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SOUTHRIDGE CAPITAL MANAGEMENT LLC v. LOWRY
February 25, 2002
SOUTHRIDGE CAPITAL MANAGEMENT, LLC, COOTES DRIVE, LLC AND YORK, LLC, PLAINTIFFS,
ROBERT W. LOWRY, SAMUEL JACOB BERKOVITS AND D.G. JEWELRY, INC., DEFENDANTS.
The opinion of the court was delivered by: Owen, District Judge.
Before me are motions to dismiss this multi-faceted action for damages
for defamation, breach of contract, tortious interference with contract,
and trade libel, and on jurisdictional grounds, and a motion for
sanctions against the plaintiffs.
Plaintiff Southridge Capital Management is an investment adviser to
funds that put financing into publicly traded corporations, obtaining
their securities and other rights in return. It is the adviser to
plaintiffs Cootes Drive, LLC and York, LLC, two such funds. Defendant
Robert Lowry earns his living as an expert witness and consultant on
securities industry matters. Defendant D.G. Jewelry, Inc. is a publicly
traded Ontario corporation that manufactures and sells jewelry, and was
being funded by Haymarket, LLC, another Southridge client. Defendant
Samuel Berkovits is D.G.'s president, CEO and chairman.
The roots of this dispute date back to the case of Haymarket LLC v.
D.G. Jewelry of Canada Ltd., tried in the New York State Supreme Court,
New York County in November 2000. In that case, Haymarket, had put money
into D.G., got D.G. stock, and thereafter, there being a drop in the
market price of the stock, sued D.G. — now also a defendant here
— for breach of contract for D.G.'s failure to issue additional
shares of its stock to Haymarket as required by their common stock
purchase agreement, which stated that D.G. was to issue additional stock
to Haymarket if Haymarket did not experience a certain return on its
investment. There was no dispute that, under the language of the
agreement, D.G. was required to issue these additional shares and that it
had refused to do so; its defense being the claim that Haymarket,
directed by Southridge*fn1, had manipulated D.G.'s stock price downward
during the operative periods, thereby increasing the number of shares
Haymarket was to receive. On November 16, 2000, the jury found that
Haymarket had intentionally participated in such a scheme. The court, as
it had been foreshadowing all the way through the trial, immediately set
the jury verdict aside as unsupported by the evidence and entered
judgment for Haymarket, directing the clerk to enter judgment in favor of
Haymarket on the issue of liability.
Illustrative of the extensive foreshadowing are the following
colloquies from the trial record:
THE COURT: What are you claiming [Haymarket] did wrong
MR. REIMER [D.G.'s attorney]: The trades are not
carried out by some broker.
THE COURT: What are you claiming they did here, counsel?
MR. REIMER: Your Honor, we are claiming that there were
massive sales. Their own principal said —
THE COURT: And they were precluded from doing that
by the agreement.
MR. REIMER: There were ten to fifteen percent of the
sales when their volume were 10 to 15 percent of the
daily sales, it would drive the stock, the company
THE COURT: They had a right to do that, absolute
right to do that. Counselor, this case may never get
to the jury.
MS. RICHARD [Haymarket's attorney]: That —
that is my next point, Your Honor.
THE COURT: If I conclude there is no basis for the
defense, it is not going to the jury.
THE COURT: Counselor, let's finish this case. If I
conclude that there is no evidence that the market
makers actions was in any way influenced by anything
that [Haymarket] did, I will not give this case to the
jury and I will direct the entry of a judgment
certainly with respect to the non-liquidated damages
and then we can deal with the liquidated damages
So this case may not get to the jury. If that is
your evidence, counsel, you will not get to the jury.
THE COURT: You're claiming a scheme, presumably
participated in by [Haymarket]. And that is your
problem in this case, it seems to me, and I think it's
an insurmountable problem, but I will let the jury
render a verdict. Maybe they will make it unnecessary
for me to take any action.
THE COURT: So you are not waiving that. You want me
to state to the jury — no, hear me out here,
there is no question the contract was breached. We all
agree to that. The only defense they have are
equitable. They are not properly tried to the jury.
Counselor, I don't think they have a defense, I
already told you that. I have not heard all the
witnesses, and we are going to have two depositions
and maybe some more expert testimony if the Nasdaq
document comes in.
But my sense of this case is that I'm going to give
it to the jury only for the purpose, since they are
here and have been listening, let them decide on it.
If they make the right decision, I don't have to
struggle with it. If they make the wrong decision, I
can deal with that. And if I am wrong, at least that
aspect of the case doesn't have to be tried again; my