The United States Constitution Pursuant to Due Process
Prevents Imposing the Temporary Suspension
Prior to “De Novo” Review by the Appellate Process
The United States Constitution requires that the SEC not impose a temporary suspension while a “de novo” review is pending of a summary judgment by a lower court.
This is more important in the attempted suspension of Mr. Gunderson because the summary judgment in this instance was entered without any hearing before the lower court or any evidence introduced by testimony before the court.
Initial briefs have been filed with the United States Court of Appeals of the Second Circuit on October 26, 2007 appealing the summary judgment by the lower court on behalf of the President and the General Counsel and a reply brief by the SEC on November 26, 2007.
It would be a denial of due process under the United States Constitution for the SEC to impose a temporary suspension of Mr. Gunderson until the “de novo” review of the summary judgment upon the completion of the appeals process.
This is especially certain in view of the SEC’s conflicted positions in this case.
In review of a summary judgment, especially where, as in this case, no hearing was held before summary judgment was entered, the “de novo” review is a complete and total review of the lower court by the appellate courts, as if the appellate courts were deciding the issues themselves for the first time, without the opinion of the lower court before them; the appellate court views the law and issues underlying the summary judgment anew or “de novo”; Scott v. Harris, 127 S. Ct. 1769, 167 L.Ed.2d 686 (April 30, 2007); State Farm Mut. Auto Ins, Co. v. Cambell, 538 U.S. 408, 123 S. Ct. 153, 155 L.Ed.2d 585 (April 7, 2003); Easley v. Cromartie, 532 U.S. 234, 121 S. Ct. 1452, 149 L.Ed.2d 430 (April 18, 2001); Kumbo Tire Co., Ltd. V. Carmichael, 526 U.S. 137, 119 S. Ct. 1167 (March 23, 1999); Klehr v. A.O. Smith Corp., 521 U.S. 179, 117 S. Ct. 1984 (June 19, 1997); McMillian v. Monroe County, Ala., 520 U.S. 781, 117 S. Ct. 1754 (June 2, 1997).
Mr. Gunderson relies in his appeal on all of the statutorily imbued immunities under the United States Bankruptcy Code and the Reorganization Plan of the Company, including the Reorganization Plan’s Stock Incentive Plan. These immunities and protections for Mr. Gunderson, the President of the Company and the Company, are basic and should be decided by the appellate courts before any suspension is imposed.
On December 19, 1991, the Company, then called Packaging Plus Services, filed for reorganization under Chapter 11, Bankruptcy Code, in the United States Bankruptcy Court, Eastern District of New York. The Bankruptcy Court, on February 18, 1994, in Case No. 191-18486-260, confirmed the Company’s Plan of Reorganization (“the Chapter 11 Plan”). Thereafter the Company changed its name to Universal Express, Inc., and Mr. Gunderson was appointed as its General Counsel. Mr. Gunderson maintains that the Company, its President and General Counsel did not violate the Federal Securities Acts by causing the Company to issue shares of stock which had not been registered with the SEC. To the contrary, those shares had been issued pursuant to a Chapter 11, Bankruptcy Code, Plan of Reorganization which Plan had been confirmed by the Bankruptcy Court and the shares were exempt from the registration requirements of the Federal Securities Acts, as set forth below.
Section 1125, Bankruptcy Code, 11 U.S.C. Sec. 1125, in pertinent part provides:
(e) A person that solicits acceptance or rejection of a plan, in good faith and in compliance with the applicable provisions of this title, or that participates, in good faith and in compliance with the applicable provisions of this title, in the offer, issuance, sale, or purchase of a security, offered or sold under the plan, of the debtor, of an affiliate participating in a joint plan with the debtor, or of a newly organized successor to the debtor under the plan, is not liable, on account of such solicitation or participation, for violation of any applicable law, rule, or regulation governing solicitation of acceptance or rejection of a plan or the offer, issuance, sale, or purchase of securities.
Section 1145, Bankruptcy Code, 11 U.S.C. § 1145, is entitled “Exemption from securities laws” and in pertinent part provides:
(a) Except with respect to an entity that is an underwriter as defined in subsection (b) of this section, section 5 of the Securities Act of 1933 and any State or local law requiring registration for offer or sale of a security or registration or licensing of an issuer of, underwriter of, or broker or dealer in, a security do not apply to--
(1) The offer or sale under a plan of a security of the debtor, of an affiliate participating in a joint plan with the debtor, or of a successor to the debtor under the plan—
(A) in exchange for a claim against or interest in, or a claim
for an administrative expense in the case concerning, the debtor
or such affiliate; or
(B) principally in such exchange and partly for cash or property;
(2) the offer of a security through any warrant, option, right to subscribe, or
conversion privilege that was sold in the manner specified in paragraph (1) of this subsection, or the sale of a security upon the exercise of such a warrant, option, right, or privilege;
Exhibit “I” to the Chapter 11 Plan was a document entitled “1994 Stock Option Plan” which in pertinent part provided:
This Plan shall be known as the “1994 Stock Option Plan” (the “Plan”).
The purpose of this Plan is to provide a method to give incentive to
those persons or entities who, in the sole and absolute discretion of the Board of Directors of Packaging Plus Services, Inc., a Delaware
corporation (“the Company”), are responsible for the management,
growth, and/or protection of the Company’s business and who are
making and can continue to make substantial contributions to the
success of the Company’s business including, but not limited to, present
and future officers, directors, employees, consultants, franchisees and
professional advisors of the Company or any future Parent or
Subsidiary.
It is anticipated that the Plan will encourage them to acquire capital
stock ownership in the Company, thus giving them a, or increasing their,
proprietary interest in the Company, providing them with greater
incentive and encouraging their continuance in the service, and
promoting the interests, of the Company and all of its stockholders...
* * *
The shares to be issued upon exercise of options which are granted
pursuant to this Plan shall be made available, at the discretion of the
Board of Directors, either from the authorized but unissued shares of
Common Stock or from shares of Common Stock which are reacquired
by the Company, including shares which are purchased in the open
market.
* * *
If the number of outstanding shares of Common Stock of the Company
shall be changed by reason of any recapitalization, stock split, or stock dividend, the aggregate number and kind of shares for which options
may thereafter be granted under this Plan and the number of shares
subject to options theretofore granted under and the price per share
payable upon exercise of such options shall be adjusted as determined
by the Plan Administrators, in their sole and absolute discretion, so as
to reflect such change; provided, however, that no such adjustment shall
be made by reason of the issuance of additional shares of the Company
for services, property or money regardless of whether the Company
received adequate consideration.
* * *
Paragraph VI.F of the confirmed Chapter 11 Plan provided:
The protection afforded by Bankruptcy Code section 1125 with regard
to the solicitation of acceptances or rejections of the Plan and with
regard to the offer, issuance, sale, or purchase of the Postpetition Senior
Secured Notes and the New Common Stock and New Warrants issued
and distributed to the holders of Claims and Administrative Claims or
in connection with the Plan and the Confirmation Order, shall apply to
the full extent provided by law. The entry of the Confirmation Order
shall constitute the determination by the Bankruptcy Court that
Reorganized PPS, PPS, and each of their respective officers, directors,
partners, employees, members or agents, and each Professional Person,
attorney, accountant, or other professional employed by any of them,
shall have acted in good faith and in compliance with the applicable
provisions of the Bankruptcy Code pursuant to Bankruptcy Code section
1125 and the federal securities laws. In addition, the exemption from
the requirements of section 5 of the Securities Act and any state or local
law requiring registration for the offer or sale of a security provided for
in Bankruptcy Code section 1145 shall apply to the New Common
Stock, the New Warrants, and the Warrants Shares to be issued under
the Plan in exchange for any Claim against or interest in PPS. Entry of
the Confirmation Order shall also constitute an order of the Bankruptcy
Court that the Debtor has, by virtue of its public filings, complied with
the reporting requirements of the Securities Act of 1934 through the
Effective Date. Upon Confirmation, however, as a publicly held
corporation the Debtor remains subject to Securities and Exchange
Commission reporting requirements and subsequent to Confirmation of
the Plan and the Reorganized PPS intends to comply with all periodic
reporting requirements including Section 12 (g) of the Securities Exchange Act of 1934.
* * *
The SEC’s essential misstatement in the civil action is its description of Universal’s common stock issuance to certain persons as “illegal, unregistered... shares”. In support of its complaint, and its ex parte application for a preliminary injunction, the SEC represented that a search of its databases disclosed no registrations for the common stock shares in question... What the SEC did not inform the lower court is that the subject Universal stock shares were duly and legally issued and sufficiently registered pursuant to law. The law involved was not and is not the normal domain of the SEC, the Securities Act of 1933 and Securities Exchange Act of 1934, but the United States Bankruptcy Code, 11 U.S.C. 101 et seq., particularly §§ 1123, 1125 and 1145. The SEC had knowledge that the shares in question were properly issued pursuant to the 1994 Stock Option Plan of Packaging Plus Services, Inc., Universal’s former name, but ignored that fact.
The 1994 Stock Option Plan was part of the Reoganization Plan for the company, approved and confirmed by the United States Bankruptcy Court, Eastern District of New York, pursuant to Section 1125 of the Bankruptcy Code. The filing of the Stock Option Plan (also referred to in the Reorganization Plan as the Stock Incentive Plan) was and is a registration statement or its functional equivalent. It was filed with the SEC as part of the Reoganization Plan and as a separate exhibit on Form 8-K as a part of the Company’s transition Report 10-KSB for the period ending June 30, 1994. Subsequently, on an annual basis, it has been filed with the SEC as an exhibit to the company’s annual 10-KSB reports. Pursuant to law it is an S-8 registration covering advisors and consultants whose future need by Universal had been determined by the Bankruptcy Court for the long-term development of the company.
At all times Mr. Gunderson, as General Counsel for Universal, acted in good faith reliance on the following language in Sections 1123 of the Bankruptcy Code, 11 U.S.C. § 1123, among others:
(a) Notwithstanding any otherwise applicable nonbankruptcy law, a plan shall
* * *
(5) provide adequate means for the plan’s implementation such as
* * *
(j) issuance of securities of the debtor…for cash,
for property, for existing securities, or in
exchange for claims or interests,
or for any other appropriate purpose;... (emphasis added)
Once the Bankruptcy Court determined that Universal’s Reorganization Plan (the First Amended Plan of Reorganization and Disclosure Statement) including the 1994 Stock Option Plan contained “adequate information,” the Company’s General Counsel acted in good faith reliance on Section 1125 of the Bankruptcy Code, which states that once such a finding is made by the bankruptcy court, no other law or rule governed Universal’s conduct. 11 U.S.C. Section 1125(d) states:
Whether a disclosure statement required under subsection (b) of this
Section contains adequate information is not governed by any otherwise
applicable nonbankruptcy law, rule or regulation, but an agency or official
whose duty is to administer or enforce such a law, rule, or regulation, may
be heard on the issue whether a disclosure statement contains adequate
information. Such an agency or official may not appeal from, or otherwise
seek review of, an order approving a disclosure statement.
See also Section 1145, 11 U.S.C. Sec. 1145.
The Bankruptcy Court’s determination was not and is not appealable by the SEC, 11 U.S.C. Sec. 1109.
Moreover, the company and persons acting for or with it are immune from suit arising from the issuance of securities under the Reorganization Plan and the 1994 Stock Option Plan pursuant to the safe harbor provisions of Section 1125(e), which provides in pertinent part:
A person… that participates, in good faith and in compliance
with the applicable provisions of this title, in the offer, issuance,
sale, or purchase of a security, offered or sold under the plan…
Is not liable, on account of such…participation, for violation of
any applicable law, rule or regulation governing…the offer,
issuance, sale or purchase of securities. (emphasis added)
