TK's action went on in NY:
ragingbull.lycos.com
Comments are not mine - it was a c&p from an earlier message.
The link:
courts.state.ny.us
content:
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SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK,COMMERCIAL DIVISION:PART:53
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THOMSON KERNAGHAN & CO., LIMITED,
Petitioner,
Index 105748/98
-against-
LIFEONE, INC., f/k/a NATIONAL AFFILIATED
CORPORATION,
Respondent.
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Charles Edward Ramos, J.S.C.
Motion sequences 009, 010 and Oil are consolidated for decision.
Respondent, Lifeone, Inc., f/k/a National Affiliated Corporation ("NAC")1, moves for an Order pursuant to CPLR 6314 and 2221, vacating or modifying the preliminary injunction, dated May 6, 1999 (the "injunction"), enjoining it from engaging in acquisitions, spin offs or other changes in its corporate form.
NAC also moves by Order To Show Cause, pursuant to CPLR 2221, seeking renewal and reargument of an Order dated and entered on March 16, 1999 holding NAC in contempt of court (the "contempt order").
Petitioner, Thomson Kernaghan &Co., Ltd. ("Thomson"), cross-moves for an order enlarging the scope of the injunction and for an order permitting discovery in the captioned matter. Thomson also moves by order to show cause seeking (1) a directed judgment on the fines imposed pursuant to this Court's Order dated March 25, 1999, wherein NAC was found to be in contempt of court and (2) an arrest warrant for T. Brent Chapel ("Chapel"), the Chief Financial Officer of NAC.
FACTUAL AND PROCEDURAL HISTORY
The instant litigation arises out of NAC's failure to repay Thomson approximately $2,000,000 in financing. This proceeding is one of approximately five actions and/or proceedings pending in three states.
In 1997 Thomson entered into a subscription agreement with NAC to purchase $2,000,000 of the aggregate principal amount of a 12% Series A Subordinated Convertible Redeemable Debenture. Upon Thomson's presentation of a demand for conversion, NAC was to provide Thomson with 824,790 shares of common stock pursuant to the formula delineated in the subscription agreement. A Maryland holding company, The Southern Group ("Southern"), was the guarantor of the debenture agreement.
It is without dispute that Thomson made its demand for conversion and turn over of the stock and neither NAC nor Southern have honored the demand. As a result of the failure to provide Thomson with the stock, in accordance with the subscription agreement, Thomson made a demand for arbitration, the remedy described in the subscription agreement in the event of default.
Thereafter, while the arbitration was pending, this Court granted Thomson's application for a preliminary injunction in aid of arbitration and Ordered NAC to escrow 6,000,000 shares of NAC common stock within a specific period of time. NAC's failure toescrow the shares in accordance with the Order required additional motion practice, resulting in NAC being directed to escrow 4,000,000 shares. This Order also stated that in the event NAC failed to escrow the shares timely it would be subject to a fine of $10,000 for every day the shares were not in escrow. Apparently, NAC escrowed restricted shares.2
While the foregoing motions were sub judice, an involuntary bankruptcy petition was filed against NAC in Louisiana. As a result of the foregoing, the arbitration was stayed. The automatic stay was lifted against Southern and Thomson proceeded with the arbitration. On September 29, 1998 the arbitrator awarded Thomson its 824,790 shares of NAC common stock, $418,G25.00 in damages, attorneys' fees and costs in the amount
of $75,000.00 plus interest3. On January 20, 1999 the automatic bankruptcy stay was lifted and Thomson is proceeding with the arbitration against NAC.
In February 1999 Thomson was again forced to seek judicial intervention to hold NAC in contempt.4 Said motion was granted resulting in a contempt citation being entered against NAC. The contempt order also imposed substantial fines upon NAC until it purged its contempt by escrowing unrestricted shares. NAC sought a stay from the Appellate Division, First Department, but its motion was denied. To date NAC has yet to escrow the requisite unrestricted shares.
In March 1998 NAC announced that it was reorganizing its corporate structure. According to Thomson, such restructuring would render NAC's common stock worthless. In light of these concerns, Thomson sought to have NAC enjoined from going forward with its restructuring plan. This Court granted Thomson's motion for a preliminary injunction because it was clear that NAC was attempting to evade the prior Orders of this Court. This Court entered an order on May 6, 1999 which stated in pertinent part as follows:
"ORDERED ' that [NAC] is enjoined from engaging in any acquisition, spin out, or other change in corporate form until further order of this Court; and it is further
ORDERED, that as [NAC] has already been found in contempt for failing to obey the Court's previous orders, that if [NAC] fails to obey this order, this Court will issue a warrant for the arrest of T, Brent Chapel, the Chief Financial Officer of (NAC."
As a result of the foregoing, NAC sought another stay from
the Appellate Division, First Department. NAC's motion was denied by the Appellate Division; however, NAC's appeal is still pending.
As a result of new litigation commenced by Thomson against NAC in the State of Maryland, NAC's transfer agent responded to a subpoena served by Thomson by producing documents that indicate, inter alia, that NAC has diluted existing shareholder equity in NAC by issuing an additional 20,000,000 shares.5 The documents produced by NAC's transfer agent, strongly indicate that officers of NAC, including Chapel, have engaged in self-dealing and have not accounted for 10,000,000 of the shares recently issued. Thomson avers that "NAC has not made any `8-K' filings since August 5, 1998, in violation of the Securities law." NAC does not proffer any compelling evidence refuting this allegation. In reply, Chapel denies Thomson's allegations of dilution and selfdealing in a conclusory fashion. Chapel does not proffer any documentary evidence corroborating his assertion that the transfers made between he, his wife and family were done "in furtherance of various tax and estate planning objectives., On June 2, 1999 and June 11, 1999, NAC issued press releases, the contents of which are not in dispute. The June 2 nd press release states in pertinent part as follows:
[NAC is currently negotiating reverse mergers of three internet companies into [NAC shells. The ownership structure that will result from a reverse merger would give [NAC ten percent of the new entity with 90 percent owned by the Internet company's current owners. As the reverse merger is completed, the merged company would be spun out from [NAC]. Of [NAC's] ten percent share of the new public company, nine percent would remain with [NAC and one percent would be conveyed to [NAC shareholders .in certificate form. The owners of the merged company would retain their '90 percent share.
The June 11th press release stated in essence that NAC "released" an allegedly unprofitable subsidiary in an effort to "improve future earnings." Thomson claims that such a "release" violates the injunction currently in effect.
It is undisputed that the foregoing press releases have prompted the instant motion-in-chief, cross motion and order to show cause.
ARGUMENTS
NAC's Motion-In-Chief.
NAC claims that the injunction is "crippling" its business and "jeopardizing" its ability to act as a holding company whose business "is the acquisition of insurance companies and other businesses." NAC argues in support of its motion to renew and reargue that Thomson failed to meet its burden of demonstrating entitlement to injunctive relief in aid of arbitration under CPLR 7502(c) in the original motion.
NAC also contends that its prior counsel was ineffective. NAC states that its former attorney did not fully present NAC's arguments in opposition to the original injunction application, e.g., that there is no basis in law for granting injunctive relief as punitive measure or contempt sanction.6 As a result of the foregoing, NAC argues that Thomson did not show that NAC's proposed transactions would render its stock worthless. NAC does not Cite any authority for the propositions that Thomson did not meet its burden of proof, or that ineffective assistance of counsel entitles NAC to relief pursuant to CPLR G314. It is undisputed that NAC's prior counsel had in his possession all of the information currently before this Court. However, NAC asserts, in the alternative, that in the event this Court denies the motion-in-chief, the Court "should modify the [injunction] to provide for a [special] master to review" NAC's proposed transactions to ascertain and opine as to whether or not the transactions will produce the results alleged by Thomson. NAC's Order To Show Cause
NAC argues that the stock it transferred to the escrow agent must, as a matter of Maryland and Louisiana law, must be restricted shares because of the regulated nature of NAC's business. Notably, this is the same argument NAC proffered in opposition to the contempt motion. NAC also contends that the fines that have accrued as a result of it's failure to escrow unrestricted shares, if collected, will ruin NAC.
Thomson's Cross Motion.
Thomson contends, through the use of papers filed in Maryland, California and Louisiana, that NAC plans to strip itself of its assets and/or "deflate the value of its stock" through "yet another change in corporate form," to the detriment of Thomson. Ergo, the injunction should be enlarged.
Thomson,ls Order To Show Cause.
Thomson claims that it is entitled to a directed judgment on the fines recited in this Court's contempt order dated March 25, 1999 (the "contempt order") as well as issuance of an order of commitment and arrest warrant for Chapel.7 It is undisputed that NAC was found to be in contempt of court; however, the contempt order also provided NAC with an opportunity to purge its contempt by substituting the unrestricted shares with the restricted shares currently in escrow. NAC continues to argue that Maryland Law and the Securities Law require the restriction and does not deny that it has purged its contempt..
DISCUSSION
Issues relating to renewal and reargument.
NAC's motion-in-chief was served on June 7, 1999. The order and its attendant injunction was entered on May 6, 1999. The contempt order was entered on March 16, 1999. NAC's Order To Show Cause was signed on May 10, 1999. It is hornbook law that a motion to reargue is to be served and filed within 30 days of notice of entry of the original decision (Matter of Huie [Furman], 20 NY2d 568, [19671 Though a party may not have technically met the requirements for renewal and reargument, the court in its discretion may grant this relief in the interests of justice (Sciascia v. Nevins, 130 AD2d 649 [2 nd Dept 1987] ). Even though NAC's applications are untimely, they are being considered to be properly before this Court.
In light of the fact that both NAC's motions seek general "renewal and reargument" relief pursuant to CPLR 2221, this Court shall deem them reargument motions. Such a determination is appropriate particularly since the facts alleged in support of these motions were known to the moving party at the time of the original motions and the allegedly new facts are neither relevant nor material (Matter of State Farm Mutual Auto Ins. Co. v Barbera, 161 AD2d 5991 600 [2nd Dept 1990]). A review of NAC's papers, as a motions to reargue, do not indicate that this Court overlooked nor misapprehended the relevant facts, nor misapplied any controlling principle of law (Fole_y v. Roche, 68 AD2d 558, 567 [Ist Dept 19791] ). NAC's arguments regarding its prior counsel, are of no moment, in light of the fact that it's current counsel filed an untimely motions to reargue,
The purpose of a motion to reargue is addressed to the discretion of the court and it is not designed to serve as a vehicle to permit the unsuccessful party to argue once again the very questions previously decided (Foley, supers at 567) NAC argues that'this Court misapprehended Maryland law and Regulation "S" of the Securities Law. However, upon review of the relevant memoranda and affidavits submitted herein, and the papers submitted on the original applications, it is clear that NAC is attempting a "second bite at the apple." NAC has repeated the same arguments it made previously on the same set of facts, its counsels alleged incompetence. notwithstanding. In addition, NAC suggests, albeit in lengthy papers, that this Court misapprehended NAC I s business plan This observation is incorrect, consequently, the branch of NAC's motion-in-chief and Order To Show Cause, seeking relief pursuant to CPLR 2221, are denied. This Court has considered NAC's other contentions in support of reargument and find them to be without merit, e.g., that NAC is entitled to a "set off" because Thomson has been making "short" sales of NAC stock resulting in nothing being owed to Thomson under the debenture; and that it is unlawful in other jurisdictions to escrow unrestricted shares.
Issues relating to vacatur and/or modification of the injunction.
CPLR 6314 states in pertinent part as follows:" [a] [respondent] enjoined by a preliminary injunction may move at any time, on notice to the plaintiff, to vacate or modify it." A motion to vacate or modify a preliminary injunction is addressed to the sound discretion of the trial court, which also has the power to impose conditions (Rosemont Enterprises, Inc. v Irving, 49 AD2d 445 [lst Dept 1975] ) . In addition, one claiming error in ruling on motion to vacate or modify preliminary injunction has burden of showing an abuse of discretion (Rosemont Enterprises, Inc. v Irving, supra, at 448). The exercise of discretion will not be reviewed except in case of clear abuse or obviously improper exercise. However, if it appears that the motion was granted under a misapprehension as to the law or the facts, rather than in the judicious exercise of the court's discretion, it may be reversed because of the error (67 NYJUR INJ § 183) NAC has not proved that this Court abused its discretion in granting the injunction. If this were in fact the case, NAC's efforts in the Appellate Division would have been successful.
In determining whether to grant or deny a motion to vacate or modify an injunction, this Court is largely governed by a desire to, work out the equities between the parties (67 NYJUR INJ § 183, supra). In any event, the injunction herein will not be vacated because the facts are simply in dispute and the injunction is called for until the truth of this matter can be determined (67 NYJUR INJ § 183, supra) . Thus, NAC's motion seeking relief pursuant to CPLR 6314 is denied.
Thomson"s Cross Motion.
It is not clear from the papers before this court that the actions referred to in NAC's press releases will affect the value of NAC's overall stock position. However, the reverse merger aspects of the June 2nd press release do raise concern. Consequently, Thomson's cross motion is granted in part. The injunction currently in effect is enlarged, to the extent that, NAC is restrained from (1) issuing additional shares; (2) engaging in reverse mergers or otherwise changing its corporate form; (3) instructing or allowing its transfer agent to transfer restricted stock as unrestricted stock; and (4) amending its bylaws, certificate of incorporation or other documents pertaining to its corporate structure.
Thomson's Order To Show Cause.
Thomson also seeks, via Order To Show Cause, a money judgment against NAC for the fines imposed by the contempt order. In light of NAC's failure to purge its contempt, and upon the insufficiency of Thomson's papers regarding the calculation and possible assessment of NAC's fines and attorneys' fees, this portion of the application is referred to a special referee to hear and make recommendations regarding the amounts to be assessed, if any, of the contempt fines, and any possible award of attorneys' fees.
Accordingly, it is
ORDERED that respondent's motion is denied; and it is further ORDERED that petitioner's cross motion, seeking to enlarge the preliminary injunction currently in effect, is granted to the extent indicated herein; and it is further
ORDERED that petitioner's Order To Show Cause is granted to the extent that the issue regarding the imposition of fines and the award of attorneys, fees is referred to a Special Referee to hear and report with recommendations, except that, in the event of and upon the filing of a stipulation of the parties, as permitted by CPLR 4317, the Special Referee, or another person designated by the parties to serve as referee, shall determine the aforesaid issue; and it is further
ORDERED that petitioner' s Order To Show Cause, seeking a directed judgment and attorneys' fees, is held in abeyance pending receipt of the report and recommendations of the Special Referee and a motion pursuant to CPLR 4403 or receipt of the determination of the Special Referee or the designated referee; and it is further ORDERED that a copy of this order with notice of entry shall be served on the Clerk of the Judicial Support Office (Room 311) to arrange a date for the reference to a Special Referee.
Dated: October 5, 1999
ENTER:
J. C.
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1 All prior proceedings referred to respondent as NAC.
2 It is undisputed that NAC argued in opposition to the second escrow application that any shares held in escrow had to bear a restrictive legend in accordance with Maryland law. This Court rejected this argument and directed that unrestricted common stock be held by Citibank as escrow agent.
3 This award was confirmed by this Court on April 12, 1999. This Order directed the escrow agent to turn over the shares to Thomson within 60 days of service of notice of entry. To date Southern has not complied with the April 12, 1999 Order.
4 Apparently, NAC failed to escrow the unrestricted shares even though, on December 2, 1998, this Court warned NAC, during oral argument of these applications, that if it failed to escrow the appropriate unrestricted common stock it would run the risk of being held in contempt of Court.
5 According to Thomson, these shares have not been registered with the Securities and Exchange Commission and are therefore being issued illegally.
6 NAC's motion focuses its attention on the portion of the injunction which partially concluded that 11[iln light of the defendant's failure to comply with this Court's prior orders in this Case" Thomson was entitled to the relief sought.
7 NAC's motion also seeks to vacate that portion of the contempt order referring to Chapel's possible arrest. Thomson has agreed to withdraw its request for an arrest warrant pending the outcome of NAC's appeal of this particular issue.
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