Tanzman, Rock & Kaban, LLC v. MarketXT Holdings Corp., 17 Mass. L. Rptr. No. 18, 390 (Mass. Super 3/1/2004)

• Decision Date: 01 March 2004
• Docket Number: No. 035928BLS.,035928BLS.
• Citation: 17 Mass. L. Rptr. No. 18, 390
• Parties: Tanzman, Rock & Kaban, LLC et al.<SMALL><SUP>1</SUP></SMALL> v. MarketXT Holdings Corp., f/k/a T Corp. et al.<SMALL><SUP>2</SUP></SMALL>
• Court: Massachusetts Superior Court

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17 Mass. L. Rptr. No. 18, 390

Tanzman, Rock & Kaban, LLC et al.¹ v. MarketXT Holdings Corp., f/k/a T Corp. et al.²

No. 035928BLS.

Commonwealth of Massachusetts, Superior Court.

Suffolk, Ss.

Memorandum Dated March 1, 2004.

Attachment — Reach and Apply — Assets Subject to — Shares of Stock Physically Located in Massachusetts Cannot Be Reached and Applied Pending Resolution of a Dispute Over Ownership in a New York Action.

A reach and apply order to attach shares of stock which are physically located in Massachusetts cannot be awarded under the Reach and Apply Act, M.G.L.c. 214, §3(6), to secure a possible judgment in a New York action in which the reach and apply applicants are claiming title to the shares, because the statute applies only to claims by "creditors" to recover on a "debt" whereas the claim to the stock is not a claim on a "debt" within the meaning of the Act, at least not until a judgment is entered in the New York action.

VAN GESTEL, J.

This matter comes before the Court on three motions to dismiss the complaint: Defendant MarketXT Holdings Corp.'s Motion to Dismiss (Paper #14); Empyrean Reach and Apply Defendants' Motion to Dismiss (Paper #16); and Reach and Apply Defendants Bank of America, N.A. and Banc of America Securities LLC's Motion to Dismiss (Paper #18). All three motions make similar arguments, although the defendant, MarketXT Holdings Corp. (herein called "Tradescape"), has some issues specific to it.

In this memorandum the plaintiffs collectively will be called "TRK"; the reach and apply defendants Empyrean Investment Fund, L.P. and Empyrean General Partner LLC collectively will be called "Empyrean"; and the reach and apply defendants Bank of America, N.A. and Banc of America Securities LLC collectively will be called "BOA."

BACKGROUND

There is pending and unresolved an action entitled Tanzman, Rock & Kaban, LLC et al. v. Tradescape Corp. et al., in the Supreme Court of New York, New York County, Index No. 600906/03 (the "New York

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action"). The New York action was filed in March of 2003.

In the New York action the same plaintiffs as here sued Tradescape Corp., its Chief Executive Officer and its Vice Chairman. The New York complaint presents three causes of action: First Cause of Action, for breach of contract; Second Cause of Action, for fraud; and Third Cause of Action, for breach of fiduciary duty.

The TRK parties were day traders who became involved with an entity known as Momentum Securities, L.L.C. ("Momentum"). Tradescape was the sole beneficial owner of Momentum. Momentum principally earned its revenues from charges on day traders' securities trades. The elaborate and convoluted details of the arrangements between Momentum and the TRK parties need not be recited here. Suffice it to say, however, that by early 2002, Momentum had obligations running to TRK in the vicinity of $49,493,000, and Momentum and its beneficial owner were in financial straits and needed additional operating capital.

The situation, as described in Paragraphs 32 through 37 of the New York complaint, follows:

32. After lengthy negotiations, on or about April 8, 2002 Plaintiffs, Tradescape and Momentum entered into an agreement (the "April 2002 Agreement") intended to modify the existing TRK Agreements in various ways so as to relieve Momentum of certain significant cash obligations which it might have to Plaintiffs as a result of Tradescape's potential sale of all or a significant portion of its ownership interest in Momentum.

33. The April 2002 Agreement provided that, if Tradescape made a sale within the next 120 days (the "Effective Period"), it would pay the Plaintiffs $10 million in "Put Consideration" in return for the Plaintiffs' release of any and all other claims for consideration that the Plaintiffs might otherwise have under any of the other TRK Agreements as a result of the sale.

34. The April 2002 Agreement further provided that the Put Consideration was payable to Plaintiffs in the same form and pursuant to all the same terms, timing, contingencies and restrictions applicable to any person entitled to receive consideration from the sale of Momentum, whether or not Tradescape or anyone else in fact received any such sale consideration.

35. In addition, the April 2002 Agreement provided that, conditioned upon closing of the sale of Momentum and payment to the Plaintiffs of the Put Consideration, the $49,493,000 balance of the $54,493,000 First Put Price would be reduced to $33,500,000. The April 2002 Agreement also provided that, again conditioned upon the sale of Momentum and payment to Plaintiffs of the Put Consideration, Plaintiffs waived any and all claims for commissions or settlement adjustments otherwise due them through March 31, 2002.

36. Effective as of April 10, 2002 Tradescape and certain of its subsidiary companies entered into a written agreement with E*Trade Group, Inc. ("E*Trade") and certain of its subsidiary companies (the "Merger Agreement") pursuant to which Tradescape agreed to sell and E*Trade agreed to buy all of Tradescape's ownership interest in Momentum and certain other Tradescape subsidiaries for an initial fixed payment of $100,000,000 in E*Trade common stock, with the possibility of significant subsequent payments based on Momentum's profitability.

37. On June 3, 2002 an initial closing (the "Closing") took place under the Merger Agreement and, on information and belief, on or after that date Tradescape received possession of approximately 11.75 million shares of E*Trade common stock (the "Initial E*Trade Shares") as its initial fixed payment of the purchase price for the sale of Momentum and other subsidiaries.

TRK was not, and has not yet been, paid the amounts it claims it is owed as a result of the sale of Momentum, and that is what the New York action is all about.

Because TRK was to be paid in the same manner as Tradescape on the sale of Momentum, it expected, and expects, its payment to be in the form of E*Trade common stock. That common stock, however, is alleged to have moved on from Tradescape, first to the Empyrean parties in Boston, and then on to the BOA parties, perhaps in New York. The manner of the movement of the E*Trade common stock is shrouded in corporate entanglement and agreements which, again, need not be recited here.

The suit in Massachusetts was filed on December 17, 2003, about nine months after the filing of the New York action. The Massachusetts suit concerns efforts by TRK, through reach and apply remedies, to seize the E*Trade stock or freeze its further transfer, all as security for the judgment it hopes to obtain in the New York action. In an "Introduction" to the Massachusetts complaint the TRK parties recite that they "seek[] preliminary and permanent injunctive relief to restrain further transfer of (1) 9,400,000 shares of E*Trade Group, Inc. common stock, (2) any interest in those shares, or (3) any other assets owned by defendant MarketXT Holdings Corp., (f/k/a T Corp., Tradescape Corp. and Tradescape.com, Inc. . . .) and pledged by Tradescape in Massachusetts as collateral for a loan to it from Reach and Apply Defendants Empyrean . . ."

The complaint further alleges that TRK is informed and believes that the Empyrean parties re-transferred the E*Trade shares to BOA.³

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There are three counts in the Massachusetts complaint: Count I seeking Pre-Judgment Security for Prospective Domesticated Foreign Judgment; Count II seeking Enforcement of Judgment in New York Action; and Count III to Reach and Apply.

DISCUSSION

On a Rule 12 motion the movants must admit all well-pleaded allegations of TRK's complaint, and the Court must accept as true such inferences as may be drawn in TRK's favor. Blank v. Chelmsford Ob/Gyn P.C., 420 Mass. 404, 407 (1995); Natick Auto Sales, Inc. v. Department of Procurement and General Services, 47 Mass.App.Ct. 625, 630 (1999). Of course, conclusions of law from the facts alleged are open for review on a Rule 12 motion. TRK's claims are sufficient unless they show beyond doubt that no provable set of facts would entitle TRK to relief. Warner-Lambert Company v. Execuquest Corporation, 427 Mass. 46, 47 (1998); Harvard Law School Coalition for Civil Rights v. President & Fellows of Harvard College, 413 Mass. 66, 68 (1992). TRK bears a "relatively light burden," Warner-Lambert Co., supra, 427 Mass. at 47, and must be given the benefit of any doubt. Kipp v. Keuker, 7 Mass.App.Ct. 206, 210 (1979). These are "generous principles," and the Court must apply them in the way they are intended. Connerty v. Metropolitan District Commission, 398 Mass. 140, 143 (1986).

As noted above, Tradescape, as the defendant, raises some different issues from those of Empyrean and BOA, as the reach and apply defendants. However, the controlling law applies with essentially equal force on the reach and apply defendants. Consequently, the Court will deal with all issues together.

Tradescape challenges the complaint in reverse order, starting first with Count III entitled "Reach and...