Petition for Writ of Certiorari — In re Bardsley

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PFEE-OF THE CLERK

IN THE

SUPREME COURT OF THE UNITED STATES

October Term 1995

IN RE NORMAN BARDSLEY,

Petitioner

Vv.

POWELL, TRACHTMAN, LOGAN, CARRLE AND

BOWMAN PC., JOEL P. PERILSTEIN, JONATHAN K. HOLLIN,

SCOTT E. BARDSLEY, LEIGH BARDSLEY, DAVID E. MILLER

AND INOFAST MANUFACTURING, INC..,

Respondents

On Petition For Writ Of Mandamus As Denied

By The Court of Appeals For The Third Circuit

(Docket No. 96-1224) By Order of April 12, 1996,

And As Denied Upon A Motion For Rehearing

In Banc, By Order Dated May 31, 1996, Of A Motion

Requesting The Issuance Of A Preliminary Injunction Denied

By The United States District Court For The Eastern

District Of Pennsylvania (Docket No. 95-2287)

By The Order Dated February 12, 1996

PETITION FOR WRIT OF MANDAMUS

NORMAN BARDSLEY

Petitioner, pro se

Falkenstein, Anger 24

A-3292 Gaming, Austria

Telephone: 011/43/7485/98753

PACKARD PRESS® / APPELLATE DIVISION, 1617 JFK BOULEVARD, PHILA, PA. 19103 (215) 563-9000

QUESTIONS PRESENTED FOR REVIEW

1. Did the District Court for the Eastern District of Penn-

sylvania abuse its judicial discretion by denying petitioner's

Motion for Preliminary Injunction to reinstate petitioner's

rightful majority shareholder status of Inofast Manufacturing,

Inc.? This, although petitioner has made a prima facie show-

ing that defendants, deceptively and manipulatively, usurped

petitioner’s lawful majority shareholder status, as follows:

a) by first acquiring management control of Inofast

Manufacturing, Inc., a Pennsylvania corporation, through

a series of illegal stock issuances;

b) having so unlawfully acquired control of Inofast,

by continuing to maintain that control in violation of the

law.

2. Did the Court of Appeals for the Third Circuit abuse

its judicial discretion by failing to exercise its power to issue a

Writ of Mandamus to Compel the District Court to issue a

Preliminary Injunction?

PARTIES TO THE PROCEEDINGS

1. Petitioner, Norman Bardsley, is a director and share-

holder of Inofast Manufacturing, Inc. (“Inofast”).

Respondents are as follows:

2. Scott Bardsley is petitioner’s twin brother, who is a

director and president of Inofast.

3. Leigh Bardsley is Norman and Scott’s father, who pur-

ports to be a shareholder and director of Inofast. Petitioner

maintains he is legitimately neither.

4. David Miller was a former shareholder and employee

of Inofast. Miller purports to be a current shareholder which

status petitioner disputes.

5. Powell, Trachtman, Logan, Carrle & Bowman PC.

(“The Law Firm” or “Powell Trachtman”). A Montgomery

County law firm who from 1990 forward has served as outside

counsel to Inofast, as well as has acted as counsel to Scott and

Norman Bardsley regarding their interests in Inofast.

6. Joel P. Perilstein. An attorney employed by Powell

Trachtman who during times material herein was handling

Inofast’s, Scott’s and Norman’s corporate and commercial mat-

ters. He is alleged to have personally participated in the

fraudulent scheme to oust Petitioner as majority shareholder.

7. Jonathan K. Hollin. Another attorney employed by

Powell Trachtman. Hollin is also claimed to have directly par-

ticipated in the scheme to divest Petitioner of his majority

shareholder status.

8. Inofast, a Pennsylvania corporation, was named as a

nominal defendant in the District Court. Petitioner, as director

and a shareholder, maintains the suit derivatively on its behalf.

Inofast is also a necessary party for purposes of obtaining the

relief that Petitioner seeks.

oN rere

OO RT gr N pees ge A

TABLE OF CONTENTS

Page

Questions Presented for Review...................... i

ne ee IIS 6 LAS Gs < cointwndd vs ccbuiccacat ii

IR Me CE SOMIID a ns ch on ss excdevcdunvis ices iv

Citation of Opinion Sought to be Reviewed ........... 1

I iE UIE so oS05 5 0G hac Beas ch wa eeecedbe 1

I CN dee UR CU Neuxkideebas habe kw 1

EAN ALE ES bc Sed suSSCRRCEMR AEN MS Fa NGA bO46 R08 3

IN So ie ACR e wea cab e sok se\s Us pecs tdbuesin.i 9

Appendix:

Memorandum And Order Dated February 12, 1996

Of District Court Denying Appellant’s Motion For

A, PUGHMUMATY TRGUIICRION, 6 oo. cee ccc cicecccess la-8a

Docket of Third Circuit Court of Appeals, No.

CTR c. WGRECIL GC ELN CAG carats s baa k ees 9a-l4a

Petition For Writ of Mandamus............... 15a-33a

Order Of Court Of Appeals Dated April 12, 1996

Denying Petition For Mandamus And Referring

Petition To Merits Panel In Third Circuit Appeal

a ee ee ae ee eer 34a

Motion For Rehearing In Banc of the Denial of Peti-

tion For Writ of Mandamus .................. 35a-45a

Order Of Court Of Appeals Dated May 31, 1996

Denying The Petition For Rehearing In Banc...... 46a

iil

TABLE OF AUTHORITIES

Cases: Page(s)

Bank of New York Company, Inc., 528 N.Y.S. 2d 482.... 6

Commonwealth v. Coward, 414 A.2d 91................ 8

Deckert v. Independence Shares Corp., 311, U.S. 282..... 8

Estate of Soler v. Rodriguez, 63 F.3d 45.............. 4, 6,7

Frankel v. Slotkin, 984 F.2d 1328 ..................000- 6

General Tire Corporation v. Talley Industries Inc., 403

Eu SOA ke whKXeakeersavikvkecenesasbbekcueeue 8

Goldberg v. Meridor, 567 F.2d 209..................05. 4

Instant Air Freight v. C.F. Air Freight Inc., 882 F.2d 797... 7

ci. See Ce. 6, Bre Ga Oe kn bk aca dewacewekss 8

Kahan v. Rosenstiel, 424 F.2d 161 3rd Cir (1970) ........ 8

Mutual Shares Corporation v. Genesco, Inc., 384 F.2d 540

bt Dee rE eee Pee Te ee er Bye to 9) Sate ene heter ee Gore 8

Natural Resources Defense Counsel, Inc. v. Texaco, 906

Fk. POO re le OE TES a Tae 7,8

Free An Uh: BE ee Oe ee Sia cw eek A eek eh k Ca 8

Re School Asbestos Litigation, 977 F.2d 764............. 5

Roche v. Evaporated Milk Association, 319 U.S. 21...... 5

Ruckle v. Reto American Corporation, 339 F.2d 24.. 4, 6, 7,8

Studebaker Corp. v. Gittlin, 360 F.2d 692 ............... 8

Town of Hutchinson v. Marsh, 884 F. 2d 648............ 8

Weinberger v. Romero-Barcelo, 456 U.S. 305............ 8

Whitman v. Fuqua, 549 F.Supp. 315 W.D. Pa., (1982).... 8

CITATION OF THE OPINION

SOUGHT TO BE REVIEWED

The Memorandum Opinion of the District Court for the

Eastern District of Pennsylvania denying petitioner’s Motion

for Preliminary Injunction is reported at 916 FSupp. 454,

Bardsley v. Powell, Trachtman, Logan, Carrle & Bowman, PC.

STATEMENT OF JURISDICTION

This Court has jurisdiction over a petition for Writ of

Mandamus authorized by 28 U.S.C. § 1651(a).

Petitioner filed a Writ of Mandamus in the Court of

Appeals for the Third Circuit (No. 96-1224) requesting that

court to compel the lower court to grant petitioner’s Motion

for Preliminary Injunction which was denied by the District

Court in the Memorandum Order dated February 12, 1996

(95-CV-2287). The Third Circuit Court denied the petition for

Writ of Mandamus by Order dated April 26, 1996. Petitioner's

subsequent Motion for Rehearing In Banc was denied by

Order dated May 31, 1996.

STATEMENT OF THE CASE

For the purpose of this petition for Writ of Mandamus,

the statement of the case can be confined to all factual circum-

stances relating to petitioner’s Motion for Preliminary Injunc-

tion.

The central issue of this case is a series of alleged unlaw-

ful transactions involving the corporate issuance of shares of

Inofast Manufacturing, Inc. stock for the purpose of divesting

petitioner of his rightful majority shareholder status. The

transactions in dispute were found by the District Court (Slip

Opinion and Memorandum, “Findings of Fact”) to have been

achieved in the following manner:

1) Mr. Miller purchased 5,357.143 shares of autho-

rized but unissued stock from Inofast which was financed

by a bonus that Scott had unilaterally authorized Inofast

to award Mr. Miller (District Court Finding #22).

2) Leigh was gifted his shares sometime in 1992 by

Inofast which was the result of a meeting betweeen Scott

and Leigh (District Court Finding #23).

3) Scott unilaterally caused the corporation to issue

2,142.857 shares to himself (District Court Finding #24).

4) Thus, Scott caused 12,857 additional shares to be

issued without Norman’s knowledge or approval. These

shares were voted in such a manner as to allow Scott to

gain control of the Board of Directors (District Court .

Finding #25)

5) Following the 1993 shareholders’ meeting, Scott

caused Inofast to issue an additional 5,359 bonus shares

to himself, bringing his total to 18,751.857 shares, 1.857

more shares than Norman’s interest. This transaction

occurred pursuant to a shareholders’ meeting held on

October 19, 1993, attended by Leigh and Scott. Norman,

who was in Austria, had requested an agenda prior to the

meeting, but his request went unanswered (District Court

Finding #26).

In response to the above developments, petitioner

requested in the name of Inofast Manufacturing, Inc., deriva-

tively, and on his own behalf, directly, that the District Court

for the Eastern District of Pennsylvania enter a preliminary

injunction including, inter alia, the following provisions:

“(b) determining and declaring that there are only 30,000

outstanding and issued shares of Inofast, of which 18,750 are

owned by Norman Bardsley (petitioner) and 11,250 are owned

by Scott E. Bardsley (respondent), and that the remaining

45,000 shares are held by Inofast as treasury stock;

transfer of shares of Inofast stock be rescinded and be null

and void, and that all official corporate records be modified to

refiect the terms of the Court’s Order;

(d) declaring pursuant to Section 29(b) of the Securities

Exchange Act that the 1989 Shareholders’ Agreement, the

Deferred Compensation Agreement with Guy Malick, and/or

any other contract claimed by Defendants as purporting to

justify or authorize the issuance of the disputed shares and/or ;

relating to the issuance of same is or are null and void.”

“anh Wagon Om:

PIE RTT re Fe ae

The provisions of 15 U.S.C. Sections 78j(b) (Section 10(b)

of the Securities Exchange Act of 1934), 78aa, and 78cc(b)

(Section 29(b) of the Securities Exchange Act of 1934) give a

District Court jurisdiction to issue a preliminary injunction for

violations of the Securities Act provisions cited.

The District Court denied petitioner’s Motion for Injunc-

tive Relief in its Memorandum Opinion, dated February 12,

1996 - having narrowly viewed the facts on the strict basis of

the future financial consequences to Petitioner - on the sole

ground that Petitioner had failed to demonstrate immediate

irreparable harm. The District Court did not address the mer-

its of petitioner’s claims nor did it make conclusions that were

either explicitly or implicitly established by the factual record,

as a matter of law.

Petitioner subsequently filed a Petition for Writ of Man-

damus in the Court of Appeals for the Third Circuit request-

ing the issuance of the preliminary injunction and an expe-

dited appeal of the Order granting the Dismissal of

Petitioner’s Amended Complaint. This Motion was docketed

under No. 96-1224. On April 12, 1996, the Third Circuit Court

denied the Petition and referred same to the Merits Panel. A

Motion for Rehearing In Banc from the denial of the Petition

for Writ of Mandamus was denied on May 31, 1996. The

Appeal from the Order dated February 12, 1996, denying a

Preliminary Injunction, and the Order dated February 20,

1996, dismissing the amended complaint, is currently pending

in the Court of Appeals for the Third Circuit.

For the purpose of this Petition for Writ of Mandamus in

the Supreme Court of the United States, the only remaining

issue is the denial of petitioner’s Motion for Preliminary

Injunction.

ARGUMENT

The factual record in this case established that the initial

disputed issuance of 12,857 (sic. 12,857.143) shares as well as

the 5,359 bonus shares subsequently issued were performed

without petitioner’s knowledge or approval (as confirmed by

the District Court Findings ##25 & 26). Those findings clearly

refute any claim, as made by respondents, that the sharehold-

ers’ agreement “authorized” such a share issuance because the

court also found that all parties had agreed that the sharehold-

ers’ agreement would be implemented by way of a gifting pro-

cess (Distiict Court finding #7) which was never performed

(Findings ## 10 and 11). It was further factually established

that petitioner was at all material times a director of the board

and, previous to the transactions in dispute, a 62.5% majority

shareholder of Inofast.

In Estate of Soler v. Rodriguez, 63 F.3d 45, at 54 and 55,

the First Circuit Court of Appeals addressed similar factual

circumstances to those presented in this case at bar, as follows:

“It is by now well established that a corporation has

a claim under § 10(b) if the corporation was

defrauded in respect to the sale of its own securities

by some or even all of its directors. (Citing Goldberg

v. Meridor, 567 F2d 209 and Ruckle v. Roto Am.

Corp., 339 F. 2d 24 at 54)

And, on page 55 of 63 F.3d:

“The calculated concealment of the saie itself, thus

depriving CMT’s disinterested directors of the oppor-

tunity to take steps to prevent it before it occurred, was

an Omission to provide essential material information

to the company regarding the stock sale. Indeed,

accepting the allegations of the complaint to be true,

it is a reasonable inference that concealment of the

proposed sale from CMT’s board of directors was

essential to the success of the fraud, since the plaintiff

directors controlled a majority of CMT’s outstanding

shares and would doubtless have acted to block the

sale had they known.” (emphasis added)

Finally, on page 55 of 63 F.3d:

“As there was no “full and fair disclosure” to those

legally empowered to act for the corporation, there

was no full and fair disclosure to CMT itself.”

Thus, the facts of this case immutably lead to the follow-

ing conclusions, as a matter of law:

i) as there was no full and fair disclosure with regard to

the corporate issuance of a total of 18,216.143 shares of Ino-

ware: ; Sur T ear eereOrer ce yse

fast stock to petitioner, as a director of the board legally

empowered to act for the corporation, there was no full and

fair disclosure to Inofast itself;

ii) therefore, Inofast was defrauded with respect to the

sale of 18,216.143 shares of its own securities and has a valid

claim under 10(b) of the Securities Exchange Act of 1934 that

said disputed transactions were unlawfully issued.

The traditional use of mandamus, as recently observed by

the Third Circuit Court of Appeals in Re School Asbestos

Litigation, 977 F.2d 764 at 792, 793, (citing Roche v. Evapo-

rated Milk Association, 319 U.S 21, 26) is “to confine an infe-

rior court to a lawful exercise of its prescribed jurisdiction or

to compel it to exercise its authority when it is its duty to do so.”

(emphasis added)

The Third Circuit Court went on to explain: “In our view,

a district court’s failure to consider the merits of a summary

judgement motion is a failure to exercise its authority when it

has a duty to do so.” And further: “we believe that the refusal

to adjudicate a critical part of a case is comparable.”

The District Court in this case at bar failed to consider

the merits of petitioner’s preliminary injunction motion and

therefore refused to adjudicate a critical part of petitioner's

case, as follows:

ili) the lower court found that the 12,857.143 disputed

share issuance which respondents required to gain control of

Inofast was “caused ... without (petitioner’s) knowledge or

approval” without addressing that factual circumstance on its

merits, as a matter of law. The District Court therefore failed

to apply well established law by not concluding that the

12,857.143 share stock issuance was illegally performed;

iv) by ignoring the above implicit conclusion of law, the

District Court ignored the logical consequence of that neces-

sary conclusion. Because the 18,216.143 shares (without which

petitioner would control Inofast) were issued in clear violation

of the statute, respondents continued control of Inofast (which

has been maintained to date) is in violation of SEC Rule

10b-5. That rule prohibits by law any person... to engage in

any ... practice or course of business which operates or would

operate as a fraud or deceit upon a person (or corporation), in

ee ee

connection with the purchase or sale of any security. In the

context of the specific facts here, each day respondents must

engage in the deception that they hold legitimate (although

illegally issued) shares in order to maintain control of Inofast;

v) and by completely ignoring the corporate entity, Ino-

fast, in whose name petitioner also moved for Preliminary

Injunction, the District Court failed to address the issue that

irreparable harm is established by virtue of the tainting of the

elections of Inofast'’s Board which resulted from respondent's

issuance of illegal shares, and which elections will continue to

be tainted in the future by the vote of those illegal shares. See

Bank of New York Company, Inc. v. Irving Bank Corporation,

528 N.Y.S. 2d 482, 484 (Sup. Ct. 1988) (“Irreparable harm if

corporate electoral process is tainted”).

In Ruckle v. Roto American Corporation, 339 F.2d 24 at

25, the same issue was presented to the court as in this case at

bar: Does a federal court have jurisdiction under the securities

laws to grant a motion for preliminary injunction if an illegal

issuance of corporate stock has been alleged (whether pro-

spective or retroactive)? The Court of Appeals for the Second

Circuit answered in the affirmative by granting preliminary

injunction and remanding the case to the lower court for a

prompt trial on the basis of the following conclusion:

“any failure of majority of board of directors of corpora-

tion to disclose to remaining directors information pertinent to

proposed stock issuance, would constitute fraud upon corpora-

tion within protection of Securities Exchange Act prohibiting

employment in connection with sale of security of any decep-

tive device and rule promulgated under that statute and court

had jurisdiction of action for injunctive relief to prevent such

violations.” (Case summary, emphasis added)

The Ruckle court went further to claim jurisdiction “over

actions in which the complaint alleges that a corporation has

been or may be defrauded into issuing .. . securities ... .” (339

F.2d at 26). The court therefore made no distinction between

retroactive or prospective illegal acts. Both the First Circuit in

Soler, infra., (1995), as well as the Second Circuit in Frankel v.

Slotkin, 984 F.2d 1328 (1993), recently confirmed the Ruckle

mandate as established federal law. In each case, it was alleged

AT EAE ET GT ae (eet

A RE le ee RRR oo

that the majority shareholder position was usurped by the

minority shareholders (who controlled management) through

a fraudulent issuance of stock. Under Ruckle and Soler, peti-

tioner has made a prima facie showing that the issuance of a

total of 18,216.285 shares was illegally performed. Beyond that

initial showing, the established ongoing exercise of that illegally

issued stock by respondents to maintain control of Inofast is a

practice or course of business which operates as a fraud upon

Inofast represents an added ground, as a matter of established

law, to enjoin the furtherance of that ongoing violation of

Rule 10b-5 (3).

To protect the primary public interest of enforcing the

law, the court is advised to pay particular attention as to

whether an alleged statutory violation is ongoing. When that

circumstance has been or can be established, the court has the

power in its discretion to enjoin such unlawful conduct.

In the above context, the District Court failed to address

the significance of the rule adopted by the Third Circuit Court

in Instant Air Freight Co. v. C.F. Air Freight, Inc., 882 F.2d 797,

at 803, in which that court held:

“We have previously held that a statutory provision

authorizing preliminary injunctive relief upon a showing

of probable cause to believe that the statute is being vio-

lated may be considered a substitute for a finding of

irreparable harm for purposes of a preliminary injunction

issued under Rule 65.” (emphasis added)

Petitioner makes a clear showing that the securities law is

being continuously violated, which distinguishes this case at

bar from those in which only past tense violations were estab-

lished. As stated by Louis Loss in the Fundamentals of Secu-

rities Regulations (1988), page 493, (referring to proxy securi-

ties violations), “since equity will not suffer an offender to

enjoy the fruits of his illegal action, the courts have enjoined

the use of proxies obtained through illegal solicitation.”

(emphasis added). The Third Circuit issued, one year after

Instant Air Freight, infra., an opinion in Natural Resources

Defense Counsel, Inc. v. Texaco Refining & Marketing, Inc.,

906 F.2d 934 at 939 (1990), in which it noted that “the

Supreme Court has explicitly rejected the notion that an

injunction follows as a matter of course upon a finding of a

statutory violation...” (quoting Town of Hutchinson v.

Marsh, 884 F.2d 648 (2d Cir. 1989). Although the Third Circuit

in Natural Resources relied on the Supreme Court’s decision in

Weinberger v. Romero-Barcelo, 456 U.S. 305, that court also

went on to hold Supra. at 937 that under Weinberger “the tra-

ditional equitable standard in determining whether an injunc-

tion (is) appropriate” must be applied. The traditional stan-

dard for the granting of an injunction under the securities laws

has been expressed by innumerable cases, including Ruckle v.

Roto American Corp., infra.; see also J.J. Case Co. v. Borak,

377 U.S. 426, Deckert v. Independent Shares Corp., 311 U.S.

282, Kahan v. Rosenstiel, 424 F.2d 161, 3rd Cir. (1970), Whit- |

man v. Fuqua, 549 F. Supp. 315, W.D.Pa. (1982), General Tire

Corporation v. Talley Industries Inc., 403 F.2d 159, Studebaker

Corp. v. Gittlin, 360 F.2d 692, Mutual Shares Corporation v.

Genesco, Inc., 384 F.2d 540 (1967).

The securities laws were enacted in the public interest for

the protection of investors in securities. Securities represent

distinct property mights. Accordingly, Weinberger, infra.,

instructs that “(a)n injunction should issue only where the

intervention of a court of equity is essential in order to protect

property rights against injuries otherwise irremediable.”

(emphasis added) Where it might appear in Natural

Resources, infra., that the Third Circuit rejected in principle

the rule held by the Pennsylvania Supreme Court in Common-

wealth v. Coward, 414 A.2d 91, 98 (1990) citing RU.C. v. Israel,

356 Pa. 400, 406 - “When the legislature declares certain con-

duct to be unlawful it is tantamount in law to calling it injuri-

ous to the public. For one to continue such unlawful conduct

constitutes irreparable harm.” - the facts of Natural Resources,

infra. are clearly inapposite to those in this case at bar. The

illegal issuance of a total of 18,216.285 shares of Inofast stock

represents an unlawful distribution of the corporation’s prop-

erty. That violation of property rights, as Weinberger instructs,

is afforded the remedy of injunctive relief. In Natural |

Resources no such property rights had been violated; in that |

case the issue was one of environmental protection.

In this case at bar, respondents acquired management

control of Inofast by fraudulently issuing 12,857.143 shares of

stock. There was no effective payment made to Inofast for

those shares (Miller's purchase price for his shares had been

“bonused” to him through the corporation). Those shares, at

the time they were issued, represented over 30% of the equity

ownership of Inofast. Therefore, through an illegal distribu-

tion of corporate property, Inofast b=came partly owned and

is being further controlled by respondents on the basis of

counterfeit securities.

Petitioner's only redress is in a court of law. Petitioner has

made a showing that the disputed stock was indeed illegally

issued. Although a trial may eventually restore petitioner's

rightful majority status, the opportunities which he as a con-

trolling shareholder of Inofast would have enjoyed in the

interim - had that majority status not been usurped - are for-

ever lost and, therefore, irremediable. The established federal

securities law supports petitioner's claim for injunctive relief,

i.e., that the disputed shares be rescinded as a matter of law. It

was therefore the duty of the District Court to grant petition-

er’s request for injunctive relief.

Because the District Court denied petitioner's valid

Motion for injunctive relief, it was in the discretion of the

Court of Appeals for the Third Circuit to therefore grant Writ

of Mandamus, to compel the District Court to exercise its

authority when it was its duty to do so. The Third Circuit

Court erred in denying Writ of Mandamus.

CONCLUSION

WHEREFORE, petitioner requests that the Unitied

States Supreme Court grant Writ of Mandamus to compel the

District Court to grant petitioner’s request for preliminary

injunctive relief.

Respectfully submitted,

Norman Bardsley,

Petitioner, Pro Se

APPENDIX

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

NORMAN BARDSLEY, :

Plaintiff, :

v. : No. 95-CV-2287

POWELL, TRACHTMAN, LOGAN,

CARRLE & BOWMAN, PC., et al.,

Defendants. :

MEMORANDUM AND ORDER

Joyner, J. February 12, 1996

We address today the motion for a preliminary injunction

filed by the plaintiff in this dispute arising from a struggle for

control of Inofast Manufacturing, Inc., a Pennsylvania com-

pany engaged in the manufacture of fasteners. The plaintiff is

Norman Bardsley (“Norman”), a United States citizen domi-

ciled in Austria, and a shareholder and director of Inofast.

Norman commenced this action by filing a complaint on April

19, 1995, naming as defendants Powell, Trachtman, Logan,

Carrle & Bowman, PC. (“Powell, Trachtman”), a Montgom-

ery County law firm that served as corporate counsel to Ino-

fast; Joel P. Perilstein and Jonathan K. Hollin, who are mem-

bers of the Powell, Trachtman firm; Scott Bardsley (“Scott”),

who is Norman’s twin brother and a shareholder of Inofast:

Leigh Bardsley (“Leigh”), who is Scott and Norman’s father:

and David Miller. Inofast has been named as a nominal defen-

dant.

The gravamen of Norman's complaint is that Scott and

the other defendants entered into a series of unlawful transac-

tions for the purpose of divesting Norman of his majority

shareholder status. Norman has set forth claims under the

Securities Exchange Act of 1934 and the Racketeer Influenced

and Corrupt Organizations Act, as well as a number of com-

mon law claims. In the instant motion, Norman asks this Court

primarily to set aside the elections of Inofast officers and

directors conducted during the previous three annual share-

holders’ meetings and issue an order voiding the disputed

transactions and restoring him to his majority status. A hear-

ing on the motion was conducted on October 5, 1995 and

January 3, 1996. The parties have since submitted their pro-

posed findings of fact and conclusions of law. Accordingly, the

matter is now ripe for decision.

FINDINGS OF FACT

1. Inofast was incorporated in 1981. Its stock was owned

by Norman, who held 18,750 shares; Scott, who owned 11,250

shares; and Mr. Miller, Guy Mallick, Jonathan Price and Klaus

Neuber, who collectively held 45,000 shares. Tr., 10/5/95, p. 3.

2. Scott had ten years’ experience in the fastener industry

prior to Inofast’s formation, and was responsible for its day-to-

day operation. Norman was a passive investor. Tr., 10/5/95, p.

52; 1/3/96, p. 105.

3. As of 1985, Messrs. Miller, Mallick, Price and Neuber

had sold their shares back to Inofast. Thus, Norman’s 18,750

shares represented 62.5% of Inofast’s issued stock, while

Scott’s 11,250 shares accounted for the remaining 37.5% of the

issued stock. Tr., 1/3/96, p. 43.

4. By 1986, Scott felt the need to bring the expertise of

Messrs. Miller and Mallick back into the company. Moreover,

Scott was convinced that the only way to achieve this end was

to offer them an ownership interest. Tr., 1/3/96, p. 106.

5. Accordingly, the three Bardsleys and Messrs. Miller

and Mallick entered into a shareholders’ agreement, which

provides that the signatories “own all of the issued and out-

standing stock of the corporation,” in the following percent-

ages:

Norman 35%

Scott 25%

Mr. Mallick 20%

Mr. Miller 10%

Leigh 10%

Plaintiff’s Ex. 13.

ee —* -

———

6. The same five individuals signed shareholders’ agree-

ments in 1987 and 1989. The agreements are identical to the

1986 agreement with respect to the stock ownership arrange-

ment. Plaintiff’s Exs. 14, 15.

7. The transfer of shares to Leigh and Messrs. Mallick and

Miller was to be achieved via gifting from Norman and Scott.

Tr., 1/3/96, p. 10. Scott testified that there was a plan “to gift

shares over a number of years to the various recipients.” Tr.,

1/3/96, p. 53.

8. There arose a dispute, however, regarding who would

be liable for the gift tax associated with the transactions. Leigh

and Messrs. Mallick and Miller indicated that they were

unwilling to pay the associated gift tax. Tr., 10/5/95, p. 16.

9. There was never any agreement between Scott and

Norman to pay the tax on behalf of the donees. Tr., 10/5/95, p.

16; 1/3/96, p. 53.

10. Mr. Mallick testified that as a result of the gift tax dis-

pute, the shares provided for him in the three shareholders’

agreements were never transferred to him. Tr., 1/3/96, p. 10.

Likewise, Mr. Miller has indicated that he never received any

stock as a result of any of the three shareholders’ agreements.

Plaintiff's Ex. 36.

11. There is no mention in any of the three shareholders’

agreements of either the mechanism by which the transfer of

stock would be achieved or the party responsible for paying

the gift tax. Indeed, Scott himself testified that no gifting of

stock ever occurred. Tr., 1/3/96, p. 48.

12. In August of 1991, Norman returned to the United

States and began working with Inofast for the purpose of

establishing a subsidiary in Austria. Tr., 10/5/95, p. 17.

13. Norman testified that the company’s performance had

declined in the years immediately preceding his return. For

example, sales had fallen from $3.341 million in 1989 to $2.666

million in 1991. Tr., 10/5/95, pp. 18-19; Plaintiff’s Exs. 3, 5, 7.

14. For the year ending September 30, 1991, Inofast

incurred a pre-tax net loss of $173,069; and its liabilities

exceeded its assets by $243,628. Plaintiff’s Ex. 9.

15. Gross revenues fell to $1.897 million in 1994. Plain-

tiff’s Ex. 12.

16. On the other hand, Inofast reduced its debt by

$370,000 between the years 1991-1995. Tr., 1/3/96, pp. 89-90.

17. Scott attributed the company’s poorer performance to

a shift in emphasis from distribution to manufacturing, which

he felt was necessary to maintain the long term health of the

company. Moreover, Scott pointed to the recent decline in

federal spending for national defense to explain the fiscal

down trend. Tr., 10/5/95, pp. 19-20; 1/3/96, pp. 114, 148.

18. The relationship between the two brothers began to

sour. Norman objected to the leadership Scott was providing

for Inofast. He threatened to file a lawsuit, and frequently told

Scott that he intended to use his voting power to take control

of the company. Tr., 1/3/96, p. 149.

19. Both Scott and Norman became personal guarantors

of 50% of Inofast’s debt. Tr., 10/5/95, pp. 9-10; 1/3/96, pp. 30-31.

20. In preparation for the 1993 shareholders’ meeting,

Norman requested Mr. Perilstein to provide him with a list of

shareholders who would be entitled to vote. Tr., 10/5/95, p. 24.

21. Mr. Perilstein advised Norman that the shareholders

and their respective ownership interests were as follows:

Norman 18,750 shares

Scott 13,392.857 shares

Leigh 5,357 shares

Mr. Miller 5,357.143 shares

Plaintiff's Ex. 54.

22. Mr. Miller did not receive any of his shares until 1993,

when he purchased 5,357.143 shares of authorized but unis-

sued stock. In order to facilitate this transaction, Scott unilat-

erally authorized Inofast to award Mr. Miller a bonus in excess

of $21,000 to cover the cost of the shares and the related taxes.

Tr., 1/3/96, p. 50.

23. Leigh did not receive his shares until 1992, shares

which came to him by way of a gift from the corporation. Tr.,

1/3/96, p. 77. This transaction occurred as a result of a meeting

attended by only Scott and Leigh. Tr., 1/3/96, p. 57.

24. Prior to the 1993 shareholders’ meeting, Scott unilat-

erally caused the corporation to issue 2,142.857 shares to him-

self. Tr., 1/3/96, p. 149-50.

cilia

25. Thus, Scott caused 12,857 additional shares to be

issued without Norman’s knowledge or approval. These shares

were voted in such a manner as to allow Scott to gain control

of the board of directors. Tr., 1/3/96, pp. 149-50.

26. Following the 1993 shareholders’ meeting, Scott

caused Inofast to issue an additional 5,359 bonus shares to

himself, bringing his total to 18,751.857 shares, 1.857 more

shares than Norman’s interest. This transaction occurred pur-

suant to a shareholders’ meeting held on October 19, 1993,

attended by Leigh and Scott. Norman, who was in Austria,

had requested an agenda prior to the meeting, but his request

went unanswered. Tr., 1/3/96, pp. 38-40.

27. On December 2, 1993, Norman initiated a declaratory

judgment action in the Court of Common Pleas of Montgom-

ery County regarding the ownership of Inofast. This suit was

subsequently withdrawn. Tr., 10/5/95, p. 66.

28. On June 16, 1994, Norman commenced a second suit

in Montgomery County, making claims for (1) injunctive and

declaratory relief; (2) violation of fiduciary duties; (3) fraud

and misrepresentation; and (4) violation of the Pennsylvania

Business Corporation Law. On June 17, the court issued an

injunction enjoining the defendants from performing major

corporate functions. The parties have complied with this

injunction. The Montgomery County action remains pending.

DISCUSSION

In the instant motion, Norman asks this Court for an

injunctive order to (1) appoint independent counsel to repre-

sent Inofast; (2) set aside the elections of Inofast officers and

directors conducted during the previous three annual share-

holders’ meetings; and (3) order that Inofast conduct its affairs

as if Norman controlled 62.5% of the 30,000 outstanding and

issued shares. In weighing Norman’s request, we are mindful

that injunctive relief is an extraordinary remedy that should be

granted only in limited circumstances. Frank’s GMC Truck

Center, Inc. v. General Motors Corp., 847 F.2d 100, 102 (3d Cir.

1988). Thus, the onus is on the movant to show by sufficient

evidence that (1) he is likely to succeed on the merits; (2) he

will suffer irreparable harm if relief is denied; (3) the granting

of injunctive relief will not result in greater harm to the

adverse party; and (4) the granting of injunctive relief is in the

public interest. Campbell Soup Co. v. ConAgra, Inc., 977 F.3d

86, 90-91 (3d Cir. 1992); Orson, Inc. v. Miramax Film Corp.,

836 F. Supp. 309, 311 (E.D. Pa. 1993).

Upon review of the evidence presented at the hearing

viewed in light of the standard articulated above, we conclude

that injunctive relief is unwarranted. Specifically, we find that

Norman has failed to convince us that he will suffer irrepa-

ravle harm if relief is denied.! Norman argues that Inofast’s

fiscal condition has declined precipitously under Scott’s stew-

ardship, and that he is at risk in that he has personally guar-

anteed one half of Inofast’s debt. Moreover, he contends that

“if provisional action is not taken and taken quickly to address

the declining financial situation at Inofast, there might not be a

Company at all at the conclusion of this litigation for Plaintiff

to regain control over. ...” Plaintiffs Memo. at 7 (emphasis

added).

Unfortunately for Norman, this is precisely the type of

harm for which there is no injunctive remedy. The cases make

clear that injunctive relief is unwarranted where the harm will

occur, if at all, only in the indefinite future. Indeed, our Court

of Appeals requires that there be a “clear showing of immedi-

ate irreparable harm” before an injunction may issue. Camp-

bell Soup, 977 F.2d at 91 (citation and internal quotation omit-

ted). Moreover, the harm must rise to a level beyond serious

and substantial harm; and it must be of a nature so peculiar

that money alone cannot compensate for it. ECRI v. McGraw-

Hill, Inc., 809 F.2d 223, 226 (3d Cir. 1987) ; Orson, 836 F. Supp.

at 311.

Here, the harm that animates Norman’s request for relief,

as he concedes in the emphasized excerpt from his Memoran-

dum quoted above, is speculative, and not immediate. Norman

1. We resolve this motion today solely on the basis of Plaintiff's inabil-

ity to prove irreparable harm. Thus, we need not address issues such as the

validity of the shareholders’ agreements, whether Inofast’s current counsel

should be disqualified, or the legality of the transactions by which Plaintiff

lost his majority shareholder status.

has presented evidence of Inofast’s financial decline, but not of

its imminent collapse. Indeed, Defendants have presented

some evidence to suggest that Inofast’s financial state is

improving. Moreover, the damages that Norman either has

suffered or may suffer are not irreparable, but are instead

measurable and compensable monetarily. Thus, the harm

alleged here is ill-suited for an injunctive remedy. Finally, we

note that Norman has failed to present evidence to suggest

that Scott’s leadership has caused the financial problems at

Inofast, or that its fiscal condition would improve if the com-

pany’s reins were placed in Norman’s hands. For these rea-

sons, we conclude that an injunctive remedy here is inappro-

priate. Accordingly, we enter the following

CONCLUSIONS OF LAW

1. This Court has jurisdiction over this matter pursuant to

28 U.S.C. §§ 1331 and 1367.7

2. Plaintiff has failed to show by sufficient evidence that

he will suffer irreparable harm if the instant motion is denied.

3. Accordingly, Plaintiff’; Motion for a Preliminary

Injunction will be denied.

An appropriate order follows.

2. Pending before us are two motions to dismiss, which raise jurisdic-

tional issues. Our conclusion here does not address the arguments in favor

of dismissal. Thus, we assert jurisdiction over this action today for the sole

purpose of disposing of the instant motion.

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

NORMAN BARDSLEY,

Plaintiff, :

v. : No. 95-CV-2287

POWELL, TRACHTMAN, LOGAN,

CARRLE & BOWMAN, PC., et ai.,

Defendants. :

ORDER

AND NOW, this 12th day of February, 1996, upon consid-

eration of Plaintiff's Motion for a Preliminary Injunction, and

the response thereto, and after a hearing on this matter on

October 5, 1995 and January 3, 1996, it is hereby ORDERED,

for the reasons set forth in the preceding Memorandum, that

said Motion is DENIED.

J. Curtis Joyner, J.

GENERAL DOCKET FOR

Third Circuit Court of Appeals

Court of Appeals Docket #: 96-1224 Filed: 3/19/96

Nsuit: 0

Bardsley v. Powell Trachtman

Appeal from: Eastern District of Pennsylvania

Lower court information:

District: 0313-2 : 95-cv-02287

Trial Judge: J. Curtis Joyner, District Judge

Date Filed: **/**/**

Date order/judgment: **/**/**

Date NOA filed: **/**/**

Fee status: paid

Prior cases:

None

Current cases:

Lead Member Start End

96-1224 96- 1225 3/19/96 4/12/96

Docket as of June 4, 1996 10:30 am

10a

Proceedings include all events.

96-1224 Bardsley v. Powell Trachtman

NORMAN BARDSLEY Norman Bardsley

Petitioner [NTC pro]

452 Schoolhouse Lane

Philadelphia, PA 19144-4506

POWELL, TRACHTMAN, Margaret Mary Maguire

LOGAN, CARRLE & BOWMAN _ FAX 277-9979

Respondent 610-277-1700

[COR NTC ret}

Andrew L. Braunfeld

FAX 277-9979

610-277-1700

[COR NTC ret]

Masterson, Braunfeld,

Maguire & Brown

Swede & Airy Streets

One Montgomery Plaza,

Suite 702

Norristown, PA 19401

JOEL P. PERILSTEIN Margaret Mary Maguire

Respondent (See above)

{COR NTC ret]

Andrew L. Braunfeld

(See above)

[COR NTC ret]

JONATHAN K. HOLLIN Margaret Mary Maguire

Respondent (See above)

[COR NTC ret]

Andrew L. Braunfeld

(See above)

{COR NTC ret]

lla

Proceedings include all events.

96-1224 Bardsley v. Powell Trachtman

SCOTT E. BARDSLEY Mark C. Schultz

Respondent FAX 941-0711

610-941-5400

[COR NTC ret]

Sherr, Joffe & Zuckerman

200 Four Falls Corporate Center

P.O. Box 800, Suite 400

West Conshohocken, PA

19428-0800

LEIGH BARDSLEY . Mark C. Schultz

Respondent (See above)

{COR NTC ret}

INOFAST MFG INC Mark C. Schultz

Respondent (See above)

[COR NTC ret}

DAVID E. MILLER Mark C. Schultz

Respondent (See above)

[COR NTC ret]

J. CURTIS JOYNER

Docket as of June 4, 1996 10:30 am

12a

Proceedings include all events.

96-1224 Bardsley v. Powell Trachtman

NORMAN BARDSLEY,

Petitioner

Vv.

POWELL, TRACHTMAN, LOGAN, CARRLE &

BOWMAN, PC., et al.

Docket as of June 4, 1996 10:30 am

13a

Proceedings include all events.

96-1224 Bardsley v. Powell Trachtman

3/19/96

3/25/96

4/2/96

4/10/96

4/12/96

Original Proceeding Docketed. Notice filed by Norman

Bardsley. USCA Receipt No. 35677 and Receipt Date

3/15/96. (ghb) [96-1224]

Submitted on PETITION FOR WRIT OF MANDAMUS.

Coram: Greenberg, Cowen, Alito, Circuit Judges. (irb)

[96-1224]

APPEARANCES from Attorneys Margaret M. Maguire

& Andrew L. Braunfeld on behalf of Respondents Powell,

Trachtman, Logan, Carrle & Bowman, P.C., Joel P. Peril-

stein & Jonathan K. Hollin, filed. (ghb) [96-1224]

DISCLOSURE STATEMENT on behalf of Respondents

Powell, Trachtman, Logan, Carrie & Bowman, P.C., Joel P.

Perilstein & Jonathan K. Hollin, filed. (ghb) [96-1224]

FOLLOW UP LETTER to Mark C. Schultz requesting the

following documents: **Appearance Form **Disclosure

Statement (ghb) [96-1224]

APPEARANCE from Attorney Marx C. Schultz on behalf

of Respondents Scott E. Bardsley, Leigh Bardsley, Inofast

Manufacturing, Inc. & David E. Miller, filed. (ghb)

[96-1224]

DISCLOSURE STATEMENT on behalf of Respondents

Scott E. Bardsley, Leigh Bardsley, Inofast Manufacturing,

Inc. & David E. Miller, filed. (ghb) [96-1224]

ORDER (Greenberg, Authoring Judge, Cowen, Alito, Cir-

cuit Judges) referring the petition for writ of mandamus at

96-1224 to the merits panel to determine if there is appel-

late jurisdiction. Directing that the petition at 96-1224 be

considered with the appeal at 96-1225. The petition for writ

of mandamus at 96-1224 is denied, filed. C-84. SEND TO

MERITS PANEL (irb) [96-1225]

Certified copy of order sent to Clerk of District Court.

(Irb) [96-1224]

14a

Proceedings include all events.

96-1224 Bardsley v. Powell Trachtman

4/26/96

4/29/96

5/13/96

5/31/96

Original and 15 copies of document entitled “Motion for

Reconsideration of the Denial of Writ of Mandamus,

Motion for Reconsideration of the Denial of Appellant's

Appeal, Motion for a Temporary Restraining Order”

received from appellant pro se. (kot) [96-1224]

NONCOMPLIANCE LETTER requesting compliance for

Petition for Rehearing, submitted by Norman Bardsley.

Response due in 14 days. (kot) [96-1224]

Complying petition by appellant pro se for rehearing in

banc rec’d 5/13/96. (ma) [96-1224]

PETITION by petitioner pro se for rehearing in banc of

the denial of petition for writ of mandamus. Certificate of

Service dated 4/26/96, filed. (ma) [96-1224]

ORDER (Sloviter, Chief Judge, Becker, Stapleton,

Mansmann, Greenberg, Authoring Judge, Scirica, Cowen,

Nygaard, Alito, Roth, Lewis, McKee and Sarokin, Circuit

Judges) denying petition for rehearing, filed. (ma)

[96-1224]

Docket as of June 4, 1996 10:30 am

15a

3rd UNITED STATES CIRCUIT COURT

NORMAN BARDSLEY, : EASTERN DISTRICT OF

plaintiff, : PENNSYLVANIA

v. : CIVIL ACTION NO. 95-CV-2287

POWELL, TRACHTMAN, : FILED MARCH 15, 1996

LOGAN, CARRLE & BOWMAN :

PC., et al., : Judge Joyner

defendants. :

Writ of Mandamus

The unusual circumstances of this case compels plaintiff

to make an extraordinary application for relief. Plaintiff there-

fore applies to the Court of Appeals for the 3rd U.S. Circuit

for a Writ of Mandamus, as derived from the authority of 28

U.S.C. 1651, to grant plaintiff's individual and derivative

requests for Preliminary Injunction that were denied by Judge

Joyner’s Order and Memorandum, dated February 12, 1996.

Plaintiff also requests expedited review on Appeal, as derived

from Rule 4 of the Appellate Procedure and the authority of

28 U.S.C. 1292, of Judge Joyner’s Order and Memorandum,

dated February 20, 1996, dismissing plaintiff's individual and

derivative Complaint. Plaintiff additionally requests that

Judge Joyner be recused, as derived from the authority of 28

U.S.C. 455.

After hearings on plaintiff's preliminary injunction

motions were held on October 5, 1995 and January 3, 1996,

Judge Joyner issued Findings of Fact that confirmed plaintiff's

allegation that Inofast Mfg., Inc., a Pennsylvania corporation,

has been illegally governed and controlled since April 26,

1993. That illegal control was acquired and is being main-

tained on the basis of elections which were tainted by the vote

of illegitimate shares. This status quo, as plaintiff additionally

alleged, caused and will continue to cause plaintiff and Inofast

irreparable harm. Judge Joyner denied plaintiff's preliminary

injunction motion on the exclusive grounds that irreparable

harm had not been shown. Judge Joyner thereby denied plain-

tiff’s prayer for relief to rescind the shares that he had other-

16a

wise determined, by the weight of his very Findings, had been

improperly issued. Judge Joyner’s decision permits the contin-

ued mismanagement of Inofast’s corporate affairs by directors

who but for the illegal and tainted elections held would not be

in office, by letting that illegal status quo to go unabated for-

ward.

Notwithstanding the Court’s factual Findings in substan-

tiation of the merits of plaintiff's factual allegations, Judge

Joyner subsequently dismissed plaintiff's Complaint by his

Order and Memorandum, dated February 20, 1996, without

allowing plaintiff leave to amend. Plaintiff's individual and

derivative federal claims address issues of the integrity of a

proper and legal democratic process in corporate law that he

has shown had been and will continue to be violated. As will

be shown, Judge Joyner failed to exercise the Court’s author-

ity when he had a duty to do so.

Judge Joyner denied plaintiff's prayer for relief by ignor-

ing the fundamentally obvious factual nature of plaintiff’s

showing of probable cause that substantive federal statutes are

being violated and that irreparable harm is being suffered

through a continuing tainted corporate electoral process.

Judge Joyner denied federal jurisdiction, not only by ignoring

material facts of record but by ignoring the substantive law in

the context those facts were pled. Additionally, Judge Joyner’s

opinion reflects renderings and omissions of fact presented in

a light most unfavorable to plaintiff. The numerous examples

of Judge Joyner’s abuse of discretion, factual error and error

as a matter of iaw give the distinct appearance, in their over-

whelming entirety, of an inappropriate bias or prejudice

against plaintiff. For those reasons, plaintiff requests that

Judge Joyner be recused from any further proceedings in this

case.

Statement of Fact, as construed from Judge Joyner’s Findings

of Fact (“Findings”), Memorandum and Order dated Febru-

ary 12, 1996:

1) The effectuation of the shareholders’ agreement was

contingent to a transfer of shares which was to occur via a

gifting from Norman and Scott to Leigh and Mssrs. Malick

and Miller.

17a

a) Judge Joyner observed that the shareholders’

agreement provided that the signatories would “own all the

issued and outstanding stock of the corporation”. (Findings #5)

b) Because at all relevant times the only legally

issued and outstanding stock were the 30,000 shares owned by

Scott and Norman (Finding #3), to effectuate the shareholders’

agreement it was agreed upon that a transfer of shares to

Leigh and Mssrs. Malick and Miller was to be achieved via a

gifting from Norman and Scott. (Finding #7)

2) The effectuation of the shareholders’ agreement as

agreed upon did not occur.

a) Judge Joyner confirmed that Mssrs. Malick and

Miller never received any shares. (Finding #10)

b) Judge Joyner also confirmed that Scott testified

that no gifting ever occurred. (Finding #11)

c) Plaintiff also testified that no gifting had occurred.

(Hearing transcript, Oct. 5, 1995)

3) A series of stock issuances, totalling 12,857 (sic. .143)

shares was caused by Scott without Norman’s knowledge or

approval. (Findings ## 22, 23, 24 and 25)

4) An additional 5,359 shares were bonused to Scott.

(Finding # 26) In his Memorandum dated February 20, 1996,

Judge Joyner further confirmed that:,

a) “This transaction occurred without Norman’s

knowledge or approval.” (page 5, Court’s Slip Opinion)

b) “It was therefore not until the 1994 shareholders’

meeting convened that Mr. Perilstein informed Norman that

Scott had received the 5,359 bonus shares.” (therefore, as of

April 25, 1994, page 6, Court’s Slip Opinion)

Factual Conclusion:

5) It can be logically deduced that none of the stock

transactions listed under Judge Joyner’s Findings, i.e., #22,

5,357.143 unissued shares to Miller, #23 Leigh’s shares, #24,

2,142.857 shares to Scott (Scott was an intended donor, not a

donee), # 26, the additional 5,359 bonus shares to Scott had

been or could have been authorized by the shareholders,

agreement. Judge Joyner significantly omitted the above con-

18a

clusional Finding although the factual record immutably sup-

ports it (See the transcripts for the Oct. 5, 1995 and Jan. 3,

1996 Hearings). Judge Joyner therefore neglects to resolve the

central issue of plaintiff’s 29(b) securities claim, i.e., that the

shareholders’ agreement could not have legally authorized the

disputed 12,857.143 corporate share issuance. It was error for

Judge Joyner not to resolve the merits of plaintiff's motions as

a matter of law, i.e. — Were the disputed transactions illegally

performed? — although an affirmative conclusion is supported

by the following Findings and circumstances:

a). “There is no mention in any of the three share-

holders’ agreements of . . . the mechanism by which the trans-

fer of stock would be achieved . . .” (Findings #11)

b) “The transfer of shares to Leigh and Mssrs. Mal-

ick and Miller was to be achieved via gifting from Norman to

Scott” - (Finding #7) - therefore, not via a corporate issuance

of stock.

c) Only issued and outstanding stock was to be

owned by the designated signatories.

d) A corporate issuance of stock that is tantamount

to a gifting of shares is in violation of the statute.

Issues, matters of law and argument:

6) Because the shareholders’ agreement could not possi-

bly provide legal authorization for the above stock transac-

tions, those transactions required separate approval by the

board of directors, as a matter of law. The disputed transac-

tions, each performed by way of a corporate share issuance

without full board disclosure, constituted fraud. This applies to

each of the 4 transactions scrutinized under Findings ## 22, 23,

24 and 26.

a) “As a matter of authority and principle, the issu-

ance by a corporation of its own shares is a “sale” to which the

anti-fraud policy expressed in the federal securities laws

extends.” (Ruckle v. Roto American Corp., cited as 339 F.2d24

at 27)

b) “Does the failure or refusal of a majority of a

board of directors to disclose to the remaining directors infor-

19a

mation pertinent to a proposed stock issuance constitute a

“fraud” upon the corporation within the meaning of the statute?

We answer . . . in the affirmative.” (Ruckle v. Roto at 27)

c) The above referenced transactions, properly

framed under Ruckle as fraud upon Inofast, so qualify under

Rule 10b-5 both as:

(1) a scheme to defraud, and

(3) a practice or course of business which oper-

ates or would operate as a fraud upon the corporation, in con-

nection with the purchase or sale of any security.

d) a scheme in connection with the illegal issuance of

12,857.143 shares was perpetrated through the acquisition of

control of Inofast by way of the voting of disputed shares at

the April 26, 1993 annual shareholders’ meeting. (court’s Slip

Opinion, Feb 20, 1996 at page 14)

e) the above referenced practice or course of busi-

ness has continued since April 26, 1993, and at each subse-

quent shareholders’ annual meeting whereby the initially dis-

puted 12,857.143 shares were voted, in addition to the

disputed 5,359 bonus shares later issued, on April 25, 1994 and

April 24, 1995, so as to maintain control of Inofast.

f) that illegal practice or course of business will con-

tinue until defendants are enjoined from voting the illegally

issued stock.

7) Because the transactions referenced under 6 above

were effectuated by way of the illegal performance of the

shareholders’ agreement (the contract), they also qualify as

violations of 29(b), in continuance of any relationship or prac-

tice in violation of 10b-5.

8) The transactions referenced under 6 above also repre-

sent common law fraud violations, as well as violations of the

Penna. BCL and the Penna. Securities Law.

9) In the discussion of defendant's statute of limitations

challenge, Judge Joyner did not even address the timeliness of

the separate alleged 5,359 bonus share issuance violation. That

transaction was secretly affected in October 1993, of which

plaintiff was first informed as of April 25, 1994, at which time

that violation, as a matter of law, first accrued. In his Memo-

randum in Opposition to Defendants’ Motions to Dismiss,

aimee

20a

plaintiff already observed: “This suit having been commenced

on April 19, 1995, there is no question, and defendants have not

raised any, that the §§10b and 29(b) claims challenging this sec-

ond transaction are timely before this Court.” By denying all

plaintiff's security fraud claims, collectively, as time barred,

Judge Joyner did not state that the 5,359 separate alleged

bonus share violation was untenable as a 10(b) or 10b-5 cause

of action. There can therefore be no question that Judge

Joyner was in error by dismissing plaintiff’s 5,359 bonus share

securities violation claim.

10) Plaintiff concededly knew or should have known of

the direct 10b-5 injury as of April 26, 1993, i.e.; such a claim

would have found its exclusive basis on the grounds that

12,857.143 shares had been issued without his knowledge or

approval, as a majority shareholder and a director of the

board. But plaintiff brought his securities claim under §29(b)

of the securities act which provides in pertinent part that

“every contract made ... the performance of which involves a

violation of . . . any provision of this chapter or any rule or

regulation thereunder, shall be void . . .” On that basis, plain-

tiff alleged that the secret and improper invocation of the

shareholders’ agreement authorizing the issuance of

12,857.143 shares was in violation of the Rules 10(b) and 10b-5,

making that “contract” void. To have a basis for his claim,

plaintiff would have to know, or have at least reasonable

grounds to know, that what he alleges actually occurred. He

makes himself otherwise liable for Rule 11 sanctions.

Although Judge Joyner made specific reference to plain-

tiff’s statement that “he (plaintiff) assumed that the 1989

Shareholders’ Agreement had been somehow clandestinely

resurrected and invoked bv Defendants . . . to justify and autho-

rize the disputed shares’ issuance”, that was not a fact known

to plaintiff as of April 26, 1993 upon which plaintiff could base

his later §29(b) claim. To the contrary, the lack of such a fac-

tual basis for his claim was the reason why plaintiff initiated a

declaratory action in December of 1993, in which he took the

position that the shareholders’ agreement was null and void.

Plaintiff made a due diligent attempt to ascertain the

underlying facts relating to the 12,857.143 share issuance in

Sida _

en et inden IE RN SRE bl A et AT ME A a

2la

dispute. Neither did plaintiff's repeated information requests

nor did the declaratory action succeed in evoking the informa-

tion he required.

Indeed, defendants’ conduct during the pendency of the

initial suit in Montgomery County negated plaintiff’s assump-

tion, following his learning on April 25, 1994 that an addi-

tional 5,359 bonus shares had been secretly issued to Scott.

The issuance of those bonus shares was in obvious breach of

the shareholders’ agreement. Therefore, as of April 25, 1994,

it became unreasonable for plaintiff to believe that the share-

holders’ agreement had been secretly invoked. That was the

reason why plaintiff voluntarily discontinued his initial suit

and replaced it with the action presently pending (as noted

under Footnote 1 of plaintiffs Memorandum of Law in Sup-

port of Petition for Special and Preliminary Injunction, page

2). See also Trecker v. Scag, 679 F.2d 703, under-Footnote 7 at

707, “... there could certainly be situations in which a defen-

dant’s conduct would estop him to claim the benefits of a

statute of limitations.”

Clearly the facts do not support Judge Joyner’s finding

that plaintiff knew or should have known that the clandestine

invocation of the shareholders’ agreement had been used to

authorize the disputed 12,857.143 share issuance until he was

first so informed, as of August 22, 1994. Judge Joyner’s factual

Finding is therefore in error.

11) Nor did Judge Joyner consider plaintiff’s fraudulent

concealment pleadings and their significance with regard to

equitable tolling or equitable estoppel doctrines.

See the 1993 Supplement of the FUNDAMENTALS OF

SECURITIES REGULATION, Louis Loss, Joel Seligman,

page 378:

“(3) Presumably Lampf did not overrule the tolling prin-

ciple; at most it imposed a three-year limit on the allowable

discovery.” (emphasis added) See also Manning v. Maloney,

787 F.Supp. 433 M.D.Pa. (after Lampf) at 436:

“It is better to say that equitable tolling and related doc-

trines do not extend the period of limitations by more than the

two year grace period $13 allows.” And further, from page 436:

“The ‘discovery rule, is such an exception, and arises from the

22a

inability of the injured, despite the exercise of due diligence, to

know the injury or its cause...” {emphasis added)

See also Tregenza v. Great American Communications Co., 12

F. 3d 717 at 721 (7th Cir. 1993):

“Lampf holds, it is true, that when knowledge or notice is

required to start the statute of limitations running, there is no

room for equitable tolling .. . But there may be room in such

a case for equitable estoppel . . . (t)he plaintiff might have the

required information — actual knowledge of the violation or

inquiry notice, as the case may be — yet be thwarted from suing

in time by misrepresentations or other actions by defendant...”

See also Engl v. Berg, 511 F. Supp. 1146 at 1151 (E. D. PA):

“As such the fraudulent concealment allegation raises

genuine issues of material fact, rendering resolution through

summary judgement inappropriate.” (emphasis added)

Plaintiff's securities’ fraud claim addresses a fundamental

issue of the security law, i.e., that complete disclosure of all

material facts must be performed where a duty to disclose

exists. A duty existed for defendants to inform plaintiff of all

material facts relating to the issuance of stock performed by

them. Defendants breached that duty. That breach represents

fraudulent concealment. There is nothing in evidence indicat-

ing that defendants at any time before August 22, 1994

informed plaintiff that the shareholders’ agreement had been

used to authorize the issuance of the 12,857.143 disputed

shares. Nor does the alternative argument hold water that cor-

porate management forgot to memorialize the authorization

of such a significant corporate act in writing, and or forgot to

so inform plaintiff, who at that time was a director of the

board and the majority shareholder of record.

Judge Joyner was in clear error by declaring plaintiff's

12,857.143 share issuance securities violation claim time

barred, despite clear issues of fraudulent concealment and

defendants’ deception that, as a matter of law, equitably

extend the discovery period under Lampf.

12) Judge Joyner also ignored the August 22, 1994 mail-

ing by Mr. Hollin. As plaintiff alleged, that mailing was a mis-

Pne e

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23a

representation of material fact that qualifies both as a securi-

ties violation as well as mail fraud. The August 22, 1994 letter

stated two things: first, it declared that the shareholders’

agreement authorized the issuance of the 12,857.143 disputed

shares (the core of the fraudulent scheme); and second, it

declared the Malick Deferred Compensation Agreement to

have been performed in compliance with the shareholders’

agreement. The record has proven that the invocation of the

shareholders’ agreement was a fraud upon Inofast and plain-

tiff. The record has also proven that Malick’s “shareholdings”

were “extinguished” in breach of the agreement, even before

that agreement was purportedly effectuated. Indeed, Malick’s

deferred compensation agreement, as it was later claimed to

have been executed, represented tax fraud.

a) The above misrepresentations were made to

deceive in connection with the sale of a security, to disguise

the illegitimacy of an actual sale (12,857.143 shares) and a

duped “sale” (the “repurchase” of Malick’s 10,714.285 phan-

tom “shares”).

b) The above fraudulent misrepresentations were

made with the purpose that plaintiff, as a member of the

board, should rely on them. As those representations were

made by “corporate counsel”, they were also intended for the

corporation to rely on.

c) The above misrepresentations were an attempt to

cover-up the illegal scheme to defraud the corporation and

plaintiff, to facilitate its furtherance. “Attempting to hide one’s

involvement in a scheme after it has been exposed in order to

. limit liability should not be confused with concealing the

scheme itself in furtherance of its perpetration. While the later

may be a predicate act within the meaning of RICO the

former is not. Philadelphia Reserve Supply Co. v. Nowalk &

Assocs., Civil Action No. 91-0449, 1992 U.S.Dist. LEXIS

12745, E.D.Pa. (emphasis added)

d) The above referenced mailing qualifies as 10b-5

fraud under (2):

“it shall be illegal to make any untrue statement of a

material fact necessary in order to make statements made,

in the light of the circumstances under which they were

made, not misleading.”

24a

e) As such, the above referenced mailing qualifies as

a violation of the mail fraud statute. It is also an additional

predicate act of RICO.

f) Judge Joyner abused his discretion by ignoring the

above mailing in both his security law as well as RICO analy-

sis. That omission was clearly in error.

13) To qualify as a predicate act RICO violation, a secu-

rities violation is not precluded by the applicable securities law

statute of limitations. “Jf a civil RICO claim is established, it is

clear under Malley-Duff that the Clayton four year period

rather than the one/three-year period of the Securities Acts will

be applicable even after Lampf.” (page 853, SECURITIES

LAW HANDBOOK, 1996 Edition, Bloomenthal, published

by Holme, Roberts & Owen) Therefore, the initial disputed

12,857.143 share issuance securities law violation - should it

arguendo be time barred under Lampf (which plaintiff dis-

putes) - does not eliminate it as a predicate violation of RICO.

As already stated under 6 above, the series of transac-

tions that promulgated the fraudulent issuance of 12,857.143

shares of Inofast stock therefore qualify as security law viola-

tion predicate acts of RICO and cannot be time barred under

the applicable 4 year statute of limitations. Those predicate

RICO acts therefore represent “live violations.” and not

“dead ones”, as Judge Joyner would seem to suggest by bar-

ring plaintiff's 10b-5 cause of action under Lampf. “In order to

establish the requisite continuity under the open-ended frame-

work (of RICO) - quoting Judge Joyner (Slip Opinion, Feb.

20, 1996, page 15) - (t)he allegations must therefore amount to

or pose the threat of continuing criminal activity.” The very

nature of the illegal 12,8,57.143 share issuance compels the

logical conclusion that any rights thereto attached, if used or

maintained, also represent illegal acts, for example, the voting

of those illegal shares.

Judge Joyner’s conclusion that “(he) cannot reasonably

envision continued unlawful behavior” flies in the face of rea-

son. Each and every time defendants voted their illegally

begotten shares, they were performing a securities violation by

deploying a device to defraud and by engaging in an act which

aE ine aI SE tin Sa Mate y's nite te

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25a

operates as a fraud. What could be more inherently fraudulent

or fundamentally undemocratic than to exercise voting rights

that don’t and cannot lawfully exist? Those same acts also

represent predicate RICO violations. To continue their con-

trol of Inofast, defendants must vote their illegal stock at the

upcoming April 1996 annual meeting. Not only does a threat

of illegal behavior exist, defendants are compelled to continue

their pattern of racketeering behavior to maintain control of

Inofast.

14) The above referenced conduct clearly qualifies as a

pattern of racketeering activity as per §§1962 (b) and (c).

a) Judge Joyner neglected to address plaintiff's

§1962(b) claim. Under §1962(b), it is illegal to illegally acquire

and maintain control of a legitimate enterprise through related

and continuous predicate acts. Judge Joyner defacto confirms

that control of Inofast was illegally acquired. Common sense

dictates that illegally acquired control - not having been relin-

quished - is being maintained. Therefore, a violation of

§1962(b) is, by its very nature, ongoing. Why would defen-

dants go to the effort of illegally acquiring control with no

intent of maintaining that control? The maintenance of illegal

control represents the essential purpose of a §1962(b) viola-

tion.

b) Under §1962(c), it is illegal to conduct or partici-

pate . . . in the conduct of such enterprise’s affairs through a

pattern of racketeering activity. Clearly, Inofast is being gov-

erned through conduct that was predicated on fraudulent elec-

tions, in violation of 10b-5 (1) and (3), RICO and a number of

state law statutes. That conduct satisfies the §1962(c) require-

ment, which Judge Joyner failed to properly interpret.

15) RICO predicate acts accrue from the date plaintiff

knew or should have known when each predicate violation

occurred (Keystone Ins. Co. v. Houghton, 863 F.2d 1125, 3rd

Cir). Therefore, the 5,359 bonus stock issuance violation

predicate act did not accrue when it secretly occurred, in

October 1993 (when Judge Joyner, in his opinion, apparently

“pegs” it), but as of April, 25, 1994, when plaintiff was first so

informed. Between the accrual dates of the 12,857.143 share

violation RICO predicate act of April 21, 1993, and the 5,359

26a

bonus share violation RICO predicate act of April 25, 1994

_ over one year time transpired, not 7 to 8 months, as Judge

Joyner found. Judge Joyner also completely overlooked the

fraudulent August 22, 1994 mailing, which arguably extends

the scheme another 4 months, that, notwithstanding all the

other predicate acts Judge Joyner has failed to notice. Judge

Joyner’s factual findings with regard to his analysis of the

closed ended continuity prong of RICO were erroneous and

or incomplete.

Judge Joyner’s analysis that the scheme ended when

defendants gained control is inconsistent with his further

observation that “(a)rguably, we might conclude that the

scheme extended through October of 1993.” How could a

scheme that accordingly ended in April 1993 even “arguably”

extend until October 1993?

16) Judge Joyner also neglected to address plaintiff’s

§1962(d) RICO conspiracy claim. A recent 3rd Circuit case,

U.S. v. Antar, 53 F.3d 568 at 583, citing United States v. Eisen,

974 F.2d 246, 269 (2d Cir.1992), offers the following compel-

lingly analogous examples of RICO conspiracy violations that

are ongoing:

“For instance, the Court of Appeals for the Second Circuit

recently concluded that a defendant-attorney had not with-

drawn from a conspiracy when, although he resigned from the

enterprise law firm, he “ ‘continued to be entitled to a percent-

age of the recovery on all cases he tried including those giving

rise to his pre-(resignation) racketeering acts.’” And further:

(15) “Applying these principles to this case, it is clear that

Mitchell has not established a prima facie case of withdrawal.

While he resigned from Crazy Eddie, he did not sever all his

ties with the enterprise. To the contrary, Mitchell concedes that

he retained stock in the enterprise until September 16, 1987, a

date within the five-year limitations period. Therefore, Mitchell

continued to receive the fruits of the fraud.” (emphasis added)

Applying the above principles to this case, all the defen-

dants accused of owning illegally begotten shares have

retained their shares. Until such time when that stock should

be declared invalid or is otherwise relinquished, defendants

will clearly continue to benefit from the fruit of their fraud.

Ce en a

ee Oe ea eed

27a

U.S. v. Antar provides a most explicit confirmation, as a mat-

ter of law, that the RICO scheme in this case is ongoing and

continuous.

Additionally, under the conspiracy theory of RICO,

Judge Joyner’s rendition of the following facts is clearly erro-

neous: “Jt was not until Norman threatened to upset the status

quo, therefore, that the defendants had any reason to plot Nor-

man’s ouster. Thus, we must conclude that the defendants com-

menced implementation of the alleged scheme in the Spring of

1993.” The “vaccination letter” from Scott to Mr. Perilstein

was sent on August 8, 1992; that is when the plot clearly

hatched, nearly 8 months before the “Spring of 1993”. Nor did

plaintiff threaten to upset the status quo, he simply expressed

his intent to vote his 18,750 shares, fully and rightfully expect-

ing that only 30,000 shares could be legally voted. Defendants,

not plaintiff, upset the legal status quo.

Finally, under a conspiracy theory, defendant attorneys

entered into agreements with Scott to defraud inofast and

plaintiff. Those agreements are in writing and on record, i.e.,

the above referenced “vaccination letter” (P-53, pages 140

through 142 of the January 3, 1996 transcript) and the Powell

Trachtman Law firm Memorandum of June 1993 “the smoking

gun” (P-56, page 144 of the January 3, 1996 transcript) which

outlined the conspiracy’s intent and which goal was accom-

plished.

The omission of an §1962(d) analysis in Judge Joyner’s

opinion was therefore error.

17) Judge Joyner denied plaintiff's preliminary injunction

motion, not on lacking merits but solely on the erroneous

basis that plaintiff had not made an adequate showing of

irreparable harm. The following cases - in addition to those

cases already cited in plaintiff's request for reconsideration

which Judge Joyner also denied by his Order of March 12,

1996 - contravert Judge Joyner’s denial of plaintiff’s motion for

preliminary injunction on the facts proven at the two injunc-

tion hearings, as a matter of law:

28a

See Instant Air Freight Co. v. C.F. Air Freight, Inc., 882

F.2d 797 at 803 (3rd Cir. 1989), which states the following, cit-

ing Gov. of VI. Dept of Conservation v. V.I. Paving, 714 F.2d

283 (3rd Cir. 1983):

“We have previously held that a statutory provision autho-

rizing preliminary injunctive relief upon a showing of probable

cause to believe that the statute is being violated may be consid-

ered a substitute for a finding of irreparable harm .. .”

See also SEC v. Management Dynamics, Inc., 515 F.2d 801

at 805, as well as U.S. Postal Service v. Beamish, 406 F.2d 804

at 806.

See also Treco, Inc. v. Land of Lincoln Sav. and Loan, 572

F.Supp. 1447 at 1450:

“By refusing to grant plaintiff's written demand to call a

special shareholders’ meeting . . . there is substantial likelihood

that defendants have violated (the statute) . . . the Court finds

that plaintiffs would be irreparably harmed if a preliminary

injunction were denied because plaintiff would be unnecessarily

frustrated in their attempt to obtain representation on Lincoln’s

Board of Directors at the October 26, 1983 annual meeting.”

Clearly plaintiff has demonstrated probable cause that

the federal security laws, RICO and substantive Penna. state

Statutes are being violated. Judge Joyner has defacto

confirmed so much - albeit - amazingly, without so concluding.

The relief plaintiff derivatively requested was in the further-

ance of a public interest, i.e., that the law be obeyed. Judge

Joyner made no attempt to rebutt the merits of plaintiff's

claim, nor can any argument be made by defendants that the

granting of a PI would have harmed them, except that,

“as here, the only consequence of an injunction is that the

defendant must effect a compliance with the statute which he

ought to have done before.” Studebaker Corp. v. Gittlin, 360

F.2d 692 at 698, Judge Friendly, 2d Circuit.

18) Judge Joyner’s denial of plaintiff's motion to dis-

qualify counsel as moot was also an abuse of his discretion.

Plaintiff's Motion to Disqualify Counsel was made on the basis

that Mr. Schultz is currently representing the alleged

defrauded corporation and simultaneously those individuals

Pe eee eee eet

_ oo eS

who have allegedly defrauded it. That circumstance does not

just imply potential adversity of interest; adversity of interest

already exists.

See Maritrans v. Pepper, 529 Pa. 241, at 255:

“Where an attorney so far forgets, or ignores, his profes-

sional duty as to engage his service to one whose interests are

necessarily in conflict with those of his client . . . there is no

doubt of the power of the court to enter and enforce an order

restraining the attorney from so acting . . . . Accordingly, the

trial court’s preliminary injunction was a proper mechanism to

abate an unlawful and actionable breach of fiduciary duties to

Maritrans where the facts support such a conclusion.”

(emphasis added)

19) Judge Joyner’s observation — that plaintiff “fails to

explain the relevance of his assertion that Scott intended to

ignore the 1989 agreement from the very beginning.” (Court’s

Slip Opinion, Feb. 20, 1996, page 14) — ignores Federal Rule

9(b), whereby “(a) party may allege . . . intent . . . generally.”

(emphasis added) Most certainly plaintiff has alleged with par-

ticularity, and the hearings have so confirmed, widespread

fraudulent conduct by defendants.

A summary of reasons for Plaintiff's request for Judge

Joyner’s recusal.

20) The issues presented to the Court for disposition by

plaintiff in his preliminary injunction motion were fundamen-

tally simple:

i) Were the disputed corporate stock issuance trans-

actions, as plaintiff alleged, illegally performed?

ii) If those transactions were illegally performed,

does the continued execution of rights attached to those ille-

gitimate shares represent an ongoing violation of the statute

that plaintiff has also alleged? :

iii) Should that alleged ongoing scheme, as a matter

law, be enjoined?

Because Judge Joyner did not resolve the above issues, it

was highly inappropriate for him to dispose of all other issues

on a motion to dismiss. See Jn Re School Asbestos Litigation,

977 F.2d 764 at 793 (3rd. Cir, 1992) : “But whereas it is inevi-

30a

table that judges will make mistakes from time to time . . . the

error of refusing to rule on the merits . . . is entirely avoidable.”

To reiterate the circumstances of this case:

a) Judge Joyner presided over two days of hearings

during which overwhelming evidence was presented to sub-

stantiate the merits of plaintiff's allegations. Judge Joyner’s

Findings of Fact confirm that the disputed stock issuances

were in violation of substantive federal and state statutes, as a

matter of law. But Judge Joyner denied plaintiff's claim that

the alleged illegal scheme was ongoing on the grounds that

(the Court) cannot reasonably envision continued unlawful

behavior.” Judge Joyner’s denial of plaintiff’s prayer for pre-

liminary relief was therefore based on his erroneous conclu-

sion that there was no probable cause to believe that the statute

is being violated, a position which is clearly not supported by

the facts in this case. Judge Joyner’s further conclusion that no

irreparable harm had been shown confuses the factual issues

of this case as a matter of law. The case law citations made

under (17) above address the simple logical conclusion that

any ongoing violation of the statute represents “irreparable

harm”, which can not be countenanced by the law. Plaintiff

has placed the Court on notice that an illegal status quo exists;

he has proven its existence on merits and; he has requested of

the Court to reinstate the legal status quo. Judge Joyner has

not fulfilled the Court’s duty to so act.

b) Judge Joyner’s denial of federal court jurisdiction

represented an even more serious error. Judge Joyner based

his above decision on the premise that plaintiff’s federal secu-

rity claims were time barred. That conclusion - as plaintiff has

already pointed out - was not only factually incorrect but

flawed, as a matter of law. Judge Joyner places the rules of law

on their head by making plaintiff suffer the consequences of

defendants’ non-disclosure violations, by in effect he is saying,

defendants may use their additional concealment fraud to

claim the benefits of the statute of limitations. That position is

not only unsupportable; it is outrageous. Plaintiff cannot be

held responsible for not discovering facts that defendants -

who were under a fiduciary duty to so inform him and the cor-

poration - have steadfastly refused him. Judge Joyner has

iirc in isaso iui gc Pied laa RO Howard

3la

therefore denied plaintiff his right to a federal court forum on

the grounds of plaintiff's purported culpable ignorance of the

facts, the very basis of which was caused by an additional and

completely independent federal cause of action under the

security laws, namely, fraudulent concealment.

c) Judge Joyner made his Finding under (25) of his

February 12, 1996 Memorandum that “.. . Scott caused 12,857

(sic. .453) additional shares to be issued without Norman’s

knowledge or approval.” (emphasis added) That Finding

establishes a violation of the most fundamental of federal

security rules. That rule demands full disclosure, by those fidu-

ciaries who effectuate an issuance of stock (defendants in this

case) to all individuals (plaintiff, as the majority shareholder

of record, in particular, and the corporation) who those fidu-

ciaries have a duty to so inform, of all material facts required

to facilitate adequate deliberation of those transactions before

such transactions occur. Notwithstanding any finding on the

validity of the shareholders’ agreement, the mere fact that

defendants refused to state that the shareholders’ agreement

was going to be invoked to authorize the disputed shares

issued before those transactions occurred was in violation of

the statute. How could plaintiff have possibly known the

above necessary information, at a time when he had a statu-

tory right to be so informed? By adding on another layer of

non-disclosure fraud to their scheme, defendants first then

succeeded in effectuating the illegal status quo that Judge

Joyner is so amazingly hesitant to disturb. The irony of Judge

Joyner’s decision is resounding.

d) Judge Joyner’s denial of plaintiff’s Motion to Dis-

qualify Counsel ignored the premise under which it was made.

The above disqualification motion was made as a request for

preliminary relief. One of the most fundamental legal rights is

a person’s right to impartial counsel. That right extends of

course also to a legal entity, i.e., Incfast Mfg., Inc. Plaintiff has

brought his disqualification motion, derivatively, on the

grounds that Mr. Schultz - as explained under (18) above - was

in a conflict of interest and that he, therefore, could not

adequately represent Inofast. The fact that Mr. Schultz contin-

ues as Inofast’s counsel in a clear conflict of interest represents

32a

irreparable harm. Judge Joyner’s denial to equitably dispose of

plaintiff's disqualification motion, without any deliberation

whatsoever, was a significant error.

e) Plaintiff's request for Judge Joyner’s recusal is

based on plaintiff's common sense observation, as supported

by the above, that Judge Joyner has demonstrated an obvious

propensity to avoid and ignore the fundamental issues pre-

sented to the Court in this case. Plaintiff's recusal request is

the logical consequence of that observation, to foreclose Judge

Joyner any potential future dealings with this case with which

he, most “decisively”, was not willing to deal in the first place.

Reasons for expedited review under Writ of Mandamus:

21) After over two years of litigation, plaintiff has not

even attained the preliminary equitable relief which he justifi-

ably believes he deserves. Nor, in fact, has even the central

question been disposed of: whether or not the transactions

plaintiff has disputed since April 26, 1993 were illegally per-

formed. This, although Judge Joyner was given all the ingredi-

ents required to expose the alleged scheme and put an end to

its furtherance.

a) Plaintiff's efforts to attain judicial relief for the

harm he and the corporation have incurred, and to enjoin

defendants from causing further harm, have caused him in

excess of $200,000 in expenses and attorney fees. It is no small

matter for a private individual to finance such immense expen-

ditures for years without any palpable results. This case is a

prime example of a legal system gone awry which literally

threatens a private litigant, who has legitimate equitable and

damage claims for harm already done him, with the additional

harm of potential bankruptcy through a litigation process that

is intended to protect those very interests. Could it be that the

judicial process of vindicating harm can be in of itself poten-

tially harmful to one’s financial health? If such danger exists,

it is time that the attorney general make such an appropriate

warning.

b) Lastly, Judge Joyner refers plaintiff back to the

State Court forum of Montgomery County. It must be noted

DVD SIL ath cate Sa ERS cc TDs A ca See

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33a

that plaintiff had already made an identical prayer for relief,

based on state law, which has been heretofor ignored by Judge

Lawrence, the presiding Judge in the Montgomery County

Court (Motions for Preliminary and Permanent Injunction of

June, 1994 and February, 1995). Plaintiff, therefore, has no

other reasonable alternative for relief but to request that his

federal claims be disposed of under federal jurisdiction.

22) Due to the above circumstances, plaintiff believes that

his right to judicial relief has been neglected and prejudiced.

Plaintiff's Writ of Mandamus for immediate review of his

claims for injunctive relief, as well as his requests for Appeal

as well as his request for recusal of Judge Joyner, are therefore

premised on his belief that the review Court must also protect

the public interest of confidence in the judicial process which

in this case, he believes, there is an evident need to restore.

See SEC v. Antar, (Slip Opinion No. 95-5283, 3rd Circuit,

dated Nov. 28, 1995, at page 8): “Because we seek to protect the

public’s confidence in the judiciary, our inquiry focuses not on

whether the judge actually harbored subjective bias, but rather

on whether the record, viewed objectively, reasonably supports

the appearance of prejudice or bias.”

It is indeed plaintiff’s contention that the record of this

case supports the appearance of Judge Joyner’s prejudice and

bias that motivated him to request Judge Joyner’s recusal

under Writ of Mandamus.

See also Texaco, Inc. V. Chandler, 354 F.2d 655 at 657:

“Upon an adequate showing, this court has held that it has the

“power and inescapable duty”, whether under the all-writs

statute, 28 U.S.C. 1651, or under its inherent powers of appel-

late jurisdiction, “to effectuate what seems to us to be the mani-

fest ends of justice.”

Norman Bardsley

Plaintiff, Pro se

34a

IN THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

March 19, 1996

No. 96-1224

NORMAN BARDSLEY, Petitioner

POWELL, TRACHTMAN, LOGAN, CARRLE and

BOWMAN, PC., et al.

(EDPA D.C. No. 95-cv-02287 (JCJ))

Present: GREENBERG, COHEN and ALITO, Circuit

Judges.

1) Petition for Writ of Mandamus.

Lenore R. Benoit 597-1092

Deputy Clerk

ORDER

The foregoing petition is referred to the merits panel to deter-

mine if there is appellate jurisdiction. The petition should be

considered forth 96-1225. The petition for mandamus is

denied.

By the Court,

Circuit Judge

Dated: April 12, 1996

ye ee oe

35a

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Norman Bardsley,

petitioner, appellant,

Vv.

Powell, Trachtman, Logan, Carrle : No. 96-1224

& Bowman, P.C., Joel P. Perilstein,

Jonathan K. Hollin, Scott E. Bardsley,

Leigh Bardsley, David E. Miller and

Inofast Manufacturing, Inc.,

appellees.

Motion for Rehearing In Banc of the

Denial of Petition for Writ of Mandamus

The issues before the Court on Petition for Writ of Man-

damus are intertwined with issues relating to petitioner’s

notice of appeal of the two District Court Opinions and

Orders, dated February 12, 1996 and February 20, 1996,

although a briefing schedule for those appeals has yet to be

designated. Petitioner’s request for extraordinary relief, by

way of Writ of Mandamus, ##s made to compel the District

Court to exercise its authority which it did not perform, where

a clear duty to do so was given. Petitioner additionally

requested disqualification of the acting Judge on the ground of

pervasive bias.

Petitioner initiated his federal action No. CV 95-2287 on

April 19, 1995 with a motion for a temporary restraining order

requesting the court to enjoin the then upcoming Annual

Shareholders’ Meeting of April 24, 1995 until a preliminary

injunction hearing could be held. The reason for that motion

was to restrain defendants from voting 18,216.143 shares that

petitioner alleged had been illegally issued (so as to maintain

their unlawful control of Inofast), to prevent that illegal

scheme from formally entering its third year. The presiding

Emergency Judge, Bartle, denied the above motion without

prejudice, reserving the matter for the assigned District Court

36a

Judge, Joyner. Judge Joyner subsequently presided over two

preliminary injunction hearings, on October 5, 1995 and Janu-

ary 3, 1996.

The above hearings factually established that defendant

respondents’ effectuation of the initial corporate issuance of

12,857.143 shares as well as the subsequent issuance of 5,359

bonus shares of Inofast Mfg., Inc. stock, which petitioner

requested the Court to rescind, were performed in total disre-

gard of the statute, as follows:

The three transactions that promulgated the first

12,857.143 share issuance (which first allowed defendants to

acquire unlawful control of Inofast) were found by the District

Court to have been performed without “Norman's (petitioner,

who, previous thereto, was a director and majority share-

holder of Inofast) Anowledge or approval (Finding ## 22, 23,

24 and 25, Memorandum and Order, dated February 12, 1996).

Additionally, the record clearly established that all the

above disputed shares had been issued without any consider-

ation, as follows: as per 5,357.143 shares to defendant Leigh

Bardsley (Transcript PI Hearing January 3, 1996 (“1/3”): 40,

44, 46-48, 55-58, 60, 76-78, 142, 149-50); as per 2,142.857 shares

to defendant Scott Bardsley (Transcript PI Hearing October 5,

1995 ("10/5"): 44 and 1/3: 38); as per 5,357.143 shares to defen-

dant Dave Miller at a total cost to the corporation of

$21,037.46, by way of a bonus and thereto related residual

costs (1/3: 40, 43-44, 46-48, 55-58, 60, 142, 149-50).

The only business purpose for the issuance of the dis-

puted stock proposed by defendants - as was suggested to jus-

tify the shareholders agreement, whose authority was improp-

erly and secretly invoked to issue said stock - was “to get Guy

Malick and Dave Miller's expertise back into the business”

(Defendants’, Scott Bardsley, Leigh Bardsley and Dave Miller,

“Proposed Findings of Fact” No. 11.) By the time the share-

holders’ agreement was secretly invoked to authorize the issu-

ance of stock in dispute, Guy Malick’s intended shareholders’

interest had already been “extinguished” (1015: 14; 1/3: 12, 13,

73, 74; Exhibit 30) and defendant, Dave Miller, contradicted

the above contention in his letter, dated September 15, 1992,

37a

(P. 36, 1/3: 51-53, 92, 95) by the following statement: “/ did not

want to be involved as a shareholder anyway.”

As quoted from the District Court’s Finding No. 25:

“Thus, Scott caused 12,857 additional shares to be issued with-

out Norman’s knowledge or approval. These shares were voted

in such a manner as to allow Scott to gain control of the board

of directors.” (Emphasis added)

Therefore, Scott, (a) without the knowledge or approval

of the board of directors - not having permitted petitioner, as

a director of the board, to participate in that transaction -

caused Leigh Bardsley and Dave Miller and himself to receive

watered shares; (b) without adequate consideration and; (c)

without any business purpose so as to effectuate Scott's con-

trol of Inofast. The absence of each of the above requisite ele-

ments for valid stock would render such stock void. The col-

lective absence of all the above elements proves, beyond any

reasonable doubt, that the 12,857.143 shares issued are invalid,

as a matter of law.

Paraphrasing the seminal case that initially established a

private 10b-5 cause of action, Kardon v. National Gypsum, 73

F.Supp. 798 (significantly, a Eastern District of Pennsylvania

case) at 802: “The plaintiffs case was established when the

defendants’ duty and its breach were proved. This was done by

showing that the defendants were officers (Scott was and is the

“controlling person”) and directors (of Inofast) and that they

disposed of the bulk of the corporate assets to an outsider

(Scott caused Inofast to “water” Inofast’s only valid 30,000

authorized and issued shares with 18,216.143 unauthorized

and unpaid shares - whereby that watered stock represents

over 60% of the previous outstanding stock), for (Scott’s) own

benefit, without disclosing the transaction to (petitioner, a then

majority shareholder and director) or giving (him) an oppor-

tunity to participate in it. The remedy follows. ... The trust res

in this case was the corporate assets, and when those assets were

disposed of by an undisclosed (invocation of a void contract)

the cause of action was complete. Certainly the plaintiffs could

have elected to ask for rescission. ...” (emphasis added)

See also Shell v. Hensley, 430 F. 2d 819, at 827: “When a

person who is dealing with a corporation in a securities trans-

38a

action denies the corporation’s directors access to material

information known to him, the corporation is disabled from

availing itself of an informned judgement on the part of its

board regarding the merits of the transaction. In this situation

the private right of action recognized under Rule 10b-5 is avail-

able as a remedy for the corporate disability.”

From Triplex Shoe Co. v. Rice (152 A 342 at 342-43):

“(N)o par value stock issued without consideration .. . being

fixed by statute held invalid and without right to vote.” (empha-

sis added)

Petitioner's request in District Court for equitable relief,

to rescind the 18,216.143 shares, was therefore validated both

on its factual merits and as a matter of law. The District

Court’s denial of preliminary injunctive relief in its Order

dated February 12, 1996 and its subsequent dismissal of peti-

tioner’s federal claims in its Order, dated February 20, 1996,

ignored the basis for petitioner’s equitable prayer for relief, by

refusing to rule on the merits of petitioner’s motion. The

established factual basis of petitioner’s securities claim gives

rise to a conclusion of law that said stock is, quite simply,

counterfeit. The District Court’s dismissal of petitioner’s secu-

rity claim with regard to the initial disputed 12,857.143 stock

issuance on the solitary ground that any thereto attached

liability was time barred, did not make those counterfeit

shares legal. The District Court therefore permitted those ille-

gally issued shares to stand, the continued exercise of which is

in clear violation of the statute. This formed the basis for the

petition for Writ of Mandamus, to compel compliance with the

statute (“a substitute for a finding of irreparable harm (Instant

Air Freight Co. v. C.F. Air Freight, Inc., 882 F.2d 797 at 803,

3rd Circuit)).

Clearly, the vote of 18,216.143 illegally issued shares at

the upcoming Annual Shareholders Meeting would represent

a continued practice or course of business which operates or

would operate as a fraud upon the corporation. Such conduct

is in violation of Rule 10

b-5. See also Commonwealth v. Coward, Pa., 414 A.2d 91 at

98, citing Pa. P U. C v. Isruel:

39a

“At the hearing the Commonwealth has made a prima

facie showing that the defendants are operating taxicabs in vio-

lation of law. The argument that a violation of law can be a

benefit to the public is without merit. When the Legislature

declares certain conduct to be unlawful it is tantamount in law

to calling it injurious to the public. For one to continue such

unlawful conduct constitutes irreparable harm.”

Petitioner has made an identical and simultaneous motion

for preliminary and permanent injunctive relief, which he

renewed in his pending action, 94-11292, in the Court of Com-

mon Pleas of Montgomery County on the basis of the District

Court’s February 12, 1996 Findings of Fact, under Pennsylva-

nia State law (a copy of said motion is attached). The District

Court's denial of appellant's request for preliminary injunctive

relief and the Third Circuit Court of Appeal’s denial of appel-

lant’s corresponding petition for Writ of Mandamus, should it

be permitted to stand, would set a confusing precedent for the

State Court. Under Pennsylvania State Law, a Supreme Court

Ruling (Glenn v. Kittanning Brewing Co., 259 Pa. 510, 103 A

342) found that “where the question of control of (a) corpora-

tion is involved” (as is given in appellant's case) that “the rem-

edy at law for damages for an improper sale of stock may be

entirely inadequate. ..”. The core issue of the above cited case

(plaintiffs were deprived of their majority control through an

improper corporate share issuance), as well as the requested

relief (injunctive request for a reinstatement of plaintiffs right-

fu) majority control), are identical to those of appellant's case.

The District Court distinguished appellant's case by denying

injunctive relief on the sole basis that appellant had not dem-

onstrated “irreparable harm”. Obviously, in contradiction

thereto, the Pennsylvania Supreme Court considers the

improper deprivation of rightful majority control for which

“the remedy at law . .. may be entirely inadequate” - without

specifically using the identical words - to represent irreparable

harm. See also: Deckert v. Independence, 61 S.Ct. 229; Fraser

Fund v. Fraser, 40 A.2d 22; In re Alpha-Omega Communica-

tions, Inc., 52 Bankruptcy Reporter 846 and Asarco v. Weeks,

511 F.Supp. 468.

District Court error that demonstrate pervasive bias

The District Court, in its Memorandum dated February

20, 1996, confirmed that appellant had commenced his federal

court action by filing a complaint on April 19, 1995. The Dis-

trict Court dismissed petitioner’s exchange act claims on the

exclusive ground that the alleged 12,857.143 share issuance

violation was time barred under the 1 year discovery require-

ment of Lampf, thereby completely ignoring petitioner’s sepa-

rate 5,359 bonus share issuance claim which was later effectu-

ated. In restating the factual background of petitioner’s

complaint, the District Court confirmed that “(i)t was there-

fore not until the 1994 shareholders’ meeting convened that Mr.

Perilstein informed Norman (appellant) that Scott had received

the 5,359 bonus shares.” (page 6, Slip Opinion, February 20,

1996). The 1994 shareholders’ meeting was convened on April

25, 1994. The time that expired between the discovery date of

the bonus share violation and the commencement of petition-

er’s thereto related complaint was exactly 359 days, most defi-

nitely within the requisite 365 days of Lampf. It is therefore

inexplicable that the District Court dismissed petitioner’s

separate and distinct 5,359 bonus share issuance violation

claim. The dismissal of that claim was clear error. The District

Court’s denial of reconsideration of the above error demon-

strates bias.

There is authority since Lampf that the one year limiting

discovery prong is not predicated on when the fraud shoula

have been reasonably discovered, but on when the facts con-

stituting the fraud were actually discovered. See Wemer v. Sat-

terlee, Stephens, Burke & Burke, 1992 CCH 96, 928 citing re

Data Access Systems Securities Litigation, 843 F.2d 1537 (3rd

Cir.) at 93,892: “the proper period of limitations for a com-

plaint charging violation of 10(b) and Rule 10b-5 is one year

after the plaintiff discovers the facts constituting the viola-

tion...” Id. at 1550 (emphasis added). See also Hauman v.

Illinois Power Company, 1992 CCH 96,882 at 93,605: “Thus it

seems clear that the statute of limitations adopted by the

Supreme Court for actions under §10(b) begins to run only

upon actual discovery of the facts constituting the fraud, not

when Plaintiffs want inquiry notice.” (emphasis added).

;

4la

By dismissing petitioner’s derivative Exchange Act claim

as time barred under the one year discovery prong of Lampf,

the District Court failed to explain how knowledge was

imputed to the corporation, to start the one year requisite dis-

covery “countdown”. Petitioner’s amended complaint clearly

stated that, despite his many requests, defendants never pro-

duced any written proof of a corporate resolution relating to

the issuance of 12,857.143 shares. Defendants, as the control-

ling persons of the corporation, were under a fiduciary duty to

produce documentation to formalize such a significant corpe-

rate legislative act. The absence of a formal corporate resolu-

tion, authorizing the issuance of the disputed 12,857.143

shares, renders the corporation without knowledge of how,

when and under what authority that transaction was per-

formed. Because Inofast has yet to be formally informed of

the above transaction, appellant’s thereto related derivative

claim cannot be time barred. See Goldberg v. Meridor, 567

F.2d 209, at 216, Footnote 6: “Even the majority panel opinion

in Schoenbaum recognized that, 405 F.2d 211, knowledge of

the corporation’s officers and agents is not imputed to it when

there is a conflict between the interests of the officers and agents

and the interests of the corporate principal.... Therefore, a

corporation may be defrauded in a stock transaction even when

all of its directors know all of the material facts, if the conflict

between the interests of one or more of the directors and the

interest of the corporation prevents effective transmission of

material information to the corporation, in violation of Rule

10b-5(2).” Petitioner has clearly pled that he, as a director, was

not informed (as factually confirmed by the District Court

Finding # 25, Slip Opinion, February 12, 1996) of the above

transaction, and that said transaction was in conflict with the

interest of the corporation. The District Court’s dismissal of

petitioner’s derivative claim on the basis that the corporation

must have known that the shareholders’ agreement had been

illegally executed so as to authorize the disputed 12,857.143

share issuance over one year before the complaint was filed

was clear error.

Nor did the District Court adequately explain how requi-

site knowledge could be reasonably attributed to petitioner

42a

until August 22, 1994, when he was first informed in writing

that the disputed 12,857.143 shares had been issued on the

authority of the shareholders’ agreement. The fact that the

shareholders’ agreement was therefore illegally performed is

the basis for appellant’s §29(b) claim brought in connection

with a thereto related 10(b) and 10b-5 violation. Petitioner

consistently stated - even before he was informed of the

fraudulent 12,857.143 share issuance - that the shareholders’

agreement was void because it had been effectively breached

before it could be properly implemented. Those were the facts

that petitioner also pled in his amended complaint.

The District Court’s statute of limitations analysis was

essentially the following: “(T)he information (appellant) pos-

sessed when he filed the initial suit in Montgomery County was

sufficient to support his Exchange Act claim. Since Norman

concedes that he filed that action on December 2 1993, and that

he assumed that Defendants were pointing to the 1989 share-

holders’ agreement as the justification for the disputed transac-

tions before he filed the first lawsuit, his 1995 filing of the

Exchange Act claim in this Court was outside the bounds of the

limitations period. “ (Emphasis added)

The December 2, 1993 action was premised or. the fact

that the shareholders’ agreement had been breached by way

of the Guy Malick Deferred Compensation Agreement

(executed on June 5, 1992), which rendered it from thereon

effectively void. The above facts, as known to petitioner as of

December 2, 1993 and as he so stated in his initial state court

action (93-24277), actually conflicted with the “assumption”

that defendants had invoked the 1989 shareholders’ agree-

ment to authorize the issuance of the disputed shares.

The District Court therefore failed to explain how peti-

tioner’s suspicion - that defendants had indeed secretly and

illegally invoked the shareholders’ agreement - became a fact

upon which he could base a federal securities claim. Any

plaintiff who brings such a claim on the basis of an “assump-

tion” or a “suspicion” invites sanctions. Petitioner’s situation

was considerably more difficult because he would have been

compelled to sue his father and twin brother for securities

fraud - which was the last thing he wanted to do - before he

eee

43a

could factually substantiate such a dramatic claim. Addition-

ally, petitioner had every right to rely on defendants’ non-

disclosure breach (who had not given petitioner any informa-

tion which they were under a duty to disclose) to estop them

froin invoking the affirmative defense of the statute of limita-

tions, which would otherwise reward their concealment fraud.

The subsequent 5,359 bonus share issuance violation was

in breach of the shareholders’ agreement, as alleged in peti-

tioner’s amended complaint under §59(g)(5)ii at page 22. The

shareholders’ agreement incorporated the fundamental under-

standing that the designee shareholders’ preemptive rights

would be protected. Those rights were clearly repudiated by

the 5,359 bonus share issuance to Scott. Using the benefit of

hindsight, the bonus share issuance represented the second

intentional breach of the shareholders’ agreement; whereby

said breach was disclosed while a lawsuit questioning the

validity of that very same agreement was pending. For peti-

tioner to presume that defendants were so audacious as to first

illegally invoke the shareholders’ agreement, to then, shortly

thereafter, breach it, would have been totally unreasonable.

The disclosure of the 5,359 bonus share issuance therefore

caused petitioner to withdraw his original complaint and

replace it with the action now pending in State Court which,

accordingly, makes no reference to the shareholders’ agree-

ment. The District Court’s dismissal of petitioner’s securities

claims demonstrated a biased disregard of the facts pled.

The District Court, in its analysis of appellant's RICO

claim (page 14, Slip Opinion February 20, 1996), erroneously

concluded that, “(t)hus, the 1989 shareholders’ agreement,

according to a fair reading of the complaint, was merely a post

hoc justification for the allegedly improper issuance of shares,

and not part of the scheme.” To state that the shareholders’

agreement was not pled as “part of the scheme” is not only a

misrepresentative reading, it actually eviscerates appellant's

complaint. By way of any fair reading of petitioner’s amended

complaint, the shareholders’ agreement was fraudulently

induced; it was fraudulently and selectively invoked without

having been legally implemented; it was substantively

breached; it was invoked - although void, by way of previous

44a |

breach - to illegally authorize the issuance of the disputed

12,857.143 shares (which was the core securities violation pled

under §29(b) in connection with Rules 10(b) and 10b-5) and;

finally, it was breached by way of the second illegal bonus

share issuance.

In dismissing appellant’s RICO claim, the District Court

dealt only with an analysis of the sufficiency of the amended

complaint’s pattern of racketeering pleadings under RICO.

The District Court did not even consider petitioner's § 1962(b)

RICO claim. Of the four substantive RICO violations,

§ 1962(b) is the most straightforwardly formulated and the

least difficult to interpret:

“It shall be unlawful for any person through a pattern of

racketeering activity ...to acquire or maintain... control

of any enterprise...”

The amended complaint pled that defendants acquired

control of Inofast through a pattern of racketeering activity, by

way of predicate security violations. Most importantly, appel-

lant pled that the unlawfully acquired control of Inofast had

been, and is continuing to be maintained. A pattern is continu-

ous if it is either close-ended, having lasted for a substantial

period of time (over one year under Jabas); or if it is open-

ended or “continuous” by its very nature. The maintenance of

unlawful control of Inofast by defendants (they have clearly

not yet relinquished the control they unlawfully acquired) is

continuous or open-ended by its very nature, which petitioner

adequately pled (see amended complaint §§ 78(c), 80(b), 81,

82 and 84). But appellant went much further; he established,

by the weight of the testimony and evidence, a prima facie

case to support his allegations.

The District Court abused its discretion by not permitting

petitioner leave to amend his complaint.

Scott’s writing of August 12, 1992 was introduced into

evidence during the January 3, 1996 preliminary injunction

hearing (P53; Transcript 1/3: 140-42). In that writing, Scott

suggested to defendant attorney, Perilstein, that he should be

vaccinated from Norman. That suggested “vaccination” was a

preposal to manipulate the stock ownership of Inofast and, as

such, represented a device or scheme to defraud Inofast and

45a

petitioner in connection with the sale of securities. That was

the beginning of the secret stock issuance scheme. Scott’s first

“vaccination” was administered when the illegally issued

12,857.143 shares were voted at the April 26, 1993 Annual

Meeting, “in such a manner to allow Scott to gain control of the

board of directors” (District Court Finding # 25, Slip Opinion,

February 12, 1996). The second “vaccination” was adminis-

tered when the 5,359 illegally issued bonus shares were addi-

tionally voted at the April 25, 1994 Annual Meeting. The third

“vaccination” was administered at the April 24, 1995 Annual

Meeting when the total combined 18,216.143 illegally issued

shares were again voted. Two years lie between the first “vac-

cination” in April 1993 and the most recent “vaccination” in

April 1995, a substantial amount of time under the most con-

servative close-ended analysis of RICO. But that is only “win-

dow dressing” in view of the fact that the above scheme rep-

resents a continued practice or course of business which

operates as a fraud upon the corporation and petitioner, in

connection with the sale and purchase of 18,216.285 shares of

Inofast stock (a violation of 10b-5), and a scheme to unlaw-

fully maintain control of Inofast by way of consecutive and

continued voting of those unlawfully acquired shares (a viola-

tion of 1962(b) RICO). The District Court’s dismissal of peti-

tioner’s RICO claims was error.

For the reasons presented above, petitioner respectfully

requests that the Court of Appeals for the Third Circuit enjoin

defendants’ illegally maintained control of Inofast and to put

a final end to defendants’ continued benefit from the “fruit of

their fraud” - a phrase quoted from Judge Greenberg’s opin-

ion, U.S. v. Antar, 53 F.3d 568 at 583, 3rd Circuit, made with

reference to the ownership of stock in a RICO conspiracy

context.

Norman Bardsley

pro se plaintiff, appellant, petitioner

46a

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 96-1224

NORMAN BARDSLEY,

Petitioner

POWELL, TRACHTMAN, LOGAN, CARRLE

and BOWMAN, P-C., et al

On Petition for Mandamus to the United States District Court

for the Eastern District of Pennsylvania

(Related to D.C. Civ. No. 95-02287)

SUR PETITION FOR REHEARING

BEFORE: SLOVITER, Chief Judge, and BECKER, STAPLETON,

MANSMANN, GREENBERG, SCIRICA, COWEN, NYGAARD,

ALITO, ROTH, LEWIS, MCKEE, and SAROKIN, Circuit Judges

The petition for rehearing filed by the petitioner, Norman

Bardsley, in the above captioned matter having been submit-

ted to the judges who participated in the decision of this court

and to all the other available circuit judges of the court in

regular active service, and no judge who concurred in the deci-

sion having asked for rehearing, and a majority of the circuit

judges of the circuit in regular active service not having voted

for rehearing by the court in banc, the petition for rehearing

is denied.

BY THE COURT:

Circuit Judge

DATED: May 31, 1996

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.