Constellation 3D co-founder beats Howe Street's Hamouth
2005-07-18 14:57 ET - Street Wire
by Stockwatch Business Reporter
Howe Street promoter Rene Hamouth must repay $300,000 he borrowed from Constellation 3D Inc.'s co-founder Lev Zaidenberg in 2001. The fact that Mr. Zaidenberg may have cheated Mr. Hamouth does not offset a loan agreement, three B.C. Court of Appeal justices ruled. (All figures are in U.S. dollars.)
Lev Zaidenberg sued Rene Hamouth
Mr. Zaidenberg sued Mr. Hamouth in B.C. Supreme Court on June 27, 2002, seeking to enforce an earlier $300,000 judgment he secured against Mr. Hamouth in New York. Mr. Zaidenberg said Mr. Hamouth borrowed $300,000 with a promissory note and did not pay it back.
"The terms and conditions of the Note required ... that Hamouth was to repay the Funds to Zaidenberg on June 2, 2001," Mr. Zaidenberg's claim stated.
"Despite demand therefor, Hamouth has refused or neglected to pay the Funds or any part thereof to Zaidenberg," the claim continued.
Mr. Zaidenberg said Mr. Hamouth ignored the New York lawsuit he filed against the West Vancouver promoter on Nov. 15, 2001. When Mr. Hamouth did not contest the New York allegations, a New York judge awarded Mr. Zaidenberg a $316,588 default judgment.
Mr. Zaidenberg then came to B.C. looking to enforce the New York judgment.
"Hamouth has refused or neglected to pay the Judgment or any part thereof to Zaidenberg, and as a result Zaidenberg has suffered, and continues to suffer loss and damage," Mr. Zaidenberg claimed in the B.C. suit.
(The New York court has no direct jurisdiction over Mr. Hamouth, so Mr. Zaidenberg had to seek a judgment in B.C.)
Mr. Hamouth said he was cheated
Unlike the New York case, Mr. Hamouth did respond to Mr. Zaidenberg's B.C. suit. In his defence, Mr. Hamouth claimed Mr. Zaidenberg lied to him and induced him to buy shares in Constellation 3D that became worthless.
The loan agreement, according to Mr. Hamouth, had a verbal component that did not figure into the New York case.
"The note was part of an [sic] verbal agreement between the Plaintiff and the Defendant ... the terms of which were that: (a) the defendant would purchase additional large quantities of stock in [Constellation 3D] and support the price. (b) The Plaintiff would lend the Defendant $300,000 in order to fund a portion of the Defendant's purchases," Mr. Hamouth pleaded.
The loan repayment was apparently contingent upon the performance of Mr. Zaidenberg's Nasdaq-listed Constellation 3D.
"The note would not become due until the price of the stock had risen to the point that the Defendant could liquidate sufficient of his stock ... to retire the $300,000 loan, and the Plaintiff would date the note at that time," Mr. Hamouth claimed.
Mr. Hamouth claimed he was the victim of a conspiracy in which Mr. Zaidenberg dumped his own Constellation 3D shares on the market as Mr. Hamouth was buying. He claimed Mr. Zaidenberg sprung free 30 million restricted shares of Constellation 3D and sold them to cover debts at Donaldson, Lufkin, Jenrette, a subsidiary of U.S. brokerage First Boston Credit Suisse.
"The Plaintiff in fact intended to sell his own stock in CDDD to the Defendant, through Donaldson, Lufkin, Jenrette and First Boston Credit Suisse," Mr. Hamouth said.
To butter him up for the deal, Mr. Hamouth claimed Mr. Zaidenberg told him about a major financing Constellation 3D was arranging and a multimillion-dollar sales contract with a Turkish company called Profilo.
Mr. Hamouth, apparently relying on this information, said he borrowed the $300,000 from Mr. Zaidenberg to buy Constellation 3D shares and also invested an additional $650,000 in Constellation 3D.
However, things did not go so well for Mr. Hamouth, as he tells it.
Mr. Zaidenberg's selling "depressed the market price of the stock with the result that the Defendant was never able to sell stock under his margin requirements with First Boston Credit Suisse," Mr. Hamouth claimed.
(Constellation traded at $5.15 when Mr. Hamouth borrowed the $300,000 and at $6.04 one month later when the loan was due. By the time Mr. Zaidenberg filed his New York suit the company traded at 67 cents.)
"As the true condition of the company was otherwise than represented to him by the Plaintiff, and as the actions of the Plaintiff and the other principals of CDDD depressed the price of the stock, the value of the company's stock and the Defendant's stock fell dramatically and became essentially worthless, and the Defendant has suffered loss and damage," Mr. Hamouth alleged.
Mr. Hamouth loses
Mr. Hamouth lost the original case and, now, has lost his appeal of the original case.
"In essence Mr. Hamouth's defence ... rests on the proposition that a claim for monies lent may be defeated by a plea of fraud. This may be a dubious proposition but its resolution is better left for another day," Madame Justice Catherine Ryan wrote.
"Mr. Hamouth has been unable to demonstrate that he has a defence to the action in British Columbia," Judge Ryan wrote. "I would dismiss the appeals from the judgments of Mr. Justice Hood and Madame Justice Kirkpatrick."
Judge Ryan put little stock in Mr. Hamouth's argument that new facts came to light after the New York judgment was cemented.
"Assuming that Mr. Hamouth discovered new material facts after default judgment was taken by Mr. Zaidenberg on February 7, 2002, Mr. Hamouth has filed no material in the court below, or by way of fresh evidence to this Court, to demonstrate that he could not have discovered those additional facts by reasonable due diligence prior to the entry of the default judgment in New York," Judge Ryan wrote.
Two other Court of Appeal justices, Madame Justice Mary Southin and Madame Justice Risa Levine, both concurred with Judge Ryan's judgment. The judges ordered Mr. Hamouth to honour the New York judgement for $300,000 plus $16,588 in interest and costs.
Constellation 3D, meanwhile, appears to be inactive. The company last traded on Jan. 23, 2003, for a penny.
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