UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CASE NO.: CV07-225-SVW (SSx) [Honorable Stephen V.

Wilson]

QED PRODUCTIONS, LLC, a Delaware limited liability company; POW! ENTERTAINMENT, INC., a Delaware corporation; STAN LEE, an individual; GILL CHAMPION, an individual, suing in a derivative capacity on behalf of Stan Lee Media, Inc., a Colorado Corporation,

) ) ) ) ) ) ) ) ) Plaintiffs, ) ) v. ) ) JAMES NESFIELD, an individual; ) A.F. GALLOWAY, an individual; ) DOUGLAS C. COGAN, an ) individual; and DOES 1 through 10, ) inclusive, ) ) Defendants. ) ) ____________________________________)

CASE NO. CV07-225-SVW (SSx) [Honorable Stephen V. Wilson] DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT AND MEMORANDUM OF LAW IN SUPPORT THEREOF

DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT AND MEMORANDUM OF LAW IN SUPPORT THEREOF COME NOW, the defendants, JAMES NESFIELD, A. F. GALLOWAY, and DOUGLAS C. COGAN, by and through the undersigned counsel, and file this Motion for Summary Judgment, and in support thereof, state as follows: I. PRELIMINARY STATEMENT

The facts of this case will demonstrate to this Court that the plaintiffs’ first amended complaint is the culmination of a conspiracy to commit fraud that has been perpetrated upon the

shareholders and creditors of Stan Lee Media, Inc., as well as the courts of this district, since before June of 2001. Although concealed by the plaintiffs for years, the conspiracy and the frauds have recently come to light and will be uncovered in these proceedings, whether it be on this motion for summary judgment or in the counterclaim that will follow disposition of motions regarding the plaintiffs’ first amended complaint. This pending case was not prompted by any wrongdoing on the part of the named defendants, as alleged, but is simply a last-ditch effort by the co-conspirators to eliminate their past and any evidence of their fraud. The defendants contend that the evidence that is presented contemporaneous with the filing of this motion will clearly demonstrate that the plaintiffs, together with other third parties, have conspired with one another to defraud the SLMI bankruptcy court, SLMI’s shareholders, SLMI’s creditors, and the bankruptcy trustee. In conspiring to do so, the plaintiffs, Stan Lee and Gill Champion, breached their fiduciary obligations as officers and representatives of SLMI during the bankruptcy proceedings. The plaintiffs have all directly financially benefited from their acts of conspiracy and fraud in wrongfully and unlawfully taking and using the assets of SLMI. At all times material to this case, Stan Lee and Gill Champion have been insiders to all of the information that will be presented to this court. At all times material hereto, these insiders, together with other co-conspirators, raided the assets of SLMI and left it, and its shareholders and creditors behind. In furtherance of the conspiracy, Stan Lee and Gill Champion developed two new companies, POW! Entertainment, Inc. (hereinafter referred to as “POW!”) and QED Productions, LLC (hereinafter referred to as “QED”). Thereafter, Stan Lee and Gill Champion proceeded to illegally move assets of SLMI into QED and POW!, all while SLMI was under bankruptcy protection. Even though they do not prefer to be labeled “conspirators” and will disagree with the term “fraud” being used, it appears that the plaintiffs’ first amended complaint

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admits all of the facts underlying these allegations. Regardless of how one characterizes or labels what has happened, SLMI was in bankruptcy, SLMI was managed by Stan Lee and Gill Champion, Stan Lee and Gill Champion did not like SLMI’s future, Stan Lee and Gill Champion established new companies, and Stan Lee and Gill Champion simply transferred the assets from SLMI to their new companies without any authority to do so. The unauthorized taking is nothing short of theft. In support of this motion or summary judgment, the defendants have prepared and are presenting to this court substantial evidence in support of these allegations. The facts, as they will be presented to this court, are completely supported by documentation, which is already of record (1) in other judicial proceedings in this Central District of California, (2) with the State of Delaware Division of Corporations, (3) with the State of Colorado Division of Corporations, (4) with the United States Copyright and Trademark Office, (5) with the Securities and Exchange Commission (hereinafter “SEC”), and (6) as otherwise supported by documents and affidavits which are filed with this Court in support of this motion. Furthermore, the pleadings will also be a source of information for this court to consider in making its determination on this motion. In fact, the plaintiffs, by their very own admissions, as contained within their initial complaint and first amended complaint, have eliminated much of the requirement that the defendants present any evidence for this court to grant summary judgment in this case. II. THE PLAINTIFFS’ CLAIMS

The Plaintiffs have filed an eight (8) count complaint against the defendants, seeking relief based upon allegations of copyright infringement (Count I); violation of 15 U.S.C. § 1125, Lanham Act (Count II); violation of 15 U.S.C. § 1125(d) cyber squatting (Count III); violation of common law right of privacy (Count IV); interference with contractual relations (Count V);

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interference with prospective economic advantage (Count VI); violation of Cal. Bus. & Prof. Code §§ 17200 et seq., Unfair Business Practices (Count VII); and declaratory relief (Count VIII).1 The plaintiffs allege generally that these defendants have “conspired to falsely and fraudulently” masquerade as the controlling officers of SLMI in “violation of the legal requirements governing corporate actions and in contravention of federal bankruptcy laws”.2 The plaintiffs aver that the defendants are interfering with their rights to certain intellectual properties, as well as Stan Lee’s name and likeness. Furthermore, in a legal maneuver that is nothing short of astonishing, the Plaintiff, Gill Champion, who, for years, completely ignored his fiduciary and other obligations to SLMI based upon more promising financial gain with POW! and QED, has filed an action against the defendants in his derivative capacity on behalf of SLMI. The plaintiffs admit in their pending complaint that (1) SLMI, by and through its predecessor in interest, Stan Lee Entertainment, Inc., was founded in 1998 for the purpose of acquiring those assets at issue in this pending action,3 (2) that SLMI was formed through a reverse merger in 1999 and acquired the assets of its predecessor, Stan Lee Entertainment, Inc., 4 (3) that on February 16, 2001, SLMI filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court, Central District of California, Case No. SV-01-11329-KL, jointly administered with Case No. SV-01-11331-KL (hereinafter referred to as the “Bankruptcy Case”),5 (4) that the plaintiff, Stan Lee, on behalf of SLC, LLC, entered into an agreement with SLMI, debtors-in-possession in the Bankruptcy Case, to acquire all rights to certain intellectual properties and produced entertainment projects, including properties known as The Accuser, The
1 2

See generally Plaintiffs’ First Amended Complaint. Plaintiffs’ First Amended Complaint at p. 2, lines 14-16 (emphasis added herein). 3 Id. at ¶ 15. 4 Id. at ¶ 19. 5 Id. at ¶ 20.

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Drifter and Stan’s Evil Clone a/k/a Evil Clone (hereinafter referred to as the “intellectual properties”),6 and (5) that the aforementioned agreement between Stan Lee, on behalf of SLC, LLC, and SLMI, debtor-in-possession, was approved by Order of the Court in the Bankruptcy Case on or about April 11, 2002.7 Throughout the remainder of this motion, the April 11, 2002 Order and the agreement incorporated therein shall be referred to collectively as the “April 11, 2002 Order” or “Judge Lax’s Order”). In the initial complaint on file with this Court, the plaintiffs first alleged that “SLC, LLC” purchased the properties at issue from the Debtors, and that “SLC, LLC” thereafter assigned all rights to the properties to Plaintiff, QED.8 As a point of fact and of record with the State of California Division of Corporations, “SLC, LLC” was never formed by Stan Lee. 9 The

defendants have presented for this Court’s consideration on this motion, certified copies of the records of the State of California Division of Corporations, evidencing the fact that “SLC, LLC” was never formed by Stan Lee, and in fact, was formed by SLMI in December of 2006 to highlight the issue and to preempt any effort by Stan Lee to attempt to create SLC, LLC after the fact.10 The Plaintiffs then went on in the initial complaint to allege that the assets, including The Accuser and The Drifter, were actually sold to “SLC, LLC” (the nonexistent entity) pursuant to the April 11, 2002 order, and that the assets were thereafter assigned by “SLC, LLC” to Plaintiff, QED Productions, LLC (hereinafter referred to as “QED”).11 The U.S. Copyright Office records, all of which have been provided to this Court in support of this motion for summary judgment,
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Id. at ¶ 21. Id. 8 See Plaintiff’s Complaint [Initial] at ¶ 14. 9 Certified copies of the State of California Division of Corporations records on SLC, LLC, a California limited liability company have been submitted to this court for consideration on this motion as _____. 10 Id. 11 See Plaintiff’s Complaint [Initial] at ¶ 14.

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clearly show that the assets being sued upon for infringement and otherwise, were never conveyed by the Debtors to “SLC, LLC” and that the assets were never conveyed by “SLC, LLC” to QED.12 Instead, the assets were purportedly assigned by SLMI directly to QED on August 7, 2006.13 Notice should be taken of the fact that the conveyance is dated more than four (4) years after the date upon which such conveyance was supposed to be effectuated to SLC, LLC.14 In their first amended complaint, the plaintiffs have now completely changed their factual allegations and now allege that: “In or about February 2002, during the pendency of the Bankruptcy Case, Plaintiff Stan Lee, acting on behalf of a limited liability company that he anticipated forming, which at that time was tentatively referred to as SLC, LLC (that is, “Stan Lee Company”), entered into an agreement, as amended, to acquire from SLMI, debtor-in-possession in the Bankruptcy Case, all rights to certain intellectual properties and produced entertainment projects, including properties known as The Accuser, The Drifter and Stan’s Evil Clone aka Evil Clone (sometimes referred to [therein] as “the Properties”), which were to be developed by a limited liability company with which Stan lee would be associated. . . . The Agreement regarding the sale by SLMI of the Properties was approved by Order of the Court in the Bankruptcy Case on or about April 11, 2002.” (Emphasis added herein).15 The plaintiffs then go on to allege in their first amended complaint as follows: “It was subsequently decided that the company purchasing the assets would not be named SLC, LLC, as Stan Lee’s name was already associated with Stan Lee Media, Inc., a company which was then in bankruptcy and had been the subject of many unfavorable media articles because of the wrongful and criminal acts committed by Peter Paul and others which resulted in losses of many millions of dollars by numerous people and companies. Consequently, Stan Lee did not want his name or persona to be directly associated with the company that would be purchasing
12

Certified copies of the U.S. Copyright Office records on the purported assignment of copyrights from SLMI to QED have been submitted to this court for consideration on this motion as _______. 13 Id. 14 Id. 15 See Plaintiffs’ First Amended Complaint at ¶ 21.

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those properties from SLMI, so it was decided that a different name would be used, not a corporate name using Stan Lee’s name or initials, such as SLC, LLC. Instead, Plaintiff QED, a whollyowned subsidiary of POW! [Entertainment, Inc.], acquired the Properties from SLMI. The change of the name of the company acquiring the assets did not change any of the terms of the Agreement, as amended. On information and belief, the creditors of SLMI knew of and did not object to the use of a different name of the company acquiring the assets.”16 III. A. STATEMENT OF FACTS

The Named Defendants And The History Of Stan Lee Media, Inc., A Colorado Corporation Even though the defendants have been sued individually, they are the principals of SLMI

and the only true fiduciaries of the company. At all times material hereto, the defendants have acted in their capacity as agents and officers of SLMI and have done nothing in their individual capacities.17 Contrary to the allegations contained within the plaintiffs’ first amended complaint, the defendants have done nothing wrong, improper or illegal, and in fact, are the only reason SLMI exists today.18 But for the defendants, SLMI would remain a dissolved company. 19 Regardless of their current status as shareholders of SLMI, the plaintiffs, Stan Lee and Gill Champion, would have liked nothing better than the destruction and disappearance of SLMI and its records. In fact, the only reason they assert a derivative action in the instant case is to further attempt to maintain control of the entity that they hoped would have died in bankruptcy. However, based solely upon the extraordinary efforts of these named defendants, SLMI and its records remain intact.20 The defendants have done all things necessary and proper to save SLMI from the abuse and neglect it had suffered at the hands of the plaintiffs.21 SLMI is currently
16 17

Id. at ¶ 22. See Affidavit of James Nesfield. 18 Id. 19 Id. 20 Id. 21 Id.

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being managed by the defendants in compliance with all applicable laws of the State of Colorado.22 In order to provide both a legal and factual basis for the current management and state of affairs of SLMI, it is necessary to provide the Court with the following information and evidence regarding SLMI. Stan Lee Entertainment, Inc., a Delaware Corporation and predecessor in interest to SLMI, was incorporated on October 13, 1998.23 On October 15, 1998, Stan Lee, assigned everything he owned in the creative universe to SLMI and granted to SLMI the exclusive rights to his name and likeness.24 On April 14, 1999, Stan Lee Entertainment, Inc. merged into Stan Lee Media, Inc., a Delaware Corporation, another predecessor in interest to SLMI.25 On or about August 12, 1999, by reverse merger with a company by the name of Boulder Capital Opportunities, Inc., a Colorado corporation, Stan Lee Media, Inc., a Delaware corporation, became a Colorado corporation26 and thereafter was publicly traded for a time on the New York Stock Exchange. B. SLMI Bankruptcy On or about February 16, 2001, SLMI filed for bankruptcy protection pursuant to Chapter 11 in the Central District of California.27 The SLMI bankruptcy was pending between February 16, 2001 and November 14, 2006, a period of almost five (5) years and nine (9) months.28 During the entirety of the bankruptcy proceedings, Stan Lee and Junko Kobayashi were the
22 23

Id. A certified copy of Stan Lee Entertainment, Inc.’s Delaware Certificate of Incorporation has been submitted to this court in support of this motion as ___________. 24 A complete copy of the October 15, 1998 Assignment is referenced within the plaintiffs’ first amended complaint and has also been filed with this court in support of this motion as _________. 25 A certified copy of Stan Lee Entertainment, Inc.’s Delaware Certificate of Merger of Stan Lee Entertainment, Inc. into Stan Lee Media, Inc., a Delaware corporation, has been submitted to this court in support of this motion as ___________. 26 A certified copy of the State of Colorado Division of Corporations records regarding Stan Lee Media, a Colorado Corporation and the merger with Boulder Capital Opportunities, Inc. have been submitted to this court in support of this motion as ________. 27 Plaintiffs’ First Amended Complaint at ¶ 20. 28 See Affidavit of James Nesfield.

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purported “representatives” and “fiduciaries” of SLMI. In fact, in the plaintiffs’ own first amended complaint, they allege that Junko Kobayashi was appointed by SLMI’s board of directors to serve as “the authorized representative of SLMI during the Bankruptcy Case.”29 The importance of Stan Lee’s and Junko Kobayashi’s positioning at the gates of SLMI’s assets will become apparent later in this motion. On or about November 7, 2006, the counsel of record for SLMI filed a “Notice of NonOpposition to Dismissal of Chapter 11 Bankruptcy Cases”, which included an allegation by that counsel that there were “no unencumbered assets over and above the post-petition secured debt, which may be monetized for the benefit of creditors” and requested permission to destroy all property, files and records of SLMI.30 On or about November 14, 2006, SLMI’s bankruptcy petition was dismissed by verbal order of the bankruptcy judge. 31 On or about November 15, 2006, and in an emergent attempt to save the property, files and records of SLMI from imminent destruction, the defendant, James Nesfield, after acquiring the proxies of a majority of the shareholders of SLMI and after obtaining the authority of said majority of shareholders of SLMI, wrote a letter to SLMI’s bankruptcy counsel asking for said counsel to turn over and not destroy SLMI’s property, records and files.32 In addition, the defendant, James Nesfield, also filed Amended and Restated Articles of Incorporation for SLMI, as SLMI had been dissolved since August 1, 2002.33 On or about November 16, 2006, bankruptcy counsel for SLMI wrote back to
29 30

Plaintiffs’ First Amended Complaint at p. 10, ¶ 24, lines 15-16. A certified copy of the SLMI bankruptcy document entitled “Notice of Non-Opposition to Dismissal of Chapter 11 Bankruptcy Cases” dated November 7, 2006 has been submitted to this court for consideration on this motion as _______________. 31 See certified copy of document entitled “Order Dismissing Cases and Judgment for Quarterly Fees” dated November 14, 2004 and entered on December 6, 2006. Although the date for the hearing is indicated at November 14, 2004, the actual date of the hearing was November 14, 2006. This is clearly a typographical error on the part of the drafter. It should also be noted that the date that the document was “logged” was November 17, 2006. Nevertheless, as other documents reflect, the bankruptcy judge dismissed the case by verbal ruling on November 14, 2006. 32 Id. 33 Id.

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James Nesfield confirming that the bankruptcy cases had been dismissed by verbal order of the bankruptcy judge on November 14, 2006 and assuring James Nesfield that steps were being taken to preserve SLMI’s records.34 On November 27, 2006, proper notice of a Special Meeting of Shareholders of Stan Lee Media, Inc. of Colorado was sent to all interested parties, with approximately 90% of the shareholders being notified by direct mailing and the remaining shareholders being notified by publication of the meeting on Media-Newswire.com.35 On December 7, 2006 a special meeting of the shareholders of SLMI was held and a majority of the shareholders appeared at the meeting.36 During the meeting all previous actions of the defendants were ratified, officers and directors were properly appointed and SLMI has been conducting business ever since.37 Contrary to the false statements contained in the first amended complaint, the defendants have been acting with the best of intentions and have conducted themselves with the utmost integrity in representing the best interests of the shareholders of SLMI.38 As of this date, SLMI remains a global branded content creation, production and marketing company founded by pop culture icon Stan Lee. SLMI continues to conduct business and intends to continue with its business plan of conceiving, creating, co-creating, producing, marketing and licensing branded characters and story franchises for entertainment, merchandising and promotional exploitation worldwide. Built on Stan Lee's signature style, Stan Lee Media Studios will also be a leading entertainment company featuring branded animation franchises for all media targeting a global community of 6 to 60 year olds.39 C.
34 35

SLMI Bankruptcy—Sale of Assets Order dated April 11, 2002

Id. Id. 36 Id. 37 Id. 38 Id. 39 Id.

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In proceeding to describe what happened during the SLMI bankruptcy proceedings, it is helpful to break up the discussion into two subsections; first, what Judge Lax ordered, and second, what actually happened. As the court will see, these are two very different things. 1. What Judge Lax Ordered:

During the SLMI bankruptcy, and of vital importance to the court’s decision in this case, The Honorable Judge Kathleen T. Lax, United States Bankruptcy Court Judge, Central District of California, San Fernando Valley Division, who was the judge presiding over the SLMI bankruptcies, Case No. SV 01-11329 KT, jointly administered with Case No. SV 01-11331 KT, entered an order dated April 11, 2002, which authorized the sale of certain assets of SLMI to a company by the name of SLC, LLC.40 The assets authorized to be sold by the April 11, 2002 Order are the same assets at issue in the plaintiffs’ pending first amended complaint. The April 11, 2002 Order was entered as a result of a motion, a supplement to the motion and a notice of hearing, certified copies of which have all been provided to this Court for consideration on this pending motion for summary judgment.41 As is clear from the motion, the supplement to the motion and the notice of hearing on the motion to approve the sale of the assets, all interested parties, as well as Judge Lax, were considering and ultimately approved the sale of the assets to SLC, LLC, a California limited liability company. Although the April 11, 2002 Order speaks for itself, there are a few provisions worth noting. Specifically, the April 11, 2002 Order (1) authorized the agreement between Stan Lee, on behalf of “SLC, LLC”, and
40

See generally certified copy of April 11, 2002 Order by The Honorable Judge Kathleen T. Lax, United States Bankruptcy Court Judge, Central District of California, San Fernando Valley Division, which was entitled “Order Granting Motion for Order to Approve Sale of Assets Free and Clear of Liens” filed with this court in support of this motion as _______. 41 See generally certified copies of “Notice of Motion and Motion for Order to Approve Sale of Assets Free and Clear of Liens; Memorandum of Points and Authorities; Declaration of Kenneth S. Williams in Support Thereof” dated November 27, 2001; “Notice of Hearing on Motion for Order to Approve Sale of Assets Free and Clear of Liens dated November 27, 2001; “Supplement in Support of Motion for Order to Approve Sale of Assets Free and Clear of Liens” dated January 21, 2002; all of which have been filed with this court in support of this motion as _____, _____ and _____ respectively.

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SLMI, debtor-in-possession (attached to the April 11, 2002 Order), to be consummated; (2) authorized the sale of certain of SLMI’s assets to an entity by the name of “SLC, LLC”, which entity was specifically represented by Stan Lee to be a California limited liability company;42 (3) involved not only Stan Lee, on behalf of SLC, LLC, but also involved the secured creditor by the name of Wild Brain, Inc. and the Official Committee of Unsecured Creditors; (4) not only limited the type of assets authorized to be sold, but also specifically designated the entity to purchase the assets; that being SLC, LLC, a California limited liability company; 43 (5) required that the articles of organization reflect that SLC, LLC be a special purpose entity thereby expressly restricting the business of SLC, LLC to only the exploitation of the specific assets being sold and specifically prohibiting SLC, LLC from conducting any other business;44 (6) prohibited SLC, LLC from assigning, conveying, encumbering, or otherwise transferring the assets to anyone without the express written consent of SLMI;45 (7) required that any purported assignment or transfer of the assets at issue be approved by the bankruptcy court. It is clear from the very specific instructions contained within Judge Lax’s Order, that the requirements of Stan Lee, on behalf of “SLC, LLC”, were not optional, and that Stan Lee did not have any authority whatsoever to unilaterally change Judge Lax’s Order and substitute his own judgment based upon what he believed to be more convenient or more feasible. It goes without saying that the purpose behind seeking approval and authorization to sell assets during any bankruptcy is to ensure that no insider or equity holder of the debtor-inpossession wrongfully benefits from a particular transaction to the detriment of the creditors and the shareholders of the debtor-in-possession. In fact, in Judge Lax’s Order she specifically references findings, which are required in any such situation, whereby she found that (1) “the
42 43

April 11, 2002 Order, Agreement Article 3, ¶ 3.2. April 11, 2002 Order, Agreement Article 3, ¶ 3.2. 44 April 11, 2002 Order, Agreement, Article 3, ¶ 3.1. 45 [Agreement, Article 7, ¶ 7.9]

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terms and conditions of the Sale Agreement is in the best interest of the Debtors and their estates”;46 “the terms of the sale of the Assets to Buyer [SLC, LLC] are the result of good faith and arm’s length negotiations between the Debtors, the Official Committee of Unsecured Creditors (the “Committee”), Wild Brain and Buyer, and the Debtors have determined . . . that the Assets should be sold to Buyer [SLC, LLC]. . . and that the consideration to be realized by the Debtors is fair and reasonable”;47 and (3) that “Buyer [SLC, LLC] has acted, and is acting, in good faith, and is therefore entitled to the provisions afforded to a good faith purchaser under 11 U.S.C. § 363(m).”48 Furthermore, it is clear from Judge Lax’s Order and the agreement

incorporated therein were drafted with the intent of maintaining control over the manner in which these very valuable assets were being managed. 2. What Actually Happened:

Even though Judge Lax and all of the interested parties very apparently went through great effort to negotiate and finalize the terms and conditions of the April 11, 2002 Order, Stan Lee, by his own admission in the plaintiffs’ first amended complaint, unilaterally and without any authority of any kind, decided not to close on the sale of the assets to SLC, LLC. In fact, Stan Lee admits that he never even set up SLC, LLC, even though for the approximately six months from November of 2001 through April 11, 2002 he allowed the bankruptcy judge, trustee, creditors and all interested parties believe that he was doing so. Furthermore, Stan Lee went so far as to sign a document that was filed with the court in support of the proposed sale of assets, warranting and representing that SLC, LLC was, at the time of that filing, an existing limited liability company pursuant to the laws of the State of California. In short, there was never any closing and never any transfer or sale of assets to SLC, LLC, as ordered. Instead, the
46 47

April 11, 2002 Order at p. 3, lines 5-7. Id. at p. 3, lines 10-19. 48 Id. at p. 4, lines 6-8.

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plaintiffs now allege in their first amended complaint that Stan Lee caused the assets to be transferred to QED. Interestingly, the plaintiffs fail to provide any date or dates upon which the purported transfers from SLMI to QED took place. The defendants are aware of only one documented transfer by SLMI to QED, that being the fraudulent assignment of copyrights by Junko Kobayashi as “authorized representative” of SLMI to Gill Champion, as agent of QED. The date of said fraudulent assignments were August 7, 2006. IV. ARGUMENT

The defendants contend that summary judgment is appropriate for a number of reasons. First, all of the actions of the defendants with regard to the pending action have been performed in their capacity as the authorized agents and officers of SLMI. Therefore, all of the causes of action asserted by the plaintiffs as against these individual defendants are due to be denied on summary judgment. Second, all of the causes of action asserted by the plaintiffs are based upon plaintiffs’ preliminary factual assertion that they are the legal owners of the assets at issue. Based upon the evidence presented to this court in support of this motion and based upon the fact that the plaintiff will not be able to present any additional facts in support of their claimed ownership of said assets, summary judgment is appropriate. Based upon the fact that the plaintiffs’ claim of ownership originates with illegal and unauthorized actions by Stan Lee, Gill Champion and Junko Kobayashi, there is no way that the plaintiffs can ever prove to this Court that they are the legal owners of the assets at issue. A. The Individually Named Defendants Have Never Acted In Their Individual Capacities And Have Always Acted Under Full Legal Authority As Duly Appointed/Elected Agents And Officers Of SLMI The facts as set forth herein clearly demonstrate that, at all times and in all instances material hereto, the defendants have always acted in their capacity as duly appointed/elected

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agents and officers of SLMI. Contrary to the plaintiffs’ allegations as contained within the first amended complaint, the appointment/election of the defendants to their positions as authorized agents and officers of SLMI was properly noticed and administered. Contrary to the plaintiffs’ allegations, the bankruptcy proceedings were not still pending when the actions taken by the defendants were commenced. In fact, the bankruptcy cases were dismissed by verbal order of Judge Lax on November 14, 2006. This fact is clearly supported by the letter from SLMI’s bankruptcy attorney, David B. Golubchik. Furthermore, this fact is also clearly supported by the face of the Order Dismissing Cases and Judgment for Quarterly Fees, bearing a date of November 14, 200[6] below the title of the order. B. Plaintiffs Will Not Be Able To Prove That They Are The Legal Owners Of The Assets 1. Intellectual Properties

QED’s alleged ownership of the intellectual properties is a material allegation in Count I,49 Count II,50 Count IV,51 Count V,52 Count VI,53 Count VII,54 and Count VIII.55 QED must be able to prove that it owns the intellectual properties before it can be allowed to proceed with its causes of action. QED’s alleged ownership of the intellectual properties originates with the April 11, 2002 Order. The defendants have produced the April 11, 2002 Order to this Court for consideration on this motion. There are no additional facts that could be presented by the plaintiffs with regard to their claimed rights pursuant to the April 11, 2002 Order. This Court is in a position to consider all of the facts that are going to be presented by the plaintiffs on this issue of their claim of ownership in the intellectual properties at issue. Pursuant to the express
49 50

Plaintiffs’ First Amended Complaint at ¶ 39. Id. at ¶ 51. 51 Id. at ¶ 71. 52 Id. at ¶ 78. 53 Id. at ¶ 84. 54 Id. at ¶ 99. 55 Id. at ¶¶ 104(a), 104(b), 104(c), 106 and 108.

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language of the April 11, 2002 Order, it is clear that QED, POW!, Stan Lee or Gill Champion are not the rightful owners of the intellectual properties at issue. The plaintiffs have also attempted to convince this Court that it is perfectly acceptable for Stan Lee to have made a change to Judge Lax’s Order by attempting to sell and convey the intellectual properties to another entity of theirs because “[t]here was no operational difference between the two [SLC, LLC & QED]; that is, what SLC, LLC was intended to be, as compared with what QED was intended to be, other than a difference in the name of the two companies.” 56 The defendants contend that Stan Lee had no authority to modify anything in Judge Lax’s Order, and that if he wanted to modify anything in the April 11, 2002 Order he needed to obtain court approval, as well as approval from all interested parties. In failing to do so, Stan Lee’s actions are no different than some third party stealing the assets from SLMI during the bankruptcy proceedings. Even putting aside for a moment the contempt of Stan Lee in disregarding Judge Lax’s Order and doing whatever he felt like doing at the time, the reason provided by the plaintiffs for his decision also reveals more frauds upon the bankruptcy court. Specifically, the plaintiffs contend that the reason Stan Lee ignored Judge Lax’s Order was because he “did not want his name or persona to be directly associated with the company that would be purchasing those properties from SLMI.”57 Such a statement is the complete opposite of the reasons cited by Stan Lee in obtaining approval from the bankruptcy court for the sale in the first place. Specifically, on page twelve (12) of the “Notice of Motion and Motion for Order to Approve Sale of Assets Free and Clear of Liens; Memorandum of Points and Authorities; Declaration of Kenneth S. Williams in Support Thereof” [Bankruptcy Case] dated November 27, 2001, it is stated:

56 57

Plaintiffs’ First Amended Complaint at p. 9, ¶ 23, lines 24-26. Id. at p. 9, ¶ 22, lines 10-11.

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“Based on the Debtors’ unsuccessful marketing efforts and the importance of Stan Lee’s personal involvement in the productions, it was evident that the highest and best use for the estates’ assets would be through the exploitation of such assets by Stan Lee. Accordingly, the Debtors engaged in negotiations with Stan Lee, who was represented by independent counsel, regarding the development and exploitation of the Creative Assets. The Creditors’ Committee was also involved in such negotiations and assisted the Debtors in obtaining a result which is much more favorable for the estate than originally proposed by Stan Lee. . . . Based upon extensive negotiations among the Debtors, the Committee and Stan Lee, which spanned approximately two (2) months, the parties reached an agreement, the salient terms of which the Debtors understand are acceptable to the Committee.”58 Therefore, throughout the negotiations and hearings before the bankruptcy court in 2002, Stan Lee stood by while Judge Lax authorized the sale of assets of SLMI to SLC, LLC, specifically so that the assets could derive their full potential from the affiliation with Stan Lee’s name. The order was executed on April 11, 2002 and the closing on the sale was to take place within ten (10) days of the date of the order. If what the plaintiffs are alleging is true, at some point in time during those ten (10) days following the April 11, 2002 Order, Stan Lee completely changed his mind about being affiliated with the assets, unilaterally made the decision to ignore Judge Lax’s Order, and decided to convey the assets, not to SLC, LLC, but to convey them to an entity that he had conveniently established some six (6) months earlier. Again, aside from the contempt, which is admitted by the Plaintiffs, the facts, as alleged do nothing to help the plaintiffs, but instead simply reveal more of the fraud upon Judge Lax. In making any determination as to the issues in this case, it is also very important to look into the timeline of events, as they transpired in preparation for the sale of assets:

58

A certified copy of the SLMI bankruptcy filing entitled “Notice of Motion and Motion for Order to Approve Sale of Assets Free and Clear of Liens; Memorandum of Points and Authorities; Declaration of Kenneth S. Williams in Support Thereof” dated November 27, 2001 has been submitted to this court for consideration on this motion as _______.

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Gill Champion works with Stan Lee on commencing the work for the formation of POW! Entertainment, Inc. Stan Lee forms POW! Entertainment, Inc. and QED Productions, LLC in Delaware, both of which is a wholly-owned subsidiary of POW! Gill Champion is named Chief Operating Officer of POW! Stan Lee is named Chief Creative Office of POW! Junko Kobayashi is named Chief Financial Officer of POW! Asset Purchase Agreement is negotiate and signed Motion for approval of sale of assets is filed Amended Asset Purchase Agreement is negotiated and signed Supplement in Support of Motion for approval of sale of assets Order Granting Motion for Order to Approve Sale of Assets

06/2001 11/2001

11/2001

11/19/2001 11/27/2001 01/20/2002 02/12/2002 04/11/2002

The certified copy of the Certificate of Formation of QED has been filed with this Court in support of this motion. It is clear that QED was formed on November 8, 2001 with the initial member of the limited liability company being Stan Lee, an individual. This is important in that QED was formed before any agreement was ever signed, any motion was ever filed and any order was ever entered. Furthermore, there is no limitation language contained within the Certificate of Formation, as was specifically required by Judge Lax to be a condition of the sale of assets. It is also clear from the present operations of QED and will not be disputed by the plaintiffs, that QED is involved in business operations which far exceed the limited business purposes imposed by Judge Lax.

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In an effort to demonstrate the metamorphosis that took place while the SLMI Bankruptcy Case was still pending, the defendants present the following for this court’s consideration: Name of Officer Stan Lee Gill Champion Junko Kobayashi Position at SLMI Chief Creative Officer & Chairman Chief Operating Officer Controller Position at POW! as of November 2001 Chief Creative Officer & Chairman President & Chief Operating Officer Chief Financial Officer

Without an ounce of concern for the contemptuous acts of Stan Lee, Gill Champion and Junko Kobayashi, not to mention the complete disregard of their respective fiduciary obligations to the existing shareholders of SLMI, plaintiff, POW!, published and continues to publish on their website the following information: “Gill Champion, President . . . Prior to joining the Company [POW!], he was COO of [SLMI] from July 1999 until it terminated operation in about June of 2001. [SLMI] filed for bankruptcy protection in about January 2001, and has since ceased all operations. From about June of 2001 until the formal creation of [POW!] in November 2001 Mr. Champion worked to form [POW!] and to start the development of various [POW!] projects.” “Stan Lee, Founder, Chairman and Chief Creative Officer of POW! Entertainment. . . During 2001, Stan formed POW! (Purveyors of Wonder) Entertainment, with producer Gill Champion and attorney Arthur Lieberman. A company unrelated to Marvel which has been active in creating a number of new projects that are in various stages of development.” “Junko Kobayashi, CFO, . . . Prior to joining POW! Entertainment, she was controller of Stan Lee Media, Inc. from January 2000 until it terminated operations in June 2001 where she was in charge of preparing financial information for SEC purposes.”

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It is clear from the information publicized by Plaintiff, POW!, that the conspiracy to commit certain frauds through the use of the Bankruptcy Case and against both the creditors and shareholders of SLMI originated well before the first motion seeking the sale of assets had ever been signed. Furthermore, it is clear from the sequence of events that the perpetrators of the frauds, Stan Lee, Gill Champion and Junko Kobayashi, to name a few, saw that SLMI was in bankruptcy, established another company of their own, and simply attempted to move valuable assets of SLMI out from under the bankruptcy judge, the debtors, the creditors, the shareholders, the trustees and all other interested parties. There is absolutely no other way to look at this set of facts. The defendants have submitted to this Court the records of the U.S. Copyright Office regarding the purported transfers of the copyrights for The Accuser and The Drifter. Junko Kobayashi is currently the Chief Financial Officer for POW! Not unlike all of the other

principals and fiduciaries of SLMI at the time the Bankruptcy Case was pending, Ms. Kobayashi secured an executive position with the newly formed companies of POW! and QED. In fact, she, like the others, secured her position while she was purportedly acting in the capacity as agent and fiduciary of SLMI. As a result, Ms. Kobayashi was purportedly acting as fiduciary and agent of SLMI during the Bankruptcy Case, while also acting as the Chief Financial Officer for POW!, the new parent company of QED. To interject even more conflicts of interest, it was Ms. Kobayashi herself who signed the Assignment of Copyrights purportedly “on behalf of” SLMI (as “Assignor”) directly to QED (as “Assignee”) even though Ms. Kobayashi was fully aware of the content of Judge Lax’s order, the fact that she knew the assets were to be sold to SLC, LLC and not to QED, and even though she knew that the sale of assets was to take place more than four years earlier.

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Ironically, Gill Champion, a newly added plaintiff, who is purporting now to act on behalf of SLMI in a derivative action against the defendants, was the person who signed the invalid assignments on behalf of QED, as Assignee. Like Ms. Kobayashi, the plaintiff, Gill Champion, knew everything that was going on with the Bankruptcy Case and the April 11, 2002 Order and sale of assets agreement, as Gill Champion was the Chief Operating Office (COO) of SLMI during the pendency of the Bankruptcy Case. On page six (6) of the Agreement specifically warranted and represented to Judge Lax that “Purchaser [SLC, LLC] is a duly formed limited liability company organized under the laws of California.” (Emphasis added herein). This statement cannot be interpreted in the

hypothetical and anticipatory context suggested by the plaintiffs’ counsel. Instead, Stan Lee specifically represented and warranted to Judge Lax that SLC, LLC had already been formed and was in existence as of the date of his signing of the Agreement, January 20, 2002. In yet another attempt by the plaintiffs to convince this court of facts which simply are not true, the plaintiffs attempt to state that they have fully complied with all of the provisions, terms and conditions of Judge Lax’s Order. Aside from authoring a sale of assets to one particular entity—SLC, LLC, Judge Lax’s April 11, 2002 Order also contemplated payments that were to be made first to the secured creditor in Wild Brain and thereafter to SLMI, the debtor-inpossession. The plaintiffs allege in their first amended complaint that QED has “complied with all of the terms of the Asset Purchase Agreement and Bankruptcy Court order of April 2002, approving the terms of the Agreement.” Although we already know that there are countless factual flaws with such a statement, yet another is that QED has paid absolutely zero to Wild Brain, as the secured creditor and zero to SLMI, as was specifically required, in great detail, by Judge Lax. Therefore, even if this Court were to find that somehow Judge Lax’s April 11, 2002

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allowed the parties to simply substitute in whatever terms they felt were convenient to them at the time, the allegation that QED has somehow “complied with all of the terms” in place of SLC, LLC, is a completely false statement, unsupported by any evidence of any kind whatsoever. To the extent that QED and/or POW! may attempt to rely upon the purported assignment of copyrights executed by Junko Kobayashi dated July 31, 2006, such assignments were executed and recorded without any authority of the bankruptcy court in the Bankruptcy Case. As the plaintiffs allege in their first amended complaint, Junko Kobayashi was the appointed authorized representative of SLMI during the bankruptcy proceedings.59 Being the

representative for SLMI during the bankruptcy proceedings, Junko Kobayashi had full knowledge of everything that was transpiring, including the April 11, 2002 Order. What the plaintiffs fail to point out in their initial or first amended complaint is that, while the bankruptcy proceedings for SLMI were pending, Stan Lee offered Ms. Kobayashi a position as Chief Financial Officer of POW! Entertainment, Inc., the parent company of QED Productions, LLC. As a result, Junko Kobayashi had legal and fiduciary obligations to SLMI, the bankruptcy court, the bankruptcy trustee, the creditors committee and the shareholders of SLMI. As the

Bankruptcy Case was pending through the hearing on November 14, 2006, Junko Kobayashi had absolutely no authority, and in fact, was well aware of the April 11, 2002 Order, which specifically authorized only one form of sale and transfer of assets; that being from SLMI to SLC, LLC, a California corporation. Furthermore, the recipient of the purported assignment, Plaintiff, Gill Champion, on behalf of QED, had the same knowledge as Junko Kobayashi. Based upon the foregoing, the purported transfer of the intellectual properties from a debtor-in-possession, while the Bankruptcy Case was still pending, without any authority to do so, is an involuntary and unauthorized transfer. Involuntary transfers of assets, particularly those
59

Plaintiffs’ First Amended Complaint at ¶ 24.

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which are effectuated by persons having full knowledge of a judge’s order to the contrary, are governed by 11 U.S.C. § 362, which specifically states that the filing of a bankruptcy petition, as in the case of SLMI, “operates as a stay, . . . , of—any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.” Involuntary transfers of assets in violation of 11 U.S.C. § 362 are void ab initio. Therefore, as a matter of law, the defendants contend that any purported assignment is void from its inception and had no legal effect whatsoever. As a result, SLMI continues to own and hold all rights, interest and copyrights in and to the intellectual properties at issue, and the plaintiffs have absolutely no basis to be suing the defendants. As the plaintiffs are unable to present any additional facts to this Court sufficient to establish their purported ownership of the rights to the intellectual properties and the right to use the name and likeness of Stan Lee, the entirety of the plaintiffs’ case should be dismissed on summary judgment. 2. Stan Lee’s Name And Likeness

Plaintiffs’ purported rights to use the name and likeness of Stan Lee are also based entirely upon the April 11, 2002 Order. Once again, the Plaintiffs’ alleged right to use the name and likeness of Stan Lee to the exclusion of SLMI are material allegations in Count I, 60 Count II,61 Count IV,62 Count V,63 Count VI,64 Count VII,65 and Count VIII.66 Pursuant to the October 15, 1998 Assignment from Stan Lee to SLMI, Stan Lee conveyed, assigned and sold to SLMI the exclusive right to use the name and likeness of Stan
60 61

Plaintiffs’ First Amended Complaint at ¶ 39. Id. at ¶ 51. 62 Id. at ¶ 71. 63 Id. at ¶ 78. 64 Id. at ¶ 84. 65 Id. at ¶ 99. 66 Id. at ¶¶ 104(a), 104(b), 104(c), 106 and 108.

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Lee.67 Stan Lee has received adequate consideration for this and other assignments described in the October 15, 1998 Assignment.68 The plaintiffs allege that somehow the April 11, 2002 Order stripped from SLMI the rights to use the name and likeness of Stan Lee.69 The defendants continue to contend that the April 11, 2002 Order and agreement are void in light of the totality of the circumstances already discussed herein. However, even if this Court were to consider the April 11, 2002 Order on the issue of Stan Lee’s name and likeness, it is clear from the April 11, 2002 Order that there is nothing which divests SLMI of its rights to use the name and likeness of Stan Lee.70 In fact, the April 11, 2002 Order specifically reserves until SLMI all rights and assets not specifically authorized to be assigned and/or conveyed.71 As the issue of Stan Lee’s name and likeness are not addressed in the April 11, 2002 Order, as a matter of law, SLMI continues to retain ownership of the rights to use the name and likeness of Stan Lee. All of the defendants actions with regard to the name and likeness of Stan Lee have been have been taken as authorized agents, officers and directors of SLMI.72 As set forth herein, SLMI has the absolute contractual right to continue to use the name and likeness of Stan Lee pursuant to the express provisions of the October 15, 1998 Assignment and the claims against the defendants in this regard are ripe for summary judgment. Furthermore, as all of the allegations regarding the defendants’ use of the Stan Lee name and likeness have been undertaken in their capacity as agents of SLMI and not in their individual capacities,73 the defendants are entitled to summary judgment on these issues as well.

67

See October 15, 1998 Assignment at 4(a), which states, in pertinent part, as follows: “I [Stan Lee] assign, convey and grant to the Company [Stan Lee Entertainment, Inc.] forever, all right, title and interest I may have or control, now or in the future, in the following: . . . my name and likeness.” 68 See generally October 15, 1998 Assignment. 69 Plaintiffs’ First Amended Complaint at ¶¶ 71 and 73. 70 See generally April 11, 2002 Order. 71 April 11, 2002 Order [Asset Purchase Agreement dated October 23, 2001] at ¶ 1.2.9. 72 Affidavit of James Nesfield. 73 Id.

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V.

CONCLUSION

WHEREFORE, the defendants respectfully request that this Court grant summary judgment in favor of defendants and against the plaintiffs on all counts. DATED this ____ day of April 2007. O’Donnell & Associates

By:

__________________________________________ Pierce O’Donnell, Esq. Jack G. Cairl, Esq. 550 South Hope Street, Suite 1000 Los Angeles, California 90071 Telephone (213) 532-2000 Facsimile (213) 532-2020 Attorneys for Defendants

CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of the foregoing was sent by United States Mail to John H. Lavely, Esq., at Lavely & Singer, Professional Corporation, 2049 Century Park East, Suite 2400, Los Angeles, California 90067-2906 on this ____ day of April 2007. O’Donnell & Associates

By:

__________________________________________ Pierce O’Donnell, Esq. Jack G. Cairl, Esq. 550 South Hope Street, Suite 1000 Los Angeles, California 90071 Telephone (213) 532-2000 Facsimile (213) 532-2020 Attorneys for Plaintiffs

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