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Counsel Corp. v. Wasserson

March 31, 2010


The opinion of the court was delivered by: Rufe, J.


Before the Court are Plaintiff Gary Wasserson's ("Wasserson") Motion to Confirm Award of the Arbitrator and Defendants I-Link Corp. et al.'s Motion to Vacate, Modify, and/or Correct the Arbitral Award.


In 1999, Alan Silber ("Silber"), principal owner of Counsel Corporation and its numerous affiliates("Counsel Corp."), ventured into the telecommunications industry.*fn1 Silber recruited Gary Wasserson ("Wasserson") to help to launch his telecommunications initiative.*fn2 Wasserson was promised an equity interest in the telecommunications entities that Silber would establish, as memorialized in an employment offer letter ("Employment Letter") dated January 20, 2000.*fn3

The Employment Letter provided for a one year commitment and noted the parties' intent to enter into a more detailed, three-year employment agreement at a later date.*fn4 He was hired to identify and acquire telecommunication companies on behalf of Counsel Corp. On February 1, 2000, Wasserson began working as Counsel Corp.'s Chief Executive Officer at an annual salary of $360,000.

During this same time period, Wasserson sought issuance of his agreed upon equity interest by repeatedly requesting his stock certificates from Silber. Two months into his employment, Wasserson sent an email to Silber complaining about the failure to provide him with his equity in Counsel Corp.*fn5 Silber assured Wasserson that he was a ten percent (10%) member of Counsel Communications LLC ("CCLLC"), retroactive to the commencement of his employment.*fn6

In August 2000, Wasserson was presented with the three-year contract ("2000 Employment Agreement") contemplated in the Employment Letter, which offered Wasserson a salary of $600,000, with a potential bonus up to 75% of the base salary ($450,000) to be determined by the Board of Directors.*fn7 Additionally, Wasserson was entitled to 10% of the stock in a newly created Silber entity, Webtotel. The 2000 Employment Agreement indicated that this stock had already been issued to Wasserson.*fn8 It was acknowledged, at the Arbitration hearing, that contrary to the express language in the August 2000 Agreement, no stock certificates were actually issued to Wasserson; instead Counsel Corp. held all the stock and used it to finance a later acquisition, unbeknownst to Wasserson.*fn9

In March 2001, CCLLC initiated the purchase of I-Link, its first financially significant telecommunications acquisition.*fn10 On April 17, 2001, Webtotel merged with I-Link in a stock-for-stock transaction - a transaction that was intentionally not disclosed to Wasserson.*fn11 Section 2.7 of the I-Link/Webtotel Plan and Merger Agreement gave 17,454,333 shares of I-Link's stock to Webtotel's shareholders in exchange for their Webtotel shares. On June 4, 2001, I-Link acquired certain assets of WorldxChange Corp. ("WorldxChange").*fn12 At various times, Wasserson acted as CEO or Director of CCLLC, WordxChange, I-Link, and Nexbell.*fn13

During the summer of 2001, less than one year into his three-year Employment Agreement, Silber presented Wasserson with another employment contract with modified terms, a lower base salary, and a provision that the initial term of employment would end on December 31, 2003.*fn14 Both the 2000 and 2001 Employment Agreements contained arbitration clauses in Paragraph 16, specifying that any Arbitration resulting from a dispute between the parties would occur in New York, under New York law.

In December 2001, Wasserson participated in an Executive Stock Purchase Plan ("ESPP"), paying $141,966 of his own funds, and borrowing $566,670 from Counsel Corp. (U.S.) to fund the rest of the stock purchase, as evidenced by both a Note and a Loan Agreement dated December 21, 2001 between Counsel Corp. (U.S.) and Wasserson.*fn15 Paragraph 6 of the Loan Agreement required an interest rate of 10% per annum commencing on the day after the loan becomes due and payable.

Wasserson's professional relationships with others in the telecommunications industry led to the acquisition of patents owned by Acceris Communications Inc. ("Acceris"). However, on the day after the patents were secured, Silber advised Wasserson that his employment contract would not be renewed.*fn16 Silber sent Wasserson a Notice of Non-Renewal under paragraph 2(a) of the 2001 Employment Agreement, which called for Wasserson's employment to end on December 31, 2003.*fn17 As rationale for terminating Wasserson's employment, Silber referenced Wasserson's failure to advise him of developments in a federal criminal action for environmental violations allegedly committed by a defunct dry-cleaning company owned by Wasserson.*fn18

Upon his termination on December 31, 2003, Wasserson raised issues with Counsel Corp. regarding their alleged failure to pay him in accordance with the contract, to include payment of unused vacation time as well as his 10% stock interest. Disputes about accumulated vacation pay and expense reimbursements that the company allegedly owed Wasserson were left largely unresolved. It was not until April 2008 that Wasserson learned for the first time that Counsel Corp. claimed to be a 100% owner of CCLLC.


On August 13, 2004, Counsel Corp. and Wasserson simultaneously filed the two related underlying actions.*fn19 Wasserson's Complaint alleged breach of contract, detrimental reliance, fraud and violation of the Pennsylvania Wage Payment and Collection Law, seeking back pay, vacation pay, and compensation of unpaid bonuses and company stock; Counsel Corp.'s Complaint alleged breach of contract and unjust enrichment, seeking repayment of the $566,670 loan that Counsel made to Wasserson to enable his participation in the company's 2001 ESPP.*fn20

On September 7, 2004, Defendants I-Link Corp. et al. ("Defendants") filed a motion to dismiss Wasserson's Complaint and a memorandum of law in support of its motion to compel arbitration.*fn21 In their supporting memorandum of law, Defendants argued that "it is undeniable that the parties have expressly agreed in writing to arbitrate their disputes arising under or in connection with the Employment Agreements between them [and] [t]he [Federal Arbitration Act] ("FAA") unquestionably controls the contracts at issue...[thus] all of plaintiff's claims arise under or in connection with the employment agreement and so should be ordered to arbitration...all of plaintiff's claims are subject to mandatory binding arbitration."*fn22 In addition to Wasserson's opposition to Defendants' motion to dismiss, Wasserson filed a motion to dismiss Counsel Corp.'s Complaint on September 21, 2004.*fn23

On January 14, 2005, after a hearing on the parties' respective motions to dismiss, the Court denied Wasserson's motion; granted Defendants' motion to dismiss in part; stayed both actions pending arbitration; and placed the matters in civil suspense.*fn24 Over the course of the next three and a half years, the Court tracked the status of the two actions through ordered joint status reports filed by the parties. On March 15, 2005, by Demand for Arbitration, Wasserson initiated an arbitration with JAMS Resolution Experts, naming five respondents: I-Link Corp. ("I-Link"); Springwell Communications, LLC ("Springwell"); Counsel Corp.; Counsel Communications, Inc. ("CCI"); and Silber.*fn25

On September 16, 2005, the Arbitrator heard oral argument on several motions submitted by the parties.*fn26 By Interim Award dated October 12, 2005, the Arbitrator determined that he had jurisdiction to hear Wasserson's claims against certain non-signatories to the employment agreements at issue, granted Wasserson's motion to amend his Arbitration Demand to assert claims against Counsel Corp. (Canada), and denied respondents' motion to dismiss all claims and parties, except as to Counsel Communications, Inc. ("CCI").*fn27 On November 10, 2008, a five-day hearing commenced in New York City, wherein six witnesses testified.*fn28 After the hearing, the parties filed post-hearing briefs and reply briefs.*fn29

On April 24, 2009, the Arbitrator issued a fifty-five page Interim Award, finding, in pertinent part, that:

Wasserson, as a 10% shareholder of Webtotel, was entitled to receive 1,745,433 shares of I-Link stock on the date of exchange pursuant to the [ILink/Webtotel] Merger Agreement....

Wasserson owes Counsel [Corp.] (U.S.) $566,670 pursuant to the terms of the Loan Agreement less a credit for the proceeds of the repurchase of the [10% of] stock [which] should have occurred 30 days after Wasserson's termination, or on or about February 1, 2004....Thus by the terms of the Loan Agreement, Wasserson owes Counsel [Corp.] (U.S.) $191,670 ($566,670 less $375,000) as of February 1, simple interest at the rate of 10% accruing from February 1, 2004 until the date of payment.

Respondents, jointly and severally, are liable to [Wasserson] in the amount of $29,176 representing the underpayment of Wasserson's base salary for the period of April 1, 2001 through October 31, 2001.*fn30

The Arbitrator was unable to establish damages specific to Wasserson's inability to sell the I-Link stock that he should have received in the I-Link/Webtotel merger, and therefore reopened the arbitration record for the limited purpose of receiving additional evidence on the valuation of the I-Link stock during the period of April 17, 2001 through December 31, 2003.*fn31

In May 2009 and June 2009, in accordance with the procedural order that accompanied the Interim Award, the parties filed supplemental memoranda, replies, and expert reports to address the stock valuation issue.*fn32 The arbitration record was thereafter closed.

On June 29, 2009, a Final Award was issued to the parties. On July 2, 2009, Wasserson moved to correct the Award to provide that the respondents would pay for the costs of the arbitration. The Arbitrator agreed that the original Award incorrectly stated that the costs of the arbitration would be shared, and issued a corrected Final Award.

On July 10, 2009, the Arbitrator issued a sixty-two page Corrected Final Award, finding and concluding, in pertinent part, that:

[T]he 2000 Employment Agreement which gave Wasserson 10% of Webtotel, was in effect on April 17, 2001 and...unambiguously left Wasserson with 10% of Webtotel as of the date of the Webtotel/I-Link merger....

Webtotel, however, failed to cause I-Link to deliver that stock, and by doing so, breached its contract with Wasserson....[this failure] also breached Webtotel's implied covenant of good faith and fair dealing, which required Webtotel to enable Wasserson to gain the benefit of his stock ownership (or conversely, not to deprive Wasserson of the benefit of his contract)....

Respondents may not enforce Paragraph 19 of the 2001 Employment Agreement to divest Wasserson of the I-Link stock that should have ...

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