Item 8.01 Other Events.
On January 31, 2017, the Company and Beechwood Properties LLC filed suit against
Daniel J. Schreiber ("Mr. Schreiber") and the Daniel J. Schreiber Living Trust -
Dtd 2/08/95 ("Schreiber Trust") in the United States District Court for the
Eastern District of Louisiana (the "Louisiana Court") under Civil Action No.
2:2017cv819-B(3) (the "Litigation").
Mr. Schreiber and the Schreiber Trust answered and filed a counter-claim against
the Company and Beechwood and made additional claims against Mr. G. Darcy Klug
("Mr. Klug"), the Chief Executive Officer and a director of the Company, and
sole owner of Beechwood, in the Lawsuit.
On March 22, 2019, the parties to the Litigation entered into a Settlement
Agreement and General Release ("Settlement Agreement") to resolve all issues
arising out of the subject matter of the Litigation.
In consideration of the mutual promises, covenants and conditions contained in
the Settlement Agreement, the parties agreed that (i) Mr. Schreiber and the
Schreiber Trust would transfer all Company stock they then owned (52,377,108
common shares) to the Company and (ii) the Company would (a) make to Mr.
Schreiber and the Schreiber Trust a cash payment of Two Hundred Fifty Thousand
dollars ($250,000) and (b) issue two Promissory Notes, each in the principal
amount of Two Hundred Thousand dollars ($200,000), one of which was due and
payable on or before September 6, 2020 ("Note 1") and the other was due and
payable on or before September 5, 2021 ("Note 2"). As a result of this
Settlement Agreement, the Company recorded a loss of $471,880 in the year ended
June 30, 2019.
Each Promissory Note was non-interest bearing, however each (i) included a
$15,000 late penalty if the principal amount was not repaid by the due date and
(ii) would bear interest at a rate of 18% per annum, from the issue date, if the
principal was not repaid by the 30th date after the due date.
On October 11, 2019, the Schreiber Trust filed a Motion to Enforce Settlement
Agreement (the "Motion") with the Louisiana Court alleging that the Company
failed to comply with certain of its obligations under the Settlement Agreement.
The Motion sought to, among other things, accelerate payment of the amounts owed
to Schreiber under the Settlement Agreement and collect additional amounts in
interest and attorneys' fees.
On July 17, 2020, the Louisiana Court granted Schreiber's Motion and ordered the
Company to pay to the Schreiber Trust $519,495.78 ("Judgment") representing (i)
the principal amount due on Note 1 ($200,000); (ii) the principal amount due on
Note 2 ($200,000); (iii) pre-judgment interest of 18% simple interest on certain
outstanding debt charged back to the date of the Settlement Agreement; (iv)
$40,000.00 of attorneys' fees (10% of the amounts due); and (v) post-judgment
interest from the date of the Judgment as well as costs. The Company appealed
the Louisiana Court's ruling to the United States 5th Circuit Court of Appeals
(the "Court of Appeals").
Payment of the principal amount of Note 1 was tendered by the Company to
Schreiber on August 13, 2020. Notwithstanding the appeal to the Court of
Appeals, the Company tendered the early repayment of the principal amount of
Note 2 to Schreiber on August 24, 2020.
On September 4, 2020, the Company filed a Consent Motion to Approve Supersedeas
Bond and Stay of Execution of Judgment Pending Appeal ("Motion to Approve"). On
September 8, 2020, the Louisiana Court granted the Motion to Approve and the
posting of a supersedeas bond ("Bond") by the Company in the amount of $143,491
representing (i) the remaining, unsatisfied amount of the Judgment; plus (ii)
post-Judgment interest of $80; plus, (iii) 20% of the combined amount ($23,915).
On November 12, 2020, the Court of Appeals issued a decision vacating the
Judgment and remanding the case to the district court.
As the Judgment was vacated on December 17, 2020, the Louisiana Court entered an
order releasing the Bond and returning the aforementioned funds to the Company.
The Louisiana Court also ordered the Company to file a Sur-Reply Brief. The
Louisiana Court had previously denied the Company's motion for leave to file a
sur-reply brief, after Schreiber had presented new arguments and evidence for
the first time in his Reply Brief. When the Louisiana Court ruled in Schreiber's
favor based solely on these new materials, the Court of Appeals reversed, ruling
its denial was an abuse of discretion. This order of the Louisiana Court was
consistent with the ruling of the Court of Appeals.
The Louisiana Court also sua sponte ordered that Schreiber be allowed to file a
response to the Company's Sur-Reply. Schreiber had not requested or moved to be
allowed to file a response.
Regardless, the parties each timely filed their respective pleadings in
accordance with the order. Both parties argued in favor of their position and
claimed to be entitled to an award of the reasonable attorneys' fees and costs
they incurred in connection with this litigation should the Louisiana Court rule
in their favor. As of March 31, 2021, the unsatisfied amount of the Judgment
($119,496) was shown as a "Settlement liability" on the consolidated balance
sheet.
On September 23, 2021, the Louisiana Court granted the Schreiber's Motion to
Enforce the Settlement Agreement. It ordered the Company to pay Schreiber the
amount of $101,490.27, representing its calculation of contractual interest in
the amount of 18% of the outstanding principal of Note 1 and Note 2 until paid,
plus certain reasonable attorneys' fees and costs incurred. Schreiber has since
filed a motion for attorneys' fees and costs seeking an additional $81,189.64 in
attorneys' fees. The Company has filed an opposition to that motion, which is
still pending.
The Company believes the Louisiana Court's ruling was in error. On October 15,
2021, the Company filed a Motion for Reconsideration asking the Louisiana Court
to reconsider its ruling. On November 4, 2021, the Company filed a consent
motion to stay the Louisiana Court's judgment pending resolution of that motion
and, should that motion be denied and the Company be unable to reach an amicable
settlement with the plaintiff, pending appeal, based on the Company posting a
supersedeas bond in the amount of $121,804.44.
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