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.


Post a comment to this story

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
Subscribe to Indiana Lawyer
  1. Joe, you might want to do some reading on the fate of Hoosier whistleblowers before you get your expectations raised up.

  2. I had a hospital and dcs caseworker falsify reports that my child was born with drugs in her system. I filed a complaint with the Indiana department of health....and they found that the hospital falsified drug screens in their investigation. Then I filed a complaint with human health services in Washington DC...dcs drug Testing is unregulated and is indicating false positives...they are currently being investigated by human health services. Then I located an attorney and signed contracts one month ago to sue dcs and Anderson community hospital. Once the suit is filed I am taking out a loan against the suit and paying a law firm to file a writ of mandamus challenging the courts jurisdiction to invoke chins case against me. I also forwarded evidence to a u.s. senator who contacted hhs to push an investigation faster. Once the lawsuit is filed local news stations will be running coverage on the situation. Easy day....people will be losing their jobs soon...and judge pancol...who has attempted to cover up what has happened will also be in trouble. The drug testing is a kids for cash and federal funding situation.

  3. (A)ll (C)riminals (L)ove (U)s is up to their old, "If it's honorable and pro-American, we're against it," nonsense. I'm not a big Pence fan but at least he's showing his patriotism which is something the left won't do.

  4. While if true this auto dealer should be held liable, where was the BMV in all of this? How is it that the dealer was able to get "clean" titles to these vehicles in order to sell them to unsuspecting consumers?

  5. He has refused his Assent to Laws, the most wholesome and necessary for the public good. He has forbidden his Governors to pass Laws of immediate and pressing importance, He has erected a multitude of New Offices, and sent hither swarms of Officers to harrass our people, and eat out their substance. He has combined with others to subject us to a jurisdiction foreign to our constitution, and unacknowledged by our laws; giving his Assent to their Acts of pretended Legislation: For imposing Taxes on us without our Consent: He is at this time transporting large Armies of foreign Mercenaries to compleat the works of death, desolation and tyranny, already begun with circumstances of Cruelty & perfidy scarcely paralleled in the most barbarous ages, and totally unworthy the Head of a civilized nation.. He has excited domestic insurrections amongst us, and has endeavoured to bring on the inhabitants of our frontiers, the merciless [ ] Savages, whose known rule of warfare, is an undistinguished destruction of all ages, sexes and conditions. GOD BLESS THE GOVERNORS RESISTING! Count on the gutless judiciary to tie our children down and facilitate the swords being drawn across their throats. Wake Up America ...