FILED: NASSAU COUNTY CLERK 05/07/2024 06:39 PM
`NYSCEF DOC. NO. 885
`
`INDEX NO. 617709/2022
`
`RECEIVED NYSCEF: 05/07/2024
`
`
`
`
`
`
`
`
`Index No. 617709/2022
`
`(Hon. Lisa A. Cairo, J.)
`
`
`
`SUPREME COURT OF THE STATE OF NEW YORK
`COUNTY OF NASSAU
`
`
`PEOPLE OF THE STATE OF NEW YORK by LETITIA
`JAMES, Attorney General of the State of New York,
`
`
`
`
`
`Petitioner,
`
`
`
`v.
`
`COLD SPRING ACQUISITION, LLC D/B/A COLD
`SPRING HILLS CENTER FOR NURSING &
`REHABILITATION; COLD SPRING REALTY
`ACQUISITION, LLC; VENTURA SERVICES, LLC
`D/B/A/ PHILOSOPHY CARE CENTERS; GRAPH MGA,
`LLC; GRAPH MANAGEMENT, LLC; GRAPH
`INSURANCE COMPANY A RISK RETENTION
`GROUP, LLC; HIGHVIEW MANAGEMENT INC.;
`COMPREHENSIVE CARE SOLUTIONS, LLC;
`PHILIPSON FAMILY, LLC; LIFESTAR FAMILY
`HOLDINGS, LLC; ROSS CSH HOLDINGS, LLC;
`ROSEWELL ASSOCIATES, LLC; B&L CONSULTING,
`LLC; ZBL MANAGEMENT, LLC; BENT PHILIPSON;
`AVI PHILIPSON; ESTATE OF DEBORAH PHILIPSON;
`JOEL LEIFER; LEAH FRIEDMAN; ROCHEL DAVID;
`ESTHER FARKOVITS; BENJAMIN LANDA; DAVID
`ZAHLER; CHAYA ZAHLER; CHAIM ZAHLER; JACOB
`ZAHLER; CHESKEL BERKOWITZ; and JOEL
`ZUPNICK,
`
`
`
`Respondents.
`
`
`BRIEF OF RESPONDENTS ZBL MANAGEMENT, LLC, ROSS CSH HOLDINGS, LLC,
`CHESKEL BERKOWITZ, AND JOEL ZUPNICK IN OPPOSITION TO PETITIONER’S
`MOTION FOR LEAVE TO REARGUE THE HON. LISA A. CAIRO’S
`MARCH 15, 2024, DECISION AND ORDER
`
`1 of 11
`
`

`

`FILED: NASSAU COUNTY CLERK 05/07/2024 06:39 PM
`NYSCEF DOC. NO. 885
`
`INDEX NO. 617709/2022
`
`RECEIVED NYSCEF: 05/07/2024
`
`TABLE OF CONTENTS
`
`Page
`TABLE OF AUTHORITIES ......................................................................................................... ii
`PRELIMINARY STATEMENT ................................................................................................... 1
`ARGUMENT ................................................................................................................................. 2
`A.
`The Auditor Affidavit’s Own Numbers Rebut Any Effort To Tack On An
`Additional $3.6 Million In Restitution................................................................... 2
`ZBL Management Cannot Repay What It Never Received. .................................. 5
`B.
`CONCLUSION .............................................................................................................................. 6
`
`
`
`
`
`-i-
`
`
`
`2 of 11
`
`

`

`FILED: NASSAU COUNTY CLERK 05/07/2024 06:39 PM
`NYSCEF DOC. NO. 885
`
`
`INDEX NO. 617709/2022
`
`RECEIVED NYSCEF: 05/07/2024
`
`TABLE OF AUTHORITIES
`
`
`
`Page(s)
`
`Cases
`
`Emigrant Bank v. Kaufman,
`223 A.D.3d 650 (2d Dept. 2024) ...............................................................................................1
`
`Kronick v. L.P. Thebault Co., Inc.,
`70 A.D.3d 648 (2d Dept. 2010) .................................................................................................5
`
`Morris v. N.Y. State Dep’t of Tax’n and Fin.,
`82 N.Y.2d 135 (1993) ................................................................................................................6
`
`People v. Ernst & Young, LLP,
`114 A.D.3d 569 (1st Dept. 2014) ...........................................................................................2, 5
`
`Rebh v. Lake George Ventures, Inc.,
`223 A.D.2d 986 (3d Dept. 1996) ...............................................................................................5
`
`State v. Ford Motor Co.,
`136 A.D.2d 154 (3d Dept. 1988) ...........................................................................................2, 4
`
`Statutes
`
`CPLR 2221.......................................................................................................................................1
`
`Other Authorities
`
`Dan B. Dobbs and Caprice L. Roberts,
`Law of Remedies: Damages, Equity, Restitution (3d ed. 2018).............................................2, 5
`
`
`
`
`
`-ii-
`
`
`
`3 of 11
`
`

`

`FILED: NASSAU COUNTY CLERK 05/07/2024 06:39 PM
`NYSCEF DOC. NO. 885
`
`
`INDEX NO. 617709/2022
`
`RECEIVED NYSCEF: 05/07/2024
`
`Respondents Cheskel Berkowitz, Joel Zupnick, ZBL Management, LLC, and Ross CSH
`
`Holdings, LLC (collectively, the “ZBL Respondents”) respectfully submit this memorandum of
`
`law in opposition to the New York Attorney General’s (“Petitioner”) motion for leave to reargue
`
`this Court’s March 15, 2024, Decision and Order (“March 15 Decision”). Dkt. 861 (Motion for
`
`Leave to Reargue); Dkt. 802 (March 15 Decision).1
`
`PRELIMINARY STATEMENT
`
`The ZBL Respondents join and incorporate the oppositions filed by Respondent Benjamin
`
`Landa and the other Respondents. As the other Respondents explain, Petitioner has not identified
`
`any matter of fact or law that the Court overlooked or misapprehended. See CPLR 2221(d)(2).
`
`The Court considered the evidence, including the Attorney General’s conflicting statements
`
`concerning the Lending Partners promissory note and found that there was a $2 million payment
`
`subject to restitution. The Court should deny her a “successive opportunit[y] to reargue issues
`
`previously decided.” Emigrant Bank v. Kaufman, 223 A.D.3d 650, 652 (2d Dept. 2024).
`
`The ZBL Respondents write separately to make two points. First, Petitioner’s argument
`
`fails as a matter of math as well as law. Petitioner claims that Cold Spring Hills Acquisition, LLC
`
`(“Cold Spring Hills”) paid $3.6 million in promissory-note interest to Cold Spring Realty as part
`
`of the monthly rent before paying off the note in a refinancing at the end of 2018. See Dkt. 862 at
`
`5 (Petitioner’s Memorandum of Law in Support of Motion for Leave to Reargue). But this Court
`
`previously recognized that the New York State Department of Health (“DOH”) approved a lease
`
`requiring Cold Spring Hills to pay $4 million in annual rent, in addition to the required debt service.
`
`Dkt. 802 at 7–8. Petitioner’s own Auditor’s Affidavit shows that, during the life of the promissory
`
`
`1 The ZBL Respondents accept the Court’s findings in the March 15, 2024, Order for purposes of
`this motion. However, they respectfully submit that the Court’s order was erroneous as applied
`to them and preserve all arguments available for appeal.
`
`
`
`1
`
`4 of 11
`
`

`

`FILED: NASSAU COUNTY CLERK 05/07/2024 06:39 PM
`NYSCEF DOC. NO. 885
`
`
`INDEX NO. 617709/2022
`
`RECEIVED NYSCEF: 05/07/2024
`
`note, Cold Spring Hills paid less than $4 million in annual rent to the landlord. Therefore, it is
`
`simply impossible for Cold Spring Hills to have paid $3.6 million in promissory-note interest,
`
`above and beyond what DOH had already obliged Cold Spring Hills to pay. Petitioner provides
`
`no evidence that Respondents actually received $3.6 million in interest and makes no effort to
`
`explain why Respondents should pay restitution for money never received. The Court correctly
`
`concluded that the only evidence supporting any payment to Lending Partners was (at most) the
`
`$2 million identified in the HUD refinancing transaction.
`
`Second, this Court never found that any ZBL Respondent knew about, let alone committed,
`
`any fraudulent act connected to the promissory note. Instead, the Court ordered only ZBL
`
`Management, LLC to pay restitution for $503,889 it allegedly received from the promissory-note
`
`interest. Dkt. 802 at 10, 14. According to the Petition and Auditor’s Affidavit, that $503,889
`
`represents the total amount that ZBL Management ever received from Cold Spring Realty.
`
`Therefore, there is no basis to impose any additional liability on ZBL Management. And Petitioner
`
`has not sought re-argument with respect to the Court’s conclusion that no other ZBL Respondents
`
`received any funds attributable to the promissory note. Plainly, neither ZBL Management nor any
`
`other ZBL Respondent can be obliged to pay restitution for money that it did not receive.
`
`ARGUMENT
`
`A.
`
`The Auditor Affidavit’s Own Numbers Rebut Any Effort To Tack On An
`Additional $3.6 Million In Restitution.
`
`Restitution is “a vehicle by which aggrieved” parties can “recover the money which is due
`
`them.” State v. Ford Motor Co., 136 A.D.2d 154, 158 (3d Dept. 1988). The amount awarded
`
`matches the “gain” that the liable party received at the other party’s expense. People v. Ernst &
`
`Young, LLP, 114 A.D.3d 569, 569 (1st Dept. 2014); see also Dan B. Dobbs and Caprice L. Roberts,
`
`
`
`2
`
`5 of 11
`
`

`

`FILED: NASSAU COUNTY CLERK 05/07/2024 06:39 PM
`NYSCEF DOC. NO. 885
`
`
`INDEX NO. 617709/2022
`
`RECEIVED NYSCEF: 05/07/2024
`
`Law of Remedies: Damages, Equity, Restitution, at 370 (3d ed. 2018) (“Dobbs’ Law of Remedies”)
`
`(restitution “a return or restoration of what defendant has gained”).
`
`Here, Petitioner argues that the Respondents’ “gain” included money paid before the
`
`November 2018 refinancing, which paid off the promissory note. According to her, Cold Spring
`
`Hills paid $3.6 million in promissory-note interest between June 2016, when the Cold Spring Hills
`
`lease was signed, and November 2018, when the promissory note was paid off. See Dkt. 862 at
`
`6–7; Dkt. 865 (Steinwascher Aff. Ex. 2) at ¶¶ 75, 93, 94 and accompanying footnotes (“Auditor’s
`
`Affidavit”).
`
`But the Auditor’s Affidavit rebuts the Attorney General’s claim. The Cold Spring Hills
`
`lease split Cold Spring Hills’ rent into two parts. The first was “Lessor’s Debt Service on its
`
`mortgage . . . .” Dkt. 37 at 4 (Cold Spring Hills lease). The second was an annual payment of $4
`
`million in “Cash Flow Rental,” id., which was to be paid “in equal monthly installments” of about
`
`$333,333. See id. This Court held in the March 15 Decision that Cold Spring Hills properly
`
`submitted this lease to DOH, which approved its terms. See Dkt. 802 at 7–8. Under the terms of
`
`that lease, Cold Spring Hills was obliged to pay about $9.67 million in Cash Flow Rental to Cold
`
`Spring Realty over the 29-month life of the note.
`
`The Auditor’s Affidavit makes clear that throughout all of 2016, 2017, and 2018, Cold
`
`Spring Hills paid only $8.625 million in “Cash Flow Rental”:
`
`
`
`
`
`
`
`3
`
`6 of 11
`
`

`

`FILED: NASSAU COUNTY CLERK 05/07/2024 06:39 PM
`NYSCEF DOC. NO. 885
`
`
`INDEX NO. 617709/2022
`
`RECEIVED NYSCEF: 05/07/2024
`
`Dkt. 865 at ¶ 93 (excerpt from the chart in the Auditor’s Affidavit). In other words, during the
`
`relevant period, Cold Spring Hills paid Cold Spring Realty $1 million less in rent than the nursing
`
`home was required to pay under the DOH-approved lease.
`
`Because the Auditor’s Affidavit demonstrates that Cold Spring Hills paid less than the
`
`required monthly Cash Flow Rental, there is no way that the promissory note could have caused
`
`Cold Spring Hills to pay more in monthly Cash Flow Rental than under the lease. See Dkt. 865 at
`
`¶ 94 (claiming that promissory-note interest was a “portion” of the Cash Flow Rental paid). The
`
`entire rationale of the Court’s March 15 Decision was that the promissory note, which was not
`
`disclosed to DOH, had required Cold Spring Hills effectively to pay the $2 million in interest
`
`reflected in the HUD refinancing statement. Dkt. 802 at 8–10. But even accepting that holding,
`
`the Auditor’s Affidavit makes clear that the promissory note did not increase the monthly rent that
`
`Cold Spring Hills actually paid, because Cold Spring Hills wound up paying $1 million less than
`
`required under the lease.
`
`Neither the Auditor’s Affidavit nor the Attorney General points to any evidence to support
`
`the naked contention that somehow Cold Spring Hills paid $3.6 million in interest to Cold Spring
`
`Realty. Petitioner appears to claim that some rent paid was actually interest. See Dkt. 865 at ¶ 94.
`
`But the Attorney General provides no evidence for this assertion, and the Court specifically asked
`
`the NYAG about this issue at the hearing and then correctly rejected this very issue in the March
`
`15 Order. See, Dkt. 871 (Steinwascher Aff. Ex. 8) at 22 (Dec. 8, 2023 Hr’g Tr.); Dkt. 884
`
`(Friedman Aff. Ex. A) at 154 (Dec. 7 Hr’g Tr.). Cold Spring Hills cannot be “due” any restitution
`
`for the promissory note when it in fact underpaid its monthly lease obligations by more than $1
`
`million during this period. See Ford Motor Co., 136 A.D.2d at 158. Petitioner’s motion is thus
`
`both procedurally and substantively meritless.
`
`
`
`4
`
`7 of 11
`
`

`

`FILED: NASSAU COUNTY CLERK 05/07/2024 06:39 PM
`NYSCEF DOC. NO. 885
`
`
`INDEX NO. 617709/2022
`
`RECEIVED NYSCEF: 05/07/2024
`
`B.
`
`ZBL Management Cannot Repay What It Never Received.
`
`Petitioner also does not explain how or why ZBL Management, much less any other ZBL
`
`Respondent, should be obliged to pay back money that they never received. Petitioner seeks leave
`
`to reargue only the “amount of restitution ordered by the Court.” Dkt. 862 at 4. But ZBL
`
`Management did not receive any more than $503,889, and Petitioner did not seek leave to reargue
`
`that other ZBL Respondents have any liability to Cold Spring Hills.
`
`Restitution “focuses on the gain to the” liable party, Ernst & Young, 114 A.D.3d at 569,
`
`and typically requires the “return or restoration” of that gain. Dobbs’ Law of Remedies at 370.
`
`Here, the Court found that the promissory note had not been properly disclosed to DOH, and
`
`therefore, the “appropriate remedy” was restitution, to be made “collectively” by the parties who
`
`received payments intended in the HUD Refinancing for “Lending Partners.” Dkt. 802 at 10. This
`
`Court found that with respect to the ZBL Respondents, only ZBL Management had received such
`
`a payment. Id. at 10, 14. And according to the Auditor, the only “gain” that ZBL Management
`
`ever received was the $503,899 paid in connection with the refinancing. See Dkt. 865 at ¶ 80;
`
`Petition ¶14 & chart. There is no basis for ordering ZBL Management to pay restitution exceeding
`
`that gain. See Ernst & Young, 114 A.D. at 569.
`
`Petitioner has never argued that any other ZBL Respondent received a payment of interest
`
`from Lending Partners. The Auditor recognized that Cold Spring Realty made distributions of rent
`
`received to Ross CSH Holdings (or sometimes to Mr. Berkowitz directly). See Dkt. 865 at ¶ 76.
`
`But neither party received any money from Lending Partners, and Petitioner has not advanced any
`
`kind of veil-piercing argument in her motion, which are therefore waived. See, e.g., Rebh v. Lake
`
`George Ventures, Inc., 223 A.D.2d 986, 987 (3d Dept. 1996); Kronick v. L.P. Thebault Co., Inc.,
`
`70 A.D.3d 648, 649 (2d Dept. 2010). And in all events, the argument lacks merit. New York law
`
`honors “the accepted principles that a corporation exists independently of its owners” and “as a
`
`
`
`5
`
`8 of 11
`
`

`

`FILED: NASSAU COUNTY CLERK 05/07/2024 06:39 PM
`NYSCEF DOC. NO. 885
`
`
`INDEX NO. 617709/2022
`
`RECEIVED NYSCEF: 05/07/2024
`
`separate legal entity” from any other. Morris v. N.Y. State Dep’t of Tax’n and Fin., 82 N.Y.2d
`
`135, 140 (1993). According to the Auditor, ZBL Management received $503,899 in payment from
`
`Lending Partners, and other legal entities—Ross CSH Holdings and Mr. Berkowitz—received
`
`distributions from Cold Spring Realty for the rent (which as noted, was less than the rent Cold
`
`Spring Hills owed under the DOH-approved lease). See Dkt. 865 at ¶¶ 76, 80. There is therefore
`
`no basis for restitution against any of the other ZBL Respondents.
`
`In short, Petitioner has offered no evidence that any ZBL Respondent knew about, let alone
`
`participated in, any allegedly fraudulent act. Rather, the unrebutted evidence showed that the ZBL
`
`Respondents were not aware of a company known as Lending Partners and did not know that any
`
`promissory note existed prior to this litigation. In fact, the unrebutted evidence shows that the
`
`ZBL Respondents believed that all of the payments they received from Cold Spring Realty were
`
`distributions in partial return on the capital that they had invested. See Dkt. 604 at ¶ 7 (Berkowitz
`
`Affidavit); Dkt. 605 at ¶ 7 (Zupnick Affidavit). This Court correctly found the ZBL Respondents
`
`did not have to pay restitution for any of the rent they received, and there is no basis to reopen the
`
`issue.
`
`CONCLUSION
`
`For reasons stated in this memorandum, and in those filed by other Respondents, the ZBL
`
`Respondents request that this Court deny the Attorney General’s motion for leave to reargue and
`
`grant whatever other relief it deems necessary and proper.
`
`
`
`
`
`6
`
`9 of 11
`
`

`

`FILED: NASSAU COUNTY CLERK 05/07/2024 06:39 PM
`NYSCEF DOC. NO. 885
`
`
`INDEX NO. 617709/2022
`
`RECEIVED NYSCEF: 05/07/2024
`
`Dated: May 7, 2024
`
`New York, NY
`
`
`
`
`
`DECHERT LLP
`
`
`
`
`By: /s/ Andrew J. Levander
`Andrew J. Levander
`Steven A. Engel
`M. Scott Proctor (pro hac vice)
`Three Bryant Park
`1095 Avenue of the Americas
`New York, NY 10036
`andrew.levander@dechert.com
`steven.engel@dechert.com
`scott.proctor@dechert.com
`Tel: (212) 698-3500
`Fax: (212) 698-3599
`
`Attorneys for Respondents Cheskel Berkowitz,
`Joel Zupnick, Ross CSH Holdings, LLC, and
`ZBL Management, LLC
`
`
`
`
`7
`
`10 of 11
`
`

`

`FILED: NASSAU COUNTY CLERK 05/07/2024 06:39 PM
`NYSCEF DOC. NO. 885
`
`
`INDEX NO. 617709/2022
`
`RECEIVED NYSCEF: 05/07/2024
`
`CERTIFICATION
`
`I hereby certify pursuant to Uniform Civil Rule 22 NYCRR § 202.8-b as follows:
`
`1.
`
`2.
`
`I filed via NYSCEF the foregoing memorandum of law.
`
`The foregoing document was prepared on a computer using Microsoft Word. The
`
`total number of words in the document, exclusive of caption and signature block and this
`
`certification is 1,822 words.
`
`3.
`
`The foregoing document complies with the 7,000-word limit set forth in 22
`
`NYCRR § 202.8-b.
`
`Dated: May 7, 2024
`
`New York, NY
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`/s/ Andrew J. Levander
` Andrew J. Levander
`
`8
`
`11 of 11
`
`
`
`
`
`