ORDER RE: MOTION FOR
SANCTIONS ) (Doc. 31)
The factual background of this case is complex. There are four active complaints: the original, two counterclaims, and a counterclaim to a counterclaim. These complaints appear to contain some inconsistent facts.
In 2009, Jack Deliddo ("Deliddo") formed Rooftop Energy, LLC ("Rooftop"), a company specializing in large scale commercial solar projects. Doc. 4, Complaint, ¶ 8. Shortly thereafter, Deliddo sold a 51% interest in Rooftop to Charles Bryant ("Bryant"). Doc. 4, Complaint, ¶ 9. Plaintiffs entered into discussions with Michael Matvieshen ("Matvieshen") regarding assistance with obtaining solar panels and financing for various large-scale projects, including projects with General Motors ("GM"). Matvieshen already owned a number of corporations involved with solar/electric projects, among them ICP Solar Technologies, Inc. ("ICP"), a subsidiary of Epod Solar, Inc. ("Epod"). In 2010, Matvieshen offered to purchase Rooftop from Bryant and Deliddo in exchange for cash and stock in ICP. Doc. 4, Complaint, ¶ 13. The parties contemplated that ICP would fulfill the GM projects initiated by Rooftop. Doc. 4, Complaint, ¶ 13. In August 2010, Bryant and Deliddo agreed to a sale of 100% of their membership interests in Rooftop to ICP for $3 Million in vested cash payouts, a 20% stock interest in ICP, and employment/consulting agreements ("Rooftop Agreement"). Doc. 6, Part 2, Ex. A; Doc. 4, Complaint, ¶ 13; Doc. 6, Part 7, Deliddo Declaration, ¶ 6; Doc. 6, Part 1, Bryant Declaration, ¶ 9. Bryant and Deliddo, however, never received the cash payment promised, and ICP turned out to have cash flow problems, making it a poor candidate for the potential GM projects. Doc. 4, Complaint, ¶ 14. Bryant and Deliddo became 10% shareholders in ICP. Doc. 6, Part 1, Bryant Delcaration, ¶ 28.
Matvieshen represented to Bryant and Deliddo that Sunlogics, Inc. ("Sunlogics INC), a Canadian corporation which was controlled by Matvieshen, was in a better position than ICP to pursue the business strategies and GM projects initiated by Rooftop. Doc. 4, Complaint, ¶ 16. At that time, Matvieshen was 100% owner of Sunlogics INC. Doc. 62, Counterclaim, ¶9. Bryant and Deliddo agreed to allow Matvieshen to transfer Rooftop from ICP to Sunlogics INC, and for their consulting contracts to be assigned to Sunlogics INC, in exchange for a 30% interest each in Sunlogics INC. Doc. 4, Complaint, ¶ 16; Doc. 6, Part 7, Deliddo Declaration, ¶¶ 7-8; Doc. 6, Part 1, Bryant Declaration, ¶¶ 9-11. On September 14, 2010, Deliddo was made a member of the Board of Directors of Sunlogics INC. Doc. 4, Complaint, ¶ 20. The parties restructured the companies in January 2011, agreeing that Sunlogics, Plc ("Sunlogics PLC") would become the parent of Sunlogics INC which was the parent of Rooftop. Doc. 62, Counterclaim, ¶¶ 10 and 12. Sunlogics PLC is a British company, created in July 2010 whose shares are traded on the Frankfurt stock exchange. Doc. 4, Complaint, ¶ 17. Bryant, Deliddo, and Matveshen became members of the Board of Directors of Sunlogics PLC. Doc. 62, Counterclaim, ¶ 12. In 2011, Rooftop's name was officially changed to Sunlogics Energy Solutions, LLC. Doc. 62, Counterclaim, ¶ 9.
In November 2010, Matvieshen discussed with Bryant and Deliddo the possibility of Sunlogics INC acquiring Salamon Group, Inc. ("Salamon"), a publically traded company incorporated in Nevada. Doc. 62, Counterclaim, ¶ 14. Salamon was a solar power syndication (which appears to be a form of financing) company. Doc. 63, Part 1, Bryant Declaration, ¶ 32. It is unclear whether Bryant and Deliddo gave Matvieshen permission to go forward with the transaction or if they had any ownership interest of Sunlogics INC at that time. Doc. 63, 6:16-18. In November 2010, there were 26 million shares of Salamon. Matvieshen arranged for Sunlogics INC to purchase 16 million shares from Space Globe Technologies, Inc. ("Space Globe"). Doc. 62, Counterclaim, ¶15. Bryant asserts that Matvieshen was purchasing Salamon for the Matvieshen, Bryant, and Deliddo group. Sunlogics INC used funds from Rooftop to pay Space Globe. Doc. 6, Part 1, Bryant Declaration, ¶ 12. Though 16 million shares were purchased, only 9 million shares were officially transferred. Doc. 62, Counterclaim, ¶ 17. These shares were transferred to Matvieshen personally instead of Sunlogics INC or Bryant and Deliddo; the 9 million shares are in Matvieshen's name. Doc. 62, Counterclaim, ¶¶ 18-20. Apparently, control over the remainder of Salamon shares (approximately 7 or 8 million) is disputed, with those shares still in the name of Space Globe. Doc. 4, Complaint, ¶24. The nature of that dispute is unknown and it is not exactly clear how that dispute affects this case. Matvieshen took control of Salamon by December 2010 and completed a reverse merger with Sunlogics Power Fund Management, Inc. ("Powerfund"). Doc. 62, Counterclaim, ¶ 21. Matvieshen created Powerfund in July 2010. Doc. 4, Complaint, ¶ 17. Powerfund is a Canadian corporation. Doc. 62, Counterclaim, ¶ 3. As payment for Powerfund, Matvieshen had an additional 20 million shares of Salamon and 20 million shares of Salamon warrants created and given to himself. Doc. 62, Counterclaim, ¶ 21. Thus, it is estimated that Matvieshen had 29 million shares of Salamon in his name, out of a total of 46 million shares in early 2011. On May 2, 2011, Sunlogics INC and Powerfund signed a right of first refusal agreement. Doc. 62, Counterclaim, ¶24. Salamon currently claims to have the rights of first offer to purchase GM projects from Sunlogics INC. Doc. 4, Complaint, ¶ 25; Doc. 62, Counterclaim, ¶26.
To effectuate the division of ownership in these companies, Matvieshen, Bryant, and Deliddo signed an agreement on December 10, 2010 ("MJC Agreement"). Doc. 4, pages 51-53 of 54. Among other things, the MJC Agreement provides that Matvieshen was "the directing shareholder" of Sunlogics PLC and Salamon. Doc. 4, Ex. A, ¶ 1. The MJC Agreement further provides that Matvieshen was "holding shares in trust" for Bryant and Deliddo, and that Matvieshen "agrees to transfer 60% of such ownership interests held by [Matvieshen], 30% to [Deliddo] and 30% to [Bryant]" in Sunlogics PLC and Salamon. Doc. 4, Ex. A, ¶ 1. The MJC Agreement also provides that Matvieshen will have a 40% interest and Bryant and Deliddo will each have a 30% interest "in any and all companies in which they participate together presently or in the future. . .." Doc. 4, Ex. A, ¶ 2. The MJC Agreement stated that "Although the stock ownership will be 30%-30%-40% as between [Deliddo, Bryant, and Matvieshen], as to each of the entities, the parties agree that the voting rights for any entity in which (sic) as between the parties will be as follows: [Matvieshen] 50%, [Bryant] 25%, [Deliddo] 25%. The parties agree to vote their stock in accordance with this agreement." Doc. 4, Ex. A, ¶ 3. The MJC Agreement expressly contemplated that Matvieshen, Bryant, and Deliddo would not be the sole owners of these companies. The ownership and voting ratios applied to the portion of these companies they owned. Of note, the MJC Agreement referred to "Salamon Group, Inc. or Sunlogics Power Fund Management Inc." suggesting that the merger between Salamon and Powerfund had already taken place by the time the MJC Agreement was signed.
Meanwhile separate from the dealings described above, in October 2010, Sunlogics INC (then controlled by Matvieshen) entered into a merger agreement with Phoenix Solar Holdings, Inc.*fn1 ("Phoenix"), collection of affiliated companies; the agreement was completed on June 10, 2011. Doc. 62, Counterclaim, ¶ 11. With all of the mergers, the companies headed by Sunlogics PLC was becoming a vertically integrated solar energy development company. It is assumed, Matvieshen controlled Sunlogics INC, Sunlogics PLC, Powerfund, and Salamon (after the purchase from Space Globe) in some manner. It is not clear what titles Matvieshen held at these companies in the time frame at issue. The merger between Sunlogics INC and PLC with Phoenix was accomplished through some form of share exchange. Doc. 62, Counterclaim, ¶ 11. While Sunlogics PLC and Salamon are publically traded companies, it is unclear whether shares for Sunlogics INC or Powerfund exist. Notwithstanding the MJC Agreement (which explicitly covered ownership of Sunlogics PLC and Salamon), all relevant shares were held by Matvieshen through June 2011 to complete the merger with Phoenix. Doc. 4, Complaint, ¶ 29. At the time of the merger, there were a total of 32 million shares in Sunlogics PLC of which 16.5 million were subject to the MJC Agreement. Doc. 4, Complaint, ¶ 34. Additionally, 9 million shares were set aside to be used to buy certain of Epod and ICP's assets; Matvieshen represented to Bryant and Deliddo that any excess shares from the 9 million would be reallocated among themselves using the 30-30-40 formula. Doc. 4, Complaint, ¶ 35.
During the time this merger was pending, Bryant, Deliddo, and Matvieshen agreed to the formation of two offshore companies, Millennium Trends International, Inc., a Bahamas company ("Millennium"), and Maverick Ventures SA, a Swiss company ("Maverick"), that would also be subject to the MJC Agreement. Doc. 4, Complaint, ¶ 30; Doc. 6, Part 7, Deliddo Declaration, ¶ 16; Doc. 6, Part 1, Bryant Declaration, ¶¶ 18, 25. Some of Bryant's and Deliddo's shares in Sunlogics PLC under the MJC Agreement were held by Millenium and/or Maverick. Doc. 4, Complaint, ¶ 36. In July 2011, GM invested $7,500,000 in Sunlogics PLC in exchange for 14% of the company. Doc. 6, Part 1, Bryant Declaration, ¶ 27. There was a non-dilution agreement so additional shares were issued to Bryant, Deliddo, and Matvishen. Doc. 4, Complaint, 14:23-25. The total number of shares in Sunlogics PLC becomes unclear at this point. Bryant and Deliddo have only received 2,446,415 shares of Sunlogics PLC though each is entitled to 7,986,978 shares. Doc. 4, Complaint, ¶ 38.
On June 10, 2011, Matveshen and Sunlogics INC signed an employment agreement ("Employment Agreement"). Doc. 63, Part 9, Ex A. In September 2011, Matvieshen approached the Board of Directors of Sunlogics PLC with a proposal to purchase Arise Solar Technologies, Inc. ("Arise"); the Sunlogics PLC Board denied the request. Doc. 62, Counterclaim, ¶ 28. Matvieshen had Salamon purchase Arise, using more than $200,000 from Sunlogics INC's bank accounts. Doc. 62, Counterclaim, ¶ 28. On November 17, 2011, the Board of Directors of Sunlogics PLC called a special meeting an confronted Matvieshen about his purchase of Arise. Doc. 62, Counterclaim, ¶ 29. Matvieshen was also confronted about his attempts to buy additional companies, Revergy and Energy Conversion Devices, after the Board of Directors told him to concentrate on existing operations and not new acquisitions. Doc. 63, Part 8, Day Declaration, ¶ 13. At the meeting, Matvieshen resigned from his positions as CEO, Director, and Chairman of the Board of Sunlogics PLC and Sunlogics INC. Doc. 22, Part 2, Matvieshen Declaration, ¶10. Matvieshen continued to control Salamon and its subsidiary, Powerfund. While before, Salamon was only involved in the syndication step, Salamon began to undertake whole solar projects. Doc. 63, Part 1, Bryant Declaration, ¶ 32.
Through January 2012, Matvieshen continued to make promises regarding the adjustments and to reassure Bryant and Deliddo of his intent to complete the promised transfers of shares. Doc. 6, Part 1, Bryant Declaration, ¶¶ 13, 33; Doc. 6, Part 3, Ex. M. However, in March 2012, Matvieshen refused to transfer the shares and began making threats to transfer the shares to other parties. Doc. 6, Part 1, Bryant Declaration, ¶¶ 33-40. The various share transfers appear to have been undertaken through a company called Computershare. Doc. 4, Complaint, ¶ 37. Matvieshen argues that these Sunlogics PLC shares (from himself and other parties) were in fact sold to Salamon in January 2012 in return for a convertible debenture. Doc. 35, Part 1, Matvieshen Declaration, 2:9-23. Bryant and Deliddo dispute this fact. Matvieshen continues to control Salamon and Sunlogics PLC stock that, under the MJC Agreement, belongs to Bryant and Deliddo. Matvieshen also holds Salamon stock that belongs to Sunlogics PLC. After Matvieshen resigned from Sunlogics INC and PLC, Salamon announced that it was buying Sunlogics PLC stock from Millenium. Doc. 4, Complaint, ¶41. This would be stock subject to the MJC Agreement.
Bryant and Deliddo first filed suit against Matvieshen on April 10, 2012, in the Superior Court for the State of California, County of Fresno. Doc. 4, Complaint. The case was removed on April 12, 2012. Bryant and Deliddo filed a motion for a temporary restraining order, which was granted on April 27, 2012 ("First TRO") ordering in relevant part:
Defendant Michael Matvieshen, his agents, servants, employees, assignees, attorneys and all those acting in concert or participation with him are RESTRAINED AND ENJOINED from taking any actions to sell, transfer, hypothecate or encumber or take any action that would devalue in any manner the shares of common stock of Sunlogics Plc ("Sunlogics") a United Kingdom corporation, Salamon Group, Inc. ("Salamon") a Nevada corporation, Millennium Trends, Inc. ("Millennium"), a Bahamas corporation, or Maverick Group, Inc. ("Maverick') a Swiss corporation, at issue in this case. Without limitation, this specifically extends to entering into any definitive agreement for the transfer of stock from Millennium or Maverick.
Doc. 7, Original TRO, 7:26-8:7. The goal of the First TRO was to protect Bryant's and Deliddo's ownership interests under the MJC Agreement. A preliminary injunction hearing was held on May 10, 2012. After considering the arguments of the parties, the court indicated that a preliminary injunction was appropriate. Up through that point, the parties had been arguing in terms of percentages; they had not indicated the exact number of shares of Sunlogics PLC or Salamon that constituted the 30-30-40 covered by the MJC Agreement. The parties were ordered to meet and confer to come up with language for the preliminary injunction which would be more specific.
At the May 10, 2012 hearing, it was determined that the First TRO had to be modified in three ways. First, the language "or take any action that would devalue in any manner" was eliminated. Matvieshen remained the CEO/head of Salamon, Millennium, and Maverick. He had to make business decisions which might affect the value of these companies. As the First TRO was limited to preserving Bryant's and Deliddo's ownership interests and not intended to interfere withe Matvieshen's flexibility in running the companies, the language was deleted. Second, the First TRO prohibited Matvieshen from selling any of the specified stock, even his own 40%. The restrictions on Matvieshen's 40% interest were lifted. Third, the court clarified that the restrictions do not apply to Sunlogics PLC or Salamon stock owned by Epod or ICP (the up ...