Weather Underground, Incorporated v. Navigation Catalyst Systems, Incorporated et al

Filing 205

RESPONSE to 189 MOTION for Partial Summary Judgment filed by Weather Underground, Incorporated. (Attachments: # 1 Index of Exhibits, # 2 Exhibit A, # 3 Exhibit B, # 4 Exhibit C, # 5 Exhibit D, # 6 Exhibit E, # 7 Exhibit F, # 8 Exhibit G, # 9 Exhibit H, # 10 Exhibit I, (Schaefer, Enrico) Modified on 8/17/2011 (DWor). [EXHIBITS D THROUGH I ARE SEALED PURSUANT TO 208 ]

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MICHIGAN
THE WEATHER UNDERGROUND, INC.,
a Michigan corporation,
Plaintiff,
vs.
NAVIGATION CATALYST SYSTEMS,
INC., a Delaware corporation;
CONNEXUS CORP., a Delaware
corporation; FIRSTLOOK, INC., a
Delaware corporation; and EPIC
MEDIA GROUP, INC., a Delaware
corporation;

Case No. 2:09-CV-10756
Hon. Marianne O. Battani

Defendants.
______________________________________________________________________
Enrico Schaefer (P43506)
Brian A. Hall (P70865)
TRAVERSE LEGAL, PLC
810 Cottageview Drive, Unit G-20
Traverse City, MI 49686
231-932-0411
[e-mail]
[e-mail]
Lead Attorneys for Plaintiff
Anthony P. Patti (P43729)
HOOPER HATHAWAY, PC
126 South Main Street
Ann Arbor, MI 48104
734-662-4426
[e-mail]
Attorneys for Plaintiff

Nicholas J. Stasevich (P41896)
Benjamin K. Steffans (P69712)
Bruce L. Sendek (P28095)
BUTZEL LONG, PC
150 West Jefferson, Suite 100
Detroit, MI 48226
[phone]
[e-mail]
[e-mail]
[e-mail]
Local Counsel for Defendants

William A. Delgado (admitted pro hac vice)
WILLENKEN WILSON LOH & LIEB LLP
707 Wilshire Boulevard, Suite 3850
Los Angeles, CA 90017
[phone]
[e-mail]
Lead Counsel for Defendants
______________________________________________________________________
PLAINTIFF’S RESPONSE TO DEFENDANT EPIC MEDIA GROUP, INC’S
MOTION FOR SUMMARY JUDGMENT

TABLE OF CONTENTS
Table of Contents .............................................................................................................ii
Table of Authorities ......................................................................................................... iii
Statement of Facts .......................................................................................................... 1
Standard of Review ......................................................................................................... 6
Law and Argument .......................................................................................................... 6
A. A Reverse Triangle Merger Is a De Facto Merger if Designed to
Disadvantage Creditors................................................................................... 6
B. The Combination of Epic and Connexus is a De Facto Merger....................... 8
C. Epic Has Used the Domains under the ACPA as agent or alter ego of
Connexus ...................................................................................................... 11
D. Plaintiff’s Allegations of Civil Conspiracy Are Sufficient to
To State a Claim ........................................................................................... 14
E. Alternatively, Plaintiff Should Be Permitted to Proceed Against Epic
After Liability Is Established Against the Connexus Defendants ................... 15
Conclusion .................................................................................................................... 17

ii

TABLE OF AUTHORITIES
Cases
Albert v. Alex. Brown Mgmt. Services, Inc., CIV.A. 762-N,
2005 WL 2130607 (Del. Ch. Aug. 26, 2005) .............................................................. 12
Children’s Orchard, Inc. v. Children’s Orchard Store No. 142, Inc.,
10-10143, 2010 WL 2232440 (E.D. Mich. May 28, 2010) .......................................... 12
Chrysler Corp. v. Ford Motor Co., 972 F. Supp. 1097, 1110 (E.D. Mich. 1997) .......... 8, 9
DeWitt v. Sealtex Co., Inc., 273387, 2008 WL 2312668
(Mich. Ct. App. June 5, 2008)....................................................................................... 6
First Presbyterian Church of Ypsilanti v H.A. Howell Pipe Organs,
2010 WL 419972 at 8 (E.D. Mich Feb.1 2010) ........................................................... 13
Foster v. Cone-Blanchard Machine Co., 460 Mich. 696, 702-703,
597 N.W.2d 506 (1999) ................................................................................................ 6
Hawkins v. Anheuser-Busch, Inc., 517 F. 3d 321, 332 (6th Cir. 2008) ............................. 6
In re McKesson HBOC, Inc. Sec. Litig., 126 F. Supp. 2d 1248, 1277
(N.D. Cal. 2000) ........................................................................................................... 7
Laborers’ Pension Trust Fund v. Lange, 825 F. Supp. 171, 176 (E.D. Mich. 1993) ...... 12
Orzeck v. Englehart, 195 A.2d 375, 378 (Del.Supr.1963) ............................................... 7
Phoenix Canada Oil Co. v. Texaco, Inc., 842 F.2d 1466, 1477 (3d Cir. 1988).............. 12
United States v. Gen. Battery Corp., Inc., 423 F.3d 294, 307-08 (3d Cir. 2005) ........... 10
Statutes
Fed. R. Civ. P. 56(a)........................................................................................................ 6
Other Authorities
Restatement (Second) of Agency § 14M, cmt. (a) (1958) ............................................. 12

iii

NOW COMES Plaintiff, The Weather Underground, Inc. (hereafter “Plaintiff”), by
and through its counsel, Traverse Legal, PLC, and responds to Defendant Epic Media
Group, Inc’s Motion for Summary Judgment as follows:
STATEMENT OF FACTS
Epic Media Group, Inc. (“Epic”) claims that the merger between it and Connexus
is a reverse triangular merger which allows Epic to escape any liability for the sins of
Connexus and its wholly owned subsidiaries, Defendants FirstLook and Navigation
Catalyst Systems (NCS).

Connexus is and was set up as a shell populated with

subsidiary companies to engage in business which includes its illegal cybersquatting
activities. Connexus engages in no business of its own and generates no revenue other
than what it receives through ownership of its subsidiaries. (See generally Exhibit A, Art
Shaw deposition, pp. 15-30, 70-73, 90-91, 108-109.) NCS is simply a corporate shell
with no employees that is a registrant of domain names, and FirstLook supplies
personnel to select and register the domain names and populate the parking pages with
advertisements to monetize the domains. (See generally Dkt. No. 131, Plaintiff’s Motion
for Joinder, pp. 7-11.) Epic was well aware from its pre-merger due diligence of both
the cybersquatting scheme and this pending lawsuit when it decided to merge with
Connexus and its subsidiaries. (See generally Exhibit A, Art Shaw deposition, pp. 8083.)
Despite the labels Epic places on the transaction and its insistence the
companies have not merged, the transaction between Epic and Connexus remains, in
fact, a merger of the two companies. Although Epic set up an intermediary company

specifically for the merger, Emerald Acquisition One Corporation, to effect the
combination of the companies as a “reverse triangular merger,” the transaction is and
remains publically announced as a merger of Epic and Connexus. (See Exhibit B,
Merger announcements.) Connexus shareholders exchanged their stock for stock in
Epic, and Connexus stockholders are now Epic stockholders. (See Exhibit C,
Deposition of David Graff, p. 107, and Exhibit A, Deposition of Art Shaw p. 53.) The
result is that Connexus shareholders own Epic stock, and Epic owns a single share of
Connexus stock and is the sole stockholder of Connexus. (See Exhibit C, Deposition of
David Graff, p. 104.) The Epic Board of Directors, under the Merger Agreement, has
four Epic members and three Connexus members. (See Exhibit A, Deposition of Art
Shaw, p. 59.)
Epic labels the transaction a merger for public purposes and it has the indicia of
a merger, but it is recast as an acquisition of Connexus by Epic when convenient for
Epic. The final round of discovery on the merger established more of the same hide the
ball attitude from Defendants concerning the true nature of the transaction. Art Shaw
was the CEO of Connexus prior to the merger and became the sole CEO of Epic at the
time of merger, but does not know if he also remained the CEO of Connexus or any of
its subsidiaries after the merger. (See Exhibit A, Deposition of Art Shaw, pp. 49, 61, 71.)
Mr. Shaw did not know whether there was a Connexus board of directors after the
merger or whether Connexus or any of its subsidiaries conducted Board meetings after
the merger. (See Exhibit A, Deposition of Art Shaw, p. 49, 61.) House counsel for the
combined Connexus/Epic company and the individual named by Epic as most
2

knowledgeable concerning the merger, David Graff, opined and testified that after the
merger “it was essentially Art Shaw who did double-duty as the CEO of the combined—
of Epic Media Group or Epic Advertising and also of Connexus.” (See Exhibit C,
Deposition of David Graff, p. 57.) Graff “believes” Graff and Epic President Don Mathis
were “essentially” the Board of Directors for Connexus and all its subsidiaries including
FirstLook after the merger. (See Exhibit C, Deposition of David Graff, pp 57-58, 60-61.)
Graff testified that he and Don Mathis were “probably” the directors of NCS after the
merger. (See Exhibit C, Deposition of David Graff, p. 61.) The effort to evade liability for
the illegal activity of Connexus is so complex even the CEO and Corporate counsel are
unsure of the corporate structure utilized to orchestrate Epic’s hide from liability
scheme.
Nevertheless, it is undisputed corporate formalities have been ignored and there
have been no Board of Directors meetings for Connexus or the Connexus subsidiaries
post merger, only Epic Board of Directors meetings, (See Exhibit C, Deposition of David
Graff, p. 61-62.) which then begs the question: who’s overseeing the Connexus side
companies? As the person most knowledgeable of the Epic/Connexus merger and in
his Rule 30(b)(6) deposition, David Graff was asked whether it was his position that
Epic, in fact, controls all of its subsidiaries through its own governance structure and
board of directors, and he explained, “whatever control a parent company can exercise
over a wholly owned subsidiary, that’s the type of control Epic can exercise over its
subsidiaries.” (See Exhibit C, Deposition of David Graff, p. 61.) In other words, Epic
controls Connexus and its subsidiaries to the fullest extent possible whatever that might
3

be. Epic ignores corporate formalities on the Connexus side, such as conducting board
meetings, and simply exercises direct control over Connexus and its subsidiaries
without believing it has any accountability for liabilities and while reaping the benefits of
Connexus side subsidiary revenue and assets. (See Exhibit C, Deposition of David
Graff, p. 61-62.) It was ultimately acknowledged by Mr. Graff that Epic and Connexus
were conceptually “a combined enterprise” (See Exhibit C, Deposition of David Graff,
p. 82.), and by Mr. Shaw that they were a “combined consolidated entity.” (See Exhibit
A, Deposition of Mr. Shaw, p. 112.)
Connexus is Epic. In December 2009, during merger discussions, Connexus
had 8.5 million dollars of cash on hand, and when the merger agreement was executed
in March 2010, Connexus had 6.8 million dollars in cash (See Exhibit D, Epic Board
Meeting Presentation dated June 2, 2010, Slide 29.); however, immediately upon
merger (within one week) Epic utilized cash from Connexus to fund significant joint
expenses, including a 2.9 million dollar judgment against Epic, and the combined entity
paid a 1.5 million dollar merger fee owed as a result of the merger, leaving Connexus
with $360,000 cash at the end of June 2010, less than one month after the merger.
(See Exhibit E, Epic Board Meeting Presentation dated July 29, 2010, Slides 19 and
20.) The most recent accounting of cash on hand in its bank account produced for
Connexus is $91,047.54, which means that Epic’s cash grab from Connexus has made
Connexus a cash poor company and potentially unable to fund a significant judgment
against it, which was not the case pre-merger before Epic raided Connexus assets.
(See Exhibit D, Epic Board Meeting Presentation dated June 2, 2010, Slide 29.) The
4

most recently provided Epic consolidated balance sheet shows a negative cash position
for Connexus of $573,149.00. (See Exhibit F, Epic Media Group, Inc. consolidated
balance sheet April 30, 2011.) It is of little consequence that Epic will claim it “owes”
Connexus the money back, Connexus is cash poor as well. (See Exhibit F, Epic Media
Group, Inc. consolidated balance sheet April 30, 2011.) As a result of the merger, Epic
also intends to claim past operating losses of Connexus on its tax returns to reduce
Epic’s own income for the sole benefit of Epic, though Mr. Shaw views Epic and
Connexus as “consolidated” entities. (See Exhibit A, Deposition of Art Shaw, pp. 92-93,
112.) Even the internal Epic Board of Directors’ presentations post-merger continue to
call the deal a merger between the companies! (See Exhibit G, Epic Board Meeting
Presentation dated July 29, 2010, Slide 5.)
Despite labels and despite the temporary maintenance of separate bank
accounts and payrolls, there is no doubt that Connexus and its named subsidiary
Defendants in this case, FirstLook and NCS, are controlled by Epic and being operated
for the benefit of Epic and without regard to whether Connexus may potentially be
subject to a large judgment. There is no loss reserve established or set aside for
Connexus to pay a judgment in this case (See Exhibit A, Deposition of Art Shaw, pp 8283, and Exhibit C, Deposition of David Graff. pp. 44-45.) Epic was aware of the history
of illegal cybersquatting activities of Connexus and its subsidiaries, as well as this
lawsuit, when it decided to merge with Connexus. Significantly in this case, the
post-merger Epic controlled Connexus continues to hold domains which are
cybersquatting Plaintiff’s trademarked names for which Epic should be held accountable
5

as the controlling entity of Connexus and its subsidiaries. (See Exhibit H, cybersquatted
Connexus domain registrations which continue to be held post merger.) Even the latest
limited discovery performed concerning the issue of the recent Epic/Connexus merger
has identified numerous issues of fact that suggests Epic is, in fact, the alter ego and/or
successor in interest to Connexus and should remain as a party Defendant subject to
potential accountability for both the past and present actions of Connexus and its
subsidiaries.
STANDARD OF REVIEW
Summary Judgment under Rule 56 is only appropriate where there is no genuine
issue of material fact. Fed. R. Civ. P. 56(a). The Court must construe all the evidence
and draw all reasonable inferences in favor of the non-moving party. Hawkins v.
Anheuser-Busch, Inc., 517 F. 3d 321, 332 (6th Cir. 2008).
LAW AND ARGUMENT
A.

A Reverse Triangular Merger is a De Facto Merger if Designed to
Disadvantage Creditors

The traditional rule of successor liability examines the nature of the transaction
between the companies. If the acquisition is accomplished by merger, with shares of
stock serving as consideration, the successor generally assumes all its predecessor’s
liabilities. DeWitt v. Sealtex Co., Inc., 273387, 2008 WL 2312668 (Mich. Ct. App. June
5, 2008) (citing Foster v. Cone-Blanchard Machine Co., 460 Mich. 696, 702-703, 597
N.W.2d 506 (1999)). Absent the use of an intermediary corporation wholly owned by
Epic, Emerald Acquisition One, this transaction was effected through an exchange of
6

stock whereby Connexus shareholders ultimately received Epic stock for the purchase
of Connexus. It is not any surprise, given the history of cybersquatting claims and
trademark infringement against Connexus, that Epic would search for a vehicle to evade
successor liability in the form of the reverse triangular merger for the potentially
significant liabilities of Connexus and its cybersquatting subsidiaries.
Nevertheless, a reverse triangular merger will not serve to insulate a successor
from liability if it was structured to disadvantage creditors.
“[A] ‘reverse triangular merger’ of the sort performed here (merger of the
target with a specially formed subsidiary of the acquirer, which then
becomes the sole shareholder of the newly merged subsidiary), does not
effect a ‘de facto’ merger unless the transaction has been structured to
disadvantage creditors or shareholders.” In re McKesson HBOC, Inc. Sec.
Litig., 126 F. Supp. 2d 1248, 1277 (N.D. Cal. 2000) (citing Orzeck v.
Englehart, 195 A.2d 375, 378 (Del.Supr.1963)).
It is evident an issue of fact exists as to whether this transaction was effected to
disadvantage creditors, including the Plaintiff in this case. Virtually all of Connexus’s
significant cash reserves were drained within one week after the merger to pay merger
costs and a 2.9 million dollar judgment against Epic! Connexus’s cash position went
from over six million dollars at the time of merger to virtually nothing immediately
thereafter and most recently sits at $91,047.54 according to the most recent bank
balance received May 1, 2001 (See Exhibit I, Connexus Bank account ledger.) On its
face this transaction was designed to disadvantage the Plaintiff, who had a potential
existing claim exceeding 28 million dollars against Connexus and its subsidiaries at the
time of the merger ($100,000.00 maximum statutory damages under the ACPA for
registering or tasting 288 infringing domains). It is beyond credible explanation Epic
7

could justify acquiring Connexus, a company with large liability exposure in this case,
without making a significant effort to insulate itself from liability, reap the immediate
financial rewards of the deal by siphoning off all the cash and utilizing carryover tax
losses of Connexus, and potentially frustrating Plaintiff The Weather Underground from
eventually collecting on a large judgment from Connexus. The limited discovery which
has occurred after Epic was recently brought into this case creates issues of fact
whether Epic designed the merger as a reverse triangular merger to reap its own
immediate financial rewards and to disadvantage creditors including the Plaintiff in this
case.
B.

The Combination of Epic and Connexus Is a De Facto Merger

Under Eastern District of Michigan precedent, “where the two companies merge
in effect, if not formally, the resulting corporation takes on the liabilities of both.”
Chrysler Corp. v. Ford Motor Co., 972 F. Supp. 1097, 1110 (E.D. Mich. 1997). Thus,
had Epic merely merged with Connexus, the newly formed company would have taken
on the liabilities of Connexus. Instead, Epic formed the Emerald Acquisition One
Corporation, an intermediary to combine the companies in what they label a reverse
triangular merger, which Epic claims allows it to evade any Connexus side liabilities but
reap any and all benefits it desires from Connexus. Epic’s position is that even though
Connexus shareholders became Epic shareholders, and the transaction left one share
of Connexus stock for itself, that Connexus remains an independent company
responsible for its own liabilities, and no merger occurred.
The reality is that Epic constitutes the product of a de facto merger of Epic with
8

the merged Connexus under Michigan law. The requirements for de facto merger under
Michigan law are:
1. Continuation of the enterprise of the seller corporation, with continuity of
management, personnel, physical location, assets, and general business
operations;
2. Continuity of shareholders, resulting from the purchasing corporation’s use of its
own stock to purchase acquired assets;
3. The seller corporation must cease ordinary business operations, liquidate and
dissolve as soon as legally and practically possible; and
4. The purchasing corporation must assume the liabilities and obligations of the
seller necessary for the uninterrupted continuation of normal business operations
of the seller.
Id. at 1111.
As to the first element it is acknowledged and asserted by Epic in its Motion the
corporate entity Connexus continues to exist as before absent some reduction in
personnel to avoid a duplicity of positions in the merged operations as indicated in
Defendant Epic’s brief. As to the second element, Epic used its own stock to purchase
Connexus providing Epic stock to Connexus shareholders. Epic claims in its Motion for
Summary Judgment that Plaintiff cannot prove elements Number Three and Number
Four, required to establish a de facto merger.
The third element requires that the seller corporation, in this case Connexus,
must cease ordinary business operations, liquidate as soon as possible and dissolve.
Nevertheless, the “business” of Connexus was and is simply the ownership if its
subsidiary companies and as such has no actual commercial business operations to
wind up and cease. This is true even though Epic notes in its Motion that Connexus
continues to maintain bank accounts and a payroll for the benefit of the business
operations of its subsidiary companies. The fact is that Connexus continues to be the
9

parent shell company with no real business activity of its own other than to own its
subsidiaries which is not a commercial business activity. If Epic were to simply assume
the payroll activities of Connexus there would be NO change in the business of
Connexus because Connexus conducts no commercial business activity. A shell
company cannot have ordinary business operations and there is no third prong to meet
in this case. United States v. Gen. Battery Corp., Inc., 423 F.3d 294, 307-08 (3d Cir.
2005). There is no third element of the cessation of business activity required in this
case to meet the test of a de facto merger because there is no commercial business
activity.
The fourth element for a de facto merger requires the purchasing corporation, in
this case Epic, to assume the liabilities and obligations of the seller necessary for the
uninterrupted continuation of normal business operations of the seller company. But if
the seller company, as in this case, has no actual business operations and its primary
function is simply as a repository of revenue and payroll manager of its subsidiary
companies who conduct the actual commercial business activities in the marketplace,
then there is no fourth element in this case to meet. It would be disingenuous to
suggest that Epic could have the benefit of millions of dollars of Connexus cash from
the Connexus shell and actually generated by the Connexus side subsidiaries, together
with unused carryover tax losses, and then claim it had no responsibilities for the
assumption of any of the liabilities of Connexus. The only activity required of Epic to
assume for the uninterrupted continuation of Connexus to meet the fourth element is a
payroll function and the accounting of revenues generated by its subsidiaries.
10

Connexus has no commercial business activity of its own and even if it did Epic controls
the operations of Connexus to the extent that “whatever control a parent company can
exercise over a wholly owned subsidiary, that’s the type of control Epic can exercise
over its subsidiaries.” (See Exhibit C, Deposition of David Graff, p. 61.). There are no
liabilities per se for Epic to assume because Connexus has no business of its own.
C.

Epic Has Used the Domains under the ACPA as agent or Alter Ego of
Connexus

Epic devotes a significant part of its Motion attempting to convince the Court it
was not around at the time of the alleged wrong on the Connexus side, because the
domain registrations occurred prior to the merger. That analysis ignores the applicable
law. The ACPA requires either 1) registration, 2) trafficking in, or 3) use of a domain
name. Although Connexus has not registered any infringing domains after the merger,
it continues to use and traffic in violation of Plaintiff's trademarks. Epic controls
Connexus. FirstLook and NCS through Connexus employees have continued to traffic
and use domain names which infringe on Plaintiff's trademarks even after the merger.
Epic claims it is now the parent company of Connexus and by its own admission
exercises maximum control over Connexus and its subsidiaries, making it liable for the
acts of Connexus even under simple agency principles.
“[W]hile one corporation whose shares are owned by a second corporation does
not, by that fact alone, become the agent of the second company, a corporationcompletely independent of a second corporation-may assume the role of the second
corporation's agent in the course of one or more specific transactions. This restricted
agency relationship may develop whether the two separate corporations are parent and
subsidiary or are completely unrelated outside the limited agency setting. Under this
second theory, total domination or general alter ego criteria need not be proven.” Albert
v. Alex. Brown Mgmt. Services, Inc., CIV.A. 762-N, 2005 WL 2130607 (Del. Ch. Aug.
11

26, 2005) (citing Phoenix Canada Oil Co. v. Texaco, Inc., 842 F.2d 1466, 1477 (3d Cir.
1988); (Restatement (Second) of Agency § 14M, cmt. (a) (1958)).
Clearly, Epic is fully aware of the domain name assets held by Connexus (it produced
them recently in discovery). Epic controls Connexus. Connexus continues to hold the
infringing domain name registrations through its subsidiary NCS and therefore Epic
must also be liable under the ACPA because it controls Connexus and its subsidiaries
and has done nothing to purge the infringing domains.
Additionally, Epic remains liable as an alter ego of Connexus post merger. Epic
is the alter ego of Connexus and may be liable for the actions of Connexus. Under
Michigan law, “the actions of one defendant may be attributed to another where one is
the ‘alter ego’ of the other, for example, in a subsidiary-parent corporation relationship.”
Children’s Orchard, Inc. v. Children’s Orchard Store No. 142, Inc., 10-10143, 2010 WL
2232440 (E.D. Mich. May 28, 2010). “Proof of a corporate alter ego relationship requires
that the two enterprises ‘have substantially identical management, business, purpose,
operation, equipment, customers, supervision, and ownership.” Id. (citing Laborers’
Pension Trust Fund v. Lange, 825 F. Supp. 171, 176 (E.D. Mich. 1993)). There is little
question the entities have the same management, and the merger announcements
make it clear the two enterprises have substantially the same ownership and business
purposes. (David Graff “believes” that he and Epic CEO Donald Mathis make up the
Board of Directors of the Connexus companies (though no meetings are held)). (See
Exhibit C, Deposition of David Graff, p. 57-58.) Under either an agency or alter ego
analysis, Epic is liable under the ACPA as the entity controlling the actions of Connexus
and its subsidiaries for the continuing use of the infringing domain names.
12

As indicated in Epic’s Brief in Support of its Motion, corporate veils will be pierced
only to prevent fraud or injustice. First Presbyterian Church of Ypsilanti v H.A. Howell
Pipe Organs, 2010 WL 419972 at 8 (E.D. Mich Feb.1 2010). To succeed on an alter
ego claim and pierce the corporate veil, a plaintiff must establish the existence of three
elements: the corporate entity must be a mere instrumentality of another; the corporate
entity must be used to commit a fraud or wrong; and there must have been an unjust
loss or injury to the plaintiff. Id. Connexus has always existed as a shell company used
to shield itself from liability of its cybersquatting subsidiaries while reaping the monetary
benefits both before and after the merger with Epic. Epic was aware of the fraudulent
schemes of Connexus going into the merger discussions and was fully aware of the
schemes as outlined in this Plaintiff’s Complaint. Epic cannot deny it siphoned off the
cash assets of Connexus as are result of the merger and has acknowledged it exercises
the full amount of control over Connexus allowed by law, whatever that is, though it
actually exercises total control without observing basic corporate formalities such as
conducting Board Meetings for Connexus and its subsidaries. All of these factors taken
together clearly suggest that the Connexus merger was the best way to preserve
Connexus shareholder value and insulate them from a large lawsuit judgment. If
Connexus goes bankrupt, the former Connexus shareholders who now own only Epic
stock are in a far better position financially than if the merger had not occurred.
Whether measured from the standpoint that Epic acquired Connexus to reap the
immediate cash and tax benefits of the transaction to the detriment of creditors, or that
Connexus continues to possess infringing domains of Plaintiff’s while being controlled
13

by Epic, or that the reverse triangular merger was the best way to mitigate the
potentially adverse affects of a large judgment against Connexus and its former
shareholders who are now Epic shareholders, Epic should remain a defendant in this
lawsuit to share the potential liability for those wrongs. Plaintiff has raised sufficient
issues of material fact to sustain its claims against Epic for the wrongs of Connexus
under agency or alter ego theories of liability.
D.

Plaintiff’s Allegations of Civil Conspiracy Are Sufficient to State a
Claim

Defendant Epic argues that, because it is entitled to summary judgment on all
substantive counts that, the conspiracy claim must be dismissed. As has been
indicated, issues of fact remain on all substantive counts, and there is no basis to
dismiss the conspiracy claim. Plaintiff’s conspiracy claims are sufficiently plead to
withstand Summary Judgment, and there is sufficient evidence of conspiratorial conduct
in raiding the cash from Connexus immediately upon merger and continuing to maintain
registered infringing domain registrations by the combined entity post-merger. There is
no loss reserve to pay a judgment in this case nor did Epic ask during due diligence that
a loss reserve be established for these claims. Although the Epic CEO and Corporate
Counsel didn’t know much in deposition it was acknowledged Epic controls Connexus.
For all of these reasons the conspiracy claims must survive Epic’s Motion for Summary
Judgment.

14

E.

Alternatively, Plaintiff Should Be Permitted to Proceed Against Epic
After Liability Is Established Against the Connexus Defendants
After Epic was joined as a Defendant in this case earlier this year, Plaintiff

took the deposition of the Epic/Connexus CEO and Epic corporate counsel as
the person most knowledgeable concerning the merger. Consistent with the
theme throughout the case, those two deponents had little knowledge of anything
relevant concerning the transaction. It simply isn’t credible the Connexus CEO
who became the Epic CEO after the merger, Art Shaw, did not know if he
remained the CEO of Connexus and its subsidiaries after the merger, whether
there was a Connexus Board of Directors after the merger, or whether Connexus
or its subsidiaries ever conducted any Board Meetings after the merger. (Exhibit
A, Deposition of Art Shaw, pp. 46, 49, 61, 71.) The Chief Executive Officer, Mr.
Shaw, testified he had no idea whether he was a Director of NCS and who
composed the Board of Directors of the Connexus subsidiaries pre-merger
(Exhibit A, Deposition of Art Shaw, pp. 43-45.) Mr. Shaw would not even
acknowledge he or the other shareholders received Epic stock as part of the
merger and would only say he “believes” he owns Epic stock (Exhibit A,
Deposition of Art Shaw, p. 54.) Mr. Shaw testified he could not say whether he
received his paychecks from Connexus, but also did not know whether any
Connexus subsidiaries issued any paychecks (Exhibit A, Deposition of Art Shaw,
p. 40.) Mr. Shaw believes there were people employed by Connexus
subsidiaries FirstLook and Traffic Marketplace but did not know which entity
15

issues paychecks or if NCS had any employees (Exhibit A, Deposition of Art
Shaw, p. 40.)
The person most knowledgeable concerning the Connexus/Epic merger,
David Graff, was equally elusive in answering questions offering that he
“believes” he and Epic President Don Mathis were “essentially” the new Board of
Directors for Connexus and its subsidiaries and that he and Don Mathis were
“probably” the directors of NCS after the merger. It was acknowledged that there
have been no Board Meetings of any Connexus side entity since the merger but
that whatever control can be exercised that is the control Epic exercises over
Connexus (Exhibit C, Deposition of David Graff, pp. 57-58,61-62.)
It has become abundantly clear that there are no straight answers in this
case from any Defendant witness, including now Epic, which is not altogether
surprising when the truth is neither convenient nor favorable for these
Defendants. The recent limited discovery with Epic suggests it will continue to be
difficult to obtain the clear answers to even simple questions concerning the
merger and operations of Connexus and Epic. If the Court is at all inclined to
determine there are not sufficient issues of fact to sustain claims against Epic at
this stage of the proceedings, Plaintiffs believe a reasonable solution is to allow a
bifurcated trial to allow Plaintiff to establish liability against the Connexus
Defendants and thereafter conduct a trial on these issues of Epic liability after
further discovery. It would be unjust to allow Epic to claim it did not actually
merge but it simply acquired Connexus in the middle of the case, evade salient
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questions to perpetuate the myth that no actual merger occurred and therefore
Epic acquired no liability, siphon off assets of Connexus to the detriment of
Plaintiff, and then escape liability on the merits via summary judgment.
Preserving potentially valid claims against Epic by means of a bifurcated trial
after further discovery or other reasonable alternative is appropriate given the
history of this case.
CONCLUSION
A reverse triangular merger cannot be used as a means to frustrate creditors as
it has in this case. Although a reverse triangular merger in name, the Epic/Connexus
combination was a de facto merger in which Epic controls Connexus and should be
required to assume its liabilities. Epic, as the entity in control of Connexus and its
subsidiaries, is liable as a user of the infringing domain names under the ACPA.
Finally, Plaintiff has sufficiently stated its claims for conspiracy sufficient to withstand
Epic’s motion for dismissal of those claims.
Plaintiff has established sufficient issues of fact that precludes summary
judgement in favor of Epic in this matter. To the extent the Court is inclined to grant
Epic Summary Judgment at this stage it should forego such a ruling and grant Plaintiffs
the further opportunity to establish liability against Epic after additional discovery and
bifurcated trial. Based on the foregoing, Defendant’s Motion for Summary Judgment
should be denied.

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Respectfully submitted this 15th day of August, 2011.
/s/Enrico Schaefer___________________
Enrico Schaefer (P43506)
Brian A. Hall (P70865)
TRAVERSE LEGAL, PLC
810 Cottageview Drive, Unit G-20
Traverse City, MI 49686
231-932-0411
[e-mail]
Lead Counsel for Plaintiff
Anthony P. Patti (P43729)
HOOPER HATHAWAY, PC
126 South Main Street
Ann Arbor, MI 48104
734-662-4426
[e-mail]
Attorneys for Plaintiff

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CERTIFICATE OF SERVICE
I hereby certify that on the 15th day of August, 2011, I electronically filed
the foregoing paper with the Court using the ECF system which will send
notification of such filing to the following:
Enrico Schaefer (P43506)
Brian A. Hall (P70865)
TRAVERSE LEGAL, PLC
810 Cottageview Drive, Unit G-20
Traverse City, MI 49686
231-932-0411
[e-mail]
[e-mail]
Lead Attorneys for Plaintiff
Anthony P. Patti (P43729)
HOOPER HATHAWAY, PC
126 South Main Street
Ann Arbor, MI 48104
734-662-4426
[e-mail]
Attorneys for Plaintiff

William A. Delgado (admitted pro hac)
WILLENKEN WILSON LOH & LIEB LLP
707 Wilshire Boulevard, Suite 3850
Los Angeles, CA 90017
[phone]
[e-mail]
Lead Counsel for Defendants
Nicholas J. Stasevich (P41896)
Benjamin K. Steffans (P69712)
Bruce L. Sendek (P28095)
BUTZEL LONG, PC
150 West Jefferson, Suite 100
Detroit, MI 48226
[phone]
[e-mail]
[e-mail]
[e-mail]
Local Counsel for Defendants
/s/Enrico Schaefer___________________
Enrico Schaefer (P43506)
Brian A. Hall (P70865)
TRAVERSE LEGAL, PLC
810 Cottageview Drive, Unit G-20
Traverse City, MI 49686
231-932-0411
[e-mail]
Lead Counsel for Plaintiff

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