The opinion of the court was delivered by: RICHEY
Before the Court are defendants' motion to dismiss or for summary judgment,
plaintiff's opposition thereto, numerous supplemental memoranda, and the entire record herein, the Court having heard argument and taken evidence on the questions presented. As the basis for their motion, defendants contend that plaintiff is not the real party in interest to this action. Defendants make three specific arguments: (1) that the antitrust claim which plaintiff is asserting here was never effectively assigned to plaintiff because it was not properly transferred to the entity which assigned it to plaintiff, (2) even if the transfer to plaintiff's assignor was valid, the subsequent assignment to plaintiff should be considered void because it was not support by adequate consideration, and (3) the subsequent assignment to plaintiff should also be considered void because it was champertous. The Court has carefully considered all of these arguments and concludes that the third argument clearly supports a grant of summary judgment in defendants' favor. The Court also concludes that, although the first or the second argument standing alone might not be sufficient to support a grant of summary judgment to defendants, these arguments clearly support the propriety of that result when taken together and in conjunction with the third argument. In the following opinion, the Court shall discuss each of these arguments and the reasoning underlying its conclusions.
The claim at issue in this case is a claim for treble damages arising under the antitrust laws of the United States, principally the Sherman Act, 15 U.S.C. §§ 1, et seq. This claim allegedly accrued to Premo Pharmaceutical Laboratories, Inc., a New York corporation, with offices in New Jersey (Premo New York), from 1959 to at least 1979. In 1979, two of Premo New York's shareholders, Seymour Blackman and Sol Silverang (Blackman and Silverang), sought to effect a merger of Premo with Bio-research, Inc., a New Jersey corporation, with offices in the same location as Premo's. Under the terms of the merger, the resulting corporation was to be named Premo Pharmaceutical Laboratories, Inc., but was to be a New Jersey corporation (Premo New Jersey). See Plaintiff's Exhibits 2. A certificate of merger for this transaction was filed in the state of New Jersey on November 29, 1979, Plaintiff's Exhibit 5, while a comparable certificate of merger was filed in the state of New York on June 24, 1981, Plaintiff's Exhibit 4. The merger was subsequently contested by two other shareholders of Premo New York, John and Steven Blackman, the sons of Seymour Blackman, who claimed that their assent to the merger had been procured by fraud. Defendants' Exhibit 1. Their claim of fraud was settled, however, when, in December of 1981, all the shares of Premo New Jersey were purchased by the Lemmon Company in a stock purchase transaction. Defendants' Memorandum on Questions Propounded by the Court, at 21.
Under the terms of the Stock Purchase Agreement (SPA) drafted for the Lemmon transaction, and executed in the state of New York, John and Steven Blackman received $2.7 million in exchange for their shares of Premo New Jersey, while Seymour Blackman and Sol Silverang received $1.8 million for their shares. Defendants' Exhibit 5, at 6. The SPA also purported to convey the shares of Premo New York "to the extent that it remains in existence," id. at 221, 225, and called for an assignment of the claim asserted in Premo Pharmaceutical Laboratories, Inc. v. Bristol-Myers, et al., No. 81-2769 (D.D.C.), an action previously filed in this Court, id. at 11. A written assignment of claim was drafted, specifying that Premo New Jersey would assign the claim to Koro, Inc., as designee of Blackman and Silverang. Defendants' Exhibit 3. The consideration recited in the assignment was "the Sum of One ($1.00) Dollar . . . and other good and valuable consideration," id., although Burton Rubin, one of the attorneys who structured the transaction, testified that the one dollar was never paid. Transcript of the Hearing of March 11, 1983, at 102. Mr. Rubin also testified that the sole purpose for the assignment was to enable Koro to bring an action on this antitrust claim. Id. at 100.
On the basis of this assignment, Koro then moved to be substituted as plaintiff in Premo Pharmaceutical Laboratories, Inc. v. Bristol-Myers, et al. When defendants objected, Premo voluntarily dismissed the action. The present suit was subsequently filed in the name of Koro, alleging the same cause of action as the prior suit. Defendants thereupon lodged the same objections they had raised to the attempted substitution, objections which the Court will now address in turn.
I. THERE IS EVIDENCE THAT THE STATUTORY MERGER BETWEEN PREMO NEW YORK AND BIO-RESEARCH WAS NOT LEGALLY EFFECTIVE.
Defendants argue first that the instant claim could not have been assigned from Premo New Jersey to plaintiff because it was not effectively transferred from Premo New York to Premo New Jersey in the 1979 statutory merger between Premo New York and Bio-research, Inc. They offer a number of pieces of evidence to show that this merger was not legally effective. Most importantly, they note that a certificate of merger for the transaction was not filed in the state of New York for over 18 months after a comparable certificate of merger was filed in New Jersey.
The executed original and a copy of the certificate shall be filed in the office of the Secretary of State and the merger or consolidation shall become effective upon the date of such filing or at such later time, not to exceed 30 days after the date of filing, as may be set forth in the certificate (emphasis added).
Under N.Y.B.C.L. § 907(g), a merger does not become effective until a certificate of merger is filed with the Secretary of State of New York. Defendants contend that because the merger did not become effective in New York until long after the expiration of the 30-day period allowed for by the New Jersey statute, it was invalid under New Jersey law.
As further proof of the invalidity of the merger, defendants point to the fact that the merger was challenged by two of Premo New York's principal shareholders, John and Steven Blackman, who alleged that their assent to the merger was obtained by fraudulent concealments and misrepresentations. Defendants' Exhibit 1. In addition, defendants point out that, in several significant respects, Premo New York continued to be treated as a separate and viable entity months after the merger supposedly occurred:
(1) In the Stock Purchase Agreement between the Lemmon Company, Sol Silverang, and Seymour Blackman, the sellers sold shares of Premo New York to Lemmon. Defendants' Exhibit 5, at 2.
(2) In connection with the stock purchase transaction, Premo New York elected a new board of directors. Id. at 67-70.
(3) Premo New York entered into agreements with Blackman and Silverang for the provision of consulting services after the sale to Lemmon. Id. at 98-105, 109-16.
(4) Premo New York commenced the predecessor suit against defendants on November 17, 1981. See Premo Pharmaceutical Laboratories, Inc. v. ...