Investor Joseph Lehey has filed a complaint alleging that he invested $7.5m (€5.67m) in the Medea vodka brand, but alleges that its co-founders and manager were guilty of fraud and mismanagement.
Medea has produce a limited edition run of its vodka (pictured), with a patented bottle able to display up six messages of up to 255 characters across a battery-powered illuminated display.
In June 2007, Goldburt, Sandy and others formed a company in Delaware called FSJ to market the Medea brand, the website of which features photos of celebrities such as Streep and Jon Bon Jovi.
Lehey was the sole investor, and his $10m (€7.57m) stake – invested over four years – bought him a 10 per cent share of the company.
But after Medea’s launch in 2010, the relationship between the appellant and the defendants broke down, with the reason for this a point of issue throughout the current legal saga.
Multiple court battles
Lehey contended that the defendants had wasted his money – he has invested $7.5m (€5.67m) to date – while they said he had defaulted on the balance of $2.5m (€1.89m).
Last September, Lehey filed a suit in Manhattan Supreme Court seeking damages and injunctive relief against Goldburt, Sandy, Perillo and others, including Goldburt’s removal as manager.
Further court battles followed, culminating in a stormy members’ meeting this January, where Lehey (by this time holding two thirds of the company membership interest) voted himself manager of FSJ.
In March the opposing sides were back in court, with Lehey moving an order to remove Goldburt as manager, claiming that he was still being frozen out of the company.
He argued that, “in order to avert complete destruction of [his] investment at the defendants’ hands, a temporary receiver must be put in control of the company immediately”.
But the defendants argued before the Supreme Court of the State of New York (New York Country) in May that Lehey had no relevant computer technology expertise.
They argued in a memorandum that Goldburt, “an experienced businessman in start-up companies [who] owns over 50 patents”, who could only be removed by a unanimous member vote for theft, fraud or forgery, and (before the court on May 2), that Lehey was “uneducated and unstable”.
But since Goldburt only indirectly owned FSJ (a 27 per cent stake via his ownership of shareholder RAM Phosphorix LLC), the court ruled that there was no effective manager of FSJ.
Thus, in May, the motion court ruled that Lehey should be appointed as receiver (if not permitted to act as manager), based on his January self-appointment, and that the defendants should pass all tangible and intangible property over to his control.
Goldburt was subsequently removed and Lehey appointed FSJ’s sole manager, but the defendants immediately appealed, leading to a December 1 decision of the Appellate Division, First Department in New York State.
Battle rages on
Criticising the decision of the Justice Ramos in the lower court for granting Lehey provisional relief, the Fist Department said Lehey had not clearly established that FSJ’s property was in danger of being injured or destroyed to the extent that a temporary receiver was needed.
“[The] defendants also raised legitimate concerns about the future of FSJ should Goldburt be removed and the plaintiff installed as manager,” the court said.
It added: “They [the defendants] noted Goldburt’s intimate knowledge of the company and its technology, as well as the fact that Goldburt made many personal contacts with distributors, suppliers and others that were essential to the health of the company.”
The court added that the ruling that Goldburn was not a proper manager – due to his indirect membership interest in FSJ – was absurd and contrary to the parties’ intent under a joint operating agreement. Accordingly, he continues to act as manager.
However, the litigation continues, as Lehy has filed a new complaint seeking damages under the US federal Racketeer Influenced and Corrupt Organisations (RICO) act.