Magna Equities II, LLC v Writ Media Group Inc.

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Magna Equities II, LLC v Writ Media Group Inc. 2018 NY Slip Op 30017(U) January 3, 2018 Supreme Court, New York County Docket Number: 653808/2016 Judge: O. Peter Sherwood Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. [*FILED: NEW YORK COUNTY CLERK 01/08/2018 10:19 AM 1] NYSCEF DOC. NO. 192 INDEX NO. 653808/2016 RECEIVED NYSCEF: 01/08/2018 SUPREME COURT OF THE STATE OF' NEW YORK COUNTY OF NEW YORK: COMMERCIAL DIVISION PART 49 -------------------------------------------X MAGNA EQUITIES II, LLC, and HANOVER HOLDINGS I, LLC, Plaintiffs, - against - DECISION AND ORDER Index No. 653808/2016 Mot. Seq. Nos.: 005 WRIT MEDIA GROUP INC., SIG~ATURE STOCK TRANSFER, INC., Defend ants. ------------------------------------------X 0. PETER SHERWOOD, .J.: I. FACTS The follo\ving facts are taken from the Complaint. Plaintiffs Magna Equities IL LLC (Magna) and Hanover Holdings I, LLC (lfanover) are the same entity, as Hanover's name was changed to Magna (Complaint at ,:ir 8-9). Defendant Writ Media Group, Inc. (Writ) is a publicly traded company. Signature Stock Transfer, Inc. (Signature) and Pacific Stock Transfer Company (Pacific) arc securities transfer agents. Pursuant to a securities purchase agreement, Writ sold Hanover a convertible promissory note, giving Hanover a perfected security interest in certain assets of Writ (id., -iii- 14-15 ). The note gives Hanover the right to convert the unpaid principal of the note into shares of Writ common stock (id.. to Writ (id. iJ 20). To exercise this right Hanover had to deliver a Notice of Conversion if 21 ). Writ then has three trading days to deliver the certificates (id.. i; 2 l ). Subsequently. Magna entered into a second, third, and fourth securities purchase agreement 'vvith Writ (id., ii~ 26, 38, 50). The notes associated with those transactions (together with the first promissory note, the Notes) included similar conversion rights. On July l 0, 2014, Writ sent Signature a lcner instructing Signature to reserve shares of Writ. and to issue them upon receipt of Hanover's conversion notice (id.. ir,i 62-64). In the event Signature resigns as \Vrif s transfer agent, Writ agreed to get a replacement agent, \vhich \Vould agree to he hound by the tcm1s of the instmctions. Hanover is a third party beneficiary of the instructions (id..~ 66). Writ subsequently issued the second, third, fourth, and fifth letter (together. the Transfer Agent Instructions), with similar terms. Page 1of4 2 of 5 [*FILED: NEW YORK COUNTY CLERK 01/08/2018 10:19 AM 2] NYSCEF DOC. NO. 192 INDEX NO. 653808/2016 RECEIVED NYSCEF: 01/08/2018 On .June 20, 2016, plaintiffs delivered the First Notice of Conversion to Writ and Signature, seeking 835,065 shares of Writ common stock. On June 29, 2016, plaintiffs delivered the Second Notice of Conversion to Writ and Signature, seeking 705,992 shares of Writ common stock (id,~ 87-89). Signature did not issue the shares. Instead, Signature referred plaintiffs to Pacific, Writ's new transfer agent, which also failed to issue the shares. Plaintiffs nmv bring the following claims: 1- Breach of contract (the Notes) against Writ for failing to honor the Notices of Conversion (seeking money damages) 2- Breach of contract (the Notes) against Writ for failing to honor the Notices of Conversion (alternatively, seeking specific performance) 1- Conversion against all defendants for failure to deliver the share of Writ stock 4- Violation of UCC §§ 8-401 and 407 against Signature for failure to issue the shares 5- Violation of UCC §~ 8-401 and 407 against Pacific for failure to issue the shares 6- Negligence against Pacific for failure to obtain all relevant transfor agent instructions 7- Declaratory Judgment that plaintiffs are the owners of shares of Writ stock 8- Breach of contract (the Notes) against Writ, seeking attorneys' fees and costs 9- Permanent Injunction- to convert the notes into shares of stock I 0- Replevin of the shares Defendants having failed to answer the complaint, plaintiffs motion for default judgment against Writ and Signature '"''as granted. (NYSCEF Doc. No. 123). The cross-motion of Writ and Signature to dismiss for lack of personal jurisdiction was denied, as the default was not excusable, and Signature had failed to assert its lack of personal jurisdiction argument in its previous motion to dismiss, and thereby waiving the argument (see id.). H. THIS MOTION Now, Plaintiffs move for a Temporary Restraining Order (''TRO'') and preliminary injunction to stop defendants from moving forward with a spin-off of Writ's wholly O\vned subsidiary, Skylab, and any transfer of assets or liabilities, the issuance of any dividends, and so t()fth. Injunctive relief was granted in a TRO dated November 20, 2017. Plaintiffs claim that a Skylab spinofhvill divest Writ of practically all of its assets and make it impossible to collect a judgment. Plaintiffs sought the injunction to preserve the status quo while the inquest as to damages proceeds. Signature and Writ, with new counsel, argue that the spin-off of Skylab will have no impact on Writ's assets, as all of Skylab's assets were transferred to Writ already. Skylab used to be Page 2of4 3 of 5 [*FILED: NEW YORK COUNTY CLERK 01/08/2018 10:19 AM 3] NYSCEF DOC. NO. 192 INDEX NO. 653808/2016 RECEIVED NYSCEF: 01/08/2018 Pandora Venture Capital Corp., which was acquired by Writ in January 2016 (Opp at 3). All of Pandora's assets were transferred to Writ by an Asset Assignment and Debt Assumption Agreement dated as or July I, 2016 (id citing Asset Assignment attached as Exhibit D to Mitchell A1I NYSCEF Doc. No. 184). After Pandora was stripped of its assets, its name was changed to Skylab (Opp at 4). The planned stock transaction is a stock dividend by which the shareholders of Writ will receive 1,250,000 shares of common stock of Skylab (id). The intangible assets (intellectual property related to digital currencies) owned by Writ arc not affected hy the planned stock dividend. Skylab, an empty shell. has no assets, so the value of the planned stock dividend of the Skylab stock to the shareholders is only $125.00, total (Opp at 1-2, 4). The point of the transaction is to give Skylab a broad shareholder base in anticipation of Skylab's possible merger with another entity, Skylab Apps, Inc .. and going public. Writ also argues that its liability to Magna is minimal, less than $200,000, and nowhere near the $1.7 million claimed by Magna. Further, injunctive relief is not appropriate, as Magna is seeking money damages which is a remedy at law and injunctive relief is not available. Writ also argues that the equities tip in its favor, as the injunction threatens the completion of the Skylab Apps acquisition. Writ also argues that Magna should not be allowed to seek equitable relieL because it has unclean hands. Specifically, Magna bypassed Pacific's counsel and sent Pacific a letter demanding the issuance of over $1. 7 million in stock, falsely representing that this court ordered the issue (id at 14 ). This misrepresents the court's order and contradicts Magna's representation in court that they were seeking money damages (id. at 15). Finally, if the court does issue a preliminary injunction, Writ asks that Magna be required to post a bond in the amount of the \VOrlh of the entity which would result if the Skylab/Skylab App merger were to take place, which Writ claims is $5,139,209. III. DISClJSSION The issuance of a preliminary injunction is governed by CPLR 6301, which provides, in pertinent part: ··A preliminary injunction may be granted in any action where it appears that the defendant threatens or is about to do, or is doing or procuring or suffering to be done, an act in violation of the plaintiffs rights respecting the subject of the action. and tending to render the judgment ineffectual ... .'' Page 3 of 4 4 of 5 [*FILED: NEW YORK COUNTY CLERK 01/08/2018 10:19 AM 4] NYSCEF DOC. NO. 192 INDEX NO. 653808/2016 RECEIVED NYSCEF: 01/08/2018 "The party seeking a prdiminary injunction must demonstrate a probability of success on the merits, danger of irreparable injury in the absence of an injunction and a balance of equities in its favor" (Nohu Next Door. LLC v Fine Arts Hous .. Inc., 4 NY3d 839, 840 [2005]). "The decision to grant or deny provisional relief: which requires the court to weigh a variety of factors, is a matter ordinarily committed to the sound discretion of the lower courts" (id.). I !ere, the court need not review the first and third clements reqt:ired for the grant of a preliminary injunction because plaintiffs have failed to show irreparable harm. The relief being sought in this case is monetary damages. Accordingly, Magna has an adequate remedy at law and thus cannot show that it will suffer irreparable harm if the motion is denied <see JSC VTB Bank v Mavlyanov, 154 AD3d 560, 56 l [I st Dept 2017]). Similarly, the spin-off of Skylab will have no impact on Writ's assets as all of Skylab's assets and liabilities were transfen-ed to Writ on July 1, 2016. Evidence of an absence of assets appears in the Writ SEC Form 10-Q for the quarter ended September 30, 2017, p. 12 (see NYSCEF Doc. No. 182). Because Skylab is nothing more than a shell with negligible value, the contemplated spin-off will not cause irreparable harm to Magna. Accordingly, plaintiffs' motion for preliminary injunction is DENIED and it is ORDERED that the Temporary Restraining Order dated November 20. 20 l 7 is hereby VACATED. This constitutes the decision and order of the court. DATED: January 3, 2018 Page4of4 5 of 5

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