MTH Attempts To Collect $$$ From Korea Brass by Erol Gurcan
In my last legal article,
(written at the request of the Coil Couplers web site), I stated that
in MTH’s fraudulent transfer of assets lawsuit against Korea Brass aka
Hagye Trading/Model Korea Trading (MKT), the court on November 20, 2007
issued a temporary restraining order (TRO) and entered an order
directing all monies paid by Lionel to Korea Brass were to be deposited
into a court approved interest bearing escrow account. The practical
effect of this was, Lionel, which is not a party in MTH’s lawsuit
against Korea Brass, will not be able to take delivery of trains that
it paid for and which were manufactured by KB, since the money is going
into a court escrow account rather than directly to KB. Ultimately, we
hobbyists will not be able to purchase the trains which are affected in
these legal proceedings, at least for now.
Click on the link below to read on
On November 29, 2007,
Korea Brass filed a notice of appeal concerning the court’s order
directing the payment of any money by Lionel into an escrow account.
By
way of background, on January 27, 2006, MTH sued Korea Brass, alleging
it fraudulently transferred its assets to Hagye Trading, aka Model
Korea Trading Company (MKT). Korea Brass was a codefendant in the trade
secrets case against Lionel, the one that is currently tentatively
settled. At the present time, Lionel is attempting to obtain financing
so it can pay the settlement amount it agreed to with MTH, and its
other creditors, so it can exit from bankruptcy in the near future.
In June 2004, a jury awarded MTH $40.8 million against both Lionel and
Korea Brass in the trade secrets case. Lionel then appealed the jury’s
$38.6 million dollar verdict against them. On December 14, 2006, the
appeals court vacated the verdict and ordered a new trial. Korea Brass
did not appeal the jury’s $2.1 million dollar verdict against them.
Since they did not do so, on November 3, 2004, the court entered
judgment in favor of MTH against KB for almost $28 million dollars, at
least in part under the doctrine of joint and several liability. To
date, none of the judgment has been paid by KB.
On December
14, 2007, Korea Brass’ attorney’s filed a motion for summary judgment
(in layman’s terms a motion to dismiss a lawsuit when made by a
defendant). Their position is that since the entire monetary judgment
in the trade secrets case was vacated on appeal, and the fraudulent
transfer of assets case is based on it, there is no legal foundation
for the temporary restraining order presently in effect, a future
permanent injunction, or even the current lawsuit. Korea Brass’ motion
for summary judgment, and MTH’s own motion for summary judgment and for
a permanent injunction is scheduled to be heard in court on January 10.
However,
the question that needs to be answered is, “Did the appeals court in
its December 14, 2006 decision in the trade secrets case vacate the
entire judgment against both Lionel and Korea Brass, or only against
the party that appealed the jury’s verdict, and not against the party
that did not appeal”? If the verdict was vacated only against the
appealing party, here Lionel, then the fraudulent transfer of assets
case would remain viable against KB.
The appeals court
recently issued a decision answering this question. The court held that
since Korea Brass did not appeal, the judgment against them became
final, even though it was vacated in its entirety against Lionel. In
other words, KB did not get the benefit of the judgment being vacated
against Lionel. It still owes MTH. (MTH will also receive money from
Lionel from the separate trade secrets and patent infringement lawsuit
settlements if they can obtain financing).
Since the appeals
court has now clarified this issue, Korea Brass’ motion for summary
judgment will have to be denied on January 10 since the judgment in the
trade secrets case was not vacated as to them. MTH’s motion for summary
judgment and a permanent injunction could well be granted by the court.
This will mean that future payments by Lionel will go into the court’s
escrow fund, possibly for as long as it takes to payoff KB’s judgment
to MTH.
In addition, if MTH’s motion is granted on January 10,
it could also affect the ability of other train companies (besides
Lionel) from receiving product from KB. On January 3, 2008, MTH’s Mike
Wolf sent me an email stating “if we win, then we will get an
injunction against all of MKT’s accounts receivables from all of their
US customers including but not limited to Lionel, Weaver, USA Trains,
Broadway Limited, and Precision Craft Models.”
The legal
issues continue and become more interesting/complicated just when we
thought there was light at the end of the tunnel due to the recent
tentative MTH Lionel settlement. Stay tuned.
Erol B. Gurcan, an O Gauge industry legal expert, is a regular contributor to OGaugeWatch.com
Related Posts:
Erol’s Legal Updates
Related posts:
- MTH Settles Lawsuit with Korea Brass
- Court Approves Lionel’s Bankruptcy Plan and Settlement with MTH by Erol Gurcan
- Bankruptcy Court Grants Lionel 7th Extension: MTH Motion to Extend TRO Granted by Erol Gurcan
- Legal Explanation of Latest Coil Couplers Posts
- Current Status Of MTH, Lionel Lawsuits Settlement By Erol Gurcan
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