Huge Money Dealings and Transfers and Legal Malpractice

The back and forth of this large commercial stock purchase agreement, and the money transfers that ensued have had us read the opinion several times.  Even after multiple reads, we find the description of transfers still confusing.  For our context, the legal malpractice case was time barred.  However, in AQ Asset Mgt., LLC v Levine  2014 NY Slip Op 05244  Decided on July 10, 2014  Appellate Division, First Department the facts should be read in admiration for the twisted nature of this commercial transaction.

"By an amended stock purchase agreement (SPA) effective December 9, 2005, defendants Habsburg and Patrizzi (together the Sellers) agreed to sell half of the shares in a group of companies (the Antiquorum entities) to Artist House Holdings, Inc. (Artist House), predecessor to plaintiff AQ Asset Management, LLC (AQ)[FN1]. The Antiquorum entities included plaintiffs Antiquorum, S.A. (ASA) and Antiquorum USA, Inc. (AUSA). Defendant Michael Levine, an attorney, provided legal counsel to the Sellers, drafted the SPA and other transaction documents, and served as the escrow agent for the deal. Plaintiff Evan Zimmermann, also an attorney, helped broker the transaction and is alleged by the Sellers to have been their legal counsel throughout.

The SPA provided that the Sellers would receive $30 million dollars in cash, as well as proceeds from the sale of certain inventory held by the Antiquorum entities. In order to pay the book value of the inventory, the SPA provided that ASA was to execute a promissory note obligating it to pay, to an unspecified third party, the sum of 16 million Swiss Francs (CHF) within six months of the SPA's execution date. The SPA further provided that, "[a]lternatively, Patrizzi may become personally responsible [for payment of the CHF 16 million] to any Stockholder which is entitled thereto."

The parties agreed that the CHF 16 million was to be paid from the sale of inventory on hand and owned by the Antiquorum entities as of the date of the SPA. The SPA also required Patrizzi to put the inventory up for sale before the due date of the promissory note, and provided that any funds received in excess of the CHF 16 million would belong to Patrizzi or his designees. According to the Sellers, Habsburg was entitled to the first CHF 16 million in inventory sale proceeds and Patrizzi was entitled to the remainder. It is undisputed that ASA never executed a promissory note, and the Sellers contend that they received no proceeds from the sale of inventory.

Patrizzi and Zimmermann also entered into a Stock/Sales Proceeds Distribution Agreement (SPDA) in which they agreed that certain shares of the Antiquorum entities, which were held in escrow for Patrizzi's benefit, [*3]would be transferred to a new entity that Patrizzi and Zimmermann would equally own. The SPDA also provided that Patrizzi and Zimmermann would equally split Patrizzi's share of the inventory sale proceeds. The SPDA, which was drafted by Levine, disclosed that Levine had a personal economic interest in part of Zimmermann's share of those proceeds. The agreement further stated that the parties had been advised of Levine's conflict of interest, had elected to have Levine draft the agreement nevertheless, and had been represented by independent counsel.

Patrizzi alleges that Levine and Zimmermann purposely misrepresented the contents of the SPDA to induce him to sign it. According to Patrizzi, because he does not fully comprehend written English, he did not read the document and instead relied on Levine and Zimmermann to inform him of its contents. Patrizzi alleges that Levine and Zimmermann falsely told him that Zimmermann would receive Patrizzi's shares after a period of three years. The SPDA, however, states that the shares would be transferred to an entity jointly owned by Patrizzi and Zimmermann without a three-year delay. Patrizzi further alleges that Levine and Zimmermann did not tell him that the SPDA gave Zimmermann rights to half of Patrizzi's share of the inventory sale proceeds, or that Levine had an economic interest in part of those monies. Finally, Patrizzi claims that he was never told that he should retain independent counsel.

In December 2005 and January 2006, Artist House delivered $30 million into Levine's escrow account, and various sums were subsequently disbursed. According to the Sellers, in May 2006, Levine advised them that the SPA required that the inventory sale proceeds be deposited into his escrow account. In fact, the SPA did not require this. In December 2006, ASA transferred $2 million into Levine's escrow account, an amount the Sellers contend constitutes a portion of the inventory sale proceeds.

In July 2007, Leo Verhoeven, Habsburg's principal, sent Levine an email requesting that he return the $2 million to ASA. In the email, Verhoeven stated that the $2 million was for other expenses pursuant to the SPA, and thus was not inventory sale proceeds. Levine, however, did not return the $2 million to ASA at that time. It is the Sellers' position in this litigation that the $2 million is in fact inventory sale proceeds to which they are entitled. They admit that Verhoeven's July 2007 email was a ruse, and that he asked for the money back to avoid tax consequences to Habsburg arising from its direct receipt of inventory sale proceeds."

"The Sellers contend that after the $2 million was transferred to Levine's escrow account, Artist House, Levine and Zimmermann wrongfully conspired to oust the Sellers from ASA. At a shareholders meeting held in August 2007, Artist House and Zimmermann relied on the SPDA's purported grant to Zimmermann to vote half of Patrizzi's shares. Using this power, Artist House and Zimmermann gained control of the company, Patrizzi and Verhoeven were removed from the board of directors, and Zimmermann ultimately became the new CEO.

In January 2008, Levine wrote to Habsburg, Patrizzi, Zimmermann and Artist House asking whether they consented or objected to his returning the $2 million to ASA. Levine stated that he would not release the funds absent consent of all necessary parties or a judicial direction to do so. Both Patrizzi and Habsburg wrote back to Levine objecting to release of the money. In August 2010, Zimmermann notified Levine that the $2 million had nothing to do with the sale of inventory and requested its return to ASA. In October 2010, Levine released the $2 million to ASA and/or Zimmermann.

Plaintiffs commenced this action asserting various claims against the Sellers and Levine, in his capacity as escrow agent. Levine then served a "summons in interpleader," answered the complaint, and asserted interpleader counterclaims against plaintiffs and the Sellers. The Sellers [*4]answered the complaint asserting counterclaims against plaintiffs, and answered Levine's interpleader counterclaims, asserting counterclaims against him. The Sellers also commenced a "fourth-party action" against Levine. This appeal brings up for review the motion court's dismissal of a number of causes of action and counterclaims contained in the Sellers' various pleadings."

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