Pete Reid Law was recently retained to file an emergency injunction and asset freeze of corporate bank accounts in New York City.
The online commerce company was owned equally by three individuals. Although the Company was based in New York, one owner was resident in Austin, with the two other partners in New York and California.
The Austin owner claimed that his two business partners had been diverting money from the company accounts to a shell company registered in Delaware, in an amount totaling more than $3.76 million over the last few years.
The Company Agreement prohibited any of the owners of the Company from transacting any business with any other entity in which any owner had a financial, economic or contractual interest, unless that relationship had been disclosed to all of the other owners and consent obtained. It was alleged that no disclosure had been made to the Austin-based partner about these transactions, nor consent obtained.
The Austin-based owner retained Pete Reid Law to help him investigate the claims and to potentially recover the company funds. Concerned that the other owners may abscond with the funds that remained in the Company accounts if the discovery was brought to their attention, Pete Reid recommended the drastic option of an ex parte injunction and freeze of the Company assets and bank accounts in New York City.
An ex parte application means making a request of the Court without notifying or serving the other parties.
It took Pete Reid Law more than a week to draft all of the necessary documents for such action, including the lawsuit, summonses, affidavits, an Order to Show Cause, Memoranda of Law, tables of contents, bank statements, and exhibits.
As the papers were confidential, separate motions were also prepared for the lawsuit to be filed ‘under seal’ and for exhibits to be redacted. It was also necessary for all of the documents to be filed on paper, and in person.
So Pete Reid flew up to New York City and on a cold Monday morning in Manhattan, armed with several boxes of motions and documents, Pete Reid walked into Federal Court in the Southern District of New York and filed the lawsuit. Simultaneously, he requested an emergency ex parte injunction and an immediate freeze of the company bank accounts.
The case was assigned to Judge Lorna Schofield.
Following several intense hours of scrutiny of the arguments and the documents in the presence of Judge Schofield, the injunction and asset freeze was granted late on the Monday afternoon.
The judge found that the balance of equities tipped in favor of the Austin-based owner. Judge Schofield also found that there was good cause to believe that the other partners had engaged in and were likely to engage in acts and practices that violated the Company Agreement, and that Pete Reid’s client was likely to prevail on the merits of the action.
The Judge issued an injunction against any disposal of the Company assets and issued an Order freezing the Company’s bank accounts to preserve the possibility of complete and meaningful relief at the conclusion of the dispute.
Once the Court Order was signed and filed with the Court, Pete Reid personally walked the Order over to the New York headquarters of Chase Bank, whereupon the bank accounts of the Company were immediately frozen.
Once the money in the accounts was secured, the other owners of the Company were served with the lawsuit. The other owners denied the allegations.
However, following another hearing on the injunction ten days later, the parties were able to reach a settlement whereby the Company bought out the entire interest of the Austin-based partner for a substantial cash payment.