!"#$%&'()*+,*(&-..*/01%%%23+45$67%-&.%%%89:$;%(<=(&=(>%%%?@2!%!

3:3A";3%%%B"C$%&%3D%)-

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

VI.

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

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

ii

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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

iii

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

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

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. 13-17101 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

10

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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

11

!"#$%&'()*+,*(&-..*/01%%%23+45$67%-&.%%%89:$;%(<=(&=(>%%%?@2!%!3:3A";3%%%B"C$%&F%3D%)-

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

12

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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

13

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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

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.

14

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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

15

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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. 13-20602. 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

16

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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.

17

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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

18

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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 remodif[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.).

23

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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.

25

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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.).

26

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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, 122123(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).

27

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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.

28

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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).

29

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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.

30

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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).
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.

29

31

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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).

32

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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

33

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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.
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.
33

34

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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 their supposed right to
have a money judgment entered against Cohen for their litigation costs and attorney fees.
See Fortner v. United States, 2008 WL 410396, *9 (D. Colo. 2008) (The requirements of
Rule 8(a) guarantee that defendants enjoy fair notice of what the claims against them are and
the grounds upon which they rest.) (internal punctuation omitted).
Plaintiffs cite to Fed.R.Civ.P. 54(d)(2) and Northeast Controls, Inc. v. Fisher
Controls Intl, LLC, 2008 WL 678701 (D.Del., March 12, 2008), as support for the
proposition that they may make a claim under the indemnity provisions against Cohen for the
first time by motion. (See Plaintiffs Response to Motion for Summary Judgment, Docket #
196, at pg. 8.) Neither of these authorities support Plaintiffs position. First, Rule 54(d)(2)
governs motions for attorney fees recoverable as costs by a prevailing party only after entry
of judgment. It does not address the proper procedure for asserting a contractual claim for
indemnification seeking attorney fees as damages. Moreover, Plaintiffs are not prevailing

35

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parties, and the Court did not enter a judgment in their favor entitling them to seek costs or
fees within 14 days before Plaintiffs filed their Motion for Attorney Fees (see Rule
54(d)(2)(B)(i) (motions under Rule 54(d) must be filed no later than 14 days after the entry of
judgment)).
Northeast Controls is similarly unavailing. In that case the plaintiffs filed a claim for
relief of indemnification against the defendant, and then moved for summary judgment on
the claim. See Northeast Controls, 2008 WL 678701, at *1. The Court granted summary
judgment for the plaintiff on the claim and the plaintiff, as the prevailing party, timely filed a
motion under Rule 54(d) to recover attorney fees and costs incurred in prosecuting the claim.
Id. The court denied the Rule 54 motion as to the fees for lack of a basis for recovery. Id. at
*2. Nothing about that case suggests that one party may bring an unpleaded, substantive
claim for relief for indemnification against another for the first time by motion three years
into a case.
For the foregoing reasons, the Court should deny the Motion to the extent it is based
upon the indemnity provisions of the LPA and SA.
B.

The Court Cannot Hold Cohen Liable Under the LPA or the SA Because
Cohen is Not a Party to Either of Those Contracts.

It is a fundamental principle of contract law that a contract binds only those persons
who have consented to its terms. It is undisputable that Cohen is not a party to the LPA or
SA. His signature is found nowhere on those contracts. As such, Cohen is not bound by the
terms of those agreements.

36

!"#$%&'()*+,*(&-..*/01%%%23+45$67%-&.%%%89:$;%(<=(&=(>%%%?@2!%!3:3A";3%%%B"C$%E&%3D%)-

Plaintiffs nevertheless argue that Cohen is judicially estopped34 from denying liability
under those agreements. (See Motion, at pg. 33.) Plaintiffs, however, come nowhere close to
meeting the standard for judicial estoppel. Plaintiffs cannot show that Cohens denial of
liability under the LPA and SA is directly inconsistent with any prior position Cohen has
succeeded in persuading a court to accept.
The United States Supreme Court test for application of judicial estoppel looks to,
among other factors, whether a partys later position is clearly inconsistent with its earlier
position, and whether the party has succeeded in persuading a court to accept that partys
earlier position, so that judicial acceptance of an inconsistent position in a later proceeding
would create the perception that either the first or the second court was misled. New
Hampshire v. Maine, 532 U.S. 742, 750-51 (2001) (internal citations omitted). Absent
success in a prior proceeding, a partys later inconsistent position introduces no risk of
inconsistent court determinations, and thus poses little threat to judicial integrity. Id.
Similarly, under Colorado law (which Plaintiffs rely upon), application of judicial estoppel is
appropriate only if the two positions are totally inconsistent such that the truth of one
position must necessarily preclude the truth of the other position. Farmers High Line Canal
and Reservoir Co. v. City of Golden, 975 P.2d 189, 202 (Colo. 1999). Also, the party taking
the positions must have been successful in maintaining the first position and must have
received some benefit in the first proceeding. Id.

34

Plaintiffs also use the term equitable estoppel, but do not cite any law or set forth any facts that could
even arguably establish such a theory. Under Colorado law, the following elements must be established to
support an argument of equitable estoppel: (1) the party to be estopped must know the facts and either
intend the conduct to be acted on or so act that the party asserting estoppel must be ignorant of the true
facts, and (2) the party asserting estoppel must rely on the other party's conduct with resultant injury.
Comm. for Better Health Care for All Colo. Citizens v. Meyer, 830 P.2d 884, 891-92 (Colo. 1992).

37

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Here, nothing in Plaintiffs laundry list of Cohens actions warrants estopping Cohen
from denying liability under contracts he is not a party to. Plaintiffs first argue that, in this
lawsuit, Cohen has ignored the distinction between himself and Traditional Holdings by
asserting rights under the LPA and SA and by failing to join Traditional Holdings as an
indispensable party. (See Motion, at pp. 33-34.) Even if true, this does not meet the judicial
estoppel test. Neither of those examples is a position directly contrary to a denial of liability
for indemnity obligations under the LPA and SA. Moreover, Cohen has not previously
succeeded in persuading the Court to accept these positions such that it would create
inconsistent rulings for the Court to now conclude Cohen is not liable under the LPA or SA.
Plaintiffs make no attempt to argue to the contrary.
Plaintiffs next point out that Cohen supposedly urged the California Court to adopt
the view that he is the rightful owner of all Traditional Holdings assets. Again, even if
true, such a position is not totally or clearly inconsistent with Cohens denial that he is a
party to the LPA or SA. Also, a decision of this Court adopting Cohens position would not
be inconsistent with the California Court determining that as between Cohen and Lynch,
Cohen is the owner of the assets of Traditional Holdings.
The last two examples Plaintiffs rely upon are not even positions Cohen has taken in
this or any other case. Plaintiffs note that the Court recognized that the LPA effectuated
Agiles investment plan for Mr. Cohens assets (see Motion, at pg. 34) and that Cohen is
the sole member of Traditional Holdings who asserted the claims that fall within Section
3.15, and caused Agile to incur the litigation costs that fall within the scope of the indemnity
(see id.). In addition, neither of these propositions have anything to do with Cohen not being

38

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a signatory to the LPA or SA, much less are they totally or clearly inconsistent with that fact.
Neither supports the application of judicial estoppel.
In summary, Cohen is not a party to the LPA or SA, and thus cannot be held liable for
indemnity obligations thereunder. Plaintiffs have not made a showing sufficient to require
the Court to stray from that fundamental rule of law.
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.

It is unclear whether Plaintiffs seek an award of costs and fees against Traditional
Holdings in their Motion for Attorney Fees. To the extent they do, that relief is unavailable
because Traditional Holdings is not a party to this case.
Plaintiffs claims to the funds interpleaded into the registry of the Court (see Motion,
at pg. 33) are fully addressed in Cohens previously filed Reply in Support of Motion for
Summary Judgment. As explained there, Plaintiffs are judicially estopped from making any
claim to the interpleaded funds because they have disclaimed any interest in those funds for
the last three years. Also, even if they are not estopped, Cohens current entitlement to the
interpleaded funds defeats Plaintiffs speculative and contingent claims to the funds.
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

To the extent Plaintiffs insurance carrier paid the $308,565.92 in litigation costs
Plaintiffs seek, Plaintiffs have no claim for indemnification under either the LPA or SA. See
Levy v. HLI Operating Co., Inc., 924 A.2d 210, 222-23 (Del.Ch. 2007) (under Delaware
common law of indemnification, a party who has not and will not sustain any actual out-of-

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pocket loss as the result of a claim against it has no indemnification claim.) (internal
punctuation omitted).35
Here, Plaintiffs have failed to specify what amounts Plaintiffs, as opposed to their
insurer, have paid. Instead, Plaintiffs state summarily that all defense costs sought by this
motion were paid for by: (a) TAS and Agile Group, LLCs insurance carrier; and (b) TAS.
(Motion, at pg. 31-32.) This failure leaves Cohen, and the Court, to guess at TAS share of
the $308,565.92 in fees and costs not covered by insurancethe only portion that is
indemnifiable. TAS may have been responsible for only the deductible, while its insurance
carrier paid the rest. In any event, by failing to identify what portion of the $308,565.92 TAS
has borne, Plaintiffs have not demonstrated any indemnifiable loss. The Court should
therefore deny the Motion to the extent it is based upon the indemnity provisions of the LPA
and SA.
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.

In addition to those reasons expressed above, the particular language of the LPA
defeats Plaintiffs claim of indemnity. Indeed, even a cursory review of the LPA reveals that
Plaintiffs claims under the LPA are utterly without merit.
Plaintiffs acknowledge in the Motion that Agile Safety Fund is the indemnitor under
section 3.04 of the LPA. (See Motion, at pg. 35 (Within the LPA, the ASF agreed to
indemnify Agile Group, LLC, its members, and its affiliates . . . .).); see also, LPA,
35

The collateral source doctrine is not applicable because this is a matter of contractual indemnity, not tort
liability. Plaintiffs do not seek damages under the LPA or SA against Cohen as a tortfeasor. See State
Farm Mut. Auto. Ins. Co. v. Nalbone, 569 A.2d 71, 73 (Del. 1989) (The rationale for the collateral source
rule appears to emphasize the deterrent and quasi-punitive functions of tort law. It is considered better that
the innocent plaintiff receive a windfall than that the wrongdoing defendant bear less than the full cost of
his negligent conduct.).

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3.04(b) (The Partnership agrees to indemnify and hold harmless the General Partner and its
managers, members, officers, affiliates and employees . . . .).) This undisputed fact alone
defeats Plaintiffs claim under the LPA. Plaintiffs do not, and cannot, explain how this Court
should ignore the plain language of the LPA and hold Cohen liable for Agile Safety Funds
obligation.
Perhaps in an attempt to distract attention from the fact that Cohen is not the
indemnitor under the LPA, Plaintiffs proceed to make a complicated argument about how the
indemnity obligation of Agile Safety Fund should be allocated completely to the investments
Traditional Holdings used to have in the fund. (See Motion, at pg. 35-37.) This argument is
flawed on several levels. First, absent a judgment for indemnity against Agile Safety Fund,
no allocation is necessary. It is nonsensical to discuss the allocation of payment of an
obligation that does not exist.
Second, even assuming for the sake of argument that it makes sense to determine the
proper allocation, Traditional Holdings former investments in Agile Safety Fund could not
properly be used to satisfy any indemnity obligation of Agile Safety Fund under the LPA.
As Plaintiffs point out, LPA Section 3.04(b) expressly provides that [a]ny indemnity under
this Section shall be paid from and to the extent of Partnership assets only . . . . (See LPA,
3.04(b) (emphasis added).) Under any reasonable reading, Partnership assets cannot
include money that is no longer invested in Agile Safety Fund. If the drafters of the LPA had
intended for Partnership assets to include former investments with the fund, they could
easily have included language to that effect.
This conclusion is further supported by the limited liability provisions of Section 5 of
the LPA. Section 5.03 of the LPA provides that [n]o Limited Partner shall be obligated to

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provide any contributions to the Partnership other than the Original Capital Contribution (as
defined in Section 9.02 below) of such Limited Partner. And Section 5.02(b) provides that
once a limited partner receives a return of its capital contribution, the limited partner may be
liable to the partnership to return that original capital contribution only if the limited partner
knew at the time of the distribution that the partnership was prohibited under Delaware law
from making the distribution. For three years, Plaintiffs have argued that the withdrawals of
Traditional Holdings of its original capital contributions from the Agile Safety Fund were
wholly proper and not prohibited by the law of Delaware or any other state. As such,
Plaintiffs thus cannot now come after Traditional Holdings (much less Cohen) for the return
of Traditional Holdings original capital contribution. Section 5.03 of the LPA specifically
prohibits Plaintiffs from doing so.
Moreover, a determination that Partnership assets includes funds no longer invested
with Agile Safety Fund would render meaningless the clause in Section 3.04(b) that limits
the funds indemnity obligation to the extent of Partnership assets. See Council of Dorset
Condo. Apartments v. Gordon, 801 A.2d 1, 7 (Del. 2002) (A court must interpret contractual
provisions in a way that gives effect to every term of the instrument, and that, if possible,
reconciles all of the provisions of the instrument when read as a whole.). That provision
exists so that Agile Safety Fund can never be liable under Section 3.04(b) for any amount
greater than balance of the assets invested with it. To read Section 3.04(b) to include former
investments would defeat the purpose of that provision.
Plaintiffs also argue that the interpleaded funds can be used to satisfy Agile Safety
Funds (nonexistent) indemnity obligation, baldly asserting that the only balance
[presumably of Traditional Holdings investments with Agile Safety Fund] that remains is

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the interpled funds ($154,180.78) which is less than the indemnity obligation. (See Motion,
at pg. 35.) This argument fails because Plaintiffs previously disclaimed any interest in the
interpleaded funds when they brought the interpleader action and deposited those funds into
the Courts registry. (See Cohens Reply in Support of Motion for Summary Judgment, at
pp. 2-8.) Plaintiffs cannot plausibly now claim that the interpleaded funds are assets of Agile
Safety Fund.
Finally, the question of allocation of payment of Agile Safety Funds obligation under
Section 3.04(b) (were Agile Safety Fund ever to incur such a liability) is a matter entirely
separate from whether an indemnity obligation under the LPA exists in the first place. None
of Plaintiffs pleadings preserve this issue for determination. In fact, in all likelihood only
Agile Safety Fund, who is not a party to this case, would have standing to bring such a claim
against Traditional Holdings.
To summarize, the Plaintiffs in this case, none of which are Agile Safety Fund, are
asking the Court to: (1) enter a judgment against Cohen or from the interpleaded funds that
Agile Safety Fund can use to pay an indemnity obligation under the LPA that does not exist;
and (2) determine that the assets of Agile Safety Fund includes money properly withdrawn
no longer invested with it. No law or fact supports these assertions, and the Court should
accordingly deny the Motion to the extent it is based on the LPA.
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.

Plaintiffs identify six supposed breaches and failures by Traditional Holdings that
purportedly give rise to an indemnity obligation of Cohen under the SA. (See Motion, at pp.
32-33, (a)-(f).) These events are insufficient because: (1) Plaintiffs fail to supply

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competent evidence of the identified actions; and (2) Plaintiffs have not shown that the
litigation expenses of this case (even assuming they were incurred by an indemnified party)
arise out of or are based upon a breach of, or failure by Traditional Holdings to comply with,
a representation it made in either the SA or other document it furnished in connection with
the SA.
1.

Plaintiffs Do Not Provide Competent Evidence to Support Their Claims

Under the SA.

First, Plaintiffs claims under the SA fail for lack of competent evidence of any
indemnifiable event. Plaintiffs examples of supposed breaches and failures by Traditional
Holdings consists merely of Plaintiffs lawyers subjective descriptions of various alleged
representations and actions by Lynch and Cohen. (See Motion, at pp. 32-33, (a)-(f).)
Plaintiffs neither cite to nor supply with their Motion any properly authenticated evidence of
record supporting their claims. This defect alone requires the Motion, to the extent it is based
upon the SA, to be denied.
2.

None of the Actions Identified By Plaintiffs Give Rise to An Indemnity

Obligation Under the SA.

Even if Cohen were a party to the SA, and even if an indemnified party had suffered a
covered loss under the SA, and even if Plaintiffs had supplied admissible evidence, none of
the actions of Traditional Holdings identified by Plaintiffs in their Motion give rise to an
indemnity obligation under that agreement. Broken out into elements, Section 3.15 of the SA
provides as follows:
(1) The undersigned agrees to indemnify and hold harmless;
(2) the General Partner and the Partnership, and each other person, if any, who
controls such entity with the meaning of Section 15 of the Securities Act;
(3) against any and all loss, liability, claim, damages and expenses whatsoever
(including, but not limited to, any and all expenses whatsoever reasonably

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incurred in investigating, preparing or defending against any litigation

commenced or threatened or any claim whatsoever);
(4) arising out of or based upon;
(5) any breach or failure by the undersigned to comply with;
(6) any representation, warranty, covenant or agreement;
(7) made by the undersigned;
(8) herein or in any other document furnished by the undersigned to any of the
foregoing in connection with this Agreement.
Plaintiffs must satisfy each of these elements with respect to any event they claim
gives rise to indemnity under the SA for the costs of this litigation. They do not.
Most fundamentally, the costs of this litigation, as a whole, were caused by Plaintiffs
filing this lawsuit against Cohen and by Cohen filing counterclaims. Those costs do not arise
out of or have their basis in Traditional Holdings breach or failure to comply with a
representation it made in, or in connection with, the SA. For that to be true, Traditional
Holdings would have had to have agreed that Cohen would not sue the Plaintiffs. Plaintiffs
do not and cannot identify any such representation or agreement. Moreover, none of the
seven discrete events that took place in this lawsuit for which Plaintiffs now seek
indemnification arise from a supposed breach of a representation by Traditional Holdings. It
should go without saying that Traditional Holdings never made any representations or
agreements in the SA about how Cohens lawyers would litigate a lawsuit against the
Plaintiffs.
Additionally, none of the events identified in paragraphs (a) through (f) are
representations, warranties, covenants, or agreements made in the SA or in any other
document furnished in connection with the SA. For example, the events identified in the
or clauses are either not representations at all, or not representations made in documents.
Instead, they consist of supposedly false representations (made somewhere) or purported
violations of Cohens or Lynchs duties to Traditional Holdings.

45

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As to the rest (the portions preceding the or clauses), none of those things are
representations made in a document furnished by Traditional Holdings to Plaintiffs in
connection with the SA. Letters sent by Lynch to Agiles employees over the years
following Traditional Holdings execution of the SA are not documents furnished by
Traditional Holdings in connection with the SA. That clause of the SA concerns documents
such as the Investor Questionnaire and financial statements meant to determine whether
Traditional Holdings was an accredited investor. Plaintiffs have also failed to identify how
Traditional Holdings supposedly breached or failed to comply with any of the
representations they describe.
For all of the foregoing reasons, Plaintiffs Motion should be denied.
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
Submitted with this Response is the opinion letter of Bennett S. Aisenberg. (Exhibit

A-14.). Mr. Aisenberg has practiced law in Denver for over forty years. He is, by all
accounts, a distinguished member of the Bar, an experienced litigator, and former president
of the Denver and Colorado Bar Associations. Without belaboring his qualifications, he has
received virtually every honor that a Colorado lawyer can receive.
Cohens counsel requested Mr. Aisenberg to give his opinion as to the reasonableness
of the $294,618.25 in attorney fees36 sought by Plaintiffs in their Motion. In Mr. Aisenbergs
opinion, the attorney fees sought by Plaintiffs for each of the seven discrete tasks are
unreasonable. The crux of Mr. Aisenbergs opinion is that Plaintiffs use of three different
law firms and up to eight different lawyers for these tasks led to substantial inefficiency and
36

Plaintiffs also seek $13,947.67 in costs, bringing the total amount to $308,565.92.

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duplication. Mr. Aisenberg also points out that there was nothing novel or difficult in the
legal questions at issue for many or all of the tasks. Mr. Aisenberg concludes that, if the
Court were to award fees, a reasonable fee for the tasks at issue here would be in the
neighborhood of $77,500.00, rather than the $294,618.25 Plaintiffs request.
For the reasons expressed in Mr. Aisenbergs opinion, Cohen respectfully requests
the Court to greatly reduce the amount of fees sought by Plaintiffs in the event the Court
awards any fees at all.
VIII. CONCLUSION
For all of the foregoing reasons, Cohen respectfully requests that Plaintiffs Motion or
An Award of Fees and Costs be denied in its entirety. Balancing of the equities in this case
should lead the Court to find that each party should bear its own fees and costs.
DATED: July 1, 2008

Respectfully Submitted,
/s/ Michelle L. Rice
LAW OFFICES OF ROBERT B. KORY
9300 Wilshire Boulevard, Suite 200
Beverly Hills, California 90212
Telephone: (310) 285-1630
Facsimile: (310) 274-7681
Email: mrice@rbklaw.com
Jeffrey A. Chase
Andrew W. Myers
JACOBS CHASE FRICK KLEINKOPF & KELLEY,
LLC
1050 17th Street, Suite 150
Denver, Colorado 80265
Telephone: 303.685.4800
Fax No.: 303.685.4869
Email: jchase@jcfkk.com
amyers@jacobschase.com
ATTORNEYS FOR DEFENDANT-COUNTERCLAIM
PLAINTIFF LEONARD COHEN

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CERTIFICATE OF SERVICE
I hereby certify that on July 1, 2008, I electronically filed the foregoing
LEONARD COHENS OPPOSITION TO PLAINTIFFS AND BARNETTS
MOTION FOR AWARD OF ATTORNEYS FEES AND COSTS with the Clerk of
the Court using the CM/ECF system which will send notification of such filing to the
following:
R. Daniel Scheid (dan@lewisscheid.com)
Kurt S. Lewis
(kurt@lewisscheid.com)
Sherab Posel
(poselaw@gmail.com)
I hereby certify that I served the foregoing document on the following non
CM/ECF participant by e-mail and U.S. First Class Mail, postage prepaid to the
following:
Kelley A. Lynch
C/o Phil Spector
Phil Spector International
686 S. Arroyo Parkway
Penthouse Suite
Pasadena, CA 91105
odzerchenma@gmail.com
/s/ Michelle L. Rice

48