SMSW Enters., LLC v. Halberd Corp.

SMSW ENTERPRISES, LLC ET AL. Plaintiffs, v. HALBERD CORPORATION ET AL., Defendants.

Case No. CV 13-01412 BRO (SPx)

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

February 19, 2015

FINDINGS OF FACT AND CONCUSIONS OF LAW AFTER COURT TRIAL

I. INTRODUCTION

This case involves a fraud perpetrated by George Trevor Porrata with both sides claiming to be the victim. The dispute surrounds the agreement to transfer shares of stock in Halberd Corporation ("Halberd") for $400 in cash and forgiveness of approximately $500,000 in debt in connection with another company, Wavelet. After Halberd consistently failed to participate in the litigation despite multiple opportunities to do so, the Court granted summary judgment in the Plaintiffs' favor on two counts, securities fraud and interference with prospective economic advantage. Yet the Court was unable to determine the amount of damages as a matter of law because, as Plaintiffs concede, Halberd stock is "volatile and thinly traded." As a result, the Court conducted a bench trial as to damages on those claims. The following explains the Court's findings of fact and conclusions of law. As detailed below, judgment is for Plaintiffs as to the breach of contract, securities fraud, and interference with prospective economic advantage claims. The Court does not address Plaintiffs' claim for declaratory relief, again finding it duplicative of the Court's findings of fact and conclusions of law.

II. BACKGROUND AND PROCEDURAL HISTORY

This case has a tortured procedural history. The following table lists the events leading up to this trial limited to certain causes of action and damages:

February 26, 2013

Complaint filed. (Dkt. No. 1.)

March 1, 2013

Halberd served, starting a time

period of twenty-one days to respond

(March 22, 2013).

March 5, 2013

ITC served, starting a time period of

twenty-one days to respond (March

26, 2013).

March 29, 2013

Plaintiffs' Request for Clerk to Enter

Default against ITC, (Dkt. No. 21),

and Halberd, (Dkt. No. 22), filed.

April 3, 2013

Halberd's Answer filed. (Dkt. No.

26.)

April 5, 2013

Clerk's Default entered against ITC,

(Dkt. No. 29), and Halberd, (Dkt.

No. 30).

April 23, 2013

Halberd's Motion to Set Aside Entry

of Default filed. (Dkt. No. 41.)

May 8, 2013

ITC's Motion to Set Aside Entry of

Default filed. (Dkt. No. 55.)

June 21, 2013

Order granting Motion to Set Aside

Entry of Default. (Dkt. No. 73.)

July 19, 2013

Plaintiff's Motion to Disqualify

Counsel Wolk & Levine, LLP filed.

(Dkt. Nos. 79, 80.)

July 22, 2013

Plaintiff's Motion for Summary

Judgment filed. (Dkt. No. 82.)

July 29, 2013

Plaintiff's Notice of Withdrawal of

Motion to Disqualify Counsel filed.

(Dkt. No. 89.)

July 31, 2013

Order granting Defendants' Ex Parte

Application to Withdraw as

Attorney. (Dkt. No. 92.)

July 30, 2013

Defendants' Ex Parte Application to

Dismiss Plaintiffs' Motion for

Summary Judgment or alternatively

Ex Parte Application to Continue

Hearing on Motion for Summary

Judgment. (Dkt. No. 91.)

August 1, 2013

Order denying Defendants' Ex Parte

Application to Dismiss Motion for

Summary Judgment but granting

Defendants' request to move the

hearing. (Dkt. No. 94.)

September 9, 2013

Order for Halberd and ITC to obtain

counsel. (Dkt. No. 103.)

September 20, 2013

Order to Show Cause issued to

Defendants why the Motion for

Summary Judgment should not be

granted. (Dkt. No. 104.)

September 24, 2013

Order striking the Answers of

Halberd Corporation and ITC

Corporation. (Dkt. No. 105.)

October 1, 2013

Default entered by the Clerk against

ITC, (Dkt. No. 109), and Halberd,

(Dkt. No. 110).

October 3, 2013

Motion for Default Judgment filed

against Halberd and ITC. (Dkt. No.

115.)

October 4, 2013

Notice of Deficiency re: Mr. Liguori

and Mr. Lowing. (Dkt. No. 118.)

October 9, 2013

Plaintiff's Motion for Summary

Judgment filed against Mr. Liguori

and Mr. Lowing. (Dkt. No. 120.)

November 22, 2013

Order granting Plaintiff's Motions

for Default Judgment against

Halberd and ITC and Summary

Judgment against Mr. Liguori and

Mr. Lowing. (Dkt. No. 128.)

December 3, 2013

Judgment entered against Defendants. (Dkt. No. 130.)

December 20, 2013

Plaintiff's Ex Parte Application for

Order to Show Cause as to Why

Defendant ITC and aider and abettor

Randall Goulding should not be held

in contempt. (Dkt. No. 132.)

January 2, 2014

Defendant's Motion to Set Aside

Default and Summary Judgments.

(Dkt. No. 138.)

February 7, 2014

Order granting Defendants' Motion

to Set Aside Default and Summary

Judgment. (Dkt. No. 183.)

Thereafter, on February 24, 2014, all Defendants, Halberd, Interstate Transfer Corporation ("ITC"), Liguori, and Lowing answered the Complaint. (Dkt. No. 186.) On March 27, 2014, Plaintiffs filed a motion for summary judgment. (Dkt. No. 189.) Defendants opposed the motion for summary judgment on April 16, 2014. (Dkt. No. 203.) On April 22, 2014, Plaintiffs replied. (Dkt. No. 209.)

On May 30, 2014, the Court granted in part and denied in part Plaintiffs' motion for summary judgment. (Dkt. No. 217.) The Court's summary judgment order found Defendants liable for securities fraud. (Dkt. No. 217 at 14-17.) TheCourt also found Defendants Liguori and Lowing liable for tortious interference with prospective economic advantage. (Dkt. No. 217 at 18-19.) In granting summary judgment, however, the Court found that it could not determine damages as a matter of law. With respect to the breach of contract claim (based upon a third-party-beneficiary theory) and the declaratory relief claim, the Court denied summary judgment. Specifically, the Court found the declaratory relief claim to be superfluous. (Dkt. No. 217 at 18.)

On October 22, 2014, a bench trial in this matter commenced as to the damages for Plaintiffs' securities fraud and interference with economic advantage claims. (Dkt. No. 288.) The trial concluded on October 23, 2014. (Dkt. No. 289.) After consideration of the parties' trial briefs, the evidence presented at trial, oral argument of counsel, and proposed findings of fact and conclusions of law, the Court makes the following Findings of Fact and Conclusions of Law.¹

III. JURISDICTION AND VENUE

This Court has subject matter jurisdiction over this case pursuant to sections 20(d)(1) and 22(a) of the Securities Act of 1933, 15 U.S.C. §§ 77t(d)(1), 77v(a), and pursuant to sections 21(d)(3)(A), 21(e) and 27 of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78u(d)(3)(A), 78u(e), 78aa. The Court has personal jurisdiction over all of the Defendants and relief Defendants under section 27 of the Exchange Act, 15 U.S.C. § 78aa. Venue is proper in the Central District of California pursuant to section 22(a) of the Securities Act, 15 U.S.C. § 77v(a), and section 27 of the Exchange Act, 15 U.S.C. § 78aa.

IV. CREDIBILITY DETERMINATIONS

Ninth Circuit Model Jury Instruction 1.11 provides guidance to jurors when assessing credibility. The factors include: (1) the opportunity and ability of the witness to see or hear or know the things testified to; (2) the witness's memory;(3) the witness's manner while testifying; (4) the witness's interest in the outcome of the case and any bias or prejudice; (5) whether other evidence contradicted the witness's testimony; (6) the reasonableness of the witness's testimony in light of all the evidence; and (7) any other factors that bear on believability. Ninth Cir. Model Jury Instr. (Civil) 1.11 (2007). The Court finds these factors helpful in assessing the credibility of the witnesses who testified in this matter.

V. FINDINGS OF FACT

"In bench trials, [Federal Rule of Civil Procedure] 52(a) requires a court to 'find the facts specially and state separately its conclusions of law thereon.'" Vance v. Am. Haw. Cruises, Inc., 789 F.2d 790, 792 (9th Cir. 1986). "One purpose behind Rule 52(a) is to aid the appellate court's understanding of the basis of the trial court's decision. This purpose is achieved if the district court's findings are sufficient to indicate the factual basis for its ultimate conclusions." Id. (citations omitted). Furthermore, the court "is not required to base its findings on each and every fact presented at trial." Id. See generally Kurth v. Hartford Life & Accident Ins. Co., 845 F. Supp. 2d 1087, 1091 (C.D. Cal. 2012). Consequently, the Court's findings of fact are detailed below.

1. Halberd is a publicly held corporation, organized under the laws of the State of Nevada, whose stock trades on the over-the-counter ("OTC") Market Pink Sheets.

2. In 2009, when Halberd was formed, John C. Maddox became an original director with Mark Lundquist. The Securities and Exchange Commission ("SEC") approved Halberd's public offering in April 2009. Halberd's Certificate of Incorporation authorizes under 130 million shares of stock. (See Ex. 50.)² The number of authorized shares was not amended until April 18, 2014, to increase the number of shares to 600 million, with 590 million shares of common stock with a par value of .001 and 10 million shares of preferred stock with a par value of .001. 3. ITC is a business entity owned by Janis Patterson. Ms. Patterson also serves as the president of ITC. Ms. Patterson has been in the transfer agency business for approximately thirty years. ITC is a registered transfer agent as required by the SEC. ITC serves as the exclusive transfer agent for Halberd common stock and has done so since December 2011. Trial Exhibit 18, the December 7, 2011 Stock Transfer Agreement, details ITC's agreement with Halberd. Specifically, Trial Exhibit 18 represents that, as of December 7, 2011, there were 128,249,454 issued and outstanding shares of Halberd common stock. Trial Exhibit 18 authorizes ITC to issue or transfer all the common stock of Halberd.

4. Henry Liguori was a Catholic priest from 1966 to 1996. Mr. Liguori knew that his nephew, Mr. Porrata, appointed him (Liguori) to be the figurehead Chief Executive Officer of Halberd. Mr. Liguori served as Halberd's Chief Executive...