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AQ Asset Management LLC v. Levine

Supreme Court of New York, First Department

October 3, 2013

AQ Asset Management LLC, etc., et al., Plaintiffs-Respondents,
v.
Michael Levine, etc., Defendant-Respondent, Habsburg Holdings Ltd., et al., Defendants-Appellants. Michael Levine, etc., Interpleader Counterclaimant-Respondent,
v.
AQ Asset Management LLC, etc., et al., Interpleader Defendants, Habsburg Holdings Ltd., et al., Interpleader Defendants-Appellants. Habsburg Holdings Ltd. et al., Fourth-Party Plaintiffs-Appellants, Michael Levine, etc., Fourth-Party Defendant-Respondent. [And a Fifth-Party Action] Index No. 652367/10

Law Offices of Michael A. Haskel, Mineola (Michael A. Haskel, Brandon M. Zlotnick and Leonard Gekhman of counsel), and Kerry Gotlib, New York, for appellants.

Reitler, Kailas & Rosenblatt LLC, New York (Leo G. Kailas and David Cole of counsel), for AQ Asset Management LLC, Antiquorum, S.A., Antiquorum USA, Inc., and Evan Zimmermann, respondents.

Levine & Associates, P.C., Scarsdale (Michael Levine of counsel), for Michael Levine, respondent.

Angela M. Mazzarelli, J.P., Richard T. Andrias, Leland G. DeGrasse, Helen E. Freedman, Sallie Manzanet-Daniels, JJ.

MAZZARELLI, J.P.,

Habsburg Holdings Ltd. and Osvaldo Patrizzi appeal from the order of the Supreme Court, New York County (Shirley Werner Kornreich, J.), entered on or about August 3, 2012, which (1) denied their motion for partial summary judgment (a) declaring their entitlement to payment from Michael Levine, as escrow agent, of the remaining cash proceeds of the sale of their shares in the Antiquorum entities to Artist House Holdings, Inc., and (b) declaring invalid the Stock/Sales Proceeds Distribution Agreement; and (2) denied preliminary injunctive relief to them (a) requiring Evan Zimmermann and Antiquorum S.A., or, alternatively, Levine, to pay into court $2 million previously disbursed by Levine from the escrow account; (b) enjoining AQ Asset Management LLC and Antiquorum, S.A. from disbursing any additional proceeds from the sale of certain inventory belonging to the entities; and (c) requiring Zimmermann to pay into court some $3.2 million paid to him by Artist House Holdings, Inc.; the order of the same court and Justice, entered on or about August 2, 2012, which granted the motion of Levine to quash a nonparty subpoena directed to Karastir LLC; the order of the same court and Justice entered on or about August 3, 2012, which granted the motion of AQ Asset Management LLC, Antiquorum, S.A., Antiquorum USA, Inc., and Zimmermann to quash a nonparty subpoena directed to TD Bank; and the order of the same court and Justice, entered August 17, 2012, which granted Levine's motion pursuant to CPLR 8501 to require sellers to post $75, 000 as security for costs.

Fifth-party defendant Simon Leo Verhoeven and defendant Osvaldo Patrizzi were principals in a group of entities (the Antiquorum entities) that primarily engaged in the business of selling and trading antique time pieces. The Antiquorum entities were plaintiff Antiquorum, S.A., a Swiss corporation (ASA), plaintiff Antiquorum USA, Inc., a Delaware corporation (AUSA), nonparty C2C Time, Inc. and nonparty Antiquorum Auctioneers (Hong Kong) Ltd. In or about 2005, Verhoeven (whose stake in the Antiquorum entities was held through defendant Habsburg Holdings Ltd. [Habsburg], a separate entity), and Patrizzi, decided to sell their interests in the Antiquorum entities. Plaintiff Evan Zimmermann introduced them to a Japanese company that agreed to purchase all of the assets of the Antiquorum entities. Zimmermann is an attorney who Patrizzi asserts was his friend as well as his personal attorney. He further claims that Zimmermann was a legal advisor to the Antiquorum entities for several years prior to the subject transaction, representing the entities in contract and litigation matters and filing trademark applications. Zimmermann contends that his role in bringing the buyer to the attention of Verhoeven and Patrizzi was strictly as a broker. Verhoeven and Patrizzi, on the other hand, contend that Zimmermann at all times acted as their legal counsel. While there is some question over what Zimmermann's role was, there is no real dispute that defendant-interpleader-plaintiff-fourth party defendant fifth-party plaintiff Michael Levine, also an attorney, provided counsel to Habsburg and Patrizzi in structuring the deal and advising them how to proceed.

Levine prepared a share purchase agreement (SPA) which identified Habsburg and Patrizzi as the "Stockholders" in the Antiquorum entities. The SPA contemplated a sale of 100% of the stock of the Antiquorum entities. However, the parties later amended the agreement to reflect the sale of only half the shares in the Antiquorum entities and to change the identity of the buyer from Yokohama Information Technology Company Limited to Artist House Holdings, Inc. (AH). The amended agreement provided that "[o]n the Closing Date, the Stockholders shall deliver all stock certificates in their possession evidencing such stock ownership... to the Escrow Agent." Upon the transfer of the shares, AH was to "deliver to the Stockholders, " by way of payment to the escrow agent, the deal's $30 million cash purchase component. The agreement further provided that "the Escrow Agent shall only release funds to such shareholders of the [various Antiquourum entities] as deliver its or his shares to the Escrow Agent." Levine was designated by the agreement as the escrow agent.

The SPA included a schedule setting forth the amount of stock held by each shareholder in the various entities. The schedule provided that Habsburg owned all 2, 100 shares of ASA, and that, of the 49 shares making up AUSA, ASA held 25 and Patrizzi held 24. It further stated that C2C Time, Inc. was comprised of 100 shares, 35 of which were owned by Patrizzi, 35 by AUSA and 30 by ASA. Finally, the SPA represented that the fourth entity being sold, Antiquorum Auctioneers (Hong Kong) Ltd., was wholly owned by ASA.

Patrizzi and Zimmermann entered into a separate agreement which is at issue. That agreement, known as the Stock/Sales Proceeds Distribution Agreement (SPDA), was related to an arrangement which Patrizzi had entered into with Yokohama (and to which AH succeeded) pursuant to which, in exchange for consulting with the buyer after the SPA was performed, Patrizzi would become an owner of 50% of whichever entity acquired the Antiquorum entities. The SPDA further reflected the fact that inventory belonging to the Antiquorum entities was not subject to the SPA. Pursuant to the SPDA, Patrizzi agreed that the new shares earned by him for consulting would be transferred by him to a new entity that he would own equally with Zimmermann. Patrizzi also agreed to evenly share the proceeds from any inventory sales with Zimmermann. The SPDA was drafted by Levine. It contained an express statement that Levine would be paid part of Zimmermann's share if the SPA went forward. Recognizing his role in advising Patrizzi with respect to the SPA and the SPDA, Levine included the following provision in the agreement:

"It is hereby understood and agreed by the parties that Michael L. Levine, Esq. has drafted this Agreement, without compensation, as an accommodation to the parties and without representing either party in the negotiation or execution of this Agreement. The parties acknowledge that Michael Levine, Esq. has acted as counsel for both Zimmermann and Patrizzi in the past, and has a personal economic interest in a portion of the distribution of the Patrizzi Funds to Zimmermann. Patrizzi and Zimmermann each acknowledge that they have been advised by Michael L. Levine, Esq. that a conflict of interest exists, have fully considered the same, and have elected to have Michael L. Levine, Esq. draft this Agreement notwithstanding the same. Patrizzi and Zimmermann further specifically acknowledge and represent that neither of them have received any legal advice from, nor are relying upon any information provided by, Michael Levine, Esq., and have each consulted with (and been represented by) independent counsel."

The purchase by AH of the Antiquorum shares closed on or about January 16, 2006. Although AH tendered the full purchase price, Habsburg only tendered 1, 268 of its shares in ASA, the remaining shares having been frozen by Swiss authorities in connection with a criminal investigation of Habsburg and Verhoeven. Shortly thereafter, Levine, as escrow agent, received written instructions from Habsburg and Patrizzi about how to disburse the sale proceeds, and did so without objection from AH or any other party. The instructions included a directive that Levine retain a sum of money in escrow pending resolution of the legal questions surrounding the ASA shares that could not be tendered.

This action was commenced against Habsburg and Patrizzi and Levine, in his capacity as escrow agent, by AQ Asset Management LLC, (AQ) as assignee of AH, and by ASA, AUSA and Zimmermann. AH and Zimmermann had gained control over ASA and AUSA from Habsburg and Patrizzi at an ASA general shareholders meeting held in 2007, after the closing. Although AH held only 50% of the shares of ASA, it and Zimmermann relied on the SPDA's purported grant to Zimmermann of the right to vote half of the other 50% of the shares in that entity. Using this power, AH and its affiliates ousted all prior board members of ASA, including Verhoeven, and stripped Patrizzi of his role in ASA. They elected a new board, which included Zimmermann. In the complaint, ASA and AUSA alleged that Habsburg and Patrizzi wrongfully claimed to control the shares in those entities when entering into the SPA, and that any payment for the sale of those shares should have been made to ASA and AUSA, not to Habsburg and Patrizzi.

AQ claimed in the complaint that Habsburg failed to tender all of the shares in the Antiquorum entities required by the SPA and sought reimbursement from Habsburg for the value of those shares. Zimmermann asserted a claim against Habsburg related to those shares in ASA that he expected to receive in connection with the SPDA. Finally, ASA, as an owner of AUSA, C2C Time, Inc. and Antiquourum Auctioneers (Hong Kong) ...


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