Athens: Legal firm Reed Smith has applied to be relieved as counsel in an ongoing New York Supreme Court case, in which its attorneys are representing defendants NewLead Holdings, its CEO Michael Zolotas, coal mining subsidiary NewLead JMEG and its chief executive Jan Berkowitz.
As Splash has reported previously, the breach of contract case brought by London-based trader TransAsia Commodities against the defendants does not appear to be what the judge originally called “an open and shut case”.
“The heart of the case, your Honour, is a big multinational fraudulent scheme that we were victims of,” Melissa Brill, the plaintiff’s attorney from law firm Cozen O’Connor, told the court at a hearing on April 13.
Evan K Farber, attorney for Reed Smith, who has been representing the defendants in the court hearings to date, has filed an emergency affirmation in support of the law firm’s application to resign as defence counsel. Much of the contents of the document seen by Splash have been redacted.
Farber said he emailed the defendants on June 8, informing them of the firm’s decision to resign as their counsel, but the defendants have not given their consent for the withdrawal.
“This case is developing into a lengthy process beyond our original estimates,” Elisa Gerouki, corporate communications manager for NewLead Holdings, told Splash today. “Given the fact that Reed Smith is a major law firm, therefore resulting in augmented legal fees, NewLead together with Reed Smith decided that finding an alternative less expensive legal firm was the best way forward for both parties. That decision was irrespective of the development of the case.”
TransAsia Commodities, the plaintiff, now has an opportunity to challenge a 30- to 60-day stay of all proceedings to allow the defendants to find new counsel, but has not yet made a decision on the matter.
In a letter dated May 29, TransAsia’s attorney Melissa Brill told NewLead JMEG and its counsel that if they did not voluntarily dismiss their two counterclaims within seven days, the plaintiff would seek to pursue financial sanctions against them, based on what the court defines as “frivolous conduct”.
The two counterclaims made by NewLead JMEG allege that TransAsia made false representations in an attempt to defraud the mining company by inducing it to sign a coal purchase agreement. The second counterclaim alleges that TransAsia breached the purchase agreement by failing to supply a letter of credit from its bank, and that the trader supplied a forged letter of credit from another bank to NewLead JMEG.
“No evidence exists to substantiate either of these claims,” Brill claims in the letter, which she said constitutes “frivolous conduct”.
Where the breach of contract case is concerned, TransAsia has submitted a motion to the court for partial summary judgment against NewLead JMEG, plus dismissal of two subsequent counterclaims.
TransAsia’s counsel seeks an award that covers the trader’s fees and costs in handling these counterclaims and “such other relief as the Court may deem just and proper”. The attorneys submitted to the court email correspondence between Zolotas, Berkowitz and TransAsia’s principal Serge Turko, in which the defendants acknowledge the losses sustained by TransAsia following NewLead JMEG’s inability to deliver the coal purchased by the trader.
The London-based trader seeks $6.2m in compensation over a failed agreement to buy 110,000 tonnes of coal from NewLead JMEG, a coal mining joint venture with NewLead Holdings. The coal was never delivered to the trader, which alleges that NewLead JMEG signed the multimillion-dollar sales agreements to inflate its share price and to obtain credit from banks. The defendants have denied the allegations in full.
The plaintiffs, in their complaint to the court filed on December 20, 2013, claim that the defendants created NewLead JMEG as a “shell company” and represented the company as one that was an “active, viable and profit-making coal mining and trading company”. “In fact, NewLead JMEG had no coal mines, no coal and no ability whatsoever to engage in the coal business,” the complaint says.
It has been alleged by the trader’s counsel that NewLead Holdings publicised NewLead JMEG’s multimillion-dollar sales contracts for coal in its press releases and public filings in order to inflate the group’s share price and prevent it being delisted from the NASDAQ stock exchange.
“By way of example, during January and February of 2013, it is claimed that NewLead JMEG entered into three Sale and Purchase agreements with two parties to supply over $800m of thermal coal to be mined in Kentucky,” the plaintiff’s attorneys write in the complaint. “NewLead Holdings’ public filings and press releases repeatedly point to these and other large coal sale contracts as an indication that NewLead Holdings was regaining financial strength.”
NewLead Holdings was eventually delisted from the NASDAQ exchange and now trades its stock in the over-the-counter market.
TransAsia claims that at the time of signing its sales and purchase agreement with NewLead JMEG on June 21, 2013, NewLead Holdings “lacked the financial wherewithal to perform as required under the contract”.
Last week, NewLead announced plans to “double the size” of its existing fleet of 11 vessels, which includes five dry bulk and six tanker vessels, including one third-party vessel under management.
Antonis Bertsos resigned as CFO of NewLead Holdings to “pursue other career opportunities” on May 30.