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CORRIGAN & MORRIS, LLP Brian T. Corrigan (State Bar no.
143188) Stanley C. Morris (State Bar no. 183620) 201 Santa Monica
Boulevard, Suite 475 Santa Monica, California 90401-2212 Telephone:
(310) 394-2800 Facsimile: (310) 394-2825 Attorneys for Plaintiff
and Counterclaim Defendant,
Bodie Investment Group, Inc.
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA
Bodie Investment Group, Inc., a Delaware Corporation, Plaintiff
and Counterclaim Defendant,
vs. Marani Brands, Inc., a Nevada corporation, Defendant and
Counterclaimant.
) ) ) ) ) ) ) ) ) ) ) ) )
Case No.: 8:14-CV-00308-JLS-AN JOINT REPORT FOR SCHEDULING
CONFERENCE Time: 1:30 p.m. Date: July 25, 2014 Place: Courtroom
10A
Plaintiff and Counterclaim defendant, Bodie Investment Group,
Inc., a Delaware corporation (Plaintiff or Bodie), and Defendant
and Counterclaimant, Marani Brands, Inc. (Marani), jointly submit
the following report in accordance with this Courts Order Setting
Scheduling Conference at Docket Entry 10:
a. Statement of the case: a short synopsis (not to exceed two
pages) of the main claims, counterclaims, and affirmative
defenses.
Case 8:14-cv-00308-JLS-AN Document 12 Filed 06/27/14 Page 1 of
15 Page ID #:103
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Plaintiffs Statement of the Case: On or around February 1, 2010,
Bodie invested $100,000 into Defendant,
Marani Brands, Inc. (Marani), pursuant to the terms of a
Convertible Note; Subscription Agreement and Common Stock Purchase
Warrant (Warrant). A dispute has arisen between Bodie and Marani
with respect to the proper computation of Bodies debt, conversion
rights and Warrant exercise.
Bodies conversions of its debt under the Convertible Note were
made on the following dates and conversion prices (the debt
includes interest of $31,907.23 and principal of $100,000.00):
DATE
DEBT CON-VERTED
CON-VERSION PRICE APPLIED BY MARANI
CON-VERSION RATE UNDER SECTION 2.1(c) OF CON-VERTIBLE NOTE
SHARES DUE TO BODIE UNDER SECTION 2.1(c) OF CON- VERTIBLE
NOTE
NUMBER OF SHARES MARANI SHORTED BODIE UPON CONVERSION
10/3/2010 $ 9,333.33 .00188741 Unknown Unknown Unknown
10/12/2010 $ 5,041.99 .00130083 Unknown Unknown Unknown 10/25/2010
$ 4,500.00 .00054 Unknown Unknown Unknown 11/2/2010 $ 9,333.33 .001
Unknown Unknown Unknown 11/2/2011 $ 9,333.00 .001 Unknown Unknown
Unknown 2/29/2012 $ 1,799.01 .0001425 Unknown Unknown Unknown
3/25/2012 $ 5,000.00 .000285 Unknown Unknown Unknown 9/30/2013
$12,000.00 .0008 Unknown Unknown Unknown 12/2/2013 $50,000.00 .0051
Not more than
.001 At least 50,000,000
At least 40,196,079
1/23/2014 $25,566.57 .00705 Not more than .001
At least 25,566,570
At least 21,940,107
Totals $131,907.23 Unknown At least 62,136,186
On or around February 19, 2014, after Bodies final conversion
notice was given and the shares issued to it, Marani disclosed, for
the first time, in a filing with the Securities and Exchange
Commission, that On November 7, 2013 the Company issued 30,000,000
free trading shares at a cost of $0.001, per share, to Eco
Investment Properties, the assignee of a portion of a certain
promissory note in the amount of $30,000. Because the Marani shares
issued on November 7, 2013 were issued at a price that was a small
fraction of the
Case 8:14-cv-00308-JLS-AN Document 12 Filed 06/27/14 Page 2 of
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Conversion Price applied to Bodies two later conversions, Bodies
conversions were executed at conversion prices inadvertently
inflated in computing the shares to which it was entitled under the
most favored nations provisions of the Convertible Note,
specifically sections 2.1(c) and 2.1(d). As a result, Marani issued
to Bodie upon such conversions only a fraction of the number of
shares to which Bodie was entitled upon making that conversion.
Bodie contends that Marani was required to disclose to Bodie any
and all issuances of stock and other securities at prices below
Bodies conversion price, and, whenever such an event occurred, that
Bodie was automatically entitled thereafter to the benefit of the
lowest price applicable to any third party, if lower than Bodies
conversion prices, pursuant to sections 2.1(c) and 2.1(d) of the
Convertible Note. Bodie contends that events occurred while the
Convertible Note was outstanding that triggered a conversion price
adjustment pursuant to section 2.1(c); but because Marani failed to
disclose to Bodie the events, stock issuances and terms thereof
that would trigger a conversion price adjustment under the terms of
the Convertible Note, as required by section 2.1(d), Bodie was
unaware of such conversion price adjustment events and
inadvertently converted its debt into Marani stock at conversion
prices substantially greater than the prices to which Bodie was
entitled under section 2.1(c) of the Convertible Note. Bodie
contends that, computed at the proper adjusted conversion prices,
Bodie would be entitled to at least 62 million shares of Marani
stock in excess of what Bodie received upon the exercise of its
conversion rights. Based on the market value of such shares
following the conversions, Bodie could have sold such shares for
more than $1 million.
In addition, Bodie contends that with respect to two
conversions, in November 2010 and November 2011, respectively,
Bodie attempted to convert its shares at conversion prices well
below $.001 and was told by Marani that it could not honor such
conversions because its bylaws precluded Marani from
Case 8:14-cv-00308-JLS-AN Document 12 Filed 06/27/14 Page 3 of
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issuing shares below its stated par value of $.001. Accordingly,
Marani insisted that Bodie conversion prices be set at par value,
instead of the prices computed under section 2.1(c) of the
Convertible Note, resulting in a drastic reduction in the number of
shares issued to Bodie pursuant to such exercise. Bodie contends
that Marani was not entitled to reduce or limit Bodies contract
rights based on such self-imposed restriction and that Bodie is
entitled to be made whole for damages suffered as a result of
Maranis improper limitation on Bodies conversion rights. Bodie
contends that the damages suffered as a result of the par value
restriction exceeded $100,000.
Separately, with respect to Bodies Warrant exercise on December
5, 2013, Bodie claims that Bodies own error in computing the number
of shares to which Bodie was entitled when it exercised its
cashless warrant exercise to purchase 4 million shares of Marani
common stock under the Warrant, which number was adopted by Marani,
caused Bodie to be shorted by 181,820 shares of Marani common
stock. Bodie suffered damages of at least $3000 as a result of such
discrepancy in the number of shares issued to Bodie.
Marani has set forth a number of apparently boiler plate
affirmative defenses and counterclaims, none of which appears to
have any merit. The number of shares due Bodie should turn on facts
learned about the terms of shares issued to third parties during
the term of the Bodie Convertible Note and Warrant. None of the
affirmative defenses or counterclaims alters that analysis or
conclusion.
Defendants statement of the case: Marani contends that the stock
issuances to third parties at prices lower
than Bodies conversion prices were Excepted Issuances as that
term is defined in the Subscription Agreement. As such, Bodie was
not entitled to the claimed price adjustment pursuant to Section
2.1(c)(D) of Bodies Convertible Note and Marani has fully performed
its obligations under the Convertible Note.
Case 8:14-cv-00308-JLS-AN Document 12 Filed 06/27/14 Page 4 of
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Marani asserts the affirmative defenses of Off Set and Unclean
Hands based on information and belief that Bodie intentionally
manipulated Maranis stock price by publishing untrue statements in
public investor fora designed to lower Maranis stock price. Marani
is informed and believes that Bodie has already recovered over $1.8
million on its sale of stock in connection with its $100,000
Convertible Note investment. Marani believes that Bodie has been
exercising its conversion rights at issue in the Complaint in order
to gain from its unlawful market manipulation.
Marani filed a counterclaim against Bodie for breach of
convertible note, an accounting, and declaratory relief. The
counterclaim alleges that Bodie breached the Note, Subscription
Agreement, and Warrant by sending conversion notices and receiving
shares directly from Maranis transfer agent without notice to
Marani in excess of that required by the Note and without proper
accounting. Additionally, the counterclaim alleges that Bodie was
improperly shorting or manipulating Maranis stocks in order to
increase the amount of common stock that would convert to Bodie in
exchange for its debt and under the Warrant resulting in damages to
Marani.
b. Legal issues: a brief description of the key legal issues,
including any unusual substantive, procedural, or evidentiary
issues.
Plaintiffs Statement of Legal Issues: This case appears to be a
garden variety breach of contract case, where the Courts
interpretation of the facts, rather than nuances in the law, should
govern the outcome.
The only legal issue peculiar to this case about which Plaintiff
is presently aware involves Maranis rejection of the conversion
price dictated by the Convertible Note, insisting instead on
applying its par value as the floor of $001
Case 8:14-cv-00308-JLS-AN Document 12 Filed 06/27/14 Page 5 of
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applied to Bodies conversions. This argument applies only to the
November 2, 2010 and November 2, 2011 conversions.
The Convertible Note is governed by New York law. A United
States Supreme Court case, citing New York law on point, explains
the applicable law:
We deem it unnecessary at this time to determine whether the
defendant was authorized by that statute to enter into such
contracts, for if we assume that the making of them was in excess
of the express power conferred upon the corporation by that
statute, still, as the contracts involved no moral turpitude and
did not offend any express statute, they were not illegal in a
sense that would prevent the maintenance of an action thereon. It
is now well settled that a corporation cannot avail itself of the
defence of ultra vires when the contract has been, in good faith,
fully performed by the other party, and the corporation has had the
benefit of the performance and of the contract. As has been said,
corporations, like natural persons, have power and capacity to do
wrong. They may, in their contracts and dealings, break over the
restraints imposed upon them by their charters; and when they do so
their exemption from liability cannot be claimed on the mere ground
that they have no attributes nor facilities which render it
possible for them thus to act. While they have no right to violate
their charters, yet they have capacity to do so, and are bound
their acts where a repudiation of them would result in manifest
wrong to innocent parties, and especially where the offender
alleges its own wrong to avoid a just responsibility. It may be
that while a contract remains unexecuted upon both sides, a
corporation is not estopped to say in its defence that it had not
the power to make the contract sought to be enforced, yet when it
becomes executed by the other
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party, it is estopped from asserting its own wrong and cannot be
excused from payment upon the plea that the contract was beyond its
power. Bissell v. Mich. So. & No. Ind. R.R. Cos., 22 N.Y. 258;
Whitney Arms Co v. Barlow, 63 N.Y. 62; Rider Life Raft Co. v.
Roach, 97 N.Y. 378; Holmes, Booth & Haydens v. Willard, 125
N.Y. 75, 80; City of Buffalo v. Balcom, 134 N.Y. 532; Bath Gas L.
Co. v. Claffy, 151 N.Y. 24; Moss v. Cohen, 158 N.Y. 240, 249;
Hannon v. Siegel-Cooper Co., 167 N.Y. 244.
Eastern Bldg. & Loan Asso. v. Williamson, 189 U.S. 122,
129-130 (U.S. 1903); see also In re Associated Oil Co., 289 F. 693,
695-696 (6th Cir. 1923). Thus, Plaintiff submits that Maranis par
value does not excuse its obligation to Plaintiff to issue the
number of shares that it agreed to issue under the terms of the
Convertible Note.
Defendants statement of legal issues: This case is considerably
more complex than a garden variety breach of
contract case as there are two main aspects to the case. As to
the breach of contract claims, this Court will be called upon to
determine issues of contract interpretation on the share issuance
clause of the Convertible Note, the normal and customary practice
of adjustments of convertible prices as they relate to debts and
securities, and the interplay between the parties agreements and
other convertible notes that preceded Bodies. How this Court
interprets the parties agreement will also determine the proper
method of calculating Bodies correct conversion prices, the number
of shares he is actually entitled to, and whether he suffered any
damages.
Additionally, Maranis counterclaim and affirmative defenses will
necessarily involve complex legal issues on the subject of
potential market manipulation by Bodie.
Case 8:14-cv-00308-JLS-AN Document 12 Filed 06/27/14 Page 7 of
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c. Damages: the realistic range of provable damages. Plaintiffs
Statement of Damages: As detailed above, Plaintiff anticipates
being able to prove more than
$1,103,000 in damages. Plaintiff has not been able to conduct
discovery yet and Marani has not voluntarily provided Plaintiff
with the information Plaintiff would need to compute the conversion
and exercise prices applicable to its Warrant and Convertible Note,
as adjusted by Maranis stock issuance transactions with third
parties. However, based on the information that Bodie has secured
from public filings reflecting transactions, it appears that
damages are in the range stated in the Complaint.
Defendants Statement of Damages: As for Bodies damages, Bodie
has not provided Marani with the
information necessary to calculate its alleged damages (e.g. the
price, date, and number of Marani shares it has sold to date).
Nevertheless, even assuming that Bodie prevails on its contention
that it is entitled to adjustments on its conversion prices, it
would be entitled to significantly less in damages in connection
with its $100,000 Convertible Note than alleged above.
Marani is unable at this time to quantify its damages arising
from market manipulation activities by Bodie. Marani anticipates
that it will be able to establish the amount of its damages after
reasonable discovery.
d. Insurance: whether there is insurance coverage, the extent of
coverage, and whether there is a reservation of rights
There is no insurance available to respond to this breach of
contract case. e. Motions: statement of the likelihood of motions
seeking to add
other parties or claims, file amended pleadings, transfer venue,
etc.
There is no present intention to add other parties or claims,
file amended pleadings or seek to transfer venue. It is
conceivable, although not likely based
Case 8:14-cv-00308-JLS-AN Document 12 Filed 06/27/14 Page 8 of
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on what is known to Bodie at this time, that discovery could
lead to Plaintiff bringing tort actions against individuals who
caused the damages asserted in the Complaint.
Defendants Statement of Likelihood of Motions Depending on the
result of its discovery efforts, Marani may seek leave from this
Court to add tort and securities fraud claims to its
counterclaim.
f. Manual for Complex Litigation: whether all or part of the
procedures of the Manual for Complex Litigation should be
utilized.
It does not appear that the procedures of the Manual for Complex
Litigation should be utilized in this action.
g. Status of Discovery: a discussion of the present state of
discovery.
The parties exchanged initial disclosures pursuant to FRCP Rule
26(a) on June 17, 2014 and completed their FRCP, Rule 26(f) meeting
on June 3, 2014. Plaintiff propounded written discovery, including
interrogatories and document requests, on or around June 6, 2014.
Marani propounded written discovery, including interrogatories and
document requests, on or around June 27, 2014. No depositions have
been noticed as of the date of this Joint Report.
h. Discovery Plan: a detailed discovery plan, as contemplated by
Fed. R. Civ. P. 26(f)(3), including a discussion of the proposed
dates for expert witness disclosures under Fed. R. Civ. P. 26(a)(2)
(see Local Rule 261(f)). A statement that discovery will be
conducted as to all claims and defenses, or other vague
description, is not acceptable.
Plaintiffs Discovery Plan: As stated above, initial disclosures
were made pursuant to FRCP, Rule 26(a) on June 17, 2014.
Case 8:14-cv-00308-JLS-AN Document 12 Filed 06/27/14 Page 9 of
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The subjects of the discovery are fairly narrow. Bodie will seek
discovery on the conversions exercised by Bodie; and the third
party stock issuances of Marani during the term of the Convertible
Note, which stock issuance terms may have affected the conversion
price of the Convertible Note and exercise price of the Warrant.
Bodie anticipates that Marani will endeavor to find support for its
utterly false and baseless claim that Bodie breached the terms of
the Convertible Note by selling Marani stock short to drive down
the price of Maranis stock prior to its conversions. Bodie
adamantly denies any such selling. However, to the extent Marani
seeks to use this baseless allegation to conduct a fishing
expedition into the private financial affairs of Jack Bodenstein or
any other person unrelated to the transactions at issue in this
case, this Court should anticipate that discovery motions may be
necessary to impose appropriate limits on such discovery.
Plaintiff anticipates professional and full compliance by Marani
with all of Plaintiffs discovery. If that is the case, Bodie
believes that it would be able to obtain all facts pertinent to its
claims, other than with respect to expert testimony on damages,
from Maranis books and records, and corporate officers and counsel.
Bodie has propounded an initial set of written discovery, including
requests for admissions, interrogatories and document production
requests. Upon securing full answers to the same, Bodie anticipates
taking depositions of approximately three of Maranis officers and
counsel to determine the terms of all third party transactions that
have impacted Bodies conversion prices and Warrant exercise prices.
In addition, Bodie anticipates taking the depositions of one or two
of Maranis officers pertaining to the allegations made by Marani in
support of Maranis counterclaims. Bodie also anticipates deposing
Maranis expert witness on damages, and any other expert to be
designated by Marani in this case.
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The Courts schedule at Schedule A of its Scheduling Conference
Order (DE 10) is acceptable to the Plaintiff. Plaintiff anticipates
that it will take Plaintiff no more than 4 months after the
Scheduling Conference to complete its non-expert discovery in this
case. Given the Courts non-expert discovery cutoff date at 21 weeks
before trial, Plaintiff would ask the Court to set the trial date
approximately 9 to 10 months after the Scheduling Conference Date
that is sometime between April and May 2015. The dates in Schedule
A would work backwards from that trial date. There appears to be no
need for conducting discovery in phases.
There appears to be no issues pertaining to electronically
stored information. Without waiving any privilege, there appears to
be no issues particular to the action that would require a
discussion of privileges or of protection of trial preparation
materials. However, if any such issues arise, Plaintiff would
endeavor to agree on a procedure to resolve such issues prior to
trial. There appears to be no need to limit discovery, except as
otherwise discussed herein or as otherwise provided in the Federal
Rules of Civil Procedure.
Defendants Discovery Plan: Marani will seek discovery on the
conversions exercised by Bodie and its
communication with Maranis transfer agent though written
discovery on Bodie as well as through a subpoena to Maranis
transfer agent.
In addition, Marani will seek discovery related to Bodies sale
of Marani shares, which may include subpoenaing documents from
Bodie and its brokers. Additionally, Marani anticipates that it
will subpoena documents from online investor fora as well as Bodies
computers to determine the identity of those who posted untrue
comments related to Marani on those fora. Thus, Marani
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anticipates that issues pertaining to electronically stored
information may arise during discovery in this matter.
Marani anticipates taking the deposition of Bodies president and
its brokers as well as Bodies expert witness on damages, and any
other expert to be designated by Bodie in this case.
Marani is amenable to the Courts Schedule A of its Scheduling
Conference Order (DE 10). However, due to the issues related to
electronically stored information and the need to subpoena
documents from third parties, Marani anticipates that it will take
approximately 9 to 10 months after the Scheduling Conference to
complete its non-expert discovery in this case. Thus, Marani seeks
a trial date in June or July 2015. The dates in Schedule A would
work backwards from that trial date.
Marani agrees that there appears to be no need for conducting
discovery in phases.
There appears to be no issues pertaining to electronically
stored information at present which cannot be resolved between
counsel.
Without waiving any privilege, there appears to be no issues
particular to the action that would require a discussion of
privileges or of protection of trial preparation materials.
However, if any such issues arise, Marani would endeavor to agree
on a procedure to resolve such issues prior to trial.
There appears to be no need to limit discovery, except as
otherwise discussed herein or as otherwise provided in the Federal
Rules of Civil Procedure.
i. Discovery Cutoff: a proposed discovery cutoff date. This
means the final day for completion of discovery.
The parties agree to the timing of events set forth in Schedule
A to this Courts Scheduling Conference Order at DE 10. With respect
to non-expert discovery, the discovery cutoff date would be 21
weeks before the trial date.
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IGA
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te 4
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j. Dispositive motions: a description of the issues or claims
that any party believes may be determined by motion for summary
judgment or motion in limine.
Plaintiff intends to file a motion for summary judgment on all
of its claims for relief, once it obtains discovery of all stock
issuances affecting its conversion price and exercise price. Marani
anticipates filing a motion for summary judgment or summary
adjudication of issues on its denial of Plaintiffs claims and
potentially on its counterclaims for affirmative relief.
k. Settlement: a statement of what settlement discussions or
written communications have occurred (excluding any statement of
the terms discussed) and a statement selecting either ADR Procedure
No. 2 (Court Mediation Panel) or ADR Procedure No. 3 (private
mediation). See generally General Order 1110, 5.1; Local Rule
1615.4. Note, however, that the parties may not choose a settlement
conference before the magistrate judge. Local Rule 261(c). For more
information about the Court's ADR Program, please visit the "ADR"
section of the Court website, http://www.cacd.uscourts.gov. No case
will proceed to trial unless all parties, including the principals
of all corporate parties, have appeared personally at a
mediation.
Plaintiffs Statement re Settlement and ADR Procedure Preference:
Plaintiff and Defendant, both represented by counsel, endeavored to
settle
the disputes set forth in this action without success. Plaintiff
remains willing to discuss settlement and will endeavor to do so
throughout this case.
Plaintiff would prefer ADR Procedure No. 2 (Court Mediation
Panel).
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Defendants ADR Procedure Preference: Maranis counsel is in close
communication with Bodies counsel to find
a mutually agreeable solution to the parties disputes and will
continue to do so throughout the litigation.
Marani is agreeable to ADR Procedure No. 2 (Court Mediation
Panel).
l. Trial estimate: a realistic estimate of the time required for
trial and whether trial will be by jury or by court. Each side
should specify (by number, not by name) how many witnesses it
contemplates calling. If the time estimate for trial given in the
Report exceeds four court days, counsel shall be prepared to
discuss in detail the estimate.
Plaintiffs Trial Estimate: Plaintiff estimates that a trial on
the merits of the claims and counterclaims would require
approximately 4 days.
Defendants Trial Estimate: Marani estimates that trial on the
claims and counterclaims will take
approximately 7 days.
m. Trial counsel: the name(s) of the attorney(s) who will try
the case.
Plaintiffs trial counsel will be Brian T. Corrigan and Stanley
C. Morris. Defendants trial counsel will be Dirk O. Julander.
n. Independent Expert or Master: whether this is a case in which
the Court should consider appointing a master pursuant to Fed. R.
Civ. P. 53 or an independent scientific expert. (The appointment of
a master may be especially appropriate if there are likely to be
substantial discovery disputes, numerous claims to be construed in
connection with a summary judgment
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