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IIT v. VENCAP

November 26, 1975

IIT, an International Investment Trust, et al., Plaintiffs
v.
Vencap, Ltd., et al., Defendants


Stewart, District Judge.


The opinion of the court was delivered by: STEWART

STEWART, District Judge:

The Court of Appeals remanded this case to the district court to supplement its findings in support of a preliminary injunction. A supplemental hearing was held; the following constitute the supplemental findings of fact and conclusions of law by this court in support of the preliminary injunction against defendants Vencap, Intervent, Intercapital and Richard C. Pistell ("Pistell").

 For a description of the general factual background of this case, see IIT v. Vencap, 519 F.2d 1001 (Slip op. at 3189 2d Cir. April 28, 1975). For this court's prior findings and conclusions to which these findings and conclusions are supplemental, see memorandum decision IIT v. Vencap, 74 Civ. 2504 (unpublished, July 3, 1974).

 FINDINGS OF FACT

 1. THE THREE-PAGE MEMORANDUM

 In early July of 1972, Richard Pistell *fn1" ("Pistell") and Charles Murphy *fn2" ("Murphy") met in the Bahamas and discussed the terms of the proposed IIT-Vencap transaction. Murphy made handwritten notes of the discussion at that meeting (Ex. 57). Murphy took those notes back to New York with him.

 Pistell testified that, at that same meeting with Murphy, Murphy prepared another set of handwritten notes which dealt with the purposes and objectives of Vencap and with the proposed investment by Vencap in Out Island Airways. Pistell stated that he gave the second set of notes to Stanley Graze *fn3" who "reworked" them, had them typed and then returned them to Pistell who took them to New York and left them either at the law firm of Havens Wandless or in his home files. Pistell's testimony is not credible to us, and in the absence of any other proof we are unable to find that this sequence of events occurred. *fn4" We do not find Pistell's version of the foregoing events credible, in part because of his subsequent testimony. Pistell testified that he later requested first that materials be sent, subsequently that they be telexed, from New York on behalf of Graze who was anxious to get some written information (tr. at 195-6, 200, 208). However, the contents of the Murphy notes allegedly made and given to Graze, according to Pistell, are the same as the materials subsequently telexed from New York. If Graze already had such a memorandum and, in fact, had worked on its language himself, Graze's urgent desire to obtain the information would be difficult to explain.

 On or about August 29, 1972, Pistell telephoned Murphy in New York from the Bahamas and requested that Murphy send him certain information. Pistell testified that Murphy agreed to do so. Thus, it is likely that Murphy, at that time, did in fact send Pistell the information requested which was lost at some time either before or after it arrived. In any event, it is now unavailable.

 On August 31, Pistell again telephoned the Havens Wandless firm but was unable to reach Murphy or Taylor. He therefore asked someone to send him, by telex, the information he previously requested, but had not received, from Murphy.

 On August 31, Pistell received the telex (Ex. 48). We find it most likely that the information which Pistell requested from Murphy was the same information contained in the telex, that the information requested by Pistell was the information sought by Graze, and that the unidentified person at Havens Wandless who sent the telex was merely telexing a copy of that information earlier mailed to Pistell in the Bahamas by Murphy from New York.

 We also find that the substance of that telex had been prepared by Murphy in memorandum form in New York at the time he received Pistell's telephone call around August 29. While the telex recounted some terms of the IIT-Vencap transaction as reflected in Murphy's notes prepared earlier in the Bahamas and taken by Murphy back to New York (Ex. 57), it also contained much additional information, in particular about Vencap, which we find was prepared by Murphy for the first time in New York.

 In April of 1973, Pistell testified that "probably . . . Murphy or Taylor wrote [the memorandum]." (Appendix on Appeal at 1350A). In May of 1974, Pistell testified: "I believe Mr. Charles Murphy prepared this memorandum." (Appendix on Appeal at 1815A-1816A).

 We also conclude that the portion of the telex which states the earnings of Out Island Airways for a six month period ending in August of 1972 can be used to date the preparation of the contents of the telex at the end of August. While defendants argue that it is as logical to infer that the six month earning statement was a projected one, we disagree. Absent evidence to the contrary, we take the earning statement at face value and conclude that it was prepared at the end of August of 1972.

 The telex was typed at the offices of Carson Lawson *fn5" where it was received (Waddell, tr. at 412) and was then picked up by Pistell.

 Although it is unclear what was done with the original three-page memorandum, copies of that document subsequently found their way into the files of Wilkie Farr (D'Alimonte, tr. at 710-11), of Havens Wandless (D'Alimonte, tr. at 858-61; Ex. 72), and of International Capital Investments (Sterling) Ltd., an English company headed by Graze. (Frost, tr. at 119). There is no evidence concerning when or how copies reached those files.

 From Pistell's testimony that his request for information contained in the telex was made at the behest of Graze (tr. at 195-6, 200, 208, 223-4) and from Jeremy Waddell's *fn6" recollection that there was some urgency attached to getting the memorandum typed (tr. at 410), we make the reasonable inference that the information was subsequently provided to Graze in the Bahamas before he left on September 1, an inference which Pistell himself made during the supplemental hearing (tr. at 262).

 The Vencap shareholder's resolution, which would appear on the face of the minutes to have been passed on August 31, 1972 and which was incorporated by reference in the three-page memorandum, was not drafted in the final form used in the IIT-Vencap agreement until sometime between September 21, 1972 and September 29, 1972 (tr. at 756-63, 765; Ex. 35A and 60B; Appendix on Appeal at 3965A). (See infra, supplemental findings of fact relating to creation of the preference share terms). Therefore, at the time the three-page memorandum was given to Graze, the final version of the Vencap shareholder's resolution could not have been appended to the memorandum, since it had not yet come into existence. Nor is there any evidence that a draft of that resolution was appended to the memorandum as presented to Graze.

 Waddell testified that the memorandum was "not a document which was part of the contract between the parties . . . this was something outside that, a document in the nature of a memorandum describing the company and its management and its capital." Waddell further testified that upon receipt of the telex, he made certain deletions because it was his understanding that those terms of the deal had already been agreed upon with D'Alimonte and Pistell during the preceding week, the last week of August. (Waddell, tr. at 396-7).

 While we find that some of the terms for a potential investment had been worked out, we also find that a final decision had not been made by Graze on behalf of IIT to make the actual investment in Vencap at the time Graze sought and received the information contained in the telex and the subsequent three-page memorandum.

 We find that Graze either relied upon or sought to make it appear that he relied upon that information in his decision to go through with the investment.

 2. CREATION OF THE PREFERENCE SHARE TERMS

 On or about August 28, 1972, Murphy, who was in New York, telephoned Waddell of Carson Lawson, Vencap's Bahamian counsel handling the IIT-Vencap transaction, to advise him that Pistell would be contacting him about a proposed transaction between IIT and Vencap for the purchase by IIT of preference shares in Vencap. Waddell and Murphy did not, however, discuss the specific terms of the preference shares during the telephone conversation (Waddell, tr. at 384-86).

 On August 29, 1972, Graze, Pistell and John D'Alimonte *fn7" met at the Bahamas Commonwealth Bank ("BCB"). Graze told D'Alimonte that IIT was going to acquire some redeemable preference shares of Vencap (D'Alimonte, tr. at 641-46). D'Alimonte prepared handwritten notes at that meeting (Ex. 60D).

 Based upon the information which D'Alimonte obtained at that meeting and subsequently from Graze, D'Alimonte was to prepare on behalf of IIT a purchase agreement between IIT and Vencap (D'Alimonte, tr. at 643-45). D'Alimonte was also told to contact Waddell at Carson Lawson (D'Alimonte, tr. at 643-45, 779-80).

 During the period August 29 through September 1, 1972, D'Alimonte remained in the Bahamas (Ex. AE) and drafted the proposed agreement between IIT and Vencap for the acquisition of the preference shares (Ex. 60E). That handwritten draft (Ex. AG), was subsequently typed at the BCB (D'Alimonte, tr. at 721-22, 805-07).

 On or about the time of the August 29 meeting at the BCB, Graze gave D'Alimonte an outline of the proposed terms of the preference shares (D'Alimonte, tr. at 654). That outline was similar to, and perhaps the same with the exception of handwritten notations as, the outline (Ex. 59) received by Waddell (D'Alimonte, tr. at 795-797) from either IIT's lawyers, Wilkie Farr, or from Havens Wandless (Waddell, tr. at 381).

 Since D'Alimonte, the Wilkie Farr lawyer who worked on the IIT-Vencap agreement, had not seen the proposed terms until given to him by Graze, we infer that the outline received by Waddell must have come from someone at Havens Wandless. Also, it seems reasonable to infer that the outline was prepared by David Taylor, *fn8" the Havens Wandless attorney who subsequently worked on those same preference share terms.

 On or about August 29, 1972, D'Alimonte met with Waddell in the Bahamas to discuss the terms of the preference shares and the terms of the transaction in general (D'Alimonte, tr. at 659-61, 715, 785; Waddell, tr. at 413-14).

 Thereafter Waddell prepared, from the draft we found he had received from Taylor at Havens Wandless, a draft of the terms of the preference shares for the Vencap resolution (Ex. 60A; Waddell, tr. at 419-21). The draft was both prepared and sent to D'Alimonte in the Bahamas (Waddell, tr. at 462-64; D'Alimonte, tr. at 660-61, 665, 716). Later, Waddell sent to D'Alimonte, who was either in New York or in the Bahamas, a draft of the minutes of the shareholders' resolution (Ex. 60C).

 D'Alimonte received from Waddell the draft of the preference shares (Ex. 60A), between August 29 and September 1 (Ex. AE). Upon receipt, D'Alimonte and Waddell discussed generally some aspects of the resolution, including D'Alimonte's handwritten comments and notes on the draft (Waddell, tr. at 414-16, 462-3; D'Alimonte, tr. at 697-98, 715-20).

 On September 1, 1972, D'Alimonte met with Graze in the Bahamas. D'Alimonte told Graze, who was leaving the Bahamas that day, that he, D'Alimonte, was returning to New York. D'Alimonte stated that he was "taking [the Vencap matter] back to New York and it was still open" (D'Alimonte, tr. at 701).

 During the period of August 21 to September 7, 1972, Taylor was away from Havens Wandless on vacation in Spain and in the Canary Islands (D'Alimonte, tr. at 777-8).

 On September 21, D'Alimonte, who was in New York, received from Taylor, also in New York, a draft of two paragraphs of the preference shares terms which were delivered by hand (Appendix on Appeal at 3965A). We find that the draft was prepared by Taylor in New York sometime after his return from vacation on September 7, 1972 (Exs. 35A and 60B).

 D'Alimonte testified that it was his recollection "absent having recalled drafts having been presented to [him]" that the Vencap terms were completed in the Bahamas. Nevertheless, D'Alimonte recognized the Taylor draft, written in New York, as containing more than mere mechanical changes. D'Alimonte testified: "I at that point was even surprised to see that stage of the drafting still existing" (D'Alimonte, tr. at 815).

 Taylor and D'Alimonte had telephone conversations in New York regarding IIT's investment in Vencap on September 18 and 19, 1972 (tr. at 756-757).

 On September 29, D'Alimonte returned to the Bahamas. He met with Taylor there and discussed briefly the Taylor draft of the preference shares provisions.

 From all of the above findings and a comparison of the various drafts of the preference share terms, including the final version used in the IIT-Vencap agreement, we find that those terms as finally used were drafted substantially by Taylor in New York.

 3. SUPPLEMENTAL FINDINGS CONCERNING PISTELL'S USE OF VENCAP FUNDS

 a. The $590,000 Loan Transaction

 On January 1, 1973, Vencap, through its attorney Taylor, deposited $600,000 in Handelskredit Bank (Appendix on Appeal at 3993A).

 On January 19, 1973, the directors of Vencap authorized certain officers including Pistell and Taylor to execute any "agreements, promissory notes or other documents" required by Handelskredit Bank in connection with that Bank's loan to Intercapital *fn9" in an amount not to exceed Vencap's deposit at Handelskredit Bank (Appendix on Appeal at 1641A).

 On February 1, 1973, a "trust agreement" was concluded between Vencap "as lender -- hereafter called depositor" and the Handelskredit Bank "as trustee -- hereafter called Bank" which opened a trust account in the name of Vencap in the amount of $590,000. The agreement provided instructions to grant a loan in the Bank's name to Intercapital "but for account and at the exclusive risk and peril of the Depositor." The bank was to receive a 1.5% per annum "trusteeship-commission" separate and apart from the interest of 8.5% due yearly on the loan which interest was to be credited to Vencap's account (Appendix on Appeal at 1649A).

 On February 1, 1973, Handelskredit Bank informed Intercapital that "arrangements [were] being made" to transfer the sum of $590,000 to an intercapital account at the Bank of Commerce in New York "in accordance with the loan agreement dated February 1, 1973, Vencap Limited/Handelskredit-Bank A. G." (Appendix on Appeal at 3994A).

 On February 1, 1973, a pledge agreement was entered into between Handelskredit Bank and Intercapital whereby Intercapital pledged and assigned to the Bank 66,256 shares of Pomaikai Oil Corporation stock (Appendix on Appeal at 1645A-1648A), which shares were later replaced by Flag-Redfern shares (Appendix on Appeal at 4002A).

 On February 1, 1973, Pistell entered into a pledge agreement with Intercapital for his 66,256 shares of Pomaikai Oil Corporation stock (Appendix on Appeal at 1652A).

 On February 1, 1973, Intercapital pledged those Pomaikai shares to Handelskredit Bank in return for what was characterized in the pledge agreement as a "loan" by the Bank to Intercapital (Appendix on Appeal at 1645A-1648A).

 Intercapital then lent the $590,000 to Pistell. That loan matures on December 31, 1975 and bears interest at the rate of 9 1/2% per annum.

 On March 26, 1973, Vencap and Pistell entered into an agreement, pursuant to the February 1, 1973 pledge agreement between Pistell and Intercapital regarding the Pomaikai shares, in which Pistell granted Vencap an option to purchase 10% of the Pomaikai shares pledged by Pistell to Intercapital (Appendix on Appeal at 1651A-1654A).

 Defendants argue that this elaborate arrangement was undertaken for tax purposes. While that may be true, it is evident from the documentary evidence that the loan was one directly from Vencap to Pistell despite its circuitous route.

 b. The $55,000 Loan Transaction

 In December of 1973, Pistell borrowed $55,000 of Vencap's funds from Intervent Inc. ("Intervent"), a Delaware corporation, and a wholly-owned subsidiary of Vencap, at 8% interest (Appendix on Appeal at 2146A-2152A). The agreement provided that Pistell would grant Intervent a mortgage on and option to purchase his Bahamian residence, if the loan remained unpaid as of December 31, 1974.

 Intervent's letter of confirmation regarding this loan, dated December 28, 1973, was sent from the offices of Intervent in Midland, Texas to Pistell in the Bahamas. Intervent also has a place of business at the offices of Havens Wandless at 99 Park Avenue in New York.

 It is likely that plaintiffs can prove at trial that on July 26, 1974, Pistell gave a mortgage on that same Bahamian residence to Murray Malcolm Sinclair for the sum of $150,000 and that Pistell has not repaid that loan (see exhibits C and D, Plaintiffs' order to show cause, dated April 22, 1975).

 That mortgage appears substantially to negate Pistell's prior obligation to Vencap through Intervent, and clearly reflects Pistell's intent to use, and his actual use of, Vencap funds for his own personal benefit.

 c. The $100,000 Finder's Fee

 Defendant Pistell challenges plaintiffs' allegations that he received excessive compensation from Vencap. Pistell contends that any finding of excessive compensation must take into account the $100,000 finder's fee which he allegedly put into Vencap for start-up ...


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