Ajay Sports, Inc. v. Casazza

Ajay Sports, Inc. (ASI) (plaintiff), through subsidiary Ajay Leisure Products, Inc. (Ajay Leisure), manufactured golf products under the trademarked brand name “Double Eagle.” In 1991, a Delaware corporation named Pro-Mark, Inc. (PMI) was formed for the purpose of marketing Ajay Leisure’s golf equipment. PMI also marketed sports equipment under the brand name “MacGregor,” which was manufactured by Sports Acquisition Corporation (MacGregor). PMI raised approximately $700,000 through a private offering of its stock. From these funds, PMI paid Ajay Leisure $300,000 and one million shares of PMI stock in exchange for the exclusive license to market products under the “Double Eagle” brand name. Additionally, PMI paid MacGregor $300,000 for the right to market sports equipment under the “MacGregor” brand name. PMI sustained losses in marketing the “Double Eagle” brand and by 1992 had ceased business operations. PMI sought to recoup some of its original investors’ losses through a new agreement with MacGregor. In exchange for 150,000 shares of MacGregor stock, PMI released claims against MacGregor regarding MacGregor’s failure to allow PMI to use its brand name. This transaction was negotiated by Michael Casazza (defendant), who was a director of both PMI and MacGregor. PMI subsequently distributed the MacGregor stock to PMI’s original investors. Casazza also distributed stock options in an unrelated company to the original investors and received liability releases from some of these original investors. Ajay Leisure never received any distributions from PMI. ASI subsequently filed a lawsuit against Casazza. ASI alleged that the distributions were unlawful because PMI was insolvent at the time of the distributions and that Casazza should therefore be personally liable. ASI’s claims were brought in ASI’s capacity as both a shareholder and a creditor of PMI. ASI claimed to be a creditor of PMI on the basis that PMI owed ASI money for services provided by ASI during the course of the parties’ business relationship. ASI produced evidence in the form of expert testimony that PMI was insolvent at the time of the distributions. Casazza argued that he should be protected by the business-judgment rule. A jury rendered a verdict against Casazza, finding him liable to ASI for exemplary damages. Casazza appealed.