Re: Odd Cybersmear Case Comes To Light
Thanks to the cybersleuthing of Bruce Carton, an attorney with Piper & Marbury and publisher of an excellent Web site at enforcenet.com, a rather odd cybersmear case has come to light. A New York State Court Judge has vacated a preliminary injunction that it issued in favor of several plaintiffs on the grounds that plaintiffs acted with "unclean hands" when they allegedly "posted hundreds of negative messages about [AHT Corporation] on Yahoo's message board for AH[T] stock on the Internet, using various pseudonyms and not disclosing their relationship to the company or the lawsuit at issue. Plaintiff admitted in testimony that it was aware that such posting on the message board is an influencing factor that affects the stock price. In such postings, plaintiff encouraged defendant to financially settle this lawsuit without disclosing plaintiffs' interest." To read the Court's decision, see Bukstel & Halfpenny, Inc. v. Advanced Health Corp., QDS:92425319 (N.Y. Sup. Ct., N.Y. Co.), N.Y.L.J., Aug. 23, 1999 <http://www.nylj.com/decisions/99/08/082399b2.htm>. For a press release about the decision, see Court Rules Bukstel Brothers Attempted To Depress AHT Corporation's Stock Through Yahoo Postings: Preliminary Injunction Vacated, July 23, 1999 <http://www.ahtech.com/HTML/press/1999/july23.html>.
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COURT RULES BUKSTEL BROTHERS ATTEMPTED TO DEPRESS
AHT CORPORATION?S STOCK THROUGH YAHOO POSTINGS
PRELIMINARY INJUNCTION VACATED
Tarrytown, NY, July 23, 1999 ? AHT Corporation (Nasdaq: AHTC) announced today that in finding ?that plaintiffs [Bukstel and Halfpenny, Incorporated and Edward Bukstel and David Bukstel] attempted to depress the stock price of defendant?s stock through their postings and used the [preliminary] injunction to attempt to realize a financial settlement,? a New York State Supreme Court Justice for the County of Westchester granted AHT?s motion to vacate a preliminary injunction that had been previously granted to Bukstel & Halfpenny, Inc. (B&H). The preliminary injunction was related to the lawsuit brought by B&H that seeks the reversal of AHT?s 1997 acquisition of B&H?s assets, including the Dr. Chart© software.
In his ruling, the Honorable James R. Cowhey, wrote, ??this court vacates the preliminary injunction on May 13, 1999 and finds that the plaintiff was guilty of unclean hands in its application for injunctive relief as plaintiff has engaged in conduct of misrepresentation, misstatements and unreliable information substantially related to the issues in the litigation which seriously impinged upon deceit, unconscionability and bad faith.? The Judge added, ?This plaintiff has not been frank and fair with this court and plaintiff failed to put forth all the material facts known to plaintiff to enable this court to give a full and fair determination of the matter in controversy.?
Specifically, Judge Cowhey found that B&H?s ?Chairman and President, Edward Bukstel, and brother as well as fellow officer of plaintiff, David Bukstel, as well as other family members, purchased thousands of shares of defendant?s stock. Also during this time [through May 1999] Edward Bukstel and David Bukstel sold shares of defendant?s stock at a profit. Thus, plaintiffs? action by its chief corporate officers were in direct contradiction to what plaintiff was claiming in its papers to the court. Plaintiff admitted in testimony that AH[T] stock was ?good value? contrary to its claim in its papers.?
Additionally, the Judge wrote, ?Plaintiff failed to disclose that during the time complained of, commencing on July 6, 1998 through May 1999, plaintiff through Edward Bukstel and David Bukstel in an attempt to benefit plaintiff corporation, posted hundreds of negative messages about AH[T] on Yahoo?s message board for AH[T] stock on the Internet, using various pseudonyms and not disclosing their relationship to the company or the lawsuit at issue. Plaintiff admitted in testimony that it was aware that such posting on the message board is an influencing factor that affects the stock price. In such postings, plaintiff encouraged defendant to financially settle this lawsuit without disclosing plaintiffs? interest.?
Judge Cowhey determined, ??that plaintiffs? unclean hands in participating in a course of deceptive conduct related to the issue in this case, is a bar to entitlement to the equitable remedy of a preliminary injunction. Accordingly, the preliminary injunction issued by this Court is vacated in all respects.?
AHT filed its motion to vacate the preliminary injunction on June 14 of this year based on evidence confirming that Ed Bukstel and David Bukstel, Chairman/President and Secretary, respectively, of B&H, were responsible for more than 300 postings on the Yahoo! Message Board that were said to be abusive, unethical, and fraudulent and that appeared to be designed to pressure AHT into a monetary settlement with respect to B&H?s lawsuit. The Bukstel brothers admitted in Court that they made several hundred postings under a number of false identities.
AHT said it intends to continue to defend against the B&H lawsuit, which it believes to be without merit.
AHT Corporation participates in the growing healthcare e-commerce market. The Company provides information technology enabling the electronic management of laboratory and prescription transactions. AHT?s goal is to be a leading provider of Internet-based clinical e-commerce among physicians and healthcare organizations. For more information, please visit AHT?s website at www.ahtech.com.
This press release contains forward-looking information regarding AHT Corporation. The forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements, including statements as to industry trends, future economic performance, anticipated profitability, anticipated revenues and expenses, and products or service line growth may be significantly impacted by certain risks and uncertainties, including, but not limited to, failure of the clinical e-commerce industry to develop at anticipated rates, failure of the Company's clinical information technology products and services to gain significant market acceptance, competition and other economic factors. No assurances can be given as to the outcome of any pending lawsuits involving AHT. These forward-looking statements speak only as of the date hereof, and the Company disclaims any intention or obligation to update these forward-looking statements in the future. Additional risks and uncertainties are described in AHT's public filings with the Securities and Exchange Commission.
Contact: Arthur Dague
914-524-4783
e-mail: adague@ahtech.com
ahtech.com
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BUKSTEL & HALFPENNY, INC. v. ADVANCED HEALTH CORP.
New York Law Journal
August 23, 1999
SUPREME COURT
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Justice Cowhey
BUKSTEL & HALFPENNY, INC. v. ADVANCED HEALTH CORP. QDS:92425319 ? Defendants (hereinafter referred to as defendant "AH") move to vacate pursuant to CPLR õ6314 the preliminary injunction set forth in this court's decision and order dated May 13, 1999 based upon recently unearthed evidence that plaintiffs, unknown to this court, have engaged in unconscionable and deceitful conduct related to the subject matter in this litigation. Upon a careful review of the extensive papers submitted and following a full 4-day hearing on the matter, the court finds that defendants have demonstrated that the plaintiffs sought judicial intervention in the form of a temporary restraining order and preliminary injunction with "unclean hands". The court concludes that plaintiffs' unclean hands in participating in a course of deceptive conduct related to the issue in this case, is a bar to entitlement to the equitable remedy of a preliminary injunction. Accordingly, the preliminary injunction issued by this court is vacated in all respects.
On September 17, 1997 plaintiff Bukstel & Halfpenny, Inc. ("B&H") transferred to defendants copyrighted computer software programs pursuant to an asset purchase agreement in exchange for approximately $4.5 million dollars in value.1 The payment for the software was allocated as follows:
a) $306,000 in cash at closing;
b) $1,444,000 worth of Advanced Health Corporation common stock, based on its then market price of $21.8125 per share;
c) $2.5 million worth of Advanced Health Corporation common stock performance shares; and
d) options to purchase approximately 12,000 shares of Advanced Health Corporation common stock at an exercise price of $1.00 per share.
Edward Bukstel and Charles Halfpenny became executives of Advanced Health Bukstel & Halfpenny Corporation, a subsidiary of Advanced Health, upon execution of the Purchase Agreement. Bukstel became President but was terminated by Advanced Health Corporation in April 1998. Halfpenny became Vice President of the Advanced Health Corporation and apparently still works for the company.
Plaintiff sought a preliminary injunction enjoining defendants from disclosing in defendant's contracts the source codes of the computer software sold by plaintiff to defendants, in order to allegedly protect the confidentiality of the source codes. The plaintiff argued that due to numerous severe downward revisions of defendants' revenue, business and financial condition and the approximate 90 percent drop of the market price of its stock in less than one year to under $2.00 per share by the fall of 1998, plaintiff was deeply concerned about defendants' financial situation and claims it has no way to predict the financial stability of Advanced Health Corporation or to anticipate a triggering event that would permit the release of the source codes.
The court found that the plaintiff had shown a reasonable possibility of success on the merits and that the plaintiff had shown that it would suffer irreparable injury absent the granting of the preliminary injunction if the source codes were released.2 This court further stated:
Additionally, based upon the apparently unstable nature of defendants' finances, such release appears to be a reasonable possibility, and if the source codes are released the value of this technology would be markedly diminished. Even if plaintiff should succeed on its fraud and/or negligent misrepresentation claim(s) and the transfer agreement of the technology is rescinded, then the software technology returned to plaintiff may be of no value or of severely diminished value ... Moreover, defendants, financial picture demonstrates that if plaintiff were relegated solely to money damages, it may be difficult for plaintiff to collect such damages.
Furthermore, this court dismissed defendants' claim that plaintiff's claim of fraud are without merit because of the evidence put forth by plaintiffs of defendants' financial freefall during the year following the selling of plaintiffs' technology to defendants.
On May 13, 1999, this court granted plaintiffs' motion for a preliminary injunction and enjoined defendants from transferring or disclosing certain Dr. Chart technology software source codes to any third party without an order from the court and from including software escrow provisions in contract with third parties involving Dr. Chart software.
At bar, defendants argue that they have recently discovered facts that show that plaintiff's Chairman, President and largest shareholder Edward Bukstel and its Secretary and shareholder, David Bukstel, Esq. (hereinafter referred to as plaintiff "B&H") have used this litigation and the court's equitable powers as part of a scheme to artificially depress defendant's stock price while simultaneously engaging in the buying and selling of defendant's stock; to interfere with defendant's customer relationships and to engender fear and low morale among defendant's employees, all for the purpose of extracting from defendants a monetary settlement in this litigation.3 Defendant's claim that they have recently obtained evidence showing that prior to the filing of the action and continuing through May 1999, plaintiff B&H posted hundreds of negative messages regarding AH over the Internet on the Yahoo message board for defendants' company AH, using at least eight different pseudonym aliases by which they posed as disinterested investors. Defendants argue that plaintiff's stock depressing activity and plaintiffs, conduct of trying to force defendants to settle the litigation by the use of cyber terrorism against the defendants by utilizing the preliminary injunction as a tool to try to show how such injunction is markedly hurting the company and thus scaring away potential customers and investors and as a tool to pressure the company into settlement is deceptive conduct that renders plaintiffs guilty of unclean hands unworthy of equitable relief.
In its application for a temporary restraining order and preliminary injunction, plaintiffs claimed that defendants were in a precarious financial condition to the point that there was a serious risk that defendants would go out of business. Thus, plaintiffs argued that the software technology developed by plaintiffs and sold to defendants for primarily stock in defendants' company would be rendered worthless and the valuable software technology asset would be rendered worthless because its confidential source codes would be released. In this action, plaintiff is seeking rescission of the asset purchase agreement based on fraud as plaintiffs claim that since the agreement, defendants are in a financial freefall. Plaintiff made claims that it was likely to succeed on the merits because of defendants' significant financial losses and questionable accounting practices. Plaintiff argued that it would suffer irreparable harm if defendants were not precluded from placing the source codes into escrow because if defendants ceased doing business or went into bankruptcy, a scenario plaintiff carefully constructed to appear to the court likely to happen, then the source codes would be released to defendant's customers and the assets value destroyed. Furthermore, plaintiffs claimed that defendants would not suffer any harm from an injunction.
The court held a full hearing on June 24, 1999, July 1, 1999, July 2, 1999 and July 8, 1999 on defendant's application to vacate the preliminary injunction wherein witnesses and evidence were presented. Based upon the hearing and papers submitted, the court makes the following findings of fact and conclusions of law:
1) Plaintiff intentionally withheld from this court important facts relevant to the issues at bar in its application for a temporary restraining order and preliminary injunction, including but not limited to:
a) Plaintiff failed to disclose that through May 1999 as well as notably during the time plaintiff was complaining of defendant's poor financial condition to the court, plaintiff by its Chairman and President Edward Bukstel and brother as well as fellow officer of plaintiff, David Bukstel, as well as other family members, purchased thousands of shares of defendant's stock. Also during this time Edward Bukstel and David Bukstel sold shares of defendant's stock at a profit. Thus, plaintiff's action by its chief corporate officers were in direct contradiction to what plaintiff was claiming in its papers to the court;
b) Plaintiff admitted in testimony that AH stock was "good value" contrary to its claim in its papers;
c) Plaintiff failed to disclose that during the time complained of commencing on July 6, 1998 through May 1999, plaintiff through Edward Bukstel and David Bukstel in an attempt to benefit plaintiff corporation, posted hundreds of negative messages about AH on Yahoo's message board for AH stock on the Internet, using various pseudonyms and not disclosing their relationship to the company or the lawsuit at issue. Plaintiff admitted in testimony that it was aware that such posting on the message board is an influencing factor that affects the stock price. In such postings, plaintiff encouraged defendant to financially settle this lawsuit without disclosing plaintiff's interest. Many of the postings emphasized that the lawsuit including the injunction, was negatively impacting AH and its stock price and proclaimed that it is to defendant's benefit and thus to the benefit of investors to financially settle the suit. Many of the postings warned potential investors to stay away from defendants. The court finds that plaintiffs attempted to depress the stock price of defendants, stock through their postings and used the injunction to attempt to realize a financial settlement.
d) Plaintiff misrepresented to the court in its affidavit of both Edward Bukstel and David Bukstel that such postings were made to "chat rooms" rather than message boards. Since there is a fundamental difference between postings in a chat room which immediately disappear, and postings on a message board specifically to a certain company's stock which remains on the board and plaintiffs' skilled knowledge of computers and the Internet, this court finds that such misrepresentation was intentionally designed to mislead the court.
e) Plaintiff stated in its papers to the court for injunctive relief that defendants would not be harmed by an injunction. In contrast, in its testimony before the court, plaintiff conceded that the software escrow provisions plaintiff sought to enjoin from being placed into defendants, contracts with its customers were vital to defendants, business and that the current injunction makes "it extremely difficult for Advanced Health Corporation to enter into licensing agreements" (Transcript 60:4-10) . And "puts in doubt the ability of Advanced Health Corporation to do business on licensing arrangements" (Transcript 60:11-20). Moreover, many of the messages posted by Edward Bukstel and David Bukstel state that the injunction makes it difficult for defendants to do business, the injunction will scare away potential customers; and the injunction will have a material adverse effect on defendants. Defendants testified that in fact the injunction has made it more difficult for AH to negotiate and close licensing agreements. Additionally, plaintiffs testified that the injunction significantly impacts the stock prices of defendant and is damaging to the financial well-being of the defendant company and is keeping the stock price down;
2) The postings over the Internet on the Yahoo message board for defendants' company AH did have an adverse effect on the operation of the company both internally as well as in its dealings with business contacts, investors, customers and salespeople;
3) The Plaintiffs exploited the granting of the temporary restraining order and preliminary injunction in this lawsuit to create a cloud of pessimism over the defendant company to pressure the company into settling this litigation for a monetary settlement in contrast to plaintiff's papers presented to this court in its application for injunctive relief and pleadings wherein it seeks rescission of its agreement with defendants;
4) Plaintiffs never indicated to this court that it was in any way engaged in any activity that was harming defendants or attempting to harm defendants;
5) At the time plaintiff's papers for a temporary restraining order and preliminary injunction were submitted to this court, plaintiff's actions were in direct contradiction to what they were claiming on papers to this court. The court rejects plaintiffs' argument that these stated activities and conduct by plaintiffs were immaterial to plaintiff's application for injunctive relief.
Accordingly, this court vacates the preliminary injunction on May 13, 1999 and finds that the plaintiff was guilty of unclean hands in its application for injunctive relief as plaintiff has engaged in conduct of misrepresentation, misstatements and unreliable information substantially related to the issues in the litigation which seriously impinged upon deceit, unconscionability and bad faith (Amarant v. D'Antonio, 197 AD2d 432; Berwin Paper Corp. v. Village of Dansville, 50 NYS2d 636; Lennon v. Screen Creations, Ltd, 939 F. Supp 287 (SDNY 1996)). This plaintiff has not been frank and fair with this court and plaintiff failed to put forth all the material facts known to plaintiff to enable this court to give a full and fair determination of the matter in controversy (Keystone Driller Co. v. General Excavator Co., 290 U.S. 240) .
Additionally, as it appears that this matter concerns commercial issues, this matter is transferred to the Commercial Part of this Supreme Court.
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NOTES:
(1) The computer software technology transferred to defendants included Dr. Chart, Clinical Data Exchange, Clinical Data Depository and Application Interface Engine. Notably, the "source codes" for this technology was also transferred and plaintiff claims that the confidentiality of the source codes and thus their market value is in jeopardy. Apparently, source codes contain the information necessary to customize their use by different clients. According to plaintiff, defendants have entered into agreements with clients, namely the Mayo Clinic, wherein in addition to the computer programs being sold, defendants are agreeing to place the "source codes" of the technology into escrow. Plaintiff claims that under such contracts if defendant Advanced Health Corporation becomes insolvent or commits a "triggering event", the source codes will automatically be transferred from escrow to the client, namely the Mayo Clinic. Plaintiff argues that if this happens the confidential trade secret value of the source codes would be forever lost and "their marketability would be reduced to zero, and the commercial value of the programs served by the source codes would be irreparably damaged."
(2) It is well-settled that in order to prevail on a motion for a preliminary injunction, the movant has the burden of demonstrating (1) a likelihood of ultimate success on the merits, (2) irreparable injury absent the granting of the preliminary injunction, and (3) that a balancing of equities favors the movant's position (see, Grant Co. v. Srogi, 52 NY2d 496; Family Affair Haircutters v. Detling, 110 AD2d 745; Gambar Enters v. Kelly Servs., 69 AD2d 297). With respect to the first requirement of likelihood of success on the merits, it is well settled that a party is not entitled to a preliminary injunction unless the right is plain from the undisputed facts (Merrill Lynch Realty Assoc., Inc. v. Burr, 140 AD2d 589) .
(3) The court notes that although plaintiff was directed by the court to produce information regarding the stock trading activities of plaintiff corporation, plaintiffs failed to produce such information without adequate explanation.
nylj.com
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