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BrandAID MARKETING CORPORATION v. BISS

August 31, 2005.

BRANDAID MARKETING CORPORATION., Plaintiff,
v.
STEVEN S. BISS and CYBERIAN ENTERPRISES, LTD., Defendants. STEVEN S. BISS and CYBERIAN ENTERPRISES, LTD., Third-Party Plaintiffs, v. PETER MARKUS and PAUL SLOAN, Third-Party Defendants.



The opinion of the court was delivered by: WILLIAM PAULEY, District Judge

OPINION AND ORDER

This action arises out of an alleged sale of the stock of the plaintiff BrandAid Marketing Corporation ("BrandAid") to defendant Cyberian Enterprises, Ltd. ("Cyberian"). This Court has jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1332. This Court makes the following findings of fact and conclusions of law. As the finder of fact, this Court limits its discussion to the testimony and exhibits that it credits. That task is particularly daunting here because each party deceived the other in their dealings, and that modus operandi also permeated the trial. FINDINGS OF FACT

  I. The Parties

  At the time this action commenced, BrandAid was a publicly-traded corporation, organized under the laws of Delaware and licensed to transact business in New York. BrandAid's principal office was in Manhattan (Joint Pre-Trial Order, dated Aug. 10, 2004 ("JPTO") ¶ 7.1; Amended Complaint, dated Oct. 14, 2003 ("Am. Compl.") ¶ 1), and its business was in-store advertising using "supercards in displays mounted in supermarkets" (JPTO ¶ 7.6).

  Cyberian is a Hong Kong Company that transacts business in the United States. (JPTO ¶ 7.3.) Defendant Steven S. Biss is a Virginia attorney, who represented Cyberian in its dealings with BrandAid. (JPTO ¶ 7.2; Answer to Amended Complaint by Steven Biss and Cyberian, dated Oct. 22, 2003 ("Ans.") ¶ 10.)

  Peter Markus, a Canadian citizen and resident of Connecticut, worked for Corporate Services Group, LLC ("CSG"), a Connecticut corporation that prepares filings for public companies and provides business-consulting services. (Direct Testimony of Peter Markus, dated July 20, 2004 ("Markus Direct") ¶¶ 1-3.) CSG negotiated contracts for BrandAid. (Markus Direct ¶ 15.) Markus also worked in some capacity at the Law Offices of Charles C. Khym in Flushing, New York. (Markus Direct ¶ 3.) At all relevant times, Markus acted as BrandAid's business consultant — not its attorney. (Plaintiff's Exhibit ("PX") III-12,*fn1 III-14 at 000184 ("Mr. Markus is not the companies' [sic] counsel.").) BrandAid's Chairman, Chief Operating Officer and Secretary was Paul Sloan. (Direct Testimony of Paul A. Sloan, dated July 20, 2004 ("Sloan Direct") ¶ 4.)

  II. Chronology of the Parties' Dealings

  A. The Parties' Initial Contact

  On September 30, 2002, BrandAid authorized the issuance of 80,000,000 common shares with a par value of $0.001, and actually issued 7,142,190 shares to the public. (PX V-2 at 4.) In November 2002, Cyberian, through its authorized agent, Steven Massey, contacted BrandAid to express interest in investing in the company. (JPTO ¶ 7.8; Sloan Direct ¶¶ 94-97.) Cyberian sought to purchase 23,500,000 BrandAid shares for $21 million. (PX II-4.)

  At that time, Cyberian assured BrandAid that it had cash available for its investment: "[t]he source of cash is from investments and is currently placed in New York at one of the largest USA Banks." (PX II-4; Defendants' Exhibit ("DX") 8.) However, this assurance was false because Cyberian "didn't have the cash in New York." (Trial Transcript ("Tr.") at 292; see also Tr. at 20-21, 190-91, 316; PX IV-5; Direct Testimony of Steven Massey ("Massey Direct")*fn2 at 5-6.) Indeed, under questioning by this Court, Biss offered contradictory and "Alice in Wonderland" testimony to explain away Cyberian's assurance that it had the necessary funds:
The Court: . . . [B]ack in November of 2002, you passed on representations to BrandAid that Cyberian had $21 million essentially on deposit at a US financial institution, right? The Witness: The letter I sent to them was Cyberian's letter. Cyberian said they had investments placed with a bank in New York.
* * *
The Court: . . . [The letter] says the source of cash is from investments and is currently placed in New York at one of the largest USA banks. So the source is cash, and it is in New York at a large US financial institution. . . .
The Witness: Judge, I never interpreted that letter to say there was cash in a bank. I interpreted it to say that there was cash from investments that were placed in a bank.
* * *
The Court: Given all the things that happened in this case in these negotiations, and all the e-mail traffic and all of the consternation, did you ever speak to your clients about this $21 million?
The Witness: Yes, and it was disclosed to Mr. Sloan and Mr. Markus that there was no cash in any bank. I never made any representation to them that there was 21 million anywhere, ever. I just never said that to them, and neither did Mr. Massey. It was disclosed to them all along. They knew from the beginning of this until they signed the addendum that there was not 21 million.
The Court: But if there was no 21 million in cash, why would you forward a letter sent to you to them saying that it's currently placed in New York at one of the largest USA banks?
The Witness: They asked for a request for information asking Cyberian for the source of its funds. I forwarded that request to Cyberian and forwarded Cyberian's response to Mr. Markus.
(Tr. at 280-82.) Thus, this Court finds that when Biss forwarded Cyberian's letter to BrandAid, he was facilitating Cyberian's deception, or consciously avoiding the truth.

  As part of the contract negotiations, Cyberian also assured BrandAid's representatives that it did not intend to make any changes to the BrandAid board or interfere with its day-to-day operations: In regards to the current officers and directors of Brandaid there are no changes planned. We have faith in the current management and believe that an infusion have [sic] capital will assist them in becoming very successful in a shorter time period.

 
The future of Brandaid is in the hands of its current management. We believe that with their industry knowledge, past experience and sufficient capital they will be successful. . . .
Brandaid's place of business is the decision of current management.
Please understand that we in no way, shape or form want to be involved or interfere with the operations of Brandaid. We believe there is long term value with Brandaid and our intent is to hold the shares to be purchased long term.
(PX II-4 (internal paragraph numbering omitted); see also Tr. at 140-41.) As discussed below, those representations proved false.

  B. The Ratification of the Subscription Agreement

  On November 14, 2002, BrandAid and Cyberian ratified a Subscription Agreement (the "Subscription Agreement"), whereby Cyberian agreed to purchase 23,500,000 shares of BrandAid for $21 million. (DX 10 at SM02010058; see also JPTO ¶ 7.9.) A revised version of the Subscription Agreement noted:
The closing of the sale of the Shares shall take place within thirty (30) days of the date of acceptance of this Subscription Agreement by the Company. At closing, the Subscriber or assigns shall tender to the Company and/or the [CSG], Peter Markus, Esquire, by bank draft or wire transfer, the total amount of $21,000,000.00 (the "Purchase Amount"). Upon receipt of the Purchase Amount, the Company shall deliver to the Subscriber or assigns original stock certificates evidencing ownership of 23,500,000 Shares of the Company.
(DX 10 at SM02010065; see Sloan Direct ¶ ...

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