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FILED: NEW YORK COUNTY CLERK 09/09/2015 01:55 AM

NYSCEF DOC. NO. 35

INDEX NO. 652363/2014


RECEIVED NYSCEF: 09/09/2015

SUPREME COURT OF THE STATE OF NEW YORK


COUNTY OF NEW YORK
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HANOVER HOLDINGS I, LLC,
:
:
Plaintiff,
:
:
- against :
:
YIPPY, INC., MAHOMA INVESTING, LTD.,
:
and RICHARD GRANVILLE,
:
:
Defendants.
:
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Index No. 652363/2014


OPPOSITION TO
PLAINTIFFS MOTION
TO COMPEL

Defendants submit this Memorandum in opposition to Plaintiffs motion to


compel filed on September 2, 2015.
BACKGROUND
Plaintiff Hanover Holdings I, LLC (Hanover) is a hedge fund that lends
money to publicly traded small-cap companies. In this case, Hanover made a series
of loans to Yippy, for which notes were issued.
Yippys indebtedness to Hanover was secured by 1,600,000 shares of Yippy
stock. Those shares were entered into DTC in the name of Hanover on or about
November 29, 2012. On or about December 6, 2012, Yippy received the first and
only invoice from Hanover.

The invoice showed a previous balance owed of

$703,125, with a credit of $85,000 for a payment made on November 11, 2012.
Shortly thereafter, Yippy CEO Rich Granville was told via telephone by
Hanover (Ari Sason) that no more invoices would follow and that Hanover did not

need anything further from Yippy because the value of the collateral significantly
exceeded the loan amount (i.e., Hanover was over-secured).
Granville asked Ari Sason why no more invoices would be sent. Ari Sason
stated the Magna Group (an affiliate of Hanover) had hedged against the 1,600,000
Yippy shares prior to those shares being transferred into the name of Hanover. Ari
Sason stated that any profits made from the hedging (short selling) activities or
direct sales of the collateral would be applied to Yippys balance.
On February 4, 2013, after many calls to Hanover (Ari Sason), Yippy
(Granville) asked Aegis Capital (the collateral agent in the transaction) to obtain a
statement from Hanover accounting for the disposition of the collateral.
In response, Yippy received an email from Hanover stating an outstanding
balance of $645,000 across all notes. This e-mail stated there was a 15% interest
rate on all notes, which was not accurate.
Between December 12, 2012 through February 2014, Yippy received no
additional invoices from Hanover.

Yippy requested on numerous occasions an

accounting of proceeds from Yippys 1,600,000 shares, which Hanover held as


collateral. Hanover told Yippy that everything was being paid on time and it would
require significant effort on Hanovers part to assemble this information, as
Hanover had no accounting system in place. This was alarming, to say the least.
On October 17, 2013, Granville called Hanover and sent a Notice of Intent to
pay off its balance with Hanover. On the same day, Granville received a call from
Hanover (Michael Abitebol) who offered Yippy more credit to stay with Hanover so

that Hanover (or its affiliates) would not have to pull the shares out of DTC.
Abitebol stated that Hanover (or its affiliates) had shorted Yippy shares and that
closing that position would cause Hanover to lose money.

Over Granvilles

objections, Hanover refused to provide a payoff amount and refused to return the
remaining collateral shares.
To date, Yippy has never received an accounting from Hanover showing the
credits and debits to Yippys account based on the disposition or hedging of the
1,600,000 shares of Yippy stock.
Yippy believes that Hanover sold the collateral beyond the value of Yippys
notes, hedged against those shares, and failed to apply the full value of the
collateral against the notes in question.
ARGUMENT IN OPPOSITION
The sole question in this case is whether Hanover properly applied the
collateral sales and hedging proceeds against Yippys account balance. All of this
information is in Hanovers possession. For years, Yippy has been trying to get an
honest accounting. Instead, we get lawsuits and blind aggression.
Hanovers motion to compel should be denied.
First, many of Hanovers Requests seek discovery as to Yippys ability to pay
a hypothetical future judgment.

This is improper as the case law uniformly

demonstrates. Hanover is not entitled to discovery of Yippys assets unless and


until Hanover obtains a judgment. (See cases cited, infra.)

Second, much of the information that Hanover seeks is publicly available


(accessable online, free of charge) in Yippys public securities filings. (See Snyder
Affirmation, Exhibits 1, 2, 3 and 4, Yippys 2012, 2013, 2014 and 2015 Annual
Reports, available online.)
Third, many of Hanovers Requests seek discovery into Yippys state of
mind, which is irrelevant in a contract action.
Each Request at issue is discussed individually below.
RESPONSE TO INDIVIDUAL REQUESTS
28.
All documents referring or relating to the tangible
and intangible assets that are the "Collateral", as defined
in Section 2 of the Security Agreement, which are subject
to the security interest of the Security Agreement.
29. All documents identifying the tangible and intangible
assets that are the "Collateral", as defined in Section 2 of
the Security Agreement, which are subject to the security
interest of the Security Agreement.
Hanover has no rights with respect to any Yippy assets because, as Hanover
itself recognized, the 1,600,000 Yippy shares (which were in Hanovers possession,
and which Hanover has sold and hedged against) fully secured Yippys indebtedness
to Hanover.
Requests 28 and 29 seek information regarding Yippys ability to pay a
hypothetical future judgment. A long line of cases confirms that courts generally do
not allow pre-judgment discovery regarding a defendant's financial condition or
ability to satisfy a judgment. Such discovery is not relevant to the parties' claims or
defenses and is not reasonably calculated to lead to the discovery of admissible
evidence.

See Dickson v. Nat'l Maintenance & Repair of Ky., Inc., 2011 WL


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2610195, at *12 (W.D.Ky. July 1, 2011) (denying motion to reopen discovery to


permit plaintiff to seek discovery of reservation of rights letters and information
about the defendant's assets and ability to pay a judgment); RanneyBrown
Distribs., Inc. v. E.T. Barwick Indus., Inc., 75 F.R.D. 3, 5 (S.D.Ohio 1977)
(Ordinarily, Rule 26 will not permit the discovery of facts concerning a defendant's
financial status, or ability to satisfy a judgment, since such matters are not
relevant, and cannot lead to the discovery of admissible evidence.); DiNapoli v.
Int'l Alliance of Theatrical Stage Employees 8, 2011 WL 1004576, at *7 (E.D.Pa.
Mar. 18, 2011) (unpublished) (If the plaintiff does not claim punitive damages, or if
punitive damages are unavailable, the court will not allow discovery to determine
whether the defendant has the means to satisfy a judgment because a defendant's
ability to satisfy a judgment has little to do with the subject matter of the litigation
notwithstanding a claim for punitive damages.) Hallford v. Cal. Dep't of
Corrections, 2010 WL 921166, at *2 (E.D.Cal. Mar. 12, 2010) (unpublished)
(denying, on relevance grounds among others, plaintiff's motion to compel the
production of a copy of salary schedules for employees in the individual defendants'
employment positions for the purpose of considering an offer of settlement); Mack
Boring & Parts Co. v. Novis Marine Ltd., 2008 WL 5136955, at *13 (D.N.J. Dec. 5,
2008) (unpublished) (collecting cases and denying motion to compel discovery of
defendant's ability to satisfy a soon-to-be entered judgment in a contract-based
action where punitive damages were not implicated); U.S. EEOC v. Ian Schrager
Hotels, Inc., 2000 WL 307470, at *4 (C.D.Cal. Mar. 8, 2000) (unpublished) (granting

on part a motion to compel in a Title VII action, requiring the defendants to produce
their financial information so plaintiff could determine, relative to a claim for
punitive damages, whether defendants had attempted to transfer income or assets
to others to avoid potential liability if defendants lose the pending litigation); U.S.
for the Use and Benefit of P.W. Berry Co. v. Gen. Elec. Co., 158 F.R.D. 161, 164
(D.Or.1994) (granting motion for protective order in a breach of contract action,
precluding pre-judgment discovery of corporate and individual financial information
including tax returns and financial statements, because that information was not
relevant).
Moreover, Yippys Annual Reports contain detailed information as to Yippys
assets and liabilities. Even if Requests 28 and 29 were appropriate requests, the
information contained in the Annual Reports is sufficient.
32. All documents referring or relating to any stock splits
of Yippy common stock.
Request 32 is irrelevant to the question presented here, which is whether
Yippy owes Hanover money under the loan agreements and notes, after accounting
for Hanovers disposition and hedging of the collateral.

However, even if this

inquiry were relevant, the pertinent facts are set forth in Yippys public filings.
Yippys most recent Annual Report states:
9. Any past, pending or anticipated stock split, stock dividend,
recapitalization, merger, acquisition, spin-off, or reorganization.

On November 5, 2009, the Company approved a 3-for-1


forward split of the Companys issued and outstanding
common Stock. Immediately following the forward split,
there were Nineteen Million and Twenty Thousand
(19,020,000) shares of Companys common stock issued
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and outstanding. The forward split took effect on


November 17, 2009.

On June 2, 2011, the Company declared a 5% stock


dividend for holders of record on June 27, 2011, payable
on or about June 30, 2011. As a result of this dividend,
the number of shares issued and outstanding as of June
30, 2011, is 23,840,629, as compared to 22,705,361 and
22,310,000 as May 31, 2011 and 2010, respectively.

On November 5, 2011, the Company approved a 2-for-1


forward split of the Companys issued and outstanding
common Stock. Immediately following the forward split,
there were 52,981,876 shares of Companys common stock
issued and outstanding. The forward split took effect on
December 5, 2011.

This is responsive to Request 32.


37. All documents referring or relating to Yippy hiring of
any employee, director, officer or consultant, including,
by way of example only, the terms of such hiring, the
compensation or remuneration paid, provided or issued
to any such employee, director, officer or consultant, any
corporate records reflecting or evidencing the approval
by the directors and/or officers of Yippy of each such
hiring of any employee, director, officer or consultant
and any press releases or communications relating to the
hiring of any employee, director, officer or consultant.
38. All documents and communications referring or
relating to Yippy hiring of any employee, director, officer
or consultant, including, by way of example only, the
terms of such hiring, the compensation or remuneration
paid, provided or issued to any such employee, director,
officer or consultant, any corporate records reflecting or
evidencing the approval of such hiring by the directors
and/or officers of Yippy.
Yippy cannot fathom how Requests 37 and 38 (pertaining to Yippys hiring
decisions) are remotely relevant. Hanovers brief provides no explanation, merely
insisting that Yippy owes Hanover money and adding that Requests 37 and 38 seek

documents probative of this course of conduct.

Yippys hiring decisions have

nothing to do with this case. Requests 37 and 38 are also vastly overbroad.
42. All documents referring or relating to the issuance of
any Yippy common stock, restricted stock, options,
warrants or other convertible securities by Yippy to any
director, officer, employee, consultant, agent or investor
during the Relevant Period.
Request 42 is irrelevant to the issue of whether Yippy owes Hanover money
under the loan agreements and notes. Moreover, Yippys Annual Reports present
information concerning the beneficial ownership of the shares of Yippy common
stock by: (i) each of Yippys named executive officers and current directors, (ii) all of
Yippys current executive officers and directors as a group and (iii) each person
Yippy knows to be the beneficial owner of 5% of more of our outstanding shares of
common stock.
43. Copies of any and all shareholders' agreements,
including drafts, for Yippy.
45. All documents referring or relating to any elections
of a board of directors of Yippy.
47.
All
documents
referring
or
relating
to
communications between Yippy and any third-party
regarding the terms of any proposed shareholders'
agreement of Yippy.
48. All documents referring or relating to the sale,
transfer or assignment of shares of Yippy common stock.
Hanover claims that Requests 43, 45, 47 and 48 are probative of whether the
actions taken by Yippy were considered and approved by its Board of Directors, the
extent to which Defendant Granville caused this publicly-traded corporation to

willfully breach its contracts, and the extent to which Mahoma breached its pledges
and security agreement in favor of Plaintiff.
This is a contract action.

If Yippy breached its payment obligations, as

Hanover claims, it makes absolutely no difference whether Yippy did so willfully.


There is no state of mind element in a contract action.
49.
All documents referring or relating to any
communications between Yippy and each of its transfer
agents during the Relevant Period.
Request 49 is vastly overbroad. On Page 16 of its brief, Hanover claims that
Yippy has frustrated its efforts to sell certain Yippy stock. Yippy is familiar with
Hanovers effort, on March 21, 2014, to mislead its transfer agent into violating
securities law by removing restrictive legends from about 207,793 shares of Yippy
stock held by Hanover. Yippy has produced communications with its transfer agent
that relate to Hanover.
Hanover is seeking all documents and any communications with its transfer
agents, regardless of time or subject matter. We have produced everything that is
relevant to the issue that Hanover has raised. By indiscriminately seeking every
communication with every transfer agent, Hanovers Request 49 is overbroad and
seeks irrelevant information.
50. Copies of all federal, state and local tax returns filed
by or on behalf of Yippy and Mahoma during the
Relevant Period.
51. All documents provided by Yippy to any accountant
or tax professional in connection with the preparation of
Yippy's federal and state tax returns during the Relevant
Period.

Hanovers brief does not explain the basis for Requests 50 or 51. Document
requests that seek tax returns are typically denied, where the requesting party
cannot show a very good reason for seeking those documents.

For instance, in

Muller v. Sorensen, 138 A.D.2d 683, 684 (2d Dept 1988), the Second Department
held:
Item No. 1 sought the appellant's tax returns for 1984 and
1985. The plaintiffs' rationale for seeking them was to
demonstrate that the appellant was not a general contractor on
the construction project where the injury-causing event occurred
and, therefore, the owners of the property in question were not
exempt from liability under Labor Law 240 and 241. We find
Item No. 1 to be palpably improper as it seeks information of a
confidential and private nature which does not appear relevant
to the issues in the case.
Request 50 and 51 should be denied.
53.
All documents referring or relating to the
organizational status of Mahoma, including, but not
limited to its standing, dissolution, suspension or
striking from the registry roll in the jurisdiction of its
formation and organization.
Hanover claims that Request 53 is relevant to determine whether Mahoma's
pledged collateral was lost, transferred, or assigned away in violation of the Pledge
and Security Agreement.
However, Mahomas 1,600,000 shares were transferred to Hanover in 2012.
Hanover then hedged against and sold some or all of that collateral. Whether or not
Mahoma maintained its business registration in the intervening three years is
completely beside the point.
52. All documents referring or relating to any disclosure
by any Defendant to any non-party investor of the
indebtedness of Yippy to Plaintiff under the June 2012
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Note, September 2012 Note, November 2012 Note, the


Mahoma Guaranty, the Granville Guaranty, the Security
and Pledge Agreement or the Security Agreement.
54.
Copies of all financial statements, consolidated
statements of income, retained earnings, cash flow and
consolidated balance sheets prepared for, or on behalf of,
Yippy during the Relevant Period.
55. Copies of all documents utilized in preparing the
financial statements, consolidated statements of income,
retained earnings, cash flow and consolidated balance
sheets of Yippy during the Relevant Period.
56. All documents referring or relating to any assets of
Yippy transferred, conveyed or assigned to any non-party
during the Relevant Period.
Hanover concedes that Requests 52, 54, 55 and 56 generally concern the
indebtedness of Yippy to and resources and ability of Yippy to repay . . . . In other
words, Hanover is seeking to conduct asset discovery to determine whether Yippy
can pay a hypothetical future judgment.
HANOVERS COMPLAINTS ABOUT YIPPYS PRODUCTION
At pages 20-27, Hanover wildly accuses Yippy of having intentionally
withheld documents surrounding their making, entering into, and breaching the
operative contracts!
Back in May 2015, Hanover claimed that it had documents that were not in
Yippys production, and based on that, Hanover claimed that Yippys production
was grossly deficient.
We challenged Hanovers counsel to show us an example of a document that
we failed to produce.

On May 29, 2015, your undersigned wrote to Hanovers

counsel:

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I had asked you to send me examples of emails that we


purportedly withheld. I may have been light-hearted in tone,
but I was serious in wanting to know what emails are missing
that make our production "grossly incomplete." If you don't tell
me what is missing, I cannot investigate whether we had the
document and why it was not captured in our searches.
On the other hand, if the "grossly incomplete" rhetoric was just
good old litigation posturing, no need to respond.
Hanovers counsel never responded. Hanovers motion does not include any
example of such intentionally withheld documents.

Hanovers counsel, Scott

Furst, would do well to dial down the uncivil accusations, especially where counsel
has offered to investigate any omissions (and Furst has neglected to take up the
offer).
CONCLUSION
Based on the foregoing, Hanovers motion to compel should be denied.

Dated:

New York, New York


September 8, 2015

JOHN H. SNYDER PLLC

___________________________
John H. Snyder, Esq.
Abaigeal Van Deerlin, Esq.
555 Fifth Avenue, Suite 1700
New York, New York 10017
Tel: (212) 856-7280
Fax: (646) 304-9230
john@jhsnyderlaw.com
Counsel to Defendants

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