Professional Documents
Culture Documents
Appellants' Brief
Appellants' Brief
In The
v.
BRIEF OF APPELLANTS
Table of Contents
TABLE OF AUTHORITIES .........................................................................................IV
A. The Basis For The District Court’s Subject Matter Jurisdiction ............. 1
C. The Filing Dates and Finality of the Order Appealed From .................... 1
D. References................................................................................................ 2
SUMMARY ARGUMENT............................................................................................. 13
ARGUMENT ................................................................................................................... 16
RCW 23B.06.210(2)...................................................................................................... 17
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A. It is Undisputed that the MOU is a Contract Between HIMC and Veripay. ... 21
B. The District Court’s Grounds for Holding the MOU Void are Erroneous. ..... 23
The Absence of a Stated Price Per Share in the MOU was Not Fatal to Formation
of a Contract. ..................................................................................................................... 24
The District Court Should have Found that the Share Price of $0.01 is the Only
The District Court Erred in Holding that the MOU was Void Because HIMC,
Allegedly, Failed to Cash the Individual Defendants’ Checks for the Purchase of the
Shares. ............................................................................................................................... 29
The District Court Erred in Holding that the MOU was Void on the Grounds that
HIMC Issued Restricted Stock Rather than Free Trading Stock. ..................................... 33
CONCLUSION................................................................................................................ 41
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CERTIFICATE OF COMPLIANCE............................................................................ 43
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Table of Authorities
Cases
Berg v. Hudesman, 115 Wn.2d 657, 667, 801 P.2d 222 (1990) ............................. 27
Conrad v. Ace Property & Cas. Ins. Co., 532 F.3d 1000, 1004 (9th Cir. 2008) .... 17
David v. United States, 820 F.2d 1038, 1039-40 (9th Cir.1987) ............................ 17
Diaz v. Nat'l Car Rental Sys., Inc. 143 Wn.2d 57, 66, 17 P.3d 603, rev'd, 143
Eurick v. Pemco Ins. Co., 108 Wash.2d 338, 340, 738 P.2d 251 (1987)................ 22
Hoke v. Stevens-Norton, Inc., 60 Wash.2d 775, 375 P.2d 743 (1962) ................... 39
Interstate Prod. Credit Ass'n v. MacHugh, 90 Wn.App. 650, 654, 953 P.2d 812,
review denied, 136 Wn.2d 1021, 969 P.2d 1063 (1998) ..................................... 31
Multicare Med. Ctr. v. Department of Soc. And Health Serv., 114 Wn.2d 572, 587,
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Oregon Mut. Ins. Co. v. Barton, 109 Wash.App. 405, 413, 36 P.3d 1065 (2001),
Peoples Mortgage Co. v. Vista View Builders, 6 Wn.App. 744, 747-48, 496 P.2d
354 (1972)............................................................................................................ 36
S. Cal. Painters & Allied Trade Dist. Council No. 36 v. Best Interiors, 359 F.3d
Scott Galvanizing, Inc. v. Northwest EnviroServices, Inc., 120 Wn.2d 573, 582,
Storseth v. Pacific Coast Investment Co., 42 F.3d 1402, 1994 WL 650000 (9th Cir.
1994) .................................................................................................................... 41
Swanson v. Holmquist, 13 Wn.App. 939, 942, 539 P.2d 104 (1975) ..................... 36
Tanner Elec. Co-op. v. Puget Sound Power & Light Co., 128 Wn.2d 656, 674, 911
U.S. Life Credit Life Ins. Co. v. Williams, 129 Wn.2d 565, 569, 919 P.2d 594, aff'd,
United States v. 1.377 Acres of Land, 352 F.3d 1259, 1264 (9th Cir. 2003).......... 16
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Statutes
RCW 62A.3-311...................................................................................................... 34
Other Authorities
U.S. Securities and Exchange Commission, “Rule 144: Selling Restricted and
Rules
Rule 144 of the Securities Act of 1933 (“Securities Act”), 17 C.F.R. § 230.144 .. 42
Treatises
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JURISDICTIONAL STATEMENT
Subject matter jurisdiction for the District Court in this action exists based
exclusive of interest and costs, and because the controversy is between citizens of
different states.
and Shai Bar-Lavi are residents of the State of New York. Defendant-Appellant
This is an appeal from a final decision of the U.S. District Court for the
Western District of Washington, Tacoma. Accordingly, the basis for the Court of
The final decision appealed from, titled Order and Final Judgment was
entered in the District Court’s docket on May 20, 2009. (ER-1) On June 19, 2009,
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the Notice of Appeal was timely filed within 30 days of entry of the order,
This appeal is from a final order that disposes of all parties’ claims.
D. References
manner they were referred to by the District Court in the Order appealed from (E-
Anna S. Bar-Lavi and Shai Bar-Lavi are referred to as the Individual Defendants.
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1. Did the District Court err in holding that the price for the sale of
of HIMC Corp and because the Defendants did not agree to that price,
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Veripay to generate new business for HIMC. The joint venture was memorialized
the Individual Defendants. The shares were issued as restricted under Rule 144k
registration. At the conclusion of the holding period, HIMC refused to remove the
HIMC asserted in its Complaint that the Individual Defendants failed to pay
price of $0.125 per share. The Individual Defendants counter that the amount they
paid represented the agreed stock purchase price of $0.01 per share.
In this action HIMC sought (1) declaratory and injunctive relief as to the
application of Rule 144(d) and (k) to the restricted stock and a permanent
restrictions and prohibiting defendant Fidelity Transfer from reissuing HIMC stock
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contract against HIMC and sought removal of the restrictions of the stock issued to
HIMC’s refusal to remove the restrictions at the time when the restrictions expired,
when HIMC’s stock was trading at a price substantially above its current levels.
for summary judgment and HIMC cross-moved. Discovery was conducted. In the
course of proceedings the District Court consistently ruled in favor of HIMC and
against the Individual Defendants in all of ten different motions. On November 25,
2008, the District Court entered an order denying the Individual Defendants
motion for summary judgment and denying in part and granting in part HIMC’s
the Summary Judgment Order (ER-6). In each of these orders the District Court
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rejected the arguments proffered by both sides, and notwithstanding the fact that
the contract between the parties was undisputed, the District Court found no
contract to exist and directed the Individual Defendants to return the HIMC shares
STATEMENT OF FACTS
On or about December 13, 2004, HIMC and Pasa Inc., an entity owned by
the Individual Defendants, entered into a “Binding Letter of Intent.” (ER-99) The
Binding Letter of Intent (“BLOI”) stated the terms for a joint venture, in which a
new entity, later called Veripay, would be created for the purpose of bringing new
2008, (“Bar-Lavi Afft.”), ¶2.) Specifically, the parties to the BLOI, intended that
Veripay would provide customers for HIMC Corp.’s credit card transaction
processing services from the direct response marketing industry. See Bar-Lavi
Afft., ¶3.
The BLOI provided that HIMC would give two forms of compensation:
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Shortly after the execution of the BLOI, the Individual Defendants paid to
HIMC four checks, totaling $6,892.28 (ER-45), for the HIMC common stock
Complaint:
On February 9, 2005, HIMC and the joint venture vehicle, Veripay LLC
contractual relationship between HIMC and Veripay, upon terms similar to what
was described in the BLOI. (ER-122) The second agreement was titled “HIMC
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established the rules by which they would govern their joint venture.1
As envisioned in the BLOI, the MOU provided for the upfront issuance of
subsequent issuance of shares upon achieving certain sales goals. The MOU
states,
1
The Operating Agreement provided an arbitration clause, stating:
the District Court, pursuant to Section 3 of the Federal Arbitration Act, 9 U.S.C.,
for an Order staying this action until arbitration could be had. The District Court
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i.e., the Individual Defendants, as consideration for the issuance 689,226 shares.
Two days after executing the MOU and the Operating Agreement, on
February 11, 2005, HIMC caused 689,226 shares of common stock to be issued to
During the months of March and April 2005, Veripay, working with HIMC,
attempted to bring the hoped for new business to HIMC. As part of these efforts,
the Individual Defendants Avi Sivan and Shai Bar-Lavi, along with HIMC’s
revenues to HIMC, and the parties to this action disagree as to who is responsible
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2005, HIMC entered into a third agreement with Veripay LLC, titled “ADDITION
ratified the MOU and the issuance of the shares to the Individual Defendants,
stating, “This agreement adds to and does not in any way reduce the grant of
Nowhere in the Addition to MOU does it say that the grant of shares from
MOU was revoked or that it failed for lack of consideration, or that an additional
$79,261.22 was needed to pay for that stock, as HIMC has claimed in this action.
On or about June 16, 2005, HIMC terminated its president, Aaron McCann,
who had been the signatory on behalf of HIMC in all of the above-mentioned
2
HIMC’s former President Aaron McCann acknowledged in his deposition
that Defendant-Appellant Shai Bar Lavi did a lot of traveling for HIMC business
(ER-192); and that McCann and Defendant-Appellant Avi Sivan went on sales
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the transfer of such shares, other than pursuant to an exemption under Rule 144 of
the Securities Act of 1933 (“Securities Act”), 17 C.F.R. § 230.144, and receipt by
On or about February 11, 2006, Attorney Paul Greenfield, as counsel for the
Individual Defendants, requested that HIMC Corp. direct its counsel to issue a
legal opinion authorizing the removal of the restrictive legend contained on the
Defendants could properly sell their 689,228 shares, pursuant to Rule 144.
Defendants stock under SEC rules and the applicable contract, the MOU.
injury and loss. Specifically, the Individual Defendants injury arises from their
inability to sell their 698,226 shares of HIMC Corp. stock in and around the time
of February 2006. Such injury includes the market value of the HIMC stock at the
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time of HIMC Corp.’s breach. (Defendants’ Answer and Counterclaim, ¶85, ER-
88)
In the two years following the issuance of HIMC’s stock to the Individual
contracts with Veripay or to seek revocation of the stock issued to the Individual
Defendants.
However, in March, May and June 2007, the Individual Defendants renewed
their demands that the restrictions be removed from their stock certificates under
Individual Defendants the money paid by them for the HIMC share in December
16, 2007, together with interest accrued. (ER-65-76, and ER-39 Complaint, ¶33)
Court house door and the filing in August 2007 of HIMC’s Declaratory Judgment
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SUMMARY ARGUMENT
The District Court erred in holding that RCW 23B.06.210 was not complied
with; and the District Court incorrectly found that the Board of Directors “set” the
authorize the issuance of stock, was fully complied with in this case. HIMC’s
Board of Directors authorized the issuance of the stock that went to the Individual
The District Court incorrectly found that the Board of Directors “set” the
price for the stock, when, in fact, there was no resolution of the Board of Directors
The facts are that the Individual Defendants had a contract to receive stock
from HIMC. They paid for the stock in accordance with the contract. The Board
of Directors authorized issuance of the stock, and thereupon, the corporation issued
the stock.
complied with in this transaction, and under Washington law stock once issued
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carries the presumption that it is paid for. Murphy v. Panton, 96 Wash. 637, 165 P.
1074 (1917).
Relying on its incorrect findings of fact, the District Court further erred in
Based on the foregoing, Court of Appeals should reverse the District Court
The District Court erred in holding that no contract existed between the
(“MOU”) (ER-122) formed the contract between the parties. The court overlooked
its primary goal of determining the intent of the parties, which clearly manifested
The Court erroneously found that the absence of an express price for the
shares issued pursuant to the MOU was fatal to the agreement. Under the case law,
the Court should have found that silence as to price in the MOU was not fatal to
The court should also have found that based on the extrinsic evidence, the
agreed price $0.01 per share is the only reasonable inference that can be drawn.
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The District Court also erred in finding that “It is undisputed that HIMC has
never cashed” the Individual Defendants purchase money checks for their HIMC
stock. In fact, several admissions against party interest by HIMC make clear that
the checks were cashed. Moreover, even if the checks, which were duly tendered,
were not cashed, such a finding should not have been deemed fatal to the MOU.
Finally, the District Court erroneously found that the Individual Defendants
had objected to the issuance of restricted stock and that this was fatal to the MOU.
In fact, no formal objection was ever made, and the type of security issued should
Accordingly, the Court of Appeals should reverse the District Court and
HIMC’s conduct clearly ratified the issuance of stock and the MOU, which
the Court should grant summary judgment for the Individual Defendants.
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If the Court concludes that the shares issued to the Individual Defendants
were duly paid for, then the Court must conclude that HIMC breached its duty to
facilitate the removal of the Rule 144K restrictive legends on the Individual
Counterclaim.
ARGUMENT
STANDARD OF REVIEW
de novo, see S. Cal. Painters & Allied Trade Dist. Council No. 36 v. Best Interiors,
359 F.3d 1127, 1130 (9th Cir.2004), as is its interpretation and meaning of
contract provisions, see United States v. 1.377 Acres of Land, 352 F.3d 1259, 1264
(9th Cir. 2003). See also Conrad v. Ace Property & Cas. Ins. Co., 532 F.3d 1000,
The standard for granting a motion for summary judgment is after viewing
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the evidence in the light most favorable to the non-moving party, "no genuine issue
of material fact exists," and that the moving party is entitled to judgment as a
matter of law. David v. United States, 820 F.2d 1038, 1039-40 (9th Cir.1987).
price for the stock and the Individual Defendants did not agree to it. However,
there was no resolution of the Board of Directors of HIMC setting the price of the
stock to be issued.
The District Court erred, because, in fact, RCW 23B.06.210 was fully
complied with in this case. HIMC’s Board of Directors duly authorized the
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issuance of the stock that went to the Individual Defendants. The specific
(ER-124).
the price of the stock to be issued. The minutes of the Board’s meeting only report
a discussion of contract terms. However, this portion of the minutes was only a
recording of items that were discussed at the “Special Meeting.” There was no
resolution as to price of the shares. The actual resolution portion of the document
is clear and simple, the Board authorized the issuance of 689,228 share of HIMC
23B.06.210 were not satisfied. Issuance of shares were authorized by the board
of directors. Nor can it be held that the Binding LOI is not a contract because it
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23B.06.210(2). The law only states, “Any issuance of shares must be authorized
contract for the issuance of stock, duly entered into by a corporation, subsequently
becomes void, if the issuing corporation’s Board of Directors “sets” the price at a
different level.
The BLOI, entered into on December 5, 2005 was a valid contract entered
into by the parties and it stated the price for the sale of securities to the Individual
Defendants. The requirement under RCW 23B.06.210 that the Board authorize
issuance of shares, does not empower the Board of Directors to retroactively void
the contract.
adopted as law here would lead to absurd and unjust results. The District Court’s
behind closed doors and after the fact, could vitiate the contract rights of a third
party. Under the District Court’s reading of RCW 23B.06.210, a corporation could
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issue stock pursuant to a contract with a service provider, and two years later
demand return of the stock because the Board of Directors, unknown to the service
provider, had resolved to reject certain terms of the service provider’s contract. In
fact, that is what the District Court has done in this case.
The Washington legislature wisely chose not to create such a regime, by not
confusing the Board’s specific power to authorize the issuance of stock with the
It is possible that HIMC’s CEO, Aaron McCann entered into the BLOI and
these contracts. Perhaps this is why Mr. McCann left the employ of HIMC in June
2005, shortly after the events in this case. However, malfeasance by Mr. McCann
not impact on the Individual Defendants’ contract rights two years after-the-fact.
complied with in this transaction, and under Washington law stock once issued
carries the presumption that it is paid for. Murphy v. Panton, 96 Wash. 637, 165 P.
1074 (1917).
The facts are that the defendants had a contract to receive stock. They paid
for the stock in accordance with the contract. The Board of Directors authorized
issuance of the stock, and the corporation issued the stock. Based on the
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foregoing, District Court should be revered and the Court of Appeals should issue
holding that there was no agreement between HIMC and Veripay. The District
intent of the parties. U.S. Life Credit Life Ins. Co. v. Williams, 129 Wn.2d 565,
569, 919 P.2d 594, aff'd, 129 Wn.2d 565 (1996); Eurick v. Pemco Ins. Co., 108
Wash.2d 338, 340, 738 P.2d 251 (1987). Here, it is undisputed that the MOU
the Court into the question of contract formation is cut-off. Where, as here, the
parties agree that a specific written agreement formed a contract between them,
there can be no clearer objective manifestation of the parties’ intent to have formed
Div. 2) (Wash.App. Div. 2, 2001), the court found that it was “undisputed” that a
certain written agreement was a contract. Accordingly, the court directed its
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In addition to the fact that the parties do not dispute that the MOU was a
contract, the evidence shows that the parties conduct manifests their intent that the
MOU was a contract. Upon the execution of the MOU the following conduct of
the parties objectively manifests the mutual intent of the parties that the MOU be a
contract:
3. During the months of March and April 2005, the Individual Defendants,
4. On May 5, 2005, HIMC entered into a third agreement with Veripay, the
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not in any way reduce the grant of shares specified in the Feb 9, 2005
MOU.” (ER-101)
Based on the foregoing, it was error for the District Court to substitute its
opinion for the undisputed, express, mutual intent of the parties to have formed a
B. The District Court’s Grounds for Holding the MOU Void are
Erroneous.
The District Court summarized its basis for finding no contract between
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The Individual Defendants will show below that the District Court was
wrong as to each of the three issues that the District Court found dispositive in
reaching its decision, (i) the contract term of share price, (ii) the tender and
1. The Absence of a Stated Price Per Share in the MOU was Not
Fatal to Formation of a Contract.
As noted above the District Court ruled that the MOU did not form a
contract between the parties because the court found there was no agreement as to
the contract of term of price per share to be paid by the Individual Defendants for
HIMC’s stock.
with this case. The case involved a dispute between the parties to a venture known
as KARBZ, Inc. “In a special verdict, a jury found Boltz breached a promise to
transfer 50 percent of the shares of stock in KARBZ, Inc. to Zalud, and that total
fair cash market value of KARBZ, Inc. as of the date of the breach was $900,000.
The jury awarded Zalud $450,000 in damages.” Id., at 2. On the appeal, “Boltz
argues the trial court erred in denying his motion for judgment as a matter of law
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because he and Zalud failed to reach agreement on all essential terms, specifically
Division held, “Here, the trial record is replete with evidence that Boltz and Zalud
agreed Boltz would transfer 50 percent of the outstanding KARBZ shares to Zalud.
That Boltz and Zalud had not agreed on a share price is not fatal to the formation
of a contract.” Id., at 3.
Similarly, in the instant case, the MOU makes clear that HIMC would
execution of the MOU. The fact that the MOU was silent as to the share price is
2. The District Court Should have Found that the Share Price of
$0.01 is the Only Reasonable Inference that can be Drawn from
the Evidence.
Rather than find that the MOU was not a contract, the District Court should
have sought to determine the intent of the parties as to the sale price of the HIMC
have adopted the ‘context rule’ in Berg v. Hudesman, 115 Wn.2d 657, 667, 801
P.2d 222 (1990); see also Diaz v. Nat'l Car Rental Sys., Inc. 143 Wn.2d 57, 66, 17
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P.3d 603, rev'd, 143 Wn.2d 57 (2001). Under that rule, extrinsic evidence is
admissible to assist the court in ascertaining the parties' intent and in interpreting
the contract. U.S. Life Credit Life Ins. Co. v. Williams, supra, 129 Wn.2d 565, 569,
919 P.2d 594, aff'd, 129 Wn.2d 565 (1996). Such evidence is admissible regardless
of whether the contract language is deemed ambiguous. U.S. Life Credit Life Ins.
Here, the Individual Defendants contend that the agreed price for HIMC’s
stock was $0.01 per share, and, indeed, based on the extrinsic evidence, this is the
only reasonable inference that can be drawn. The undisputed facts are, as found by
Intent,” which set forth the terms of a joint venture between HIMC and a
services. The Binding Letter of Intent provided that HIMC would pay
price of $0.01 per share to four individuals identified by Pasa, i.e., the
Individual Defendants.
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checks total $6,892.28 and reflect the $0.01 share price in the Binding
Letter of Intent.
4. On February 11, 2005, two days after executing the MOU, HIMC issued
Two questions must be asked regarding the MOU. First: Why didn’t the
parties include in that agreement a price per share for the 689,226 to be issued to
the Individual Defendants? Second: Why did the MOU say the designees “shall
receive 689,226 upon execution of this agreement,” rather than say the shares
There can be only one answer to both questions. First, the price of the
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shares wasn’t stated in the MOU, because it had already been paid by the
on December 15 and 16, 2004. Second, the MOU provided for issuance of shares
to the Individual Defendants upon execution of the agreement, again, because the
purchase price for the shares had already been paid in the form of the $6,892.28 in
HIMC argued that the price for the HIMC stock issued to the Individual
Defendants was supposed to have been $0.125 per share – not $0.01 per share.
However, the District Court found that the evidence did not support a finding of
mutual intent as to the price of $0.125 per share. (See the Court’s discussion, ER-
that under the MOU, the agreed price for HIMC’s stock was $0.01 per share.
where it depends on the use of extrinsic evidence and only one reasonable
inference can be drawn from the extrinsic evidence. Tanner Elec. Co-op. v. Puget
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Sound Power & Light Co., 128 Wn.2d 656, 674, 911 P .2d 1301 (1996). Thus,
appropriate if only one reasonable meaning can be drawn from the extrinsic
573, 582, 844 P.2d 428, rev'd, 120 Wn.2d 1002 (1993). This is because that
meaning necessarily reflects the parties' intent. Interstate Prod. Credit Ass'n v.
MacHugh, 90 Wn.App. 650, 654, 953 P.2d 812, review denied, 136 Wn.2d 1021,
969 P.2d 1063 (1998). See Reynolds Homes, Inc. v. Kondo, supra, 2001 WL
1632544, 2.
action, that the Court of Appeals will reverse the District Court’s decision and
3. The District Court Erred in Holding that the MOU was Void
Because HIMC, Allegedly, Failed to Cash the Individual
Defendants’ Checks for the Purchase of the Shares.
In the Order appealed from the District Court also found that the MOU was
not a contract because regarding the Individual Defendants’ tender of four checks
(totaling $6,892.28), which reflected the $0.01 share price, the District Court
found, “It is undisputed that HIMC has never cashed these checks.” (ER-10, lines
18-19) The District Court held, “There was merely a tender of checks reflecting a
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price per share, which HIMC never accepted.” (ER-15, lines 24-25) Thus, the
District Court’s held that the MOU was not a contract because HIMC never cashed
On this point the District Court was wrong on both the facts and the law.
First it is not undisputed that HIMC has never cashed the checks. HIMC only
began to argue this point when it became clear from discovery in this case that the
Individual Defendants had not retained copies of their cancelled checks, and could
not recall if the checks had, in fact been cashed. However, previously HIMC
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evidence HIMC’s attempts to “refund” the money paid for the HIMC stock in
The letter from HIMC’s counsel to Appellant Avi Sivan’s counsel, clearly
that HIMC ever stated to the Individual Defendants, until the current dispute arose
two years after the fact, that HIMC was rejecting the Individual Defendants’ tender
of the $0.01 per share purchase price for their shares of HIMC stock.
Thus, not only is it not undisputed that HIMC never accepted the tender of
the Individual Defendants’ payments for their HIMC stock, but in fact, the
Complaint contains party admissions against interest that HIMC accepted the
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HIMC, it would not impact on the efficacy of the MOU as a contract. The District
Court cannot hold, as it did, that because HIMC allegedly did not cash the
Individual Defendants’ checks the MOU is void as a contract. The District Court
offered no law to support this holding, and indeed no such law exists.
Association v. Whitney, 119 Wash.App. 339, 81 P.3d 135 (2003) the Court of
Appeals held that in Washington the Uniform Commercial Code provides for
principles. RCW 62A.3-311. Accordingly the Court held, “When the debtor
National Association,, at 142, citing Oregon Mut. Ins. Co. v. Barton, 109
Wash.App. 405, 413, 36 P.3d 1065 (2001), review denied,146 Wash.2d 1014, 51
P.3d 88 (2002); and Hynes v. Hynes, 28 Wash.2d 660, 672, 184 P.2d 68 (1947).
not a basis for the District Court holding that the MOU is not a valid contract.
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4. The District Court Erred in Holding that the MOU was Void on
the Grounds that HIMC Issued Restricted Stock Rather than
Free Trading Stock.
The District Court found that “although the Individual Defendants have
restricted shares of HIMC stock, they object contending that they should have
shares that may be freely traded in the market.” (ER-14) Accordingly, the District
Court held,
free trading stock, rather than restricted stock. Such an objection was never made
by the Individual Defendants in any document, letter or pleading in this case. The
only time the issue of free trading share versus restricted shares came up, was in
the deposition of Appellant Avi Sivan, who stated that HIMC had promised free
trading stock, but issued restricted stock, and that as a result he made some phone
calls to complain. Appellant Sivan, also testified that he continued to perform his
basis for the District Court to find that the MOU was void as a contract,
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942, 539 P.2d 104 (1975) (quoting Peoples Mortgage Co. v. Vista View Builders, 6
Wn.App. 744, 747-48, 496 P.2d 354 (1972)). The unexpressed subjective intent of
the parties is irrelevant. Multicare Med. Ctr. v. Department of Soc. And Health
the essential terms of the promise.” The fact that Appellant Sivan, in his testimony
and in some vaguely described telephone calls expressed dissatisfaction with being
issued restricted shares, rather than free trading shares of HIMC stock, is nothing
more than the unexpressed subjective intent of one of the parties and is irrelevant.
The fact is that Sivan also testified that he continued his performance under the
MOU, notwithstanding his displeasure. The Court erred in finding that the type of
shares issued constitutes grounds to hold that the MOU was not a contract.
Based on all of the foregoing, the Court of Appeals should reverse the
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69 Wash.2d 673, 419 P.2d 793 (1966), a corporation repaid of loans from its
over management of the corporation and sought to rescind the transaction. The
court held that the right to rescind the transaction was waived by the Corporation’s
conduct, which the Court found constituted ratification. The Supreme Court of
Washington held,
thereby waiving any right to seek rescission in either the second or third causes of
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Individual Defendants, the Addition to MOU stated, “This agreement adds to and
does not in any way reduce the grant of shares specified in the Feb 9, 2005
Nowhere in the Addition to MOU does it say that the grant of shares from
the February 9, 2005 MOU was revoked or that an “additional $79,261.22 was
needed to make the per share sale price equal to $0.1 25,” as the Complaint alleges
Thus, the Addition to MOU affirmed the MOU and thereby ratified the
Furthermore, HIMC ratified the MOU and the issuance of stock to the
Individual Defendants through its failure to take action. In finding ratification, the
Court in Poweroil, supra, noted that “failure to take steps to vitiate or rescind the
775, 375 P.2d 743 (1962), (an unreasonable delay in manifesting intent to rescind,
give rise to a permissible inference of intent to waive the right of rescission.) citing
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employment with HIMC in June 2005. However, HIMC’s new management did
nothing to rescind the contracts with Veripay and seek revocation of the stock
issued to the Individual Defendants until the commencement of this suit in July
2007, more than two years later! This two-year delay in itself constitutes
(i) Agreeing to the $0.01 per share price stated in the December 13, 2004
(iii) Agreeing to issue the 689,226 share without conditions for the price in
(iv) Issuing the stock on February 15, 2005, without requiring further
payment; and
(v) Affirming the February 9, 2005 MOU and the prior issuance of stock,
These fact support a determination that HIMC ratified the stock issuance to
the Individual Defendants and the MOU. In Storseth v. Pacific Coast Investment
Co., 42 F.3d 1402, 1994 WL 650000 (9th Cir. 1994) the Court of Appeals quoted
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shares, other than pursuant to an exemption under Rule 144 of the Securities Act of
breached its duty to the Individual Defendants by failing to provide its approval or
opinion letter to facilitate the removal of the restrictive legends on the Individual
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The Individual Defendants have pled in their Second Counterclaim that their
requested sale of the restricted shares issued to them after the one-year holding
period complied with the requirement of SEC Rule 144, and that HIMC was in
derogation of its clear legal duty, under RCW 62A.8-401, Section 8-401 of the
Thus, the Individual Defendants contend that if the Court concludes that the
shares were duly paid for, then the Court must conclude HIMC was in breach of its
duty to provide the necessary opinion letter. See Meringolo v. Power2ship Inc.,
HIMC’s opinion letter, federal courts have in prior cases taken notice of a
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754739 at *8 (W.D.Ky.).
requested HIMC Corp. to facilitate the removal of the restrictions on the HIMC
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CONCLUSION
Avi Sivan, Avraham Ovadia, Anna S. Bar-Lavi and Shai Bar-Lavi respectfully
request that the Court of Appeals (i) reverse the District Court’s Summary
Judgment Order and (ii) grant summary judgment in favor of the Defendants-
Counterclaim, and (iii) remand for an inquest only to determine the price of
HIMC Corp. to facilitate the removal of the restrictions on the HIMC Corp. stock
issued to them, solely for the purpose of determining the damages of the
Respectfully submitted,
__________s/__________________
By: Moshe Mortner, Esq.
Attorney for Defendants- Appellants (Prem,
Ramchandani Avi Sivan, Avraham Ovadia,
Anna S. Bar-Lavi and Shai Bar-Lavi)
130 William Street, 6th Floor
New York, NY 10038
Tel. 646-839-8530
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________________s/_____________
Moshe Mortner
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CERTIFICATE OF COMPLIANCE
Fed.R.App.P.32(a)(7)(B) because:
This brief contains 8,336 words, excluding the parts of the brief exempted
by Fed.R.App.32(a)(7)(B)(iii).
__________________s/____________
Moshe Mortner
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I hereby certify that on this 16th day of September, 2009, I caused this Brief
of Appellants to be filed electronically with the Clerk of the Court using the
CM/ECF System, which will send notice of such filing to the following registered
CM/ECF users:
David Adler
LAW OFFICE OF DAVID ADLER
520 Pike Street, Unit 1440
Seattle, Washington 98101
(206) 343-5991
I further certify that on this 16th day of September, 2009, I caused the
required copies of the Record Excerpts to be filed with the Clerk of the Court and a
copy of the Record Excerpts to be served, upon counsel for the Appellee, at the
__________________s/____________
Moshe Mortner