ILNews

7th Circuit affirms in questionable merger case

Back to TopCommentsE-mailPrintBookmark and Share

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.

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. So if I am reading it right, only if and when African American college students agree to receive checks labeling them as "Negroes" do they receive aid from the UNCF or the Quaker's Educational Fund? In other words, to borrow from the Indiana Appellate Court, "the [nonprofit] supposed to be [their] advocate, refers to [students] in a racially offensive manner. While there is no evidence that [the nonprofits] intended harm to [African American students], the harm was nonetheless inflicted. [Black students are] presented to [academia and future employers] in a racially offensive manner. For these reasons, [such] performance [is] deficient and also prejudice[ial]." Maybe even DEPLORABLE???

  2. I'm the poor soul who spent over 10 years in prison with many many other prisoners trying to kill me for being charged with a sex offense THAT I DID NOT COMMIT i was in jail for a battery charge for helping a friend leave a boyfriend who beat her I've been saying for over 28 years that i did not and would never hurt a child like that mine or anybody's child but NOBODY wants to believe that i might not be guilty of this horrible crime or think that when i say that ALL the paperwork concerning my conviction has strangely DISAPPEARED or even when the long beach judge re-sentenced me over 14 months on a already filed plea bargain out of another districts court then had it filed under a fake name so i could not find while trying to fight my conviction on appeal in a nut shell people are ALWAYS quick to believe the worst about some one well I DID NOT HURT ANY CHILD EVER IN MY LIFE AND HAVE SAID THIS FOR ALMOST 30 YEARS please if anybody can me get some kind of justice it would be greatly appreciated respectfully written wrongly accused Brian Valenti

  3. A high ranking Indiana supreme Court operative caught red handed leading a group using the uber offensive N word! She must denounce or be denounced! (Or not since she is an insider ... rules do not apply to them). Evidence here: http://m.indianacompanies.us/friends-educational-fund-for-negroes.364110.company.v2#top_info

  4. A high ranking bureaucrat with Ind sup court is heading up an organization celebrating the formal N word!!! She must resign and denounce! http://m.indianacompanies.us/friends-educational-fund-for-negroes.364110.company.v2#top_info

  5. ND2019, don't try to confuse the Left with facts. Their ideologies trump facts, trump due process, trump court rules, even trump federal statutes. I hold the proof if interested. Facts matter only to those who are not on an agenda-first mission.

ADVERTISEMENT