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ROTH v. ISOMED

August 23, 1990

JOSEPH ROTH, PLAINTIFF,
v.
ISOMED, INC., JAY L. HIRSHFIELD, SIDNEY HORTON, & GEORGE TRAHAN, DEFENDANTS.



The opinion of the court was delivered by: Robert L. Carter, District Judge.

OPINION

Joseph Roth, a citizen and resident of New York, instituted this action against defendants, seeking damages for breach of contract for failure of defendants to deliver to him 350,000 shares of Lansco Resources Ltd. stock in connection with a standby letter of credit provided by plaintiff to the Mizrachi Industrial Bank, Tel Aviv, Israel, for the benefit of Isomed Ltd., an Israeli corporation and a wholly owned subsidiary of defendant Isomed, Inc., a Delaware corporation with its principal place of business in Connecticut.

Jay Hirshfield is president and chief executive officer of Isomed, Inc. and one of its founders. He resides and works in Connecticut. George Trahan, who also resides and works in Connecticut, is secretary and a member of the board of directors of Isomed, Inc. Sidney Horton, who I believe resides and works on the west coast of the United States, is a third member of the board of directors of Isomed, Inc. The goal of the United States corporation was to market in the United States the fruits of the research of Isomed, Ltd.

Plaintiff brought the instant action, initially naming Hirshfield, Trahan and Horton as defendants, as well as Isomed, Inc., demanding judgment in the sum of $253,500, plus interest and costs. In an opinion dated May 16, 1989, with which familiarity is presumed, the three individual defendants were dismissed from the action because the complaint failed to assert any basis for the exercise of personal jurisdiction over these defendants. Roth v. Isomed, No. 88 Civ. 7418 (RLC), slip op. (S.D.N.Y. May 16, 1989).

In its answer, the corporate defendant admitted that it had not delivered the Lansco stock to Joseph, asserted that the agreement to deliver the stock made on June 23, 1988, lacked consideration, and asserted counterclaims against plaintiff on account of the conversion of $158,352.99 of defendant's funds to the use of plaintiff and his family ($141,178.95 received by plaintiff and $17,174.04 retained by Walter Roth, plaintiff's son).

The case was tried to the court on May 14-15, 1990.

I.

On September 30, 1984, plaintiff entered into an agreement with defendant Isomed, Inc., to increase from $125,000 to $200,000 a standby letter of credit provided by Roth for the benefit of Isomed, Ltd. Defendant agreed to pay interest to plaintiff at the annual rate of 7 1/2% for the period the letter remained in effect. Although the original letter of credit had no termination date, initially and with each extension of the letter plaintiff would give the bank a termination date for the obligation he was assuming.

Joseph Roth, who at the time of trial was 91 years old, has two sons, Robert and Walter. Joseph and Robert are signatories to a consulting agreement between defendant and the Transnational Economic Services ("Transnational"). The address given for Transnational is 891 Park Avenue, New York, New York, Joseph's residence. Initially the agreement called for Transnational to provide consulting services to defendant for a fee of $2,000 per month, plus expenses for a period of two years, beginning January 1, 1985. On January 1, 1987, the agreement was extended for five years, with the monthly fee increased to $3,000.

Walter had resided in Israel for 12 years at the time of trial. He was a director of Isomed, Inc. in 1984 and became its treasurer in 1985. His duty as treasurer was the overall supervision of Isomed's finances. He functioned also as a full-time consultant to Isomed in 1985. He was general and chief financial officer of Isomed, Ltd., the wholly owned Israel subsidiary of Isomed, Inc.

Walter prepared the 1984 agreement when Joseph increased the letter of credit to $200,000 and at Walter's direction the letter of credit was extended from time to time. He prepared the consulting agreement and its extension. Walter provided the consulting services, but involved Joseph and Robert because he was a party to litigation in Israel and wanted to limit his financial exposure in the event judgment was entered against him in the law suit.

From the time of his initial association with Isomed in or about 1984 until 1988 when he left the organization, Walter Roth was the only Isomed official with a permanent residence in Israel. Hirshfield, Trahan and Horton would come to Israel from time to time on visits, but Walter was in charge of the day to day operations in Tel Aviv. The overall administrative and financial responsibility for the Israeli organization was Walter's. He was authorized to sign checks, and to make payments and expenditures for Isomed. Only towards the end of Walter's association with Isomed during the period of interest in this litigation did Hirshfield begin to spend more time in Israel and become more active in the actual running of the Israeli company.

On August 1, 1986, at the request of defendant, Joseph cabled to defendant's account $50,000 as a loan on terms orally agreed to between Joseph and Walter. The terms were never reduced to writing. In or about 1987, Joseph desired to remove himself from obligation on the letter of credit and requested defendant to secure a replacement for him. On March 26, 1987, he notified the Israeli bank to extend the expiration date for the letter of credit to April 30, 1987. On April 10, 1987, he advised the bank to extend the expiration date to April 29, 1988. On January 1, 1988, Joseph advised defendant that he wanted the $50,000 loan repaid and a replacement of his letter of credit prior to April 29, 1988, the expiration date he had set in his April 10, 1987 communication to the bank.

Defendant undertook efforts to secure a substitute letter of credit without success. On April 7, 1988, Joseph agreed to extend the letter to July 29, 1988. However, by June, 1988, defendant's efforts to secure a substitute letter of credit were still unsuccessful. An agreement was reached on June 23, 1988, signed by Hirshfield as president of both Isomed, Inc., and Isomed, Ltd. In the document below Hirshfield's signature is the ...


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