4. Litigation

6 Months Ended

Jun. 30, 2011

Legal Matters and Contingencies [Text Block]

4.  Litigation

In February 2006, a former employee filed an action against PSEI and Paul Feller in Los Angeles Superior Court (“LASC”), alleging breach of employment contract.  A jury trial concluded on July 28, 2010 with the jury finding in favor of us, PSEI, and Mr. Feller on all counts, except two counts as against PSEI only, requiring payment by PSEI to plaintiff of $22.104.  The parties filed crossing motions for attorneys’ fees and costs, and the court ruled and entered a judgment as follows:  (a) the Company and Mr. Feller shall recover from the former employee a total amount of $170,378; and (b) the former employee shall recover from PSEI, and PSEI only, a total amount of $28,912.  The former employee has filed a notice of appeal of the judgment.

In connection with a consulting contract related to the acquisition of an event, the consultant obtained an arbitration award, by default, against PSEI in August 2005 for $65,316 in LASC.  In September 2005, the plaintiff filed a petition against the Company to confirm the Award against PSEI.  In January 2006, the court entered a judgment on the Award and in October 2007, PSEI filed a motion to set aside the Judgment on the basis of lack of service.  In November 2007, the court denied the motion to set aside the Judgment. PSEI recorded an expense of $65,316 in 2007 and has fully reserved this amount.  Plaintiff has taken the debtor’s examination of Mr. Feller, which has been continued to October 19, 2011.

In July 2010, we were served with a summons by a shareholder, Jeffrey Mitchell, in the Superior Court of California, Santa Barbara County, alleging breach of fiduciary duty, breach of covenant of good faith and fair dealing and conversion.   The summons is seeking a jury trial for declaratory relief of not less than $600,000 and injunctive relief.  We believe these claims are without merit and filed a counterclaim against this shareholder.

In July 2010, Mark Hill, a shareholder of the Company served a demand for arbitration alleging that we refused to remove transfer restrictions on shares of our stock owned by him.  The demand alleges that such refusal constituted breach of contract, implied covenant of good faith and fair dealing and conversion and seeks unspecified compensatory damages, injunctive relief and attorney fees and costs.  The matter went to arbitration, but as a result of the Company’s attorney’s withdrawal from representation at the start of the arbitration, it went into a default, and the petitioner obtained and award for a total amount of $165,344. The Company intends to:  (a) file a motion to vacate the award on the grounds that the arbitrator failed to grant a continuance of the arbitration to permit new counsel to take over the matter, and because the arbitration lacked jurisdiction in the first instance; and (b) if the court vacates the award, defend the matter vigorously.

In March 2011, four of our shareholders filed an action in Superior Court of California, in Santa Barbara County, (lead plaintiff is Howell Douglas Wood), against the Company, Chief Executive Officer, and Chief Financial Officer and its outside directors. The complaint alleges violations of the California Corporations Code and federal securities laws relating to the issuance of securities to the plaintiffs and breach of fiduciary duty, contract and covenant of good faith and fair dealing and conversion relating to the alleged refusal to allow the plaintiffs to sell their shares.  The complaint seeks unspecified compensatory and punitive damages, recovery of attorney fees and costs and certain equitable relief.  We believe that the claims are without merit and intend to defend the action.  Also, the Company filed a motion to consolidate this matter with the above Mitchell matter, which the court granted, that is, these matters will be treated as one and the same.