Full opinion text
DECISION AND ORDER WARREN, District Judge. From February 17-24, 1994, the Court held evidentiary hearings concerning its jurisdiction over MJ Korea; MHW, Inc. (“MHW”); Longreen Toys, Inc. (“Lon-green”); Min Suk Han; and Yang Ok Han (collectively, the “Han respondents”), pursuant to Paliafito’s: (1) Emergency Motion for Entry of Second Supplemental Writ of Attachment, Temporary Restraining Order, Preliminary Injunction, and Appointment of Receiver to Perform Additional Duties, filed February 11, 1994; and (2) motion pursuant to Rule 25(e), Fed.R.Civ.P., for joinder of Min Suk Han, MJ Korea, MHW, and Lon-green in entry of judgment against the Mantae defendants, filed February 22, 1994. Also before the Court are: (3) the Han respondents’ request for a determination of foreign law; (4) Paliafito’s motion to admit PX 130, PX 327, PX 328, PX 329, PX 330, and portions of PX 184 into evidence; (5) Paliafito’s objection to the admissibility of HX 53 and HX 55, ; (6) Paliafito’s motion to strike the Han respondents’ reply to Paliafito’s proposed findings of fact and conclusions of law; (7) Keith D. Nowak’s and Lieberman & Nowak’s objections to Paliafito’s proposed findings of fact and conclusions of law; and (8) Trojan’s motion to strike certain of Paliafito’s proposed findings of fact and conclusions of law or for leave to file a response thereto. For the following reasons, the Court concludes, inter alia, that it has jurisdiction over MJ Korea, MHW, Yang Ok Han and Lon-green. I.Findings of fact A. Participants and interested actors 1. Min Suk Han is a citizen of the Republic of Korea who resides in Seoul. He has never been to the U.S. except to testify at the evidentiary hearings. (2 Tr. 308, 315: 20-21, 2-4 (M. Han).) 2. Min Suk Han is not related to Joy Lee or Jerry Lee, (2 Tr. 340: 10-14 (M. Han); HX 12,13,16), and had no acquaintance with them before April 1993. (2 Tr. 317-318: 15-25; 1-3, 13-19 (M. Han).) 3. Yang Ok Han is a Korean citizen who resides permanently in Seoul and temporarily has taken up residence in Chicago since early 1994. (3 Tr. 425-426: 20-21, 9-23 (Y. Han).) 4. M.J. Korea is a Korean corporation with its home office in Seoul. (HX 1.) It has an unincorporated branch office in Memphis, which was previously located in Los Angeles. The general manager of the U.S. branch of MJ Korea (“MJ USA”) is Andy Oh, a Korean citizen who presently lives in Chicago. (1 Tr. 182, 188-189: 16-25, 5-20 (M. Han); 4 Tr. 791-92: 21-25, 1-4 (Y. Han).) 5. MHW is a Tennessee corporation owned entirely by Yang Ok Han. Its officers are Yang Ok Han and her husband. (3 Tr. 427-429, 436-437: 3-24, 25, 1, 19-25, 1-5 (Y. Han).) 6. Longreen is a California corporation with its office in Paramount, California. Its sole shareholder is Yong Su Paek, a Korean citizen. Its agent for service of process is Raymond Aver, Esq., of Los Angeles. (PX 302; PX 303; 5 Tr. 952 (Paek).) 7. Neither MJ Korea nor MHW has an office in Wisconsin. (4 Tr. 791: 15-17 (Y. Han).) Longreen has no property in Wisconsin. (Tr. 792: 13-15 (Y. Han).) No proof was offered that Yang Ok Han has been to Wisconsin except for the occasion of her testimony at the hearings. 8. None of the foregoing persons or entities are yet parties to this litigation. 9. MAI, Ltd. was a Korean corporation. Its president was Jong Sik Lee (“Jerrold Lee” or “Jerry Lee”). (HX 39.) 10. MAI, Ltd. supplied Grip Toys products to, among others, MAI, Inc. (“MAI”), which imported Grip Toys for distribution in the United States. (3 Tr. 615: 5-19 (D. Kim).) MAI, Ltd. is one of the “Mantae defendants” (MAI, Ltd.; Puff Pac Production, Ltd.; Best General Merchandise; Miryoung (“Joy”) Lee; and Jong Sik (“Jerrold”) Lee) as defined in the First Supplemental Writ of Attachment, (PX 100), sued by Paliafito in its first amended counterclaim and third party complaint dated December 11, 1991. (4 Tr. 656: 1-14.) 11. Jong Ok Lee, Jerry Lee’s brother, and Ho Seop Song, Joy Lee’s brother, were the directors of Puff Pac Production, Ltd. (PX 18.) B. Paliafito sues the Mantae defendants 12. On December 11, 1991, Paliafito filed a first amended counterclaim and third-party complaint in this. action, alleging that the Lees and MAI had breached their contract with and committed frauds against Pahafito, and violated the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961, et seq. (4 Tr. 656: 1-14.) 13. Paliafito also moved for preliminary-writs of attachment and a preliminary injunction alleging that the Lees and MAI were remitting virtually ah of the proceeds from the sale of Grip Ball back to Korea so that, even if Paliafito obtained a judgment, there would be no funds left in the U.S. to satisfy it. (4 Tr. 656: 15-23.) See Select Creations, Inc. v. Paliafito America, Inc., 830 F.Supp. 1213, 1215 (E.D.Wis.1993). 14. This Court conducted evidentiary hearings on Pahafito’s motion for four days in January and another six days in April 1992. (4 Tr. 656-57: 24-25, 1-2.) 15. On April 15, 1992, Puff Pac Production, Ltd. changed its name to “Mi Jong,” and Jong Ok Lee and Ho Seop Song resigned as directors. (PX 18.) 16. On May 29,1992, L. Michael Rudolph, Esq. provided Keith Nowak, Esq. with a draft memorandum regarding how to insulate corporate assets via corporate structure and organization. (PX 278.) The memorandum was produced from MAI’s files. (PX 278 at Bates MAI1120.) 17. On June 12, 1992, Nowak faxed a power of attorney authorizing Jong Ok Lee to act on behalf of MAI in connection with setting up an Indonesian operation. (PX 3.) 18. Starting in June 1992, MAI transferred over $255,000 to the Indonesian operation. (PX 6.) 19. In one and one-half years, world-wide Grip Toys sales exceeded $84 million. (PX 53.) 20. The Lees and their businesses accumulated approximately $30 million in assets in Korea. (PX 15.) 21. MAI, Ltd.’s August 1992 financial statements showed fixed assets of more than $2.5 million, including real estate, vehicles and equipment. (PX 15.) 22. In the late autumn of 1992, Pahafito’s motion for leave to file a second amended counterclaim to add, among other parties, MAI, Ltd., was pending. (4 Tr. 668-69: 21-25, 1-8.) 23. On December 1, 1992, the Court issued a decision and order requiring the Mantae defendants to make available sufficient assets to be attached and finding that Pahafito had estabhshed a likelihood of proving that the Mantae defendants had engaged in fraud and racketeering. (PX 32.) ■ 24. After December 1, 1992, the Court ordered further briefing on the amount and timing of the attachment. (4 Tr. 681: 6-9.) C. The Lees establish MJ Korea 25. The Lees claim that on December 26, 1992, MAI, Ltd. filed bankruptcy in Korea. (PX 37.) 26. Korean law provides formal bankruptcy procedures similar to those in the U.S. When a Korean company goes into bankruptcy, that event is noted in the company’s corporate registry. (2 Tr. 373: 10-13 (S. Kim).) No such notation appears in MAI, Ltd.’s corporate registry. (PX 16; PX 17.) 27. In Korea, however, formal bankruptcy procedures are generally not observed, especially by close corporations, because they are expensive and private arrangements with creditors are preferred. For the dissolution of corporations that become dormant in this fashion, Korean law thus provides a separate procedure. (2 Tr. 373-74: 10-25, 1 (S. Kim).) 28. On December 29, 1992, the Lees estabhshed MJ Korea. (PX 300 at- ¶ 2; HX 1 at 2; PX 37; PX 40.) 29. On January 2, 1993, Jerry Lee sent a letter to Wil Van Bladel at Scatch Europe advising him of MAI, Ltd.’s purported bankruptcy and the movement of manufacturing to Indonesia: As you have been informed by Joy, and as we have already explained to you while you were in Korea last month, all the manufacturing facilities under M.A.I. Korea is in the process of being transferred to the facilities in Indonesia. As of December 26,1992, M.A.I. Korea has decided to file Chapter 11 which in views of others may have either negative or positive implications. (PX 37.) 30. Jerry Lee also represented that the production of Grip Football was under Mi Jong Industry’s control but that payment should be made to MJ Korea: [T]he production and export of Grip Football has been completely under Mi Jong Industry’s control from the initial stage. Thus, there will be no problem with the production and supply of Grip Football to Scatch Europe BV. Therefore, I would like to request the following amendments be made on L/C No. 8A/ 9250348: The beneficiary of the L/C [should be changed] from M.A.I., Ltd. to M.J. Korea, Ltd. (PX 37.) 31. MJ Korea apparently had the patent rights for Grip Ball in Korea. (4 Tr. 746: 3-5 (Y. Han).) Yang Ok Han did not know, however, how MJ Korea had obtained those patent rights. (4 Tr. 746: 13-15 (Y. Han).) 32. On January 13,1993, Jerry Lee and a branch manager for the Korea Exchange Bank executed an Agreement and a D/A Account Receivable Transfer Agreement, (PX 316B(T)), whereby Jerry Lee assigned MAI, Ltd.’s and Mi Jong’s right to collect the D/A owed to them by MAI. (PX 316B(T).) At the time of execution, the Lees’ Korean companies owed the Korean banks $1 million and were owed $12 million by MAI. (2 Tr. 255: 2-9 (M. Han).) 33. On or about January 20, 1993, Joy Lee, on behalf of MAI, filed a UCC form with the California Secretary of State granting security interests in all of its assets to the Korea Exchange Bank, Jong Sik Lee, MAI, Ltd., and Mijong Industries, Inc. (PX 43.) 34. On February 8, 1993, Jacqueline Jean, on behalf of MAI, Ltd., sent a letter to Horisont regarding Grip Ball. (PX 41.) On February 12, 1993, Jerry Lee, on behalf of MJ Korea, sent a letter to Scatch Europe discussing future shipments of Grip Ball products. (PX 41.) The letterheads of PX 41 and 42 indicate that MAI, Ltd. and MJ Korea had the same telephone number. (PX 41; PX 42.) 35. Min Suk Han denied that the Lees had established MJ Korea, (2 Tr. 396: 4-15 (M. Han)), contradicting statements in his criminal petition and his prior testimony. He explained that the statement contained in his criminal petition was based upon what Miung Lee, the former representative director of MJ Korea, had told him. (2 Tr. 396: 4-22 (M. Han).) 36. He also initially denied that the Lees transferred the Grip Ball business from MAI, Ltd. to MJ Korea. (1 Tr. 208: 1-24 (M. Han).) 37. According to Min Suk Han, office equipment was the only asset MJ Korea purchased from MAI, Ltd. (2 Tr. 379-380: 10-25, 1-17 (M. Han).) 38. He later stated that he had “absolutely no idea” whether the Lees had transferred the business from MAI, Ltd. to MJ Korea. (1 Tr. 210: 1-4 (M. Han).) D. The Court attaches the Mantae defendants 39. On February 19, 1993, the Court issued the Writ of Attachment, Preliminary Injunction, and Appointment of a Receiver which required, inter alia, that the Mantae defendants to deposit $8 million with the Receiver. (PX 61.) 40. On February 22, 1993, MAI filed a Chapter 11 bankruptcy petition, prepared and signed by Stroock & Stroock & Lavan (“Stroock”). (PX 63.) 41. On April 7, 1993, the Court entered the First Supplemental Writ of Attachment, Preliminary Injunction, and Appointment of a Receiver (“First Supplemental Writ”) requiring the Mantae defendants (including MAI, Ltd.) to deposit $8 million with the Receiver and enjoining the Mantae defendants from transferring assets or taking other steps to hide or dissipate assets. (PX 100.) E. The Hans purchase MJ Korea 42. At the February 11, 1994 teleconference, Aver, counsel for MJ Korea, summarized how the Hans became involved in the Grip Ball business: At any rate Miss Lee, M[i ]ung Lee ... brought Jerry Lee to Mr. Han with a business proposition. Apparently, their company, MJ Korea, was in need of some financial backing, and they explained to Mr. Han, who is a well known and well respected businessman in Korea, that if Mr. Han would pledge some of his real estate holdings on behalf of MJ Korea, that company could have the necessary funds to export toys to the United States and in return for that accommodation, all of the stock in MJ Korea would be transferred to Mr. Han. (3 Tr. 473: 6-17 (Y. Han).) Min Suk Han had never met Joy Lee or Jerry Lee before this meeting in mid-April 1993. (2 Tr. 315, 317: 7-12, 9-14 (M. Han).) 43. Miung Hae Lee had sold insurance to Min Suk Han, (2 Tr. 316: 21-23 (M. Han)), and was a shareholder in MJ Korea. (2 Tr. 315: 7-12 (M. Han).) She is from Jerry Lee’s hometown, but is not related to the Lees. (2 Tr. 316: 10-23 (M. Han).) Miung Hae Lee told Min Suk Han, inter alia, that Jerry Lee had received a governmental award for his high export volume. (2 Tr. 318: 4-12 (M. Han).) 44. Jerry Lee told Min Suk Han that MJ Korea had 1992 exports of $37 million and a pro forma for sales worth nearly $20 million. (2 Tr. 240: 4-8 (M. Han); PX 309.) Jerry Lee explained that MJ Korea was a good business with the opportunity for success. (2 Tr. 319: 18-24 (M. Han).) On the basis of this information, Min Suk Han decided to invest in MJ Korea. (2 Tr. 320: 3-20 (M. Han).) 45. Before Min Suk Han invested in MJ Korea, however, Jerry Lee failed to disclose that: (1) he had personal financial problems; (2) MAI, Inc. had filed bankruptcy; or that (3) he and other corporations with which he was affiliated had been sued in the U.S. (3 Tr. 254-56, 293: 21-25, 9-14, 1-17, 9-19 (M. Han).) 46. Min Suk Han testified that he makes all of his investment decisions by himself; he does not have anyone investigate potential investments for him nor does he request, or obtain, information from any other source. (1 Tr. 194: 3-20 (M. Han).) 47. Prior to the stock purchase, however, Yang Ok Han had several meetings with Jerry Lee. (3 Tr. 473: 19-22 (Y. Han).) 48. The Hans decided to invest in MJ Korea, which they knew the Lees had established, (1 Tr. 207: 17-25 (M. Han)), based upon Jerry Lee’s representations that: (1) MJ Korea had raw and supplementary materials in Korea equivalent to 6 billion Won, (1 Tr. 213: 15-18 (M. Han)); (2) MJ Korea/MAI, Ltd. had good inventories in the U.S., (1 Tr. 213: 19-21 (M. Han)); (3) Jerry had $19 million in purchase orders, (2 Tr. 240: 7-8 (M. Han)); and (4) the Grip Toys business had been, and would continue to be, profitable. (2 Tr. 319-20: 18-25, 1-20 (M. Han).) 49. On April 21, 1993, the Hans purchased eighty-five percent of the shares of MJ Korea. (2 Tr. 259-60: 25,1-6 (M. Han); HX 2.) A fifteen percent interest was retained by Jong Ok Choi, a member of the original shareholder group. (1 Tr. 186-187: 18-21 (M. Han).) 50. The Hans paid approximately 42,500,-000 Won (approximately $50,000) for the stock. (2 Tr. 260: 18-24 (M. Han).) Min Suk Han also pledged real estate titled in the names of family members to the Korea Exchange Bank to obtain short-term financing for MJ Korea. (2 Tr. 236-38: 10-25, 1-12, 4-12 (M. Han).) 51. Some of the stockholders from whom the Hans purchased MJ Korea previously had been employees of MAI, Ltd. (2 Tr. 395: 6-15 (M. Han).) Neither Joy Lee nor Jerry Lee, however, has ever been a named shareholder in or director or officer of MJ Korea, (2 Tr. 323-325: 25, 1-3 (M. Han); 4 Tr. 775-776: 13-25, 1-24 (Y. Han); HX 1; HX 3), or owned any of the properties securing the bank loans to MJ Korea. (2 Tr. 340: 1-9 (M. Han); HX 12; HX 13; HX 16.) While Min Suk Han asserted that neither Joy Lee nor Jerry Lee had a secret interest in MJ Korea, (2 Tr. 327: 3-7 (M. Han)), however, he did not know whether the stockholders were holding their stock for Jerry Lee. (2 Tr. 395-96: 25, 1-3 (M. Han).) 52. Min Suk Han knew that MJ Korea also had assumed certain liabilities of the Lees’ other companies. He testified that the 694,000,000 Won debt originally owed by MAI, Ltd./Mi Jong to the Korean Exchange Bank was now owed by MJ Korea. (2 Tr. 243-44: 10-25, 1-5 (M. Han).) Min Suk Han also knew, prior to investing in MJ Korea, that MAI, Ltd. had bounced checks in the past. (2 Tr. 319: 1-13 (M. Han).) 53. At a meeting of the board of directors of MJ Korea held on April 21,1993, Min Suk Han was elected chairman and representative director. (HX 19; 2 Tr. 328: 8-19 (M. Han).) 54. Thereafter, the Hans, through MJ Korea, ostensibly conducted the Grip Toys business. (4 Tr. 824: 6-10 (Y Han).) 55. After April 21,1993, Yup Jong Chang was hired to manage MJ Korea and supervise the manufacture of Grip Toys. Chang reported to Min Suk Han. (2 Tr. 266: 8-19 (M. Han).) 56. According to Yang Ok Han, neither Joy Lee nor Jerry Lee transferred any money or property to MJ Korea after April 21, 1993. (4 Tr. 758, 766: 9-14, 6-9 (Y. Han); HX 44.) 57. After the Hans purchased MJ Korea, between a half and two-thirds of MJ Korea’s employees were former employees of MAI, Ltd. (3 Tr. 609-10, 619: 15-25, 1-5, 18-22 (D. Kim).) 58. The Hans later pledged real estate valued at more than $10 million to secure a $7.3 million loan to MJ Korea from a consortium of five Korean banks. (2 Tr. 333: 6-18 (M. Han); PX 317; HX 10-11,13-15,17-18.) F. The Lees continue to influence MJ Korea 59. The Hans stated that Jerry Lee acted only as a consultant to MJ Korea after the Hans bought eighty-five percent of MJ’s stock. (2 Tr. 264: 8-9 (M. Han); 3 Tr. 482: 15-20 (Y. Han).) Min Suk Han stated that, after April 1993, Jerry Lee did not work in the Grip Ball business. (2 Tr. 264: 10-12 (M. Han).) He also testified that, after April 1993, neither he nor anyone at MJ Korea ever had any discussions with Joy Lee concerning the Grip Ball business. (2 Tr. 264-66: 23-25, 1-25, 1-7 (M. Han).) 60. In asserting that the Lees had defrauded him, however, Min Suk Han stated: “[M]y daughter did whatever Joy told her to do in the United States. I, on the other hand, in Korea did whatever I was told by Jong Sik Lee.” (2 Tr. 348: 7-10 (M. Han).) 61.The following evidence also contradicts the Hans’ statements that the Lees were mere consultants to MJ Korea: a. After a dinner with the Lees at the Hotel Intercontinental in Seoul at which Joy Lee promised Min Suk Han that their business partnership would yield him the “Gold Tower” award, Min Suk Han entered into a partnership agreement with the Lees relating to the sale of Grip Toys and other patented products. (PX 308(T).) b. Jerry Lee maintained an office at MJ Korea to perform his consulting work. (2 Tr. 263: 1-4 (M. Han).) c. Min Suk Han gave Jerry Lee money for purchases on behalf of MJ Korea. (2 Tr. 301-02: 21-25, 1 (M. Han).) d. Daniel Kim testified that Jerry Lee gave instructions to MJ Korea’s employees. (3 Tr. 611: 5-10 (D. Kim).) e. Yang Ok Han wrote that she “provided answers” to Jerry Lee. (PX 151 at W276.) f. In his criminal complaint, Min Suk Han accused Jerry Lee of malfeasance in performing various duties on behalf of MJ Korea, including shipping product to the U.S., (PX 300 at 2-3, ¶2), and spending MJ Korea’s funds. (PX 300 at 3-4, ¶¶ 3-4.) g. Jerry Lee corresponded with Joy Lee on topics such as creating MJ USA, setting up a company to do business in the U.S., selling products to customers and requesting particular requirements for those orders, and other day-to-day management concerns. (PX 110; PX 107.) h. Yang Ok Han testified that according to Jerry Lee, he “was the most knowledgeable, most learned person about Grip Toys,” (3 Tr. 482: 16-17 (Y. Han)), and that the Hans thus consulted him in connection with the Grip Toys business. (3 Tr. 482: 18-20 (Y. Han).) 62. On May 26, 1993, Jerry Lee sent a letter to Joy Lee on MAI, Ltd. letterhead and faxed from its office requesting the address for MJ USA. (PX 107.) Jerry Lee also stated that a $2 million standby L/C was ready. (PX 107.) The purpose of the $2 million L/C was to purchase the $12 million in U.S. inventory. (3 Tr. 486-87: 8-25, 1-12 (Y. Han).) 63. Yang Ok Han testified that the Hans had discussed the $2 million L/C and the establishment of MJ USA with Jerry Lee at or about that time. (3 Tr. 476, 486: 18-23, 1-7 (Y. Han).) 64. On June 2, 1993, Jerry Lee sent a letter to Joy Lee proposing that MJ USA finance an “agent” company to “buy[ ] all the MAI items in stock” and sell the inventory to customers for several million dollars, and that he then use “about US $2,000,000 to take care of personal business.” (PX 110.) Yang Ok Han testified that she discussed the substance of the first paragraph, setting up an agent company, with her father and Jerry Lee. (3 Tr. 509: 10-14 (Y. Han).) G. MJ Korea establishes MJ USA 65. In early June 1993, Yang Ok Han made her first trip to the United States, during which she visited Los Angeles and Trojan’s facilities in West Memphis. (3 Tr. 487-88: 20-25, 1-20 (Y. Han).) 66. On June 9, 1993, MJ Korea established MJ USA at APAK Packaging, 706 Royal Avenue, Memphis, Tennessee. MJ USA is a branch of MJ Korea, not a separate corporation. Yang Ok Han was named branch manager. (PX 124; PX 125; PX 126; 1 Tr. 188-89: 8-25, 1-2 (M. Han).) 67. Although the branch establishment documents list the 706 Royal Avenue address as MJ USA’s address, the Hans testified that, until October or November 1993, the MJ USA branch was located in Los Angeles. (1 Tr. 189: 18-22 (M. Han); 3 Tr. 466: 1-4 (Y. Han).) 68. Yang Ok Han, Andy Oh, and Daniel Kim are currently employees of MJ USA. (3 Tr. 466: 5-14 (Y. Han).) 69. The only products MJ USA sells are Grip Toys. (1 Tr. 190: 18-20 (M. Han).) MJ USA is supposed to take orders for Grip Toys and send them to MJ Korea, but none have been sent yet. (1 Tr. 190: 10-14 (M. Han).) 70. Joy Lee and MJ USA planned to set up ConPro, Inc. to sell Grip Toys in the possession of MHW to customers in the United States. (3 Tr. 528-29: 2-8, 7-12 (Y. Han).) 71. On June 11, 1993, Jerry Lee, on behalf of MAI, Ltd., and his nephew, Hee Suk Kim, on behalf of Mi Jong, designated Mih Suk Han as the person to receive the $11 million in proceeds ($12 million less the $1 million owed by MAI, Ltd. and Mi Jong to the Korea Exchange Bank) from MAPs inventory in the United States pursuant to the January 13, 1993 arrangement with the Korea Exchange Bank. (2 Tr. 255, 258: 3-13, 7-22 (M. Han); PX 316A(T).) H. The Hans and the Lees enter a partnership agreement 72. Shortly before June 17, 1993, Joy Lee, Jerry Lee, Yang Ok Han, and Min Suk Han had dinner at the Hotel Intercontinental in Seoul. At this meeting, Joy Lee told the Hans that within one year she would be able to export at least $100 million in Grip Toys, thus enabling Min Suk Han to receive the “Gold Tower” award. (2 Tr. 346: 4-11 (M. Han).) Joy Lee stated that she would be able to sell Grip Toys to large U.S. customers such as Target, K Mart, and Toys R Us. (2 Tr. 346 — 47: 21-25, 1-6 (M. Han).) Joy Lee stated that Yang Ok Han was naive but that Joy Lee could make her into an excellent businesswoman in three or four months if she were sent to Los Angeles. (2 Tr. 347: 12-16 (M. Han).) They also discussed MAI, Ltd.’s business. (3 Tr. 474-75: 13-25, 1-4 (Y. Han).) 73. Prior to June 17, 1993, (2 Tr. 394: 1-20 (M. Han)), the Hans gradually discovered that Jerry Lee’s representation that he had $19 million in purchase orders was false. (2 Tr. 343: 8-14 (M. Han); 4 Tr. 791: 7-14 (Y. Han).) 74. Were the Lees to have submitted false purchase orders to MJ Korea, the banks might have approved shipments on a D/A basis even though MAI had no customers to take the inventory. (2 Tr. 344-345: 15-25, 1-8 (M. Han); 404-405: 10-21, 13-21 (M. Han).) 75. Prior to June 17, 1993, the Hans also discovered the pendency of the Paliafito dispute in the U.S. (2 Tr. 401-02, 404: 24-25,1-7, 20-21 (M. Han).) Min Suk Han explained: When I, after I found out that this was false I confronted Jerry Lee about this, and he explained, he said that the products with Paliafito was the matter was pending in the United States and he swear that he would not cause any damage and if he, if I financed, if I finance to solve problem, there would still be $11 million which can become the profit for me. (2 Tr. 401-02: 24-25, 1-7 (M. Han).) 76. Yang Ok Han testified, however, that she did not hear about the Wisconsin litigation from Joy Lee. Joy Lee did tell her that MAI and Paliafito were involved in a lawsuit in New York, that MAI had won the case, and that the loser had appealed and therefore MAI had sought Chapter 11 protection. (4 Tr. 792-793: 19-25,1-13 (Y. Han).) Yang Ok Han sent some documents from the Lees to her attorneys and was told the Lees had won the case. (4 Tr. 793: 19-25 (Y. Han).) 77. On June 17, 1993, Min Suk Han and the Lees entered into a partnership agreement (“the Agreement”). (HX 58; PX 308(T); 2 Tr. 252: 6-14 (M. Han).) In it, they agreed to split the net profits from the Lees’ patented and trademarked products three ways. (PX 308(T) at 4, art. 8, ¶ 1.) Under the Agreement, Jerry Lee was “responsible for production guidance and supervision of [MJ Korea],” (HX 58 at 3, art. 5(4)), and Joy Lee was “responsible for" selling [Grip Toys] produced by [MJ Korea]” and “for storage and inventory control____” (HX 58 at 3, art. 5(5).) 78.The products referred to in the Agreement related to Grip Toys. Under the Agreement and related documents, the Lees assigned MAI, Ltd.’s and Mi Jong’s $12 million claim on MAPs inventory to Min Suk Han and promised to turn over to MJ Korea more than six billion Won in raw materials owned by MAI, Ltd. (2 Tr. 258: 7-20 (M. Han); PX 316A; PX 316B; PX 318; PX 319.) In the Notice to Terminate Partnership, Min Suk Han wrote: When I and you, Lee Jong Sik and Song Miryoung, signed a Business Cooperation Agreement on June 17, 1993 to manufacture and sell toys and other products, I was told that M.A.I. Ltd., of which [Jerry Lee] was the representative director, had in stock a total of six billion Won of raw materials and other materials; and that as of November 30, 1992, M.A.I. Ltd., and Mijong Mulsan Co., Ltd., had the sum of US$12,137,596.80 ... of claim payable by [MAI] for the products sold by them to [MAI] on D/A basis____ In short, the gist of said agreements is that, as of June 17, 1993, M.J. Korea Ltd., secured raw materials and other materials in the value of approximately six billion Won, and that, as of November 30, 1992, M.A.I. Ltd. and Mijong Mulsan Co., Ltd. had a credit equivalent to approximately US$12,137,596.80, which was payable by [MAI], to said two companies for the products exported on D/A basis, and that said credit be collected and applied to the payment of the obligations to [the Korea Exchange Bank], and then said Bank should discharge the Keun-mortgage over the properties held by said Bank as a security, and that any amount of said proceeds remaining after such application be paid to Min Suk Han. (HX 54 at 1.) 79. In their initial brief, the Han respondents represented that the Lees and Min Suk Han had never entered into a partnership agreement. Discussions ensued between Min Suk Han, and Joy Lee and Jerry Lee to form a partnership agreement, separate from M.J. Korea, to engage in the import and export business; however, such a partnership was never formed. (2 Tr. 233: 11-15.) Aver, counsel for the Han respondents, testified that he obtained this information from the Hans. (5 Tr. 1003: 14-25 (Aver).) 80. In Min Suk Han’s criminal petition against Jerry Lee, (PX 300), however, Min Suk Han stated: The plaintiff [Min Suk Han] who believed the defendants’ saying agreed to do business in partnership with the defendant LEE, Jong Sik and SONG, Mi Ryeong [Joy Lee]. (PX 300 at 2 ¶ 2.) 81. When confronted with his criminal complaint at the hearing, Min Suk Han initially testified that he had never entered into a partnership with the Lees. (1 Tr. 215-16: 23-25, 1-9 (M. Han).) 82. Counsel for MJ Korea later stated, however, that the statement contained in the Han respondents’ brief was incorrect and that Min Suk Han and Jerry Lee had entered into a partnership agreément. (2 Tr. 232-33: 20-25, 15-24.) 83. According to Yang Ok Han, the Agreement never became effective because Jerry Lee never contributed the promised capital. (4 Tr. 788: 2-5 (Y. Han).) 84. The partnership never had any bank account, phone number, office, letterhead, or capital. (4 Tr. 783-84, 786-787: 23-25, 1, 4-11, 16-22 (Y. Han).) 85. Yang Ok Han testified that the Hans, did not discover that MAI had filed bankruptcy until after they had entered into the partnership agreement. (3 Tr. 492: 7-11 (Y. Han).) On June 22, 1993, however, she received an opinion letter from her attorneys at Lee & Ko summarizing the research conducted by Morgan, Lewis & Bockius into whether: (1) MJ Korea could buy all of MAI’s inventory without court approval; (2) the Korea Exchange Bank could acquire this inventory by foreclosing on its security interest and, in turn, sell the inventory to MJ Korea; and (3) there were any other ways to acquire the MAI inventory. MJ Korea’s lawyers concluded that MJ Korea should obtain permission from the bankruptcy court to acquire the inventory. (PX 121 at 2.) The timing of the opinion letter suggests that the Hans knew about MAI’s bankruptcy before the partnership agreement was signed. Yang Ok Han testified that Jerry Lee later explained that MAI had filed bankruptcy because of the Paliafito litigation. (3 Tr. 521-22: 24-25, 1-3 (Y. Han).) 86. Min Suk Han also testified that he had discussions with Jerry Lee and the Korea Exchange Bank on the topic of purchasing the assets of MAI. (2 Tr. 277: 16-19 (M. Han).) 87. On June 22, 1993, MAI received an MJ USA “Business Plan,” (PX 118), purportedly prepared by MJ Korea, (3 Tr. 529: 21-24 (Y. Han)), but showing MAI, Ltd. fax traffic. The business plan contained projected sales of Grip Toys, (PX 118 at MAI 1120 13538), and discussed strategies for sales including “[cjontinuation of advertisement in the U.S. markets, which has been done last 3 years,” “[cjontinuation of going to the TRADE SHOWS,” “[tjhorough follow-up with buyers with whom we had business in the last 3 years,” and “[cjontinuation of evaluating the new items under development.” (PX 118 at MAI 1120 13539.) 88. On June 27,1993, Yang Ok Han made her second trip to the U.S. (PX 119.) She visited Memphis and stayed with Joy Lee in Los Angeles. (3 Tr. 497-98: 19-25, 1-8 (Y. Han).) She also visited New York, where she had dinner with Keith Nowak, Ray George, and Joy Lee. (3 Tr. 469-70, 498: 24-25, 1-10, 2-4 (Y. Han).) 89. On June 28, 1993, Daniel Kim, working on behalf of MJ Korea, (3 Tr. 593: 9-11 (D. Kim)), sent more D/A contracts for sales to U.S. customers totalling over $180,000. The D/A contracts named ConPro, Inc. and Vincent Jung/president as beneficiaries. (PX 122.) 90. MJ Korea sold Grip Toys to MAI. (2 Tr. 389-90: 9-25, 1-9 (M. Han); 4 Tr. 824: 6-15 (Y. Han).) In July or August 1993, MAI’s payments for the goods stopped. (2 Tr. 392: 18-24 (M. Han).) I. Yang Ok Han buys Joy Lee’s MAI stock 91. On July 8, 1993, Joy Lee sold her MAI stock to Yang Ok Han for $110,000. (PX 242; 4 Tr. 801: 5-22 (Y. Han).) Yang Ok Han obtained from MJ Korea the money used to purchase the stock. (3 Tr. 570: 17-20 (Y. Han).) 92. One of the reasons Yang Ok Han bought MAI was that she wanted her own distribution company in the U.S. for goods produced by MJ Korea. (4 Tr. 825-826: 21-25, 1-4 (Y. Han).) Min Suk Han hoped that the acquisition would solve the problem of MAI’s irregular payment to MJ Korea for product shipped. (2 Tr. 387: 17-24 (M. Han).) 93. Yang Ok Han could not recall whether Joy Lee had told her of the Wisconsin lawsuit before the acquisition. (3 Tr. 542: 20-23 (Y. Han).) Joy Lee did tell Yang Ok Han that MAI was in Chapter 11 but that business continued as usual. (3 Tr. 540: 21-24 (Y. Han).) Yang Ok Han testified that she would not have made-the purchase had she known there were “problems like this.” (3 Tr. 541: 6-8 (Y. Han).) 94. In proceedings before the bankruptcy court on September 13, 1993, however, Joy Lee testified that she had “totally explained” to Yang Ok Han the Wisconsin litigation and the writ of attachment and injunction that the Court had entered. (3 Tr. 545: 4-13 (Y. Han) (quoting PX 188 at 53-54).) In fact, Yang Ok Han obtained an indemnification from Joy Lee “from and against any and all claims arising from Buyer’s purchase of MAI stock....” (PX 242 at § 11.6.) 95. Also on July 8, 1993, Vincent Jung signed the articles of incorporation establishing ConPro, Inc. (PX 128.) Thereafter, Joy Lee apparently conducted business out of an office in Walnut, California. (PX 130; PX 184 at 17: 24 (showing the same number as that indicated on GTE’s telephone billing statement to ConPro, Inc.).) MJ USA apparently conducted its business out of the same office. (3 Tr. 572-73: 22-25, 1-18 (Y. Han).) J. Yang Ok Han and Joy Lee establish MHW 96. On July 14,1993, Yang Ok Han established MHW under Tennessee law. (PX 327.) 97. Min Suk Han testified that Yang Ok Han established MHW as part of her responsibilities as manager of MJ USA. (2 Tr. 267-68: 24-25,1-2 (M. Han).) Yang Ok Han testified, however, that MHW was Joy Lee’s idea, (3 Tr. 432: 5-6 (Y. Han)), and that “Joy [Lee] took [Yang Ok Han] to the attorneys’ office saying, telling [her] to establish MHW” (3 Tr. 427: 17-18 (Y. Han).) 98. MHW was established without being funded. (3 Tr. 429: 2 — 4 (Y. Han).) Later, however, Yang Ok Han invested in MHW $12,000 that she had earned at MJ Korea. (3 Tr. 429-31: 21-25, 1-13, 19-21 (Y. Han).) 99. Yang Ok Han owns all of the stock of MHW, (3 Tr. 428-29: 25, 1 (Han)), of which she is president. (3 Tr. 436-37: 25, 1-3 (Y. Han).) She and her husband, who is secretary, hold all the corporate offices. (4 Tr. 436-37: 25, 1-5 (Y. Han).) 100. MHW has one employee: Kevin Lee. (PX 32 at 65-66; 3 Tr. 432: 23-25 (Y. Han).) Kevin Lee, however, is not paid any salary or wages. (3 Tr. 438: 18-19 (Y. Han).) Joy Lee was never an MHW employee. (3 Tr. 437: 6-9 (Y. Han).) 101. MHW apparently shared an office in Walnut, California with ConPro, MJ USA, and Joy Lee. (3 Tr. 432, 433: 7-12, 3-8 (Y. Han).) Yang Ok Han entrusted the operation of MHW to Joy Lee and Kevin Lee when she was out of the country. (3 Tr. 438-39 (Y. Han).) 102. MHW maintained a bank account at California Korea Bank in Los Angeles. (3 Tr. 433: 9-16 (Y. Han).) Kevin Lee had authority to sign checks on behalf of MHW, (3 Tr. 438: 12-13 (Y. Han)), and was in charge of its business records. (4 Tr. 768: 3-6 (Y. Han).) According to Yank Ok Han, Joy Lee and Kevin Lee spent MHWs money “wantonly.” (3 Tr. 438: 4-5 (Y. Han).) 103. The business of MHW was to store Grip Toys inventory in the U.S. (3 Tr. 433: 20-23 (Y. Han).) Yang Ok Han estimated that MHW had more than twenty containers in bonded customs warehouses in or around Memphis. (3 Tr. 433-34: 24-25, 1-17 (Y. Han).) She testified that she did not know whether inventory was located anyplace else in the U.S. (3 Tr. 436: 16-18 (Y. Han).) 104. MJ Korea consigned to MHW thirty-eight shipping containers of Grip Toys, now located in bonded warehouses in Long Beach, California; Memphis; and Seattle, pending payment of duties and demurrage in order to clear U.S. customs. (Daniel Earn Deck (attachment); 1 Tr. 158-159: 24-25, 1 (Shaw); 3 Tr. 433-34: 24-25, 1-17 (Y. Han); 5 Tr. 922: 4-14 (S. George); 5 Tr. 1012: 8-18 (Oh).) 105. The warehoused inventory is MHW’s sole asset. (3 Tr. 436: 8-10 (Y. Han).) 106. Until it clears customs, however, the inventory belongs to MJ Korea. (2 Tr. 262: 15-17 (M. Han); 3 Tr. 436: 5-6 (Y. Han).) 107. Yang Ok Han stated that she has no secret arrangement with the Lees to hold for them stock in MHW, (4 Tr. 755: 14-16 (Y. Han)), or property in Best General Merchandise; Grip Toys, Inc.; Marue Joint Stock Trading Company; or Chusik Hosea Kyongyong. (4 Tr. 771: 7-21 (Y. Han).) 108. Yan Ok Han stated that the Lees have never transferred any money to her. The only property she claims to have reeeived from Joy Lee was the stock of MAI, Inc., for which Yang Ok Han paid $110,000. (4 Tr. 756, 761: 2-5, 9-22: (Y. Han).) 109. In a letter to Wilcox, however, Yang Ok Han wrote that she “provide[d] answers for Jerry & my father” and “plann[ed] to continue our relationship until we reach our goal successfully.” (PX 151 at W276.) 110. Later, at the evidentiary hearings, Yang Ok Han denied that she provided answers to Jerry Lee. (3 Tr. 533-34: 16-25,1-14 (Y. Han).) When shown her contrary handwritten statement, she explained: “These are letters written by Joy Lee and told me to send — send them to Bob Wilcox.” (3 Tr. 538: 3-4 (Y. Han).) She did not know whether the statements contained in the letters were true and added: “I just wrote whatever she told me ... to write.” (3 Tr. 556: 16-19 (Y. Han).) 111. Yang Ok Han also stated that she did not know that Wilcox was MAPs president until late September 1993. (3 Tr. 522: 13-24 (Y. Han).) K. Yang Ok Han returns Joy Lee’s stock 112. On or around August 16, 1993, Yang Ok Han received a letter, (PX 204), from Lyons, counsel for Paliafito, enclosing the First Supplemental Writ. (3 Tr. 559, 562: 17-20, 3-6 (Y. Han).) Therein, Lyons asserted that because the sale of stock violated ¶ 15(d) of the First Supplemental Writ, Paliafito had moved to find Joy Lee in contempt and to declare the transfer void. The letter also asserted that Yang Ok Han was enjoined from changing the ownership interest in MAI, and stated that if she attempted another transfer, Paliafito would move to hold her in contempt. (PX 204.) 113. On August 19, 1993 nunc pro tunc August 13,1993, the Court entered judgment against the Mantae defendants in the amount of $8 million for their willful default of the terms of the First Supplemental Writ. See Select Creations, 830 F.Supp. at 1229-33. 114. In a letter of August 23, 1993 to Yang Ok Han, David Loeffler, Esq., counsel for the Lees, advised that it was Joy Lee’s position that the stock sale did not violate the Court’s Order of April 7, 1993. (PX 205.) Loeffler did, however, urge Yang Ok Han to permit Joy Lee to return the stock certificates and corporate records to the United States pending resolution of their ownership. (PX 205.) Yang Ok Han returned the minutes book and corporate seal to Joy Lee to take to the U.S. (4 Tr. 805: 7-25 (Y. Han).) 115. In September 1993 Yang Ok Han signed documents to effectuate the return of the MAI, Inc. stock to Joy Lee because Joy Lee had threatened that Joy Lee would otherwise go to jail and Yang Ok Han was scared. (3 Tr. 57-71: 8-16, 3-11 (Y. Han).) Joy Lee did not return the $110,000 Yang Ok Han had paid for the stock. (3 Tr. 571: 12-17 (Y. Han).) L. The Hans discover the Lees’ ongoing fraud 116. On September 20, 1993, Yang Ok Han discovered a letter that Jerry Lee had sent to Joy Lee on September 7, 1993. (3 Tr. 572, 573-74: 22-25, 24-25, 1-5 (Y. Han).) Therein, Jerry Lee stated that the Lees had exchanged “somewhat exaggerated information,” had “failed to be absolutely honest to each other,” and that if products shipped to the U.S. from Korea were not timely paid for, the collateral real estate would be “immediately put up for public auction,” which could lead to a civil suit and “years of possible imprisonment.” (HX 9.) Jerry Lee also stated that, if the debt was not repaid, he would “need to come back to the U.S. immediately and hide [him]self____” (HX 9.) Jerry Lee also stated that he “oppose[d] [Yang Ok] Han’s stay in the U.S....” (HX 9.) 117. Upon discovering the letter, Yang Ok Han faxed a copy to Min Suk Han in Korea. (3 Tr. 574: 2-5 (Y. Han).) Min Suk Han then confronted Jerry Lee with the letter. (2 Tr. 358: 18-20 (M. Han).) Jerry Lee stated that “the purpose of the letter was to give warning to his wife and it’s different from facts.” (2 Tr. 358: 22-24 (M. Han).) Min Suk Han then ordered an audit of MJ Korea’s business records. (2 Tr. 359-60: 24-25, 1-3 (M. Han).) The audit revealed that Jerry Lee had embezzled money from MJ Korea. (2 Tr. 360: 13-17 (M. Han).) Min Suk Han again confronted Jerry Lee, who begged for a period of a month and a half during which to compensate MJ Korea. (2 Tr. 360: 3-7 (M. Han).) 118. In October 1993 Min Suk Han filed a petition with the Seoul district prosecutor for the commencement of criminal proceedings against Jerry Lee and Joy Lee for embezzlement and fraud. (PX 300; 1 Tr. 198-99: 25, 1-2 (M. Han).) Min Suk Han also sent to the Lees a “Notice to Terminate Partnership.” (HX 54.) 119. The Hans allege that they have been defrauded of more than $2 million by the Lees. (HX 54; 2 Tr. 300-01, 360: 24-25, 1-14, 13-17 (M. Han); 3 Tr. 571: 12-17 (Y. Han).) The Hans also risk losing more than $10 million in real estate which they pledged to secure credit for MJ Korea. (PX 317.) 120. On or about October 1, 1993, Oh started working as manager of MJ USA. (1 Tr. 182-83: 16-21, 10-11 (M. Han).) Min Suk Han chose him for that position. (1 Tr. 188: 13-15 (M. Han).) Oh conducts MJ Korea’s business with money sent by, and reports to, Min Suk Han. (1 Tr. 183,188: 8-9, 16-17 (M. Han).) Oh lives in Chicago. (1 Tr. 182: 25 (M. Han).) 121. Also on October 1, 1993, Oh called counsel for Paliafito and was informed that counsel would soon be travelling to Korea. (PX 321; 3 Tr. 586: 6-10 (Y. Han); 5 Tr. 1012-13: 8-25,1-7 (Oh).) Oh informed Yang Ok Han about the call. (5 Tr. 1012: 4-6 (Oh).) M. Paliafito initiates civil contempt proceedings 122. On October 29, 1993, Paliafito filed its motion to hold the Lees, Wilcox, Trojan, MAI, and Loeffler in civil contempt of court for alleged violations of various provisions of the First Supplemental Writ. In December 1993 and January 1994, the Court held a nine days of evidentiary hearings on Paliafito’s motion, currently sub judice. 123. David Lowe, Esq., counsel for the Han respondents, attended several days of the contempt hearings and reported what transpired to the Hans’ Korean attorneys. (3 Tr. 558: 12-25 (Y. Han).) 124. On November 12, 1993, S.M. Kang faxed a letter announcing his appointment as president of MJ Korea. (PX 305.) Therein, he stated: On this occasion I would like to express my hearty thanks for your courtesy extended to our company for years and sincerely hope friendly business connections be strengthened further again to our mutual benefit. We also like to notify that Mr. Jerry Lee was resigned and left M J Korea Ltd. at the time of my appointment. We have heard that Ms. Joy Lee was also resigned from Many Amazing Ideas, Inc. in U.S.A. and you can recheck with Mr. Robert Wilcox, the president of MAI, Inc. if you have any question. As you know, we are the production and sales headquarter and MAI, Inc. is in charge of sales in U.S.A. This concludes that Mr. Jerry Lee and Ms. Joy Lee are not authorized to sell Grip Toys anymore. We are very interested] in re-expanding sales in Europe, so please let us know your comments. (PX 305 (emphasis added).) 125. On December 2, 1993, a notice was published in Dong-a libo, a Seoul daily newspaper, alleging that MAI, Ltd. became “DISHONOURED ON THE DATE OF DEC. 26, 1992,” and requesting that creditors report their total credit to the representative of the creditors’ group before December 8, 1993. (HX 40.) 126. On December 31, 1993, Lowe sent a letter to counsel of record and the Court, stating that he had been “retained to represent the interests of M.J. Korea, Ltd. and Mr. Han, Min Suk, its principal owner, in connection with efforts by parties to this litigation to obtain information relevant to the hearing on the motion for contempt filed by Paliafito America, Inc.” (HX 59.) The letter explained that his clients were concerned about Paliafito’s allegation that MJ Korea is controlled by or is a front for the Lees, and were ready to facilitate discovery. (HX 59.) N. The bankruptcy court authorizes an auction of MAI 127. On February 7, 1994 nunc pro tunc January 24, 1994, the United States Bankruptcy Court, Central District of California, entered an order in the proceeding In re Many Amazing Ideas, Inc., LA93 15924 (Bankr.C.D.Cal.) (Greenwald, J.), authorizing Duke Salisbury, the MAI’s interim Chapter 7 trustee, to auction MAI’s assets on February 4, 1994. (PX 312; 1 TV. 51: 13-16 (Salisbury).) 128. The property to be auctioned included the intellectual property rights to Grip Toys. (PX 323; 4 TV. 655: 14-20 (Lyons).) 129. Prior to the auction, Salisbury knew that Paliafito held the view that any transfers of assets to MJ Korea through the sale of property at auction would violate the terms of the First Supplemental Writ. (1 TV. 50-51: 22-25, 1 (Salisbury).) 130. At the January 24, 1994 hearing before the bankruptcy court, Salisbury obtained discretionary authority to reject any bid. (1 TV. 54: 5-8 (Salisbury).) The auction order stated that: [I]n accepting or rejecting bids, the Trustee may exercise his discretion in light of the effect of orders issued by the District Court of Wisconsin, Case No. 91 C 1240 (the ‘Wisconsin Orders”), pending in Milwaukee. The Trustee in his discretion, may reject bids even if those [ ] bids are the highest bids for the items being auctioned. Nothing contained herein shall prejudice or otherwise affect any parties’ rights or remedies pursuant to the Wisconsin orders or any other orders that may be issued by that Court. (PX 312 at 2-3.) 131. Salisbury also agreed that the top three bids would be returned to the bankruptcy court for approval. (1 TV. 54: 11-19 (Salisbury).) One purpose of the post-sale hearing was to protect Salisbury from potential liability for violating this Court’s orders. (1 TV. 54: 20-25 (Salisbury).) 132. Aver was present at the January 24, 1994 hearing and indicated to Salisbury that he was representing MJ Korea. (1 TV. 61: 14-22 (Salisbury).) 133. Salisbury advertised the auction in The New York Times, USA Today, and The Wall Street Journal to achieve as much interest as possible and get the highest bid. (1 TV. 76: 6-18 (Salisbury).) O. MJ Korea establishes Longreen 134. In January 1994 MJ Korea retained Aver in an effort to purchase the assets from the bankruptcy estate of MAI, Inc. (5 TV. 985: 11-16 (Aver).) He read this Court’s orders, then contacted Annie Verdries, Esq., counsel for the trustee, and told her that he had been retained by MJ Korea. (5 TV. 985, 987: 17-23, 15-25 (Aver).) 135. Verdries told Aver about the Wisconsin litigation: I didn’t think [MJ Korea] [was] going to be [allowed to bid]. And the reason for that is that I spoke to Ms. Verdries, and she explained to me in a brief a little bit about the litigation here in Wisconsin, and she said that Paliafito was watching over things very, very closely and that she didn’t believe that MJ should bid at the auction or — because Paliafito would essentially block anything that MJ would try to do. (5 TV. 986: 6-13 (Aver).) 136. They also discussed setting up a new corporation as an alternative possibility. (5 TV. 987: 2-14 (Aver).) 137. Yang Ok Han and Oh, in consultation with Aver, decided to organize Longreen Toys, Inc. (3 TV. 447: 4-12 (Y. Han).) Aver explained that Longreen was incorporated as a measure to be taken in the chance that Paliafito would not consent to MJ Korea bidding at the auction. (5 TV. 990: 5-20 (Aver).) 138. Aver testified that his clients never asked him to set up a front corporation for illegal or fraudulent purposes, and that he would not have done so if they had. (5 TV. 1007-08: 22-25, 1 (Aver).) 139. Paek owns a Korean company with annual sales in excess of $60 million, (5 TV. 949, 950: 8-10, 2-9 (Paek)), and asserts that he is in the U.S. to do his own business. (5 Tr. 968: 18-20 (Paek).) 140. According to Min Suk Han, however, Paek works for both MJ Korea and Min Suk Han personally. (2 Tr. 279: 6-15 (M. Han).) 141. Prior to coming to the U.S., moreover, Paek followed Min Suk Han’s suggestion, (5 Tr. 958-59, 969: 28-25, 1-8, 5-10 (Paek)), that he contact Oh to recommend an attorney who could help him organize a corporation in the U.S. (5 Tr. 972-73: 23-25, 1-2.) 142. Paek knew that Oh had worked for Min Suk Han, (5 Tr. 958: 12-25 (Paek)), and was manager of MJ USA. (5 Tr. 973: 10-12 (Paek).) 143. Oh put Paek in touch with Aver. (5 Tr. 959: 12-14 (Paek).) 144. Min Suk Han sent Paek to the U.S. because Paek is “the person [Min Suk Han] trust[s] most.” (2 Tr. 279: 4-5, 17-18 (M. Han).) Paek stated that he came to the U.S. at Min Suk Han’s suggestion because he thought it was “a very good business opportunity.” (5 Tr. 951: 2-15 (Paek).) 145. On January 30,1994, Paek arrived in the U.S. (5 Tr. 951, 972: 16-22, 17 (Paek).) On the next day, he met with Aver and signed papers prepared by Aver relating to Longreen. (5 Tr. 951, 972: 23-25, 18-19 (Paek).) 146. Paek executed a certificate of incorporation, a consent resolution of the board of directors, and stock certificates. (HX 51; PX 302; PX 303; 5 Tr. 951-52: 23-25, 10-22 (Paek).) 147. On February 1, 1994, Longreen was incorporated under California law. (PX 302.) David I. Sunkin, an attorney in Aver’s office, (Tr. 990-91: 21-25, 1-2 (Aver)), was Lon-green’s incorporator. (PX 302.) 148. Aver did not know about Paliafito’s investigation before Longreen’s articles of incorporation, public documents which list Aver as registered agent for service of process, were filed. (5 Tr. 1007: 3-16 (Aver).) 149. Aver had previously identified himself to Paliafito’s counsel as MJ Korea’s counsel, (5 Tr. 1007: 17-19 (Aver)), and never attempted to conceal the dual representation. (5 Tr. 1007: 20-22 (Aver).) 150. Lyons knew before the auction that Aver was MJ Korea’s attorney. (4 Tr. 831: 6-10 (Lyons).) 151. Paek is the sole shareholder of Lon-green. (5 Tr. 952: 23-34 (Paek).) According to Yang Ok Han, the Longreen stock is not being held secretly for the Lees. (2 Tr. 384-85: 25, 1-3 (M. Han). According to Paek, he has never met the Lees and has no plans to sell his stock to them. (5 Tr. 953: 9-11 (Paek).) 152. Paek was appointed president and chief financial officer, and Gil Kim was appointed secretary. (5 Tr. 955-56: 19-25,1-3 (Paek).) Shirley George testified that she believed that business cards she had made for Toy Fair identified Paek as president of Longreen. (5 Tr. 899: 13-25 (S. George).) 153. Also on or around February 1, 1994, Yang Ok Han called Charles Lee, her husband’s cousin’s husband and the manager of Seyang International at 6411 East Alondra Boulevard, Paramount, California, and asked one of his employees if Longreen could use Seyang’s business address. (4 Tr. 637-38: 2-22, 1-6 (Y. Han).) 154. The money used to capitalize Lon-green came from MJ Korea. (5 Tr. 953: 12-14 (Paek).) 155. Min Suk Han sent approximately $2.5 million to MJ USA. He wanted Oh to use the money “to make [MJ Korea’s] branch office, MJ branch office could have a stronger root, a good root in the United States and, therefore, will help the main office.” (2 Tr. 279-80: 25, 1-13 (M. Han).) 156. The Han respondents’ brief summarizes how Longreen was thereafter funded: Yong Su Paek is the owner of 100% of the issued and outstanding stock of Longreen____ On or about February 2, 1994, Yong Su Paek loaned Longreen sufficient sums to participate at the Bankruptcy Court ordered auction of the assets of M.A.I.— U.S.A. in West Memphis, Arkansas. Mr. Paek borrowed the funds from M.J. Korea, and secured the borrowing with a pledge of his stock in Longreen. Longreen also guaranteed payment of the M.J. Korea/Paek loan, and collateralized its guaranty by granting M.J. Korea a security interest in all assets of Longreen. (3 Tr. 457-58: 4-25, 1-8 (Y. Han).) 157. MJ Korea thus loaned approximately $2.5 million to Paek in return for a promissory note in that amount and interest at two points above prime. The note was secured by a written guaranty agreement which, in turn, was secured by a pledge of the Lon-green stock. Longreen then borrowed the same funds from Paek pursuant to a similar promissory note. This arrangement was designed to maximize MJ Korea’s rights and remedies in the event of a default. (HX 56 (Aver Decl. at ¶¶1-5); 5 Tr. 954: 18-20 (Paek).) 158. None of the capital used to start Longreen Toys came from the Lees. (4 Tr. 763: 21-25 (Y. Han).) 159. Paek opened a bank account, over which he has signing authority, at the Sanwa Bank in Los Angeles. (5 Tr. 964-965, 971: 24-25, 1-5, 25, 1 (Paek).) 160. Paek must get Oh’s approval before spending the money. (2 Tr. 283: 11-18 (M. Han).) 161. Oh asserted that he has no instructions to instruct Paek. (5 Tr. 1017: 23-25 (Oh).) According to Min Suk Han, however, Paek reports to Oh. (2 Tr. 281: 20-24 (M. Han).) 162. Longreen’s profits, moreover, are repatriated to MJ Korea. Paek testified that all of the income earned by Longreen (less operating expenses and Paek’s percentage) goes to MJ Korea. (5 Tr. 969-70: 16-25,1-3 (Paek).) The profit-sharing agreement is currently “being drawn.” (5 Tr. 970-71: 25, 1-4 (Paek).) 163. In corporate loan documents, Lon-green listed its address as 2622 West Peterson Avenue, Suite # 4, Chicago, Illinois, the same address used by MJ USA. (See Aver Decl. at Exh. 3 & 4.) P. Longreen buys MAI’s assets at the auction 164. After preparation of the loan documents, Longreen retained Aver to assist in its effort to bid at the bankruptcy auction. (HX 56 (Aver Decl at ¶ 6).) 165. Prior to the auction, Paliafito’s counsel discussed with MJ Korea’s counsel the possibility of MJ Korea bidding at the auction. Paliafito told MJ Korea that although it had no objection to MJ Korea bidding at the auction, it would object to any transfer of assets to MJ Korea. (4 Tr. 832-33: 17-25, 1-3 (Lyons).) 166. Paliafito asked MJ Korea to provide documents substantiating MJ Korea’s claim that it had no relation to the Lees. Paliafito also told MJ Korea that if it submitted the highest bid, it should appear before the bankruptcy court and produce evidence that it was not related to the Lees. (4 Tr. 833, 839-40: 8-14, 17-25, 1-3 (Lyons).) 167. On February 4, 1994, Salisbury conducted an auction of MAI’s estate at Trojan’s facilities in West Memphis, Arkansas. (1 Tr. 55: 1-3 (Salisbury).) The inventory is located in Long Beach, California; Memphis; Seattle; and West Memphis, Arkansas. (1 Tr: 55: 1-3, 17-10 (Salisbury); Daniel Kim Decl. (attachment).) 168. The Lees were not in control of MAI at the time of the auction. (5 Tr. 936-37: 4-25, 1-4 (S. George); HX 50.) 169. There were many people at the auction. (4 Tr. 837: 13-17 (Lyons).) 170. Four groups of bidders appeared. (1 Tr. 55: 16-24 (Salisbury).) One group comprised Aver, Yang Ok Han, and Daniel Kim. (1 Tr. 58-59: 19-25,1-12 (Salisbury); PX 314; 3 Tr. 597: 7-9 (D. Kim); 5 Tr. 996: 5 (Aver).) Another group comprised a single individual, Raymond E. Tiggert. (1 Tr. 55: 21-22 (Salisbury).) Another group, comprising Oh, Paek, and Jasper Jones, appeared on behalf of Longreen Toys, Inc. (3 Tr. 566-67: 23-25, 1 (Y. Han); 3 Tr. 599: 15-18 (D. Kim); 5 Tr. 996: 9-12 (Aver).) An unknown man represented the fourth bidder. (1 Tr. 55: 24 (Salisbury).) 171. Paek explained that he asked Oh to attend because Paek was unfamiliar with auctions in the U.S. and did not speak English well. (5 Tr. 957: 1-10 (Paek).) 172. The Longreen Toys group sat at the opposite side of the room from the MJ Korea group. (PX 314.) 173. No member of the MJ Korea group attempted to conceal themselves from Lyons at the auction. (4 Tr. 833-34: 23-25, 1 (Lyons).) 174. Salisbury received competing bids from, on one hand, Oh and Jones, on behalf of Longreen, and, on the other hand, Tiggert. (1 Tr. 64-65: 21-25,1 (Salisbury); 4 Tr. 828-30: 23-25, 1-12, 1-12 (Lyons).) 175. The MJ Korea group did not bid. (1 Tr. 65: 2-3 (Salisbury).) Salisbury expected MJ Korea to bid and was disappointed that it did not. (1 Tr. 81, 97: 20-21, 17-19 (Salisbury).) 176. Jones, who registered as an agent for Longreen, submitted the highest bid of $600,000 (plus a $60,000 auctioneer fee). (1 Tr. 65-66: 18-25, 1-12 (Salisbury).) 177. Oh possessed envelopes containing Longreen’s cashiers’ checks. (4 Tr. 829: 13-21 (Lyons); 5 Tr. 965-66: 18-25,1-3 (Paek).) 178. Oh tendered Longreen’s cashiers’ checks to the auctioneer to purchase the auctioned assets. (1 Tr. 93: 8-17, 7-9 (Salisbury); 5 Tr. 965-66: 6-25, 1-6 (Paek).) 179. To confirm its purchase, Longreen filled out an auction sheet, on which it listed its address as 6411 Alondra Boulevard, Paramount, California 90723 and telephone number as (310) 220-1161. (PX 313; 1 Tr. 65: 11-13 (Salisbury).) 180. Longreen, however, does not conduct any business from the 6411 Alondra location. (4 Tr. 6438: 7-12 (Y. Han).) 181. About ten minutes after the auction, Oh approached Salisbury regarding the intellectual property. (1 Tr. 66: 13-22 (Salisbury).) Salisbury asked him if he had any connection with the Lees or any entity connected with the Wisconsin litigation. (1 Tr. 66, 85, 86: 22-24, 2-7, 17-20 (Salisbury).) Oh replied: “You’ve got to be kidding.” (1 Tr. 66, 86: 24-25, 21-23 (Salisbury).) 182. Salisbury did not, however, explain to Oh what he meant by “any person involved in the Wisconsin litigation,” (1 Tr. 88: 19-24 (Salisbury)), and did not mention MJ Korea. (1 Tr. 86: 13-16 (Salisbury).) 183. At no time before or after the auction did anyone from the MJ Korea group disclose to Salisbury that they were related to or affiliated with the Longreen group. (1 Tr. 67: 1-6 (Salisbury).) 184. In light of this Court’s orders, and the bankruptcy court’s order, Salisbury knew that the identity of the bidder was at issue. (1 Tr. 107-08: 22-25,1-7 (Salisbury).) Salisbury would have considered the bidder’s identity and the facts indicating a relationship between the Longreen group and the MJ Korea group material. (1 Tr. 108: 9-14 (Salisbury).) 185. Salisbury testified that he believed he was “[actively and consciously” deceived by the MJ Korea group’s failure to apprise him at the auction that MJ Korea was related to Longreen. (1 Tr. 70-71: 23-25, 1-2 (Salisbury).) Salisbury explained: It was a deliberate deception. I knew that Mr. Aver was representing MJ Korea. At no time was it made known to me that the Longreen people were anything else but a distant, unrelated party, and I was very surprised to learn that — that Mr. Aver’s firm had formed this corporation on the eve of the auction, that apparently the entire funding of the corporation was made by the Hans. (1 Tr. 88-84: 22-25, 1-4 (Salisbury).) 186. Had Salisbury known of such an affiliation, he might not have acted differently, but would have filed a report of sale and an application for instruction setting forth what he knew with the bankruptcy court. (1 Tr. 67: 10-13 (Salisbury).) 187. No bankruptcy court order, however, expressly prohibited MJ Korea from bidding or from “causing another clean corporate entity to be organized to bid at the auction.” (1 Tr. 76-77: 22-25, 3-6 (Salisbury).) 188. Agents registered to bid, moreover, were not required to disclose the identity of their principals. (1 Tr. 110-11: 16-25, 1-5 (Salisbury).) 189. According to Aver, it is not unusual to organize a new corporation to bid at a bankruptcy auction. (5 Tr. 991: 3-18 (Aver).) Aver explained that the corporate form is used to retain anonymity, limit liability, and maintain corporate distinctions. (5 Tr. 991: 12-16, 19-25 (Aver).) 190. At the time of the auction, moreover, Aver understood that no court order prohibited MJ Korea from loaning money to an individual to set up a new corporation to bid at the auction. (5 Tr. 994 10-17 (Aver).) 191. Aver assumed that Verdries knew about MJ Korea loaning money to an individual to set up a new corporation to bid at the auction because of their discussions. (5 Tr. 994: 18-23 (Aver).) Q. The bankruptcy court’s post-sale hearing 192. Yang Ok Han and Aver appeared at the bankruptcy court hearing on the following Monday, February 7, 1994. (1 Tr. 69: 13-19 (Salisbury).) Salisbury was surprised that Aver entered an appearance on behalf of Longreen. (1 Tr. 70: 1-3 (Salisbury).) This was the first time Aver identified himself as Longreen’s counsel to anyone other than the Han respondents. (1 Tr. 70: 1-3 (Salisbury); 4 Tr. 840: 4-8 (Lyons); 5 Tr. 996, 1000: 7-22, 10-15 (Aver).) 193. No court order, however, required Aver