Richard Bozulich
Kagawa 792-13
Chigasaki
Kanagawa 253
Japan
Tel: 011-81-467-573069
FAX: 011-81-467-573066
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION
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Richard Bozulich,
Plaintiff,
No. C-95 20678 RMW
-against-
Date: January 26, 1996
James W. Connelley, Elwyn Berlekamp, Nathaniel Berkowitz,
Hartland Snyder, Martin Lowenstein, Anton Dovydaitis, Janis
K. Miller and Ishi Press International, Time: 9:00 AM
Defendants.
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MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT
OF MOTION TO DISQUALIFY HOWARD NEAL FROM ACTING
AS COUNSEL FOR ISHI PRESS INTERNATIONAL
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INTRODUCTION
The Plaintiff has filed a motion to disqualify Howard D. Neal from acting as counsel for Ishi Press International. All of the papers presented by both sides in this case amply demonstrate that Howard Neal is not now and never has been counsel for Ishi Press International. Rather, Howard Neal is counsel for Elwyn Berlekamp and Nathaniel Berkowitz, two former directors of Ishi Press International, who have interests adverse to the interests of Ishi Press International. In addition, Howard Neal himself has interests adverse to the interests of Ishi Press International. As a result, there is overwhelming case law that Howard Neal must be disqualified from appearing in behalf of Ishi Press International.
ARGUMENT
To summarize the claims of the defendants, the defendants claim that there was a directors meeting held on January 20, 1995 and the directors authorized Hartland Sweet Snyder, who now claims to be the "acting President" of Ishi Press International, to pay the legal fees of Elwyn Berlekamp and Nathaniel Berkowitz for legal work performed by Howard Neal in October - November, 1994. (See Declaration of Hartland Snyder dated January 5, 1996, paragraph 5). Then, in October, 1995, the now former directors, Berkowitz and Berlekamp "recommended that I, as acting President, retain Neal & Associates to defend Ishi Press against Plaintiff's complaint."
This declaration goes on to state: "In October 1995 I retained Neal & Associates under the authority vested in the office of the Presidency by Section 8.3 of the By-laws and the August 14, 1986 Resolution [of the Board of Directors]."
The authoritative case on this exact point is Pacific Bank v. Stone (1898) 121 Cal. 202. There, the court ruled:
"The president or acting president .... has no authority, by virtue of his office merely, to retain special counsel in addition to the attorneys of the bank regularly employed to assist in litigation for the bank, without the sanction or ratification of the board of directors."
In the case presented here, Ishi Press International has, according to the papers filed by the defendants, only one director. That director is Richard Bozulich. According to the statements made by the defendants, Elwyn Berlekamp, Nathaniel Berkowitz and James W. Connelley have all resigned as directors. Although Hartland Snyder claims to be a director, he has yet to substantiate his claim, as by showing when and where and by whom he was elected as a director.
The declaration of Hartland Snyder makes it clear that his only claim to have a right to retrain counsel on behalf of Ishi Press International in this litigation is as president of the corporation. However, the corporate resolution which he cites does not give the president the authority to retain counsel, absent the authorization of the board of directors. That resolution, to the extent relied upon by the defendants, states that the president has the authority "... to sign and deliver any agreement in the name of the corporation and to otherwise obligate the corporation in any respect relating to the matters of the business of the corporation."' (emphasis added).
All of the cases on this point, which give the president the authority to retain counsel, arose from a different factual setting, where an unknowing third party relies upon the presumed authority of the president to act. In the case presented here, however, there are no third parties involved. Richard Bozulich is the Chairman of Ishi Press International. As the Chairman, I was not consulted or notified of Hartland Snyder's intention to retain Howard Neal as counsel. The declaration makes it clear that Hartland Snyder never consulted the board of directors or indeed any individual director of the corporation. He acted entirely on his own.
Also, as noted previously, Ishi Press International does have regular corporate counsel. Corporate counsel for Ishi Press International is the law firm of Tomlinson, Zisko, Morosoli & Maser, 200 Page Mill Road, Palo Alto CA 94306. That is the law firm which formed this corporation in 1986 and has been corporate counsel from the inception of this corporation until the present. That law firm has not appeared in this case.
Under these circumstances, under the authority of Pacific Bank v. Stone (1898) 121 Cal. 202, Howard Neal is clearly not authorized to appear. There, the court noted:
"It is not the case of a corporation repudiating its contract while retaining its fruits; it is the case of an officer acting wholly beyond his powers, where there is an entire failure to show that the directors had any knowledge of the contract or consented to it or ratified it."
The two cases cited by the defendants are false citations which, in fact, support my view and not theirs. In Streeten v. Robinson (1894) 102 Cal. 542, the president and vice-president owned all but three shares of stock of the corporation, and, while the president was away in Mexico, the vice-president contracted for the services of an attorney. The services were performed and a fee of $5,000 was paid, with the full knowledge and no objection by the board of directors of the corporation. The subsequent court in Pacific Bank v. Stone (1898) 121 Cal. 202, dealt with that case and said:
"We have examined these cases [including Streeten v. Robinson, (1894) 102 Cal. 542] ... and in no one of them is the doctrine laid down that the president of a corporation has by virtue of his office alone the power to bind the corporation in a transaction like the one we have here. .... In all cases, there was specific knowledge and acquiescence brought home to the directors." Id. 121 Cal. at 206.
Although Pacific Bank v. Stone (1898) 121 Cal. 202 is an old case, it has been cited and relied upon in quite recent cases and its authority is unquestionable.
The only other case cited by the defendants here is also misrepresented in their papers. According to the Defendant's memorandum, that case stands for the proposition that two directors have the authority to retain counsel for the corporation in litigation against two other directors. That is not what happened there. In Golden State Glass Corporation v. Superior Court (1939) 13 Cal.2d 384, the president sought to usurp the authority of the controlling majority stockholders by hiring counsel, who had a receiver appointed. All three were both stockholders and directors. Although there was a fourth director, only those three "actively participated in the direction of the corporate affairs."
Faced with this situation, the appellate court held that the attorney retained by the controlling majority stockholders ought to be recognized by the court as representing the corporation. Thus, that case stands for the time honored principle that the stockholders control the corporation.
In the case presented here, Hartland Snyder owns no stock at all, not even one share. The number of shares held by Berkowitz and Berlekamp were very minor and, according to their own statements, they have since divested themselves of their shares. They have also, according to their statements, resigned as directors of the corporation. Clearly, there is no authority for the corporation to retain counsel solely on their authority.
There is a long line of cases which show that Hartland Snyder, even were he the president, which he is not, had no authority to do the things which he has been doing, such as issuing new shares of stock to his friends and retaining counsel on behalf of the corporation. For example, in Sealand Investment Company v. Emprise Incorporated (1939) 12 Cal. Rptr. 153, 190 C.A.2d 305, 321, the court observed:
"Even the president, apart from acts done in the ordinary course of business or in pursuance of apparent authority, has only powers conferred on him by statute, corporate charter, by-laws or directors. The mere fact that he is president, without more, does not necessarily give him greater power than any other director."
Similarly, "A corporation's ratification of an alleged agent's unauthorized sale of its property can only be effected through a resolution of its board of directors when duly assembled. Civ. Code Sec. 2309, 2310." John Paul Lumber Co. v. Agnew (1954) 125 C.A.2d 613.
The purported "minutes" included as an exhibit by the defendants contains an interesting statement, as follows: "Signatories on the bank accounts were changed to Ms. Miller, Mr. Lowenstein and Mr. Snyder. Mr. Connelley would close the English account. Mr. Connelley pointed out that changing bank account signatures doesn't require board action."
It has always been my understanding that in order for a corporation to open a bank account there must be a corporate resolution. A corporate resolution is also required for a corporation to sell stock. If one will look at the corporate minutes of this corporation from its inception in 1986 through 1992, one will see that every time the corporation opened a bank account, sold stock, or borrowed money, there was a detailed corporate resolution authorizing that action. However, in 1992, the corporation became unable to pay its debts and promissory notes as they matured. It now seems that at about that time Mr. Connelley, without informing me, invented his own new law and decided that he could open bank accounts, offer and sell securities, borrow money etc., all without the approval of the board of directors and without even informing me, the Chairman of the Board. This is how the corporation got into the mess in which it is now in. Vast sums of money have apparently disappeared from the corporation. There has been no accounting and no way to find out what has happened to the money. This is one of the reasons why I moved for a temporary restraining order and a preliminary injunction requiring the defendants to give me access to the books and financial records of the corporation, a motion which was inexplicably denied by this court.
It is apparent that Howard Neal has financial interests adverse to that of the corporation. His motion papers here presented state that the corporation paid him money for legal services rendered to Elwyn Berlekamp and Nathaniel Berkowitz in October - November, 1994. I am a director and I was not previously aware of this fact. Obviously, Howard Neal will have to refund this money to the corporation, which explains why he insists on appearing on behalf of the corporation.
Finally, Section 310 of the California Corporations Code provides that no act by the board of directors can be taken in which a director has a personal interest unless there has been either notice and disclosure to the stockholders or a stockholder's vote. Ishi Press International has nearly 30 stockholders, including two stockholders in Australia and several in Japan. None of these stockholders have ever been notified of any of these purported acts by the "board of directors". Even I have not been notified of these acts. For example, at one point, Hartland Snyder stated that Ishi Press International had sold the "puzzle business" to one Bill Cutler. I have recently learned that Bill Cutler is a business partner with Elwyn Berlekamp. Clearly, this should have been disclosed, and it wasn't. The stockholders, including myself, have a right to this information, and no such information has been provided.
CONCLUSION
Howard D. Neal is clearly disqualified from appearing as counsel for Ishi Press International in this case and must be removed as counsel.
Dated: January 22, 1996 _________________________
Richard Bozulich
CERTIFICATE OF SERVICE
Samuel H. Sloan declares under penalty of perjury under the laws of California that he is not a party to this action and that on January 25, 1996 he served the within declaration by mailing a true copy of the same to:
Howard D. Neal
6200 Antioch Street, Suite 202
Oakland, California 94611
________________________
Samuel H. Sloan
DATED: January 25, 1996