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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. Just an aside, but regardless of the outcome, I 'm proud of Judge William Hughes. He was the original magistrate on the Home place issue. He ruled for Home Place, and was primaried by Brainard for it. Their tool Poindexter failed to unseat Hughes, who won support for his honesty and courage throughout the county, and he was reelected Judge of Hamilton County's Superior Court. You can still stand for something and survive. Thanks, Judge Hughes!

  2. CCHP's real accomplishment is the 2015 law signed by Gov Pence that basically outlaws any annexation that is forced where a 65% majority of landowners in the affected area disagree. Regardless of whether HP wins or loses, the citizens of Indiana will not have another fiasco like this. The law Gov Pence signed is a direct result of this malgovernance.

  3. I gave tempparry guardship to a friend of my granddaughter in 2012. I went to prison. I had custody. My daughter went to prison to. We are out. My daughter gave me custody but can get her back. She was not order to give me custody . but now we want granddaughter back from friend. She's 14 now. What rights do we have

  4. This sure is not what most who value good governance consider the Rule of Law to entail: "In a letter dated March 2, which Brizzi forwarded to IBJ, the commission dismissed the grievance “on grounds that there is not reasonable cause to believe that you are guilty of misconduct.”" Yet two month later reasonable cause does exist? (Or is the commission forging ahead, the need for reasonable belief be damned? -- A seeming violation of the Rules of Profession Ethics on the part of the commission) Could the rule of law theory cause one to believe that an explanation is in order? Could it be that Hoosier attorneys live under Imperial Law (which is also a t-word that rhymes with infamy) in which the Platonic guardians can do no wrong and never owe the plebeian class any explanation for their powerful actions. (Might makes it right?) Could this be a case of politics directing the commission, as celebrated IU Mauer Professor (the late) Patrick Baude warned was happening 20 years ago in his controversial (whisteblowing) ethics lecture on a quite similar topic: http://www.repository.law.indiana.edu/cgi/viewcontent.cgi?article=1498&context=ilj

  5. I have a case presently pending cert review before the SCOTUS that reveals just how Indiana regulates the bar. I have been denied licensure for life for holding the wrong views and questioning the grand inquisitors as to their duties as to state and federal constitutional due process. True story: https://www.scribd.com/doc/299040839/2016Petitionforcert-to-SCOTUS Shorter, Amici brief serving to frame issue as misuse of govt licensure: https://www.scribd.com/doc/312841269/Thomas-More-Society-Amicus-Brown-v-Ind-Bd-of-Law-Examiners

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