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Suchodolski Associates, Inc. v. Cardell Financial Corp.

January 3, 2006

SUCHODOLSKI ASSOCIATES, INC., ET AL., PLAINTIFFS,
v.
CARDELL FINANCIAL CORP., DEFENDANT.
CARDELL FINANCIAL CORP., ET AL., PETITIONERS,
v.
SUCHODOLSKI ASSOCIATES, INC., ET AL., RESPONDENTS.



The opinion of the court was delivered by: William H. Pauley III, District Judge

ORDER

Anastacio Empreendimentos Imobilarios e Participacoes Ltda., Compania City de Desenvolvimento, Deltec Empreendimentos e Participacoes Ltda., Financity Factoring e Representaceos Ltda. (collectively, the "Deltec Subsidiaries"), Deltec Holdings ("Deltec") and Cardell Financial Corporation ("Cardell") (collectively, the "Defendants") move for (1) a permanent anti-suit injunction preventing Suchodolski Associates, Inc. ("SAI") and Consultadora Worldstar, S.A. ("Worldstar") (collectively, the "Plaintiffs") from prosecuting a lawsuit in Brazil; and (2) an award of attorneys' fees.*fn1

For the reasons set forth below, the motion is granted in part and denied in part.

BACKGROUND

Cardell is the lender and secured party under a Loan and Security Agreement dated November 30, 2001 (the "Loan Agreement"), pursuant to which Cardell loaned Deltec $12.8 million (the "Loan"). (Affidavit of John H. Doyle III, dated Oct. 19, 2005 ("Doyle Aff.") ¶ 4.) To secure the Loan, Cardell, SAI, Worldstar and Metropolis Shipping and Business, Inc. ("Metropolis") executed the Stock Pledge Agreement dated November 30, 2001. (Reply Affidavit of John H. Doyle III, dated Nov. 16, 2005 ("Doyle Reply Aff.") Ex. 7.) Under the Stock Pledge Agreement, a default on the Loan would permit Cardell to foreclose against Plaintiffs' Deltec shares. (Stock Pledge Agreement § 11.) On May 30, 2003, Deltec defaulted on its loan payments. (Doyle Aff. ¶ 6.)

On December 9, 2003, this Court issued a preliminary injunction against foreclosure, pending the resolution of an arbitration initiated by Plaintiffs. Suchodolski Assocs., Inc. v. Cardell Fin. Corp., No. 03 Civ. 4148 (WHP), 2003 WL 22909149, at *5 (S.D.N.Y. Dec. 9, 2003) ("Suchodolski I"). The arbitration panel (the "Panel") issued a decision on July 8, 2004 (the "Award") which this Court later confirmed. Suchodolski Assocs., Inc. v. Cardell Fin. Corp., No. 04 Civ. 5732 (WHP), Corrected Judgment (Oct. 26, 2004) ("Suchodolski II"). The Award permitted Cardell to foreclose on Plaintiffs' Deltec shares beginning on October 15, 2004. (Award at 11.)

On October 18, 2004, Plaintiffs requested an accounting for Cardell's alleged strict foreclosure on Metropolis' Deltec shares. This Court ruled on October 22, 2004 that the Award had not provided for a strict foreclosure on Metroplis' interest in Deltec, and that Cardell was under no duty to provide Plaintiffs with an accounting. Suchodolski Assocs., v. Cardell Fin. Corp., No. 04 Civ. 5732, Transcript of Hearing at 18-22 (Oct. 22, 2004) ("Suchdolski III"). Plaintiffs appealed this ruling, and the appeal is currently pending before the Second Circuit.

Cardell commenced foreclosure of Plaintiffs' Deltec shares on October 28, 2004. (Doyle Aff. ¶ 22.) At an auction held on January 27, 2005 (the "Auction"), Cardell purchased the shares for $2.5 million. (Affidavit of Helen J. Williamson, dated Oct. 21, 2005 ("Williamson Aff.") ¶ 21.)

On August 2, 2005, SAI and Worldstar commenced an action against Cardell, Metropolis, Deltec, two Deltec Subsidiaries and several Deltec managers in the First Civil Court of Sao Paulo, Brazil (the "Brazilian Action"). (Doyle Aff. Ex. 1.) The complaint in the Brazilian Action (the "Brazilian Complaint") asserts essentially two claims. (Doyle Aff. Ex. 1.) First, the Brazilian Complaint alleges that prior to Deltec's default, Cardell breached its fiduciary duty to Deltec shareholders. (See, e.g., Brazilian Complaint at 24-25, 54, 56.) Cardell allegedly abused its de facto control of Deltec by undermining the real estate business of the Deltec Subsidiaries to prevent Deltec from making its payments under the Loan Agreement. (See, e.g., Brazilian Complaint at 52-55.) This enabled Cardell to assume de jure control over Deltec by foreclosing on Plaintiffs' Deltec shares. (See, e.g., Brazilian Complaint at 4, 17-18, 22, 74-77.)

Second, the Brazilian Complaint alleges that Cardell violated the terms of the Stock Pledge Agreement by failing to conduct the Auction in a "commercially reasonable manner." (Brazilian Complaint at 77.) For example, it is alleged that Cardell undermined the Auction by refusing to offer a majority interest in Deltec. (Brazilian Complaint at 30.) Cardell also purportedly underpriced Deltec's shares. (Brazilian Complaint at 31.)

DISCUSSION

I. Jurisdiction Transfer Rule

Plaintiffs contend that this Court lacks jurisdiction over Cardell's present motion

because Suchodolski III is currently on appeal. This Court disagrees. The filing of a notice of appeal "divests the district court of jurisdiction respecting the questions raised and decided in the order that is on appeal." New York State Nat'l Org. for Women v. Terry, 886 F.2d 1339, 1350 (2d Cir. 1989). However, the district court is only divested of jurisdiction concerning those questions raised on appeal. Terry, 886 ...


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