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REALAUCTION BANKRUPTCY AND OWNERSHIP SERIES

A collection of public documents from a recent patent infringement action and related bankruptcy proceedings that show who really owns Realauction.com.

Who Really Owns Realauction?

Plaintiff Grant Street Group, Inc.s Memorandum in Opposition to Realauctions Motion for Reconsideration of Amount of Security [Dkt. No. 689]

Description:

This document points out the gaps and inexplicabilities in the testimony of Lloyd McClendon, Realauctions CEO, and Marc Thomashaw, the CFO, with respect to the ownership and funding sources of the Company. (See especially pages 6-15).

Note: These documents were obtained from Grant Street Group, Inc. v. Realauction.com, LLC, Case No. 2:09-cv-01407-MRH, a patent infringement action in the United States District Court for the Western District of Pennsylvania and from In re Realauction.com, LLC, Case No. 13-28260-RBR, a bankruptcy proceeding in the United States Bankruptcy Court for the Southern District of Florida. Document 2 of 5

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IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA GRANT STREET GROUP, INC., a Pennsylvania corporation, ) ) ) Plaintiff, ) ) vs. ) ) REALAUCTION.COM, LLC, ) a Florida limited liability company, ) ) Defendant. )

Civil Action No. 2:09-cv-01407 Judge Mark R. Hornak

______________________________________________________________________________ PLAINTIFF GRANT STREET GROUP, INC.S MEMORANDUM IN OPPOSITION TO REALAUCTIONS MOTION FOR RECONSIDERATION OF AMOUNT OF SECURITY ______________________________________________________________________________

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I.

INTRODUCTION

Realauctions last-ditch effort to stave off execution and avoid complying with the Courts Order to post adequate security of $4.3 million does not provide the Court with a sufficient basis to modify its July 25, 2013 Order. In support of its Motion for Reconsideration (Motion), Realauction only proffers evidence in the form of a new declaration from its CEO, Mr. Lloyd McClendon. Dkt. 686-1. Mr. McClendons declaration, however, is more noteworthy for what it does not contain regarding Realauctions ability to obtain funding to post the required bond than what it does contain. Mr. McClendons declaration does not repair the defects identified by the Court in Realauctions presentation of its financial position and simply is not credible in light of all of the facts learned through discovery and at trial. Because Mr. McClendons declaration does not alter the underlying bases of the Courts Order predicating a stay upon the posting of $4.3 million in security, Realauction has failed to meet the stringent standard for a motion for reconsideration. The Motion should be denied.1 II. FACTUAL BACKGROUND

Since the jury returned its verdict on June 17, 2013, Realauction has attempted several times to delay entry of judgment and Grant Streets ability to execute on that judgment until well after Realauctions annual peak cash position. Realauction first requested that the Court forgo entry of judgment entirely until after deciding all post-trial motions (which will not be fully briefed until October). See Dkt. 668. The Court properly rejected Realauctions request and entered judgment on July 17, 2013. See Dkt. 676. Realauction then filed a motion to stay
1

Pursuant to the Courts directive, the parties met and conferred at approximately 4:00 p.m. yesterday on this subject. In advance of the call, Grant Street sent a compromise proposal attached hereto as Exhibit 1. Realauction rejected it, indicated it would provide a counter-proposal and made certain representations about Realauctions owners. See Ex. 1. As of the time of this filing, Realauction had not provided its promised counter-proposal.

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execution without posting any security or, at a maximum, $117,912 (approximately 1.5% of the jurys verdict). See Dkt. 678. In support of that motion, Realauction submitted a conclusory declaration from its Chief Financial Officer, Marc Thomashaw, wherein he asserted that Realauction with some financial hardship could post a bond of up to approximately $1 million but a bond of $1.5 million would cause Realauction great hardship. See Dkt. 679-1. The Court set a hearing for July 25 on Realauctions motion to stay and invited the parties to present live testimony at the hearing. Realauction declined to bring anyone to the hearing who would be subject to cross-examination from Grant Street or the Court. See Ex. 2. Instead, Realauction submitted a second declaration from Mr. Thomashaw on the morning of the hearing.2 That declaration attached various unaudited financial statements and a conclusory statement regarding the efforts Realauction undertook to obtain a bond. After oral argument, the Court granted Realauctions Motion to Stay from the bench contingent upon Realauction posting security with the Clerk of the Court in the sum of $4,381,059.00, in cash or in the form of a bond with good and sufficient surety provided by a surety on the approved list of the Court (or a combination thereof), in favor of Grant Street. See Dkt. 684. The Court, having doubt as to the financial records of Realauction and the explanations of them, also strictly prohibited Realauction (and its officers and directors) during the Rule 62 automatic fourteen day stay from paying any dividends, bonuses or distributions to any investors, officers, or directors; transferring or causing the transfer of any assets of Realauction without prior approval of the Court, and making any principal payments against any loan. See id.; 7/25/13 Tr. at 120.

Although Realauction represented to the Court that it would file Mr. Thomashaws second declaration and attachments through ECF, Realauction still has not done so.

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In support of its ruling, the Court made the following findings of fact and/or conclusions of law: x Grant Street would be substantially injured by a stay of execution unless Realauction provided sufficient security both in amount and form. 7/25/13 Tr. at 113-14. There was a complete and fundamental absence of proof on the part of Realauction as to its net worth or its ability or inability to post a bond. Id. at 117. The Court would have been assisted materially by its ability to inquire of Realauctions financial officers, CEO, accountants, investors or others who are knowledgeable of Realauctions financials. Id. at 117-18 Realauction failed to provide any record evidence from which the Court could conclude that the net worth, the available assets, the available infusions of cash, whether its by capital, loans or otherwise, renders the net worth of the defendant so low that they cannot post security in a sufficient amount or that they are unable to get a surety bond that will protect the verdict. Id. at 118. Mr. McClendons trial testimony relative to Realauctions financial statements strained credulity of the credulous and his inability to understand the financial statements, who the investors were, or his unwillingness to do so was stark. Id. Mr. Thomashaws videotaped testimony played at trial was in some ways inexplicable and his declarations filed in support of this motion [to stay] were wholly conclusory. Id. The financial records and reports submitted with Mr. Thomashaws declarations had substantial gaps and the declarations themselves were so riddled with gaps, inexplicabilities or uncertainties as to be of no assistance to the Court whatsoever. Id. at 118-20.

Realauction does not dispute or take issue with any of these findings in its Motion. Thus, the factual predicate for the Courts Order is essentially unchanged. Instead, Realauction submits a declaration from Mr. McClendon dated July 28, 2013 that purports to explain what steps Realauction allegedly has taken (apparently only after the Courts July 25 order) to obtain a bond or other funds to satisfy the security necessary to prevent irreparable harm to Grant Street during Realauctions requested stay. Mr. McClendons declaration contains no information that would allow the Court to evaluate the credibility of the

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assertion that Realauction and its owners/investors are unable to post a bond in the amount set by the Court. Indeed, as set out below, there is still a conflict in the records as to the identity of Realauctions owners, let alone the economics of their investments. Without this critical information, there is no way that the Court can evaluate the key assertions in Mr. McClendons declaration, i.e., that no funds are available to post the Court ordered security. III. A. ARGUMENT

The Stringent Legal Standard for Reconsideration Motions for reconsideration are granted sparingly because federal courts have a strong

interest in finality of judgments. Jacobs v. Bayha, Civ. A. No. 07-237, 2011 WL 1044638 at *2 (W.D. Pa. Mar. 18, 2011) (internal quotations omitted) (citing Continental Cas. Co. v. Diversified Indus., Inc., 884 F. Supp. 938, 943 (E.D. Pa. 1995)); see also DAngio v. Borough of Nescopeck, 56 F. Supp. 2d 502, 504 (M.D. Pa. 1999) (reconsideration is an extraordinary remedy and is to be granted sparingly). [T]he parties are not free to relitigate issues the court has already decided. See Williams v. City of Pittsburgh, 32 F. Supp. 2d 236, 238 (W.D. Pa. 1998) (citing Rottmund v. Continental Assurance Co., 813 F. Supp. 1104, 1107 (E.D. Pa. 1992)). A litigant that fails in its first attempt to persuade a court to adopt its position may not use a motion for reconsideration either to attempt a new approach or correct mistakes made in the previous one. Blunt v. Lower Merion School Dist., 559 F. Supp. 2d 548, 574 (E.D. Pa. 2008); see also Trunzo v. Citi Mortg., 876 F. Supp. 2d 521, 544 (W.D. Pa. 2012) (Hornak, J.) (However, because the motionessentially restates, with added vigor, the arguments made previously, and does not satisfy the substantial standard for reconsideration, the Motion is denied) (footnote omitted).

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For these reasons, a court may grant a motion for reconsideration only if the moving party shows: (1) an intervening change in the controlling law; (2) the availability of new evidence which was not available when the court issued its order; or (3) the need to correct a clear error of law or fact or to prevent a manifest injustice. See Trunzo, 876 F. Supp. 2d at 544 n.1 (citing Maxs Seafood Caf ex rel Lou Ann, Inc. v. Quinteros, 176 F.3d 669, 677 (3d Cir. 1999)); Carnegie Mellon Univ. v. Marvell Tech. Group, Ltd., Civ. A. No. 09-290, 2012 WL 1203353 at *10 (W.D. Pa. April 10, 2012). Realauction does not come close to satisfying this standard. B. Mr. McClendons Declaration Does Not Warrant Reconsideration

Realauction bases its Motion entirely on the purportedly new evidence set forth in Mr. McClendons July 28, 2013 declaration. Mr. McClendons declaration, however, does not fill the considerable gaps in Realauctions financial submissions or cure the inexplicabilities in the record. To the contrary, the declaration raises more questions than it answers and illustrates why the Courts Order requiring Realauction to post $4.3 million in security should stand. First, Mr. McClendons declaration is wholly conclusory just like Mr. Thomashaws declaration. For example, Mr. McClendon asserts that Realauction has been attempting to obtain a loan or other funding for $2.8 million dollars but he does not provide any details about those attempts. Dkt. 686-1 at 6. He does not identify the banks that Realauction supposedly contacted, what information Realauction provided to the banks, or why the banks declined to provide a loan. He also claims that Realauction has requested funds from Adila but that Adila refused the request. Id. Mr. McClendon again fails to provide any details about, for example, who contacted Adila, who was contacted at Adila, why Adila refused the request, or Adilas financial

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condition.3 Such details are critically important to test the credibility of Mr. McClendons assertions that Realauction cannot satisfy the Courts bonding requirement, particularly in light of the sworn testimony of both Mr. McClendon and Mr. Thomashaw. For example, in June 2011, Mr. Thomashaw testified on behalf of Realauction that he and Mr. McClendon owned Realauction. Q. A. Q. A. Q. A. And do you own 50 percent of Realauction.com, LLC Realauction.com, LLC, Im a managing member of this firm and had the same ownership class that Lloyd has. Were equal partners. So you own 50 percent of Well, I would say -- the company? that Lloyd has a higher percentage as far as that goes, because in an LLC, one person has to own more than 50 percent of a particular company. And since he was the one that got this particular company started, he owns a higher share than I would say I would own. But we always are on equal footing between each other. As far as the exact ownership, to us, it doesnt really matter really who owns more, who owns less. We share in the wealth, we share in the good times, we share in the bad times. But how is it papered in terms of ownership percentage? That, I do not have the exact knowledge of.

****** Q. A.

See 6/28/11 M. Thomashaw Depo. Tr. at 18-19.4 A day later, Mr. McClendon contradicted Mr. Thomashaws testimony: Q. A. Q.
3

Sir, who owns Realauction.com, LLC? I do. One-hundred percent?

Indeed, Realauction has communicated with Adila exclusively through Realauctions counsel, Greenberg Traurig. See Ex. 1. Although the testimony about what Mr. Thomashaw does not know cannot be confidential, Grant Street has not attached the deposition transcripts referenced herein because Realauction designated the entire transcripts as Confidential Attorneys Eyes Only information. Grant Street believes the Court has copies of the transcripts as part of the parties pretrial submissions but can provide a copy to the Court upon request.

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A. Q. A. Q. A.

I dont believe its 100 percent, but I do. What percentage do you own? Im unfamiliar with the percentage. Is it a 50/50 split with Mr. Thomashaw? No, I dont believe Mr. Thomashaw has ownership in Realauction.com.

6/29/11 L. McClendon Depo. Tr. at 14-15. Remarkably, none of this testimony is consistent with the financial records that Realauction provided to the Court. See July 24, 2013 M. Thomashaw Dec. In those financial records, Adila is identified as having a 70% ownership interest in Realauction ($210,000 of $300,000 in capital stock). Id. at Ex. 3. Mr. McClendon is silent in his declaration regarding Realauctions relationship with Adila. Mr. McClendon also is silent with respect to the fact that the financial records provided to the Court conflict with the Operating Agreement that Realauction did not produce until October 2011 after Grant Street brought a motion to compel Realauction to answer several basic questions about the companys ownership in its Rule 30(b)(6) deposition. In fact, Mr. Thomashaw testified at this deposition that he purportedly received a copy of the agreement from someone known only as Jose from Ecuador, despite the fact that Mr. Thomashaws signature appears on the document.5 As discussed infra at 8-12, the Operating Agreement identifies Hatchett as a 70% owner. See 6/7/13 Tr. at 207-08; P-96. Moreover, Mr. McClendons statements about Realauctions purported efforts to contact Adila are seriously undermined by his prior testimony regarding his interactions with Adila. Mr.
5

Mr. Thomashaw provided sworn testimony that a mysterious man named Jose called Mr. Thomashaw out-of-the-blue from Ecuador, supposedly to provide information to Mr. Thomashaw regarding Realauctions ownership structure and loans. See infra at 10-12. The mysterious Jose explained to Mr. Thomashaw who owned Realauction from its inception and then sent him two documents that Mr. Thomashaw claimed he had never seen: (1) Realauctions Operating Agreement dated January 1, 2011 that Mr. Thomashaw supposedly signed; and (2) a $3.8 million dollar promissory note from Realauction to Adila. There is no legitimate reason, and Mr. Thomashaw could not provide one, for an unknown man named Jose to have Realauctions ownership and loan documents while no one at Realauction has those documents.

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McClendon testified under oath that he: (1) never met Mr. Enrique Torbay, who is the only representative of Adila that Realauction has ever identified and is listed as a member-manager of Realauction in the corporate records available from the State of Florida; (2) did not know if Mr. Torbay had ever been informed of the litigation with Grant Street; (3) communicated with Mr. Torbay in 2004 or 2005 only through document exchange; (4) never had any personal meetings with Mr. Torbay; (5) did not believe he ever had any communication with anyone else associated with Adila; and (6) did not have documentation of the loans with Adila. 6/29/11 L. McClendon Depo. Tr. at 156-162. Mr. McClendons non-existent relationship with Adila for at least six years despite receiving millions of dollars in funding from Adila (see P-154) casts serious doubts as to the credibility of Mr. McClendons new declaration. In connection with the meet and confer ordered by the Court regarding Realauctions Motion, Realauctions counsel represented that, during the entire course of dealings with Adila, Realauction has communicated with Adila exclusively through Realauctions counsel, Greenberg Traurig. See Ex. 1. Realauction has not submitted any information from Greenberg Traurig or anyone else that would explain this arrangement. Curiously, until March 2013, Gulf Group Holdings, LLC listed Greenberg Traurig (specifically Ozzie Schindler) as its mailing address on its Florida Annual Reports. Mr. Schindler also is identified as a required copy on Notices related to a subordination agreement between Realauction, Adila and Financial Markets (another lender).6 Second, Realauctions supposed Operating Agreement raises further questions regarding

Realauctions accountant, Binstock, Rubin, Adler, Aldecoa & Ellzey, P.A. (Binstock), is the long-time accounting firm for Mr. Politano and Gulf Group, as well as Adila and Hatchett. See 6/7/13 Tr. at 208-10. From 2006 through September 7, 2011, Realauction accrued interest on loans from Adila on its financial statements. Binstock supplied Mr. Thomashaw with the instructions to accrue the interest and the amounts to accrue. Id.; see also 10/18/11 M. Thomashaw Depo. Tr. at 114-16; 162-69. Binstock, however, did not make the decision to accrue the interest or determine the amount of the accrual. Instead, Mr. Politano provided those instructions. Id.; see also 10/19/11 R. Rubin Depo. Tr. at 77-82, 86-87, 9094, 103. Mr. Rubin could not explain why Mr. Politano was providing these instructions to him. Id.

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Realauctions efforts to obtain the required security. See 6/7/13 Tr. at 207-08; P-96. As set forth above, Realauction provided the Court with financial records that identify Adila as having a 70% equity ownership interest in Realauction. Adila, however, is not a party to the Operating Agreement dated January 1, 2011 and is not even mentioned therein. See id. To the contrary, the Operating Agreement identifies Hatchett Developments Limited, a different British Virgin Islands company, as the 70% owner of Realauction with a $210,700 capital investment. Id. In his sworn deposition testimony on June 29, 2011, Mr. McClendon testified as follows regarding Hatchett: Q. A. Q. A. Q. A. Q. A. Q. A. Q. A. Q. A. Q. A. Q. A. Q. Has Realauction ever had any other investors, other than possibly Ms. Rub, you and Mr. Thomashaw or entities owned wholly by the two of you? Yes. Who would they be? There was one other that was, I believe its called Hatchet [sic]. Hatchet? Yes. Whats Hatchet? As far as I know, its an investment company. Where is it located? I dont know. Somewhere in South America. How did Hatchet come to invest in Realauction? I dont recall. Who did you deal with at Hatchet? It was an attorney. What is that persons name? I dont recall the attorneys name. So can you tell me anything about Hatchet, other than that they were an investor in Realauction.com somewhere from South America? No. How much did they invest?

********************

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A. Q. A. Q. A. Q. A. Q. A. Q. A. Q. A. Q. A. Q. A. Q. A. Q. A. Q. A. Q. A.

I dont recall. When did they invest? Sometime after 2004. Are they still invested? I believe they are. Do you have contact with them as somebody thats invested in your company? No. Do you communicate with them at all on any subject regarding their investment? No. Have they ever sought any return on their investment or money back? No. Have you ever provided them with any return on their investment? Not that Im aware of. Can you give me an order of magnitude of their investment? No. So you cant tell me whether its a dollar, ten thousand dollars or five million dollars? I cannot. Who would know about the details of the Hatchets relationship? Hatchet. Who at Realauction? Lloyd. Lloyd? Me. Thats it? Yes.

*****************

6/29/11 L. McClendon Depo. Tr. at 18-21, 24. Mr. McClendon also swore there is no relationship between Adila and Hatchett. Q. A. Id. at 22-23. Well talk about Adila later, but does Adila have any relationship to Hatchet? None that Im aware of.

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After the Court ordered that Realauction produce a Rule 30(b)(6) witness to testify on the true ownership of Realauction, Mr. Thomashaw testified that Hatchett owned 70% of Realauction and Mr. McClendon owned 30%. See 10/18/11 M. Thomashaw Depo. Tr. at 39-57. Mr. Thomashaw also testified that Mr. Torbay owned 100% of Hatchett (and Adila). Id. Mr. Thomashaws testimony was based solely on his purported conversation with the mysterious Jose. Q. A. Q. A. Q. A. Q. A. Q. A. And where did the operating statement you just referred to come from? From Ecuador. And who provided that? Hatchett, somebody in that organization. Now, you previously testified that you requested from Hatchett any documents in their possession that would be needed for todays testimony, is that accurate? Today, yes. Okay. And who at Hatchett did you contact? I didnt contact anybody. Well, how did you make your inquiry of Hatchett? I got a call on my cell phone from an unknown number. I answered the call. It was difficult to understand, because it seems theres a language barrier. I dont speak Spanish, and that particular person, there might have been other people that were privy to the conversation I was having, but I wanted to try and get some information on the background of the company, that I didnt have at the last deposition, and the information was supplied to me. Did they say was it a woman or a man on the other end. It was a male. And did he identify himself? His name was Jose or thats the best that I was able to get from that particular individual. He said he was with Hatchett Developments, as best as I was able to understand, and I said, well, Im looking for some information regarding our lawsuit, because I didnt have certain information on the stocks, and the conversation ended with me obtaining certain information to be helpful with this particular in this case litigation, whatever you guys call it. How long did you speak with Jose? I dont know. Five or ten minutes.

******************* Q. A. Q. A.

Q. A.

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Q. A.

And what specific information did you ask Jose for? I wanted to know, historically, who owned the company and things that I didnt have previous knowledge to, and what happened as the years went on, for any transfer of responsibility. I also need to ask him if there were any pertinent documents related to the ownership of the company. Any notes that I wasnt aware of, that were promissory notes for the loan with Adila, and that information was given to me or mailed to me.

10/18/11 M. Thomashaw Depo. Tr. at 40-42; see also id. at 43-65. The Operating Agreement itself also casts doubt on the veracity of Mr. McClendons declaration in light of his failure to discuss Mr. Torbay or Hatchett. Pursuant to that Operating Agreement, Realauction cannot take many corporate actions without consent from its Class B members. P-96 at 4.6. The only Class B member identified in the Operating Agreement is Mr. Torbay.7 In light of the Operating Agreement and Mr. McClendons testimony, it is inexplicable that his declaration does not even mention Hatchett or provide any information about Hatchetts business or its financial situation. Third, Mr. McClendons declaration ignores the entity that is identified only as RA Partners on Realauctions financials. Mr. McClendon testified RA Partners is a designation to track investments in Realauction. Q. A. Who is RA Partners? I believe RA Partners was a I believe RA Partners was an initial investment we made. I cant recall whether it was just me or a partner at the time or someone investing at the time or it was my business and not me personally. What are the possibilities? The possibilities are it was the possibilities are it was someone I dont recall at the time. Do you know who RA Partners is now, who owns it?

Q. A. Q.
7

The Operating Agreement also contains provisions regarding settlement that require written consent from Mr. Torbay. P-96 at 4.6(f). Remarkably, in the July 29 meet and confer, Mr. Brafman and Mr. Passler represented that no one from Akerman Senterfitt has ever spoken to anyone at Hatchett. See Ex. 1.

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A.

I dont know who is designated as RA Partners.

6/29/11 L. McClendon Depo. Tr. at 17. At the continuation of Realauctions Rule 30(b)(6) deposition, Mr. Thomashaw finally came clean and admitted that RA Partners is Gulf Group. Q. A. Q. The only financial statements or materials that youve given to us are the Exhibit number 2 [P-154] that you produced this morning, correct? I dont know what else you have, but we gave you stuff this morning; thats correct. Okay. And youre pointing to line entries that are under, on Exhibit 2, under RA Partners, correct? I see the last page that says Gulf Group Holdings. Well, the last page says, as printed out from Quickbooks register, long term liability shareholder loans RA Partners? Right. Correct? Thats a label. Like I explained to you a long time ago today, that was there for anybody that was going to invest. Is Gulf Group is one of the firms that decided to loan money at an interest rate return.

****************** A. Q. A. Q. A. Q. A.

10/18/11 M. Thomashaw Depo. Tr. at 233-34; see also J-25. Mr. McClendons failure to even mention RA Partners or Gulf Group as a potential source of funds for the bond is telling in light of Gulf Groups history of providing millions of dollars of funding to Realauction. See P-154. Finally, as the Court found at the July 25 hearing, Mr. McClendons trial testimony as to Realauctions financials strained [the] credulity of the credulous. 7/25/13 Tr. at 118. Realauction has insulated Mr. McClendon (and Mr. Thomashaw) from further cross-examination by the Court or Grant Street on these topics by failing to bring either of them, or anyone else, to the hearing. As the Court observed, I have to believe there was more than one empty seat in the airplane from South Florida to here, and Mr. Thomashaw wasnt in it. If someone was trying to convince me an amount of security was going to put someone out of business, I wouldnt have

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been shocked to see him come into the courtroom and explain that to me, to turn around, just as Dr. Kursh and Dr. Parkes did, and look at me and say, Judge, let me explain this to you. So, thats testimony completely in the control of Realauction and it isnt here. Id. at 102-03. Realauction still has not provided that testimony and the gaps, inexplicabilities and uncertainties of Mr. McClendons declaration serve only to undercut the credibility of Realauctions requested relief. C. If Realauction cannot post security in the $4.3 million amount required by the Court, Grant Street is entitled to execute immediately.

Although Realauction implies that its ability to continue as a going concern will be compromised by the Courts Order, this Court has held that there is nothing wrong with executing on a judgment where no bond is filed, even if the execution results in bankruptcy or losing business. See Universal Athletic Sales Co. v. American Gym, 480 F. Supp. 408, 422 (W.D. Pa. 1979). Indeed, the Court observed that [a]s a matter of fact, it might be a matter of malpractice on an attorneys part not to take all legitimate steps to collect a judgment in favor of his client because otherwise the assets subject to execution might disappear or be frittered away in a losing business. Id. The inconsistencies in the record, false testimony and stonewalling as to the financials and ownership of Realauction provide ample, additional good faith justification to aggressively pursue collection efforts. This is particularly true given the prominence of British Virgin Islands companies in the picture. Moreover, other courts have recognized there is no reason to treat bankruptcy as a bogeyman, as a fate worse than death when a party cannot post a bond. Endress + Hauser, Inc. v. Hawk Measurement Sys. Pty., 932 F. Supp. 1147, 1151 (S.D. Ind. 1996) (citing Olympia Equipment v. Western Union Telegraph Co., 786 F.2d 794, 802 (7th Cir. 1986) (Easterbrook, J., concurring). The court reasoned that:

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allowing a vastly reduced security which would not protect [the patent owners] right to payment in full would set a very dangerous example, giving the impression that firms that are bankrupt or in danger of bankruptcy can infringe (or commit other violations) with impunity simply because they have shallow rather than deep pockets. Id. (citing Olympia Equipment, 786 F.2d at 803 (Easterbrook, J., concurring)). Realauction has completely failed to carry its heavy burden to jettison the normal course of requiring a bond of adequate security (in this case less approximately 55% of the full judgment) and thereby shifting to Grant Street the risk that assets will disappear with payments and distributions to third parties who will not even provide the Court with any information about their interest in this case. IV. CONCLUSION

For the foregoing reasons, the Court should deny Realauctions Motion for Reconsideration.

Respectfully submitted, /s/ Christopher M. Verdini Thomas E. Birsic, Esq., Pa. I.D. No. 31092 thomas.birsic@klgates.com Patrick J. McElhinny, Esq., Pa. I.D. No. 53510 patrick.mcelhinny@klgates.com Christopher M. Verdini, Esq., Pa. I.D. No. 93245 christopher.verdini@klgates.com K&L Gates LLP K&L Gates Center 210 Sixth Avenue Pittsburgh, PA 15222-2613 Phone: 412-355-6500 Thomas M. Joseph, Esq., Pa. I.D. No. 87012 tom.joseph@grantstreet.com Grant Street Group, Inc. 1800 Allegheny Building 429 Forbes Avenue Pittsburgh, PA 15219 Phone: 412-391-5555 ext. 376 Counsel to Plaintiff Grant Street Group, Inc.

Dated: July 30, 2013

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CERTIFICATE OF SERVICE I hereby certify that on July 30, 2013, the foregoing was filed electronically. Notice of this filing will be sent to all parties by operation of the Courts electronic filing system. Parties may access this filing through the Courts system.

/s/ Christopher M. Verdini K&L GATES LLP K&L Gates Center 210 Sixth Avenue Pittsburgh, PA 15222-2613 Tel: 412.355.6500 Fax: 412.355.6501

Case 2:09-cv-01407-MRH Document 689-1 Filed 07/30/13 Page 1 of 3

EXHIBIT 1

Case 2:09-cv-01407-MRH Document 689-1 Filed 07/30/13 Page 2 of 3 Verdini, Christopher M.


From: Sent: To: Cc: Subject: McElhinny, Patrick Monday, July 29, 2013 4:31 PM McElhinny, Patrick; 'david.brafman@akerman.com' 'mark.passler@akerman.com'; Birsic, Thomas E.; Verdini, Christopher M.; 'Tom Joseph' RE: 4:00 pm Call

David, we look forward to the promised response to our proposal. In the meantime, I am writing to confirm two things that you and Mr. Passler told us today: 1. During its entire course of dealings with its majority shareholder Adila, Realauction has communicated with Adila exclusively through its counsel, Greenberg Traurig, so you are in the process of seeking a response from Greenberg as to Adila's position regarding our proposal; and 2. Nobody from Akerman has ever spoken to anyone from Hatchett Developments Limited, despite its role as described in the operating agreement that Realauction previously produced. When you respond to our proposal, please advise if any of the foregoing is incorrect. Also, we would appreciate it if you can describe in your response what efforts, if any, you have made to obtain Hatchett's position with respect to the proposal. Thanks, Pat
_____________________________________________ From: McElhinny, Patrick Sent: Monday, July 29, 2013 3:29 PM To: 'david.brafman@akerman.com' Cc: mark.passler@akerman.com; Birsic, Thomas E.; Verdini, Christopher M.; 'Tom Joseph' Subject: 4:00 pm Call

David: In advance of our call this afternoon at 4:00 p.m., this is to provide you with a proposal to allow Realauction to satisfy the security in the amount of $4,381,059 as reflected in Judge Hornaks Order dated July 26, 2013. Specifically, based on the representations made by Realauction and Mr. McClendon in its motion for reconsideration, Grant Street Group, Inc. (Grant Street) would be willing to consider accepting the following security: 1. Realauction shall immediately post cash security in the amount of $2.5M, comprising approximately $1.7M of current cash and $860K distributed in 2013 to principals of Realauction; A sweep account order for all future cash, less essential organizational expenses as defined by the parties, until Realauction accumulates cash security in the amount of $4,381,059, with the order to include provisions to be agreed upon that will be sufficient to verify compliance, e.g. all funds to be deposited to the Bank of America account reflected in the 7/24 Thomashaw declaration and both the bank statements and sufficient evidence of the expenses must be supplied monthly; and

2.

3. Affidavits from Hatchett Developments Limited (Hatchett) and Adila Enterprises, S.A. (Adila) setting forth the following information: (a) (b) (c) the identity of all legal and beneficial owners and/or members of Hatchett and Adila; current financial statements of Hatchett and Adila; a statement of complete historic funding of Realauction and receipts from Realauction in relation to both Hatchett and Adila; confirmation of the inability of both Hatchett and Adila to post bond on behalf of Realauction or
1

(d)

Case 2:09-cv-01407-MRH Document 689-1 Filed 07/30/13 Page 3 of 3


support Realauction in posting a bond as required by the Order dated July 26, 2013; (e) agreement from Hatchett and Adila to be bound by the terms of any alternative security order reflecting this proposal, including, without limitation, the sweep account provisions hereof; and the identification of any alleged obligations of Realauction to Hatchett and Adila, including the identification of any written instruments documenting any such obligations.

(f)

We look forward to discussing the foregoing with you at 4:00 this afternoon. In the meantime, if you have any comments concerning the foregoing that you would like to share with us before the call, please feel free to do so. Thanks. Pat Patrick J. McElhinny K&L Gates K&L Gates Center 210 Sixth Avenue Pittsburgh, PA 15222 412.355.6334 patrick.mcelhinny@klgates.com www.klgates.com

Case 2:09-cv-01407-MRH Document 689-2 Filed 07/30/13 Page 1 of 2

EXHIBIT 2

Page 1 of 1 Case 2:09-cv-01407-MRH Document 689-2 Filed 07/30/13 Page 2 of 2 Verdini, Christopher M.
From: Sent: To: Cc: patti.carlson@akerman.com Wednesday, July 24, 2013 3:52 PM 'Brian_Babik@pawd.uscourts.gov' david.brafman@akerman.com; jacqueline.arango@akerman.com; Birsic, Thomas E.; Verdini, Christopher M.; tom.joseph@grantstreet.com; McElhinny, Patrick

Subject: Grant Street Group, Inc. v. Realauction.com, LLC (Civ. Act. No. 09-1407) Mr. Babik 


Pursuant to the Court's Trial Management Order, Realauction hereby informs the Court and Grant Street's counsel that Realauction does not intend to call any witnesses at tomorrow's hearing. 


Respectfully submitted,

 
Patricia M. Carlson Akerman Senterfitt | 222 Lakeview Avenue | Suite 400 | West Palm Beach, FL 33401 Dir: 561.671.3694 | Main: 561.653.5000 | Fax: 561.659.6313 patti.carlson@akerman.com


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7/30/2013