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February 25, 2002


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 here?
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 down.
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.

Haymarket Tr. at 23-24.

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 appropriately.
So this case may not get to the jury. If that is your evidence, counsel, you will not get to the jury.

Id. at 245-46.

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.

Id. at 386.

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 ...

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