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November 20, 1971

Paul S. DOPP, Plaintiff,

Brieant, District Judge.

The opinion of the court was delivered by: BRIEANT


BRIEANT, District Judge.

 Plaintiff seeks a preliminary injunction pending trial of the action, enjoining defendant Franklin National Bank ("Franklin") from selling or otherwise transferring 51,500 shares of the common voting stock of Butler Aviation International, Inc. ("Butler") and any other defendant to whom Franklin may have transferred such shares from "transferring or voting such shares".

 A temporary restraining order was granted October 18, 1971 by this Court (Gurfein, J.) and was continued by the undersigned Judge on the argument of the motion. Security in the amount of $25,000 has been posted.

 The shares involve approximately 5% of the total outstanding. Plaintiff claims to be the largest owner of the common stock of Butler, holding over 190,000 shares (18% thereof).

 Franklin had previously made loans to plaintiff in excess of $1,050,000.00. After some period of time, during which payments on account had been made, on December 16, 1970, Franklin obtained a judgment by default in the amount of $369,447.61 against plaintiff, later reduced by stipulation to $328,045.25. In addition to the 51,500 shares of Butler stock, Franklin holds as collateral second mortgages on two Pepsi Cola bottling plants in Michigan, which mortgages, however, may be subject to some infirmity arising out of an outstanding possible claim by plaintiff's wife. The total collateral is said to be in excess of the indebtedness. Since the entry of the judgment, plaintiff has made further sporadic payments on account of his obligations to Franklin, which, however, remain substantial, and presently in excess of $281,000.00 to be paid by the proposed purchasers.

 It is undisputed that Franklin acts as the transfer agent for shares of Butler, and as a lender to Butler in substantial amounts.

 Plaintiff was formerly an officer of Butler and is said to be engaged at this time in a proxy contest for control of Butler, although it is difficult to conceive how a person against whom such a substantial unpaid judgment is outstanding, may successfully conduct a proxy contest for control of a publicly held corporation.

 The 51,500 shares of Butler stock, 5% of the total outstanding, are, under the circumstances of this case, unique. Franklin made some efforts to sell on the market, and inquiries indicated that the block could not be sold on the open market without substantially depressing the value thereof, and that the market was "thin" (Franklin's Supplemental Memorandum, p. 16, Sutherland transcript of deposition p. 79). If the market is so thin that a block of this size cannot be sold without unduly depressing the market, then it follows logically that a block of the size involved cannot be purchased on the market without having converse undue effects on the price. Under these circumstances, plaintiff correctly argues that the block of Butler shares herein involved is unique, and because of its size, has no ascertainable market value.

 By loss of the stock under the circumstances of disposition proposed by defendant Franklin, plaintiff will, under the foregoing circumstances be irreparably damaged.

 The question remains whether plaintiff has shown a reasonable probability of success so as to justify in a balancing of the equities, an injunction in his favor, pending trial, so as to prevent such damages.

 Franklin has apparently entered into a letter agreement with defendants Galesi, granting a 60 day option to the Galesis, expiring November 21, 1971, to purchase the Butler stock at a price equal to the market value on the date of execution of the option, but less than the amount owed by the plaintiff to the Bank on that date. The option agreement provides that option purchasers may purchase additional time, up to two weeks, at $333.00 per day, payable before November 21, 1971, and it was represented on oral argument that the option will be exercised but for the intervention of the Court.

 The option is unusual, and certain facts concerning its provisions should be noted. The option provides for payment of $17,500.00 to Franklin by the Galesis, to be retained in the event of non-exercise. An additional sum of $32,500.00 shall be paid on the exercise of the option by certified or bank check. The entire balance of the option purchase price is to be represented by a promissory note in the amount of $231,000.00 in favor of Franklin and secured by the stock. The note is payable at the rate of $12,500.00 quarter-annually commencing six months from the date, with simple interest at 6%. Interest on the State Court judgment recovered against plaintiff is, of course, currently being imposed at the higher rate of 7 1/2%.

 An interesting observation with respect to the option is the provision set forth therein that purchasers (Galesi) "shall have until 5:00 P.M., Monday, November 21, 1971 to consummate the purchase from you (Franklin) of 51,500 shares of the common stock of Butler Aviation International, Inc. ("Butler stock") at foreclosure, which shares were pledged to you by Paul S. Dopp". This had the effect of giving the Galesis actual notice of the equities or rights, if any, of Dopp, and also gives rise to the inference that as of this date the shares remain pledged and that no foreclosure has taken place, nor is any contemplated until November 21, 1971, when, if the option is exercised, defendant Franklin proposes to sell to ...

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