Corporate Universe, Inc. v. Emry Capital Group, Inc.

Background

Corporate Universe, Inc. challenged 10,000,000 shares of its common stock issued to Michael Dobbs in 2010. The shares came from shares held by Emry Capital Group, Inc. Under an October 1, 2010 consulting agreement, Emry agreed to issue the shares in exchange for Dobbs’s performance of consulting services within 30 days. The shares were issued on November 5, 2010. The parties disputed whether Dobbs performed the required services.

Corporate Universe sought a declaration that the shares were void because they were improperly issued under Rule 144 of the Securities Act of 1933 and because they were issued without consideration. The opinion states that Corporate Universe conceded it had no right to bring an action under Rule 144 itself. Corporate Universe also sought to prevent Dobbs from marketing or transferring the shares.

Corporate Universe had previously sued Dobbs and others in state court in connection with the same shares. That case was settled in March 2011, and Corporate Universe dismissed its claims without prejudice under the settlement. Corporate Universe later sued in federal court. The claims against Dobbs were transferred to the Southern District of New York after a Maryland court entered a default judgment against other defendants. The court held that the Maryland default judgment did not control the claims against Dobbs because a default judgment based on a failure to respond is not a decision on the merits.

Declaratory-Judgment Claim

The court treated Corporate Universe’s claim that the shares were issued without consideration as a contract-based claim. Under New York law, a breach-of-contract claim generally must be brought within six years of the alleged breach. The consulting agreement required Dobbs to perform by October 31, 2010, so any alleged breach occurred then. The court concluded that a direct contract claim would have needed to be filed by the end of 2016, making Corporate Universe’s 2020 declaratory claim time-barred.

The court gave an alternative reason for ruling against Corporate Universe. The Declaratory Judgment Act allows, but does not require, a federal court to declare the parties’ legal rights when an actual controversy exists. The court concluded that Corporate Universe was seeking to resolve a dispute about events that had occurred roughly ten years earlier, rather than seeking an early declaration to prevent future harm. The court therefore stated that it would decline to exercise jurisdiction over the declaratory-judgment claim even if the claim had been timely.

The court also rejected Corporate Universe’s argument that Rule 144 allowed it to challenge Dobbs’s ownership indefinitely because Dobbs allegedly had not performed the consulting services. The court noted that the shares had been transferred in 2010 and found no legal basis for waiting ten years to bring the claim. It also stated that equitable principles concerning delay independently rejected that theory.

Injunctive-Relief Claim

The court held that a request for an injunction is not an independent cause of action. Instead, an injunction is a remedy for an underlying legal violation. Because Count II asserted “Injunctive Relief” as a separate claim, the court dismissed Count II.

Disposition

Corporate Universe’s motion for summary judgment was denied. Dobbs’s cross-motion for summary judgment was granted. Count II was dismissed. The court declined to address Dobbs’s alternative argument that the claims against him had been released, and stated that other arguments not addressed were denied as without merit.