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Hamish Angus v. Transnational Automotive Group

January 17, 2012


The opinion of the court was delivered by: Margaret M. Morrow United States District Judge


Hamish Angus filed this action on January 8, 2009, naming Transnational Automotive Group, Inc. ("TAG"), Holladay Stock Transfer, Inc. ("Holladay"), and Stephen Wilshinsky as defendants.*fn1 On June 15, 2009, the court denied defendants' motion to dismiss the amended complaint for non-joinder of a necessary and indispensable party and failure to state a claim on which relief could be granted.*fn2 On September 20, 2010, the court denied Wilshinsky's motion for partial summary judgment.*fn3
The case was tried to the court on January 4 through 7, 2011. Thereafter, the parties submitted written trial briefs.*fn4 Having considered the evidence presented, the arguments of counsel, and the parties' trial briefs, the court makes the following findings of fact and conclusions of law pursuant to Rule 52 of the Federal Rules of Civil Procedure.


A. TAG's Founding and the Agreement with Angus

1. Plaintiff Angus is a corporate development consultant who resides in Vancouver, British Columbia. Defendant Wilshinsky is a California citizen who is a licensed securities broker. Defendant TAG is a Nevada corporation. Defendant Holladay is stock transfer agency incorporated in Nevada.*fn5

2. In the fall of 2005, Parker Automotive Group ("PAG") agreed to purchase Apache Motor Corp. ("Apache"), a shell corporation that had no active line of business and was trading on the over-the-counter bulletin board. PAG had a business plan to operate an intercity bus service in the Republic of Cameroon, but was in need of capital. PAG acquired Apache on December 30, 2005, so that PAG could raise capital as a publicly traded entity. The transaction was what is known as a "reverse merger."*fn6 Following the reverse merger, PAG changed its corporate name to TAG.*fn7

3. The Agreement and Plan of Exchange filed with the Securities and Exchange Commission ("SEC"), provided for a share issuance and exchange of 240 shares of Apache for every 1 share of PAG, or a total of approximately 24 million shares. The owners of Apache were to receive cash in exchange for their shares. The agreement contemplated that those shares would not be retired but returned to treasury for reissuance to new TAG investors.*fn8

4. As of January 24, 2006, TAG's initial officers were Joseph Parker (CEO), Dan Goldman (CFO) and Christine Cerisse (Corporate Secretary). Parker, Goldman, William T. Jacobsen, Ralph J. Thomson and Adam Jenn were TAG's directors. Christine Cerisse negotiated the reverse merger with PAG on Apache's behalf.*fn9

5. During the fourth quarter of 2005, before the reverse merger, Goldman engaged Angus to provide certain corporate development services for PAG. Angus' responsibilities included assisting PAG in attracting start-up capital investors, recruiting and hiring employees and developing the company's brand. Parker approved of Angus' engagement. Angus' agreement with Goldman called for existing shareholders of Apache ("the Apache Group") to transfer 3 million free trading shares to Angus.*fn10

6. Because the 3 million shares Angus was to receive had already been issued to the Apache Group, TAG needed to buy the shares from the Apache Group in order to transfer them to Angus. The Apache Group agreed to sell the shares to TAG upon the payment to them collectively of $400,000.*fn11 Cerisse understood that once the Apache Group received $400,000, the shares would be released to Goldman for distribution to Angus.*fn12

7. On December 30, 2005, the same day as the reverse merger, stock certificate 842 was issued to Angus for 350,000 free trading TAG shares.*fn13 These 350,000 shares were transferred from an original Apache shareholder into "Angus' name to be held [in escrow] pending th[e] closing of th[e] agreement [for pyament of $400,000] at a future date."*fn14

B. TAG Seeks Investment From the Wilshinsky Group

8. In January 2006, TAG prepared a private placement memorandum to sell up to 10 million shares of TAG common stock for $.50 per share. These shares were to be sold as restricted, non-publicly traded securities subject to sale pursuant to SEC Rule 144. In February, TAG reduced the price to $.48 per share.*fn15

9. Angus contacted Jevon King of Qualico Capital in Vancouver, British Columbia about the opportunity to invest in TAG. King, in turn, contacted Wilshinsky, and put Wilshinsky in contact with Parker. This contact resulted in Wilshinsky and a group of investors he controlled (the "Wilshinsky Group") investing roughly $1 million in March 2006, which investment grew to "[w]ell over $4 million" by the end of the summer of 2006. In exchange for this investment, the Wilshinsky Group acquired 4.5 million shares of TAG stock on March 9, 2006.*fn16

10. In March 2006, TAG's stock transfer agent, Holladay, was instructed to transfer 2.65 million shares of TAG common stock from Apache Group shareholders to Angus. Those shares, which were free trading, were represented by stock certificate numbers 2018, 2019 and 2020, dated March 20, 2006. Angus was identified on each certificate as the stockholder. The certificates were recorded in the TAG stock transfer journal maintained by Holladay. Angus did not take physical possession of the three certificates, which remained in Cerisse's custody for "safekeeping."*fn17

11. Cerisse held certificates 2018 through 2020 in escrow, awaiting the occurrence of two events: (1) payment of the cash balance due the Apache Group and (2) Angus' performance of his corporate development duties to Goldman's satisfaction.*fn18 There was no written escrow agreement.*fn19

12. At the same time that the certificates 2018 through 2020 were prepared for Angus, Cerisse instructed Holladay to transfer stock certificates numbers 2007 through 2017 to members of the Wilshinsky Group. Certificates 2007 through 2017 were delivered to Wilshinsky for distribution to the members of the Wilshinsky Group. The Wilshinsky Group shares were not held in escrow.*fn20

13. Wilshinsky believed that his group's "initial investment was going to be used toward the purchase of [ ] buses" because "[t]hat's . . . what [he] discussed with Joe Parker and with Harry Stokes because they were on a short timetable to start -- to acquire the vehicles from China."*fn21 Wilshinsky was not aware at the time of the initial investment that Cerisse was still owed $400,000 on the shell.*fn22 TAG did not spend any portion of the funds invested by the Wilshinsky Group during the spring and summer of 2006 to pay the $400,000 owed to the Apache Group.*fn23

C. Wilshinsky Group's Second Investment and Conditions

14. In late June or early July 2006, Wilshinsky and Parker took a trip to China to show Wilshinsky "the contacts that [TAG] had in China, . . . the strength of [TAG's] business relationships and . . . [its] partners in China, and to let him know that the people [TAG was] working with in China were strong and had the capability of fulfilling the contracts. . . ."*fn24

15. In August 2006, there was a Board of Directors meeting concerning the financial condition of the company. At the time, the company had significant obligations, including a commitment to purchases buses from China, the cost of a plant and staff in Cameroon, and the cost of an office lease and employees in the United States. The company was running out of money.*fn25

16. At approximately this same time, Wilshinsky first became aware of TAG's financial situation, including the fact that members of the Apache Group was still owed approximately $400,000 for their interest in the shell.*fn26 Cerisse was quite concerned that the payment had not been made.*fn27 Wilshinsky also found out from his co-investor Seid Sadat that Parker had loaned himself $184,000 from TAG's general assets, that Goldman had given himself a $40,000 bonus, and there were arrearages in salaries totaling almost $600,000 that had been paid out but had not been disclosed to shareholders.*fn28

17. Shortly thereafter, Wilshinsky visited Seattle and confronted Parker. "He said that he was not satisfied with the management of the corporation, [Parker's] management of the corporation, and the direction of the company. He felt that it wasn't going fast enough. He had deep personal reservations about [Parker's] ability to manage the company and specifically told me that -- in fact, he threatened. He said . . . we want [Parker] to leave the company. [Parker's] not doing this the way [Wilshinsky] wanted [him] to do it. And if [Parker won't] do this, [Wilshinsky] will sue the company, and [ ] sue [Parker], and [ ] take it over. In fact, . . . his pretty close to exact words were, 'We can do this the hard way, or we can do this the easy way.'" When asked why Wilshinsky said he would sue the company, Parker testified that Wilshinsky "felt that the funds were being misused. . . ."*fn29 Wilshinsky acknowledged that he had threatened Parker. He said he told Parker that he was "going to sue him. [He] was going to go up the street to the State Attorney General and report what [Parker] had done. . . . What he did in taking out moneys, in setting up a side business to receive commissions on a company that he was the Chairman and president of was wrong."*fn30 Wilshinsky continued: "You could say it was embezzlement[.]"*fn31

18. Despite these concerns, in August 2006, the Wilshinsky Group agreed to invest more money in the company. It agreed to make an additional investment in TAG because "[i]f somebody didn't make an [additional] investment, all that had been invested [previously] would have been lost."*fn32 The Wilshinsky Group imposed the following conditions, among others, on its additional investment: (1) Parker and Goldman were to resign as officers and directors of TAG. (2) TAG's outstanding share capital was to be reduced to 35 million shares by having Parker and Goldman surrender approximately 18 million of the 24 million shares issued to them. (3) The approximately $400,000 owed to the Apache Group would be paid.*fn33

19. TAG held a Board of Directors' Meeting on August 22, 2006, at which the directors --

Parker, Goldman, Jenn, and Thompson -- and three individuals -- Cerisse, Wilshinsky, and Sadat -- were present.*fn34 Parker said that Wilshinsky wanted to propose "changes in management, capitalization of the Company and reorganization." Sadat presented the eleven-point proposal, which included a $1.5 million investment by the Wilshinsky Group in return for the changes noted above, among others. The minutes of the meeting report that "Joe [Parker] stated that 1.5 million was a very generous offer and asked about the time frame on the funding. . . . Joe [Parker] said he personally endorse[d] Steve [Wilshinsky's] offer. . . . It is painful for the Company today, but it will be better in the long run." The minutes stated that Wilshinsky would "handle the restructuring of the shares," and would "go over that [subject] with [Cerisse] . . . and [Goldman] separately." Wilshinsky, Cerisse and Goldman would then "recommend what is [was to be] given back in stock and [what was to] be replaced by the issuance of warrants." The minutes stated that Wilshinsky did not believe the restructuring of the stock was "a Board matter," and that he felt it should be done "privately." The minutes noted that Wilshinsky "said the surrender of the 17.6 Million shares and the change of the Board was contingent upon [Cerisse] and the other shareholders [approving] the proposed share restructuring."*fn35 At the time he made this proposal, Wilshinksy believed that Cerisse "was in control of all the shares. . . [i]ncluding Mr. Angus's," as this is what Cerisse had represented to him.*fn36 The Board approved Wilshinsky's proposal unanimously.*fn37

20. A week or two after the August 22, 2006 Board meeting, Cerisse had a conversation with Angus about the stock restructure proposal. She explained "that all of the shareholders, including the founder shareholders and the shareholder consultants brought in by Dan Goldman . . . and of course Dan Goldman and Mr. Parker, everybody would have shares that would be cancelled or reduced if they had not been issued yet, and that that amount . . . would be agreed between [Wilshinsky] and those individuals and that they would be getting some warrants for the portion of the shares cancelled." Cerisse and Angus met over coffee to discuss this; Wilshinsky happened to call Angus during the meeting. Angus "got up and walked away, [and] talked on his cell phone" to Wilshinsky.*fn38

21. Angus testified that during the call, Wilshinsky told him "that everyone needed to recapitalize and agree to do so out of the previous shareholders and people involved in the company so the company would look attractive enough for OPIC to become involved in larger financings. . . . [Wilshinsky] told [Angus] that he wanted [Angus] to take a million and a half shares and a million and a half warrants, and [Angus] told him to put it in writing and [Angus] would get back to him."*fn39 Testifying to the same conversation, Wilshinsky stated that he "recall[ed] the conversation about [Angus] receiving 500,000 shares." Wilshinsky said he called Angus to "confirm[ ] with him what Christine Cerisse had spoken to [Wilshinsky] about, [i.e.,] that [Angus] would receive 500,000 shares." Wilshinsky testified that Angus confirmed that "his shares were going to go down to 500,000" and said that Angus did not ask him "to put that in writing[.]" Wilshinsky also noted that he and Angus discussed the fact that "the company was going to be issuing everybody that was taking a reduction warrants" with an "exercise price" of "a dollar and a half."*fn40 He said that Angus agreed to receive 2 million warrants.*fn41

22. After speaking with Wilshinsky, Angus returned to Cerisse. When he "came back to the table," Angus told Cerisse "that Mr. Wilshinsky had called him and asked him if he would agree to take less shares than what he had been promised by Mr. Goldman, and he would be getting less shares and he would be getting some warrants."*fn42 Cerisse later learned from Wilshinsky that Angus had agreed to reduce his stockholding to 500,000 shares, and to receive 2,000,000 warrants.*fn43

D. Holladay Executes the Stock Transfer

23. On October 26, 2006, Holladay received a letter from an entity named Davlaur Equities, SA, accompanied by original TAG share certificate numbers 847, 844, 845, 2048, 2052, 2042, 2018, 2019, 2020, 848, 2032, 2033, 2034, 2035 and 811, all of which had been held by Cerisse.*fn44 Sharon Owen and Tom Laucks, co-owners of defendant Holladay, testified that their company had a long-standing relationship with Cerisse.*fn45 The letter Holladay received, however, was not signed by Cerisse, but by an individual named Lorenzo Oliva. Oliva was not an officer, director or employee of TAG.*fn46 Owen and Laucks testified that Lorenzo Oliva was an individual of whom they had heard, but whose title and authority was unknown to them.*fn47 Owen stated, however, that at the time of the transfer, she would have been "more familiar with" Oliva. She also noted that the letter instructed her to send the certificates to James Vandeberg, whom she "kn[e]w as part of this company, [TAG's] attorney."*fn48 Owen stated that she understood the instruction from Oliva to be effective because Holladay had "ha[d] some communication with [Vandeberg] that [Holladay] w[as] to work with this Lorenzo Oliva."*fn49 Laucks testified that Oliva "had something to do with [TAG] -- I don't know what he was. But he acted as an escrow agent for Transnational Automotive in more than one situation."*fn50

24. Oliva's letter stated that certificates 2018, 2019 and 2020, held in Angus' name, as well as two other certificates, held in the names of Paul Marek and Cumblico Beach Inc., "ha[d] never been delivered or deposited, and that [Davlaur] ha[d] been instructed to return the shares to the original owners."*fn51 Oliva instructed Holladay to cancel stock certificates, 2018 (650,000 shares), 2019 (1 million shares) and 2020 (1 million shares), issued in the name of Hamish Angus, and "reissue shares in the original owners' names."*fn52 The original owners of the shares were: Eagle Transport (95,404 shares), Clinica Natural Limited (154,596 shares), Midian Investments, S.A. (250,000 shares), Davlaur Equities (1,400,000 shares), and Angus (150,000 shares).*fn53 Once the shares were reissued in the original owners' names, the letter instructed ...

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