BikeBiz Bicycle and cycling retail news
In a late-February bench trial, US federal judge Thomas Coffin ordered the former BikeE bosses to pay Giant $252 000 plus court costs.
See the links below for the full background to BikeE v Giant and Giant v BikeE.
"BikeE’s sale of bicycles to Bigha with the specific purpose of transferring the proceeds to [John] Acres and [Richard] Carone…was wholly inequitable and inappropriate," ruled the judge.
BikeBiz.com talked to Acres. He said:
"As you know, Giant made three claims in its lawsuit against BikeE which was filed in the fall of 2002
1. BikeE received bicycles that it did not pay for approximately $374,000.
2. Bigha Inc. is a successor corporation to BikeE and should be responsible for BikeEÂ’s debts
3. BikeE investors (including myself) fraudulently converted a stock investment into a loan to unfairly recover money from BikeE. Giant asked the court to cause that money to be repaid to BikeE and used for settling the Giant debt.
4. Giant also claimed interest on the $374,000 (at a rate exceeding 42% annually) and legal fees totaling in excess of $400,000.
"BikeE counterclaimed that Giant owed it money for warranty claims totaling approximately $500,000
"Further, Bigha claimed it was not a successor corporation and the investors claimed the stock offering was never concluded and therefore there was no liability.
"BikeE filed a separate lawsuit in the summer of 2004 against Giant claiming that Giant had purposely and unfairly caused BikeE to go out of business in order to introduce its Revive bicycle to an non-competitive marketplace.
"Also in the summer of 2004, the court made a summary judgment that BikeE had not paid for bicycles it had received from Giant—a fact that BikeE never disputed. The court also lowered the interest rate from the 42% claimed by Giant to 9%. The court decided that all the other matters of successor liability, stock purchase conversion and BikeE’s warranty claims should go to trial and a date of January of 2005 was set.
"Just before the trial began, it was decided that the warranty claims that BikeE made against Giant would fit better with the separate lawsuit that BikeE had filed against Giant in 2004.
"The trial that occurred in January 2005 was a bench trial, that is, it was heard and decided by a judge and not a jury. In the ruling just issued the judge affirmed that Bigha is not a successor corporation to BikeE and is not responsible for its debts. He also ruled that the stock sale was never completed and the investors were not required to put money into BikeE.
"The judge considered the case from two points of view: equity and law. The idea of equity is about deciding what is fair.
"The judge decided that money BikeE had raised by selling some of its inventory should have been paid to Giant. Instead, that money was used by BikeE to partially repay debts BikeE had owed to persons that were also shareholders. I was one of these. The judge ruled that the lenders (including myself) should repay this $252,000 and that BikeE should cause that money to be repaid to Giant.
"The judge also awarded Giant an undetermined amount of attorney fees. This amount will be only a small fraction of what Giant claimed since they cannot charge for any of the unsuccessful efforts regarding successor liability or stock conveyance. BikeEÂ’s attorneys are of the opinion that Giant cannot recover any fees for work occurring after the summary judgment in 2004.
"Either side can appeal the ruling and motions will be filed regarding attorney fees, etc. We have not decided if we should appeal the judge’s ruling. While as a matter of law, BikeE was correct in paying its debts based upon the “first in time” concept (oldest secured debts are paid first) the judge felt that, as a matter of equity, Giant should have received the funds from the sale of $252,000 of bicycles.
"BikeE has to weigh its chances of success in an appeal against the cost.
"BikeE is anxious to proceed with its second lawsuit which involves several million dollars of claims against Giant.
"I am pleased that the court agreed that Bigha is not a successor corporation and that there was no obligation on the part of investors to buy additional BikeE stock. I am troubled by the judgeÂ’s decision on the $252,000. That was not an argument that Giant made in court and was entirely of the judgeÂ’s creation. Nevertheless, I am certain the judge was fair and impartial in his assessment and I do believe BikeE ‘had its day in court.’
"I look forward to seeing the new trial – this one in front of a jury – that will hear the facts regarding BikeEÂ’s claims against Giant. I believe there is compelling evidence to consider but that will have to wait for another day."
No Giant executives wished to discuss the case because it is "pending litigation."
