SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
(RULE 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO
13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO 13d-2(a)
(AMENDMENT NO.1)*
Sales Online Direct, Inc.
______________________________________________________________________________
(Name of Issuer)
Common Stock of the Par Value of $0.001 Per Share
______________________________________________________________________________
(Title of Class of Securities)
794661108
______________________________________________________________________________
(CUSIP Number)
C. Richard Ropka, Esq., Rabil & Ropka, LLC
1010 Kings Highway South, Building Two, Suite B, Cherry Hill, New Jersey
(8560 429-1010
______________________________________________________________________________
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
April 29, 2002
______________________________________________________________________________
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13D to
report the acquisition which
is the subject of this Schedule 13D, and is filing this schedule because of
Rule 13d-1(b)(3) or (4),
check the following box / /.
NOTE: Six copies of this statement, including all exhibits, should be filed
with the Commission. See
Rule 13d-1(a) for other parties to whom copies are to be sent.
________________________________
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this
form with respect to the subject class of securities, and for any subsequent
amendment containing
information which would alter the disclosures provided in a prior cover page.
The information required in the remainder of this cover page shall not be
deemed to be "filed" for
the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or
otherwise subject to the
liabilities of that section of the Act but shall be subject to all other
provisions of the Act (however,
see the Notes).
CUSIP NO. 794661108
PAGE 1 OF 6 PAGES\
1. NAME OF REPORTING PERSON S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE
PERSON
HANNAH KRAMER
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) / /
(b) / X / (1)
3 SEC USE ONLY
4 SOURCE OF FUNDS* OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e)
/ /
6 CITIZENSHIP OR PLACE OF ORGANIZATION UNITED STATES OF AMERICA
NUMBER OF 7. SOLE VOTING POWER 4,114,337
SHARES
_____________________________________________________________
BENEFICIALLY
OWNED BY 8. SHARED VOTING POWER -0-
EACH _____________________________________________________________
REPORTING
PERSON 9. SOLE DISPOSITIVE POWER 4,114,337
WITH _____________________________________________________________
10 SHARED DISPOSITIVE POWER
-0-
_____________________________________________________________
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
4,114,337
______________________________________________________________________________
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES*
/ /
______________________________________________________________________________
CUSIP NO. 794661108
PAGE 2 OF 6 PAGES\
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
3.7% (2)
______________________________________________________________________________
14 TYPE OF REPORTING PERSON*
IN
____________________
(1) Hannah Kramer ("Kramer"), the Reporting Person, was a party
defendant in the case of
SALES ONLINE DIRECT, INC. V. MARC STENGEL, ET AL., filed in the United States
District
Court for the District of Maryland, Civil Action No. WMN-00-1621 (the
"Maryland Case"). In the
Maryland Case, the plaintiff, Sales Online Direct, Inc. (the "Company"), filed
a Complaint against
Kramer in June 2000. The Company amended its Complaint on October 11, 2001, to
add new parties
as defendants and to make new allegations against Kramer and the other
defendants (the "Amended
Complaint"). The Amended Complaint alleged that Kramer made various
misrepresentations of
material fact upon which the Company relied in entering into various
transactions with Kramer, as a
result of which Kramer acquired Kramer's 5,539,337 shares of the common stock
of the par value of
$0.001 per share (the "Common Stock") of the Company. The Amended Complaint
further alleged
common law fraud, violations of the Maryland Securities Act, breach of
contractual warranties,
breach of employment contract and conversion of assets and personnel. The
Company sought
rescission under the fraud and securities act claims. In addition, the Company
claimed damages
ranging from $500,000 in compensatory damages to $50,000,000 in compensatory
damages and
$50,000,000 in punitive damages in the various damage counts of the Amended
Complaint.
Subsequent to filing the Amended Complaint, the Company filed a Motion
for Preliminary
Injunction in which the Company sought to enjoin Kramer from selling any of
her shares of
Common Stock of the Company. Kramer filed a Cross Motion for Injunctive Relief
seeking an order
directing the Company to immediately instruct the Company's agents to take all
steps necessary to
effectuate the sale of Kramer's shares of Common Stock of the Company pursuant
to Rule 144 under
the federal Securities Act of 1933 ("Rule 144") and to enjoin the Company from
interfering with, or
in any way preventing, future sales of shares of the Common Stock of the
Company owned by
Kramer under Rule 144.
Kramer also filed a counterclaim (the "Counterclaim") against the
Company alleging that
the Company intentionally and unintentionally violated Section 8-401 of the
Maryland Uniform
Commercial Code and violated Delaware law, 8 Del.C. Section 158; and including
claims for
trespass to chattels, intentional interference with prospective advantage and
conversion. The
Countercliam sought relief in the form of an order substantially similar to
the order sought by
Kramer in Kramer's Cross Motion for Injunctive Relief, compensatory damages of
$500,000 and
interest and costs for each violation and claim. The Counterclaim has been
opposed by the Company
and is pending and at issue.
Kramer also filed a motion to dismiss (the "Motion to Dismiss") the
fraud and Maryland
Securities Act claims of the Amended Complaint on the ground that they failed
to state claims upon
which relief could be granted.
CUSIP NO. 794661108
PAGE 3 OF 6 PAGES\
After extensive evidentiary hearings, Judge William M. Nickerson by
Order dated March
19, 2001, denied the Company's Motion for Preliminary Injunction and granted
Kramer's Cross
Motion by enjoining ". . . [the Company], its officers, directors,
shareholders, agents, servants and
employees from blocking, preventing, or interfering with any sale of Common
Stock of the
Company] by [Kramer] consistent with SEC Rule 144 during the pendency of this
action . . .". By
Memorandum opinion dated March 19, 2001, Judge Nickerson found, among other
things, that
Kramer and Kramer's nephew, Mr. Marc Stengel ("Stengel") were ". . . acting
`in concert' in the
disposition of their shares . . ." of the Common Stock of the Company. Despite
such finding, Kramer
denies that she was ever "acting in concert" with Stengel in the disposition
of their respective shares
of Common Stock of the Company. Although Kramer, a former director of the
Company, and
Stengel, a former officer and director of the Company, acquired their
respective shares of Common
Stock in the Company in the manner described in Item 3 of their original
Schedule 13D filed with
the SEC on March 8, 1999 (the "Original Schedule 13D"), which Item 3, insofar
as it relates to
Kramer, is incorporated by reference herein ("Original Item 3"), Kramer
disclaims membership in
any group with Stengel or in any group with any other person.
Judge Nickerson's Order of March 19, 2001, also denied Stengel's Motion
to Dismiss.
Subsequently, Stengel answered the Amended Complaint, denying all material
allegations thereof.
The Court set the case for trial in December 2001, however, the Maryland Case
was settled among
all the parties thereto pursuant to a Settlement Agreement dated October 23,
2001.
(2) Assumes 108,333,204 shares of Common Stock of the Company are
outstanding, as
reported by the Company in the Company's Form 10-KSB filed with the SEC for
the Company on
March 1, 2002.
CUSIP NO. 794661108
PAGE 4 OF 6 PAGES\
STATEMENT PURSUANT TO SCHEDULE 13D UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED
ITEM 1. SECURITY AND ISSUER
This statement on Schedule 13D relates to the shares of common stock of
the par value of
$0.001 per share (the "Common Stock") of Sales Online Direct, Inc. (the
"Company"), a Delaware
corporation. The address of the Company's principal executive offices is 4
Brussels Street,
Worcester, Massachusetts 01610, as reported by the Company in the Company's
Form 10-KSB filed
with the SEC for the Company filed on March 1, 2002.
ITEM 2. IDENTITY AND BACKGROUND
(a) Hannah Kramer.
(b) 678 Korisa Drive, Huntington Valley, PA 19004
(c) Reporting person has no relationship to the issuer and
currently owns and operates a
clothing store.
(d) No.
(e) No.
(f) United States of America.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
The source and the amount of funds or other consideration used by Kramer
in making
Kramer's purchase of the Common Stock of the Company are as described in -Item
3 and in the first
two sentences of Item 4 and in Item 5 (a) of the Original Schedule 13D, that,
insofar as such first two
sentences of Item 4 and Item 5 (a) relate to Kramer, are incorporated by
reference herein.
ITEM 4. PURPOSE OF TRANSACTION
As a result of the "Share Exchange" as defined in Original Schedule 13D,
Item 3), Kramer
acquired 5,539,337 shares of the Common Stock of the Company and was elected a
director of the
Company. Kramer was subsequently removed as a director of the Company by vote
of the
stockholders at a special meeting held on September 19, 2000.
On February 8, 2002, Kramer obtained a written opinion from securities
counsel to the
substantial effect that Kramer is lawfully entitled to sell her shares of the
Common Stock of the
Company under Rule 144(k), (the "Opinion"). On February 8, 2002, Kramer
tendered, among other
things, the Opinion and Kramer's stock certificates representing all of
Kramer's 5,139,337 shares of
the Common Stock of the Company to the Company's transfer agent to have the
restrictive legends
thereon removed to facilitate the sale of Kramer's shares of Common Stock of
the Company under
Rule 144(k). Subsequently, Kramer received from the Company's transfer agent,
unlegended stock
certificates representing all of Kramer's 5,139,337 shares of the Common Stock
of the Company.
Kramer presently plans to sell shares of the Common Stock of the Company to
pay for Kramer's
past, present and future legal fees and expenses in the Maryland Case and the
Section 225 Delaware
Case. Kramer also presently plans to sell shares of the Common Stock of the
Company to pay for
Kramer's past, present and future living expenses, and those of her immediate
family.
CUSIP NO. 794661108
PAGE 5 OF 6 PAGES\
Except as set forth above in this Item 4, Kramer has no present plans or
proposals which
relate to or would result in: (a) the acquisition by any person of additional
securities of the
Company, or the disposition of securities of the Company; (b) an extraordinary
corporate
transaction, such as a merger, reorganization or liquidation, involving the
Company or any of its
subsidiaries; (c) a sale or transfer of a material amount of assets of the
Company or any of its
subsidiaries; (d) any change in the present board of directors or management
of the Company,
including any plans or proposals to change the number or term of directors or
to fill any existing
vacancies on the board; (e) any material change in the present capitalization
or dividend policy of
the Company; (f) any other material change in the Company's business or
corporate structure; (g)
changes in the Company's charter, bylaws or instruments corresponding thereto
or other actions
which may impede the acquisition of control of the Company by any person; (h)
causing a class of
securities of the Company to be delisted from a national securities exchange
or to cease to be
authorized to be quoted in an inter-dealer quotation system of a registered
national securities
association; (i) a class of equity securities of the Company becoming eligible
for termination of
registration pursuant to Section 12(g)(4) of the Securities Exchange Act of
1934; or (j) any action
similar to any of those enumerated above.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) As of the close of business on April 18, 2002, Kramer beneficially
owned 4,114,337
shares of the Common Stock of the Company, that represented as of the close of
business on April
18, 2002, 3.7% of the issued and outstanding Common Stock of the Company,
based on the
108,333,204 shares of Common Stock outstanding, as reported by the Company in
the Company's
Form 10-KSB filed with the SEC for the Company on March 1, 2002.
(b) Kramer has sole power to vote and sole power to dispose of all
shares of Common
Stock of the Company beneficially owned by her.
(c) A description of all transactions in the Common Stock of the Company
that were
effected by Kramer during the past 60 days or since the most recent filing on
Schedule 13D,
whichever is less, is set forth on Schedule A attached hereto and incorporated
by reference herein.
(d) No other person is known to have the right to receive or the power
to direct the receipt
of dividends from, or the proceeds from the sale of Kramer's shares of Common
Stock of the
Company.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS
WITH RESPECT TO SECURITIES OF THE ISSUER
Except for Kramer's plans to sell shares of Kramer's Common Stock of the
Company to
pay for Kramer's past, present and future legal fees and expenses incurred in
the Maryland Case and
the Section 225 Delaware Case, as described in Item 4, above, Kramer has no
contracts,
arrangements, understandings or relationships (legal or otherwise) with any
other person with
respect to any securities of the Company.
CUSIP NO. 794661108
PAGE 6 OF 6 PAGES\
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
EXHIBIT NO. DESCRIPTION
1. Memorandum opinion of Judge William M. Nickerson dated March
19,
2001, in the Maryland Case.
2. Order of Judge William M. Nickerson dated March 19, 2001, in
the
Maryland Case.
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the
information set forth in this statement is true, complete and correct.
Date: April 29, 2002 /s/ Hannah Kramer
____________________________
HANNAH KRAMER
SCHEDULE A
SCHEDULE OF TRANSACTIONS IN THE SHARES OF
COMMON STOCK OF THE COMPANY
Name
Date
No. of Shares Sold
Price Per Share
ACommon Stock@
04/18/00
10,000
..1900
ACommon Stock@
04/18/00
10,000
..1900
ACommon Stock@
04/18/00
10,000
..1825
ACommon Stock@
04/17/02
10,000
..1800
ACommon Stock@
04/17/02
10,000
..1700
ACommon Stock@
04/15/02
5,000
..1650
ACommon Stock@
04/15/02
10,000
..1520
ACommon Stock@
04/15/02
15,000
..1666
ACommon Stock@
04/12/02
10,000
..1500
ACommon Stock@
04/11/02
5,000
..1650
ACommon Stock@
04/10/02
5,000
..1650
ACommon Stock@
04/10/02
10,000
..1750
ACommon Stock@
04/05/02
10,000
..1750
ACommon Stock@
04/04/02
5,000
..1950
ACommon Stock@
04/02/02
10,000
..2800
ACommon Stock@
04/01/02
10,000
..2700
ACommon Stock@
04/01/02
15,000
..2900
ACommon Stock@
03/28/02
10,000
..2300
ACommon Stock@
03/28/02
10,000
..2300
ACommon Stock@
03/27/02
10,000
..2500
ACommon Stock@
03/26/02
5,000
..3150
ACommon Stock@
03/25/02
10,000
..4700
ACommon Stock@
03/22/02
20,000
..4600
ACommon Stock@
03/21/02
5,000
..4500
ACommon Stock@
03/21/02
10,000
..5000
ACommon Stock@
03/21/02
10,000
..5000
ACommon Stock@
03/20/02
10,000
..4626
ACommon Stock@
03/19/02
10,000
..5350
ACommon Stock@
03/15/02
10,000
..2850
ACommon Stock@
03/15/02
15,000
..2750
ACommon Stock@
03/15/02
25,000
..2800
ACommon Stock@
03/14/02
25,000
..2650
ACommon Stock@
03/14/02
25,000
..2650
ACommon Stock@
03/14/02
25,000
..2700
ACommon Stock@
03/13/02
15,000
..2600
ACommon Stock@
03/13/02
25,000
..2550
ACommon Stock@
03/13/02
25,000
..2550
ACommon Stock@
03/13/02
25,000
..2600
ACommon Stock@
03/12/02
10,000
..2600
ACommon Stock@
03/12/02
25,000
..2600
ACommon Stock@
03/12/02
25,000
..2550
ACommon Stock@
03/11/02
10,000
..2750
ACommon Stock@
03/11/02
25,000
..2750
ACommon Stock@
03/11/02
25,000
..2700
ACommon Stock@
03/11/02
25,000
..2650
ACommon Stock@
03/11/02
25,000
..2700
ACommon Stock@
03/11/02
25,000
..2700
ACommon Stock@
03/11/02
25,000
..2650
ACommon Stock@
03/08/02
25,000
..2700
ACommon Stock@
03/08/02
25,000
..2650
ACommon Stock@
03/08/02
25,000
..2700
ACommon Stock@
03/07/02
25,000
..2700
ACommon Stock@
03/07/02
25,000
..2600
ACommon Stock@
03/07/02
25,000
..2650
ACommon Stock@
03/06/02
5,000
..1750
ACommon Stock@
03/06/02
5,000
..2050
ACommon Stock@
03/06/02
10,000
..2050
ACommon Stock@
03/06/02
25,000
..2050
ACommon Stock@
03/06/02
25,000
..2100
ACommon Stock@
03/06/02
25,000
..2010
ACommon Stock@
03/05/02
10,000
..1500
ACommon Stock@
03/05/02
15,000
..1550
EXHIBIT #1.
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
SALES ONLINE DIRECT, INC. :
:
v. : Civil
Action No. WMN-00-1621
:
MARC STENGEL, et al. :
:
MEMORANDUM
Before the Court are cross motions for preliminary injunction. Paper
Nos. 22 (Plaintiff's) and
27 (Defendant Stengel's). The motions are fully briefed and an extensive
evidentiary hearing,
stretching over several days, was held on the motions. Having considered all
of the evidence and
pleadings presented by the parties, the Court determines that Plaintiff's
motion will be denied and
Defendant Stengel's motion will be granted in part and denied in part.
Plaintiff Sales Online Direct, Inc. (SOLD) is a Delaware corporation
that is engaged in various
enterprises related to the on-line sale of "collectibles" and memorabilia. The
company is publicly
held, with shares of its common stock traded on the NADSAQ Bulletin Board.
Currently, about 80%
of the stock is owned by four individuals: approximately 40% by Greg and
Richard Rotman, the
President and Vice President, respectively, of SOLD (hereinafter, the
Rotmans); and approximately
40% by Defendants Mark Stengel and Hannah Kramer, Mark Stengel's aunt. The
remaining 20% of
the stock is held by about 4000 other small investors. The total value of the
stock at the time it was
originally issued was in excess of $30 million dollars. Since that time, the
value of the stock has
fluctuated widely and it is now worth significantly less. The reason for the
decline in value, as with
most of the issues addressed in this lawsuit, is the subject of profound
disagreement among the
parties.
This lawsuit arises out of a series of transactions, including a
"reverse merger," that led to the
initial formation of SOLD. While the forms of the transactions were somewhat
complex, the primary
aspects of the deal entailed, from the Rotmans's side, the contribution of
"Rotman Auctions," a
collectible auction business, and some inventory from another family business,
and from the
Stengel/Kramer side, the contribution of "World Wide Collectors Digest, Inc."
(WWCD), a internet
website dealing with collectibles, along with some additional collectable
inventory. The integration
of WWCD into the new business entity was originally anticipated to have
occurred through a merger
until it was discovered, on the eve of the closing of the transaction, that
WWCD's corporate charter
had lapsed for failure to pay corporate taxes. In lieu of a merger, WWCD was
conveyed into the new
entity by a Bill of Sale of all of WWCD's assets.
Plaintiff alleges in the Complaint that Defendants Stengel and Kramer
misrepresented the
value of WWCD and the other inventory contributed to SOLD. These alleged
misrepresentations
include, inter alia, the amount of web traffic on the WWCD website; the
quality of the computer
equipment used to host the site; WWCD's ownership of certain domain names that
Stengel now
represents as belonging to himself; and the value of the collectible inventory
contributed. Plaintiff
also alleges that, after the formation of SOLD, Stengel failed to devote this
time and energy in a
manner consistent with the best interests of SOLD. In fact, Plaintiff
maintains that Stengel operated
a business in direct competition with SOLD, "Whirl Winds Collaborative
Designs," using the
resources and employees of SOLD in conducting that business.
The Complaint includes claims of both common law and securities fraud
and seeks as remedy
both damages and rescission. Shortly after filing the Complaint, Plaintiff
filed the instant motion for
a preliminary injunction, asking that the Court issue an order enjoining
Defendants Stengel and
Kramer from selling any of their SOLD stock until the final resolution of this
litigation. Defendant
Stengel responded with a motion for preliminary injunction of his own, asking
that the Court enjoin
Plaintiff from interfering or blocking his efforts to sell his stock.
Apparently, Plaintiff has been able,
for the most part, to unilaterally prevent the Defendants' sale of stock
without the requested
injunctive relief by instructing its agents not to remove the "restricted"
designation on Defendants'
shares.
When ruling on a request for a preliminary injunction, a district
court must consider four
factors originally set forth in BLACKWELDER FURNITURE CO. V. SEILIG
MANUFACTURING
CO., 550 F.2d 189 (4th Cir. 1977). Those factors are:
(1) the likelihood of irreparable harm to the plaintiff if
the
preliminary injunction is denied,
(2) the likelihood of harm to the defendant if the requested
relief is granted,
(3) the likelihood that the plaintiff will succeed on the
merits, and
(4) the public interest.
RUM CREEK COAL SALES, INC. V. CAPERTON, 926 F.2d 353, 339 (4th Cir.
1991);(internal
quotation marks omitted). After deciding whether the plaintiff will suffer
irreparable harm if an
injunction is denied and determining the nature of the harm, if any, that
defendant will suffer if the
injunction is granted, the district court must balance these hardships against
one another. See DIREX
ISRAEL, LTD. V. BREAKTHROUGH MED. CORP., 952 F.2d 802, 812-13 (4th Cir. 1991).
The
result of this balancing determines the degree to which the plaintiff must
establish a likelihood of
success on the merits. If the balance of harms "tips decidedly in favor of the
plaintiff," it is only
necessary for the plaintiff to "raise[ ] questions going to the merits to
serious, substantial, difficult
and doubtful, as to make them fair ground for litigation and thus for more
deliberate investigation."
ID. at 813 (internal quotation marks omitted). If, however, the balance of
harms is in equipoise or
does not favor the plaintiff, the plaintiff must make a correspondingly higher
showing of the
likelihood of success. SEE ID.
Plaintiff's claim that it will be harmed if the injunction is not
granted is two-fold. First, it
alleges that the price of SOLD stock would be adversely affected were
Defendants permitted to sell
significant portions of their holdings. While there is some evidence of
temporary dips in the price of
SOLD stock after Stengel sold small portions of her holdings, the evidence is
not conclusive that
additional sales would further and permanently depress the stock price. There
have been dips in the
price of the SOLD shares during periods when no shares were sold by
Defendants. The Court is also
well aware that internet related stocks, in general, have experienced wild
fluctuations in price, many
in a negative direction, during this same time period.
Furthermore, as Defendants note, under SEC Rule 144, Defendants are
expressly permitted,
even as "insiders" or "affiliates," to periodically sell a certain percentage
of their stock.(1) At the
time that these parties entered into the subjected transaction, they were
undoubtedly aware that the
SEC Rules would permit the sale of some stock, and that sales by
- ----------------------------
(1) Rule 144, 17 C.F.R.ss.230.144, provides that sales by "affiliates" of
the issuer of securities are limited to one percent of outstanding
shares within any three month period. 17 C.F.R.ss.230.144(e)(1)(i).
If
two or more affiliates "agree to act in concert for the purpose of
selling securities" their sales are aggregated for the purpose of
Rule
144. ID.at ss.230 144(e)(3)(vi). It is undisputed that Defendants
were
subject to the provisions of Rule 144 at the time Plaintiff's motion
was filed. Defendants contest that they have acted in concert.
insiders might have an effect on stock prices. Nonetheless, the parties
included no contractual
limitations on insider sales, which they certainly could have done had they
believed it necessary.
The primary argument that Plaintiff advances for not allowing
Defendants to sell any of its
stock is to preserve the possibility of a rescission remedy. Were Defendants
allowed to sell their
stock, Plaintiff argues that it would be harmed to the extent that it is
deprived of that potential
remedy. The Court, however, is skeptical that rescission was ever a reasonable
remedy. Given the
nature of the transactions and the changes in he condition of the contributed
assets since the merger
was consummated, it would be difficult, if not impossible to undo the
transaction. For example,
while the parties may squabble as to the actual value of WWCD as an ongoing
business prior to the
merger, the Court has not doubt that it had significantly more value than it
has now. Given the shell
of WWCD back to Kramer in exchange for his stock in SOLD would not place the
parties back into
the position in which they began.
As Defendants also note, Plaintiff is not seeking a full rescission,
but simply a partial one.
Plaintiff has expressed no willingness to undo the Rotman side of the
transaction. While not
absolutely ruling out, at this time, the possibility of some modified form of
rescission as an equitable
remedy, the Court is not convinced that the preservation of that remedy is
sufficient grounds upon
which to grant the requested injunction.
On the Defendants' side of the damage equation, Defendants argue that
unless they are able to
sell some of their stock, they will be without the means to fund their defense
of this litigation.
Judging just from the preliminary injunction proceedings, it is readily
apparent that this litigation
will be fiercely fought, exceedingly protracted, and terribly expensive. The
evidence presented at the
hearing also indicates that proceeds from the sale of a portion of Defendants'
SOLD stock is the only
significant asset that could be made available to either Defendant to pay for
the defense of the claims
against them.
The Court concludes that the balance of harms, if not in equipoise,
probably tips in favor of
Defendants, and thus, Plaintiff bears a higher burden showing a likelihood of
success on the merits.
This burden, the Court finds, Plaintiff has not met.
The likelihood of success on the merits is the most interesting
aspect of this motion. Rarely are
such diametrically opposed versions of a single series of events presented to
the Court. The parties
flatly contradict one another as to almost every significant aspect of the
transaction. Plaintiff
presented its case primarily through the testimony of Greg Rotman and Abba
Poliakoff, the attorney
retained to represent the interests of the Rotmans, Stengel, and Kramer in
this transaction and to
create the documentation supporting the transaction.(2) Defendants presented
their case primarily
through their own testimony.
Rotman and Poliakoff claim, and Stengel disputes, that Stengel made
certain representation
about the revenues, client base, and assets of WWCD. Rotman and Poliakoff also
claim never to
have heard many of the things that Stengel asserts that he told them regarding
his other business
interests and the use of SOLD personnel for those other enterprises. In
additional, the parties
disagree as to the reasonable assumptions that should have been made about the
transaction that
formed SOLD, e.g., what clients, intellectual property, and employees were to
come over with
WWCD into the new entity.
The Court's determination of the likelihood of success on the merits
turns, therefore, in larger
part on the Court's assessment of the credibility of the witnesses. In
assessing credibility, the Court
finds problems in both camps. Mr. Stengel has demonstrated a propensity to
fabricate information
whenever convenient. He has employed several aliases and established a pattern
of
- -------------------------
(2) Poliakoff considered his client to be "Internet Auction, Inc." and
its
shareholders. Internal Auction, Inc. was a company formed by the
Rotmans, Stengel and Kramer that was rolled into the entity that
became
SOLD.
registering domain names to fictitious companies and individuals. Many
elements of his narrative
are simply difficult to believe. While perhaps not quite as numerous, there
are elements of the
Rotmans' story that also do not ring true. For example, Greg Rotman testified
that he initially
believed that SOLD had purchased the "Internet Collectable Awards" website
along with the assets
of WWCD. He also testified, however, that when he learned from Stengel that
SOLD did not own
the site, he simply instructed Stengel to negotiate a sale whereby SOLD paid
$50,000 plus 200,000
shares of SOLD stock for something Rotman had thought SOLD already owned. That
course of
conduct is not particularly consistent with Greg Rotman's portrayal of himself
as a sophisticated and
thorough businessman. The Rotmans' justification of a raid that they
conducted on Stengel's office
while Stengel was on his honeymoon also appears somewhat pretextual.
Beyond general concerns about credibility, the Court finds that one
of the central elements of
Plaintiff's claims is largely unsupported by the evidence developed thus far,
that is, the materiality of
the alleged misrepresentations of Stengel. The current record reveals a
picture of four individuals
and their counsel who were incredibly anxious to get the deal done because
they all stood to make a
great deal of money. The parties and their counsel rushed to closing with
little or no consideration
for due diligence. Whether WWCD had $100,000 in annual revenues or $200,000,
or $50,000, did
not make a critical difference to anyone. As Defendants note, the fact that
most of the details that
Plaintiff now represents as so important were completely omitted from the
documentation associated
with the transaction, is indicative of their lack of materiality. Rescission.
This is not to say that Plaintiff may not be able to develop, through
additional discovery and
evidence, a fraud claim that would allow it to prevail on a claim for some
damages. But, there is
simply not enough evidence at this stage of the litigation to support the
extraordinary remedy of a
preliminary injunction.(3)
As to Defendant Stengel's motion for preliminary injunction,
Plaintiff argues that the motion is
futile. "Should the Court deny plaintiff's requested injunction, defendant
Stengel will be free to sell
or otherwise dispose of his shares of SOLD common stock in accordance with the
applicable statutes and federal securities regulations." Plaintiff's Opp. To
Stengel's motion at 2-3.
While this might be true, theoretically, Plaintiff appears to have been able
to frustrate any further
sales by Stengel and Kramer notwithstanding the lack of injunctive relief from
this Court.
Thus, for the same reasons that the Court will deny Plaintiff's
motion, it will grant Defendant
Stengel's motion, at least in part. The Court shall issue an order enjoining
Plaintiff from continuing
to prevent Defendants from selling stock consistent with SEC Rule 144. The
Court, however, will
not disturb the finding of Plaintiff's corporate counsel that Defendants
Stengel and Kramer are acting
"in concert" in the disposition of their shares. The evidence clearly supports
such a finding.(4)
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(3) Both Stengel and Kramer have filed motions to dismiss certain claims
brought against against them. Paper No. 33 (Stengel's) and No. 35
(Kramer's). While the motions are not without some merit, the Court
cannot conclude at this juncture that "it appears beyond doubt that
the
plaintiff can prove no set of facts in support of [its claims] which
would entitle [it] to relief." CONLEY V. GIBSON, 355 U.S. 41, 45-46
(1957). The motions will be denied.
(4) Stengel asserted in one of her pleadings that the Rule 144
restriction
will lift entirely two years after the date of the Plan of
Reorganization. Stengel Opp. to Motion for Preliminary Injunction at
12.
At oral argument, there was some question as to whether that was an
accurate conclusion. As the issue of the applicability of Rule 144 is
only before this Court in a peripheral manner, the Court expresses no
binding opinion as to whether Rule 144 is still applicable. The Court
simply holds that Plaintiff cannot use the pendency of this action as
grounds for preventing Defendants from selling shares of SOLD.
The Court will also order that a telephone scheduling conference be
held in this matter on
March 28, 2001, at 9:15 a.m., to be initiated by counsel for Plaintiff.(5) The
parties should be
prepared at that time to advise the Court what remains to be done to prepare
this case for trial.
/s/ WILLIAM M.
NICKERSON
-----------------------
-------------
William M.
Nickerson
United States
District Judge
Dated: March 19, 2001.
---------
(5) On January 17, 2001, the Court suspended its Scheduling Order pending
the completion of the preliminary injunction proceedings.
9
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
SALES ONLINE DIRECT, INC. :
:
v. : Civil Action
No. WMN-00-1621
:
MARC STENGEL, et al. :
:
ORDER
In accordance with the foregoing Memorandum and for the reasons
stated therein; IT IS this
19th day of March, 2001, by the United States District Court for the District
of Maryland,
ORDERED:
1. That Plaintiff's Motion for Preliminary Injunction, Paper No. 22,
is hereby DENIED;
2. That Defendant Stengel's Motion for Preliminary Injunction, Paper
No. 27, is hereby
GRANTED insofar as Plaintiff, its officers, directors, shareholders, agents,
servants and employees
are enjoined from blocking, preventing, or interfering with any sale of stock
by Defendants
consistent with SEC Rule 144 during the pendency of this action;
3. That Defendant Stengel's Motion to Dismiss, Paper NO. 33, is
hereby DENIED;
4. That Defendant Kramer's Motion to Dismiss, Paper No. 35, is hereby
DENIED;
5. That a telephone scheduling conference will be held in this matter
on March 28, 2001, at
9:15 a.m., to be initiated by counsel for Plaintiff; and
6.That the Clerk of the Court shall mail or transmit copies of the
foregoing Memorandum and
this Order to all counsel of record.
/s/ WILLIAM M. NICKERSON
-----------------------------
--------
William M. Nickerson
United States District Judge