Free Trial Brief - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Hon. Marcia S. Krieger

Civil Action No. 04-MK-1225 (BNB) (consolidated with 04-MK-1226 (BNB)) MALIK M. HASAN, M.D., an individual; and SEEME G. HASAN, an individual, Plaintiffs, v. GOLDMAN SACHS 1998 EXCHANGE PLACE FUND, L.P., a Delaware limited partnership; GOLDMAN SACHS 1999 EXCHANGE PLACE FUND, L.P., a Delaware limited partnership; GOLDMAN SACHS MANAGEMENT PARTNERS, L.P., a Delaware limited partnership; GOLDMAN SACHS MANAGEMENT, INC., a Delaware corporation; THE GOLDMAN SACHS GROUP, INC., a Delaware corporation; GOLDMAN, SACHS & CO., a New York limited partnership; JOHN DOES 1-100, individual persons whose true identities are unknown; and LENDER PARTIES 1-100, business entities whose true identities are unknown, Defendants.

PLAINTIFFS' CORRECTED TRIAL MEMORANDUM

Plaintiffs, Malik M. Hasan and Seeme G. Hasan (collectively, the "Hasans"), through their undersigned counsel, Senn · Visciano · Kirschenbaum · Merrick P.C., respectfully submit this Trial Memorandum in respect of the hearing on the Motion to Compel Arbitration filed by the Goldman Sachs Defendants. At the outset, the Court should note that of the voluminous documents pertaining to the Hasans' investments in the Exchange Funds, exactly three mention arbitration. These are the: (i) MultiParty Account Agreement [which is inapplicable and pertains only to the Hasans' joint

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brokerage account at Goldman Sachs & Co.], (ii) Private Placement Memorandum ("PPM"), and (iii) form of Limited Partnership Agreement. The latter two documents were never signed by the Hasans, and they did not see these documents until years after the Hasans' investments in the Exchange Funds. Moreover, the arbitration provisions in each of these latter two documents are buried deep and inconspicuously in boilerplate,1 and by their terms do not apply to most of the Defendants. As set forth in greater detail below, the Motion to Compel Arbitration should be denied.

I.

BACKGROUND FACTS

The Hasans are Pakistani immigrants. Dr. Hasan was trained in neurology outside the United States. He moved with his wife, Seeme, to Pueblo, Colorado in 1975. The Hasans later experienced financial success largely through Dr. Hasan's founding in 1985 of Qual-Med, a small health maintenance organization ("HMO") in Southern Colorado, and the subsequent expansion and combination with other HMOs. By 1998, Dr. Hasan was Chairman of the expanded Foundation Health Systems ("FHS"). As early as January of 1997, Goldman Sachs' "Private Client Group"-specifically Goldman Sachs "Team 041" from Houston--began targeting the Hasans as coveted clients. Exh. 44. Gary Giglio, the de facto leader of Team 041, was assisted by Robert C. Mueller, James O'Shaugnessy and Nelwyn Powell. From the outset Mr. Giglio stressed that the Private Client Group was hunting for vastly more than a typical broker-customer relationship. By May of 1998,
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With respect to the 1998 Exchange Fund, the arbitration provision is found near the bottom of page 69 of the text. Exh. 7. In the case of the Limited Partnership Agreement it is found at the bottom of page 37 of the text. Exh. 39. With respect to the 1999 Exchange Fund, the arbitration provision is found on page 74 of the text. Exh. 21. In the case of the Limited Partnership Agreement it is found on the bottom of page 42 of the text. Exh. 36.

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Mr. Giglio was pressing Dr. Hasan to accept the special counsel of Goldman Sachs as the Hasans' trusted financial advisor--clearly a fiduciary role. And this was undertaken--as the July 6, 1998 note entry of Team 041 records, Exh. 44--in an environment where Dr. Hasan had confided that the Hasans were not experienced or sophisticated investors.2 Mr. Giglio assured that "Goldman gives counsel to the largest [investors] in the country ... and that it had created a special niche catering to investors who have significant net worth." He touted that Goldman Sachs responds to these persons "with customized, indepth, timely advice and tailored portfolios." Exh. 60. By June of 1998, Mr. Giglio was steering Dr. Hasan to the Goldman Sachs Exchange Funds. Somewhat simplified, "Exchange Funds" are limited partnership

vehicles that permit investors with a concentrated stock position (typically with a low tax basis) to contribute stock to a partnership in exchange for limited partnership units without federal income tax consequence. This opportunity is offered to selected investors across a wide range of industries and fields. The benefit is that those accepted as partners can indirectly diversify their holdings without tax consequence. Of course, the number of limited partnership units that an investor will receive in an Exchange Fund partnership depends upon the value of the stock contributed by that investor in relation to the aggregate value of the stocks contributed by all investors in the partnership. Mr. Giglio offered advice to the Hasans on both financial and legal issues

Dr. Hasan's education was focused in the highly specialized field of neurology. Neither of the Hasans possessed education or training in business or finance. Neither had ever invested in any limited partnerships, and Mr. Giglio specifically recorded in his note of July 6, 1998 that Dr. Hasan confided that neither of the Hasans were invested in the public markets. Exh. 44.

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--professing that Goldman Sachs had developed strategies "that can allow you to diversify and monetize your [FHS] position without paying capital gains taxes. More importantly some of these strategies are non-reportable [to the SEC] for insiders and affiliates like yourself." Exh. 61. (Emphasis in original). He emphasized the small number of clients of the Private Client Group, and committed "customized, in depth and timely advice."3 Mr. Giglio also assured that Goldman Sachs would provide the Hasans "a tremendous amount of services and attention." He went on to assure Dr. Hasan that his job was "to make all of the resources of Goldman Sachs available to [the Hasans]. As such, I am your advocate and liason to the Research Analysts, ... the Restricted Stock Group and all other areas of the Firm." (Emphasis supplied). Exh. 70. The Hasans were flattered and impressed, and they understandably placed their faith and trust in Mr. Giglio and the Goldman Sachs Team 041. In early July of 1998, Mr. Giglio counseled the Hasans to open a joint account at Goldman Sachs & Co. He did so in order to capture the Hasans' future brokerage business, and in response to the Hasans' expressed interest in placing FHS stock in a joint brokerage account so as to avoid probate burdens in the event of the untimely demise of Dr. Hasan. Mr. Giglio also advised "custodying your stock at

Goldman Sachs." This, Mr. Giglio assured would "help us make a case for [the Hasans acceptance into] the Exchange Fund." Exh. 62. Again, Mr. Giglio assured that

"Goldman Sachs is the market share leader in restricted stock" and that Goldman Sachs

The enclosure with this letter, Exh. 61, assures that Goldman Sachs "develops an investment strategy that is both prudent and appropriate to the client's situation." It further boasts that the Goldman Sachs Private Client professionals work with only a "small number of clients, which enables [them] to thoroughly understand [the client's] particular goals and offer customized, in depth and timely advice."

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would "coordinate with lawyers, accountants and transfer agents for the purposes of ... transfer or selling stock." Exh. 62. Following Mr. Giglio's advice and counsel, on July 31, 1998 the Hasans opened a joint brokerage account at Goldman Sachs & Co. The brokerage account agreement is styled the "Multi-Party Account Agreement" (the "Brokerage Agreement"). Exh. 1. Following Mr. Giglio's advice and counsel, Dr. Hasan caused 1,528,903 shares of FHS stock to be placed into the Hasans' newly opened joint brokerage account at Goldman Sachs & Co. Exh. 3. By August 21, 1998, the FHS shares were reissued in the name of Goldman Sachs for "custodying," just as Mr. Giglio had instructed. Exh. 5. The FHS shares appear in the Hasans' joint brokerage account summary sent by Goldman Sachs & Co. beginning with the August 31, 1998 statement. Exh. 65, 6. However, the Hasans delayed in moving FHS shares out of the joint brokerage account and contributing them to the Goldman Sachs 1998 Exchange Fund. In large measure this delay resulted from Dr. Hasan's ambivalence. He believed that the then trading price for FHS stock was materially below its true market value. Accordingly, Dr. Hasan believed that it would be imprudent to invest in the 1998 Exchange Fund until the FHS stock price had recovered.4 The Goldman Sachs Team 041 continued to press, however. On September 10, 1998, they wrote to Dr. Hasan and emphasized "confidentiality" as one of Goldman Sachs' significant strengths, and urged a

Based upon what had been explained to him by Team 041 members about the Exchange Fund, Dr. Hasan understood that at a lower stock price for FHS stock the Hasans would receive a smaller number of 1998 Exchange Fund limited partnership units. This concern is why Goldman Sachs Team 041 continued tracking the FHS stock price as reflected in the team's notes of September 8, 1998 reciting that "FHS stock moves higher." Exh. 44.

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meeting with the team coordinating [the Goldman Sachs] Exchange Fund "to make you more familiar with this opportunity." Exh. 75. On September 18, 1998 (a Friday), the Goldman Sachs 041 Team requested that Goldman Sachs' New York office send a PPM for the 1998 Exchange Fund to the team in the Houston office. Exh. 9. From there, the PPM was suppose to be sent to the Hasans. Interestingly, the letter that Mr. Giglio now claims that he wrote from the Houston office to transmit the PPM for the 1998 Exchange Fund to the Hasans: (i) does not recite that it transmits any PPM, and (ii) is dated September 18, 1998, the very day that the Houston office first requested Goldman Sachs' New York office to send the PPM to Houston.5 Exh. 14. In fact, Rosemary Angelino in Goldman Sachs' New York office testifies that it would have taken at least a couple of days to get the PPM from New York to Houston. Moreover, other evidence calls Mr. Giglio's testimony into very serious question.6

Mr. Giglio confesses that he did not witness anyone place the PPM for the 1998 Exchange Fund with the September 18, 1998 letter. Nor did he see anyone address or place any package in the mail to the Hasans. Goldman Sachs can produce no one who effected or witnessed any such mailing to the Hasans. For example, the September 18 letter, Exh. 14, is written on the letterhead of Mr. Mueller, another member of Team 041, not that of Mr. Giglio. And the Team 041 notes reflect that the letter was written by Mr. Mueller, not Mr. Giglio, and the notes do not reflect that any enclosure was sent with it. Exh. 44. Finally, Mr. Mueller's testimony differs sharply from that of Mr. Giglio: Q: This letter [Exh. 44] would have gone out after the opening of the [Joint Brokerage Account], which is reflected in [Exh. 1], wouldn't you agree? A: It's dated September 18, 1998, which is after the account was opened. Q: And what's the purpose of this letter? A: Its an introduction to Goldman Sachs exchange funds. R. Mueller Tr. of Deposition (June 6, 2005) at p. 72. He goes on to testify: Q: A: *** Q: A: Can you state under oath what went with [Exh. 44]? I cannot. Do you remember sending the [1998 PPM] to the Hasans with [Exh. 44]? No.
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On the other hand, the Hasans testify that neither the PPM, nor the form of Limited Partnership Agreement, were furnished to them until years after they invested in the 1998 Exchange Fund. It is also important to observe that other than the purported "acknowledgment" in the subscription materials sent to the Hasans, Goldman Sachs cannot produce a single document to the contrary--despite the strict recordkeeping requirements in the securities industry. Into October of 1998, Team 041 continued to push an investment in the 1998 Exchange Fund. Dr. Hasan was admonished that Congress was considering tax reform legislation that would strip exchange funds of their tax advantages. Team 041 also cautioned that the Goldman Sachs 1998 Exchange Fund would soon be closing, and that if the Hasans failed to indicate an interest in investing the substantial benefits that the 1998 Exchange Fund opportunity afforded would be lost.7 In the latter part of October, 1998, Dr. Hasan was traveling on business on the east coast. He was under pressure from Team 041 to execute and return a signature page from the 1998 Exchange Fund subscription materials to "get in the queue" of those interested in the Exchange Fund. This, he was told, did not guaranty that the FHS stock would be accepted into the Exchange Fund--only that any tax code change would not
In fact, if you look at [Exh. 44, it] reflects that you sent a letter on September 18th ; does it not? Yes, it does say that. Which would be consistent with the date on [Exh.44], correct? Correct. It doesn't say a private placement memorandum was sent; do you agree? It does not state that.

Q: A: Q: A: *** Q: A:

R. Mueller Tr. of Depo. (June 6, 2005) at pp. 95-96. Although Dr. Hasan was told that the 1998 Exchange Fund was expected to close at the end of October, the actually closing did not occur until November 12, 1998. Exh. 31.
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affect the Hasans as they would be protected by "grandfathering" if the stock was accepted and the Hasans thereafter elected to move forward with the investment. Based upon this advice and counsel from Goldman Sachs, on October 22, 1998, Dr. Hasan executed a signature page from the 1998 Exchange Fund subscription materials. His signature was notarized and the executed page was sent to Goldman Sachs. Exh. 10A at p. 39. Dr. Hasan then returned to Beaver Creek, Colorado; Ms. Hasan remained on the east coast. Having received a notarized signature page, Goldman Sachs pressed Dr. Hasan to sign additional pages in the subscription materials. Dr. Hasan questioned, pointing out that Ms. Hasan was not in Colorado to sign, and underscoring that he could not sign for her. He was again told that the 1998 Exchange Fund would soon be closing, and assured that separate subscription materials would be sent to his wife for signature. Accordingly, Dr. Hasan signed a few additional signature pages from the subscription materials on October 26, 1998, and sent these pages on to Goldman Sachs. Id. at p. 7. No additional subscription materials were ever sent to Ms. Hasan, and she never signed any documents in respect of the Hasans' 1998 Exchange Fund investment. It should be noted that nowhere in the subscription materials signed by Dr. Hasan is there any reference to arbitration of disputes. Having received executed pages from the 1998 Exchange Fund subscription materials, Goldman Sachs moved aggressively, unlawfully and in contravention of the instructions contained in the subscription materials. First, without any authority from the Hasans one or more representatives of Goldman Sachs placed information in the 1998 Exchange Fund investor questionnaire [used to determine

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suitability of the investment]. In some cases, the information placed by Goldman Sachs in the document was materially false and/or misleading. Id. at p. 10. And, recognizing that Goldman Sachs did not have any signature from Ms. Hasan, a Goldman Sachs employee unilaterally changed the 1998 Exchange Fund investment from "joint" to "individual" in the subscription materials. Id. at p. 6. Then a fraudulent "sticky note" was placed in the subscription materials reciting "(physical stock registered in his name only.)" (Emphasis in original). Id. at p. 7. This was patently false--the FHS stock had come from a joint account and was then physically in the name of Goldman Sachs. On November 5, 1998, the Hasans received an "Inspection Report" from Goldman Sachs. This report lists FHA among the securities "proposed to be contributed to the Fund by subscribers who have completed and returned subscription materials." However, this report indicates that it is preliminary, and the Hasans could see that it was obviously incorrect in numerous respects, including the: (i) FHS share price, (ii) number of shares being contributed, and (iii) aggregate value of the FHS shares being contributed. Exh. 27. On November 12, 1998 the Hasans received a final Inspection Report, Exh. 31, and from that point on the Hasans' $4.5+ million investment in the 1998 Exchange Fund was included by Goldman Sachs in the Hasans' joint account statement. E.g., Exhs. 20 and 68. And, of course, Team 041 received a handsome commission for delivering the Hasans into the hands of Goldman Sachs. Goldman Sachs returned to the well in 1999. By May of 1999, Team 041 was urging the Hasans to invest in the Goldman Sachs 1999 Exchange Fund. However, the notes for Team 041 reflect that despite some "rally" in the FHS stock price, on May 27, 1999 Dr. Hasan stated that he had "no interest in doing anything right now." Exh. 44.

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Again, Dr. Hasan was concerned about the prudence of contributing FHS stock to an Exchange Fund while its price was depressed. In July of 1999, Team 041 arranged to

visit the Hasans in Beaver Creek, id, and again admonished that Congress was considering tax reform legislation. Under assurance from Team 041 that a valuable opportunity would otherwise be lost, on August 17, 1999 the Hasans executed subscription materials in respect of the 1999 Exchange Fund. Exh. 11A. They received an August 27, 1999 "Inspection Report" that confirmed that their $4+ million in FHS stock had been accepted into the 1999 Exchange Fund. Exh. 37. And, of course, Team 041 received yet another handsome commission--it appears in excess of $100,000. Exh. 108. There are at least three important observations about the Hasans' investment in the Goldman Sachs 1999 Exchange Fund. First, unlike the 1998 Exchange Fund Ms. Hasan was asked to (and did) sign some subscription materials for the 1999 Exchange Fund--reflecting Goldman Sachs' recognition of her ownership interest in the FHS stock. Second, Goldman Sachs can produce no evidence that the form of Limited Partnership Agreement or the PPM for the 1999 Exchange Fund was ever sent to the Hasans. Indeed, Rosemary Angelino testifies that although Goldman Sachs has found other requests from Team 041 in Houston to send the 1999 Exchange Fund PPM to other investor clients, it cannot find a single document reflecting that Team 041 requested from the New York office a 1999 Exchange Fund PPM to send to the Hasans. Third, in February of 2002 (some thirty months after the Hasans' investment in the 1999 Exchange Fund), Goldman Sachs sent copies of the 1999 Exchange Fund form of Limited Partnership and PPM to the Hasans. Exhs. 36 and 21. Dr. Hasan testifies that this is the

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first time that the Hasans saw a PPM or limited partnership agreement for either Exchange Fund. Rosemary Angelino hypothesized that these must have been sent

pursuant to a request from the Hasans, but Goldman Sachs can produce no evidence reflecting any such request from the Hasans.8 It was not until ten months later (December of 2002)--in the face of continuing pedestrian fund performance--that the Hasans became problematic. Dr. Hasan began inquiring about the inclusion in the Exchange Funds of stock held by influential Exchange Fund limited partners whose stock value collapsed upon public disclosure of the spectacular corporate fraud in which they had been involved (the "Culpable Partners"). Dr. Hasan was told that Goldman Sachs had "received requests from other clients regarding this same matter." Exh. 87. However, Dr. Hasan was directed to Goldman Sachs' outside counsel (Max Gitter at Clearly, Gottlieb, Steen & Hamilton). In November of 2003, Mr. Gitter wrote to the Hasans' counsel dissuading--Mr. Gitter argued that one of the principal reasons that the Exchange Funds eschewed any effort to expel Culpable Partners from the Exchange Funds is that under the limited partnership agreements any claim by the funds against Culpable Partners would have to be arbitrated. Mr. Gitter emphasized that arbitration affords only limited discovery, and that the discovery necessary to develop the claims would be "truly massive." Mr. Gitter opined that without plenary discovery the "Funds would be at a significant disadvantage in pursuing [in arbitration] any claims they might have." Exh. 42 at p. 3.

Indeed, on May 28, 2003 Dr. Hasan requested that Goldman Sachs send him copies of the signed subscription materials as he had not kept any copies. Exh. 16. The following day copies of portions of the subscription materials were faxed to the Hasans. These portions do not include any reference to the PPM or the form of Limited Partnership Agreement for either fund. Exhs. 17 and 18.

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II.

ARBITRATION IS NOT REQUIRED BY THE MULTI-PARTYACCOUNT AGREEMENT

The Goldman Sachs Defendants lead with the argument that the claims asserted by the Hasans against Goldman Sachs & Co.--and many others who are not parties to the Brokerage Agreement--are required by that agreement to be arbitrated. This argument borders on frivolous as the claims asserted here are outside the scope of the Brokerage Agreement. The starting point in addressing a Motion to Compel Arbitration, of course, is a determination whether there is, in the first instance, an agreement to arbitrate the subject dispute. There is no presumption of arbitrability on this initial issue. Gourley v. Yellow Transport, LLC, 178 F. Supp 2d 1196, 1202 (D. Colo. 2001). A. The Scope of the Brokerage Agreement. First, the express

language of the Brokerage Agreement makes it plain that it applies only to the brokerage transactions effected for the Hasans' joint brokerage account. The opening paragraph of the Brokerage Agreement expressly states that its scope is limited to the parties' "respective rights and obligations in connection with Goldman Sachs & Co. accepting a cash or margin [brokerage] account ..." Exh. 1. The balance of the Brokerage

Agreement goes on to describe typical brokerage arrangements (e.g. Paragraph 1 states that "[a]ll transactions under this agreement shall be in accordance with the rules and customs of the exchange or market and its clearing house.") The Brokerage Agreement does not purport to apply to disputes that arise out of the management of companies or other investments properly brokered into the Hasans' joint account.9 This difference was

To further underscore the limits of the Brokerage Agreement, the opening paragraph of the Instructions for completing the Brokerage Agreement furnished to the Hasans by Goldman Sachs describes the Brokerage Agreement as containing "the terms governing the account and provisions for entering into transactions on margin, if appropriate." (Emphasis supplied). Exh. 63.

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acknowledged by Mr. Giglio (now a Goldman Sachs partner) during his deposition testimony on June 10, 2005 in New York (Tr. pp. 68-70): Q. A. Q. A. Q. A. Q. So I take it that Dr. Hasan agreed to open a brokerage account on or about July 6, '98, correct? He opened up an account, multiparty account. But not an exchange fund investment, correct? That's correct. *** You would agree that there's a difference between an account and an investment placed in the account, would you not? Difference between ­ yes. Just as a Goldman Sachs account can contain investments in an exchange fund, it can contain investments in a variety of other securities as well, can it not? Yes.10

A.

The Brokerage Agreement goes on to express, in bold in Paragraph 12 of the Brokerage Agreement, that the arbitration requirement is expressly limited to controversies "arising out of or relating to this agreement, the transactions contemplated hereby, or the [brokerage] accounts established hereunder." Indeed, when a dispute arose out of the mismanagement and trading of the Hasans' joint brokerage account the Hasans did initiate arbitration proceedings--and those remain pending. Hasan, et al. v. Goldman Sachs & Co., American Arbitration Association Case No. 77 113 00394 04 RWH (Denver, Colorado).
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To make it all the more plain, the monthly Joint Account Statements sent to the Hasans by Goldman Sachs & Co. separately lists their Exchange Funds investments as "Alternative Investments." The definition of "Alternative Investments "include non marketable, privately placed securities." See Page 5 of 5 on the attached. The disclaimer (p. 4 of 5) reads, in pertinent part: Goldman Sachs has furnished the information appearing in this Section for your convenience only. There investments are privately placed. The information may have been obtained from other persons, some of whom may be Goldman Sachs affiliates. ... These assets are held away from Goldman Sachs and are not covered by insurance by SIPC or any supplemental insurance provided by Goldman Sachs for its clients' holdings. (Emphasis supplied). A copy of the Sept. 2005 Joint Account Statement received by the Hasans from Goldman Sachs is attached as Attachment A for the convenience of the Court.

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It is black letter law that "the first task of a court asked to compel arbitration of a dispute is to determine whether the parties agreed to arbitrate that dispute." Will-Drill Resources, Inc. v. Samson Resources Co., 352 F.3d 211, 215 (5th Cir. 2003)(emphasis supplied). The Court must not inflate the operation of an arbitration clause "by construction or implication." Shriner v. Signal Financial Co., 2003 U.S. App. LEXIS 25397 (7th Cir. 2003). An arbitration agreement may not be expanded "beyond its express terms and beyond the intent of the parties." Rosenblum v. Travelbyus.com, Ltd., 299 F.3d 657, 663 (7th Cir. 2002)(emphasis supplied). As the drafter of an adhesion contract, any ambiguity in the scope of the arbitration language contained in its form Brokerage Agreement must be resolved against Goldman Sachs. Dumais v. American Golf Corporation, 299 F.3d 1216, 1219 (10th Cir. 2002). It follows that the arbitration commitment contained in the Brokerage Agreement does not apply to the disputes set forth in the Second Amended Complaint in this case. B. The Lack of Mutuality. The doctrine of mutuality is yet

another stumbling block to the Goldman Sachs' invitation to require arbitration based upon the language of the Brokerage Agreement. For while some cases hold that

arbitration clauses can extend to intended third party beneficiaries, nothing in the Brokerage Agreement purports to extend the arbitration requirement for the benefit of the Culpable Partners or the Lender Parties--all of whom are Fed.R.Civ.P. 19(a) persons needed for a just adjudication. Because the Brokerage Agreement does not bind the Culpable Partners or the Lender Parties to arbitration, the arbitration obligation is illusory and not enforceable in this case against the Hasans. Dumais, 299 F.3d 1216, 1219 (10th Cir. 2002); Gourley, 178 F.Supp. 2d at 1203.

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III.

ARBITRATION IS NOT REQUIRED IN THIS CASE BY THE PPMs OR BY THE PARTNERSHIP AGREEMENTS The Goldman Sachs Defendants' fall back argument is that arbitration is

required by two documents that were never signed by the Hasans--the PPMs and the Limited Partnership Agreement. The Goldman Sachs Defendants urge that the

"Subscription Agreement and Investment Representations" contained in a portion of the subscription booklets for the Exchange Funds contain as part of their pre-printed text an: (i) acknowledgment of receipt of the corresponding PPM and limited partnership agreement, and (ii) adoption of the terms of the limited partnership agreement. In turn, the Goldman Sachs Defendants argue that arbitration requirements buried in the boilerplate of the PPMs and limited partnership agreements bind the Hasans to arbitrate the claims alleged in this Court. This fall back argument is also fatally flawed in several respects. A. Ms. Hasan Is Not Bound in Respect of the 1998 Exchange Fund.

First, the fall back argument has no merit with respect to Ms. Hasan and her 1998 Exchange Fund investment. She signed nothing in respect of the 1998 Exchange Fund. Ms. Hasan's interest in the FHS stock that was contributed to the 1998 Exchange Fund has never been addressed by the Goldman Sachs Defendants.11 Dr. Hasan specifically disclaimed any authority to sign the Exchange Fund partnership subscription materials on behalf of Ms. Hasan, and he never attempted to do so. See Will-Drill Resources, Inc., at
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The FHS stock that was placed in the name of Goldman Sachs prior to contribution to the 1998 Exchange Fund came from a Goldman Sachs joint brokerage account in which Ms. Hasan was a joint owner. Following contribution of the stock to the 1998 Exchange Fund, the limited partnership units were placed back into that same Goldman Sachs brokerage account in which Ms. Hasan has a joint interest with Dr. Hasan. And, of course, the Goldman Sachs Defendants acknowledged Ms. Hasan's interest in the FHS shares that were only months later removed from the Hasans' joint brokerage account and contributed to the 1999 Exchange Fund. The Goldman Sachs Defendants obtained Ms. Hasan's signature on the 1999 subscription materials for this subsequent transaction.

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215-17; Sandvik AB v. Advent Int'l Corp., 220 F.3d 99 (3d Cir. 2000)(refusing to compel arbitration when party asserted that person signing arbitration agreement had no authority to do so). At bottom, Ms. Hasan had a right to expect that those with whom she had entrusted a joint brokerage account, and who were serving as her confidential financial advisors, would fulfill their fiduciary duties and would fully honor and protect her separate interests. It follows that there is no merit to any suggestion by the Goldman Sachs Defendants that Ms. Hasan is bound to arbitration in respect of the 1998 Exchange Fund. B. Dr. Hasan Is Not Bound in Respect of the 1998 Exchange Fund.

Second, the fall back argument has no merit with respect to Dr. Hasan and his 1998 Exchange Fund investment. Assuming, arguendo, that Dr. Hasan's signature in the 1998 Exchange Fund subscription materials would otherwise indicate his assent to arbitration (which it does not), it should be obvious that any assent by Dr. Hasan is premised upon the reasonable expectation that the arbitration agreement would be signed by all necessary co-owner parties (specifically Ms. Hasan). After all, he had been assured that additional subscription materials with respect to the 1998 Exchange Fund would be sent to Ms. Hasan for execution--but that never happened. There is no evidence that Dr.

Hasan intended to agree to arbitrate with respect to his joint interest in the 1998 Exchange Fund without a similar agreement by the other joint interest owner, Ms. Hasan. Any contrary assumption would nonsensically place Dr. Hasan and Ms. Hasan in different fora litigating the same claims against the same target defendants. See Will-

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Drill Resources, Inc., 352 F.3d at 218-19 (arbitration agreement not valid when not signed by all necessary parties). C. Arbitration Does Not Apply to Most Defendants. Third, the fall

back argument has no merit with respect to any of the Hasans' claims against any of the Goldman Sachs Defendants other than the Exchange Funds' general partner (Goldman Sachs Management Partners, L.P.) This is the only defendant that is a party to the Exchange Funds' partnership agreements, and the partnership agreements make no mention of any third party beneficiary intended to accrue to the other Goldman Sachs Defendants. See O'Connor v. R.F. Lafferty & Co., 965 F.2d 893, 901-02 (10th Cir. 1992)(intent to benefit third party with arbitration provision must be apparent from the text of the agreement). This result is not altered by any language in the Exchange Funds' PPMs for at least two fundamental reasons. First, there is no credible evidence to contradict the Hasans' testimony that the PPMs for the Exchange Funds were not received by the Hasans until years after their investments in the Exchange Funds.12 Second, the PPMs were not incorporated into the parties' agreement. The Exchange Funds' subscription agreement expressly provides that the investor "accepts, adopts and agrees to all of the terms of the Partnership Agreement," Exhs. 10A and 11A at p. 36, ¶10; the PPMs are not included in this incorporation language.13

Indeed, in the case of the 1999 Exchange Fund Rosemary Angelino conceded that the Goldman Sachs Defendants cannot even find a request from the Houston regional office to have a PPM forwarded from Goldman Sachs New York to that office so that it could be sent on to the Hasans. Curiously, in February of 2002 Goldman Sachs sent the Hasans the PPM for the 1999 Exchange Fund without comment or explanation. Exh. 21. And, an agreement to arbitrate cannot be inferred from any performance by the Hasans. "Performance by itself does not evidence acceptance of the arbitration clause." A.T. Cross Co. v. Royal Selangor(s) PTE, Ltd., 217 F.Supp. 2d 229, 236 (D.R.I. 2002). "[An agreement to arbitrate] must be an
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Underscoring this point is Myers v. OTR Media, Inc., 2005 U.S. Dist. LEXIS 18779 (W.D. Ky 2005), a remarkably similar case. Like this case, in Myers the only document that had been signed by the plaintiff was a subscription agreement--which textually did not require arbitration. However, the defendant moved to compel arbitration on the basis of an arbitration provision contained in a PPM supposedly delivered to the Plaintiff months prior to Plaintiff's investment. Like this case, the Myers subscription agreement contained an acknowledgment by the Plaintiff that the PPM had been received and carefully reviewed. The Myers court refused to compel arbitration. It pointed out that "courts typically regard PPMs as informational disclosure documents," id. at p. 5 (citations omitted). Judge McKinley opined that "[a] reference by contracting parties to an extraneous writing ... makes it a part of their agreement only for the purpose so specified. Id. The Myers court went on to observe that the PPM was not successfully incorporated as part of the Subscription Agreement as that document did not clearly evidence the intent that the PPM be made a part of the contract. Id. D. Arbitration Does Not Apply Based Upon Inadequate Disclosure.

Finally, the fall back argument fails because other than the "acknowledgment" contained in the Exchange Fund subscription materials (limited to the 1999 Exchange Fund subscription materials in the case of Ms. Hasan), the Goldman Sachs Defendants can produce no evidence to contradict the Hasans' testimony that they did not, in fact, receive copies of the Exchange Fund limited partnership agreements until years after their

express contract, where mutual assent is manifested in a single written document, and not a contract implied-in-fact." Id.; cf. Aynes v. Space Guard Products, Inc., 2000 U.S.Dist. LEXIS 9615 (S.D.Ind. 2000)(arbitration provision contained in employee manual not enforceable because not negotiated or signed by the employee, and continued employment after employment manual's adoption does not constitute not consideration necessary to create binding agreement).

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investments had been made. The cases cited by the Goldman Sachs Defendants for the proposition that investors are charged with the contents of investment documents relating to their investment are not on point.14 But even more importantly, Goldman Sachs (as the Hasans' confidential financial advisor) and Goldman Sachs Management Partners, L.P. (as the general partner in the partnerships in which the Hasans were limited partners) owed the Hasans solemn fiduciary duties of full and fair disclosure. See, e.g., Rupert v. Clayton Brokerage Co., 737 P.2d 1106, 1109 (Colo. 1987)(broker who becomes a fiduciary must act with "utmost good faith ... and explain forthrightly the practical impact and potential risks of the course of dealing in which the broker is engaged); Bowman v. SP Pharmaceuticals, LLC, 2000 U.S.App. LEXIS 31127 at p. 3 (10th Cir. 2000)(partners owe each other "utmost good faith, fairness and honesty in their dealings with each other) The fiduciary

obligation is not discharged by maneuvering the Hasans into waiving critically important judicial resolution rights--the importance of which is plainly conceded by Goldman Sachs' counsel in a November 19, 2003 letter to the Hasans' counsel, Exh. 42 at p. 3 --by burying an arbitration requirement inconspicuously in boilerplate text near the end of the lengthy partnership agreements (which are not delivered to the Hasans until years after their investments). See American Heritage Life Ins. Co. v. Lang, 321 F.3d 533 (5th Cir. 2003)(written arbitration agreement will not be enforced when arguably signed without adequate notice of arbitration requirement); McNally Pittsburg, Inc. v. Intern'l Ass'n of Bridge, Structural & Ornamental Iron Workers, 812 F.2d 615, 620-21 (10th Cir.

For example, in cases such as Zobrist v. Coal-X, Inc., 708 F.2d 1511 (10th Cir. 1983) and Silas La Bier v. Merrill Lynch, Pierce, Fenner & Smith, 177 A.D.2d 767 (N.Y. App.Div. 1991) the investors actually received prior to their investments the documents whose contents they were charged with reading and understanding.

14

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1987)(although the general rule is that ignorance of the contents of a document will not release a signer, the rule is qualified by the principal that one who signs a document reasonably believing it to contain different contents cannot be bound to the terms of the document). This sharp practice evidenced in the behavior of the Exchange Funds' general partner is all the more unacceptable when compared to the Goldman Sachs Brokerage Agreement. Exh. 1. In its Brokerage Agreement, Goldman Sachs places the arbitration commitment on the first page of the agreement in bold print and a larger

font. Goldman Sachs also explains, in some detail, the rights that are being waived by
the commitment to arbitrate contained in the Brokerage Agreement. On the facts of this case the Goldman Sachs Defendants are estopped to assert that the "disclosure" contained in the lengthy partnership agreements incorporated into certain subscription materials satisfies the duty of full and fair disclosure of a general partner. WHEREFORE, the Hasans respectfully pray that this Court deny the Goldman Sachs Defendants' Motion to Compel Arbitration. Dated: November 9, 2005. Respectfully submitted,

s/ Glenn W. Merrick Glenn W. Merrick Senn · Visciano · Kirschenbaum · Merrick P.C. Suite 4300, 1801 California Street Denver, Colorado 80202 Telephone: (303) 298-1122 Facsimile: (303) 296-9101 Email: [email protected] ATTORNEYS FOR PLAINTIFFS MALIK M. HASAN, M.D. and SEEME G. HASAN 20

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CERTIFICATE OF SERVICE I hereby certify that on November 9, 2005, I electronically filed the foregoing PLAINTIFFS' CORRECTED TRIAL MEMORANDUM with the Clerk of Court using the CM/EMF system which will send notification of such filing to the following e-mail addresses: Bruce A. Featherstone Featherstone DeSisto, LLP [email protected] Max Gitter Cleary Gottlieb Steen & Hamilton, LLP [email protected] and I hereby certify that I have mailed or served the same on the following non CM/ECF participant via U.S. Mail, postage prepaid addressed to: Nancy I. Ruskin, Esq. Cleary, Gottlieb, Steen & Hamilton LLP One Liberty Plaza New York, New York 10006

s/Dyanna Spicher

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