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LINE COMMUNICATIONS CORP. v. REPPERT

June 3, 2003

LINE COMMUNICATIONS CORP., PLAINTIFF,
v.
LISA J. REPPERT AND REPPERT KELLY, LLC, DEFENDANT.



The opinion of the court was delivered by: VICTOR Marrero, District Judge

DECISION AND ORDER

On May 14, 2003, Line Communications Corp. ("Line") moved by order to show cause upon the affidavit of Tatiana Aleksa ("Aleksa"), President and CEO of Line, for a preliminary injunction*fn1 to compel Lisa J. Reppert ("Reppert") and Reppert Kelly LLC ("Reppert Kelly") to issue to Line funds, in the amount of $835,243.13 plus interest to date, currently being held in an attorney escrow trust account (the "Escrow Account") on behalf of Line, as well as the legal file for Line maintained at Reppert Kelly (hereinafter, the "Order to Show Cause"). After submissions were filed in opposition and in reply to the injunctive relief requested in the Order to Show Cause, the Court held a hearing on May 30, 2003 to address the motion (hereinafter, the "Hearing").*fn2 For the reasons stated at the Hearing, and as set forth below, the injunctive relief requested in the Order to Show Cause is DENIED.

I. BACKGROUND

Aleksa and Robert Bado ("Bado") entered into a merger agreement on October 23, 2000, joining Octet Communications Corp. ("Octet"), which was presided over by Aleksa as President, CEO and Chairman, and Atlantic Express Communications Company, Inc. ("Atlex"), of which Bado was the President and CEO. The merger of these two companies resulted in the formation of Line.*fn3 Bado was appointed President and CEO of Line and Aleksa was appointed Chairman of the Board. Octet interests retained a narrow majority of the Board of Directors.

From October 23, 2000 until September 11, 2001, Line business was primarily managed by Bado, although he would continue to seek Aleksa's approval on specified matters and Aleksa continued to "cultivate additional [Line] business abroad as well as domestically . . ." (See Affidavit of Tatiana Aleksa ("Aleksa Aff."), dated May 14, 2003 at ¶ 4.) During this time period and thereafter, Aleksa alleges that Bado acted improperly in a variety of broadly defined ways, including using "shell" corporations, taking excessive salary, using Line resources and equipment for other interests, etc. (Aleksa Aff, ¶¶ 6,7.)

Due to the events of September 11, 2001, Line, whose offices were located in the World Trade Center vicinity, sustained significant damage and loss, seriously impeding its continued ability to conduct business. Line had property damage insurance with The Hartford Insurance Company ("Hartford") and Bado, allegedly without consulting Aleksa, retained Reppert Kelly, specifically Reppert, to assist Line's collection of insurance monies due from Hartford.

Aleksa alleges continuing improprieties on the part of Bado after September 11, including that he violated his fiduciaries duty to Line and, instead diverted money, contacts, and business to his own privately controlled interests. Ultimately, Line offices were emptied by Bado and the equipment put in storage. Line stopped doing business as of April 2002.*fn4

On July 1, 2002, the Board of Directors authorized Aleksa to be the sole signatory authorized to deposit any funds collected on behalf of Line, including any insurance monies recovered by Hartford. Reppert was informed of this development.

Bado then called a "Notice of Special Meeting of Shareholders" on September 17, 2002 (hereinafter, "Shareholder Meeting"), with the stated purpose of removing Aleksa and her affiliates from management of Line and in her stead appointing others who represented Bado's interests. A proxy war began and apparently Aleksa prevailed. On September 17, 2002, the shareholders voted to remove Bado and his two affiliates from the Board of Directors and to terminate Bado as President and CEO. Aleksa was appointed interim President and CEO of Line. (See Resolutions of the Special Shareholders Meeting ("Resolutions"), dated September 17, 2002, attached as Exh. A to the Affirmation of Plaintiff's Counsel in Response to Defendants' Reply to Plaintiff's Order to Show Cause.)

Hartford ultimately settled the Line claims for $1,100,000, which monies are payable to Line. Subtracting attorney's fees, the remaining $835,243.13 is currently being held by Reppert in the Escrow Account.

Aleksa maintains that she has been using her own funds to maintain Line and that the company's need for funds is urgent in order to continue its business. Consequently, Line asserts that it needs the insurance proceeds being held by Reppert immediately to sustain its business operations, or, as explained at the Hearing: "Get it back on its feet." Moreover, Line indicates that it needs the Reppert legal file concerning Line in order to ascertain Bado's use of funds disbursed by Reppert.

Defendants respond that they have kept the funds in escrow, pending a court order or joint consent from Bado and Aleksa indemnifying them from any liability for releasing the funds, because (i) Line issued a written directive indicating that the money was to remain in the Escrow Account until receipt of an appropriate authorization from the Board of Directors, which Defendants allege has not been received (Reppert Aff. Exh. C); (ii) both Bado and Aleksa had instructed Reppert not to deposit settlement proceeds because they were concerned about creditors attaching the money prior to resolution of the issues pending between the parties; and (iii) both Bado and Aleksa have claimed that they were properly in charge of Line, creating confusion and concern about releasing the funds. Specifically, Bado told Defendants that his termination at the Shareholder Meeting was unlawful, that he had a contract negating any such action, and that Aleksa could not act as CEO because of her immigration status. On or about October 2002, Defendants allegedly spoke to the Ethics Boards of New Jersey concerning release of the funds and were told that they were acting correctly in keeping the funds pending a resolution of the dispute between Aleksa and Bado.

Having heard about the Order to Show cause from Defendants, Bado, as well as Maiden Telecom, Inc. ("Maiden") and KORH USA, Inc. ("KORH") (collectively, "State Court Plaintiffs"), by letter dated May 23, 2003, seek to intervene as a matter of right in this action pursuant to Rule 24(a)(2) of the Fed.R.Civ.P. The State Court Plaintiffs assert that the money being held by Reppert in escrow is under dispute in a civil action that was commenced by them against Line in the Supreme Court of the State of New York, New York County, on April 1, 2003 ("State Court Action"). The State Court Action involves claims by the State Court Plaintiffs for unpaid salary, severance pay, and repayment of moneys loaned to Line. The State Court Plaintiffs argue that they are indispensable parties in this action and are therefore entitled to intervene as of right, in that they claim an interest in the insurance proceeds in the Attorney Escrow Account, and that disposition of this action in their absence would impede their ability to protect that interest. Because of the State Court Action, Bado's counsel specifically requested that Defendants not release funds until the lawsuit brought in state court is resolved.

In addition to their arguments concerning their right to the insurance proceeds held in the Attorney Escrow Account, which is apparently the main subject of dispute in the State Court Action, the State Court Plaintiffs contend that the Shareholder Meeting was not properly convened because Aleksa and her interests held the Shareholder Meeting in Bado's absence even though it was officially adjourned, that Bado was not lawfully terminated as CEO and ...


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