Rarities Group, Inc. v. Karp, CivA 00-10459-REK.
| Decision Date | 03 May 2000 |
| Docket Number | No. CivA 00-10459-REK.,CivA 00-10459-REK. |
| Citation | 98 F.Supp.2d 96 |
| Parties | The RARITIES GROUP, INC., Plaintiff, v. Ronald KARP and Alissa Karp, d/b/a New York Gold Mart, Defendants. |
| Court | U.S. District Court — District of Massachusetts |
Matthew P. Poppel, Poppel & Pingitore, Boston, MA, Thomas W. Aylesworth, Neil P. Motenko, Nutter, McClennen & Fish, LLP, Boston, MA, for The Rarities Group, Inc., plaintiff.
Larry L. Varn, Sullivan & Worcester, LLP, Boston, MA, Robert P. Haney, Jr., Gerald J. Russello, Covington & Burling, New York City, for Ronald Karp, Alissa Karp dba New York Gold Mart, defendants.
The court received evidence and heard arguments on April 28, 2000, on Plaintiff's Emergency Motion for Temporary Restraining Order (Docket No. 19) and considered supporting and opposing submissions, including affidavits (Docket Nos. 19, 20, 21, and 22). The court also received evidence and heard arguments on Defendant's Motion to Transfer (Docket No. 3) and considered supporting and opposing submissions (Docket Nos. 7, 8, 10, 11, 12, and 23).
The parties reached agreements at the hearing of April 28 on the basis of which neither party asked this court to act immediately on either of the two motions identified above. The court placed before the parties a draft Order Regulating Nonjury Hearing, proposed for use in the absence of a further agreement resolving other issues left unresolved. The parties were to confer to determine whether they could agree on a hearing date under the Order and a schedule of the preparatory steps to be taken in advance of the hearing. The parties having reported inability to reach full agreement on these matters, the court met with the parties at 10:00 a.m. May 2, 2000, to set a hearing date and schedule. After consultation, the court set the hearing for May 22, 2000, commencing at 9 a.m., and signed the Order Regulating Hearing, setting the pre-hearing schedule.
Plaintiff The Rarities Group, Inc., alleges that its President, Martin B. Paul,
1. .... engaged in what is known in the rare coin trade as "split deals" with the Karps over the past five or so years. "Split deals" are a common industry practice, and coin companies do split deals simultaneously with multiple entities. While doing such deals with the Karps on a coin-by-coin or lot-by-lot basis, Rarities also routinely did split deals with other entities, and Karp routinely bought and sold independently of Rarities. This is a customary method of doing business; with the industry standard being that each party is entitled to its share of the profits from each coin or lot so sold. (Aff. of Martin Paul, hereafter "MP Aff.", ¶ 2).
2. Rarities' split deals with Karp were based on specific terms. Rarities evaluated the coins being acquired, performed curating services on them, and obtained the best possible grades on the coins to prepare them for market. The Karps were responsible for financing the acquisitions, for which the Karps demanded 12% per annum from Rarities on 50% of the cost of the coins acquired, from the date of acquisition to the date of sale (effectively 6% of the total cost). The parties sometimes referred to this interest, charged by the Karps to Rarities at the time a coin was sold, as presale interest. The Karps were also responsible for marketing and selling the coins after they were curated and graded, which involved telephone sales, exposing inventory to dealers, and attending shows around the country. Rarities was to receive an equal share of the profits from the sale of such split coins as the coins were sold. (MP Aff., ¶ 3).
3. In May 1999, as a result of the Karps' refusals to pay Rarities its existing profits and failure to sell split coins in a commercially reasonable fashion, Rarities terminated this relationship with the Karps. (MP Aff., ¶ 4-11, Exs. 1-2).
4. On April 3, 2000, the Karps unilaterally ceased any payments to Rarities despite a current liability to Rarities for past profits in excess of $1.2 million dollars. (MP Aff., ¶ 38-40). This act followed a series of other false assurances and broken promises from the Karps. (MP Aff., ¶ 12-28). The Karps began to take all of the revenues from sales of split coins for themselves, reneging for the second or third time on an agreement to pay down that existing liability through an agreed upon formula while liquidating remaining inventory. Id. Since April 3, 2000, Rarities has not received any money from the sale of split coins while the Karps have paid all such revenues to themselves in derogation of Rarities' rights. This latest unilateral and improper act by the Karps is having a disastrous impact on Rarities, which was not able even to pay its full tax bill as a result. The Karps are engaged in a form of commercial extortion in an attempt to force Rarities into relinquishing rights. (MP Aff., 40).
5. The Karps also are harming Rarities by failing to liquidate inventory in a timely and commercially reasonable fashion, something Rarities has been demanding since 1997 and one of the reasons Rarities terminated the relationship. Despite the passage of almost a year since Rarities' May 19, 1999 notice of termination, the Karps have failed to liquidate remaining inventory, continuing to hold it an unreasonably long period of time, while eroding Rarities' share of profits by purporting to charge 12% interest to Rarities on each coin each year the Karps do not sell the coin. As of April 3, 2000, there was over $3.5 million in unsold coins still in inventory, all 1-5 years old and on which the Karps continue to purport to rack-up interest charges to their benefit and Rarities' detriment. (MP Aff., ¶ 31-36, Exs. 5-9). There is no legitimate business reason for holding split coins for these lengths of time, and the Karps are enriching themselves at Rarities' expense.
6. There simultaneously has been a complete breakdown of communications, with the Karps refusing to provide accountings or information to Rarities except through discovery. (MP Aff., ¶ 38-40). Rarities believes that this is because the Karps' pretext for suddenly ceasing any payments to Rarities on April 3, 2000 is not only false, but even on its face never justified ceasing payments to Rarities. The Karps have maintained that they should be permitted to withhold Rarities' past profits on coins in an amount equivalent to 25% of the cost of unsold inventory together with the interest the Karps are accumulating on those unsold coins. This is contrary to, among other things, the parties' longstanding understanding that pre-sale interest was collectable only on a coin-by-coin basis upon the sale of a coin. While this was never the agreement between the parties and is just another pretext the Karps have invoked for converting Rarities' monies, even under the Karps' false methodology Rarities was "under-distributed" to use Karp's terminology by well over $135,000 in the beginning of April 2000. (MP Aff., ¶ 39). The Karps are simply doing whatever they want, without any principle or even a pretext which provides a purported justification, and refusing to communicate with Rarities, all with a view toward converting funds owed to Rarities to their benefit.
7. The Karps' improper and unilateral actions in the beginning of April 2000 followed an express threat in February 2000 by Ron Karp to Paul of Rarities that Karp would make "life very difficult" if his wife remained a defendant to Rarities' claims. (MP Aff., ¶ 30). They also followed Rarities' service on April 3 and 4, 2000 of an Amended Complaint, automatic disclosure and discovery in this action.
8. On April 17, 2000, Rarities' counsel commenced a conference on Rarities' intention to seek appointment of a receiver, attempting to reach agreement on that approach. (Ex. 4, Apr. 17, 2000 Letter). On April 18, 2000, the Karps' New York lawyer sent a letter stating that "Mr. Karp ... does not assent to your proposed relief of appointment of a receiver." In this same letter, the Karps' lawyer also wrote that: Karp does not agree with "characterizations of the amounts owed," "there simply was never any agreement to make any particular level or sequence of distributions" and "nor is it correct to characterize any interim formulas used as agreed formulas." (Ex. 4, Apr. 18, 2000 Haney Letter). On April 19, 2000, Rarities' counsel sought again to obtain the Karps' agreement to a receiver/escrow arrangement, and spoke directly with Karps' New York counsel. Obviously, even if there had been no agreement, as Karp maintained, that would support a receiver and an escrow. When the Karps still would not agree, Rarities specifically conferenced whether Karp would agree at least to pay into a mutually agreed upon escrow account or the court all proceeds of sales while Rarities' Motion to Appoint a Receiver was pending. The Karps would not even agree to that.
9. In fact, the Karps' reaction to this conference was yet another one-sided, self-serving charade — to continue to help themselves to proceeds from sales while purportedly putting payments "to which Mr. Paul believes he is entitled" into a separate account at Chase Bank outside of Rarities' control and in Karp's control. In other words, the Karps are taking money for themselves, and simultaneously cutting Rarities off from payments, while maintaining that there is no agreement. On April 20, 2000, the Karps' New York lawyer sent a letter, in essence, that this is what Karp had done (although Karps' lawyer did not mention anything of the sort on the telephone the night before, suggesting that Karp did it on April 20, 2000 to attempt to mitigate his exposure for his unilateral act of ceasing payments on April 3 and to attempt to improve appearances to the Court).
10. On April 21, 2000, Rarities' lawyer reminded Karp's lawyer that the formula that Karp had reneged on was a generous way of permitting the Karps to pay down an existing liability of $1,283,077, and to pay future profits,...
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...to do so, or to choose an intermediate course that binds them in some ways and leaves each free in other ways. [Rarities Group, Inc. v. Karp, 98 F.Supp.2d 96, 106 (D.Mass., 2000).] "`Were courts free to refuse to enforce contracts as written on the basis of their own conceptions of the publ......