the claims in the operative Amended Complaint. (See Exhibit A-12) (emphasis

supplied). Through Posels letter, Plaintiffs sought a stipulation whereby Cohen, who was

due to respond to Plaintiffs Amended Complaint on or before January 20, 2006, would

refrain from answering the FAC and allow Plaintiffs an additional 30 days to proffer a

second amended complaint. (Id.). While Plaintiffs did drop the previously asserted

outrageous conduct claim through their second amendment, Posel, through his efforts to meet

and confer with Cohens counsel, did not disclose Plaintiffs intention to attempt vindictively

to reinstate the previously dismissed civil conspiracy and extortion claims against Kory, add

new claims against Kory and to add additional criminal claims against Cohen.

Cohen opposed Plaintiffs Second Amended Complaint on the basis of the futility.

(Docket 88, 4). Kory successfully opposed Plaintiffs proposed amendment by arguing that

Plaintiffs leave to amend to assert claims against him was an untimely motion for

reconsideration under FED.R.CIV.P. 60(b) of this Courts previous Order of December 5,

2005 dismissing him from the litigation for this Courts lack of personal jurisdiction under

FED.R.CIV.P. 12(b)(2) and dismissing Plaintiffs claims against him. (Docket 89; Order (May

30 It should be noted that the so-called predicate acts giving rise to Plaintiffs purported civil conspiracy claim against Cohen included an allegation that Cohen had issued a defamatory press release, when in fact Plaintiffs had issued their own press release publicizing their lawsuit and allegations of extortion and civil conspiracy against Cohen and Kory on June 9, 2005 which predated any public statement or publication made by Cohen. (SAC 244(b), 245(f); Cohen MSJ, Statement of Undisputed Facts 5-14, Exh. A-2.) 31 The Court dismissed Kory for lack of personal jurisdiction through its December 5, 2005 Order. (Doc. No. 65).

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10, 2006); Doc. No. 91.). This Court granted Plaintiffs proposed amendment as to Cohen,

but invited Cohen to submit a timely motion to dismiss under Rule 12. Order (May 10,

2006) (Doc. No. 91.) Plaintiffs Motion for Leave to Amend to File a Second Amended

Complaint unnecessarily delayed this litigation and imposed significant additional

unnecessary costs upon Cohen.

Cohen submits that Plaintiffs litigation conduct should be found to be part of a

sordid scheme of deliberate misuse of the judicial process designed to defeat [Cohens]

claims by harassment, repeated and endless delay, mountainous expense and waste of

financial resources. Chambers, 501 U.S. at 56-57. In light of Plaintiffs own litigation

misconduct, this Court should decline to exercise its inherent powers to sanction Cohen and

to reward Plaintiffs bad faith actions.

VI. PLAINTIFFS CANNOT SEEK INDEMNITY UNDER EITHER THE LPA OR THE SA AGAINST COHEN

Sections D and E of Plaintiffs Motion for Fees raise unpled claims of contractual

indemnity against Cohen, under the LPA and the SA, for the $308,565.92 in attorney fees

and costs Plaintiffs seek. Both the LPA and the SA are contracts entered into by Traditional

Holdings in connection with its investments with Agile. Cohen is not a party to either

contract.

Plaintiffs claims fail for a multitude of separate and independent reasons, both

procedural and substantive. First, Plaintiffs did not plead these claims. Second, Cohen is not

a party to either contract, and Traditional Holdings is not a party to this lawsuit. Third,

Plaintiffs have not demonstrated that any party indemnified under either the LPA or SA has

suffered a covered loss. Fourth, Agile Safety Fundnot Cohenis the indemnitor under the

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LPA. Fifth, Plaintiffs have not identified any events that would give rise to an indemnity

obligation under the SA.

A. Plaintiffs Did Not Plead Claims for Indemnification.

A claim of indemnity under a contract is no different than any other cause of action

based on contractit must be pleaded and proved by the party asserting a right to

indemnification. See Levy v. HLI Operating Co., Inc., 924 A.2d 210, 222 (Del.Ch. 2007)

(describing a claim of indemnification as a cause of action); see also, Delphi Eastern

Partners, LP v. Spectacular Partners, Inc., 1993 WL 328079 (Del.Ch., August 6, 1993)32

(discussing the elements of a contractual indemnity claim, including the satisfaction of the

terms of the agreement that contains the indemnity rights).33 Plaintiffs, however, did not

bring a claim for indemnity against Cohen in their Complaint, Amended Complaint, or

Second Amended Complaint. As such, they cannot simply raise this issue for the first time

by motion three years into the case.

Plaintiffs affirmative defenses 23 and 24 (see Reply to Cohens Counterclaims,

Docket # 112, at Affirmative Defenses, 23, 24) do not save them. In those affirmative

defenses Plaintiffs stated only that Cohens claims asserted with regard to matters related to

Traditional Holdings and/or The Agile Safety Fund are barred by the terms and provisions of

the [LPA and SA]. (See id.) The defenses go on to refer to a variety of different paragraphs

of the LPA and SA. (See id.) The indemnification provision of the LPA, Section 3.04(b), is

not even cited.

And although the indemnification provision of the SA, Section 3.15, is cited, it is

cited only as one of many other provisions of the SA that, according to Plaintiffs, bar

32 Unpublished opinion. For the Courts reference, a copy of the case is attached as Exhibit A-13. 33 Both the LPA (see Section 14.05) and the SA (see Section 3.07) provide that they shall be construed in accordance with and governed by Delaware law.

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Cohens claims. Indeed, Plaintiffs intentionally omit from their citation of Section 3.15 the

portion of that provision that refers to expenses incurred by Plaintiffs in defending against

litigation. (See id., at Affirmative Defenses, 24, last bullet point.) Had Plaintiffs intended

for defense 24 to cover their supposed indemnity rights for their attorney fees and costs

incurred in this case, they certainly would have included that section. Finally, nowhere in the

affirmative defenses, or any other pleading, do Plaintiffs demand any affirmative relief

against Cohen based on the provisions of the LPA or SA.

For these reasons, the issues reasonably raised by defenses 23 and 24 do not include

whether the terms of the LPA or SA give Plaintiffs indemnification rights against Cohen for

their attorney fees incurred in this lawsuit. Even liberally construed, Plaintiffs affirmative

defenses do not give Cohen fair notice that Plaintiffs were preserving th