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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. Uh oh, someone is really going to get their panti ... uh, um ... I mean get upset now: http://www.theguardian.com/us-news/2015/mar/31/arkansas-passes-indiana-style-religious-freedom-bill

  2. Bryan, stop insulting the Swedes by comparing them to the American oligarchs. Otherwise your point is well taken.

  3. Sociologist of religion Peter Berger once said that the US is a “nation of Indians ruled by Swedes.” He meant an irreligious elite ruling a religious people, as that Sweden is the world’s least religious country and India the most religious. The idea is that American social elites tend to be much less religious than just about everyone else in the country. If this is true, it helps explain the controversy raking Indiana over Hollywood, San Fran, NYC, academia and downtown Indy hot coals. Nevermind logic, nevermind it is just the 1993 fed bill did, forget the Founders, abandon of historic dedication to religious liberty. The Swedes rule. You cannot argue with elitists. They have the power, they will use the power, sit down and shut up or feel the power. I know firsthand, having been dealt blows from the elite's high and mighty hands often as a mere religious plebe.

  4. I need helping gaining custody of my 5 and 1 year old from my alcoholic girlfriend. This should be an easy case for any lawyer to win... I've just never had the courage to take her that far. She has a record of public intox and other things. She has no job and no where to live othe than with me. But after 5 years of trying to help her with her bad habit, she has put our kids in danger by driving after drinking with them... She got detained yesterday and the police chief released my kids to me from the police station. I live paycheck to paycheck and Im under alot of stress dealing with this situation. Can anyone please help?

  5. The more a state tries to force people to associate, who don't like each other and simply want to lead separate lives, the more that state invalidates itself....... This conflict has shown clearly that the advocates of "tolerance" are themselves intolerant, the advocates of "diversity" intend to inflict themselves on an unwilling majority by force if necessary, until that people complies and relents and allows itself to be made homogenous with the politically correct preferences of the diversity-lobbies. Let's clearly understand, this is force versus force and democracy has nothing to do with this. Democracy is a false god in the first place, even if it is a valid ideal for politics, but it is becoming ever more just an empty slogan that just suckers a bunch of cattle into paying their taxes and volunteering for stupid wars.

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