LAURA TAYLOR SWAIN, District Judge.
Kevin Adler ("Plaintiff") brings this action against SPI Solar, Inc., its predecessor Solar Power, Inc. ("Solar Power"), SPI Energy Co, Ltd. ("SPI"), Steven Kircher, Amy Liu, and three unnamed defendants (collectively "Defendants") for breach of contract, defamation, fraud, and violation of New York Labor Law. On March 30, 2018, the Court granted partial summary judgment in Plaintiff's favor on his breach of contract claims in connection with the denial of grants of Solar Power stock and equity in a special-purpose entity as compensation for Plaintiff's work as an employee of Solar Power.
The Court has considered the submissions of both parties carefully and, for the following reasons, grants Plaintiff's motion.
SPI is a Cayman Islands corporation formed from the reorganization of Solar Power, Inc. (Aff. of Kevin Adler, Docket Entry No. 96, ¶ 3.) SPI is domiciled in China and is not authorized to do business in New York. (
SPI's only assets in the United States are "a portfolio of solar projects . . . to be constructed in Hawaii" (the "Hawaii Assets") and stock in EnSync Inc. ("EnSync"), "consisting of convertible preferred shares, a warrant to purchase . . . common stock and publicly traded common stock." (Adler Aff. ¶ 9.) Adler asserts that SPI is systemically attempting to secrete its assets by placing them out of reach of any potential judgment creditors, including other plaintiffs pursuing related employment actions. (
In its SEC Form 20-F/A, dated October 27, 2017 (Docket Entry No. 96-2, at 30), SPI stated that it would be difficult to enforce judgments in the United States or the United Kingdom against SPI and its directors and managers because its assets and senior personnel were primarily located in the People's Republic of China and the company is registered in the Cayman Islands, neither country having treaty mechanisms to enforce U.S. judgments. Adler states, based on knowledge allegedly gained in the course of his employment with Defendants, that SPI's practice is to transfer all of its money to China, and leave as few assets in the United States as possible. (Adler Aff. ¶ 16.)
The Hawaii Assets are owned, through special-purpose subsidiaries, by Calwaii Power Holding, LLC ("Calwaii"), which is in turn a wholly owned subsidiary of SPI. (SEC Form 20-F/A, dated October 27, 2017 at 44, 60, 74, F-31;
Adler was privy to discussions about selling the Hawaii Projects to a particular (but unnamed) buyer when he was employed by Defendants. (Adler Aff. ¶ 14.) Adler's former colleagues and an executive at the company constructing the projects within the Hawaii Assets have confirmed that SPI is continuing to negotiate the sale of some of the projects. (
SPI entered into a securities purchase agreement and a concurrent supply agreement with EnSync (then known as ZBB Energy Corporation), in which SPI would purchase certain quantities of products for its solar power projects from EnSync and SPI would receive 28,048 shares of convertible Class C preferred stock and a warrant to purchase 50,000,000 shares of EnSync common stock. (EnSync SEC Form 8-K, dated May 9, 2017, Docket Entry No. 96-6 at ECF pg. 4.) In December 2016, SPI sold 8,000,000 shares of EnSync common stock and 7,012 shares of series C-1 and 4,341 shares of series C-2 Class C preferred stock to Melodious Investments Company Limited ("Melodious"), a China-domiciled company that also owned two percent of SPI, for $17 million. (SPI SEC Form 6-K, dated July 17, 2017, Docket Entry No. 96-4;
In his affidavit, Adler characterizes the preferred shares as "illiquid" and difficult to value or monetize. (Adler Aff. ¶¶ 8, 13.) The convertible preferred shares are not eligible for dividends and, except as mandated by law, confer no voting rights. ((SEC Form 20-F/A, dated October 27, 2017 at 75.) The convertible shares do, however, have a cumulative liquidation preference of at least $28 million. (
Defendants deny any efforts to secrete assets and represent that the anticipated proceeds of SPI's Hawaii projects are being pledged to secure obligations under settlement agreements in four federal and state court employment actions against SPI. (
On April 9, 2018, the Court entered a Memorandum Order denying Plaintiff's first motion for attachment, finding that Article 62 of the New York Civil Practice Law and Rules ("N.Y. C.P.L.R.") did not authorize this Court to directly attach SPI's physical projects in Hawaii because they represented real property in another state. (Docket Entry No. 94.)
Pursuant to Federal Rule of Civil Procedure 64, a federal court may attach property if such a remedy is available under the law of the state in which the court sits. Article 62 of the New York Civil Practice Law and Rules governs the prejudgment attachment of property. In order to succeed on a motion for pre-judgment attachment under N.Y. C.P.L.R. section 6212(a), a plaintiff must establish that: "(1) there is a cause of action; (2) there is a probability that the plaintiff will succeed on the merits; (3) a ground for attachment listed in CPLR § 6201 exists; and (4) the amount demanded exceeds all counterclaims known to plaintiff."
An order of pre-judgment "attachment should issue only upon a showing that drastic action is required for security purposes."
Here, the statutory grounds for pre-judgment attachment have been met.
The Court thus turns to its examination of whether attachment is needed to provide adequate security to Plaintiff. SPI's preferred shares of EnSync stock are no longer convertible to common stock, confer no dividends or voting rights, and appear, as stated by Adler, to be illiquid and of minimal value. SPI's membership interest in the Hawaii Assets is therefore SPI's only potentially liquid asset available in the United States to satisfy Plaintiff's judgment.
Furthermore, the record demonstrates that SPI's standard business practice revolves around developing and then disposing of its main assets, solar parks, and moving the proceeds into the People's Republic of China, at least partly, for the purpose of shielding the proceeds from judgment. Nor is there any evidence that SPI is developing any new assets in the United States. The Court therefore concludes that it is necessary to attach SPI's direct and indirect membership and other ownership interests in the Hawaii Assets to ensure that judgment can be satisfied.
Defendants request that, in the event Plaintiff's motion is granted, the Court require him to post a substantial bond. N.Y. C.P.L.R. section 6212(b) requires a plaintiff to post an undertaking of not less than $500 in case the attachment was not warranted or the defendant recovers judgment. Because Plaintiff's motion for attachment was not brought
For the foregoing reasons, Plaintiff's motion is granted. The Court directed Plaintiffs to file a proposed order of attachment with the Court by
SO ORDERED.