On October 12, 2011, the McKennon Law Group PC law firm won a complete defense verdict on a $2 million successor liability claim against their client, Elephant Talk Communications Corp., in a case called Chong Hing Bank Limited v. Elephant Talk Communications, Inc., Orange County Superior Court Case No. 30-2009-00328467.
Chong Hing Bank Limited (Bank), a Hong Kong financial services company, began making loans to Elephant Talk Limited (ETL), a Hong Kong telecommunications company, beginning in 1996. In 2002 ETL reverse acquired a California public shell company called Staruni Corp. in a stock-for-stock exchange in which Staruni became the parent company and ETL became its wholly-owned subsidiary. Staruni changed its name to “Elephant Talk Communications, Inc.” (Elephant Talk) in connection with the reverse acquisition.
By 2004 ETL was in default on all of the loans. In 2005 a European investment group acquired control of Elephant Talk. In 2009 the Bank called the loans and filed suit against Elephant Talk (the parent company of the entity that took out the loans) in Orange County Superior Court on a theory of successor liability. The Bank did not proceed directly against ETL. The Bank contended that the reverse acquisition was a statutory merger, a de facto merger or an asset purchase resulting in Elephant Talk’s assumption of liability for the loans to ETL. Elephant Talk contended that the reverse acquisition was merely a stock exchange acquisition in which ETL became Elephant Talk’s wholly-owned foreign subsidiary, and maintained its separate existence as a Hong Kong company in order to do continue doing business in China. Elephant Talk denied any successor liability, denied otherwise assuming liability for the loans, and contended that California’s four-year statute of limitations had already run on the Bank’s claims.
Elephant Talk and the Bank stipulated to a bench trial on all issues. After a five-day bench trial, the court issued a decision in favor of Elephant Talk on the issue of successor liability, on the first cause of action for breach of contract, on the second cause of action for open book account, and on the Bank’s proposed amendments to add causes of action for intentional misrepresentation and negligent misrepresentation. The court entered judgment in favor of Elephant Talk on November 2, 2011.
Eric J. Schindler and Scott E. Calvert tried the case on behalf of Elephant Talk.