King Con Shmuel Shmueli Learns New Trade: Stiffing Lawyers and Winning Through Losing –Lawsuits

In Shmueli

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ShmueliCon

We’ve previously written in this series that while living in Brooklyn Shmuel Shmueli started a Hebrew newspaper, Israel Shelanu (Our Israel), and instead of hiring reporters, he found it convenient to “lift” stories from other Hebrew newspapers without their permission.

Haaretz Daily, Maariv Modiin and Shalom sued him for copyright infringement. He countersued for $158 million claiming the three newspapers were in a conspiracy against him.

They won. He lost. A $24 million judgment was entered against Shmueli. He declared bankruptcy.

But he learned a lesson. Win or lose it does not matter. Just don’t pay! Anybody.

He had hired three sets of lawyers to defend him in the copyright infringement suit and when he discharged the newspapers’ judgment in bankruptcy, he discharged his lawyers’ fees too. Shmueli learned if you game the system rightly, there is no punishment; you just extend your game.

 

STAY BUT DON’T PAY

We also reported how Shmueli bought a home in Brooklyn and sold it to his wife; who sold it back to him who sold it back to his wife who sold it to their daughter – each time raising the purchase price and securing a larger sum of mortgage money. The daughter finally sold the house to Jacob and Eva Fuhrman for $480,000. When the Fuhrmans tried to move in, Shmueli told the couple he had a lease signed by his daughter so he didn’t have to move out.

The Fuhrmans took Shmueli to court. Shmueli countersued and stayed in the home – for free – while the Fuhrmans paid attorneys to get him out. When federal marshals came to remove him, he was already gone. He forgot nothing but his garbage and to say goodbye to creditors.

Sure, the court ordered a judgment against Shmueli to reimburse the Fuhrmans’ legal fees.  But Shmueli discharged that $56,669 judgment in bankruptcy.

Add it up: Shmueli, who lost the case, got $480,000 from the sale; got to live in the house for free for months; and did not have to pay to dispose of his trash to leave the sold house “broom swept” clean and did not pay Fuhrman’s legal fees.

Despite the official verdict, Shmueli won, Fuhrmans lost.

 

SHMUELI DISCOVERS NIAGARA FALLS AND A NEW CAREER

In 1999, Hong Kong businessman David Ho commenced a development in Niagara Falls called AquaFalls at the site of the old Occidental Chemical headquarters across from the Niagara Falls State Park. Ho’s planned underground aquarium failed and, on the eve of foreclosure I formed a company partnership with Ho and rescued the property.

The new company was called One Niagara, and was to gather a critical mass of vendors to provide food, tours, parking and retail offerings for tourists. Ho and I signed an operating agreement that gave me “full and exclusive right to control day to day operations and business affairs of the Company …. entitled to take any and all actions with respect the Property … without any further confirmation or approval of (David Ho).”

In short, I was the boss and, in return, I had to fund the losses, make the cash calls; Ho was not required to and never did invest a dime in our project. When the business was losing money, Ho was content to allow me to invest money and run operations.  Once it veered toward success, he no longer liked the idea of me having control. That’s when Ho introduced Shmueli, who he declared was his agent; then Ho left for Hong Kong never to return.

Shmueli quickly and enthusiastically embraced his new role as Ho’s agent. On August 16, 2007, while I was out of town, Shmueli called a meeting (with himself and a stenographer) where he demoted me to superintendent of buildings and grounds, appointed himself manager, and passed a resolution (voted on only by him) that a locksmith change the locks. The following day he went to the tenant vendors and instructed them on how to pay the rent.

On August 30, I went before State Supreme Court Justice Frank Caruso and won a restraining order preventing Shmueli from changing the locks or holding himself out as manager until a hearing could be held. Shmueli retained the law firm of Lorenzo and Cohen LLP, headed by prominent local attorney Steven Cohen.

 

DUTIES OF ATTORNEYS AND CLIENTS LIKE SHMUELI

Every attorney is bound to one day get a client who lies. Whether civil or criminal, clients present their side of the story, often with embellishments favoring their viewpoint. Shmueli took this to the level of an art form.

An attorney, on the other hand, has a duty to tell his client the truth and to – in general – believe and fight for his client. In this respect, Steve Cohen has few peers in this community.

But, Shmueli put Cohen at a disadvantage since he misled Cohen, as is evidenced by documents that emerged through discovery and by the fact that Shmueli lost the case. But that came later.

Initially, Shmueli tried to micromanage the case – from Hong Kong. On Jan. 23, 2008, he faxed a lengthy handwritten letter to Cohen. On Jan. 25, he sent a typed version of the same letter along with clarifications in bold. In this letter Shmueli says he has plans to build a high-rise hotel and develop a Chinese exhibition in Niagara Falls.

This was part of Shmueli’s ruse: to pretend great friendship, feign deep religious feelings, promise big things in the future and, in this instance, pretend David Ho was a billionaire who had a Chinese board of directors which Shmueli answered to.

None of it was true.

While Ho had some money, he was not a billionaire; he could not even finance his aquarium project and almost lost the property to foreclosure. There was no Chinese board of directors. There was no planned Chinese exhibition and no high-rise hotel.

Whether Shmueli was a man of deep religious principles we will leave that for the reader to judge.

 

Here are some excerpts of his letters to Cohen.

“Dear Steve

“…. We have a plan to build a hotel….  As a close friend and my lawyer I thought that you will be very happy to hear that something is cooking. (Group of investors interesting to build hi-rise hotel in N.F. which I may represent them in N.F.)…. Please keep …. very confidential!

“Clarification: I don’t want that the Chinese Exhibition and the hotel issues will be notified to anybody yet (outside of your law firm)…..

“Clarification: I wanted to digest with you personally, when I will arrive to N.F. all details of the above and all of its possible implications.”

After mentioning the big plans, Shmueli tries to amend the terms of the retainer agreement with Cohen. Instead of paying in a timely fashion, Shmueli wanted to make a partial payment then postpone payments until completion of the case.

“You wrote that the balance due is $39,303.41 (by August 17, 2008)…. Nevertheless I convinced the B.O.D. (Board of Directors) … not to request any changes beside one which they insisted to: the words ‘August 17 2008’ will be corrected to – ‘the duration of the IIL case’”.

As Shmueli sought to modify the retainer, he continued to write to Cohen, nurturing their friendship as he tried to connive him out of fees.

Based on documents in the possession of this publication, it seems Shmueli may have already collected or planned to collect money from Ho meant for the lawyers which Shmueli planned to keep for himself.

Shmueli again wrote to Cohen:

“My dear friend,

“…. As you know I always helped you to the maximum of my availably (to the merit and financially). Here we have a big fruitful future for us if you will understand my limitations as just a member of IIL [Ho’s company, Incredible Investments LTD] and its proxy in U.S.A. but not as a member in the B.O.D. …. My dear friend, Steve, in lite of all…  the facts detailed to you in my memos to you in the past ….    Please allow me to send you a wire of $40,000 now!   (and the remaining $70,000 in the future as we progress in the case).

“Please notified your acceptance of this letter and its details, and fax me the instruction to which account to wire you $40,000 now!

“Best regards,

“Samuel (Sam) Shmueli For and on behalf of IIL

c.c.  … Mr. David Ho The Board of Directors of ILL”

In response, Cohen sent Shmueli a fax on Jan. 26, 2008, laying out some terms for an intelligent attorney-client relationship.

Shmueli wrote back,

“Dear Steven,

“… I fully accept your proposal of working … as you described in your said fax message… ‘My input would be limited primarily to strategies or ends’….  I would leave the procedural work to your firm commenting on same only if my silence would cause me to ‘explode’ (due to its possible major errors, factual mistakes or its strategic implications)….”

Still trying to get Cohen to accept $40,000 and not any more money until the case was completed, Shmueli continued:

“The total flat grand budget for the case herein, including disbursements, is $150,000 until completion…. $40,000 will be wired now as per acceptance of this letter, and the remaining $70,000 will be paid thru the duration of the case until completion.

“….I am not a lawyer, and never predicted to be as such … But as a dear friend …. what is my opinion in this case of what is the meaning of: ‘completion of the case’ :…. The bottom line is simple…. To get F.P. (Frank Parlato) out of management position in One Niagara Building…..

“My dear friend, The bottom line is: if David (Ho) will ‘smell real progress’ …. we can get very soon to the next stage of additional fee agreement….”

In court, however, the smell of real progress was elusive. Shmueli lost.

Without getting into the finer details of how Shmueli’s deception of his attorney backfired – he misled Cohen on the priority of contracts between Ho and myself, inverting the superseding contract with the earlier, obsolete agreement – it caused the case to implode.

Instead of removing me as the manager of One Niagara, on May 20, 2008, Judge Caruso issued an injunction barring Shmueli from interfering with my management and affirming that I was – by virtue of the true contract – the sole manager of One Niagara.

Undaunted by the loss, Shmueli, having a knack for hiring superb attorneys, (then misleading them, picking a fight with them when they inevitably lose [because they were misled] then not paying them in full and deceptively keeping a portion of the money his investors intended for legal fees) retained the Buffalo law firm of Zdarsky, Sawicki & Agostinelli  – with Joseph E. Zdarsky and David E. Gutowski as lead attorneys  – to appeal the Caruso decision.

Now it was time for Shmueli to pick a fight with Cohen.

He wrote to Cohen on July 15, 2008, “Despite numerous phone calls and faxes, I didn’t receive responses to the actual issues detailed in my 5 pages typed letter to you dated JULY/2/08…. The BOD is not giving me any more room for ‘adjustments’ with your firm….  This is a last call. I can’t hold … the BOD horses any more, I gave you all the ‘credit’ possible to correct your acts….

“I already lost their trust on you and your firm….   I am sorry that you brought our business relationship to such a dark corner in such a critical time for IIL. Please use the next 24 hours to cure the situation.”

But the situation was not cured.

Cohen had a response for Shmueli; so did Zdarsky in time, and it wasn’t pretty.

To be continued.

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