Plaintiff corporation (ENI), the owner and publisher of a nutritional newsletter and related trademark, entered into an Asset Purchase Agreement providing for Defendant’s purchase of ENI’s assets, including all of its rights in and to the newsletter and trademark. Under the Agreement, Defendant was required to use its best efforts to re-register the trademark (which had lapsed due to ENI’s failure to file a required declaration of continued use) with the U.S. Patent and Trademark Office. The Agreement also required ENI to “fully cooperate” with Defendant’s re-registration efforts. In the event that the re-registration succeeded, ENI was entitled to receive an additional payment.
After the Patent Trademark Office’s initial rejection of the registration application, litigation ensued. In response to the claim that it had breached its “best efforts” obligation, Defendant counterclaimed against ENI and, under an alter-ego theory, its President (Goldblatt), asserting that they had not complied with the obligation to “fully cooperate” with the re-registration efforts. Applying New York law, the Court dismissed the alter ego counterclaim, finding that it had failed to assert facts showing that Goldblatt misused ENI for her own ends or that there was a relationship between the alleged breach of contract and any misuse of ENI’s corporate form. (Goldblatt v. Englander Communications, L.L.C., 2007 WL 148699 (S.D.N.Y. Jan. 22, 2007))
Scienter Pleading Requirement Satisfied by Plea Allocution
The Securities and Exchange Commission brought an action alleging violations of Section 10(b) of the Securities Exchange Act of 1934 against a hedge fund, two companies responsible for the management and administration of the hedge fund, and the President and COO of the two companies (Haligiannis). Criminal charges of securities fraud and investment advisor fraud were also brought against Haligiannis in connection with the same conduct at issue in the SEC’s civil proceeding. While the civil lawsuit was pending, Haligiannis pled guilty to the criminal charges and made a plea allocution. Thereafter, the SEC moved for summary judgment in the civil action, relying in part on statements made in the allocution.
After noting that a violation of Section 10(b) requires that a defendant (i) have made a material misrepresentation or omission as to which he had a duty to speak, (ii) with scienter, and (iii) in connection with the purchase or sale of securities, the Court found that there was ample undisputed evidence to support the entry of summary judgment against the defendants. In the allocution, Haligiannis admitted that marketing materials and newsletters falsely inflated the fund’s assets and performance and that statements sent to investors falsely inflated returns. The Court found that the scienter element of the claim was satisfied by Haligiannis’s admission in the allocution that the inflated statements were sent to investors with knowledge of their falsity. Further, based upon its finding that Haligiannis exercised “exclusive control” over the corporate defendants, the court imputed Haligiannis’s scienter to those entities. (Securities and Exchange Commission v. Haligiannis, et al., 2007 WL 106174 (S.D.N.Y. Jan. 16, 2007))