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  • Alan Elkin, 2012 Frank Family Trust A, 2012 Frank Family Trust B v. Active Media Services, Inc., Arthur WagnerSpecial Proceedings - CPLR Article 75 document preview
  • Alan Elkin, 2012 Frank Family Trust A, 2012 Frank Family Trust B v. Active Media Services, Inc., Arthur WagnerSpecial Proceedings - CPLR Article 75 document preview
  • Alan Elkin, 2012 Frank Family Trust A, 2012 Frank Family Trust B v. Active Media Services, Inc., Arthur WagnerSpecial Proceedings - CPLR Article 75 document preview
  • Alan Elkin, 2012 Frank Family Trust A, 2012 Frank Family Trust B v. Active Media Services, Inc., Arthur WagnerSpecial Proceedings - CPLR Article 75 document preview
  • Alan Elkin, 2012 Frank Family Trust A, 2012 Frank Family Trust B v. Active Media Services, Inc., Arthur WagnerSpecial Proceedings - CPLR Article 75 document preview
  • Alan Elkin, 2012 Frank Family Trust A, 2012 Frank Family Trust B v. Active Media Services, Inc., Arthur WagnerSpecial Proceedings - CPLR Article 75 document preview
  • Alan Elkin, 2012 Frank Family Trust A, 2012 Frank Family Trust B v. Active Media Services, Inc., Arthur WagnerSpecial Proceedings - CPLR Article 75 document preview
  • Alan Elkin, 2012 Frank Family Trust A, 2012 Frank Family Trust B v. Active Media Services, Inc., Arthur WagnerSpecial Proceedings - CPLR Article 75 document preview
						
                                

Preview

Nicholas Schretzman +1.212.309.6257 nicholas.schretzman@morganlewis.com July 19, 2022 Hon. Lynn R. Kotler 80 Centre Street, Room 276 New York, New York 10013 Re: Elkin, et al. v. Active Media Services, Inc. et al., Index No. 651110/2022 Dear Judge Kotler: We write on behalf of Active Media Services, Inc. (“Active” or the “Company”) pursuant to the May 3, 2022 Order (NYSCEF Doc. No. 43, the “Order”), which granted a preliminary injunction pending an arbitration (the “Arbitration”) and directed the parties to provide a status report today. The Arbitration is finally moving forward, notwithstanding Petitioners’ ongoing efforts to delay. As a brief reminder, Petitioner Alan Elkin and Active are parties to a longstanding Shareholders Agreement (the “SHA”). The SHA provides that, in the event of a “Disability,” Mr. Elkin must sell and Active must buy his shares at a price set by the SHA, in a process reaffirmed by the shareholders annually. Mr. Elkin suffered a severe stroke in July 2021, and after emergency brain surgery and a stint in the ICU, he was moved, at Company expense, to a long-term care facility in Florida. Mr. Elkin ceased communicating with Active’s management and Board of Directors, refused (through his family) attempts to visit him, accepted Disability-triggered salary continuation payments under the SHA, accepted disability benefits from outside insurers, resigned as a Company director, and was removed by the Board as CEO and Chairman of the Board. In early 2022, the parties reached agreement for the repurchase of Mr. Elkin’s shares on terms substantially more favorable than the SHA requires, including millions in upfront cash, quarterly payment guarantees above those mandated by the SHA, and a “tail” that would provide Petitioners potential upside if the Company were sold in the next six months. The total negotiated package – which required consent of Active’s lenders and its Employee Stock Ownership Plan (ESOP) Trustee – was worth at least $54.5 million. On the day the negotiated transaction was to close (and after claiming they were looking for a fax machine to transmit documents), Petitioners reneged. They filed the Arbitration and this action, claiming for the first time that Mr. Elkin does not meet the SHA’s definition of “Disability.” They have conjured a conspiracy in which Mr. Elkin is as “sharp as ever” and Active is making up the Disability so that it could acquire his shares and then sell the Company to its largest competitor, Morgan, Lewis & Bockius LLP 101 Park Avenue New York, NY 10178-0060 +1.212.309.6000 United States +1.212.309.6001 DB1/ 131650027.2 July 19, 2022 Page 2 who they claim has a big “offer” in the wings.1 Petitioners have also smeared Mr. Elkin’s partner, Arthur Wager, with personal attacks in the Arbitration, and, according to Mr. Wagner’s 80 year old wife, she was recently accosted in a hostile manner by a member of the Elkin family in a public parking lot. Active’s repurchase of Petitioners’ shares – which the SHA mandates and Active must do to fulfil its duties to its other shareholders and the ESOP (who own the majority) – has been blocked by this Court’s orders for four months. The injunction is causing real harm to the Company and its employees, and Petitioners have done all in their power to frustrate resolution of this dispute. First, Petitioners have attempted to delay resolution of the Arbitration at every turn. The key issues in dispute are (a) whether Mr. Elkin has a “Disability”; and (b) whether his purported “resignation” (which was tendered a month after he was removed as Chairman and CEO) somehow prevents the repurchase of his shares. When seeking an injunction, Petitioners assured this Court that the dispute could be resolved quickly. While the injunction motion was sub judice, Petitioners sought expedited appointment of an AAA Panel and an expedited conference with the Panel, which was reported to the Court on April 19, 2022 (the “Joint Status Report”) and gave the Court the impression that Petitioners were seeking expedited resolution. On May 6, 2022, after receiving the Joint Status Report, the Court issued the preliminary injunction Order. But once that Order was issued, Petitioners abandoned any artifice of hurry and shifted to a strategy of delay. These efforts have included: (i) amending their Arbitration claim to now include 11 causes of action; (ii) raising new claims under multiple contracts; (iii) seeking to add a new party; (iv) seeking to arbitrate a promissory note; (v) refusing to take a position on producing Mr. Elkin’s medical records; (vi) proposing to wait until August 31, 2022 before even providing their position as to whether Mr. Elkin might be deposed and if so, what accommodations would be necessary; and (vii) proposing to delay the hearing until February of 2023, which would leave this Court’s restraints in effect for at least a year.2 These efforts, finally, appear to be failing, and Petitioners will soon face reality. The Arbitration claims under the promissory note were dismissed, and Petitioners were forced to withdraw their claims against the new party. After months of refusing to commit, Petitioners finally represented that they have requested Mr. Elkin’s medical records and will produce them, although as of the date of this letter (over four months since this action was filed), they have not done so. The Panel has instructed Petitioners to provide their stance on Mr. Elkin’s ability to be deposed by August 1, 2022, and required the parties to brief on an expedited basis Petitioners’ assertion that Mr. Elkin’s purported resignation somehow moots the mandatory buy-back provision of the SHA. And the Panel has agreed with the Company that hearings should start November 29, 2022. Second, as Active predicted when it opposed the preliminary injunction, Active’s largest competitor is using the injunction and delayed resolution of the dispute as a weapon to harm Active. The competitor (with whom the Elkin family admits they have been communicating about 1 Mr. Elkin’s daughter (an Active Board member) admitted the Elkin family has been communicating with the Company’s competitor. Petitioners know there was never an “offer” that could have been accepted and that discussions with this competitor are dead. 2 In their status report, Petitioners claim that Respondents caused delay in discovery. That is false. Respondents spent weeks negotiating expedited discovery, but Petitioners repeatedly refused to commit to produce Mr. Elkin’s medical records. We fully expect such games to continue. DB1/ 131650027.2 July 19, 2022 Page 3 a potential acquisition of Active) has been contacting Active’s customers and employees to spread rumours about Active’s future, harming Active’s reputation. Major customers (who we are not naming, so as to not add further risk to the relationships) have reported that this competitor has emailed and called them about the dispute, provided documents related to the dispute, falsely represented that Active is financially insolvent and will soon have its assets frozen as a result of the dispute, and will soon be acquired by them. An affidavit addressing this has been filed at NYSCEF Doc. No. 49. The Company maintains that there was no reason to impose an injunction on the share buy-back because, in the improbable event that the Petitioners win the Arbitration, the Panel could reverse the repurchase and make the Petitioners monetarily whole. As the Court recognized when we first met, this is just a dispute about money. Petitioners agreed to and then abandoned a negotiated agreement resolution that would have given them approximately $54.5 million. They are trying to use litigation and arbitration as leverage, and their claims should be addressed without an injunction, particularly given that the injunction is causing real harm to Active and its employees. Finally, in the event the Court is not yet aware, Active has filed a motion to clarify or modify one prong of the preliminary injunction Order. (NYSCEF Doc. No. 45, “Motion to Clarify”). The Order contains a provision enjoining Active from “cancelling, reducing, or otherwise modifying” Mr. Elkin’s compensation. However, at the time the Order was issued, Mr. Elkin was not an employee, officer or director of Active, and the only payments Mr. Elkin was receiving were 12 months of salary continuation under the disability provision in the SHA, which started in July 2021 when he had the stroke. The SHA specifically states: “The Disabled Shareholder (as such term is defined in Paragraph 10(a) below) shall not be entitled to receive any further payments of salary (or any bonus or other compensation) after the twelfth month following his first becoming Disabled and throughout the remaining period of his disability.” NYSCEF Doc. No. 32 at 2(b) (emphasis added). Active simply has no other cause or justification to pay him outside of the SHA since he has now collected all that the SHA stipulates, and any extracontractual payments would be coming from the pockets of Active’s majority shareholders which includes the ESOP Trust and the Company’s employees. In June 2022, Active reminded Petitioners that the 12-month contractual salary continuation was set to expire in July 2022. Petitioners responded by threatening a contempt claim against Active if Active adhered to the SHA, without any explanation why Mr. Elkin – who the parties both acknowledge is not an employee, officer or director – should still get a salary. Active filed the Motion to Clarify to confirm that stopping payments after 12 months, as the SHA requires, would not violate the Order, or if necessary, to modify the Order. (NYSCEF Doc. No. 45). Active demonstrated that the only way the Court could require payments beyond 12 months would be to issue an affirmative mandatory injunction judicially rewriting the SHA, which would be improper. Active set the return date for that motion as July 13, 2022, the one-year anniversary of Mr. Elkin’s stroke and the expiration date of the payments pursuant to the SHA. Petitioners again sought delay, requesting a 30-day adjournment of their time to respond. Over Active’s objection, the Submissions Part set the return date for August 12, 2022. Meanwhile, the 12-month contractual period for continuation payments has expired, and no additional payments are due. Respondents request that the Court take up the Motion to Clarify as soon as possible, and are available at the Court’s convenience to discuss further the motion and the status of the Arbitration. DB1/ 131650027.2 July 19, 2022 Page 4 Respectfully, /s Nicholas Schretzman DB1/ 131650027.2