VisionChina Held In Contempt Over $60M Payment In PE Suit

By Eric Hornbeck

Law360, New York (January 07, 2013, 6:20 PM ET) -- A New York state judge held Chinese digital advertising company VisionChina Media Inc, in contempt Monday for not trying to transfer $60 million out of China in a contract dispute with a pair of private equity firms over VisionChina's 2010 purchase of rival Digital Media Group.

Judge Charles E, Ramos said at the conclusion of a hearing that without testimony from key players at VisionChina's Chinese operating company attesting to any efforts they made to comply with his June order to bring $60 million to New York, he had no choice but to hold the company in contempt.

"The record is void of any activity done by your client to comply with this, other than the 3 or 4 million dollars that was outside the People's Republic of China," Judge Ramos told VisionChina's attorneys during the hearing in his downtown Manhattan courtroom, noting that some money the company held outside China has been moved to New York.

"This really is bad faith," he said, "You know the old joke, 'I may have been born at night but I wasn't born last night'?"

Oak Investment Partners and Gobi Partners Inc, claimed that VisionChina owed them $60 million in deferred payments from the $160 million deal for Digital Media Group. Judge Ramos said in June that VisionChina had to bring the money to New York while the case was pending.

During the hearing Monday, Charles G. Berry of Arnold & Porter LLP, who represents Vision China, said that it was improper to try to escrow money in China that was outside the purview of the court.

But Thomas J. Kavaler of Cahill Gordon & Reindel LLP, who represents the private equity firms, said that Vision China was engaged in "double talk" and done everything it could to frustrate its obligation to set the money aside while the case proceeds, and that it had even rebuffed an offer by the private equity firms to have the money escrowed with VisionChina's law firm in China, Jun He Law Offices.

"Their client has no intention of complying with any orders of this court," he said, "Every time I stand before your honor, it's the same thing; this is a shell game."

Xiaolin Zhou, a New York-based partner at Jun He Law Offices and a former Goodwin Procter LLP attorney, testified as an expert for VisionChina that it was "very, very unlikely" that Chinese regulators would approve the transfer of the funds outside of the country to escrow or allow an arrangement in China similar to how an attachment order would operate in New York.

But Kavaler said that VisionChina should have used Zhou's expertise to help it find a way out of the impasse set up by Chinese law instead of paying for his expert testimony.

"It's the incredible incuriosity of VisionChina that's the contempt. They made no effort to avail themselves of this man's expertise and his law firm," he said.

According to the private equity firms, VisionChina hasn't honored two deferred payments it was supposed to make following the merger agreement. But Vision China has said the private equity firms mislead it about the nature of Digital Media Group's assets.

The private equity firms are represented by Thomas J. Kavaler of Cahill Gordon & Reindel LLP.

VisionChina is represented by Charles G. Berry of Arnold & Porter LLP.

The case is Shareholder Representative Services LLC et al. v. VisionChina Media Inc. et al., case number 650526/2011, in the Supreme Court of the State of New York, County of New York.

--Additional reporting by Sean McLernon and Kaitlin Ugolik. Editing by Katherine Rautenberg.