United States District Court, N.D. Illinois
February 25, 2004.
UNIQUE ENVELOPE CORP., Plaintiff;
GS AMERICA, INC., and FRANK ROSENBERG, Defendant; GS AMERICA, INC., Counter Plaintiff; v. UNIQUE ENVELOPE CORP., et al, Counter Defendants
The opinion of the court was delivered by: SAMUEL DER-YEGHIAYAN, District Judge
Plaintiff Unique Envelope Corp. ("Unique") filed the instant action
against Defendants GSAmerica, Inc. ("GSA") and Frank Rosenberg
("Rosenberg") alleging a breach of contract claim against GSA, a breach
of contract claim against Rosenberg as an alter ego of GSA, and a fraud
claim against Rosenberg. Unique seeks compensatory damages, prejudgment
interest, punitive damages, and attorneys' expenses and fees. Defendant
GSA filed a counter claim against Unique alleging four Counts
containing breach of contract claims, four Counts containing fraudulent
inducement claims, three Counts containing misrepresentation
claims, a negligence claim, and a tortious interference with
contract claim. GSA seeks compensatory damages including consequential,
prospective, and exemplary damages against Unique. GSA also seeks pre
judgment interest, post judgment interest and attorneys'
fees. A bench trial was conducted in this case on January 15, 2004
through January 23, 2004, We have reviewed all admissible evidence in
this case and enter the following findings:
FINDINGS OF FACT
Unique Envelope Corp. ("Unique") and all of the Defendants are citizens
of different states and the amount in controversy exceeds $75,000.00,
exclusive of interests and costs. Plaintiff Unique is an Illinois
corporation, with its principal place of business in Chicago, Illinois.
Defendant GSAmerica, Inc. ("GSA") is a Tennessee corporation and during
the relevant time periods, GSA's principal place of business was located
in Tennessee. Defendant Rosenberg is a citizen of Tennessee.
II. Unique Envelope Assignment
Unique is in the business of manufacturing and supplying standard and
custom made envelopes, printing, and lithographic services to commercial
clients for use in their respective business enterprises. Unique was
incorporated on November 12, 1998. Melvin Kozbiel operated Unique as a
sole proprietorship until December 31, 1998. Melvin Kozbiel assigned to
Unique all of the claims brought against GSA and Frank Rosenberg
("Rosenberg") in this lawsuit.
III. Transactions Between the Parties
In 1996, GSA began purchasing envelopes from Unique. Payments for
envelopes purchased by GSA during 1996 and 1997 were due within 30 days
of the invoice date. Based upon a meeting in June of 1997 in Chicago
between Rosenberg, John Bums and Darrell Kozbiel an agreement was reached
regarding envelope orders for 1998. Under the agreement payments for non
Christmas card envelopes would be due within 90 days of the
invoice date. For all envelopes purchased for the T.V. Allen and Empress
lines of Christmas greeting cards, 30% of the invoice would be due within
90 days of the invoices date, and the remainder would be due on January
10th of the following year. At the time of the June, 1997 meeting, GSA
was suffering from severe cash flow problems. At no time prior to or
during 1998 did Defendants ever disclose to Unique that GSA was having
cash flow problems. Although GSA was consistently late in making payments
to Unique, it had, prior to June of 1998, eventually paid all amounts
During 1998, GSA ordered envelopes from Unique, but failed to pay for
all the invoices. The total amount due on unpaid invoices for envelopes
shipped to GSA by Unique is $195,450.62. Throughout 1998, GSA had issued
blanket purchase orders to Unique for certain types of envelopes which
were specially manufactured by Unique for the blanket purchase orders.
These specially manufactured envelopes could not be resold by Unique to
third parties and the total price for envelopes ordered but not paid for
by GSA pursuant to blanket purchase orders is $34,485.92.
In 1997, at the request of Rosenberg, Darrell Kozbiel traveled to Los
Angeles to appraise certain envelope manufacturing equipment ("Crane
Equipment") and he appraised it in the range of $25,500 to $47,500.
During this same period, GSA was negotiating a transaction whereby it
would purchase the assets of the T.V. Allen division of Crane &
Co., Inc. ("Crane"), and the Crane Equipment that Darrell Kozbiel
appraised was one of those assets. After such visit and appraisal,
Rosenberg asked Darrell Kozbiel if Unique would like to make an offer for
the Crane Equipment and in response Unique offered $38,500 for the Crane
Equipment and offered to add $10,000 to its bid price if it obtained
$1,000,000 in envelope orders from GSA. GSA accepted Unique's offer of
$48,500 for the Crane Equipment. However, GSA failed to purchase at least
$1,000,000.00 worth of envelopes from Unique.
During 1996, 1997, and 1998 GSA experienced severe cash flow problems
and GSA's 1997 audited financial statements included a statement by the
company's auditors indicating that there was "an uncertainty about the
Company's ability to continue as a going concern." In 1997, Rosenberg and
John Burns began contacting GSA suppliers in an attempt to extend the
terms which GSA had with such suppliers because GSA was experiencing
severe cash flow problems. On October 15, 1997, GSA caused its subsidiary,
Empress Greeting, Inc. ("Empress Greetings") to purchase from Crane the
assets of Crane's T.V. Allen Division even though GSA did not have
sufficient capital for Empress Greetings to purchase the T.V. Allen
Division's assets from Crane. Rosenberg participated on behalf of GSA in
the negotiations for the purchase.
In January, 1998, GSA was past due on the amounts it owed to Unique. As
a result, Darrell Kozbiel called Dana Crooker, a GSA employee, and told
him that Unique was stopping shipments until all past due amounts were
paid. Within minutes after Darrell Kozbiel's telephone call to Dana
Crooker, both Dana Crooker and Rosenberg telephoned Darrell Kozbiel.
Rosenberg asked Darrell Kozbiel how GSA could get Unique to resume
shipping. Darrell Kozbiel told Rosenberg that GSA needed to pay all past
due amounts and the next day Unique received a
check via overnight delivery from GSA for all past due amounts.
In a letter on GSA letterhead dated January 22, 1998, Rosenberg asked
Darrell Kozbiel to contact Jack Wilton ("Wilton"), a GSA employee, the
next time GSA fell behind on payments. Wilton was GSA's production
manager during most of 1998 and as such, he had personally dealt with
Darrell Kozbiel at Unique regarding the ordering and delivery of
envelopes, and had personal knowledge of the orders placed with Unique.
In January, 1998, Rosenberg communicated on behalf of GSA with Starr
Toof Printing Company ("Starr Toof) regarding a potential business
combination between the two companies (Exhibit 14). In that
communication, Rosenberg stated that GSA would not allow a merger of the
corporate structure of GSA since it involved personal holdings and other
relationships that GSA reserved the right to liquidate, including
accounts receivable, payable, and other hard assets. In communications
with Starr Printing, Louis Rosenberg, GSA President, and the son of
Rosenberg, confirmed that GSA's corporate shell could not be part of any
transaction because it was important to the personal holdings and tax
structure of his father Frank Rosenberg and Don Sundquist (Exhibit 13).
Rosenberg's goal at the time was to consolidate the value of GSA with the
profits of publishing companies owned by Vestmark, Inc. ("Vestmark")
which is a holding company which invests in printing and publishing
companies. Rosenberg was, during the relevant time periods, a
shareholder, director and officer of Vestmark. Rosenberg founded
Vestmark, and was an integral part of its operations. Rosenberg
controlled the decisions of the Vestmark Board of Directors. Between 1998
and 2000, Rosenberg received cash payments from Vestmark totaling
approximately a quarter of a million dollars. In addition to Rosenberg's
active involvement with various companies, his personal business was also
intertwined with GSA and
its operations. Rosenberg controlled the decision of the board of
directors of T.V. Allen. Even after Rosenberg's involvement in the
transactions relating to GSA, T.V. Allen and Unique, he continued to
actively participate in the business affairs of T.V. Allen. For instance
he took an active role in the sale of assets of T.V. Allen to Four
Seasons in August of 1999 as is illustrated by Exhibit 82.
In 1998, Rosenberg directed GSA to take certain "corrective steps."
which included the following: (a) Restructuring GSA's stock ownership to
give Rosenberg 7% of GSA's stock; (b) Granting Rosenberg and Don
Sundquist options for 240,000 shares of stock, at an exercise price of $4
per share; and (c) Authorizing Rosenberg to negotiate and close the sale
of 50.5% of Empress Greetings stock to a group led by John Bobango. The
Executive Committee of the Board of Directors of GSA resolved to adopt
the above directives. Rosenberg and other investors had previously (in
1994) sold all of their GSA stock back to the corporation. In exchange,
Rosenberg and the other investors received promissory notes, which they
then assigned to the Rosenberg Sundquist Trust. Rosenberg and Don
Sundquist were the Trustees of the Rosenberg Sundquist Trust.
Rosenberg was also the owner of 81% of the beneficial interest of the
trust. The notes held by the Rosenberg Sundquist Trust from GSA
were not secured by GSA's assets. The principal amount of the notes was
Although Rosenberg acted on behalf of GSA with vendors and potential
business partners, he was not an officer or employee of GSA in 1997 or
1998 and he retired from GSA's Board of Directors on March 17, 1998.
However, notwithstanding his official "retirement," Rosenberg executed a
Memorandum of Understanding on April 6, 1998 between GSA and Starr
Printing, concerning an extension of credit by Starr Printing to GSA and
Rosenberg signed on
behalf of GSA.
By the spring of 1998, GSA could not support the cash flow needs of
both GSA and Empress Greetings. Specifically, GSA was not able to pay the
employees and vendors of both entities. In May, 1998, a new corporation
called the T.V. Allen Company ("T.V. Allen") was incorporated for the
purpose of running the T.V. Allen business and marketing and selling the
T.V. Allen lines of Christmas cards. Rosenberg and his family owned
approximately 28% of T.V. Allen. The organizational meeting of the T.V.
Allen shareholders took place in the office of GSA on July, 9, 1998.
Rosenberg was "acting Chairman" during the organizational meeting of the
T.V. Allen shareholders. At the organizational meeting of the T.V. Allen
shareholders, T.V. Allen approved the acquisition of the T.V. Allen
Assets and the Empress line of cards from GSA. During such meeting,
Rosenberg nominated the entire slate of directors for T.V. Allen, which
slate was approved. At that meeting, the shareholders recognized that the
President of T.V. Allen was also the Chief Executive of GSA, and waived
any "apparent conflicting responsibilities and loyalties." Neither GSA's
shareholders nor its Board of Directors were ever notified of or approved
any conflict resulting from its Chief Executive also serving as T.V.
On July 15, 1998, Rosenberg attended a meeting of the Executive
Committee of GSA's Board of Directors. Although Rosenberg was not a
director, officer or employee of GSA at this time, he opened the meeting
and potential reorganization plans for GSA were discussed. In the summer
of 1998, the T.V. Allen Company began using the assets of Empress
Greetings, which included the assets of the T.V. Allen Division purchased
from Crane (collectively, the "T.V. Allen Assets"). At the time that the
new T.V. Allen Company started using the T.V. Allen Assets, sales
employees who had worked for Empress Greetings or GSA started working for
new T.V. Allen Company. For a period of time in 1998, these
employees worked for the new T.V. Allen Company but were paid by GSA.
Beginning in the summer of 1998, GSA took the materials purchased from
its vendors, including Unique, packaged them into a final product (mostly
boxes of cards and envelopes), and transferred that product to T.V.
Allen. T.V. Allen did not make its first payment on a GSA invoice until
December 28, 1998. By June of 1999, T.V. Allen had only paid
approximately 50% of the amounts it owed to GSA.
In August 1998, GSA transferred to T.V. Allen its print management
business for a customer called Community Communications, Inc. ("CCl").
The CCI business would have generated an approximate gross profit of
$88,000 for GSA for the last five months of 1998. T.V. Allen paid no
consideration to GSA for the CCI business. Defendants did not disclose to
Unique the transfer of the T.V. Allen and Empress lines and the CCI print
management business to T.V. Allen.
In August of 1998, Cary Johnson ("Johnson") was the outside accountant
for both GSA and the new T.V. Allen Company. Johnson had also provided
accounting services to Rosenberg personally. In August of 1998, Johnson
allocated certain expenses and liabilities between GSA and the new T.V.
Allen Company. All such expenses and liabilities had been paid by GSA,
and Johnson was determining which expenses and liabilities should be
reimbursed by T.V. Allen. Johnson's allocation also included
reimbursement to GSA for the T.V. Allen Assets that were being used by
the new T.V. Allen Company. Johnson's allocation determined that T.V.
Allen owed GSA $2,845,528.22, and of that amount, only $443,420 was to be
paid in cash. Ultimately, T.V. Allen paid only $534,412 of the total
amount in cash.
By August, 1998, GSA was at least 120 days past due on every invoice it
GSA's Board of Directors never approved, or even discussed, the
transfer of the T.V. Allen Assets to the new T.V. Allen Company. Although
Glenn Wimmer ("Wimmer") was GSA's President from June, 1998 through at
least December, 1998, he had no involvement in, or personal knowledge of,
the use or transfer of the T.V. Allen Assets from GSA to the new T.V.
Allen Company. The price that the new T.V. Allen Company was to pay for
the T.V. Allen Assets was not finalized until October or November of
1998. Notwithstanding the fact that the new T.V. Allen Company started
using the T.V. Allen assets in June or July, 1998, an agreement for the
transfer of the T.V. Allen Assets from GSA to the T.V. Allen Company was
not executed until November 6, 1998. Just before T.V. Allen started using
the T.V. Allen Assets, in May of 1998, GSA had obtained an appraisal of
the library of T.V. Allen Christmas card designs that was included in the
T.V. Allen Assets (the "Library"). The express purpose for obtaining the
appraisal was to arrange for financing. The appraisal valued the Library
at over $2,900,000. Both Rosenberg and his son Louis Rosenberg were given
copies of the appraisal at the time of its completion. When Johnson
assigned a value to the Library for use in the transfer of the T.V. Allen
Assets from GSA to T.V. Allen, he valued the Library at approximately
$1,800,000 or over $1,100,000 less than the May, 1998 appraised
Defendants did not disclose to Unique the transfer of the T.V. Allen
and Empress lines to T.V. Allen, Defendants did not disclose in 1998 to
Unique the fact that GSA was transferring products, including the
envelopes being shipped by Unique, to T.V. Allen with no payment.
During 1998 and part of 1999, GSA and T.V. Allen shared the same office
space and the same telephone number. Lewis Dalton ("Dalton") testified
that Vestmark and T.V. Allen also had shared the same office space. Given
its financial circumstances, GSA transferred assets to
the new T. V. Allen Company under terms that did not provide an
adequate down payment or cash flow. T.V, Allen originally planned on
raising approximately $1,800,000 in capital, but only raised
approximately $1,300,000. As a result of this $500,000 shortfall, T.V.
Allen ultimately paid GSA $500,000 less than originally planned, and GSA
had $500,000 less to pay creditors than originally planned. By
transferring GSA's assets to T.V. Allen for inadequate consideration and
cash, while continuing to use GSA to purchase the materials necessary to
supply the T.V, Allen and Empress lines, Rosenberg was able to use GSA's
credit to finance the T.V. Allen's business.
By the end of 1998, the transfer of the T.V. Allen Assets from GSA to
the new T.V. Allen Company was complete. At this time, however, T.V.
Allen had not fully paid GSA for the transferred assets or for the goods
purchased from GSA in 1998. At the end of 1998, Rosenberg began
corresponding on behalf of the new T.V. Allen Company using T.V. Allen
letterhead. Although Rosenberg was not an employee, officer, or director
of T.V. Allen at any time during 1998 or 1999, he served as "Acting
Chairman" of T.V. Allen Board meetings, actively participated in those
meetings, acted on behalf of T.V. Allen in dealings with vendors, and
signed contracts on behalf of T.V. Allen concerning the sale of its
During 1998, certain vendors of GSA, including Unique, provided goods
that were ultimately used for the T.V. Allen line of Christmas cards
("T.V. Allen Vendors"). Once the transfer of the T.V. Allen Assets to the
new T.V. Allen Company was complete, Rosenberg wanted the new T.V. Allen
Company to establish a direct relationship with the T.V. Allen Vendors.
In order to establish such a direct relationship between the new T.V,
Allen Company and the T.V. Allen Vendors, Rosenberg caused T.V. Allen to
make payments to many of these
vendors for amounts due them from GSA.
Unique stopped snipping envelopes to GSA in October of 1998 because GSA
was behind in payments. In order to try and get Unique to renew shipping
envelopes to GSA, on or about January 22, 1999, Rosenberg sent Unique a
T.V. Allen check in the amount of $50,000 (Exhibit 52) as partial payment
for GSA's past due balance. At the time, Rosenberg informed Unique that
"[w]e will next year buy directly from Unique our requirements as we have
separated our operations from GSA." (Exhibit 53). Rosenberg made several
attempts to convince Unique to ship envelopes directly to T.V. Allen for
the 1999 season. Although Rosenberg was aware that GSA still owed Unique
over $195,000 for unpaid invoices, and that Unique still had envelopes
manufactured pursuant to GSA's blanket purchase orders but not shipped,
other than the $50,000 Rosenberg sent to Unique, he never paid Unique the
amount fully owed.
In January, 1999, Vestmark made a $200,000 loan to Louis Rosenberg (
Rosenberg's son) and William Todd. At the time, Louis Rosenberg was GSA's
Chief Executive Officer, In exchange for the loan, Vestmark took a
security in the accounts receivable of GSA even though at the time, GSA
owed its unsecured creditors approximately $3,500,000.
In February, 1999, Wimmer threatened Rosenberg that he would put GSA
into bankruptcy. If GSA filed for bankruptcy, the only collateral that
the Rosenberg Sundquist Trust would have for the $798,000 note it
held from GSA was stock certificates. Rosenberg informed his fellow trust
beneficiaries that he could prevent a bankruptcy filing by replacing
GSA's Board of Directors.
GSA did not file for bankruptcy, but in March, 1999, it sold its
remaining operating assets to Starr Toof, From the cash received
from the sale to Starr Toof, GSA re paid Vestmark for the
$200,000 loan it gave to Louis Rosenberg and William Todd.
In February of 1999, GSA hired Carl Norman ("Norman") to handle the
sale of its operating assets to Starr Toof, and then to serve as
independent liquidator for the company's remaining assets. Norman served
in this capacity until June of 1999.
As of March 15, 1999, GSA had accounts payable of over $3,500,000,
which was owed to approximately 120 creditors. Of the total accounts
payable due as of March 15, 1999, Rosenberg agreed to assume
responsibility for approximately seven (7) vendors, that were
collectively owed less than $500,000.
In April, 1999, GSA began sending letters to its creditors informing
them that it had nothing but cash, accounts receivable, and work in
process, to satisfy its debts to those creditors. These letters offered
the creditors a settlement plan whereby each participating creditor would
purportedly receive 40 70% of the amount owed. The letters sent
to GSA's creditors stated that the company was indebted to "the prior
owners of GSA in the amount of $798,726" and that "notes evidencing the
indebtedness were placed in a trust." The letters further stated that the
trustee of the trust would receive an assignment of certain "non
cash" assets in exchange for amounts owed. The letters also stated that
the trust would receive these non cash assets after the unsecured
creditors had received a minimum of 40% of their claims. The trust
referred to in this letter was the Rosenberg Sundquist Trust. As
a result of the representations made in these letters, almost all of
GSA's unsecured creditors agreed to the foregoing liquidation plan. As of
November, 2001, the unsecured creditors of GSA had only received 32% of
their total claims.
Eventually, in a transaction on June 8, 1999 Rosenberg exchanged
Vestmark stock for T.V. Allen stock. The value of the T.V. Allen stock
that GSA transferred to the
Rosenberg Sundquist Trust was $434,221. In addition, in
June of 1999, GSA cancelled a note for $985,116 owed to it by T.V. Allen,
In exchange, T.V, Allen issued a note in the amount of $985,116 to the
Rosenberg Sundquist Trust. The new note issued by T.V. Allen, the
Vestmark stock, and the T.V. Allen stock, all of which were transferred
to the Rosenberg Sundquist Trust during GSA's liquidation, were
the "non cash" assets referenced in the letter sent to GSA's
creditors. Contrary to the representations made in that letter, the
Rosenberg Sundquist Trust received these assets before GSA's
other unsecured creditors received the minimum 40% of the amount due to
In March, 1999, Rosenberg discovered that there would not be enough
cash from sale of assets to Starr Toof to pay the Rosenberg
Sundquist Trust and he was also aware at this time that the
Trust's debt to GSA was not secured by the company's assets, and that it
was an unsecured creditor just like GSA's vendors. Thus, Rosenberg knew
that the Rosenberg Sundquist Trust stood in no better position
than GSA's other unsecured creditors (including Unique). Despite this,
Rosenberg still took assets from GSA worth more than the Trust would have
received under GSA's liquidation plan. Upon this discovery, Rosenberg
took actions to swap the Trust's note from GSA for GSA's stock in T.V.
Allen and its stock in Vestmark as well as for a note that GSA held from
T.V. Allen. Between March and June of 1999, GSA transferred assets to the
Rosenberg Sundquist Trust. Such assets included stock in
Vestmark, and stock in T.V. Allen. No valuation of the Vestmark and T.V.
Allen stock transferred to the Rosenberg Sundquist Trust was
performed at the time. Based upon estimated values provided by Rosenberg
and adopted by Vestmark's Board of Directors, the value of the Vestmark
stock that was transferred from GSA to the Rosenberg Sundquist
Trust was $532,039.
GSA transferred assets to the Rosenberg Sundquist Trust as
payment towards a note whose face value was $798,000. Because the GSA
note held by the Rosenberg Sundquist Trust was secured only by
stock and not by assets, the Rosenberg Sundquist Trust stood in
no better position than GSA's other unsecured creditors. Since the
Rosenberg Sundquist Trust was unsecured, the most it could expect
as payment on its note under GSA's liquidation plan was 40 70% of
the value, or $367,413 to $642,973. Had the Rosenberg Sundquist
Trust received 32% of the amount owed (as the rest of the creditors did),
it would have received only $293,000.
Norman, GSA's independent liquidator, was not involved in the transfer
of GSA's Vestmark and T.V. Allen stock to the Rosenberg Sundquist
Trust, nor in the exchange of notes whereby GSA relinquished its $985,000
note from T.V. Allen in exchange for a release of the $798,000 note held
by the Trust.
By June of 1999, T.V. Allen had only paid approximately 50% of the
amounts it owed to GSA. In April, 1999 Norman began sending letters to
Rosenberg demanding that T.V. Allen pay the amounts it owed to GSA for
goods it received in 1998. Norman informed Rosenberg that the amounts
owed by T.V. Allen represented almost 40% of the total amount that GSA's
unsecured creditors could expect to receive in the liquidation. Although
Rosenberg made some proposals for the settlement of T.V. Allen's
accounts, he failed to follow through on any of those proposals. In May
of 1999, Norman informed Rosenberg that a payout to the unsecured
creditors of less than 50% would result in protracted creditor litigation
followed by bankruptcy. Norman further informed Rosenberg that if T.V.
Allen's receivables were not resolved, he would recommend to GSA's Board
of Directors that the company file for bankruptcy. A settlement agreement
between GSA and T.V. Allen was signed on June 15, 1999 and under the
agreement, T.V. Allen Company
agreed to pay GSA $528,733.14 in thirty (30) monthly installments,
without interest T.V. Allen's December 31, 1998 Balance Sheet however
reflected $1,506,728 payable to GSA. The settlement agreement between GSA
and T.V. Allen resulted in a payout to GSA's unsecured creditors of only
32%, which was less than the 50% threshold that Norman felt was necessary
to avoid a bankruptcy filing by GSA. Norman left GSA some time in June of
On June 25, 1999, the T.V. Allen Board of Directors formed a committee
of Rosenberg, Johnson, and Lewis Dalton ("Dalton") to investigate and
present plans for selling the company. In 1999, Dalton was an officer and
outside accountant for Vestmark. He was not a director, officer,
employee, or consultant for T.V. Allen. Dalton attended the June 25, 1999
T.V. Allen Board meeting at the request of Rosenberg. He was working on
Vestmark business at the time at the offices shared by T.V. Allen and
Vestmark. In the Fall of 1999, T.V. Allen sold its greeting card assets
to a group including its employees for the price of $1,700,000.
In 1998 GSA was facing severe financial hardships and Wimmer
intentionally paid the "minimal" amount necessary to vendors, including
Unique, to keep such vendors shipping products to GSA. From June through
October of 1998, Wimmer made several payments to Unique for part of the
total amount due by GSA. After each such payment, Unique made additional
shipments to GSA, Unaware of the goods and assets that were being
transferred out of GSA, and in justifiable reliance on the statements and
actions taken by Defendants, Unique continued to manufacture and ship
envelopes to GSA from June through October of 1998,
One example of Rosenberg's control and dominion over pertinent matters
in this case is found in Plaintiffs Exhibit 66 which is a memo from
Rosenberg to Don Sundquist and Jeanne Garrett dated April 5, 1999. In the
memo, Rosenberg reports on various business actions. He
further orders his attorney to stand by and then states that he
called him on a Sunday and summoned him to do his bidding which included
the ordering by Rosenberg of the removal of three board members.
IV. Defendant GSA's Counter claim
Defendant GSA's counter claim is based on GSA's contentions
that the specially manufactured envelopes by Unique for the T.V. Allen
line did not contain the proper size of foil. GSA further contends that
it suffered damages due to late shipments or no shipments of envelopes by
When Darrell Kozbiel traveled to Los Angeles at the request of
Rosenberg to appraise the Crane equipment, he was shown samples of some
of the T.V. Allen envelopes that were being manufactured by Crane.
Darrell Kozbiel was not given any samples to take with him at the April,
1997 meeting. Rather, the samples were shown in large books. At the
April, 1997 meeting in Los Angeles, Darrell Kozbiel told Richard Adamson,
a GSA representative, how Unique would manufacture the T.V. Allen
envelopes, if contracted to do so. Darrell Kozbiel drew a sketch for
Adamson showing how the envelopes would look.
In a letter to Darrell Kozbiel dated June 10, 1997, Rosenberg stated
that Unique would be supplying GSA's envelope needs for 1998 (including
the T.V. Allen envelopes). However, GSA did not give Unique any
specifications for any envelopes. While GSA provided sample envelopes to
Unique in 1997, it never provided any specifications for the size of the
foil. Neither did anyone ever inform Unique that the size of the foil was
a key issue. On October 21, 1997, Unique provided quotes for the prices
it would charge GSA for the T.V. Allen envelopes, should
GSA order such envelopes. Prior to providing this quote, Unique had
not received any specifications from GSA indicating the size of the foil
for the foil lined envelopes. GSA did not express any concerns to
Unique regarding the foil size of T.V. Allen Envelopes until August,
In a conversation with Crooker, Darrell Kozbiel explained exactly how
Unique planned to manufacture the T.V. Allen envelopes, should GSA order
such envelopes from Unique. In late 1997, Crooker, a GSA employee, asked
Darrell Kozbiel for samples of the T.V. Allen envelopes. Crooker asked
Unique to send the samples no later than February of 1998. Darrell
Kozbiel informed Crooker that Unique would have to make the samples by
hand, since it was cost prohibitive to manufacture so few envelopes on
the machines. At the time Crooker asked for samples, Unique had no
commitment from GSA for the purchase of any T.V. Allen envelopes.
Therefore, Unique could not be expected to order the materials necessary
to run the envelopes on the machines at that time, nor manufacture
envelopes which were not yet ordered.
Unique sent samples of the T.V. Allen envelopes on February 6, 1998.
After receiving the samples, Wilton called Darrell Kozbiel to ask him why
the samples had been made by hand. Darrell Kozbiel repeated that he had
to make the samples by hand because he could not run that few envelopes
on a machine.
In April of 1998 Louis Rosenberg and Richard Mihalik met with Darrell
Kozbiel at Unique's plant. Prior to April of 1998, Unique had received no
purchase orders for any T.V. Allen envelopes. Louis Rosenberg and Richard
Mihalik wanted to have the meeting in order to assure themselves of
Unique's ability to properly manufacture the T.V. Allen envelopes and
deliver them on time. Louis Rosenberg wanted assurance that Unique could
meet delivery dates.
Darrell advised Louis Rosenberg that he would do his best to meet
any orders, but that GS A should also be current with their payments.
Beginning in March of 1998, Wilton began communicating with Darrell
Kozbiel regarding potential orders for T.V. Allen envelopes. Darrell
Kozbiel informed Wilton of the dates that Unique could deliver such
envelopes, provided that GSA issued purchase orders in a timely manner.
Darrell Kozbiel expressly told Wilton on several occasions that Unique
required purchase orders before it would order the materials and begin
manufacturing the envelopes. Wilton told Darrell Kozbiel that he would
get him purchase orders as soon as he could.
Unique did not receive purchase orders for T.V. Allen envelopes until
April 9, 1998 and these purchase orders required delivery only six days
later, on April 15, 1998. Upon receiving these purchase orders, Darrell
Kozbiel immediately called Wilton and told him that Unique could not
possibly deliver the envelopes in that short of a time. Wilton told
Darrell Kozbiel that Unique should do the best it could. Unique filled
the orders as quickly as it could, filling some of them right away from
envelopes it had in stock. Other orders took much longer because it took
several weeks to order and receive the materials necessary to manufacture
In addition, the quantities on the April 9, 1998 purchase orders were
larger than the quantities discussed previously between Wilton and
Darrell Kozbiel. Thus, had Unique ordered material based solely on the
initial discussions rather than the required purchase orders, there would
not have been enough material to fill GSA's purchase order.
In November of 1998, GSA alleged that certain envelopes were defective
and returned them to Unique. Unique gave GSA full credit for all returned
envelopes which was less than $10,000. At all times during 1998, GSA had
overdue invoices for envelopes for both the T.V.
Allen line of greeting cards, and the non T.V. Allen line
of greeting cards.
As of April 30, 1998, GSA owed Unique approximately $40,000 for
invoices that were past due. By the end of July, 1998, GSA was more than
90 days past due on invoices for the T.V. Allen envelopes, and non
T.V. Allen envelopes. On April 28, 1998, in a letter to GSA,
Unique asked for 90 day terms on the T.V. Allen and Empress lines
(Exhibit 22). However, this request had no effect on Unique's delivery
of T.V. Allen envelopes to GSA and Unique did not stop shipping any
envelopes to GSA until the end of October, 1998.
During 1998, T.V. Allen had claimed that Christmas Card orders were not
shipped, shipped late, or claimed that they were cancelled by its
customers. T.V. Allen claimed that the failure to ship timely resulted in
chargebacks, markdowns, and lost sales. In June, 1999, T.V. Allen used
these alleged chargebacks, markdowns, and lost sales as the basis for
reducing the amount it owed to GSA. In June of 1999, T.V. Allen deducted
from the amount it owed GSA half of what it claimed were lost sales
suffered as the result of late deliveries and non conforming
product. GSA's purported damages were determined solely by the amount
that T.V. Allen deducted from its account payable to GSA in June, 1999.
GSA, in turn, has alleged that Unique was the cause of the T.V. Allen
orders that were not shipped, shipped late, or cancelled. Sales of the
T.V. Allen line of Christmas cards were below expectations in 1998.
However, the poor sales were not caused by late deliveries of products,
cancellations, or distribution problems resulting from Unique's
performance. One cause for the poor sales was that multiple vendors
withheld shipments from GSA during the course of 1998 as a result of
GSA's failure to pay their invoices in a timely manner. No single reason
can be assigned to any given cancelled order or for any particular order
that was not
shipped. Rather, the problems with no shipments and cancelled
orders were the combination of several factors including: late arriving
products due to failure to timely pay vendors, inefficient distribution,
and a malfunctioning computer system.
Rosenberg retained A.J. Geis ("Geis") to serve as GSA's expert in this
litigation. Geis1 assignment was to give an expert opinion of Unique's
role in delivery problems suffered by GSA in 1998. At the time Rosenberg
retained Geis to support GSA's counterclaim, Rosenberg knew that Unique
did not cause the delivery and sales problems suffered by GSA and T.V.
Allen in 1998. Rosenberg had expressly been informed of such in a
memorandum dated January 11, 1999. Geis discovered documents that
expressly revealed that Unique was not the cause of GSA and T.V. Allen's
delivery problems in 1998.
In addition, Wilton had provided Geis certain information which would
show that Unique was not the cause of GSA's and T.V. Allen's delivery
problems. However, not only did Louis Rosenberg attempt to discredit
Wilton, he told Geis not use the incriminating statements made by Wilton
in his expert report.
V. Witness Credibility
Plaintiffs' witnesses Darrell Kozbiel, Collette Kozbiel, Melvin
Kozbiel, and their expert witness David Nissen were direct, forthcoming,
and credible witnesses. Their testimony was consistent. On the other
hand, Defendants' witnesses were by and large inconsistent, evasive, and
otherwise not credible.
Plaintiff's witness Collette Kozbiel was credible when she stated that
Wimmer told her that Rosenberg had sufficient funds to pay Unique and
that Wimmer did not know why GSA was
not paying. Collette credibly testified that Rosenberg told her to
contact Wilton in the future and that when she did so she was rebuked by
Wilton. Plaintiffs' expert witness was knowledgeable and presented a
logical and unbiased evaluation of Defendants' financial dealings and
Plaintiffs also called Glen Wimmer, former president of GSA in June of
1998. He was forthcoming and credible. However, his testimony proved that
GSA was in financial trouble when ordering envelopes from Unique and he
indicated that he would pay just enough to creditors of GSA to have
enough oil left over to take care of the next squeaky wheel.
Plaintiffs and Defendants called Frank Rosenberg ("Rosenberg") to
testify. Rosenberg attempted to portray himself as an unsophisticated
businessman. He also attempted to appear detached from the dealings of
GSA and the other relevant corporations. However, the evidence indicates
that he was an extremely savvy businessman and that he was actively
involved in all aspects of the various companies at issue. Rosenberg also
was evasive and non responsive when questioned by Plaintiffs
attorneys about an inconsistency in his testimony or a damaging piece of
evidence. However, when questioned by Defendants' attorneys he was cogent
and offered detailed testimony relating to his business affairs.
Plaintiffs called Lewis Dalton, a former president of Vestmark, to
testify. He was not credible. He gave testimony that conflicted with his
Plaintiffs and Defendants called Louis Rosenberg, a former president of
GSA and the son of Frank Rosenberg. Louis Rosenberg's testimony was
unconvincing. On several occasions his testimony conflicted with his
prior deposition testimony. He unconvincingly attempted to distance Frank
Rosenberg from all business dealings, portraying his father as just
informal consultant. He admitted that he told Geis, a defense
expert witness, to ignore incriminating statements by Wilton. Louis
Rosenberg's stated reasons for doing so were unconvincing.
Defendants called Kenneth Patton to testify as an expert. His testimony
was unconvincing and illogical. His evaluations were incomplete.
Defendants called Richard Mihalik, a board member of T.V. Allen, to
testify. He was not credible. On direct he attempted to portray himself
as knowledgeable on various facts in support of Defendants' positions,
but on cross examination he contradicted himself and admitted that he
lacked personal knowledge regarding key facts addressed on direct. He
also gave testimony that was inconsistent with his deposition testimony.
For example, on the stand he first indicated that Rosenberg was not
actively involved in T.V. Allen board meetings. He denied that Rosenberg
controlled the board's decisions. However, after being impeached with
deposition testimony, he recanted his assertions and when questioned
whether Rosenberg dictated that manner of the meetings, he responded:
"Yes I would say that."
CONCLUSIONS OF LAW
1. There is complete diversity between Plaintiff and Defendants and the
amount in controversy exceeds the jurisdictional amount. Therefore,
this court has subject matter jurisdiction pursuant to
28 U.S.C. § 1332.
2. Unique is the proper party to assert and recover under all claims
alleged in the First
Amended Complaint, because such claims were properly assigned to
Unique by Melvin Kozbiel.
3. GSA failed to pay amounts due for the orders reflected in the
invoices and blanket purchase orders, and failed to order $1,000,000
worth of envelopes from Unique Envelope in 1998 and thus breached its
contract with Unique. Chicago Coll. of Osteopathic Med. v. George
A. Fuller Co., 776 F.2d 198, 209 (7th Cir. 1985).
4. As a result of this breach, Unique has been damaged in the amount of
$239,936.54 and Unique is entitled to prejudgment interest at a rate
of five percent from January 10, 1999, through entry of judgment, 815
ILCS 205/2, which at 5% is $11,996.83 per year, or $33.32 per day,
815 ILCS 205/10, and from January 10, 1999 through February 26, 2004
amounts to $61,550.19. See also Jones v. Hryn Development,
Inc., 778 N.E.2d 245, 249-50 (Ill.App. Ct. 2002)(indicating
that prejudgment interest can be awarded in equity without the need
of statutory authority).
5. Frank Rosenberg ("Rosenberg") exercised complete dominion and control
over GSA, not only of finances, but of policy and business practice,
such that GSA had no separate mind, will, or existence of its own
with respect to Rosenberg's transfer of its assets to other entities
that he owned and/or controlled. Rosenberg, rather than GSA's Board
of Directors, controlled the transfer of the company's assets to the
T.V, Allen Company and to the Rosenberg Sundquist Trust, GSA
did not have a separate mind, will or existence
of its own. Rosenberg used his control over GS A to commit fraud and
a wrong, and used his control to commit a dishonest and unjust act in
contravention of Unique's rights. Rosenberg's control of GSA and his
breach of duty proximately caused the unjust monetary loss to Unique.
Cont'l Bankers Life v. Bank of Alamo, 578 S.W.2d 625, 632
Defendants argued at trial that all evidence concerning the period
after the Unique transactions is irrelevant. There is sufficient
evidence that Rosenberg was actively involved with the affairs of GSA
and controlled the affairs during the period in questions. However,
evidence of his control after the period in question bolsters the
conclusion that he had control during and after the period in
question. Evidence relating to his control after the period in
question is relevant because it undermines Rosenberg's assertions
that he was never actively involved in the business dealings of the
above entities and that he retired from GSA. Evidence of subsequent
involvement in the pertinent corporation's activities is not absolute
proof that Rosenberg was as involved in the affairs during the period
on question. However, it does support the inference that Rosenberg
was involved in the pertinent business affairs during the period in
question, particularly because there is no evidence to explain why
Rosenberg would suddenly become actively involved, and such evidence
is instructive because it shows that shortly after the period in
question there is evidence of Rosenberg's dominion, just as his
dominion before during the relevant period, despite the fact that
there was no change in his official capacity of the pertinent
corporations. There is extensive evidence of Rosenberg's active
control over the business affairs of GSA, T.V. Allen, the Trust, and
Vestmark before, during, and after the
transactions in question with Unique.
Rosenberg argued vehemently at trial that no Tennessee case has
ever found alter ego liability where the alleged alter ego individual
was not a director or officer of the shell company. First of all, if
the courts' deemed such official participation a prerequisite for
alter ego liability, the courts could have specified as much, but
they have chosen not to do so. See Stigall v. Wickes Mack.,
801 S.W.2d 507, 510 (Tenn. 1990)(stating that "[t]he conditions under
which the corporate entity will be disregarded vary according to the
circumstances present in each case and the matter is particularly
within the province of the trial court."). This case presents the
type of scenario that explains why the courts have refrained making
such rigid requirements for alter ego liability. For if director or
officer membership was a requirement for alter ego liability,
individuals such as Rosenberg could unjustly shield themselves from
all liability simply by avoiding any open and official declarations
of control and dominion.
In this case there is an incongruity regarding Rosenberg's lack of
official control over GSA during the relevant period and his actual
control. At every turn the hand of Rosenberg appears and his dominion
is seen, often in subtle ways, such as for instance the calling of a
company attorney to do his bidding on a Sunday and telling him to
terminate board members. Rosenberg's behind the scenes decision
making, despite his lack of official title at times, and the apparent
lack of control and knowledge about the business affairs of GSA by
those who were supposedly in charge only serves to emphasize
Rosenberg's absolute control and dominion over GSA. This is exactly
the type of situation where alter ego liability is appropriate. The
courts may disregard the separate
entity of a corporation "upon a showing that it is a sham or a dummy
where necessary to accomplish justice." Schlater v. Haynie,
833 S.W.2d 919, 925 (Term. Ct. App. 1992).
No matter how one analyzes the turns and twists in this web of
deceit, it points to an undeniable conclusion: that the ever
domineering presence and authoritarian hand of Frank Rosenberg in
every business dealing resulted in Unique not getting paid. Frank
Rosenberg would have this court believe that he is just an innocent
bystander, an observer, and at times, a benefactor. However, the
facts paint another story completely. Frank Rosenberg is the business
tycoon, the king, the decision maker both in open forums and behind
the scenes, who at the stroke of his wand bought and sold companies,
transferred stocks, fired undesirable board members or directors, and
unilaterally made decisions concerning payments to creditors such as
6. The transfers of GSA's assets to T.V. Allen, and subsequently to the
Rosenberg Sundquist Trust were not at arms length, were done
for inadequate consideration, and occurred in violation of the rights
of Unique, GSA's creditor.
7. Rosenberg used his control over GSA to defraud Unique of the amounts
owed to it for goods shipped to GSA at the same time mat assets were
being transferred to T.V. Allen. Rosenberg used GSA to purchase goods
for use by T.V. Allen. Ultimately, neither T.V. Allen nor GSA could
pay for such goods. In effect, Rosenberg used GSA to absorb the
liabilities incurred in the start up of the new T.V. Allen
Company. GSA was inadequately capitalized for the purpose of buying
the assets of the Crane T.V. Allen Division. The
T.V. Allen Company was inadequately capitalized, and therefore unable
to pay for the goods that GSA purchased from Unique and transferred
to T.V. Allen.
8. As a result of the foregoing, Frank Rosenberg ("Rosenberg") was the
alter ego of GSA and therefore is liable for GSA's breach of contract
with Unique and fraud against Unique. Cont'l Bankers Life v. Bank
of Alamo, 578 S.W.2d 625, 632 (Term. 1979); Electric Power
Bd. v. St. Joseph Valley Structural Steel Corp., 691 S.W.2d 522,
525-26 (Tenn. 1985) (upholding jury's finding that a subsidiary
company was a mere alter ego or instrumentality of its parent where
subsidiary was insolvent and owed a large debt to the parent
corporation, and the two shared the same officers and office
building); In re B &L Labs, Inc., 62 B.R. 494, 505
(Bankr. M.D. Tenn. 1986) (concluding that corporation was alter ego
of the defendants, given that they had diverted certain assets from
corporation); Fleming Cos., Inc. v. Rich, 978 F. Supp. 1281
(E.D. Mo. 1997) (piercing corporate veil where defendant, who owned
several grocery stores, compelled several of his stores to order
groceries despite the fact that they were insolvent); Geringer v.
Wildhorn Ranch, Inc., 706 F. Supp. 1442, 1448-49 (D. Colo. 1988)
(piercing corporate veil where defendant dominated and controlled the
corporation, used funds from other corporations to make purchases for
the resort corporation, and supervised the maintenance of the
property in question); Brown v. Alron, Inc., 388 N.W.2d 67,
71-72 (Neb. 1997) (upholding piercing of corporate veil where, among
other things, assets were taken from the defendant corporation to pay
the obligations of other corporations held by individual defendant);
Boyd v. Boyd & Boyd, Inc., 386 N.W.2d 540, 543-45 (Iowa
(finding that stockholder who transferred all of insolvent
corporation's assets to himself to avoid collection of them by
creditors of corporation was alter ego of corporation, where
depletion of assets left corporation an empty shell for purposes of
collection by debtors and not imposing personal liability would be
9. During the course of 1998, Rosenberg and GSA failed to disclose
material facts to Unique relating to GSA's ability to pay for
envelopes being ordered and shipped. Specifically, Defendants failed
to disclose that: (i) GSA was suffering from severe cash flow
problems, and effectively became insolvent by the Spring of 1998;
(ii) GSA was transferring the T.V. Allen Assets to a new company
called T.V. Allen formed by Rosenberg; and (iii) after June or July
of 1998, GSA was taking the envelopes being shipped by Unique
Envelope and transferring them to T.V. Allen without payment for
10. Once GSA became insolvent, the company and its directors had a duty
to inform Unique of the transfer of the T.V. Allen Assets. However,
GSA not only failed to disclose the foregoing material events, but
affirmatively took steps and made statements in order to induce
Unique to continue shipping envelopes. Specifically, Wimmer made
minimal payments throughout the Summer of 1998 in order to induce
Unique to keep shipping. Furthermore, both Wimmer and Louis Rosenberg
made false statements to Collette Kozbiel and Darrell Kozbiel
indicating that GSA had sufficient cash to pay its bills. At one
point, Wimmer who was the president of GSA, told Collette that he did
know why GSA was not paying Unique because he believed that Rosenberg
had the money.
11. The Defendants omissions and misrepresentations were intended to
induce Unique Envelope to keep shipping envelopes to GSA.
12. As a result of GSA's omissions and misrepresentations, Unique
continued to ship envelopes to its detriment, unaware of the fact
that GSA would never be able to pay for such envelopes as a result of
its transactions with T. V. Allen. The testimony of Collette and
Darrel Kozbiel clearly shows that they reasonably believed GSA was in
good financial condition because they had not heard otherwise and GSA
continued to place orders. Rosenberg argued at trial that the
Kozbiel's belief that GSA was in sound financial conditions and their
expectation that GSA would live up to its bargain after the June 1997
deal was unreasonable given GSA's prior history of untimely payments.
However, although GSA was consistently tardy in its payments, GSA had
eventually paid all of its debts owed to Unique.
13. GSA's omissions and misrepresentations constituted fraud against
Unique Envelope. See Tan v. Boyke, 508 N.E.2d 390, 393
(1987); Doherty v. Kahn, 682 N.E.2d 163, 176 (1997).
14. Furthermore, Rosenberg directed, controlled and participated in the
constituted the fraud upon Unique, and as GSA's alter ego, Rosenberg
is liable to Unique for the damages caused by GSA's fraud.
Jannotta v. Subway Sandwich Shops, Inc., 125 F.3d 503
(7th Cir. 1997). Rosenberg made the misrepresentations or caused
others to make misrepresentations or fail to make necessary
representations in order to deceive Unique and get it to continue to
do business with GSA. At the time of the fraud Rosenberg knew that
assets and funds were being tunneled out of GSA and in fact Rosenberg
was the instigator of the scheme. As a result of Unique's reasonable
reliance they are left with an unpaid debt by Unique and GSA is
insolvent and unable to pay the debts owed.
15. Although Unique's April 28, 1998 letter asked GSA to pay all invoices
(including invoices for T.V. Allen and Empress Greetings envelopes)
within 90 days, GSA did not pay such invoices within 90 days.
Furthermore, Unique did not cease shipping envelopes on July 28,
1998, even though GSA had failed to pay all invoices within 90 days.
Unique did not stop shipping envelopes until after October 19, 1998,
when the total amount owed by GSA reached almost $250,000.00.
Therefore, Unique Envelope's April 28, 1998 letter was not a breach
of any terms of any contract with GSA, and even if it were, such
breach caused no damage to GSA.
16. The financial difficulties faced by GSA and T.V. Allen in 1998 such
as lost sales, cancellations and chargebacks were caused by numerous
factors, including: poor sales, late arriving product, inefficient
distribution, and a malfunctioning computer system. The
late arriving product was the result of GSA's failure to pay its
vendors in a timely manner, causing several of them to withhold
shipments. No single reason can be assigned to any cancelled order or
any particular order that was not shipped by GS A to a T. V. Allen
customer. GS A has failed to establish that it suffered damages
relating to the counterclaim. Furthermore, even if could establish
damages, GSA has not provided evidence showing the cause of each of
its alleged damages. In addition, GSA has failed to produce reliable
evidence upon which a damage figure for the counter claim
could be reasonably calculated. Also, GSA failed to prove that there
was an agreement that Unique had to manufacture the envelopes with a
specific configuration of foil and failed to prove that the foil
lined envelopes specially made by Unique were contrary to the terms
of the contract. Unique was forthcoming and candid in its dealings
with GSA regarding deadlines, manner of production, and the quality
and types of products expected to be manufactured by Unique pursuant
to GSA orders. Therefore, we find that Unique did not breach its
contract with GSA, commit fraud against GSA, or commit any of the
other alleged wrongful conduct listed in the counterclaim. To the
contrary the counterclaim had no merit whatsoever.
17. GSA breached its contract with Unique and therefore Unique is
entitled to damages for the total amount due on unpaid invoices for
envelopes shipped to GSA by Unique which is $195,450.62, the total
amount for envelopes ordered but not paid for pursuant to blanket
purchase orders which is $34,485.92, and the additional $10,000 paid
by Unique for the Crane machine in exchange for the promise by GSA to
give Unique one million
dollars worth of business, which GSA failed to do. The total amount
is $239,936.54. We also grant prejudgment interest totaling
18. Punitive damages serve the dual purpose of deterrence and
retribution. State Farm Mut. Auto. Ins. Co. v. Campbell,
123 S.Ct. 1513, 1519 (2003). Unique is seeking $479,873 in punitive
damages which is twice the amount sought in compensatory damages. The
court finds that Rosenberg committed gross fraud in his business
dealings with Unique which warrants an award of $90,000 to Unique
from Rosenberg in punitive damages.
19. The Court hereby directs the Clerk to enter judgment in favor of
Unique, and against GSA and Frank Rosenberg, jointly and severally,
in the amount of $391,486.73. The Court also directs the Clerk to
enter a Judgment of dismissal in favor of Unique and against GSA on
MOTION FOR RULE 37 EXPENSES
Unique has filed a motion for expenses against Rosenberg. Pursuant to
Federal Rule of Civil Procedure 36 a party can request an admission from
another party. On July 31, 2001 Unique served requests for admissions on
GSA and Rosenberg. On August 3, 2001 Rosenberg served his responses to
Unique's request for admissions. Rosenberg denied the genuineness and/or
substance of documents that were admitted without objection, or whose
genuineness and/or substance was conclusively proved at trial. Rosenberg
claims that he made a reasonable
inquiry before making his denials and that he had a reasonable
basis to believe that he might prevail on the matters sought to be
admitted. We do not agree. We find that, pursuant to Civil Rule of Civil
Procedure 37(c)(2), it is appropriate to award to Unique from Rosenberg
$13,207.50 for expenses.
Based on the foregoing analysis, we find in favor of Unique on its
breach of contract claim against GSA (Count I), its breach of contract
claim against Rosenberg as the alter ego of GSA (Count II), and the fraud
claim against Rosenberg (Count III). We hereby direct the Clerk to enter
judgment in favor of Unique, and against GSA and Frank Rosenberg, jointly
and severally, in the amount of $391,486.73. We also direct the Clerk to
enter a Judgment of dismissal in favor of Unique and against GSA on GSA's
counterclaims. In addition, we grant Unique's motion for Rule 37 expenses
and award Unique $13,207.50 from Rosenberg.
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