Яресько (Фиглус)

26 2 03:44P ID 48587901 No. 7936-VCP IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

EMERGING EUROPE GROWTH FUND, L.P., and HORIZON CAPITAL GP LLC,

) ) )

Plaintiffs,

) )

v.

C.A. No. 7936-VCP

) ) )

IHOR FIGLUS,

)

Defendant

DEFENDANT'S ANSWERINGBRIEF IN OPPOSITION TO PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION

Dated: December 17, 2012

George Pazuniak (#478) Pazuniak Law Office LLC 1201 North Orange Street 7th Floor, Suite 7114 Wilmington, Delaware 19801-1186 (302) 478-4230 gp@del-iplaw.com Attorneys for Defendant Ihor Figlus

ii

TABLE OF CONTENTS PRELIMINARY STATEMENT

- 1 -

NATURE AND STAGE OF THE PROCEEDINGS

-2-

STATEMENT OF FACTS I.

路 -3-

Horizon Capital Background

-3-

II.

Figlus and Jaresko Background, and Becoming Limited Partners

-5-

III.

Jaresko's Problematic Promissory Notes

-5-

IV.

Figlus Obtains Partnership Documents For Divorce Proceedings

-8-

V.

Figlus Seeks An Investigation

- 10 -

VI.

Plaintiffs' "Cease And Desist Letter" And Filing Of Suit

- 12 -

ARGUMENT I.

- 14 -

PLAINTIFFS ARE NOT ENTITLED TO A PRELIMINARY INJUNCTION- 14 A.

General Standard

- 14 -

B.

Constitutional Overbreadth of Plaintiffs' Request

- 14 -

C.

The Motion Seeks To Restrain Disclosures Not Covered By搂 14.14 ....... - 18 -

D.

Rule of Contra Proferentum Precludes Plaintiffs' Expansion

- 19 -

E.

The General Partner Waived The Protections

- 20 -

F.

Irreparable Harm and Balance of the Equities

- 21 -

iii

II.

PLAINTIFFS

ARE NOT ENTITLED TO ATTORNEYS'

FEES

Provision Is Plainly Inapplicable

- 23 -

A.

The Indemnification

- 23 -

B.

Rule of Contra Proferentum Precludes Plaintiffs' Expansion

- 29 -

C.

Plaintiffs Have Created Their Own Loss

- 30 -

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iv

-

TABLE OF CITATIONS

Cases Alexander v. United States, 509 U.S. 544 (1993)

- 16 -

Alpha Builders, Inc. v. Sullivan, 2004 WL 2694917 (Del. Ch. 2004)

- 14 -

Data Gen. Corp. v. Digital Computer Controls, Inc., 297 A.2d 437, 439 (Del. 1972)

- 14 -

Emerald Partners v. Berlin, 726 A.2d 1215 (Del. 1999)

- 19 -

Estate of Osborn v. Kemp, 2009 Del. Ch. LEXIS 149, 28-29 (Del. Ch. 2009)

- 19 -

Harrah's Entm't, Inc. v. JCC Holding Co., 802 A.2d 294 (Del. Ch. 2002)

- 19 -

In re Micromet, Inc. S'holders Litig., 2012 Del. Ch. LEXIS 41, 13-14 (Del. Ch. 2012)

- 14 -

Mun. Police Emples. Ret. Sys. v. Crawford, 918 A.2d 1172 (Del. Ch. 2007)

- 14 -

Nebraska Press Ass'n. v. Stuart, 427 U.S. 539 (1976)

- 16 -

New York Times Co. v. United States,

v

403 U.S. 713 (1971)

- 16 -

Nutzz.com, LLC v. Verture, Inc., 2005 WL 1653974 (Del. Ch. 2005)

- 14 -

SI Mgmt. L.P. v. Charlebois, 707 A.2d 37 (Del. 1998)

- 19 -

State v. Delaware State Educational Assa., 326 A.2d 868 (Del. Ch. 1974)

- 22 -

U-H Acquisition Co. v. Barbo, 1994 Del. Ch. LEXIS 9 (Del. Ch. 1994)

- 21 -

Ward v. Rock Against Racism, 491 U.S. 781(1989)

-16 -

Statutes 6Del.C. § 17-llOl(d)

-29-

Other Authorities Constitution of Delaware, Article I, §5

- 17 -

.,,-·

VI

PRELIMINARY

STATEMENT

Plaintiffs Emerging Europe Growth Fund, L.P. (the "Partnership" or "EEGF") and Horizon Capital GP LLC (the "General Partner"; collectively, "Plaintiffs") seek a preliminary injunction and assessment of attorney fees against Defendant Ihor Figlus ("Figlus" or "Defendant").

A preliminary injunction is unnecessary, because there is no likelihood that Defendant will further disseminate any information properly protectable by the Partnership Agreement.

Further, even if an injunction is necessary and appropriate, Plaintiffs' proposed injunction is vastly overbroad. Specifically, the Partnership Agreement, Section 14.14, prohibits disclosure only of information that is: (i)

non-public;

(ii)

provided by the Horizon Capital GP, LLC (the General Partner); and

(ii)

is received pursuant to the Partnership Agreement.

Yet, Plaintiffs' Motion extends far beyond the information arguably within the scope of Section 14.14, and seeks to restrain information obtained from others and Figlus' own private information. Moreover, Plaintiffs seek prior judicial restraint that exceeds any contractual obligation or other basis recognized by the courts for restraining one's freedom of speech.

Although Defendant has no further intention to disclose infgrmation that is within Section 14.14, it is additionally noted that the General Partner had provided certain of the documents with knowledge that it would or could become public, and thus waived the

- 1 -

restrictions.

With respect to Plaintiffs'

request for immediate assessment of attorney fees, the

plain language of Section 8 of the Subscription

Agreement does not permit coverage of

this action. To the extent that there can be any suggested ambiguity or opportunity to construe Section 8, the principles of Contra Proferentum require that Section 8 be

construed against the Plaintiffs as the sole drafters of the indemnity provision.

The claim for attorney fees, however, exposes the underlying purpose of the Plaintiffs' pursuit of this action. Plaintiffs' President and Chief Executive Officer, Natalie A. Jaresko ("Jaresko"), is involved in a marital and custody dispute with Defendant. Regrettably, but apparently, this action is a ploy in the ongoing marital/custody dispute, whereby Plaintiffs are seeking to effectively bankrupt Defendant and obtain a financial judgment that would allow Jaresko to seize Defendant's financial interest in the Partnership.

NATURE AND STAGE OF THE PROCEEDINGS Plaintiffs filed their Complaint on October 10, 2012, 1 and concurrently moved to expedite and for a temporary restraining order. 2

On October 16, 2012, the Court

granted both motions during a telephonic hearing and, subsequently, issued a temporary restraining order dated October 19, 2012. 3 A hearing on Plaintiffs' motion for a preliminary injunction ("Motion") is

~-路 1

Trans. ID 46878969.

2

Trans. ID 46878969.

3

Trans. ID 47163533.

-2-

scheduled for Friday December

21, 2012 at 10:00 a.m.

The Motion seeks not only a

preliminary injunction, but includes a demand for an order that Defendant advance Plaintiffs'

attorney fees and expenses in their suit against him.

Plaintiffs

filed their

opening brief and supporting papers in support of their Motion on December 12, 2012.

This is Defendant's preliminary

Answering

Brief in opposition

to Plaintiffs' Motion for a

injunction and for the order that he pay Plaintiffs for the lawsuit against

him.4

STATEMENT OF FACTS I.

Horizon Capital Background It is helpful to understand the various entities operating under the Horizon Capital

("HC") name, and the relationship of Figlus and Jaresko to those entities, in addressing the issues involved in the Motion.

In about 1994, the United States Congress established Western NIS Enterprise Fund ("WNISEF"), (USAID).5

and funded it through the United States Agency for International

This is an Enterprise Fund under the Support For East European Democracy

(SEED) Act Of 1989, as amended.

The purpose of these Funds is to invest U.S.

4

Certain documents cited in this brief have already been made of record as attachments to the Affidavit of Kevin M. Gallagher, Esq., filed with Plaintiffs' Opening Brief (the "Gallagher Affidavit"). To avoid duplication and confusion, Defendant refers to the same Exhibits. All citations to "Plaintiff Ex. "refer to exhibits attached to the Gallagher Affidavit, and citations to "Figlus Dep. at_" refer to Defendant's deposition testimony, also filed Plaintiffs.

-- 路 Other documents cited here are attached to the Affidavit of Defendant Figlus, and are referred to as "Defendant Ex. " 5

See http://www.state.gov/p/eur/rls/rpt/63183

.htm, last visited December 16, 2012.

-3 -

Government

funds to support the private sector and nascent market economies.

6

"US AID

... has responsibility for managing all Enterprise Fund activities with oversight from the State Department's Office of the Coordinator of U.S. Assistance for Europe and Eurasia."7 USAID appointed Jaresko as WNISEF's President and Chief Executive Officer; Mark A. Iwashko as Executive Vice-President and Chieflnvestment Officer; and Lenna Koszarny as Chief Financial Officer. In about 2005, Horizon Capital Associates, LLC ("HCA") was formed as a Delaware LLC, with the same three individuals being the officers and equity owners of HCA. Upon its formation, HCA became the manager for WNISEF.8 The current WNISEF Annual Report states that all three individuals still hold their positions with HCA. Jaresko and another HCA co-founder, Jeffrey C. Neal ("Neal"), also are members of the WNISEF Board ofDirectors.9 Further, in 2005, Plaintiffs Emerging Europe Growth Fund, L.P. ("EEGF") and Horizon Capital GP, LLC ("General Partner") were formed as Delaware entities.l" In 2006, WNISEF became the cornerstone limited partner in EEGF, investing United States Government money in the effort.11 EEGF also included other limited partners, eventually

6

Id.

7

Id.

8

Defendant Ex. 1, WNISEF 2007 Annual Report, at 2.

9

Defendant Ex. 2, WNISEF 2011 Annual Report at 33.

10

Defendant Ex. 5.

11

Defendant Ex. 1, WNISEF 2007 Annual Report, at 2.

-4-

including

REDACTED

As far as can be determined, WNISEF, HCA, EEGF and the General Partner are managed by the same group of insiders, Jaresko, Iwashko, Koszarny, and Neal.12

II. Figlus and Jaresko Background, and Becoming Limited Partners Defendant Figlus married Jaresko in Illinois in 1989. They are the parents of two girls, REDACTED. The two moved to Ukraine for the period of 1992-2000 and again 2004. After 21 years of marriage, Jaresko initiated divorce and custody proceedings in Ukraine 2010. There are currently proceedings in both Ukraine and in the United States.

Prior to the marital discord, in February 2006, Jaresko asked her husband, Figlus, to co-sign the EEGF Subscription Agreement, whereby Jaresko and Figlus, as husband and wife, would become limited partners in EEGF. Jaresko was one of the promoters of EEGF, and had been responsible for the instrument and associated documents.

13

Figlus

relied entirely on his wife's advice and instructions in executing the writings. 14 111.Jaresko's Problematic Promissory Notes Figlus and Jaresko made the initial contribution to EEGF, which included funds obtained from Figlus' mother and a friend.

12

Defendant Exs. 2 and 4.

13

Figlus testified in his deposition: My wife was involved heavily in this fund. This was our future. She asked me to sign the documents and I did. I believed everything she was doing, you know, was proper. ' ~-

Figlus Dep. at 218.

14

Id.

-5-

Thereafter, Figlus paid little attention to the Partnership contributions, because the entity was being run by Jaresko, and Figlus relied on her with respect to anything having to do with the partnership

and the family finances.

Also, in 2007, Figlus and Jaresko

began building a home for the family. Figlus later learned that Jaresko began borrowing money from HCA

REDACTED

, but again relied on his spouse, and did not

pay attention to the actual financial transactions.

In early 2010, after Jaresko separated from Figlus, she presented Figlus with, and requested that he execute, a "Security Agreement," pledging the couple's partnership interest to the repayment of the loans from HCA.15

This was Figlus first realization of

the amount of loans that Jaresko had taken, and that the partnership interest was being funded through this means. Figlus did not know what to do and wrote to his friend, stating [M]y wife has told me she wants a divorce and we are currently separated ...

She has asked me to sign this [Security Agreement] as a requirement by her partners in the investment company. The company is currently managing two private funds and she and I are joint owners of shares in those funds (the funding and distribution notices are made out in both our names). She has asked me to sign this document, but, although she told me previously that it was to insure that our real assets here were pledged in support of the loans she made, there is no mention of that. As such, I'm not really clear about the potential ramifications of this document if I do sign it.

I would also mention that, although the partners at HCA get along famously, they are pretty thorough in their documentation. So, it is also curious that I am being presented with this now, seeing as tl'fe.borrowing

15

Plaintiff Ex. A Tab 46.

-6-

began 1-112 years ago.16 Sensing that Figlus was reluctant to execute the Security Agreement, given his unfamiliarity with the situation and in the throes of the divorce, Jaresko asked another of the HCA insiders, Lenna Koszarny, as officer of HCA, to write to Figlus: 1). Can you confirm for [Figlus] please that tis {sic} is a proforma document of the firm? You have both signed identically worded, identical documents also collateralizing your loans from HCA with your LP interests?

2). Lenna, can you please confirm you need these documents for auditors and lawyers to document properly that which we've done to date?

And that you need the document today, given all others are signed and submitted?

3). Can you please confirm that HCA is not asking for other collateral, ie house, apartment, etc and just the LP interest?

Ihor, can you please sign the document as asked?17 In response, Koszarny wrote to Figlus: I confirm that the Security Agreement for each of us is the same pro-forma agreement and that the only material difference between the 3 documents is the amounts that have been drawn down.

Mark and I have signed our agreements formally pledging our EEGF interest against loans drawn down. We are now only waiting for Natalie/lhor's agreement prior to submitting all 3 agreements to our tax advisors. * * * * On a separate note, these loans were provided, immediately upon request and in good faith based on the understanding from the very beginning that loans would be collateralized by each parties' interest in EEGF. No other collateral was requested or required, just the EEGF LP interest.

..,-路 Horizon Capital has been extremely cooperative and understanding 16

Plaintiff Ex. A Tab 29.

17

Def. Ex. 6 at 00026.

-7-

about providing monies as required, we ask that commitments made be 18 honored and formal documentation be signed as soon as possible.

Figlus then signed the Security Agreement as instructed and returned to HCA.19 This was the first time that Figlus recognized the loan situation, and how his and Jaresko's Partnership stake were being funded, and that this was the established practice with the insiders. By late 2011, Jaresko had borrowed approximately REDACTED from HCA to 20

REDACTED

both fund the partnership interest

The

loans were collateralized only by the EEFG partnership interest.

The Security Agreement and the promissory notes transactions were between Jaresko and Figlus individually, and HCA, which is neither the Partnership nor the General Partner, and it involved a personal transaction by which loans were received for personal purposes. The only involvement of the Partnership was that Jaresko's and Figlus' partnership interest was being used as collateral for the private loans. These documents are not and could not fall within the scope of Section 14.14 of the Partnership Agreement.

IV. Figlus Obtains PartnershipDocuments For Divorce Proceedings In later 2010, the divorce proceedings between Figlus and Jaresko continued. Figlus was not obtaining sufficient information about Jaresko's financial or business interests from Jaresko, and so on January 30, 2011, Figlus contacted Koszarny to obtain

18

Def. Ex. 6 at 00025-26.

19

Id.

20

Plaintiff Ex. A Tab 46 and Def. Ex. 6.

--路

-8-

information for property settlement with Jaresko.21

Figlus both requested documents

from HCA, which had provided the loan funding, and EEGF Partnership reports. Figlus' email disclosed to Koszarny that the requests were copied to his attorneys handling the divorce proceeding, "Caroline Langley <langley@familylawint.com" "booker@familylawint.com."22

and

Koszarny did not object to Figlus copying his family law

counsel.23 Koszarny did not immediately respond, and a few days later Figlus sent a second note to Koszarny, again copying his outside family law counsel, but also this time copying a Human Resources person at HCA, Tetyana Bega.

24

Koszarny immediately responded to Figlus' copying of the email to Ms. Bega, by a note to Figlus and his attorney, stating that: please ensure that you direct any requests for information only to me. The information requested is sensitive and only Founding Partners have access to certain information. As such, I would appreciate if you could avoid contacting or e-mailing Tetyana Bega or any other Horizon Capital employee going forward and maintain one point of contact, via me, in relation to any queries that you have.25 Koszarny's only request was that Figlus keep the divorce proceedings and related information away from the HCA staff. She did not ask for any other confidentiality this email, and specifically did not request any confidentiality

21

Plaintiff Ex. A Tab 45 at 006435.

22

Id.

23

Id.

24

Id.

25

Plaintiff Ex. A Tab 45 at 006434.

-9 -

as to the HCA and

in

Partnership documents, even though they were being copied to his counsel in the divorce proceedings

with the obvious intent of being used in such proceedings.

26

In all events,

Figlus confirmed he would keep the matter confidential as against Ms. Bega and other staff.

27

Koszarny then sent the HCA and the EEGF materials to Figlus and his counsel in the divorce proceedings, without any request for confidentiality or reference to any confidentiality obligations under the Partnership Agreement. 28 Interestingly, later in September 2011, Figlus asked for some additional partnership reports, and again copied his counsel involved in the divorce.

29

This time, Koszarny

provided the documents, but refused to send them to the attorneys, stating that: "As this is confidential information, I will forward these e-mails to your attention only."30 Even though the same document had contained the trail of emails from her original production of documents in February 2011, Koszarny did not suggest that the same confidentiality obligations applied to the documents previously provided to Figlus and his counsel.

V. Figlus Seeks An Investigation In the meantime, Figlus became increasingly concerned about the partnership and the loans that had been and continued to be given to the insiders to pay for their partnership interests, while excluding other limited partners. Although Figlus was not sophisticated 26

Id.; Figlus Dep. at 299-300.

27

Id.; Figlus Dep. at 300-01.

28

Plaintiff Ex. A Tab 45 at 006433.

29

Plaintiff Ex. A Tab 70 at 006413-14.

30

Plaintiff Ex. A Tab 70 at 006413 - 10 -

in these matters, he considered that it was inappropriate that HCA was giving loans to

insiders to fund their partnership interests, but to no other partners. He was also having difficulties obtaining information from Koszamy and Jaresko.

At that point, Figlus had no source of income, and was tied-up in a divorce and custody battle.31 He did not have the resources to involve corporate counsel to investigate.32 He talked to an individual at U.S. Agency for International Development (USAID) in Washington D.C., because the agency was effectively involved as a limited partner because of the agency's funding and supervision over WNISEF, but the agency employee did not appear interested in pursuing the question. 33 Conveniently, an acquaintance, a reporter from REDACTED, contacted Figlus on a different issue. After some unrelated conversations, Figlus thought of having REDACTED investigate what he viewed as the questionable conduct of HCA, which was managing EEGF, providing loans to insiders to fund their Partnership investments, but not other limited partners.

He stated that he sought an investigation, because he "believed the activities were improper," However, Figlus "did not have the background or resources to fully investigate the apparent improprieties, and believed that a journalistic investigation, which has access to greater resources and would be impartial, was better suited to conduct the investigation.v'"

31

Figlus Dep. at 311.

32

Figlus Dep. at 310-11.

33

Figlus Dep. at 120.

Figlus Dep. at 270-71.

34

...-

- 11 -

In his deposition,

Figlus further explained why he raised the issue with the newspaper

reporter: Q [Mr. Rollo].

Why were you discussing that issue with

REDACTED?

A. I started becoming concerned that there was things going on that weren't appropriate ... and I think it's kind of evident from some of the other things that I've written that I didn't -- first of all, I didn't have the knowledge to understand whether or not they were appropriate. I had limited resources in terms of being able to try to find out, you know, and so it was --- you know, when you're looking at something kind oflike in the situation I was in where, you know, I don't have an objective perspective. * * * So I didn't have an objective perspective and I thought talking to someone who was a reporter, you know, if he -- you know, ifhe has a better perspective on it, if he sees it objectively and how does this appear to an outstid e person. 35 In response to the reporter's request for information, Figlus provided, inter alia, the promissory notes that he obtained when Jaresko asked him to execute the Security Agreement, and a flow chart that Defendant created trying to recreate the various entities of the Horizon Capital group, based on public information.36 VI. Plaintiffs' "Cease And Desist Letter"And Filing Of Suit On October 5, 2012, Koszamy, on behalf of the General Partner sent Figlus a "cease and desist letter."37 Three days later, on October 8, 2012, Koszamy requested that Figlus "return all copies of any non-public information in your possession, custody and control concerning the Horizon Parties that was provided to you, directly or indirectly, by the

35

Figlus Dep. at 115-16.

36

Plaintiff Ex.Bat 14.

37

Plaintiff Ex. D.

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General Partner or the Partnership .... "38

This suit was filed on the morning of October 10, 2012, with a Summons and Complaint being sent to Figlus at the time.

Figlus finally was able to contact counsel on October 12, 2012. After that, Figlus has not further disclosed Partnership-related information to any third-parties. On October 19, 2012, this Court entered a Temporary Restraining Order.39

38

Plaintiff Ex. E.

39

Trans ID. 47163533.

- 13 -

ARGUMENT I.

PLAINTIFFS ARE NOT ENTITLED

TO A PRELIMINARY INJUNCTION

A. General Standard The rule governing preliminary injunctions is as follows: "This Court has broad discretion in granting or denying a preliminary injunction." "A preliminary injunction may be granted where the movants demonstrate: (1) a reasonable probability of success on the merits at a final hearing; (2) an imminent threat of irreparable injury; and (3) a balance of the equities that tips in favor of issuance of the requested relief." "The moving party bears a considerable burden in establishing each of these necessary elements. Plaintiffs may not merely show that a dispute exists and that plaintiffs might be injured; rather, plaintiffs must establish clearly each element because injunctive relief will never be granted unless earned." However, "there is no steadfast formula for the relative weight each deserves. Accordingly, a strong demonstration as to one element may serve to overcome a marginal demonstration of another."40 B. ConstitutionalOverbreadthof Plaintiffs' Request In their Proposed Order, Plaintiffs demand an injunction that: Defendant and his agents ... are hereby preliminarily enjoined from disclosing any nonpublic (or confidential) information regarding the General Partner and the Partnership.

The request to preclude Defendant Figlus from disclosing any information "regarding the General Partner and the Partnership" is vastly overbroad.

The operative provision of the Partnership Agreement, on which this action is based, says that Limited Partners may not

40

In re Micromet, Inc. S'holders Litig., 2012 Del. Ch. LEXIS 41, 1~3:.14 (Del. Ch. 2012), quoting Data Gen. Corp. v. Digital Computer Controls, Inc., 297 A.2d 437, 439 (Del. 1972); Nutzz.com, LLC v. Verture, Inc., 2005 WL 1653974, at *6 (Del. Ch. 2005); Mun. Police Emples. Ret. Sys. v. Crawford, 918 A.2d 1172, 1185 (Del. Ch. 2007); and Alpha Builders, Inc. v. Sullivan, 2004 WL 2694917, at *3 (Del. Ch. 2004).

- 14 -

REDACTED

Thus, Section 14.14 of the Partnership Agreement protects only information that is: (iii)

non-public;

(ii)

provided by the Horizon Capital GP, LLC (the General Partner); and

(iv)

is received pursuant to the Partnership Agreement.

Further, even with respect to information otherwise within the scope of the prohibition of disclosure, the Agreement exempts certain disclosures.

42

Plaintiffs' Motion extends far beyond the information arguably within the scope of Section 14.14. Without even considering the exceptions noted previously, the plain language of Section 14.14 limits its restraint to only information that is provided by the General Partner, and only if received pursuant to the Partnership Agreement. Despite this clear language of Section 14, 14, Plaintiffs, nevertheless, are asking the Court to prohibit Defendant from saying anything that is non-public "regarding the General Partner and the

41

42

P. Ex. A Tab 5, ยง 14.14.

Id., stating, inter alia: REDACTED

- 15 -

Partnership."

No such restraint appears in Section 14.14, and Plaintiffs do not even

attempt to justify the proposed expansion of the restraint to go from the actual language of the Agreement to encompassing Partner and the Partnership."

and non-public information "regarding the General

Thus, Plaintiffs'

Motion fails for this reason alone.

Moreover, the Court should not grant Plaintiffs'

request to muzzle Figlus beyond

the strict confines of Section 14.14. Plaintiffs, after all, are asking the Court to preclude Figlus from speaking on an issue that has at least some public interest, REDACTED

. Even without the public interest

aspect, however, Plaintiffs are still demanding a judicial silencing speak freely, far beyond the scope of any contractual obligation

of a citizen's ability to

he has undertaken.

The obvious problem with the scope of their Motion is that Plaintiffs are asking the Court to enter an Order that prohibits Defendant Figlus from exercising his freedom of speech without even attempting to provide the Court with any Constitutional or underpinning

for such impairment

support

of Figlus' rights. Plaintiffs cannot do so, because

such silencing of speech is Constitutionally

impermissible,

and would constitute a denial

of basic principles of the Bill of Rights in both the United States and Delaware Constitutions.

There can be no question that Plaintiffs are seeking a temporary injunction, which constitutes a prior restraint on speech. "Temporary restraining orders and permanent injunctions--i.e.,

court orders that actually forbid speech activities--are , .,.,

classic examples

of prior restraints. "43 A prior restraint is any government action that "authorizes

43

Alexander v. United States, 509 U.S. 544, 550 (1993) (Internal quotation marks - 16 -

suppression of speech in advance of its expression

... "44 It is a judicial order that restricts

speech rather than merely punishing it after the fact.

It is well settled that "[p ]rior restraints on speech and publication are the most

serious and the least tolerable infringements on First Amendment rights,"45 which the Court has refused to countenance even where there was a risk of national security. 46 The above principles are enshrined in the United States Constitution, and in the Constitution of Delaware, Article I, ยง5, which states: The free communication of thoughts and opinions is one of the invaluable rights of man. The press shall be free to every citizen who undertakes to examine the official conduct of persons acting in a public capacity; and any citizen may freely speak, write and print on any subject, being responsible for the abuse of that liberty.*** The Court cannot, consistent with the Federal and State Constitutional guarantees of free speech, enjoin speech except in the most exceptional circumstances, and certainly not when Plaintiffs are seeking to prevent speech that is not even covered by the very contractual provision upon which they are relying. Moreover, the Court cannot prevent speech where the matter has at least some public interest

REDACTED

, except as limited to the very specific and exact language of the speaker's contractual obligation.

Because the language of Plaintiffs' proposed order far exceeds the limited scope

omitted.).

44

Wardv. Rock Against Racism, 491 U.S. 781, 795, n.5 (1989). ~--

45

Nebraska Press Ass'n. v. Stuart, 427 U.S. 539, 559 (1976).

46

New York Times Co. v. United States, 403 U.S. 713 (1971) (Pentagon Papers case), citing Near v. Minnesota, 283 U.S. 697 (1931 ).

- 17 -

of Section 14.14, the Motion is Constitutionally

defective.

C. The Motion Seeks To Restrain Disclosures Not Covered By ยง 14.14 Defendant Figlus' specific request for investigation which he directed to both the USAID and REDACTED was that HCA was granting loans to insiders to purchase their partnership interests in EEGF, but not providing the same benefit to non-insider Limited Partners. Defendant Figlus viewed this as troublesome and inappropriate, as set forth at pp. 10-12, supra.

The key documents related to that issue are not within the scope of the prohibitions of Section 14.14. These documents are the Security Agreement and the attached promissory notes.47 These documents do not fall within the restraint on disclosure, because they neither disclose "information furnished by the General Partner," nor were they "received by such Limited Partner pursuant to this Agreement." In fact, these documents were provided to Defendant Figlus by Jaresko individually, who required Defendant Figlus' signature so that Jaresko could obtain a personal loan REDACTED

to maintain the their personal partnership

interest. There is no indication that the Security Agreement and promissory notes were obtained from the General Partner, and Plaintiffs have not even attempted to demonstrate that these documents fall within the provision "information furnished by the General Partner."

Further, the Security Agreement and the attached promissory notes were not "received by such Limited Partner pursuant to this Agreement." In fact, Plaintiffs have

47

Plaintiff Ex. A, Tab 46.

- 18 -

not even attempted to demonstrate that any provision of the Partnership Agreement related to, much less compelled, the Security Agreement and promissory notes. Not only are these documents not "received by such Limited Partner pursuant to this Agreement," but they were of interest, because they were individual transactions amongst insiders and not available to other limited partners under the Partnership Agreement.

Similarly, Defendant Figlus provided to REDACTED

a chart showing what he

had discerned as the structure of the Horizon Capital group, or what Plaintiffs now say was "based upon Figlus' speculation.V"

The chart does not meet the requirements

of

Section 14.14, but, yet, Plaintiffs' Motion would prohibit Defendant Figlus from disclosing this information also, because it falls literally within the scope of the Motion to restrain.

Plaintiffs have not attempted to demonstrate that the requirements

of Section

14.14 have been met, and, therefore, the Motion must fail as a whole.

D. Rule of Contra Proferentum Precludes Plaintiffs' Expansion To the extent that there can be any ambiguity as to the scope of the non-disclosure obligations of Section 14.14, the principles of contra proferentum apply here to require that any ambiguities in the language be resolved against the Plaintiffs. 49 The Partnership Agreement was not negotiated, but is a document drafted by Plaintiffs and executed by 48

Op. Br. at 16

49

Emerald Partners v. Berlin, 726 A.2d 1215, 1222 n. 9 (Del. 1999); Estate of Osborn v.

Kemp, 2009 Del. Ch. LEXIS 149, 28-29 (Del. Ch. 2009) ("Delaware courts apply the general principle of contra proferentum, which holds that ambiguous terms should be construed against their drafter. Because there is no dispute Kemp drafted the Contract, I will construe the ambiguous price term in the Contract against him.")

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Plaintiffs under a power of attorney.

50

"[W]hen a court is asked to construe a limited

partnership agreement drafted solely by the corporate general partner, it will resolve all ambiguities against the general partner as drafter and in favor of the reasonable expectations of the public investors.v" Therefore, to the extent that there can be any question of the precise meaning of the language of Section 14.14, all ambiguities and inferences must be resolved in favor of Figlus.

E. The General PartnerWaived The Protections The operative provision states that any prohibition can be waived by the General Partner - "Any obligation of a Limited Partner pursuant to this Section 14.14 may be waived by the General Partner in its discretion.t'Y As detailed in the Statement of Facts, Koszarny had provided certain information with a specific restriction of confidentiality, while providing other documents to Figlus and his counsel without any confidentiality restriction.

The fact that Koszarny provided the information to Figlus' counsel without any request for confidentiality is significant, because Koszarny must have known that such documents were likely to become public in the course of upcoming divorce proceedings.

50

SI Mgmt. L.P. v. Charlebois, 707 A.2d 37, 43 (Del. 1998) ("it appears that the General Partner solicited and signed on 1,850 investors to the Agreement that those investors had no hand in drafting. Based on that premise, the principle of contra proferentum applies.

Accordingly, ambiguous terms in the Agreement should be construed against the General Partner as the entity solely responsible for the articulation of those terms.")

51

Harrah's Entm't, Inc. v. JCC Holding Co., 802 A.2d 294, 309-310 (Del. Ch. 2002).

52

PlaintiffEx.A Tab 5, ยง 14.14(e).

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Thus, by providing those documents without any claim or request for confidentiality in light of their anticipated use in the divorce proceedings constituted an inferred waiver of the prohibitions

of Section 14.14 as to those documents.

Plaintiffs' proposed order of injunction extends to documents for which the .

General Partner has Section 14.14. Plaintiffs' request should be denied for this reason also.

F. Irreparable Harm and Balance of the Equities It is recognized that Section 14.14 provides that its breach represents irreparable harm justifying an injunction to prevent breach. Even though such harm is contractually presumed, Plaintiffs must still demonstrate that the balance of the equities tips in favor of issuance of the requested relief.

Injunctive relief is not necessary here, because there is no likelihood that Defendant Figlus will violate Section 14.14 in the future. 53 Defendant Figlus acted without consulting the Partnership Agreement or counsel. 54 Lenna Koszamy sent Defendant and his counsel the documents for use in the divorce proceedings, without raising any obligation to maintain those particular documents in confidence.

Figlus testified at his deposition in response to Plaintiffs' questions that he has now been educated and is aware of the issues as he had not been before. He testified as follows: 53

U-H Acquisition Co. v. Barbo, 1994 Del. Ch. LEXIS 9 (Del. Ch:'-1994) ("An injunction should never issue, however, unless it is necessary for the protection of the movant's rights.")

54

Figlus Dep. at 181.

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Q [Mr. Rollo]. Had you read that and the other components of those documents, would you agree that we may not be here today because you would have complied with your obligations?

MR. PAZUNIAK:

Objection.

THE WITNESS: You know, I think I would have had a better understanding and I thought these entities were governed by some public institutions, but otherwise I think that my opinion of what I call the improprieties would not be any different.

Q. I was trying to ask a slightly different question. Had you known what your contractual obligations were, you wouldn't have knowingly breached them. If you believed you behaved in a manner that was consistent with

them, you would have done that, I am submitting to you. So the fact that you didn't read some of the materials, would you agree with me that that is one of the reasons we are here today?

MR. PAZUNIAK: Objection.

THE WITNESS: Yes, one of the reasons.f In light of the specific facts of this case, and particularly the facts that Figlus proceeded without knowledge or legal advice, and the situation is now irreversibly changed, the following analysis should apply here: A preliminary injunction will issue when the Court of Chancery is convinced that, without it, serious injury of a nature calling for equitable relief will probably be suffered by the plaintiffs before final judgment can be entered. Relief will not be granted merely to allay the fears or apprehension of the plaintiff where there is no showing or reasonable ground for believing that the defendant is about to commit the wrongs complained of or where it appears that he is without the opportunity or the intention of so doing .... The present absence of an imminent threat as shown on the record also means a preliminary injunction is not necessary ~o preve~t irr~parable harm. The status quo does not require judicial intervention.

Because there is no indication that Defendant Figlus 'will ag-;;i~ attempt to disclose ss Figlus Dep. at 319-20. ss State v. Delaware State Educational Assa., 326 A.2d 868, 876 (Del. Ch. 1974).

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documents within the scope of Section 14, there is simply no need for an injunction.

Its

only purpose will be to serve as an exhibit in the continuing proceedings between Figlus and J aresko.

II. PLAINTIFFS ARE NOT ENTITLED TO ATTORNEYS' FEES Plaintiffs argue Section 8 of the Subscription Agreement allows the Court to award attorney fees to Plaintiffs. Plaintiffs plainly overreach and Plaintiffs' argument directly contradicts the Subscription Agreement.

A. The Indemnification Provision Is Plainly Inapplicable The provision of the Subscription Agreement upon which Plaintiffs rely says: 8.

The Subscriber will, to the fullest extent permitted by applicable law, indemnify each Indemnified Party and the Partnership against any losses, claims, damages or liabilities to which any of them may become subject in any capacity in any action, proceeding or investigation arising out of or based upon any false representation or warranty, or breach or failure by the Subscriber to comply with any covenant or agreement made by the Subscriber herein, or in any other document furnished to the General Partner or the Partnership by the Subscriber in connection with the offering of the Interests.

This provision is plainly geared to situations where a subscriber makes false representations of his suitability or similar facts. The language of this provision has no application to this action. First, the operative provision manifestly limits its application to "losses, claims, damages or liabilities." This language does not apply to attorney fees that the Partnership voluntarily decided to incur.

Second, even if the language "losses, claims, damages or liabilities" were interpreted to include attorney fees sough here, the losses or liabilities must be "arising

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out of or based upon any false representation

or warranty, or breach or failure by the

Subscriber to comply with any covenant or agreement made by the Subscriber herein, or in any other document furnished to the General Partner or the Partnership by the Subscriber in connection with the offering of the Interests."

None of these operating

events occurred here. (i) Agreement.

This action asserts that Figlus breached Section 14.14 of the Partnership Indeed, Plaintiffs' claim irreparable harm solely on the basis that Section

14.14 contractually

provides for that. This action did not "arise from" and is not "based

upon" any "false representation

or warranty, or breach or failure by the Subscriber to

comply with any covenant or agreement made by the Subscriber [in the Subscription Agreement]."

Plaintiffs argue that this provision is met because Defendant Figlus

allegedly falsely stated that he had read the Partnership Agreement by signing the Subscription Agreement in February 2006. Whether Figlus did or did not had a copy of the Partnership Agreement in February 2006 when he signed the Subscription Agreement, Plaintiffs' claim is nothing more than a request that the Court interpret Section 8 to the point of being ridiculous.

Thus, Plaintiffs ask that the Court accept the

speculation that had Figlus read the Partnership Agreement in February 2006, he would have recalled the precise wording of Section 14.14, would have understood in February 2006 the legal language of that provision and recalled that understanding

more than six

years later, and would not have provided documents to the ~ewspae~r reporter (apparently including documents that are not within the scope of Section 14.14 such as the Subscription

Agreement, promissory notes and his personal charts.) To say that this

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series of speculations

and hypotheticals

requiring finding that people remember thing

precisely more than six years later, is a preposterous

interpretation

of "arising from or

based on."

Indeed, it is only necessary to the Verified Complaint in this case.

57

That

Complaint, which is the basis for this action, says that "the Partnership seeks injunctive relief and a damages award against one of its limited partners, defendant Figlus, arising from his wrongful disclosure of nonpublic Partnership information to a reporter at the REDACTED

in violation of his obligations under the terms of the operative Partnership

agreement (the "Partnership Agreement")." The Complaint then goes on to detail the breach of the Partnership Agreement, and states the cause of action as "Figlus Has Breached The Confidentiality Provision." Plaintiffs never mentions any breach of the Subscription Agreement. To the contrary, Plaintiffs assert that the action arises and is based on the breach of the partnership Agreement, and that Section 8 merely provides for attorney fees for that Partnership Agreement breach: 12. Under the Subscription Agreement, Figlus (i.e., a "Subscriber") is obligated to indemnify the General Partner and the Partnership for any losses, including attorneys' fees and costs, arising from his breaches of the Partnership Agreement. * * * 26. Figlus is bound by paragraph 8 of the Subscription Agreement, which obligates him to indemnify the General Partner and the Partnership for any losses, including attorneys' fees and costs, arising from his breaches of the Partnership Agreement, and to reimburse the General Partner and the Partnership for any attorneys' fees and costs as they are incurred.

Thus, even in pleading Section 8, Plaintiffs cited only the breach of the

57

Transaction ID 46878969.

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Partnership Agreement and not any breach of the Subscription Agreement.

The action

and any alleged losses by Plaintiffs arise from and are based on alleged breach of the Partnership Agreement by Figlus' dissemination

of information in 2012, which and they

are unrelated to whether Figlus had read the Agreement more than six years earlier in February 2006.

Recognizing the fatal problem with their position, Plaintiffs cite Figlus' deposition testimony.

58

Plaintiffs' quotations, however, are sorely incomplete, and the

full testimony makes clear that neither the question nor the answer had anything to do with any failure to read the Partnership Agreement in February 2006.

59

Regardless of how broadly or narrowly interpreted, the term "arising out of or based upon any false representation" demands more than the preposterous

assumption

and speculations, that notwithstanding the contrary pleading of the Complaint, this action is, in fact, based on Figlus breach in February 2006 of reading the Partnership Agreement,

and not on the breach of the partnership Agreement which is the current

pleading. (ii)

Plaintiffs next argue that Section 8 comes into play, because "Figlus failed

to acknowledge

(or comply) with his contractual obligations under the Subscription

Agreement.t''"

The argument plainly distorts the language of Section 8. The actual

language of Section 8 is "breach or failure by the Subscriber to comply with any

58

0 p. Br. at 31.

59

Figlus Dep. at 319-20.

60

Op. Br. at 31

--路

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covenant or agreement made by the Subscriber [in the Subscription Agreement]." word "acknowledge" appears elsewhere in the Subscription Agreement.

61

The

However,

neither the word "acknowledge" nor the phrase "his contractual obligations" appear in Section 8. Instead, Section 8 permits indemnification claims only if Figlus had breached or failed to comply with any covenant or agreement made in the Subscription Agreement.

The attorney fee claim here does not arise and is not based upon any breach or failure to comply with any covenant or agreement made in the Subscription Agreement.

Plaintiffs' need to rewrite the language of Section 8 underscores the bankruptcy of their claim. By changing the language to read that indemnification applies whenever a subscriber fails to "acknowledge contractual obligations," Plaintiffs lay the framework for arguing, as they do, that a legal defense to a claim constitutes a breach of failure to comply with the subscriber's covenant or agreement in the Subscription Agreement.

That is not the language or intent of the Section 8. Nothing can be more indicative of the plain inapplicability of Section 8 than Plaintiffs' argument that Plaintiffs are entitled to be indemnified for their attorney fees because Defendant defends against the claim on the basis that it does not apply here. 62 (iii)

Finally, Plaintiffs argue that Section 8 applies, because the Partnership

Agreement is "a document furnished to the ... Partnership by the Subscriber in connection with the offering," and its alleged breach invokes the indemnification of Section 8.

61

See Plaintiff Ex. A Tab I at Sections 2(b), 3, 4, 7, and 10.

62

Op. Br. at 31.

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The specific provision, however, provides for indemnification

only if the

Partnership sustained a loss arising out of or based upon the subscriber's breach or failure to comply with any covenant or agreement made "in any other document furnished to the

General Partner or the Partnership by the Subscriber." Defendant Figlus did not "furnish" the Partnership Agreement to the General Partner. To the contrary, the Subscription Agreement clearly states that "a copy of [the Partnership Agreement] has been furnished to the Subscriber" - the exact opposite of the event contemplated by Section 8. If the Subscription Agreement itself acknowledges that the Partnership Agreement was provided to Figlus, it is impossible to read Section 8 of that same Agreement to say that the exact opposite is true - that the subscriber provided the Partnership Agreement to the Partnership.

Even if Plaintiffs could overcome this fatal defect, Figlus still never "furnished" the Partnership Agreement to the General Partner or the Partnership. Plaintiffs argue that "the Partnership Agreement was executed and delivered to the Partnership by Figlus, through a proxy (the General Partnerj.t''" That is simply incorrect. Figlus never furnished the Partnership Agreement. In accordance with § 14 of the Subscription Agreement, Figlus constituted and appointed the General Partner as his "true and lawful representative and attorney-in-fact.v'" The grant to the General Partner of the power of attorney to execute documents is not the "furnishing" of a document "to the General Partner."

63

64

..,-·

Op. Br. at 32.

P. Ex. A Tab 1, at page 9 § 14.

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Moreover, the above provision applies only "in connection with the offering of the

Interests," which the Subscription Agreement defines as "the offering oflimited partnership interests."65 The alleged breach of the Partnership Agreement is unrelated to the "offering of the Interests." Indeed, the current version of the Partnership Agreement upon which Plaintiffs rely upon in their Complaint did not yet exist at the time of "the offering of the Interests."

In short, Plaintiffs are rewriting the provisions of Section 8 to create a nonexistent obligation for Figlus to pay Jaresko's lawyers to sue him.

B. Rule of Contra Proferentum Precludes Plaintiffs' Expansion As was the case with the Partnership Agreement, the Subscription Agreement and ยง 8 in particular, were not a bilateral negotiated agreement, but a document drafted by Plaintiffs and presented to Defendant Figlus. Therefore, the principles of contra proferentum apply here to require that any ambiguities in the language be resolved against the Plaintiffs on the basis of the law previously set forth.

Defendant's analysis of Plaintiffs' claim for attorney fees demonstrates that Section 8 does not apply as a matter of plain language. However, even if there was any reasonable ambiguity as to the meaning or interpretation of Section 8, the principle of contra proferentum require that Section 8 be construed against Plaintiffs, as drafters, and in favor of Defendant who had no part in the writing of the language. Plaintiffs' attempted rewrites of Section 8 in their favor are simply impermissible.

I

65

P. Ex. A Tab l, at page 1 of Subscription Agreement, at 006215.

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_,,. ~

-

C. Plaintiffs Have Created Their Own Loss Section 8 does not apply here for the reasons stated above. Nevertheless, even if Section 8 were somehow held to afford attorney fees to Plaintiffs, Plaintiffs fiduciary obligations to Figlus and the implied contractual covenant of good faith and fair dealing of the Partnership Agreement mandate that Plaintiffs not misuse the provision to effectively take away Figlus' partnership interest. 66 Defendant's counsel had advised Plaintiffs at the outset of this case that Defendant was willing to resolve the case, and strictly comply with the provisions of the Section 14.14 of the Partnership Agreement. The offer to resolve the case was refused.

Thus, the attorney fees being generated by Plaintiffs are self-imposed. Plaintiffs do not need to pursue this action for an injunction to obtain the relief they purport to seek.

As Plaintiffs know, Defendant Figlus has no source of income, and cannot afford his own defense, much less the cost of the indemnification were it to be applicable. 67 Therefore, the natural consequence of forcing Figlus to defend the action and bear Plaintiffs' attorney fees is to ultimately dispossess Defendant of his interest in the Partnership.

CONCLUSION Based on the foregoing analysis of fact and law, Defendant Figlus respectfully requests that the Court deny Plaintiffs' motion for a preliminary injunction and for an , ....,, ..

66

6 Del.C. ยง 17-1101( d) ("the partnership agreement may not eliminate the implied contractual covenant of good faith and fair dealing.").

67

Figlus Dep. at 311.

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order awarding attorneys' fees pursuant to Paragraph 8 of the Subscription Agreement.

Dated: December 17, 2012

Isl George Pazuniak George Pazuniak (#4 78) Pazuniak Law Office LLC 1201 North Orange Street 7th Floor, Suite 7114 Wilmington, Delaware 19801-1186 (302) 478-4230 gp@del-iplaw.com Attorneys for Defendant Ihor Fig/us

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