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Yenidunya Investments, Ltd., A Cyprus, Eu Corporation v. Magnum Seeds

October 28, 2011

YENIDUNYA INVESTMENTS, LTD., A CYPRUS, EU CORPORATION; PLAINTIFF,
v.
MAGNUM SEEDS, INC., A CALIFORNIA CORPORATION;
AND GENICA RESEARCH CORPORATION, A NEVADA CORPORATION; DEFENDANTS.



MEMORANDUM AND ORDER RE: MOTION TO DISMISS OR TO STRIKE PORTIONS OF THE COMPLAINT

Plaintiff Yenidunya Investments, Ltd. brought this action against defendants Magnum Seeds, Inc. ("Magnum") and Genica Research Corporation ("Genica") for declaratory relief and accounting arising out of defendants' allegedly wrongful violation of plaintiff's rights as a Magnum shareholder. Presently before the court is defendants' motion to dismiss plaintiff's Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted and defendants' motion to strike portions of plaintiff's Complaint pursuant to Rule 12(f).

I. Factual and Procedural Background

In early October 2003, Spiros Spirou & Co. ("SS & Co.") obtained common stock in Magnum by converting a $2,267,995.00 loan into 2,267,995 shares of Magnum. (Compl. ¶ 7 (Docket No. 1).) As a shareholder, SS & Co. signed an "Amendment to Buy-Out Agreement" containing the following provision:

A. The Corporation [Magnum] and the Shareholder [SS & Co.] are parties to that certain Buy-Out Agreement dated , 200 (the "Buy-out Agreement"), pursuant to which the Corporation retains the right of first refusal on all the shares of the Corporation's common stock (the "Common Stock") owned by the Shareholder.

(Id. ¶ 15, Ex. D at 80.) The Amendment to Buy-Out Agreement also contained a provision later invoked by Magnum to acquire plaintiff's shares:

8(b) Call Options. If a person makes a bona fide offer to purchase all (but not less than all) the outstanding shares of the Corporation which the holders of at least two-thirds (2/3) of the outstanding shares of stock of the Corporation, whether Common or Series A Preferred or both, are prepared to accept, the Corporation shall have the right and option to require all Shareholders to tender their shares on the same terms and conditions and for the same price as the offeror has offered the said holders of two-thirds (2/3) of the outstanding shares of stock of the Corporation. (Id. ¶ 15, Ex. D at 81.)

In late October 2003, SS & Co. transferred the 2,267,995 shares of Magnum common stock to plaintiff, which is an affiliated company. (Id. ¶ 8.) Upon notice of the transfer, Magnum recognized plaintiff as a shareholder and issued Certificate No. 6 to plaintiff for 2,267,995 shares of common stock. (Id. ¶¶ 8-9.)

In March 2005, Genica offered to purchase all of the outstanding shares of Magnum from the existing shareholders. (Id. ¶ 13.) In a "Stock Purchase Agreement" dated March 7, 2005, Genica offered to pay plaintiff $1,133,997.50 over a ten-year period. (Id.) Plaintiff declined the offer to purchase its shares and never executed or delivered the Stock Purchase Agreement. (Id.) All other Magnum shareholders accepted Genica's offer to purchase their shares and executed the Stock Purchase Agreement. (Id.) A "Promissory Note" was delivered to plaintiff at closing pursuant to the Stock Purchase Agreement. (Id. ¶ 19.) Defendants contend that plaintiff is bound under section 8(b) of the Buy-Out Agreement to the terms of the Stock Purchase Agreement and Promissory Note because all other Magnum shareholders accepted the stock purchase offer. (Id. ¶ 15.)

Since March 7, 2005, Magnum has not: (1) notified or given plaintiff the opportunity to attend Magnum shareholder meetings; (2) given plaintiff the opportunity to elect Magnum directors; (3) provided plaintiff with Magnum's quarterly or annual financial statements; (4) allowed plaintiff the right to inspect Magnum's books, records, and minute proceedings; or (5) paid plaintiff its proportionate share of shareholder dividends. (Id. ¶ 10.)

On March 8, 2005, Magnum sent a Notice of Call of Stock to plaintiff advising plaintiff that "upon closing of the sale of shares to Genica . . . whether or not your share certificate and signed stock Assignment and Release have been received, you will cease to be a shareholder and will have no further rights, preferences or privileges as a shareholder of [Magnum]."

(Kimport Decl. Ex. 1. (Docket No. 13).)

Two days later, on March 10, 2005, plaintiff's counsel, Dale Campbell, sent a letter to Magnum challenging Magnum's ability to force plaintiff to transfer its shares to Magnum and promising to "take the steps necessary to protect its investment in Magnum and prevent the sale of Genica from occuring over its objection." (Id. Ex. 2 at 3-4.) Magnum's counsel, David Kimport, responded on March 15, 2005, by informing plaintiff that the stock repurchase was enforceable and that plaintiff was no longer a shareholder in Magnum. (Id. Ex. 3.)

On at least two separate occasions, February 15, 2005, and September 11, 2006, plaintiff's principal requested Magnum's financial reports. On both occasions, plaintiff was informed that it "is no longer a shareholder of Magnum and therefore no ...


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