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7th Circuit affirms in questionable merger case

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The judges of the 7th Circuit Court of Appeals took a plaintiff to task for filing a frivolous appeal and evading regulations of the Securities Act of 1933.

In MAS Capital Inc. v. Biodelivery Sciences International Inc., No. 07-3138, the appellate court affirmed the U.S. District Court grant of summary judgment in favor of Biodelivery on MAS Capital's suit to collect what it claims is due for services rendered to Biodelivery. But the judges have issues with those services MAS Capital provided, which essentially were designed to evade the requirements the Securities Act imposes on companies that go public.

MAS Capital incorporated a shell company, MAS Acquisition XXIII - which it represented as having tradable securities - and arranged for Biodelivery to merge with the shell company. The newly merged company changed its name to Biodelivery Sciences International and now had stock that could be bought or sold.

Because this process is illegal, the SEC has started proceedings against MAS Capital and its president and sole director, Aaron Tsai. The SEC required Tsai to sell any stock and options he issued, which he did. He also signed a release that states neither he nor MAS Capital have any right to compensation from Biodelivery.

MAS Capital filed this suit against Biodelivery to try and collect additional compensation. In order to get around that release, MAS Capital claimed some of its services were in fact performed by MAS Financial. Because MAS Financial and Tsai didn't sign the release in his capacity as an agent for MAS Financial, Tsai asserted that a merger occurred between the two companies and MAS is the surviving firm. Chief Judge Frank Easterbrook wrote that neither the District judge nor the 7th Circuit judges are amused by Tsai's actions.

"Tsai and his corporations take the law, and their promises, entirely too lightly. Tsai himself performed the services; any claim that MAS Financial (and thus MAS Capital) may have is derivative of his endeavors, and he has released any claim," wrote the judge.

The 7th Circuit is going to send copies of this opinion to the SEC and NASDAQ for their ongoing administrative proceedings against Tsai and his companies. The appellate court also directed MAS Capital to show cause within 14 days why the court shouldn't impose sanctions for filing a frivolous appeal.

Also within this case is the issue of how 28 U.S.C. 1332 treats domestic corporations with principal places of business outside of the U.S. Biodelivery removed the suit from state court to federal court. Biodelivery is incorporated in Delaware, but its principal place of business is New Jersey. Biodelivery thought MAS Capital was both incorporated and had a principal place of business in Indiana. However, it turns out MAS Capital was incorporated in Nevada but had its principal place of business in Taiwan. Although the 7th Circuit never addressed this issue of having incorporation in the U.S. but principal business in another country, other circuits have ruled that the foreign place of business does not count, so jurisdiction is proper under Section 1332 (a)(1), and MAS Capital will be treated in the suit as a citizen of Nevada alone.

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  1. wow is this a bunch of bs! i know the facts!

  2. MCBA .... time for a new release about your entire membership (or is it just the alter ego) being "saddened and disappointed" in the failure to lynch a police officer protecting himself in the line of duty. But this time against Eric Holder and the Federal Bureau of Investigation: "WASHINGTON — Justice Department lawyers will recommend that no civil rights charges be brought against the police officer who fatally shot an unarmed teenager in Ferguson, Mo., after an F.B.I. investigation found no evidence to support charges, law enforcement officials said Wednesday." http://www.nytimes.com/2015/01/22/us/justice-department-ferguson-civil-rights-darren-wilson.html?ref=us&_r=0

  3. Dr wail asfour lives 3 hours from the hospital,where if he gets an emergency at least he needs three hours,while even if he is on call he should be in a location where it gives him max 10 minutes to be beside the patient,they get paid double on their on call days ,where look how they handle it,so if the death of the patient occurs on weekend and these doctors still repeat same pattern such issue should be raised,they should be closer to the patient.on other hand if all the death occured on the absence of the Dr and the nurses handle it,the nurses should get trained how to function appearntly they not that good,if the Dr lives 3 hours far from the hospital on his call days he should sleep in the hospital

  4. It's a capital offense...one for you Latin scholars..

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