Camilo et al v. Nieves et al
Filing
35
ORDER denying 2 Motion for Preliminary Injunction; denying 2 Motion for TRO; finding as moot 34 Motion requesting Order. See Opinion and Order for further details. Plaintiffs are to show cause within 14 days, that is, July 5, 2011, why this case should not be dismissed with prejudice. IT IS SO ORDERED. Signed by Judge Daniel R. Dominguez on 6/20/2011. (JAM)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
NOMAR CAMILO; ROBERTO UBINAS,
Plaintiff(s),
Civil No. 10-2150 (DRD)
v.
ALBERT NIEVES; LINK DISTRIBUTORS,
CORP.,
Defendant(s).
OPINION AND ORDER
Pending before the Court is plaintiffs’ Motion For Temporary Restraining Order And/Or
Preliminary Injunction, Docket No. 2, and Defendants’ Albert Nieves and Link Distributors Corp.
Joint Opposition To Plaintiffs’ Motion For Temporary Restraining Order And/Or Preliminary
Injunction (“Defendants’ opposition”), Docket No. 15. For the reasons set forth below, the
plaintiffs’ motion for injunctive relief is DENIED.
Factual and Procedural Background
On November 24, 2010, plaintiffs, Nomar Camilo and Roberto Ubiñas (collectively
“plaintiffs”), filed the instant Verified Complaint, Docket No. 1. On the same date, plaintiffs filed
a Motion For Temporary Restraining Order And/Or Preliminary Injunction (“Plaintiffs’ motion for
injunctive relief”), Docket No. 2. On December 1, 2010, the Court set a Show Cause hearing for
December 6, 2010 at 9:30 a.m., Docket No. 12.
The Show Cause hearing was held as scheduled on December 6, 2010. At the end of the day,
and after a lengthy exchange amongst counsel and the undersigned, the parties submitted the case
based solely on their arguments. The Court asked the parties to file simultaneous proposed orders
including findings of facts and conclusions of law by December 17, 2010. See Minutes of
December 6, 2011, Docket No. 17. Defendants, Albert Nieves and Link Distributors Corp. timely
filed the proposed order on December 17, 2010, see Docket No. 19. Plaintiffs filed the proposed
order on December 24, 2010, after seeking a timely extension of time granted by the Court, Docket
entries No. 18, 20, 29.
In a nutshell, it appears that the plaintiffs and co-defendant Albert Nieves have known each
other for sometime prior to the incorporation of Link Distributors Corp. Plaintiffs allege that prior
to the incorporation, the parties verbally agreed to some type of stock arrangement.
Link Distributors Corp. was incorporated on September 27, 2006, as a domestic for-profit
corporation, with a business volume not to exceed three million dollars, Registry Number 165867.
As of June 3, 2011, the record of the Puerto Rico Department of State further shows that Link
Distributors Corp. is an active corporation. See the Puerto Rico Department of State Official
Website, to wit: www.estado.gobierno.pr.
In their injunctive relief, plaintiffs demand from the defendants “to allow Plaintiffs to
exercise their rights as Link’s majority stockholders; to call and participate in Link’s stockholders’
agreements; grant Plaintiffs access to Link’s corporate books and financial records in order to
ascertain the value of Link’s business fair value.” See Docket No. 1, ¶ 7. Plaintiffs also moved for
the entry of an injunction order enjoining defendants from “selling Link’s assets, encumbering,
diverting, misappropriating, dissipating and otherwise wasting Link’s funds; and to prohibit the
issuance and sale or transfer of any additional stock of Link.” See Docket No. 1, ¶ 8. Moreover,
plaintiffs seek the minimum amount of $67,000.00 “representing the purchase price paid by
Plaintiffs for the securities in question and other compensatory damages;” the amount of
2
$300,000.00 for breach of contract, plus interest under the Puerto Rico Civil Code, 31 L.P.R.A.
§§ 2294, 3018, 3052, 3371 and other applicable laws, and/or the “rescission of the stock purchase
and the award of compensatory damages.” See Docket No. 1, ¶¶ 11-13.
Defendants opposed plaintiffs’ request for injunctive relief on the grounds, that albeit it is
true that plaintiffs and Nieves indeed held conversations regarding the creation of a corporation, “[i]n
no way throughout their relationship did Defendant Nieves intend to persuade Plaintiffs to ‘commit
to investing in the project.’” See Docket No. 15, ¶ 10. “Nieves only expressed that the best option
was for him to create a corporation to be named Link Distributors.” See Docket No. 15, ¶ 10. “At
that moment, Plaintiffs offered money to start his company which Nieves accepted in the form
of a loan.” (Emphasis supplied). See Docket No. 15, ¶ 10.
Nieves further alleges that he “never represented to Plaintiffs that they would be acquiring
any of Link’s stock, either before or after the creation of the corporation.” See Docket No. 15, ¶ 11.
“Nieves wanted to set up his own business and was receiving any help he could get to reach his
goal.” Id. “He [Nieves] honestly believed Plaintiffs’ [could] help in this matter to be amicable and
their initial start-up loan as both to help a friend get ahead, and to further advance their own
business, since they were helping a future supplier of the equipment they need for their own
corporation.” Id. “Plaintiffs had the means, opportunity, and knowhow to register the
corporation, establish the records, have the alleged majority of the shares of the corporation
that was later named Link Distributors, but they did not do it.” (Emphasis ours). See Docket
No. 15, ¶ 12. “Plaintiffs provided start up money in the form of indebtness; Plaintiffs provided their
technical knowledge and experience because of the personal relationship they established with
Defendant.” See Docket No. 15, ¶ 13. “[T]he initial loan made by Plaintiffs to Defendant was
3
months prior to the incorporation of the business, in June 2006, where a D/B/A account was opened
and the only authorized signature to issue checks was that of Defendant Albert Nieves.” See Docket
No. 15, ¶ 14. “No stock could’ve been purchased at said time, since the Corporation was not yet
created.” Id. “The check with which Plaintiffs made the initial loan of $7,400 was made with a
check issued from Kryonyx’s1 bank account, not the Plaintiffs’.” See Docket No. 15, ¶ 15. Nieves
further alleges that several bank accounts were opened, and that the alleged “return on investment”
account, “was opened in order for the corporation to deposit the repayment of the loan made by
Plaintiffs.” See Docket No. 15, ¶ 18. Notwithstanding, Nieves alleges that only he “maintained
control of all accounts, as sole stockholder, director, and officer of the Corporation.” See Docket
No. 15, ¶ 19.
On or about early in the year 2009, plaintiff Nomar Camilo asked Nieves whether he would
employ his father Camilo Sr., as a salesperson in the business. See Docket No. 15, ¶ 20. Nieves
accepted, “[s]ince the Plaintiffs had been helping Nieves for years ... .” Id. However, “[d]uring the
course of Camilo Sr.’ s employment, he informed Plaintiffs, about the internal business matters of
the administration of the corporation.” See Docket No. 15, ¶ 21. “One of the matters informed by
Camilo Sr. was, as it is alleged in the Verified Complaint, that Kryonyx’ s competitors were
receiving better deals from Link Distributors, Corp.” Id. “This appears to have angered Plaintiffs
and triggered the chain of events that ended in the captioned case.” Id.
1
Kryonyx Corp. is a corporation created by plaintiffs on May 11, 1999, Registry No. 109226, as a
domestic for-profit corporation, active, incorporated with no specific purpose, and with a business
volume not to exceed three million dollars, according to the information provided by the Puerto
Rico Department of State’s webpage, as of June 8, 2011.
4
Issues
The issues pending are: (a) whether the plaintiffs are stockholders of the defendant Link
Distributors Corp.; and (b) if plaintiffs are indeed stockholders of the defendant corporation, then
whether there is federal jurisdiction under the Securities Exchange Act.
The Court finds that in order to determine whether there is federal jurisdiction, the Court
must first determine whether the plaintiffs are indeed stockholders of the defendant corporation. For
the reasons set forth below, the Court finds that the plaintiffs are not stockholders of Link
Distributors Corp.. The applicable Puerto Rico corporate law requires that a verbal agreement for
stock purchase, which has been entered into by the parties before the corporation is created, such as
the one alleged by plaintiffs in the instant Verified Complaint, constitutes a subscription agreement
under Puerto Rico law, and the law requires that said agreement must be in writing.
Applicable Law and Discussion
The Puerto Rico “General Corporations Law of 1995"2 governs those corporations organized
under this law which became effective on January 1, 1996 until January 1, 2010, when the new
“General Corporations Law of 2009"3 became effective. In the instant case, Link Distributors Corp.
was incorporated on September 27, 2006, hence, the applicable law is the General Corporations Law
of 1995. See Santiago-Aponte v. Rodríguez Martínez, 2011 TSPR 37, 2011 WL 1107074, n.1 (P.R.,
March 18, 2011). The Court notes, however, that the applicable sections of the corporations law,
which are applicable to the instant controversy, are exactly the same under both the General
Corporations Laws of 1995 and 2009.
2
Law No. 144 of August 10, 1995, effective on January 1, 1996, 14 L.P.R.A. §§ 2601 et seq.
3
Law No. 164 of December 16, 2009, effective on January 1, 2010, 14 L.P.R.A. §§ 3501 et seq.
5
Section 2777 of the General Corporations Law of 1995, clearly requires that any stock
agreement reached by the incorporators either prior to or after the creation of the corporation must
be in writing, and signed by the incorporators or their agent.
14 L.P.R.A. § 27774 provides:
A subscription for stock of a corporation, made before or after the
creation of the corporation, may not be enforced against the
subscriber, unless the same is in writing and signed by the subscriber
or his agent.
The Court further notes that “[u]nless otherwise provided by the terms of the subscription,
a subscription for stock of a corporation to be created shall be irrevocable for a period of six (6)
months from its date except with the consent of all other subscribers or the corporation.”
14 L.P.R.A. § 2776.5
In the instant case, the plaintiffs’ main allegations are:
“The telephone conversations between Plaintiffs and Nieves started as early as January 11,
2005, and continued on a weekly basis until May 31, 2006. In fact, Nieves held at least twenty-seven
(27) telephone conversations with Camilo during said period.” See Docket No. 1, ¶ 25. “From
June 2006 forward, Nieves held over forty (40) telephone conversations with Plaintiffs each month.”
See Docket No. 1, ¶ 26. “In those conversations, Nieves expressed that the best option was for him
to create a corporation, which was later named Link Distributors, and lured Plaintiffs into purchasing
stock by fraudulently misrepresenting the proposed business.” See Docket No. 1, ¶ 27. “According
to the plan proposed, Camilo and Ubiñas would each own thirty-three percent (33%) of Link’s
4
See 14 L.P.R.A. § 3597 is the corresponding section under the General Corporations Law of 2009.
5
See 14 L.P.R.A. § 3596 is the corresponding section under the General Corporations Law of 2009.
6
corporate stock, totaling sixty-six percent (66%). The other thirty-four percent (34%) would be
owned by Link until Plaintiffs’ initial investment was returned through the expected dividends.” See
Docket No. 1, ¶ 28. “Once this was accomplished, thirty-three percent (33%) of Link’s stock would
be acquired by Nieves and the remaining one percent (1%) would not be issued.” See Docket No. 1,
¶ 29. “In consideration for said stock, Plaintiffs would provide the financial resources necessary to
get the business started and man hours to complete said task.” See Docket No. 1, ¶ 30. “However,
Link did not issue the related stock certificates to Plaintiffs.” See Docket No. 1, ¶ 35. “Nieves
sustains Plaintiffs never purchased Link’s stock and that the only consideration Plaintiffs
provided to Link was a loan to be used as capital; nothing more.” (Emphasis ours). See Docket
No. 1, ¶ 37. “Nieves made the misrepresentations described herein in the course of the stock
purchase with the intention of deceiving Plaintiffs’ technical knowledge and years of experience in
the telecommunications market.” See Docket No. 1, ¶ 38. “Plaintiffs would have not purchased
Link’s stock but for the representations made to them by Nieves and these misrepresentations caused
Plaintiffs to loose substantial amounts of money.” See Docket No. 1, ¶ 39.
In Santiago Aponte, supra, the Court held that the existence of a for-profit corporation is not
possible without stockholders. See 2011 WL 1117074, *1. The Court further held that the
subscription agreements to purchase stock after the General Corporations Law of 1995 had to be in
writing:
On the other hand, for-profit corporations are engaged in operating
businesses which will return a profit, to be distributed among its
shareholders. Negrón Portillo,6 supra, at 6. The shareholder is an
owner of the corporation. Whoever holds title to the capital shares of
the corporation has an interest or aliquot portion of its capital, a
6
Luis Mariano Negrón Portillo, Derecho Corporativo Puertorriqueño, San Juan (2d. ed. 1996).
7
general right to share in its profits and in the distribution of its assets
in case the corporation is liquidated. Díaz Olivo,7 supra, at 148. “[A]
share is an interest or quota in the property of the corporation
belonging to a shareholder individually.” López Martínez v. Yordán,
104 D.P.R. 594, 596 [4 P.R. Offic. Trans. 832, 835] (1976).
When a for-profit corporation is about to be created, its capital stock
is acquired through a share subscription agreement. Shares from an
existing corporation that intends to issue new shares of stock may
also be acquired through a subscription agreement. Negrón Portillo,
supra, at 254.
The share subscription agreement is different from a contract of
purchase and sale, being a contract to issue or create new shares
as opposed to an agreement for the transfer of title to shares
already in existence. The subscription agreement should indicate,
at least in a general way, the nature and main purposes of the
corporation to be formed, the amount of authorized capital, the
kind and number of shares authorized, and the class, par value
and number of shares subscribed for. 4 Fletcher Cyc Corp.
§ 1363.10 (2005) at 25-26. (Emphasis ours).
A contract of subscription is similar to any other contract, so the
decisions run. If there is a valid consideration, the agreement of
the parties, and a lawful object, the contract is perfected. It need
not be written down, unless th charter of the corporation, the bylaws, or the state laws so require. Progreso Financiero v. Gómez,
55 P.R.R. 819, 823 (1940). (Emphasis ours).
Section 5.17 of the General Corporations Law of 1995 (14 L.P.R.A.
§ 2777) specifically provides that a subscription for stock of a
corporation may not be enforced against the subscriber unless it
is in writing. The terms of the subscription are irrevocable
except by the consent of all other subscribers or the corporation.
Section 5.16 (14 L.P.R.A. § 2776). A subscriber may accede to the
rights and obligations of shareholders, depending on the law, the
corporate statutes or the subscription agreement. 4 Fletcher Cyc
Corp., supra, § 1375, at 49-52.8 (Emphasis ours).
7
C.E. Díaz Olivo, Corporaciones, Puerto Rico, Publicaciones Puertorriqueñas, 2005.
8
This is an official translation graciously provided by the Puerto Rico Supreme Court.
8
In Progreso Financiero, supra, the defendant had agreed to purchase 25 shares, pursuant to
the records of the plaintiff, although the defendant only paid for 5 shares; plaintiff issued a stock
certificate on behalf of the defendant, who also subscribed several notes for the amount of the
remaining shares. The defendant Gómez alleged that she never agreed to pay for the 25 shares, as
this was merely a plaintiff’s requirement in order for her to be appointed as a member of plaintiff’s
board of directors. The lower court ruled for plaintiff, as the notes executed by the defendant to pay
for the remaining shares were due and payable, and pursuant to the notes’ covenants, the notes were
not subject to any condition nor were offered as a collateral of any debt. Hence, pursuant to the entry
in plaintiff’s stock registry; the plaintiff’s rules and regulations; the payment of 5 shares, and the
execution of the subsequent notes for the payment of the remaining 20 shares, the lower court held,
as affirmed by the Puerto Rico Supreme Court, that the documents executed by the defendant Gómez
showed that she indeed was a stockholder. Hence, the subscription contract for the purchase of stock
was enforceable against the defendant Gómez. “A contract of subscription is similar to any other
contract, so the decisions run. If there is a valid consideration, the agreement of the parties, and a
lawful object, the contract is perfected. It need not be written down, unless the charter of the
corporation, the by-laws, or the state laws so require.” Progreso Financiero v. Gómez, 55 P.R.R.
at 823. See also 14 L.P.R.A. § 2777.
In the instant case, the plaintiffs failed to show that they are indeed stockholders of the
defendant Link Distributors Corp. Plaintiffs failed to present documentation leading the Court to
find that indeed the parties met prior and after the incorporation of Link Distributors Corp., and that
9
a subscription agreement for the purchase of stock, as described in pages 6-7 infra,9 was executed
in writing. Although the parties may have initially reached a verbal agreement, the same is not valid
and enforceable under the General Corporations Law of 1995, 14 L.P.R.A. § 2777. The Court
further notes that the plaintiffs failed to present any evidence regarding the incorporation of Link
Distributors Corp., such as, minutes, drafts of the stock subscription agreement, the by-laws of the
corporation or any other corporate related document. In sum, the plaintiffs failed to meet their
burden by showing that they are the owners and stockholders of the defendant corporation.
The Court is not persuaded by plaintiffs’ argument regarding the guaranty given in the
defendants’ bank account with Banco Popular of commercial/business account. See Docket No. 1,
Exhibit No. 1-7. The fact that an individual guarantees the payment of a commercial debt does not
translate into being an owner of a corporation nor a corporate stockholder, particularly when there
is no subscription agreement executed in writing stating that the loan provided by plaintiffs was in
exchange for corporate shares. On the contrary, the only evidence before the Court is that plaintiffs
simply loaned moneys to the defendants, and Nieves had to repay said loan. Plaintiffs failed to
present evidence to the contrary.
Further, it is well settled that to grant a preliminary injunction relief, plaintiff must prevail
under the standard as set forth in Narrangansett Indian Tribe v. Guilbert, 934 F.2d 4, 5 (1st Cir.
1991): (1) likelihood of success on the merits; (2) irreparable injury; (3) the injury outweighs any
harm inflicted on the respondent; (4) the public interest most not be adversely affected. See
Vaquería Tres Monjitas, Inc.; Suiza Dairy, Inc. v. Irizarry, et al., 587 F.3d 464, 482-483 (1st Cir.
9
Plaintiffs’ alleged verbal agreement constituted a pre-subscription agreement, as to how all the
corporate shares were going to be distributed after the actual incorporation of Link Distributors Corp.
10
2009).
The sine qua non requisite and the most critical constitutes the probability of success.
Weaver v. Henderson, 984 F.2d 11, 12 (1st Cir. 1993). “In the ordinary course, plaintiffs who are
unable to convince the trial court that they will probably succeed on the merits will not obtain
interim injunctive relief.” Weaver v. Henderson, supra, at page 12. In Braintree Laboratories,
Inc. v. Citigroup Global Markets Inc., 622 F.3d 36, 42-43 (1st Cir. 2010), the Court held:
It is true that we measure irreparable harm on “a sliding scale,
working in conjunction with a moving party's likelihood of success
on the merits,” Vaqueria Tres Monjitas, Inc. v. Irizarry, 587 F.3d
464, 485 (1st Cir.2009), such that “[t]he strength of the showing
necessary on irreparable harm depends in part on the degree of
likelihood of success shown.” Mass. Coal. of Citizens with
Disabilities v. Civil Def. Agency, 649 F.2d 71, 75 (1st Cir. 1981).
In the instant case, plaintiffs have failed to meet the requirement of probability of success,
as the Puerto Rico law requires that the subscription agreement for the purchase of stock, as
described by plaintiffs, must be in writing in order to be enforceable against the subscribers. See
14 L.P.R.A. § 2777. In sum, plaintiffs have failed to meet the sine qua non requisite of likelihood
of success on the merits, hence, the injunctive relief requested is not warranted.
A Final Note
•
Laches.
The certificate of incorporation of Link Distributors Corp. shows that it was registered on
September 27, 2006. It is inexplicable that plaintiffs waited more than four years to take action and
to inquire on the business status of Link Distributors Corp. “The application of the doctrine [of
laches] is within the ‘sound discretion’ of the district court.” Puerto Rican-American Ins. Co. v.
Benjamin Shipping Co., Ltd., 829 F.2d 281, 283 (1st Cir. 1987) (citing Azalea Fleet v. Dreyfus
Supply & Machinery Corp., 782 F.2d 1455, 1458 (8th Cir. 1986). Laches per se is a valid reason
11
to deny injunctive relief. In Vaquería Tres Monjitas, Inc.; Suiza Dairy, Inc. v. Irizarry, et al.,
587 F.3d 464, 480 (1st Cir. 2009), the Court held:
The doctrine of laches may bar a claim that was raised after an
inexcusable delay. ‘In order for laches to apply, the district court
must examine whether plaintiff’s delay in bringing suit was
unreasonable and whether defendant was prejudiced by the delay.”
Puerto Rican-American Ins. Co. v. Benjamin Shipping Co., Ltd.,
829 F.2d 281, 283 (1st Cir. 1987) (citing Costello v. United States,
365 U.S. 265, 282 (1961).
In the instant case, plaintiffs failed to explain why they waited more than five years from the
date when Link Distributors Corp. was incorporated, to inquire as to the corporation’s business
operation; its financial status, specially to try to enforce the alleged rights of stockholders.
Unfortunately, the Court has not been put in a position to determine whether the plaintiffs are
stockholders of Link Distributors Corp., as the parties have failed to subscribe a written subscription
agreement for the purchase of stock, or in exchange of the purchase of stock. Hence, the Court is
constrained to deny the plaintiffs’ injunctive relief based on the evidence before the Court.
•
Security Exchange Act and Federal Jurisdiction.
In view of the fact that the plaintiffs failed to show that they are stockholders of the defendant
corporation, the Court finds that they are impaired to claim any violation under the Security
Exchange Act. Hence, the Court finds that it does not have federal jurisdiction to entertain in this
case.
Conclusion
In view of the foregoing, plaintiffs’ request for a temporary restraining order and/or
preliminary injunction, Docket No. 2, is DENIED.
Plaintiffs are to show cause within fourteen (14) days, why the instant case is not to be
12
dismissed with prejudice, as the law is pellucidly clear that the subscription agreement, as the one
described herein above, has to be in writing in order to be enforceable against others subscribers,
pursuant to the General Corporations Law of 1995, Section 5.17 of the Law, 14 L.P.R.A. § 2777.
The Court recognizes that prior to the General Corporations Law of 1995, the agreement to
purchase stock or a stock subscription agreement, could be reached verbally between the
stockholders, under Progreso Financiero v. Gomez, 55 P.R.R. 819, 823 (1940). However, the
Supreme Court of Puerto Rico has clearly held that such verbal stock agreement could be altered if
“the state laws so require.” Progreso Financiero v. Gómez, 55 P.R.R. at 823,10 as reiterated by
Santiago Aponte v. Rodriguez Martinez, 2011 WL 1117074, *1, see page 8 infra.
It is further clear that the alleged verbal agreement between the plaintiffs and Nieves occurred
on or about January 11, 2005, and subsequently thereto Link Distributors Corp. was incorporated
on September 27, 2006. The General Corporations Law of 1995, which is the applicable law that
governs in the instant case, and which also establishes the requirement that the subscription
agreements for the purchase of stock must be in writing, came into effect in January 1, 1996. That
is, the statutory requirement that the subscription agreements for the purchase of stock must be in
writing, has been in effect at least 10 years prior to the incorporation of Link Distributors Corp.
Hence, the verbal subscription agreement allegedly entered by the parties, as to the purchase of stock
10
For easy reference, the Court in Progreso Financiero, supra, at 823, held:
A contract of subscription is similar to any other contract, so the decisions run.
If there is a valid consideration, the agreement of the parties, and a lawful object,
the contract is perfected. It need not be written down, unless the charter of the
corporation, the by-laws, or the state laws so require. (Emphasis ours).
As stated above, the corporate law of Puerto Rico requires that the subscription agreement for the
purchase of stock must be in writing. Even if the parties entered into a pre-incorporation subscription agreement
before the incorporation of Link Distributors Corp., the subscription agreement has to be executed in writing, in
order to be enforceable against the other subscribers, as required by 14 L.P.R.A. § 2777.
13
of Link Distributors Corp., is barred by the statute requiring contracts for the purchase and
distribution of stock, to be in writing pursuant to the express mandate of the General Corporations
Law of 1995.
IT IS SO ORDERED.
In San Juan, Puerto Rico, this 20th day of June, 2011.
s/Daniel R. Domínguez
DANIEL R. DOMINGUEZ
U.S. DISTRICT JUDGE
14
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?