Article: Manhattan District Court Writes Final Chapter in Litigation Between Internet Law Library and Hedge Fund Adviser Southridge Capital Management; Orders Tech Firm to Pay Adviser Almost $1.2 Million in Attorney’s Fees on Top of Damages

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Manhattan District Court Writes Final Chapter in Litigation Between Internet Law Library and Hedge Fund Adviser Southridge Capital Management; Orders Tech Firm to Pay Adviser Almost $1.2 Million in Attorney’s Fees on Top of Damages

Alisa Greenstein, Hedge Fund Law Report, 27 August 2010

On August 9, 2010, the United States District Court for the Southern District of New York (Southern District) effectively ended the decade-long litigation between Internet Law Library, Inc. (INL), its executives and several of its shareholders, and Southridge Capital Management, LLC (Southridge), its principals and affiliates, including hedge fund Cootes Drive, LLC, and its broker, Thomson Kernaghan & Co., Ltd. (TK & Co.). The litigation arose out of a “floorless” or “toxic” convertible securities purchase agreement between INL and Cootes Drive.

The agreement allowed Cootes Drive to demand conversion of its INL preferred stock into common stock based on a floating conversion ratio tied to the common stock’s market price, and obligated Cootes Drive to float a $25 million line of equity, so long as INL common stock remained priced above a certain level. This arrangement arguably provided Cootes Drive and its affiliates with an incentive to aggressively short-sell INL common stock, because the further they decreased its price, the more common stock Cootes Drive could obtain on conversion (which it could use to cover its short positions and profit from the difference), and because that decrease would eliminate its obligation to provide a line of equity. The agreement proved disastrous for INL, just as it has for many other companies with similar financing arrangements. Continue reading “Article: Manhattan District Court Writes Final Chapter in Litigation Between Internet Law Library and Hedge Fund Adviser Southridge Capital Management; Orders Tech Firm to Pay Adviser Almost $1.2 Million in Attorney’s Fees on Top of Damages”

Article: COURTS WIELD HARSH PENALTIES FOR ABUSING THE DISCOVERY PROCESS

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COURTS WIELD HARSH PENALTIES FOR ABUSING THE DISCOVERY PROCESS

Evelyn Alfonso , 30 January 2004

A federal district court last summer issued the ultimate sanction of dismissal due to plaintiffs= abuse of the discovery process and persistent refusal to abide by the court=s discovery orders. Internet Law Library, Inc. v. Southridge Capital Management, 2003 WL 21537782 (S.D.N.Y. July 8, 2003). ITIS, Inc., formerly known as Internet Law Library, Inc., and its CEO, along with several of its shareholders, brought an action against defendant investors alleging their involvement in a scheme to defraud plaintiffs and to manipulate downward the price of ITIS stock in
violation of federal and state laws. Internet Law Library, Inc. v. Southridge Capital Management, 223 F. Supp. 2d 474, 477-78 (S.D.N.Y. 2002).

Judge Robert L. Carter of the United States District Court for the Southern District of New York dismissed the suit with prejudice as to all defendants due to plaintiffs= repeated attempts to expand and misconstrue the court=s orders on the ground that Federal Rule of Civil Procedure 37(b)(2)(C) authorizes dismissal of a plaintiff=s complaint along with other sanctions if a party Afails to obey an order to provide or permit discovery.@ Internet Law Library, 2003 WL 21537782 at *3. While dismissal is indeed the harshest sanction available to a court, it is appropriate where a party who has disobeyed an order has done so willfully, in bad faith, or is in some way at fault. Id. The court held that plaintiffs= failure to respect the court and its orders justifies dismissal of the complaint as both a remedy and a deterrent to future misconduct. Id. at *4. Continue reading “Article: COURTS WIELD HARSH PENALTIES FOR ABUSING THE DISCOVERY PROCESS”

Article: $300M Stock Manipulation Suit Goes Forward

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$300M Stock Manipulation Suit Goes Forward

Mark Hamblett, 30 July 2002

Internet Law Library Inc.’s allegation that it was the victim of “death spiral financing” by defendants who have a long history of stock manipulation states a claim under federal securities laws and will not be dismissed, a federal judge in New York has ruled.

Judge Robert L. Carter for the Southern District of New York rejected motions to dismiss brought by Southridge Capital Management and Cootes Drive LLC, which deny their agents violated a promise to refrain from short-selling shares of Internet Law Library immediately after agreeing to provide $28 million in financing.

Internet Law Library, now known as ITIS Inc. (OTC BB:ITII.OB – News), owns Internet sites specializing in legal research and litigation support services.

The company claims that, in spring 2000, it negotiated with Southridge for capital of up to $28 million, consisting of a $25 million equity line agreement and a $3 million convertible preferred stock purchase that ultimately triggered the lawsuit, Internet Law Library v. Southridge Capital Management, 01 Civ. 6600.

The company alleged that Southridge and its agents, Steve Hicks, Dan Pickett and Christy Constabile, promised to refrain from selling ITIS stock for one year after the closing, and also promised not to manipulate the stock to depress its price.

ITIS Chief Executive Hunter M.A. Carr repeatedly asked Southridge and its agents about his concern on short-selling, and was told several times that Southridge would not engage in the practice. Carr claimed he relied on these representations when he signed the stock purchase agreement on May 11, 2000, with Cootes Drive, a company that replaced Southridge as a signatory at the last minute.
Continue reading “Article: $300M Stock Manipulation Suit Goes Forward”

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. Continue reading “Article: Internet Law Library, Inc. v. Southridge Capital Management, LLC”

Article: Internet law site sues old partners

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Internet law site sues old partners

Jenna Colley , 25 February 2001

Houston-based Internet Law Library Inc. is throwing the book at its former partners.

In a federal lawsuit filed Jan. 26, Internet Law Library accuses ex-investors of a slew of improprieties, alleging stock manipulation, securities and exchange violations and fraud.

Internet Law Library filed the suit in U.S. District Court in Houston against Southridge Capital Management LLC and its executives Steve Hicks, Dan Pickett and Christy Constabile. Also named are Canadian company Thomson Kernaghan & Co. and investor Cootes Drive LLC.

Internet Law Library, through several subsidiaries, operates various Internet sites containing databases for legal and other research.

According to the suit, Southridge agreed to a $3 million convertible preferred stock purchase and a $25 million line of equity. The company alleges that after agreeing to provide the $28 million in capital, Ridgefield, Conn.-based Southridge sold the company’s stock short. Continue reading “Article: Internet law site sues old partners”