Exhibit 1

Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 1 of 32 PageID #:3046
Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 2 of 32 PageID #:3047 Case: 1:15-cv-03249 Document #: 33 Filed: 05/06/15 Page 1 of 48 PageID #:8851
Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 3 of 32 PageID #:3048 Case: 1:15-cv-03249 Document #: 33 Filed: 05/06/15 Page 2 of 48 PageID #:8852
Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 4 of 32 PageID #:3049 Case: 1:15-cv-03249 Document #: 33 Filed: 05/06/15 Page 3 of 48 PageID #:8853
Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 5 of 32 PageID #:3050 Case: 1:15-cv-03249 Document #: 33 Filed: 05/06/15 Page 4 of 48 PageID #:8854
Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 6 of 32 PageID #:3051 Case: 1:15-cv-03249 Document #: 33 Filed: 05/06/15 Page 5 of 48 PageID #:8855
Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 7 of 32 PageID #:3052 Case: 1:15-cv-03249 Document #: 33 Filed: 05/06/15 Page 6 of 48 PageID #:8856
Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 8 of 32 PageID #:3053 Case: 1:15-cv-03249 Document #: 33 Filed: 05/06/15 Page 7 of 48 PageID #:8857
Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 9 of 32 PageID #:3054 Case: 1:15-cv-03249 Document #: 33 Filed: 05/06/15 Page 8 of 48 PageID #:8858
Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 10 of 32 PageID #:3055 Case: 1:15-cv-03249 Document #: 33 Filed: 05/06/15 Page 9 of 48 PageID #:8859
Only the Westlaw citation is currently available.

United States District Court, N.D. Illinois, Eastern

Division.

CHARTER NATIONAL BANK AND TRUST,

Plaintiff,

v.

CHARTER ONE FINANCIAL, INC., Charter One

Bank, FSB and St. Paul Federal Bank for Savings,

Defendants.

No. 01 C 0905.

May 15, 2001.

MEMORANDUM, OPINION AND ORDER

ANDERSEN, J.

*1 This case is before the Court on the Motion

for a Temporary Restraining Order brought by

plaintiff Charter National Bank and Trust. Charter

National seeks to restrain Charter One Financial,

Inc ., Charter One Bank, FSB and St. Paul Federal

Bank for Savings from operating any location in the

Chicago metropolitan area using the mark

“charter.” For the following reasons, Charter National's motion is granted in part and denied in part.

ALLEGED FACTS

Northwest Bankcorp acquired a bank in Hanover Park and renamed it Charter Bank and Trust of

Illinois on October 1, 1987. In 1993, two more locations were added, one in Schaumburg and one in

Hoffman Estates. Charter Bank and Trust of Illinois

changed its name to Charter Bank and Trust, N.A.

and then to Charter National Bank and Trust

(“Charter National”). Since 1987, the entity now

known as Charter National has continuously operated the Hanover Park facility and has displayed a

large sign out front with the words “Charter Bank”.

Since 1993, the Hoffman Estates and Schaumburg

branches have displayed large signs with the words

“Charter Bank”.

Charter One did not do business in the State of

Illinois until it acquired St. Paul Federal Bank for

Savings in 1999. Until January of 2001 it operated

St. Paul's fifty-eight Chicago metropolitan locations

under the trade name and trademark “St. Paul”. In

January of 2001, St. Paul announced that it was

changing its name to Charter One Bank. On February 6, 2001, counsel for Charter National faxed a

letter to Charter One informing Charter One of its

contention that Charter National was the senior

common law user in Chicago and that the name

change was already causing customer confusion.

After Charter One did not stop converting

branches from the mark “St. Paul” to “Charter

One”, Charter National filed the instant lawsuit.

The issues have been extensively briefed and we

have conducted an evidentiary hearing. While this

court has reviewed the motion for a temporary restraining order, defendants have agreed to refrain

from displaying the name “Charter One” in the geographic area surrounding Charter National's three

branches.

DISCUSSION

The purpose of preliminary injunctive relief is

“to minimize the hardship to the parties pending the

ultimate resolution of the lawsuit.” Platinum Home

Mortgage Corp. v. Platinum Financial Group Inc.,

149 F.3d 722, 726 (7th Cir.1998). The standards for

a temporary restraining order and the standards for

a preliminary injunction are identical. Atkins v. Arson Pirie Scott & Co., Inc., 1999 WL 1249342 at *

1

(N.D.Ill.Dec. 13, 1999). Therefore, a TRO is warranted if the party seeking the injunction can make

a threshold showing that: (1) the case has a reasonable likelihood of success on the merits; (2) no adequate remedy at law exists; (3) it will suffer irreparable harm if the injunction is not granted; (4) the

balance of hardships is in favor of the moving

party; and (5) the preliminary injunction will not

harm the public interest. Rust Environment & Infrastructure, Inc. v. Teunissen, 131 F.3d 1210, 1213

(7th Cir.1997).

Page 1

Not Reported in F.Supp.2d, 2001 WL 527404 (N.D.Ill.)

(Cite as: 2001 WL 527404 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 11 of 32 PageID #:3056
*2 “Trademark law aims to aid consumers in

identifying the source of goods by allowing producers the exclusive right to particular identifying

words or symbols which they may attach to their

products as a designator of source.” Thomas &

Betts Corp. v. Panduit Corp., 65 F.3d 654, 657 (7th

Cir.1995).

Charter National has shown a reasonable likelihood of success on the merits. In order to show a

reasonable likelihood of success on the merits in a

trademark infringement claim, the plaintiff must

demonstrate: (1) the validity of its trademark and

(2) the infringement of that mark. Echo Travel, Inc.

v. Travel Associates, Inc., 870 F.2d 1264, 1266 (7th

Cir.1989). The validity of a mark is established by

showing that a “word, term, name, symbol or

device” is entitled to protection because that mark

specifically identifies and distinguished one company's goods from those of its competitors. Platinum, 149 F.3d at 726. Charter National is the senior

user of the mark in the Chicago metropolitan area.

Although Charter One has registered its mark at the

U.S. Patent and Trademark Office, that trademark

only allows it to use its mark if no other senior

user, who has been continuously using the mark,

has priority. 15 U.S.C. § 1065. A trademark application is always subject to previously established

common law rights of another party. The Money

Store v. Harriscorp Fin., 689 F.2d 666, 672 (7.th

Cir1982). Therefore, if “Charter National Bank” is

protectable under common law trademark law,

Charter National has a reasonable likelihood of success on the merits.

Charter National contends that its mark is protectable because the term “charter” is more than a

generic term, such as bank. Charter One argues that

the mark is not protectable because it simply signifies that the bank has been certified, or chartered,

by the state or federal government. We disagree.

“Charter National Bank” is entitled to protection.

The determination of whether a party has established a protectable right in a trademark is made on

a case by case basis, considering the totality of the

circumstances. New West Corp. v. NYM Co. of Cal.,

Inc., 595 F.2d 1194, 1200 (9 th Cir.1979). A party

may acquire a protectable right simply through the

use of the mark in connection with goods or services. Zazu Designs v. L'Oreal, S.A., 979 F.2d 499,

503 (7 th Cir.1992). We find that Charter National

has shown a reasonable likelihood of success in its

claim to have acquired a protectable right in

“Charter National” through its evidentiary submissions of advertising brochures, ads, and pictures of

signs, as well as its evidence of actual confusion.

Later in the course of this case, Charter National

will have to present more substantial evidence of

confusion, but at this point the evidence it has

presented is sufficient to convince this court that

there is a reasonable likelihood of success in showing that its name has acquired a secondary meaning

in the minds of customers and, therefore, deserves

protection.

*3 In a trademark infringement case, damages

are by “their very nature irreparable and not susceptible of adequate measurement for remedy at

law.” International Kennel Club of Chicago, Inc.

v. Mighty Star, Inc., 846 F.2d 1079, 1092 (7 th

Cir.1988). Charter National has shown a reasonable

likelihood of success on the merits because of customer confusion and frustration. Furthermore, the

fact that it is virtually impossible to calculate the

financial impact of these damages shows that there

is no adequate remedy at law.

Balancing of the hardships and the public's interest presents the closest question here. Defendants

operate over seventy locations in the entire Chicago

metropolitan region and forcing them to cover all of

their signs on all banks is a hardship. However,

they knew of this potential conflict before they

changed the names of their banking operations from

St. Paul to Charter One.

We have considered different geographical

parameters for a temporary restraining order.

Eighty percent of Charter National's deposit customers are clustered within three miles around its

branches. Therefore, we have entertained the option

Page 2

Not Reported in F.Supp.2d, 2001 WL 527404 (N.D.Ill.)

(Cite as: 2001 WL 527404 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 12 of 32 PageID #:3057
of structuring a TRO to include that geographic

area. In response, Charter National argued that it

makes a profit only by virtue of the loans that it

makes and, since its loan customers live in a much

broader geographic area than its deposit customers,

its damages will not by redressed unless we totally

enjoin Charter One from any use of the mark

“charter” in the entire Chicago metropolitan area.

In the event that we determine that a preliminary

injunction is justified, we might require that Charter

One stop using the mark “charter” in the entire

Chicago metropolitan area. However, given the balancing of the hardships at this stage in the litigation

and the inconvenience to Charter One's hundreds of

thousands of customers in the Chicago area, we will

not order Charter One to stop using the mark

“charter” in the entire metropolitan area.

We have fashioned a remedy which balances

the public interests and the hardships, but still recognizes Charter National's likelihood of succeeding on the ultimate merits. We will restrain Charter

One entities from operating any type of bank facility using the word “charter” on any outdoor sign

within the geographic area between Lake Cook

Road, on the north, I 290/I355/Illinois 53, on the

east, North Avenue, on the south, and the Fox

River, on the west. Furthermore, we will enjoin

Charter One from opening any new locations, in the

above geographic area, which use the mark

“charter” in any way or is identified as “Charter

One”. This solution balances the strength of Charter

National's mark in a smaller geographic area

against the hardship of Charter One changing all of

the signs on all of its facilities in the Chicago area

on a temporary basis.

CONCLUSION

Charter National Bank & Trust's motion for a

temporary restraining order is granted in part and

denied in part. Charter One Financial, Inc., Charter

One Bank, FSB and St. Paul Federal Bank for Savings are enjoined from operating any type of bank

facility using the word “charter” on any outdoor

signs within the geographic area between Lake

Cook Road, on the north, I 290/I355/Illinois 53, on

the east, North Avenue, on the south, and the Fox

River, on the west. Furthermore, Charter One is enjoined from opening any new locations in that geographic area that use the mark “charter” in any way

or is identified as “Charter One”. Charter National's

request for a temporary restraining order prohibiting Charter One from using the mark “charter”

throughout the entire Chicago metropolitan area is

denied.

*4 It is so ordered.

N.D.Ill.,2001.

Charter National Bank and Trust v. Charter One

Financial, Inc.

Not Reported in F.Supp.2d, 2001 WL 527404

(N.D.Ill.)

END OF DOCUMENT

Page 3

Not Reported in F.Supp.2d, 2001 WL 527404 (N.D.Ill.)

(Cite as: 2001 WL 527404 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 13 of 32 PageID #:3058
Only the Westlaw citation is currently available.

United States District Court,

N.D. Illinois,

Eastern Division.

LORILLARD TOBACCO COMPANY, a Delaware

Corporation, Plaintiff,

v.

MONTROSE WHOLESALE CANDIES and Sundries, Inc., et al., Defendants.

Nos. 03 C 4844, 03 C 5311.

Nov. 8, 2005.

John S. Pacocha, Cameron Matthew Nelson, Jeffrey

G. Mote, Kevin D. Finger, Greenberg Traurig, LLP,

Chicago, IL, for Plaintiff.

Robert A. Egan, Robert A. Egan P.C., Robert A.

Hobib, Chicago, IL, for Defendants.

REPORT AND RECOMMENDATION

MARVIN E. ASPEN, Judge.

*1 Plaintiff, Lorillard Tobacco Company

(“Lorillard”), moves to freeze the assets of defendants Reza and Sandra Hazemi This matter originally came before me as a motion to freeze the assets

of the Hazemis and Montrose Wholesale Candies

and Sundries, Inc. (“Montrose”)(collectively,

“Montrose defendants”). Judge Aspen had referred

that motion to Magistrate Judge Keys, and the referral was subsequently transferred to me. Accordingly, the court addresses Lorillard's motion for an

order freezing the Hazemis' assets in this Report

and Recommendation pursuant to 28 U.S.C. §

636(b)(1)(B).

FN1

FN1. Under 28 U.S.C. § 636(b)(1)(A), “a

judge may designate a magistrate judge to

hear and determine any pretrial matter

pending before the court, except a motion

for injunctive relief, for judgment on the

pleadings, for summary judgment, to dismiss or quash an indictment or information

made by the defendant, to suppress evidence in a criminal case, to dismiss or to

permit maintenance of a class action, to

dismiss for failure to state a claim upon

which relief can be granted, and to involuntarily dismiss an action.” Under section

636(b)(1)(B), “a judge may also designate

a magistrate judge to conduct hearings, including evidentiary hearings, and to submit

to a judge of the court proposed findings of

fact and recommendations for the disposition, by a judge of the court, of any motion

excepted in subparagraph (A). Lorillard's

motion to freeze assets is a motion for injunctive relief..

I. BACKGROUND

Lorillard is one of the largest cigarette manufacturers in the United States and its brand, Newport, is the best-selling menthol cigarette in the

country. Lorillard has registered the trademark,

Newport, with the United States Patent and Trademark Office, giving it the exclusive right to manufacture, distribute, advertise, and sell Newport cigarettes in the United States. Lorillard distributes

its cigarettes through a network of wholesalers and

retailers, subject to a wide range of state and federal regulations. Over the past several years, the federal government and many states have substantially

increased taxes on cigarettes and other tobacco

products, which has made it profitable for

“bootleggers” to sell counterfeit tobacco products,

as well as import and distribute tobacco products in

a manner designed to avoid paying the taxes,

thereby reaping a handsome, but ill-gotten reward.

In July of 2003, one of Lorillard's division

managers paid a call on the Montrose store in

Chicago, Illinois, and purchased a carton of what he

suspected to be counterfeit Newport cigarettes, and

sent it for inspection to Lorillard's offices in

Greensboro, North Carolina. There, a quality assurance inspection convinced Lorillard that the cigarPage 1

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 14 of 32 PageID #:3059
ettes were counterfeit and it filed this suit against

Montrose on July 14, 2003, alleging trademark violations under the Lanham Act 15 U.S.C. § 1051, et

seq., as well as various Illinois statutory violations

and common law offenses. On July 15, 2003, Judge

Marvin Aspen granted Lorillard's application for an

ex parte seizure order allowing Lorillard to seize

any counterfeit cigarettes, as well as records documenting the manufacture, importation, purchase,

sale, distribution, or receipt of any merchandise

bearing any Lorillard marks. The United States

Marshals Service returned service on the seizure of

four cartons of “counterfeit cigarettes and documents” on July 16, 2003. Montrose's owners, Reza

and Sandra Hazemi, have since been added as defendants.

After enduring a maddening course of fruitless

attempts at garnering any meaningful discovery

from Montrose and the Hazemis, and becoming understandably suspicious that the Hazemis were looting Montrose's assets, Lorillard filed a motion to

compel discovery and to freeze the assets of Montrose and the Hazemis, supporting it with over 1200

pages of documents detailing what Lorillard has

learned, and has had to endure, over a yearand-a-half.FN2 In the interim, however, and less

than a week after being informed that the court was

preparing to rule on Lorillard's motions, Montrose

filed a Chapter 11 bankruptcy petition in the Bankruptcy Court for the Northern District of Illinois on

September 7, 2005. This stayed the proceedings as

to the corporate defendant.FN3 On September 9,

2005, the Hazemis filed a motion before me to stay

these proceedings as to them, which I denied on the

grounds that I did not have the authority to rule on

the motion and that it should have been filed before

Judge Aspen. To date, the Hazemis have not filed

an appropriate motion before Judge Aspen.

FN2. To support its motions, Lorillard

filed the exhibits mentioned, as well as: (1)

a declaration, (2) a substitute declaration,

(3) a second declaration by Lorillard's

counsel, (4) a declaration in support of the

emergency motion, and (5) the actual motions and supporting memoranda. Through

a good portion of the declarations and the

memoranda, however, Lorillard fails to

cite to pages of the voluminous record that

support many of its assertions. Thus, in

some instances, Lorillard often merely directs the court to entire 200-plus-page deposition transcripts or 100-page business

transactions to locate specific quotes. (See,

e.g., Combined Motion to Compel Discovery and Freeze Assets, at 4(¶¶ 6-7);

(Substitute) Declaration of Jeffrey Mote,

¶¶ 10-11, 14-15, 22, 39; Second Declaration of Jeffrey Mote, at ¶¶ 22, 34). In other

instances, it does not even provide a general reference to any supporting documentation (See, e.g., (Substitute)Declaration of

Jeffrey Mote, ¶¶ 28-29, 32-34, 41, 42, 43,

44) or-more understandably given the

volume of materials prepared-misidentifies

purported supporting materials or fails to

make pages part of the record. (See, e.g.,

Combined Motion to Compel Discovery

and Freeze Assets, at 6(¶ 12);

(Substitute)Declaration of Jeffrey Mote, at

¶¶ 28-29, 32-34, 41, 42, 43, 44; Second

Declaration of Jeffrey Mote, at ¶¶ 22, 64,

65). At the court's request, Lorillard's

counsel filed a consolidated declaration

which corrected some, but not all, of these

deficiencies. The few that remain,

however, do not make Lorillard's tale of

woe any less compelling; those assertions

that Lorillard does adequately support with

evidence and the court's own perusal of the

record provide enough detail regarding the

Montrose defendants' discovery obfuscation and financial legerdemain for the

court to grant Lorillard's motion.

FN3. On November 1, 2005, Bankruptcy

Court Judge Hollis granted Lorillard's motion to modify the automatic stay to permit

Lorillard to continue its lawsuit against the

Page 2

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 15 of 32 PageID #:3060
corporate defendant, Montrose.

*2 On October 31, 2005, Lorillard filed an

emergency motion to freeze the assets of the individual defendants Ray and Sandra Hazemi. Lorillard's motion was prompted by its discovery that

the Hazemis own certain property at 3019 N. Rose

St. in Franklin Park, Illinois, despite the Hazemis'

repeated denials, under oath, to the contrary. As it

happens, this is merely the most recent installment

in a continuing saga of deception, obfuscation,

shuffling of assets, and corporate looting. While the

evidence demonstrates that this has long been the

Hazemi's pattern of doing business, it most recently

has been calculated to place the Hazemi's assets

beyond the reach of Lorillard. This most recent revelation regarding the property at 3019 N. Rose St.

demonstrates that Mr. Hazemi has not only given

what appears to be perjured deposition testimony,

but made bald misrepresentations to the court regarding their ownership of the property. When examined in insolation, this episode alone would be

sufficient to support an order freezing their assets.

But when examined in context of what has gone on

before, there can be no question that such an order

is warranted.

A

The Hazemis' Misrepresentations Regarding

Their Ownership of the Property at 3019 N.

Rose St.

During its long and arduous discovery experience in this case, Lorillard has brought several motions to obtain compliance with subpoenas served

on various third parties, including a business located at 3019 N. Rose Street in Franklin Park,

Illinois (the “3019 N. Rose St. Property”) doing

business as “Franklin Cigarette Depot.” Through

the discovery it was able to gain, Lorillard learned

that defendant Sandra Hazemi had owned the 3019

N. Rose St. Property and transferred it to a Janesville, Wisconsin wholesale supplier named Chambers & Owens in or about June 2003 as part of a

settlement in a lawsuit between Chambers & Owens

and defendant Montrose Wholesale. During Mrs.

Hazemi's deposition she indicated that she was an

“owner” in name only FN4 and that the details concerning the purchase and transfer of the 3019 N.

Rose Street Property, among others, were entirely

controlled by Ray Hazemi. (Plaintiff's Emergency

Motion to Freeze Assets, Ex. A, Sandra Hazemi

Dep. of 7/26/05 at 359-65). During his deposition

on July 21, 2005, Ray Hazemi testified that the

Hazemis transferred the 3019 N. Rose Street Property to Chambers & Owens in 2003 and that Chambers & Owens still owned the property on the day

of the deposition. (Plaintiff's Emergency Motion to

Freeze Assets, Ex. B, Ray Hazemi Dep. of 7/21/05

at 94). Mr. Hazemi further testified that he and his

wife were attempting to get the property back from

Chambers & Owens. (Id.).

FN4. The phrase “in name only” takes on a

curious meaning here, as nearly every document associated with the Hazemi's transfer of the 3019 N. Rose St. property identifies the owner as “Sean Semler” or

“Sandra Semler Hazemi a/k/a Sean

Semler.” (Plaintiff's Emergency Motion to

Freeze Assets, Ex. D; Declaration of Jeffrey Mote in Support of Emergency Motion

to Freeze Assets, Exs. H at RN 0257; I at

00444; J at 0221, 0229; L; M). Sean

Semler is Mrs. Hazemi's brother. At their

depositions, neither Mr. nor Mrs. Hazemi

could hazard a guess as to why these documents referred to Mrs. Hazemi in this manner.

Ray Hazemi's deposition continued on August

3, 2005. Once again, plaintiff asked whether Chambers & Owens still owned the 3019 N. Rose St.

property and Mr. Hazemi states “[t]hat's correct.” (

Plaintiff's Emergency Motion to Freeze Assets, Ex.

C, Ray Hazemi Dep. of 8/3/05, at 350). When Mr.

Hazemi was asked whether he has had discussions

with Chambers & Owens about the return of the

3019 N. Rose St. property, he answered: “[n]o,

nothing.” (Id. at 535). But he added that he and his

wife were trying to work out a plan by which the

Page 3

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 16 of 32 PageID #:3061
property could be returned to them. (Id. at 535-36).

*3 The subject of the 3019 N. Rose St. property

also came up in court. The parties' counsel appeared before me on July 25 and August 1, 2005, in

connection with plaintiff's motion for rule to show

cause why Franklin Cigarette Depot should not be

held in contempt for failing to respond to a duly

served subpoena. (Plaintiff's Emergency Motion to

Freeze Assets, Exs. D and E, Hearing Transcript

Excerpts for the 7/25/05 and 8/1/05 hearings, respectively). These particular hearings concerned the

Hazemis' ownership of Franklin Cigarette Depot

and the property associated with it located at 3019

N. Rose St. During the July 25, 2005 hearing, the

Hazemis' counsel, Robert A. Habib, stated that Ray

Hazemi had admitted during his July 21, 2005 deposition that he had an ownership interest in Franklin Cigarette Depot, but that he did not own the real

property because it had been turned over to Chambers & Owens. Mr. Habib stated unequivocally that

Ray Hazemi testified that the 3019 N. Rose Street

Property was no longer owned by the Hazemis,

stating “the real estate is gone.” (Ex. D at pp. 5-6).

Similarly, during the August 1st hearing, Mr. Habib

stated that “[t]he property at 3019 North Rose

Street they don't own anymore.” (Ex. E, pp. 10-11).

As it happens, the Hazemis misrepresented the

facts surrounding the Hazemi's ownership of the

3019 N. Rose St. property at their depositions and

in open court.FN5 During a Rule 341 Meeting of

Creditors (the “341 Meeting”) on September 24,

2005, in connection with Montrose's Chapter 11

Bankruptcy case, Chambers & Owens' counsel

Scott Shadel informed plaintiffs counsel that Chambers & Owens had transferred the 3019 N. Rose

Street Property back to the Hazemis in 2003. Mr.

Shadel also indicated he believed the Hazemis had

purchased the property back from Chambers &

Owens for about $250,000. On October 21, 2005,

Mr. Shadel faxed a copy of the Warranty Deed prepared by Chambers & Owens to transfer the 3019

N. Rose St. property to Sandra Hazemi on September 2, 2003. (Plaintiff's Emergency Motion to

Freeze Assets, Ex. F).

FN5. It would also appear that the

Hazemi's attorney, Mr. Habib, was victimized by their misrepresentations as well.

An able and experienced lawyer, Mr.

Habib certainly would not have accepted

his client's assertions at face value. Yet,

he, too, was taken in by the Hazemis, and

employed-unwittingly-in their ruse.

When these serious circumstances came to

light by way of Lorillard's emergency motion, I allowed the Hazemis and their attorney a week to file

whatever they felt might be an adequate response to

being caught in a lie. After what one must assume

was a complete and thorough consultation among

clients and counsel, Mr. Hazemi offers an explanation by way of a rather sketchy, five-paragraph affidavit.FN6 He states that the transfer of the 3019 N.

Rose St. property was made to stop Chambers &

Owens from collecting on the judgment from Mr.

Hazemi only. When he sold another parcel of property for $250,000, he applied those assets to the

judgment as against him. Mr. Hazemi asserts that a

Mr. Phil Jackson of Chambers & Owens then

“handed [him] a piece of paper and stated that no

longer we owe Chambers, but that the debt as to

Montrose remained pending.” (Reza Hazemi Aff., ¶

4). The piece of paper, according to Mr. Hazemi,

turned out to be the warranty deed, but he swears he

did not look at it at the time or know what it was.

Instead, he simply put it in his safe, where it languished uninspected until Lorillard filed this motion. (Reza Hazemi Aff. ¶ 4). Similarly, Mrs.

Hazemi also swears that she never saw the warranty

deed. (Sandra Hazemi Aff.).

FN6. While Mr. Habib prepared the

Hazemis' affidavits in consultation with

them, he did not sign the documents. Only

the Hazemis have sworn to their veracity.

*4 According to Mr. Hazemi, he regarded the

mysterious piece of paper as proof that his personal

debt to Chambers & Owens had been discharged by

Page 4

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 17 of 32 PageID #:3062
payment of $250,000. (Reza Hazemi Aff., ¶ 4).

Having never looked at the document-that is what

he claims-it is curious how he can be so sure that it

amounted to such proof. As Mr. Hazemi tells the

tale, the paper might have been anything at all.

Why he was confident that it proved he had paid

Chambers & Owen $250,000 is unexplained. Having handed over a quarter-million dollars to satisfy

a debt, one might expect even the least sophisticated of businessmen to inspect the note received in

return. But Mr. Hazemi is by no means an unsophisticated businessman. He has a masters degree in

accounting, and counsel has represented that he has

practiced as a CPA in the past. He owns or has

owned several businesses with millions of dollars

of revenue running through them. The Hazemi's explanation that they were simply unaware that they

owned the 3019 N. Rose St. property strains credulity past the breaking point.

The 3019 N. Rose St. property, then, has been

in the possession of the Hazemis all along, a hidden

asset during this litigation. To ensure that it remained hidden, the Hazemis committed what appears to be perjury at their depositions, then lied to

me in an inherently incredible affidavit. Given the

history of the Hazemis' conduct in this litigation,

and the manner in which they operated their business, however, none of this is surprising. It is just

the latest in a long line of underhandedness and deception, as the following discussion will make

clear.

B

The Organization and Structure of the Montrose

Corporation

1

The Hazemis' Acquisition of the Corporation

Shortly after filing suit, Lorillard served Montrose with its first set of interrogatories and document requests, which regarded, in part, Montrose's

corporate structure, organization, and financial condition. ((Substitute)Declaration of Jeffrey G. Mote,

(“Mote Decl.”), Ex. A). In what would become a

disheartening pattern for Lorillard, Montrose and

the Hazemis initially thwarted Lorillard's discovery

efforts. Montrose did, however, produce income tax

records for the years 1997 through 2003, which revealed its ownership structure during that period:

1997 Tarek Al-Mikhi (50%); Sandra Semler

Hazemi (25%); Jack Shoushtari (25%)

1998 Sandra Semler Hazemi (50%); Jack

Shoushtari (50%)

1999 Mr. Hazemi (50%); Jack Shoushtari (50%)

2000 Mr. Hazemi (50%); Jack Shoushtari (50%)

2001 Mr. Hazemi (100%)

2002 Mr. Hazemi (100%)

2003 Mr. Hazemi (50%); Sandra Semler Hazemi

(50%)

(Mote Decl., ¶ 7; Ex. I). Finally, on March 8,

2005, after more than a year-and-a-half of awaiting

the twice-promised production, Lorillard filed a

motion to compel discovery.

At least with respect to the corporate records,

the motion did the trick: Montrose produced the

documents, however unapologetically, in time to

take credit for its “compliance” in its response to

Lorillard's motion on April 11, 2005. Significantly,

in support of the Montrose defendants' response to

Lorillard's motion, Mr. Hazemi's wife, Sandra

Semler Hazemi, filed an affidavit in which she

swore that she had never been a shareholder, officer

or director of Montrose and had never authorized

anyone to say she was shareholder, officer or director of Montrose, directly contradicting Montrose's tax returns. (Def.Resp., Ex. 8). The first of

many such contradictions.

*5 The tardily-produced records reveal that

Tarek Al-Mikhi originally formed Montrose on or

about March 28, 1997. (Second Declaration of Jeffrey Mote (“2nd Decl.”), Ex.DD, Articles of Incorporation and related corporate records, RN 48-82).

Page 5

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 18 of 32 PageID #:3063
The company issued 1200 shares to its three shareholders and directors: Tarek Al-Mikhi (President)

received 600 shares, Mr. Hazemi (Vice-President)

received 300 shares, and Jack Shoushtari

(Secretary/Treasurer) received 300 shares. (Ex. DD,

at RN 53). On or about February 6, 1998, the Montrose owners entered into an agreement whereby

Tarek Al-Mikhi sold all of his shares in Montrose,

transferring 300 each to Mr. Hazemi and Jack

Shoushtari. (Ex. DD, at RN 6044-6048). Under the

transfer agreement, Mr. Al-Mikhi was paid $89,000

at closing and was to receive another $26,250 on

the earlier of January 2, 2000, the date Montrose

exercised its option to purchase the property housing Montrose at 4417-4425 W. Montrose Avenue in

Chicago Illinois, or the date it sold or otherwise

transferred this option. (Ex. DD, at 6045). Shortly

thereafter, however, the three became entangled in

litigation over the transaction. On or about January

2, 2001, Mr. Shoushtari and Mr. Hazemi entered into a “Stock Sales Agreement”, whereby Mr.

Hazemi immediately acquired 300 shares of Mr.

Shoushtari's original Montrose Stock. (Ex. DD, at

RN 279-288).FN7

FN7. The “Stock Sales Agreement was a

bit out of the ordinary. It called for Mr.

Shoushtari to pay Mr. Hazemi $67,952

pursuant to the following significant representation: “Payment of these monies is as

a result of the corporation being insolvent

at the time of this transaction, that is, its liabilities exceed its assets.” (Ex. DD, at RN

279). Mr. Hazemi also agreed to indemnify

Mr. Shoushtari against any judgment in a

pending lawsuit, Certified Grocers v. Montrose/Shoushtari, Case No. 98 L 14808.

(Ex. DD, at RN 284). In addition,

Shoushtari agreed to transfer any shares received from Mr. Al Mikhi pursuant to

those pending lawsuits to Mr. Hazemi for

$1. (Ex. DD, at RN 285). The record suggests that he made this transfer on January

2, 2001. (Ex. DD, at RN 277-78).

2

The Hazemis' Convoluted Acquisition of the Site

of Montrose's Operations

At or near the time Montrose was formed in

1997, it entered into a lease agreement with a

Joseph Cholewa, dated March 27, 1997, for the

property at 4417-4425 W. Montrose Ave. (Ex. JJ, at

RN 84-86). A few days later, on April 3, 1997,

Montrose and Mr. Cholewa agreed to a supplemental “Rider” amending the lease agreement by granting, inter alia, Montrose an option to buy the property at 4417-4425 W. Montrose for $710,000, to

which $7,500 of the $10,500 monthly rent would be

credited towards the purchase price of the property.

(Ex. JJ, at RN 87-96). In exchange for this purchase

option, Montrose paid Mr. Cholewa $60,000, which

was to be credited to the eventual purchase price if

Montrose exercised its option to purchase. (Id.) If

Montrose decided not to exercise its option, the

“Rider” provided that it was entitled to a “rebate”

of two-thirds of the $60,000 option and two-thirds

of the $7,500 rent that was to have been allocated

towards the purchase price. (Id.). Rather than exercising the option outright, Mr. Hazemi and Mr.

Shoushtari concocted a scheme whereby they

would acquire control of the at 4417-4425 W. Montrose property without appearing to exercise the option, thereby hiding the property as an asset of

Montrose and avoiding the need to pay Mr. AlMikhi the remaining $26,000 under the stock purchase agreement previously discussed. (Ex. DD, at

RN 6045). Once Mr. Cholewa lost his interest in

the property sometime between entering into the

lease agreement in 1997, and June of 1998, pursuant to a foreclosure proceeding initiated by Parkway Bank & Trust. (Ex. JJ, at GN 187-194), the

scheme went into effect.

*6 The convoluted process began in June of

1998, when Antonia Shoushtari-Montrose owner

Jack Shoushtari's wife-and Bahar Azari-Mr.

Hazemi's niece and a then-employee of Montroseacquired the 4417-4425 W. Montrose property via a

Trustee's Deed from Parkway Bank and Trust Company dated June 12, 1998. (Ex. JJ, at SH 65-67). It

Page 6

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 19 of 32 PageID #:3064
would appear from the documents that the two purchased the property for $523,000, taking out a

$418,400 loan from Labe Bank. (Ex. JJ, at SH 57).

They purportedly managed the property under the

name “AB Venture,” and the loan was paid off over

an 84-month period.FN8 Next, Antonia Shoushtari

transferred her entire interest in the property at

4417-4425 W. Montrose property to Bahar Azari

through a quitclaim deed dated January 2, 2001.

The transfer between Antonia and Bahar was made

for no consideration. (Ex. JJ, at GN 184-186). On

February 20, 2003, Bahar Azari transferred her entire interest in the 4417-4425 W. Montrose property

for no consideration via a quitclaim deed to a company called 6201 S. Champlain LLC, which was

formed by Mike Kakvand, who will be discussed

later. Interestingly, the company listed 4417 W.

Montrose, the location of the Montrose store, as its

address. (Ex. JJ, at GN 36-38). The very next day,

on February 21, 2003, Mr. Kakvand's company executed a resolution purporting to authorize the

transfer of the 4417-4425 W. Montrose property

(Ex. JJ. at GN 138), and transferred the property to

Sandra Hazemi via a warranty deed. (Ex. JJ, at GN

28-35).

FN8. Lorillard submits that rental income

from tenants of the property at 4417-4425

W. Montrose would not come close to

making this expedited payment schedule.

Instead, it would appear that AB Venture

was dependent on cash funneled from

Montrose to cover the balance of each

monthly payment. Although Montrose and

the property owners represented that Montrose's rent was $3,500 per month, it was

actually paying $6,000 per month by check

to Mrs. Shoushtari and Ms. Azari. (Ex.

SS). It would seem that utility bills for the

property were directed to Montrose and its

owners and paid with Montrose's funds.

(Ex. SS). Montrose paid for the electrical

utilities and property insurance directly, although all these expenses were identified

as being paid by the nominal owners of the

property. (Id.).

3

Montrose's Shakey Corporate Standing

Despite the Montrose defendants' recalcitrance

throughout discovery, Lorillard has been able to uncover some information regarding Montrose's corporate status, which suggests that Montrose has had

some difficulty with the Secretary of State for the

State of Illinois. The State of Illinois administratively dissolved Montrose on August 1, 1998. On

August 10, 2000, Montrose submitted a change of

registered agent (changing from Ganders P. Caponize to its counsel in this suit, Robert Egan) to the

Illinois Secretary of State as well as an Application

for Reinstatement signed by Jack Shoushtari as

Montrose' Secretary and Sandra Hazemi as Montrose Vice President. (Ex. DD, at RN 97-101). Mrs.

Hazemi's signature in that capacity is rather curious, given the fact that she has sworn that she has

never been an officer or director with Montrose. (

Def.Resp., Ex. E).

In any event, the State issued a formal Certificate of Reinstatement on August 10, 2000. (Ex. DD,

at RN 100). The State administratively dissolved

Montrose again a year later on August 1, 2001, and

subsequently reinstated it on March 18, 2002. (Ex.

DD, at RN 114-116). Continuing the pattern, Montrose was administratively dissolved on August 1,

2003, for failure to file its annual report and pay its

annual franchise tax, but was subsequently reinstated on October 3, 2003. (Ex. DD, at RN

117-120). The Montrose defendants claim that

Montrose closed its operations as of October 31,

2003 (Def.Resp., at 2, 8), but, as of February 19,

2005, the Illinois Secretary of State's Real Time

Corporate/LLC database identified Montrose's

status as “Goodstanding.” (Ex. K). In the interim,

according to Mr. Mote's Second Declaration, Sean

Semler, Sandra Hazemi's brother, incorporated

Montrose Wholesale Food Co. at Mr. Hazemi's request; it was administratively dissolved on November 1, 2004. (2nd Decl., ¶ 37; Ex. FF). As of May

12, 2005, the database listed Montrose as “Not

Page 7

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 20 of 32 PageID #:3065
Good Standing.” (Ex. FF).

*7 It is telling, that the Montrose defendants

never produced any records relating to these

changes in the corporation's status. Moreover, the

Montrose defendants have never disclosed that

Montrose is no longer operating in any of their discovery responses; not in Montrose's original October 15, 2003, initial disclosures (Ex. T), or in the

Montrose defendants' initial disclosures from on

March 1, 2005 (Ex. U). Timely disclosure of this

information would have been required under

Fed.R.Civ.P. 26(e). Purchase records that Lorillard

has obtained through third parties indicate that

Montrose continued doing business at least through

September of 2004. (2nd Mote Decl., Ex. HH).

Similarly, Montrose answered Lorillard's Second

Amended Complaint in February 2005, long after it

purportedly stopped doing business. That the corporation seems to be an apparition, appearing from

time to time, may be no accident, and it is certainly

in keeping with the manner in which its financial

records were, and are, “kept.”

C

The Hazemis' Questionable Business Practices

1

Cigarette Purchases

After a long and fruitless pursuit of Montrose's

financial records and accounting information, Lorillard appears to be resigned to the fate that business

records one might ordinarily expect to exist in an

operation with the sales of Montrose simply do not.

(Plaintiff's Reply, at 9-11). Among these would appear to be records of cigarette purchases. Initially,

in its August 2003 responses, Montrose promised to

make 10 to 12 boxes of cigarette purchase invoices

available for inspection. (Mote Decl., Ex A2, Resp.

3). Montrose's counsel also wrote Lorillard's counsel a letter dated July 25, 2003, indicating the same

thing. (Def.Resp.; Ex. 3). But Lorillard was still

seeking these records at the time of Mr. Hazemi's

first deposition on February 2, 2004. (Mote Decl.,

Ex. C, at 160). That day, Mr. Hazemi explained that

records of his purchases were loosely kept in 5 or 6

boxes at the Montrose facility, and Montrose's

counsel again stated that Lorillard could inspect the

documents. (Mote Decl., Ex. C, at 160-62). Nevertheless, Lorillard had to request these records again

when it served discovery requests on Mr. Hazemi.

At that time Mr. Hazemi declared that Montrose

had already produced them. (Mote Decl., Ex. B1,

Resp. 2, 4). By the time of his second deposition,

however, he was not as certain.

At Mr. Hazemi's second deposition on December 14, 2004, the topic of these boxes, be there 5 or

6, or 10 or 12, came up once again.

Q: Now, where are these 10 to 12 boxes maintained?

A: I will try to tell you guys. I think you guys

took it. You guys say no, but I think you guys

took it.

Q: ... [L]ong after the date of the seizure, [you

said] you had 10 to 12 boxes ... and you would

make them available to us to come to inspect.

I'm asking you, where are those 10 to 12 boxes

of documents presently stored?

A: I don't know. I don't know.

***

*8 Q: So is it possible that you've destroyed or

discarded the 10 to 12 boxes?

A: Not whatsoever.

***

A: They're someplace in my basement or someplace. I have to find them.

***

Q: Is it possible that they might still be at Montrose Wholesale?

A: No.

Page 8

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 21 of 32 PageID #:3066
Q: ... Is there a place other than your house where

they might have been taken?

A: No. I take everything to my house.

(Mote Decl., Ex. D, at 231-33).

Later in his deposition, Mr. Hazemi added further confusion to the question of the whereabouts of

the cigarette purchase invoices. He testified that

when Montrose purchased Newport cigarettes from

distributors, he “dumped” the invoices in a cabinet.

(Mote Decl., Ex. D, at 209). He did not maintain

these purchase invoices, however, but discarded

them. (Ex. D, at 210). Shockingly, he testified that

he did this even after Lorillard filed suit, seemingly

admitting to spoliation of evidence. (Ex. D, at 210).

According to Mr. Hazemi, he did not feel the need

to keep such records because MSA” FN9 kept track

of these things. (Ex. D, at 210-11).

FN9. According to Lorillard's counsel, the

last part of the cigarette distribution chain

involves the sale of tobacco products from

retailers who are authorized to participate

in certain cigarette promotional programs

to consumers. Typically, these promotions

involve rebate payments-known in the industry as “buydown” programs-wherein an

authorized retail distributor is paid a rebate

for each carton it sells during the term of

the “buydown” program, provided the retailer purchased such carton from an authorized wholesale distributor. Authorized

wholesale distributors agree to report all

purchases and sales of a particular manufacturer's promotional cigarette products to

Management Science Associates, a consultant the tobacco companies employ to

collect data on sales and distribution of

their products. UPC scanning is a part of

this sophisticated and far-reaching information gathering system See http://

www.msa.com; Holiday Wholesale Grocery Co. v. Philip Morris Inc., 231

F.Supp.2d 1253, 1291 (N.D.Ga.2002). Tobacco manufacturers, including Lorillard,

use the data reported to MSA to monitor

and detect potential fraudulent reporting by

wholesale distributors and their retail customers who are participating in the manufacturer's promotional programs.

Along similar lines, Mr. Hazemi described his

bookkeeping:

There's no accounting book. It's very, very

simple. Either money comes or money goes.

Money goes to the bank. Money comes and then

turns around and goes to the bank. Then you purchase. There is no accounting. There is no booking.

(Ex. D, at 188, 194). Mr. Hazemi did allow,

however, that he could contact the suppliers that

sold him Newport cigarettes-Costco and City Salesfor copies of Montrose's purchase invoices. (Ex. D,

at 209-10, 212). He later admitted that he also

bought Newport cigarettes from other suppliers as

well: McClain, Chambers & Owen, and Flemming.

(Ex. D, at 229). Lorillard's counsel specifically

asked him about one more distributor, Peter Karfias, and Mr. Hazemi testified that Montrose purchased only “fourth tier” cigarettes from him, never

Newports. (Ex. D, at 91-93). In fact, invoices from

Mr. Karfias indicate that Montrose had actually

purchased more than $60,000 worth of Newport cigarettes from him between August 12, 2003, and

November 18, 2004. (2nd Decl., Ex. QQ).

Mr. Hazemi testified that he paid for these cigarettes by check on Montrose's account at Labe

Bank, and kept the cancelled checks in a drawer.

(Ex. D, at 213). He thought Lorillard had obtained

these in the seizure. (Ex. D, at 213). On other occasions, Mubeen Hussain purchased cigarettes for

Montrose and paid for them with his personal credit

card; Mr. Hazemi would reimburse him with cash.

(Ex. D, at 214). Mr. Hazemi testified that he had no

receipts for these purchases. (Ex. D, at 216).

In the time since Mr. Hazemi's second deposPage 9

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 22 of 32 PageID #:3067
ition, the Montrose defendants have decided that he

does not take everything to his house or discard invoices after “dumping them in a cabinet. In its response to Lorillard's previous motion, Montrose

and the Hazemis maintain the Lorillard obtained the

boxes of documents at the seizure. (Def.Resp., at 3).

Unfortunately for the Montrose defendants, the

seizure occurred on July 16, 2003. Some two weeks

later, on August 1, 2003, Montrose offered to produce the 10 to 12 boxes of invoices in response to

Lorillard's discovery requests. (Ex. A2, Resp.3).

This, despite the fact that the offer to allow the

boxes to be inspected came after the cigarette and

document seizure occurred on July 16, 2003. In addition, in a letter dated April 18, 2005, Montrose's

counsel informed Lorillard that he had three boxes

of Montrose documents including “bank statements,

delivery sheets, orders, purchase invoices, and other business documents.” (Second Declaration of

Jeffrey Mote (“2nd Mote Decl.”), Ex. BB). Montrose's purchase orders and invoices, then, seem to

be a target forever in motion, if they exist at all.

2

Cigarette Sales

*9 Lorillard also sought sales records that purportedly existed on Montrose's computer's hard

drive which it used for cigarette sales reporting. (

Combined Motion and Memorandum to Compel

Discovery and Freeze Assets (“ Pl.Mem. ”), at 3).

This was necessary in order to explain PDF images

on a compact disc that Montrose had produced as

evidence of cigarette sales it reported to MSA in

2003. (2nd Mote Decl., ¶ 30). After repeated requests for the hard drive went unfulfilled, Lorillard

subpoenaed a backup file of Montrose's computer

records from Montrose's computer consultant,

Osama Mouhsen, on January 12, 2005. (Pl.Mem., at

3). Mr. Mouhsen had two overlapping data bases

from Montrose, one covering November of 2003

through February of 2005, and one covering

December of 2001 to March of 2004. (2nd Decl.,

Ex. II, at 78-79). At his deposition on March 21,

2005, Mr. Mouhsen explained that Mr. Hazemi had

asked him to switch data bases in March of 2004,

and to create a new one that covered the period beginning in November of 2003. (Ex. II, at 78-79). He

also indicated that he offered to sell Mr. Hazemi a

scanning device and program for incoming inventory, but Mr. Hazemi was not interested. (Ex. II, at

80). Mr. Hazemi did, at least, use a UPC scanner

dedicated to the sales of cigarettes. (Mote Decl.,

Ex. D, at 202-04). Once Montrose became aware of

the subpoena, it agreed to produce the hard drive

for inspection, and Lorillard engaged a forensics

firm to image it. (Pl.Mem., at 3). All this to secure

discovery of sales records that one would ordinarily

expect to be much easier to obtain.

According to Mr. Hazemi, he did not bother to

track inventory at Montrose, he would simply

looked at the shelves and take a rough guess. (Mote

Decl., Ex. D, at 205-06). At any given time, Mr.

Hazemi said, there were 6000 cartons of cigarettes

at Montrose, 15 to 20% of which were Newport cigarettes. (Mote Decl., Ex. D, at 206). After the

seizure, Mr. Hazemi said that figure was closer to 3

to 5%. (Mote Decl., Ex. D, at 207). Mr. Hazemi

testified that those inventory levels would also reflect the percentages of Newport sales. (Mote Decl.,

Ex. D, at 207). For a more specific answer, Mr.

Hazemi referred Lorillard's counsel to MSA. (Mote

Decl., Ex. D, at 207-08).

3

Other Discovery Efforts

Given the paucity of Montrose's records, Lorillard consulted the MSA records as Mr. Hazemi had

repeatedly encouraged it to do. Those records for

the year 2003 detailing inbound and outbound shipments reveal Montrose had sales of promotional

Newport cigarettes that far exceed its purchases.

(Ex. O). This information is certainly suspicious

and, as Lorillard points out, seems to suggest that

Montrose was acquiring significant volumes of

Newport cigarettes from illegitimate, non-reporting

sources and/or providing its retail customers with

fraudulent invoices to obtain higher rebate payments from Lorillard.

Montrose still refuses to produce financial or

Page 10

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 23 of 32 PageID #:3068
accounting records, even for the very recent past,

claiming that it does not keep even the most basic

records, such as balance sheets, income statements,

or cash flow statements. (Pl.Mem., at 3-4). According to the Montrose defendants, this is because the

Hazemis work long hours and have little time for

paperwork, relying instead on deposits and expenditures for income and expenses. (Def.Resp., at

1). Nevertheless, it is strange-to say the least-that

Mr. Hazemi, who has a masters degree in accounting from Roosevelt University (Mote Decl., Ex C.

at 30), would cavalierly eschew even the simplest

of business practices. Strange, unless there turns

out to be an underhanded explanation for it.

D

Creative Tax Returns

*10 At his first deposition in February 2004,

Mr. Hazemi testified that he had not filed a return

for Montrose or himself since 1999. (Ex. C, at

133-34). He explained that he had asked for extensions every year. (Ex. C, at 134). The returns produced, then, were apparently merely drafts. On

February 22, 2005, Montrose made a supplemental

production of purported income tax returns for the

years 1997 through1999. The 1997 return is the

only one signed by an officer of Montrose; again, it

would appear that the others were never filed.

(Exs.I1-I7). Once again, Lorillard was left to its

own devices to assemble some kind of picture of

Montrose's finances.

Lorillard deposed Montrose's tax preparer,

John Cherachi, on February 2, 2005. According to

Mr. Cherachi, the Montrose returns for the years

2000-2003 were “draft” tax returns that had not

been filed. (Ex. G, at 195, 199-200, 231). Mr. Cherachi also produced income tax return records for

the Hazemis for the years 2000, 2002, and 2003

(the 2001 return was missing). (Exs.H1-H4). He

prepared returns for the years 2001 through 2003

all at the same time, in May or June of 2004. (Ex.

G. at 149-50). Mr. Cherachi testified that he had

prepared tax returns for the Hazemis since the early

1990s, but could not recall a single instance in

which the Hazemis had not required an extension

from the IRS because their records were always incomplete. (Ex. G, at 231-35). And he did not know

if the Hazemis had ever actually filed these returns.

(Ex. G, at 151).

During his deposition, Mr. Cherachi testified

that he met with Mr. Hazemi in approximately June

of 2004, and prepared summary spreadsheets (Ex.

J) for Montrose's 2001-2003 income tax returns.

(Ex. G, at 154-55). At that time, however, Mr.

Hazemi did not provide Mr. Cherachi with any financial records or documents to prepare these

spreadsheets. Instead, he sat next to him at a computer in his home and orally told him, reading from

notes, what numbers to insert in the spreadsheets.

(Ex. G, at 150-154). Tellingly, Mr. Cherachi testified that Mr. Hazemi requested he prepare Montrose's 2003 return as a “final” return and that he

zero out the books for Montrose Wholesale on the

balance sheets included in that return. (Ex. G, at

179; Ex. I7). This, as already noted, directly conflicts with evidence elsewhere in the record.

At various times since at least January 2, 2001,

Montrose's principals have represented to others

that Montrose was insolvent, beginning with, as

already noted, the Stock Purchase Agreement. (Ex.

DD, at RN 279). In February 2002, the Montrose

defendants' counsel in this lawsuit, Robert Egan,

represented to plaintiff's counsel in another lawsuit

involving a supplier, Chambers & Owens, that both

Montrose and Ray Hazemi were financially insolvent. (Ex. GG). Montrose's income tax returns from

1997 through 2003, show purported losses of more

than $2,889,350 during that period. (Exs.I1-I7).

Nearly all of those losses-$2,771,756-were reported

after the Hazemis took full control of Montrose.

Mr. Cherachi confirmed that the losses reported in

Montrose's 2001-2003 tax returns were based on

numbers Mr. Hazemi dictated to him as he sat at his

computer; he never saw any corroborating financial

records. (See Exs. I5-I7; Ex. G at 150-157). That is

certainly not surprising, given Mr. Hazemi's

“bookkeeping” or lack thereof.

Page 11

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 24 of 32 PageID #:3069
E

The Hazemis' Banking Records and Use of Corporate Funds

*11 Throughout this litigation, bank recordseven the mere existence of accounts-have, like records of every other type, been a matter of some

secrecy for the Hazemis and the Montrose corporation. At his second deposition, Mr. Hazemi testified

that Montrose maintained its only bank account-a

checking account-at Labe Bank. (Mote Decl., Ex.

D, at 188, 194). He also stated that he had no personal bank account of any kind. (Mote Decl., Ex.

D, at 188, 190). His wife, however, maintained an

account with Citibank. (Mote Decl., Ex. D, at 189).

Although Mr. Hazemi testified that the funding for

that account comes from Montrose (Mote Decl., Ex.

D, at 192), his wife swore in her affidavit that she

has never received any money from Montrose. (

Def.Resp., Ex. 8). As for his lack of any type of

banking or checking account, Mr. Hazemi explained that he simply paid cash to cover his dayto-day expenses, using money from Montrose.

FN10 (Mote Decl., Ex. D, at 190). The Hazemis

used Sandra Hazemi's account to pay the mortgage,

the utilities, grocery bills, and clothing expenses.

(Mote Decl., Ex. D, at 191).

FN10. According to the Montrose defendants, Mr. Hazemi accounts for this by declaring a “management fee” from Montrose, which is reflected in his personal tax

returns. (Def.Resp., at 4). As already noted,

however, these returns have never been

filed, and were based on figures Mr.

Hazemi dictated to Mr. Cherachi which

may or may not have been drawn from an

actual financial record. Given Mr.

Hazemi's admitted aversion to bookkeeping, it is more likely they were not.

When Montrose refused to voluntarily produce

its bank records, Lorillard began to subpoena its

banks including Labe Federal Bank and Village

Bank and Trust. Records from Labe Federal Bank

reveal that between February 2, 2002 and June 13,

2003, Mr. Hazemi wrote more than $8,779,000 in

checks to “Montrose Wholesale,” purportedly for

cash drawn on Montrose's Labe Bank account. (Ex.

L). Montrose has not produced any records identifying where these funds were transferred or how

the funds were used. In their response to Lorillard's

motion, the Montrose defendants explain these

funds were deposited at Parkway Bank & Trust in

what they call an “ancillary” account and used to

purchase cigarettes from a distributor called Fleming. (Def.Resp., at 5, 10). Incredibly, the Montrose

defendants fault Lorillard for “distort[ing] the use

of the account by ... not demonstrating any disbursements from the account.” (Id.). It is the Montrose defendants, however, who have produced no

records relating to this account; any distortion of

their activities is a product of their non-compliance

with discovery.

Lorillard also obtained bank records for another undisclosed account. It seems Montrose held an

account at Village Bank & Trust from November

2002 until the end of July 2004, despite the fact that

Mr. Hazemi testified that Montrose did all its banking at Labe Bank. (Ex. M). These records reveal

more than a million dollars in transactions during

that period. Thus, approximately ten million dollars

ran through these two accounts that apparently

slipped Mr. Hazemi's mind at his second deposition. To date, Lorillard continues to seek records

relating to these accounts, including cancelled

checks, without success.

Village Bank & Trust was also a source of

three loans to Montrose and the Hazemis.

(Exs.Nl-N3). Neither the Hazemis nor Montrose

have produced records relating to these transactions. The first loan is a credit account for $85,000,

for the Hazemis dated November 27, 2002, with a

mortgage taken on the Hazemi's home at 650 Pleasant Lane, Lombard, Illinois. (Ex. N1). The second

loan involves a $750,000 Promissory Note dated

February 21, 2003. The loan agreement is referred

to as a “Business Loan Agreement” and identifies

Sandra Hazemi as the borrower of purchase money

Page 12

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 25 of 32 PageID #:3070
for the property located on three lots at 4417 W.

Montrose Avenue, in Chicago-the property that

houses Montrose. Interestingly, Mr. Hazemi is listed as an unlimited guarantor on the loan, despite

the fact that, at his second deposition, he claimed

that he had no assets, aside from being the sole

shareholder in Montrose. (Ex. D, at 193). He also

claimed neither he nor his wife owned any property

except for the family home in Lombard, Illinois,

and an interest in her family's home in Canada. (Ex.

D, at 197).

*12 The third loan is dated April 8, 2003 and

involves a Promissory Note for $350,000 to Montrose and First National Bank of Blue Island, Trust

No. 71013 as joint borrowers. (Ex. N3). Montrose

has never produced nor otherwise disclosed any interests it has in property with this trust. Moreover,

the address provided for First National Bank of

Blue Island, Trust No. 71013, is 6630 W. Montrose

Avenue-the same address as that linked to numerous businesses affiliated with the Hazemis and their

relatives. Trust documents attached to the loan papers reveal that Ray Hazemi and his sister, Giti Azari, were assigned the beneficial rights in the trust

on April 3, 2003, and that the trust was set up in

connection with a 1999 installment contract for

property that Giti Azari purchased. (Ex. N, at VBT

000117).

F

Associated Businesses

Mr. Hazemi has been similarly cryptic regarding the other businesses with which he has been,

and is, affiliated. When Lorillard posed an interrogatory asking him to identity “each and every business” that he had ever been “affiliated with as an

owner, shareholder, employee, officer or agent,”

Mr. Hazemi certified that the only businesses he

has been affiliated with are Montrose Wholesale

and G & D Pantry, as their respective presidents.

(Ex. B2, ¶ 8). Lorillard's investigations have suggested otherwise. At his deposition, Mr. Cherachi

testified that Mr. Hazemi had hired him to prepare

taxes for at least three other business,S&D

Pantry, Franklin Cigarette Depot, and Malibu, Inc.

(Ex.G, at 59, 62-63, 67-68). In addition, other evidence Lorillard obtained pursuant to third-party subpoenas confirmed that Mr. Hazemi neglected to

mention several businesses with which he had been

affiliated in one capacity or another: Harwood

Heights Gas Mart (employee);S&D Pantry

(employee); Malibu Inc. (president and owner);

Franklin Cigarette Depot (owner and employee);

and Milano Pizza (owner or manager). (Ex. CC).

Mrs. Hazemi also has certain property interests

that Mr. Hazemi chose to keep secret as his deposition: 4417-4425 W. Montrose Avenue, Chicago;

6764 W. Forest Preserve Drive, Harwood Heights

(Ex. N); and, of course, the aforementioned 3019

N. Rose Street property. (Plaintiff's Emergency Motion to Freeze Assets, Ex. F). This contradicts not

only the Hazemi's recent testimony at their depositions in July and August of 2005, but even Mr.

Hazemi's earlier testimony that his wife had no real

property interests aside from the Hazemi's house in

Lombard and a house in Canada that had been in

the family for sixty years. (Ex. D at 196-197). And

of course, it demonstrates that the Hazemis have no

qualms about flirting with perjury to see to it that

their assets remain hidden.

As is apparent from the forgoing, and from the

Hazemis' efforts to secure the property where the

Montrose store is located, Mr. Kakvand has a good

deal of involvement with the Hazemis and their

businesses. In October of 2004, he was indicted

along with Ali Razvi in the Northern District of

Illinois, for bank and wire fraud in connection with

a scheme to defraud mortgage lenders out of more

than $27 million. (Ex. KK, Case No. 04 CR 0896).

According to the indictment, Kakvand would purchase run-down apartment buildings through companies he either owned or controlled-including Residential Realty Development, Inc., Infiniti Financial

Corporation, Liberty Financial, and Mortgage

Bankers Service Corporation-and obtain false, inflated appraisals from co-conspirators based on

non-existent renovations. (Ex. KK, Case No. 04 CR

Page 13

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 26 of 32 PageID #:3071
0896). He would then resell the properties as condo

developments or apartments to shill buyers for

whom he obtained and then pocketed mortgage

loans. (Ex. KK, Case No. 04 CR 0896). One of the

fraudulent apartment transactions identified in the

indictment involves the aforementioned property at

6201-6203 S. Champlain Avenue and Mr Kakvand's company, 6201 S. Champlain, LLC. (Ex.

KK, at 4). The address for the company is the same

as Montrose's address, 4419 W. Montrose Avenue.

(Ex. MM).

*13 Interestingly, Mr. Kakvand purchased the

Champlain property from Omni Investments, LLC,

which is run by Bardan Azari, son of Giti Azari.

(Ex. MM). Giti Azari was also the registered agent

for the previously mentioned Kakvand company,

Liberty Financial. (Ex. MM). Bardan and Bahar

Azari also are linked to Liberty Financial as evidenced by the Citations to Discover Assets served on

them in connection with a civil case against Kakvand, Hoge v. Kakvand, Cook County Case No. 95

CH 10195. (Ex. MM). Giti Azari and Bahar Azari

also both worked at another of Mr. Kakvand's businesses, Mortgage Bankers Service Corporation, in

1999 through 2001, which received at least a few

administrative penalties from the Illinois Office of

Banks and Real Estate (“OBRE”), including a license revocation. (Ex. LL). The company also figures in several loans to Sandra Hazemi and the Azaris. (Ex. NN).

Through Illinois property records, Lorillard

discovered that Bahar Azari used her connections at

Mortgage Bankers Service Corporation to obtain

loans to acquire properties at 5504 W Agatite Avenue and 5806 W Giddings Street in Chicago. In

addition, Giti Azari approved a series of loans to

Sandra Hazemi from Mortgage Bankers Service

Corporation. (Ex. NN). Sandra Hazemi obtained at

least two loans from that firm for her home at 650

Pleasant Lane in Lombard, Illinois. (Ex. NN).

Sandra Hazemi also acquired the property at 6774

W. Forest Preserve Drive, Chicago, in 1999 from

Mr. Kakvand and Residential Realty Development

with a $450,000 loan from Labe Bank. (Ex. OO,

loan no. 01-12000452). Closing records show that

$390,796.56 was distributed to Mr. Kakvand's Residential Realty Development, Inc. (Ex. OO, at LAB

2095). Interestingly, Giti Azari signed on behalf of

MBBG, Inc. as guarantor on the Labe Bank note for

Sandra Hazemi's purchase of 6774 W. Forest Preserve Drive. (Ex. OO, at LAB 2115).

II

THE PROPRIETY OF FREEZING ASSETS IN

THIS CASE

Based on the foregoing record, Lorillard asks

this court to enter an order freezing the assets of

Montrose and the Hazemis under Fed.R .Civ.P. 65.

A district court is not permitted to freeze a defendant's assets solely to preserve a plaintiff's right to

recover damages. Grupo Mexicano de Desarollo,

S.A. v. Aliance Bond Fund, 527 U.S. 308 (1999).

The decision in Grupo Mexicano, however, did not

concern the preliminary relief available in a suit

seeking an equitable remedy. 527 U.S. at 325. Indeed, the Supreme Court made note of the fact that

a restraint on assets was still available when the suit

sought an equitable relief. Id. at 325 (citing Deckert

v. Independence Shares Corp., 311 U.S. 282 (1940)

(upholding prejudgment asset freeze in case seeking equitable relief, including appointment of receiver to wind up corporation, rescission of contracts, and the return of disputed fund of money)).

In this instance, Lorillard seeks, among other relief

contemplated by the Lanham Act, a disgorgement

of the Montrose defendants' profits, which is an

equitable remedy. CSC Holdings, Inc. v. Redisi,

309 F.3d 988, 996 (7th Cir.2002); BASF Corp., 41

F.3d at 1095-96.FN11 Because Lorillard seeks to

recover the Montrose defendants' profits, then, an

order freezing the Montrose defendants' assets is

within the court's authority. In, CSC Holdings, for

example, the court found that an asset freeze was

entirely proper where the plaintiff sought remedies

that including accounting and profits. As such, the

court has the authority to enter an order freezing assets in cases where the plaintiff seeks an equitable

remedy generally, CSC Holdings, 309 F.3d at 996;

Page 14

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 27 of 32 PageID #:3072
S.E .C. v. ETS Payphones, Inc., 408 F.3d 727, 734

(11th Cir.2005); Elliott v. Kiesewetter, 98 F.3d 47,

58 (3rd Cir.1996), and specifically, in Lanham Act

cases such as this one. Levi Strauss & Co. v. Sunrise Intern. Trading Inc., 51 F.3d 982, 987 (11th

Cir.1995); Reebok International, Ltd. v. Marnatech

Enterprises, 970 F.2d 552, 559 (9th Cir.1992).

After a review of the voluminous record in this

case, the court finds that a preliminary injunction

freezing the Montrose defendants' assets is warranted in this case.FN12

FN11. The Montrose defendants argue that

Lorillard must establish a nexus between

the sale of counterfeit cigarettes-specifically, five cartons that apparently have been

seized-and the assets to be frozen. (

Def.Resp., at 13-14). In support, they rely

on two cases: Mitsubishi International v.

Cardinal Textile Sales, 14 F.3d 1507 (11th

Cir.1994); and Rosen v. Cascade International, Inc., 21 F.3d 1520 (11th Cir.1994).

Neither case supports the Montrose defendants' position. In Mitsubishi, while the

Ninth Circuit did hold that “a court may

not reach a defendant's assets unrelated to

the underlying litigation and freeze them

so that they may be preserved to satisfy a

potential money judgment,” 14 F3.d at

1521, it had no occasion to consider the

propriety of freezing assets to preserve a

party's right to an equitable remedy. Instead, the relief at issue was the payment

of a debt and money damages for fraud.

The Rosen court held similarly, but took

care to distinguish situations in which the

plaintiff is seeking only an award of monetary damages from those in which the

plaintiff is seeking equitable relief. 21 F.3d

at 1527, 1528-29. That distinction, at work

here, is apparently lost on the Montrose

defendants. Furthermore, to the extent that

the Montrose defendants argue that the individual Hazemis' assets are out of reach,

such concerns are addressed in the court's

discussion of Lorillard's “alter ego” theory.

FN12. The Montrose defendants submit,

without authority, that a preliminary injunction cannot be entered without a hearing. (Def.Resp., at 12). Rule 65, however,

does not make a hearing a prerequisite for

ruling on a preliminary injunction. Certainly, if genuine issues of material fact are

created by the response to a motion for a

preliminary injunction, an evidentiary

hearing is indeed required. Ty, Inc. v. GMA

Accessories, Inc., 132 F.3d 1167, 1171

(7th Cir.1997). “But as in any case in

which a party seeks an evidentiary hearing,

he must be able to persuade the court that

the issue is indeed genuine and material

and so a hearing would be productive-he

must show in other words that he has and

intends to introduce evidence that if believed will so weaken the moving party's

case as to affect the judge's decision on

whether to issue an injunction.” Id. Here,

the Montrose defendants have made no

such showing and, indeed, do not even expound upon their assertion that the court

must conduct a hearing. They do not indicate what evidence they might introduce

against Lorillard's motion and, given that

they admit that they keep virtually no corporate or financial records, it is doubtful

that any such evidence exists. See In re

Aimster Copyright Litigation, 334 F.3d

643, 654 (7th Cir.2003) (party's own activity hampered its ability to present contrary

evidence in preliminary injunction proceeding). As the court has already detailed,

the record assembled in this matter is extensive. It includes two depositions' worth

of Mr. Hazemi's sworn testimony, not to

mention a sworn affidavit from his wife.

Add these to more than a thousand pages

of financial and business records and the

material before the court is more than adequate to allow the court to rule on LorilPage 15

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 28 of 32 PageID #:3073
lard's motion without a hearing.

*14 A party seeking a preliminary injunction

under Fed.R.Civ.P. 65 is required to demonstrate a

likelihood of success on the merits, that it has no

adequate remedy at law, and that it will suffer irreparable harm if the relief is not granted. Promatek

Industries, Ltd. v. Equitrac Corp., 300 F.3d 808,

811 (7th Cir.2002). If the moving party can satisfy

these conditions, the court must then consider any

irreparable harm an injunction would cause the

nonmoving party. Promatek Industries, 300 F.3d at

811. Finally, sitting as a court of equity, the court

then weighs all these factors employing a slidingscale approach: the more likely the plaintiff's

chance of success on the merits, the less the balance

of harms need weigh in its favor. Promatek Industries, 300 F.3d at 811.

A

Likelihood of Success on the Merits

In the context of a motion for a preliminary injunction in a trademark infringement claim, a likelihood of success exists if the party seeking the preliminary injunctive relief demonstrates that it has a

“better than negligible” chance of succeeding on

the merits of the underlying infringement claim.

Platinum Home Mortg. Corp. v. Platinum Financial

Group, Inc., 149 F.3d 722, 726 (7th Cir.1998). The

record thus far assembled in this matter certainly

meets this rather minimal hurdle. Indeed, on July

15, 2003, Judge Aspen entered an ex parte seizure

order in which he found that Lorillard was likely to

succeed on the merits in this case. Nothing has occurred since Judge Aspen made that finding that

would convince the court to disturb his ruling. At

that time, one of Lorillard's division managers had

purchased cigarettes that had turned out to be counterfeit at the Montrose store. The seizure produced

further evidence of counterfeit cigarettes. MSA records reveal Montrose had sales of promotional

Newport cigarettes that far exceed its purchases, arguably suggesting that Montrose was acquiring significant volumes of Newport cigarettes from illegitimate, non-reporting sources and/or providing its

retail customers with fraudulent invoices to obtain

higher rebate payments from Lorillard. In addition,

at his deposition, Mr. Hazemi was less than frank

about his sources of Newport cigarettes. The record

satisfies the court that Lorillard has “better than

negligible” chase of succeeding on the merits of its

case.

For the court's purposes here, however, the

likelihood of Lorillard's success in pursuing their

“alter ego” theory of liability against the Hazemis is

just as important as their likelihood of success on

their Lanham Act claims. Under Illinois law, to

succeed on this theory, Lorillard must show that:

“(1) there is such a unity of interest and ownership

that the separate personalities of the corporation

and the individual no longer exist; and (2) circumstances are such that adhering to the fiction of a

separate corporate existence would promote injustice or inequity.” International Financial Services Corp. v. Chromas Technologies Canada, Inc.,

356 F.3d 731, 736 (7th Cir.2004). Among the

factors pertinent to this showing are whether there

was inadequate capitalization, a failure to observe

corporate formalities, an absence of corporate records, and commingling of funds. 356 F.3d at 738.

Once again, the record as it stands in this case is

more than adequate to demonstrate that Lorillard is

likely to succeed on its “alter ego” theory.

*15 Corporate formalities such as meetings or

corporate minutes are not a part of the Montrose defendants' operations. Courts are known to allow

sole proprietors or husband-and-wife proprietors

some leeway in this area, especially where they

have made efforts to maintain records and keep corporate funds separate from their own. See, e.g.,

Trustees of Pension, Welfare and Vacation Fringe

Ben. Funds of IBEW Local 701 v. Favia Elec. Co.,

Inc., 995 F.2d 785, 788 (7th Cir.1993). Here,

however, the Hazemis admittedly have made no

such efforts. In addition, they are less than forthcoming about Montrose's corporate ownership

structure. While Mrs. Hazemi was listed as a 50%

owner in 1998, she was apparently replaced in this

Page 16

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 29 of 32 PageID #:3074
position by her husband in 1999. She was a 50%

owner once again in 2003, apparently taking over

half of her husband's share at that time. What is a

bit more disturbing, however, is that Mrs. Hazemi

has filed an affidavit in which she swears she has

never been a shareholder of Montrose. (Def.Resp.,

Ex. 8). She also swore that she has never been an

officer of Montrose, yet she signed an application

for the corporation's reinstatement as vice president. This obfuscation about the Hazemi's shareholder status might not be a terribly significant factor

when viewed in isolation, but in this case, it must

be combined with the following evidence regarding

the absence of any corporate record keeping and the

Hazemi's commingling of Montrose's funds with

their own.

Finding an absence of corporate records can be

no easier than it is in this case: the Montrose defendants trumpet their failure to keep corporate records, employing it as a shield against discovery.

According to them, there are no records such as

balance sheets, cash flow statements, or accounting

ledgers, for Montrose. (Mote Decl., Ex. D, at 188,

194, 210-11; Def.Resp. at 8). The Montrose defendants claim they do not keep order forms or track inventory. (Ex. D, at 205-06; Def.Resp., at 9). Instead, Montrose's sole records are cancelled checks

and bank deposits. (Ex. D, at 188, 194; Def.Resp.,

at 8). Everything, the Montrose defendants claim, is

based on cancelled checks and bank deposits, including tax returns. (Def.Resp., at 10). Those tax returns were prepared by Mr. Hazemi dictating numbers to Mr. Cherachi without any corroborating financial records. (Mote Decl., Ex. G, at 150-54). The

last time either Montrose or Mr. Hazemi filed a tax

return was 1999. (Mote Decl., Ex. C, 133-34). The

Montrose defendants explain that they simply do

not have the man-power to keep any semblance of

traditional corporate records. (Def.Resp., at 1, 8,

9-10).

This absence of records not only supports Lorillard's alter ego theory, but creates conditions that

are ripe for the commingling of assets. Mr. Hazemi

does not bother to maintain a personal bank account; instead, he draws cash as needed from Montrose. (Mote Decl ., Ex. D, at 190). The Montrose

defendants explain that they account for this as a

“management fee” on tax returns. (Def.Resp., at 4).

There is no evidence that the Montrose defendants

kept any record of Mr. Hazemi's cash withdrawals,

however, and, as just noted, the tax returns are prepared without corroborative financial data and have

not been filed since 1999. Mr Hazemi testified that

the money in his wife's checking account came

from Montrose as well. (Ex. D, at 192). But, Mrs.

Hazemi swore that she has never received any

money from Montrose and, more specifically, that

she has never been paid for working at Montrose. (

Def.Resp., Ex.8). Thus, there is no telling what the

funds in her checking account represent. Neither

Mr. nor Mrs. Hazemi, then, seem to acknowledge

that Montrose is a separate entity from themselves

when it comes to Montrose's money.

*16 Montrose's banking practices allow for the

commingling of assets as well. During discovery,

Mr. Hazemi maintained that Montrose did all its

banking at one bank. (Mote Decl., Ex. D, at 188,

194). Lorillard's own efforts revealed that Montrose

had accounts at two other banks as well. The Montrose defendants suggest that there was nothing secretive about these accounts; they did not disclose

them because they were merely “ancillary” accounts. (Def.Resp., at 10). They claim to have used

one “ancillary” account to deposit over $8 million

from checks Montrose wrote to itself on its Labe

Bank account, but have produced no records of that

activity. (Def.Resp., at 5). Lorillard's third-party

discovery efforts have revealed the other

“ancillary” account was home to approximately $ 1

million in transactions over a twenty-month period.

(Mote Decl., Ex. M). Nearly $10 million is quite a

bit of activity for a couple of undisclosed, ancillary

accounts, especially when the Hazemis feel free to

help themselves to cash from Montrose without any

accounting or records of their withdrawals. And,

the fact that Mrs. Hazemi owns the property that

houses Montrose, after a long and serpentine series

Page 17

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 30 of 32 PageID #:3075
of transactions involving an individual under indictment for defrauding mortgage lenders, does not escape the court's attention. Her ownership is made

all the more suspicious by the fact that Mr. Hazemi

testified his wife owned no property other than the

family home in Lombard and an interest in her family's home in Canada. And, as has recently been

made clear by the revelations regarding the 3019 N.

Rose St. property, this is not the only property ownership the Hazemis have covered up.

The evidence Lorillard has advanced in this

matter demonstrates that, with respect to Montrose,

the Hazemis have disregarded corporate formalities, have kept no corporate records, and have

treated corporate funds as their own. Judge Aspen

has already found that there is a likelihood that Lorillard will succeed on it Lanham Act claims, and

there have been no further developments that would

counsel a revision of that opinion. Based the record

in this matter, the court finds that Lorillard has not

only established a likelihood of success on the merits of its Lanham Act claims, but as to it “alter ego”

theory as well.

B

Inadequate Remedy at Law and Irreparable

Harm

Next, Lorillard must show that it has no adequate remedy at law and, as a result, that it will

suffer irreparable harm if the injunction is not issued. FoodComm Intern. v. Barry, 328 F.3d 300,

304 (7th Cir.2003). “Inadequate remedy at law does

not mean wholly ineffectual; rather, the remedy

must be seriously deficient as compared to the harm

suffered.” FoodCom Intern., 328 F.3d at 304. In

this case, the Lanham Act provides Lorillard with

the equitable remedy of recovering the Montrose

defendants' profits. In such cases, courts have generally concluded that an asset freeze is appropriate

to ensure that permanent equitable relief will be

possible. Levi Strauss & Co. v. Sunrise Intern.

Trading Inc., 51 F.3d 982, 987 (11th Cir.1995);

Reebok Intern., Ltd. v. Marnatech Enterprises, Inc.,

970 F.2d 552, 559 (9th Cir.1992).

*17 The evidence discussed above demonstrates that the Hazemis are hardly circumspect

about segregating their assets from those of Montrose. Corporate financial records are non-existent,

bank accounts go undisclosed. Clearly, the remedy

of disgorgement of profits will be less than inadequate if the Hazemis continue to treat the Montrose coffers as their own and relieve Montrose of

its corporate assets. In addition, especially given

the Hazemis' disregard for corporate bookkeeping,

the profits at issue in this case might become all but

untraceable, if that is not already the case.

Finally, it is clearly not beyond the Hazemis to

lie about the very ownership of assets. They have

done so recently and repeatedly. It is not unusual,

in a Lanham Act case, for a court to freeze assets

where there is evidence that the defendants “may

hide their allegedly ill-gotten funds if their assets

are not frozen.” Reebok Intern., Ltd. v. Marnatech

Enterprises, Inc., 970 F.2d 552, 563 (9th Cir.1992).

This is not a case where there is a mere threat of the

Hazemis hiding their assets; Lorillard has demonstrated that they are already actively doing so, and

attempting to cover their trail with more deception.

It is the Hazemis that have brought this case to this

brink. They have seen to it that there is no other

way to preserve the status quo but an asset freeze.

Accordingly, the court finds that Lorillard has established that it has no adequate remedy at law and

will suffer irreparable hardship without a freeze of

the Hazemis' assets.

C

Balance of Harms to the Respective Parties

In balancing the harms, the court must weigh

the error of denying a preliminary injunction to the

party who would win the case on the merits against

the error of granting an injunction to the party who

would lose. FoodComm Intern., 328 F.3d at 305.

In so doing, the court bears in mind that the purpose of a preliminary injunction is “to minimize the

hardship to the parties pending the ultimate resolution of the lawsuit.” AM General Corp. v. DaimlerChrysler Corp., 311 F.3d 796, 804 (7th Cir.2002).

Page 18

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 31 of 32 PageID #:3076
In this case, there is no doubt that the Hazemis will

suffer harm if their assets are frozen. But it is a

harm they have brought upon themselves with their

tactics of deception and underhandedness. Just how

to quantify that is a difficult question because the

Hazemis have not addressed the issue. But this

much is certain: the Hazemis have had a rather long

string of chances to end their pattern of deception

in this litigation: the court has given them the benefit of the doubt time and again. They have chosen to

blatantly lie, in depositions and in open court. The

balance of harms, by far, favors the protection of

Lorillard's rights by the issuance of an order freezing the Hazemis' assets.

The court also notes that, in balancing the

harms to the parties, the greater a movant's chances

of success on the merits, the less strong a showing

it must make that the balance of harm is in its favor.

FoodComm Intern., 328 F.3d at 303. As the court's

foregoing discussion reveals, Lorillard has made a

rather strong showing that it will succeed on the

merits of this case. Accordingly, the court grants

Lorillard's motion for a preliminary injunction

freezing the Hazemis' assets in this case. Lorillard

shall submit a draft order freezing the Hazemis' assets and detailing the plan for the court's approval.

*18 Recognizing that the freezing of assets

could work a hardship on the Hazemis, the order

should make provisions for withdrawal of living expenses, and for the payment of expenses related to

legitimate business operations. If the Hazemis comply with the order, and submit the necessary proof

to the Court, no undue hardship need be felt by defendants as a result of the asset freeze. Moreover,

the Court is free to modify or dissolve the preliminary injunction if warranted by developments in this

case subsequent to the noticing of this appeal.

Although the court accepts Lorillard's arguments regarding the necessity of an asset freeze, it

cannot accept the argument that no bond is necessary in this case. Under Federal Rule of Civil Procedure 65(c):

[n]o restraining order or preliminary injunction

shall issue except upon the giving of security by

the applicant, in such sum as the court deems

proper, for the payment of such costs and damages as may be incurred or suffered by any party

who is found to have been wrongfully enjoined or

restrained.

The rule, as the Seventh Circuit has stated,

makes security mandatory. Gateway Eastern Ry.

Co. v. Terminal R.R. Ass'n of St. Louis, 35 F.3d

1134, 1141 (7th Cir.1994). While it is clearly within the court's discretion to fix the amount of the

bond, Id., the parties here have provided the court

with no evidence, or even discussion, of what

would constitute an appropriate amount. As such,

the parties must file memoranda on this issue along

with supporting documentation, in order that the

court may determine a reasonable amount for security in this instance. See, e.g. Mead Johnson & Co.

v. Abbott Laboratories, 201 F.3d 883, 887 (7th

Cir.2000); Gateway Eastern Ry. Co., 35 F.3d at

1142.

III

CONCLUSION

For the foregoing reasons, it is respectfully recommended that the plaintiff's motion-and emergency motion-for a preliminary injunction freezing

the defendants' assets be granted. It is further recommended that the plaintiff be ordered to file a

draft order for the court's approval, and the parties

be ordered to file memoranda on the appropriate

amount of the bond as per this report and recommendation.

N.D.Ill.,2005.

Lorillard Tobacco Co. v. Montrose Wholesale Candies

Not Reported in F.Supp.2d, 2005 WL 3115892

(N.D.Ill.)

END OF DOCUMENT

Page 19

Not Reported in F.Supp.2d, 2005 WL 3115892 (N.D.Ill.)

(Cite as: 2005 WL 3115892 (N.D.Ill.))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.

Case: 1:20-cv-02421 Document #: 38-2 Filed: 06/22/20 Page 32 of 32 PageID #:3077