Article: Internet Law Library, Inc. v. Southridge Capital Management, LLC

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Internet Law Library, Inc. v. Southridge Capital Management, LLC

Smarter Legal Research, 02 February 2002

On January 12, 2001, Internet Law brought suit against Cootes Drive in the Southern District of Texas (the ” Internet Law action” ), the subject of which is a series of agreements including a Stock Purchase Agreement entered into by Cootes Drive with Internet Law and in which Cootes Drive agreed to provide capital to Internet Law through two vehicles, a $3 million convertible preferred stock purchase and a $25 million equity line agreement. The Stock Purchase Agreement specified New York as the exclusive forum for all litigation between the parties.

The gravamen of the complaint, later amended on February 12, 2001, was that Cootes Drive engaged in short-selling and market manipulation of Internet Law’s stock, artificially depressing the price of the stock to a level at which Cootes Drive would no longer be required to provide funding under the equity line pursuant to a provision in the Stock Purchase Agreement that conditioned funding on Internet Law’s stock trading above a specific price. As such, Internet Law alleges that Cootes Drive committed, inter alia, violations of securities laws, both federal and state, common law fraud and fraud in the inducement, and unlawful conspiracy.

Entirely apart from the Houston action, Cootes Drive, on February 5, 2001, filed a complaint in this court, later amended on February 28, 2001 and, again, on June 22, 2001 (the ” Cootes Drive action” ), against Internet Law, alleging breach of the Stock Purchase Agreement and fraud. In particular, Cootes Drive contends, inter alia, that Internet Law failed to honor a Notice of Conversion for Preferred Stock and failed to disclose material non-public information that would have affected its decision to invest in Internet Law. Subsequently, Cootes Drive brought a motion in the Southern District of Texas to transfer the Internet Law action to this court pursuant to 28 U.S.C. § 1404(a). On June 15, 2001, the Texas court ordered the action transferred to this court to be considered for consolidation with the Cootes Drive action.

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