DISTRICT COURT, CITY AND COUNTY OF DENVER,

STATE OF COLORADO
1437 Bannock Street
Denver, Colorado 80202

P.F.P. FAMILY HOLDINGS, L.P.,

Plaintiff, Case No. 08CV8584

v.

STAN LEE MEDIA, INC., et al., COURTROOM 3

Defendants.

ORDER

For the reasons articulated below, Plaintiff’s “Motion for Forthwith Order Directing Special

Master to Reconvene and Conclude Annual Meeting,” filed February 17, 2009, is DENIED,

Plaintiff’s “Objections to Special Master’s Report,” filed February 20, 2009, are OVERRULED,

and the “Report of Special Master,” filed February 10, 2009, is HEREBY ADOPTED IN ITS

ENTIRETY AND MADE AN ORDER OF THIS COURT.

I. INTRODUCTION

This case is the latest saga in a long battle for control of Defendant Stan Lee Media, Inc.

(“the Company”), a battle that has lasted some 10 years and triggered litigation in several state and

federal courts. In this case, Plaintiff, a shareholder of the Company, seeks the same thing that

another shareholder sought in Belland v. Stan Lee Media, Inc., Denver Case No. 07CV7536

(Courtroom 9) (“Belland”): a court-ordered shareholders’ meeting so that the Company, which has
been without directors for years, could elect directors and resume business. Part of the “business”

Plaintiff, Belland and other shareholders aligned with them want the Company to resume is to bring

various claims against Stan Lee and the Lee Family 1985 Trust, alleging that they stripped the

Company of its assets, including intellectual property related to Mr. Lee’s comic book creation,

The Incredible Hulk.

In Belland, Judge Stern granted a stipulated motion to appoint Cathy Krendl as special

master to preside over an annual meeting of shareholders. She developed procedures and rules for

the meeting, including procedures for evaluating proxies, conducted the meeting on December 20,

2007, and recommended that the directors elected at that meeting, Messrs. Nesfield, Galloway and

Blumen—at least two of whom were aligned with Plaintiff and Belland—be seated as directors.

Judge Stern approved her report and actions by his Order dated May 12, 2008.

But then Judge Martinez, who had taken over for Judge Stern in Courtroom 9, granted Mr.

Lee’s motion to prevent the seating of these directors, and indeed preventing their election at any

future time, leaving the Company once again with no directors. He also denied Plaintiff’s attempt

to intervene in that case.

Plaintiff then brought this case, seeking a court-ordered shareholders’ meeting to reinstate

the Company (which had been administratively dissolved pursuant to § 7-90-908) and to elect a

board of directors. After a hearing, I granted the motion and re-appointed Ms. Krendl as Special

Master to conduct that meeting. I specifically directed her to make “all necessary determinations

about who is entitled to vote at that meeting,” and ordered, among other things, that “the

documentation required for proxies, the rules for counting votes, and the rules for determining the

number of votes per share and class, shall all be the same as Ms. Krendl earlier established in

Belland . . . .” Order dated November 13, 2008, ¶¶ 2(b) and 2(c). Neither side objected to the

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principle that the Special Master should conduct the new meeting by the same rules under which

she conducted the old one, or moved for reconsideration of my referral Order. The Special Master

convened the meeting on December 15, 2008, but then found there was no quorum. I approve and

adopt that finding.

II. STANDARD OF REVIEW AND OTHER LEGAL PRINCIPLES

C.R.C.P. 53(e)(2) provides that, in non-jury actions like this,1 the appointing court “shall

accept the master’s finding of fact unless clearly erroneous.” See, e.g., Dobler v. District Court,

806 P.2d 945, 946 (Colo. 1991) (court must accept master’s findings unless clearly erroneous; that

is, unless clearly unsupported by the evidence); Remote Switch Sys., Inc. v. Delangis, 126 P.3d 269,

273 (Colo. App. 2005) (same). On the other hand, I am not bound in any way by the master’s

conclusions of law, which I review de novo. See Pioneer Bancorporation, Inc. v. Waters, 765 P.2d

597, 598 (Colo. App. 1988).

Rule 53(c) provides that, subject to any express limitations imposed by the court, “the

master has and shall exercise the power to . . . do all acts and take all measures necessary or proper

for the efficient performance of the master’s duties.” Here, by directing the Special Master to

conduct the meetings, without specifically limiting her procedural authority (other than my

direction that she use the same rules as in 2007), both Judge Stern and I reposed virtually unlimited

discretion in the Special Master to make all the procedural decisions necessary to conduct the

meetings, including determinations about the validity of proxies.

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Plaintiff brings this case under § 7-107-103(1)(a) (for an annual meeting) and § 7-107-103(1)(b) (for a special
meeting), both of which permit the court to order such a meeting, and thus do not trigger a right to jury.

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 Finally, since I am accepting and adopting the report of the Special Master in its entirety, I

may do so without conducting an evidentiary hearing. See, e.g., Brown v. Brown, 422 P.2d 634,

636 (Colo. 1967); Sunshine v. Sunshine, 488 P.2d 1131, 1133 (Colo. App. 1971).

III. PLAINTIFF’S MOTION FOR ORDER DIRECTING THE SPECIAL MASTER TO

“RECONVENE” THE MEETING

Plaintiff first asks me to order the Special Master to reconvene the meeting, which Plaintiff

contends was merely adjourned. But Plaintiff’s characterization of what happened at the December

15, 2008 meeting is disingenuous. The Special Master “adjourned” the meeting solely for the

purpose of undertaking the task of determining whether a quorum was present. She then made

preliminary findings about the quorum—specifically, about the proxies she would accept and those

she would not accept—and gave each side an opportunity to object to those preliminary findings.

As discussed in more detail below, she even allowed defective proxies to be cured. At the end of

this process, she made final determinations about the proxies she was allowing and those she was

disallowing, and concluded there was no quorum.

This process was eminently sensible, given that the Special Master could not possibly have

completed the required examination of the proxies during the meeting itself. It was also perfectly

fair to both sides. When, after this process, the Special Master concluded there was no quorum,

that was the end of the matter. There was no meeting to “reconvene.”

IV. THE SPECIAL MASTER’S QUORUM FINDINGS

Both sides agree that the Special Master correctly calculated the required quorum at

5,540,415 votes (1/3 of all outstanding shares of all classes of the Company’s stock). She found,

after ultimately disallowing some proxies, that there were only 5,277,952 shares present, 262,463

shares short of a quorum. Plaintiff attacks the Special Master’s findings only as to three categories

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of disallowed proxies: 1) Stephen Gordon’s 242,000 shares; 2) a total of 66,747 shares owned by

various people whose proxies were rejected because they were undated; and 3) Knight Equity’s

proxy for its 186,719 shares, which it withdrew during the cure period. I will take up each of these

attacks in turn, but before I do that let me make a few comments about the Special Master’s general

approach to determining the validity of proxies.

She adopted the following general rule in 2007, and applied it again in 2008: she would

reject any proxies “if there was a reasonable basis for doubt as to the validity of the signature on it

or about the signatory’s authority to sign for the shareholder.” 2009 Report, p. 10; 2008 Report §

IV.C. The Special Master was not creating this standard from whole cloth. It comes verbatim from

§ 7-107-205(3). Moreover, one must remember that in the context of this case the validity of

proxies was not some meaningless formality. This was a hotly contested battle between two groups

of shareholders, with two members of one group already in prison or heading to prison for

criminally manipulating the Company’s stock. The Special Master had a critical duty to satisfy

herself that the proxies were genuine. Finally, whether the Special Master did or did not have a

reasonable doubt about the validity of a proxy is, I believe, largely a question of fact, and therefore,

as mentioned above, binding on me unless clearly erroneous.

A. The Gordon proxy

Plaintiff claims the Special Master rejected Stephen Gordon’s proxy simply because Mr.

Gordon was in prison at the time he executed it, and that she had no authority to do so. In fact,

however, the Special Master rejected the Gordon proxy for perfectly valid reasons.

She initially rejected it because it was an electronically transmitted copy, rather than the

original, and because Gordon was not on the list of shareholders to whom notice of the meeting

was sent. 2009 Report, p. 27 and Schedule 2. Plaintiff’s contention that the Special Master was

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singling Gordon out is belied by the fact that she initially rejected several proxies because they

were not originals. Moreover, she later relented on the requirement for originals, provided she was

otherwise satisfied that shareholders had authority to transmit the non-original (typically, as with

Gordon, by having them submit a non-electronic copy of the original).

She also rejected two other proxies in part because the responding shareholders were not on

the list of shareholders to whom notice was sent. And although these proxies were admittedly also

from Gordon and Alexandra Gordon, I cannot say the Gordons were being singled out since as far

as I can tell they were the only shareholders to send in proxies who were not on the shareholder list.

It is also significant to me that the Special Master ultimately accepted Alexandra Gordon’s proxy.

As a result of these defects, the Special Master classified Mr. Gordon’s proxy as one about

which she had a “reasonable basis to question” under her 2007/2008 rules, and therefore required

him to submit a non-electronically transmitted version of the proxy as well a notarized statement as

to Gordon’s address. She gave Gordon through January 7, 2009 at 5:00 p.m. MST to supply these

requirements, the same cure period she gave everyone with initially rejected proxies. Although he

supplied a non-electronic copy, he never supplied a notarized statement of his address. Worse still,

the address he supplied was incorrect, and, perhaps most fundamentally, he never bothered to

indicate on the proxy whether he was voting yes or no on the two matters being presented. 2009

Report, p. 27 and Schedule 3. As the Special Master noted, “no other proxy appointment form had

so many defects.” Id. at 28.

Under these circumstances, the Special Master’s rejection of the Gordon proxy was not

only not clearly erroneous, it was, in my judgment, clearly proper. The rules she applied to his

proxy were the 2007 rules I ordered her to apply, her initial conclusion that she had a reasonable

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basis to suspect the proxy was both fair and reasonable, she gave Gordon a chance to cure, and he

failed to do so.

B. The Undated Proxies

In her 2007 rules, the Special Master required the proxies to be dated. 2008 Report, p. 44.

I reject Plaintiff’s rather tortured argument that this requirement was not really a requirement

because its purpose was to make sure proxies were not stale, as discussed below. Whatever its

purpose, it was listed as a requirement.

I also reject Plaintiff’s argument that the Special Master cannot impose this requirement

because she did not apply it uniformly. She did apply it uniformly. She received 13 undated

proxies, and initially rejected all of them. One was timely cured, and the other 12 she ultimately

rejected. Whether she improperly accepted undated proxies in 2007 is irrelevant. As discussed

above, the Special Master’s ultimate authority regarding proxies was to reasonably satisfy herself

about them, and the fact that she rejected some undated proxies but may have accepted others in

2007 hardly demonstrates unequal application. These were gestalt conclusions the Special Master

ultimately had to make, and the lack of a date was certainly an appropriate consideration given that

it was announced as a requirement. As is true in election cases, one person’s complaint about

“disenfranchisement” is another’s comfort about preventing election fraud. The Special Master

was in the best position to make individualized judgments optimizing these two competing

concerns.

Finally, I reject Plaintiff’s argument that the Special Master had no authority to require

dates. This authority was not self-announced, at least in 2008, because it came directly from me in

my referral Order, via my command that she use the same rules she used in 2007. So the legal

question becomes whether I would have had the authority to direct the Special Master to reject all

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undated proxies. The answer is an unqualified yes. Indeed, there is an argument that a date is

statutorily required, since proxies are good only for 11 months after their execution, unless the

appointment states a different period. § 7-107-203(3). Because these approved forms do not state

any different period, and, again, given the hotly contested nature of this case, it was absolutely

essential, in my judgment, for the Special Master to require dates in order to determine whether any

of the proxies were stale.

I acknowledge that at least one federal circuit once dispensed with a state requirement that

proxies must be dated. Rogers v. First National Bank, 410 F.2d 579 (4th Cir. 1969). But the

circumstances in Rogers were not only quite different than the circumstances here, those two sets

of circumstances are in many ways polar opposites. The court in Rogers had no difficulty

dispensing with the proxy date because the issue at hand—merger—had been raised well within the

staleness period. That is, the only reason any proxy would have been executed was in response to a

proposed merger that had only recently been announced. Moreover, there is nothing in the Rogers

opinion indicating the court was at all concerned about fraud.

Here, by contrast, we have now had two attempts at an annual meeting, roughly 12 months

apart, to resuscitate a corporation that has been inactive for years. We also know, and the Special

Master knew, that two of the shareholders in the Plaintiff/Belland camp (Peter Paul and Stephen

Gordon) have been convicted of securities fraud in connection with schemes to unlawfully

manipulate the stock of the Company. Under all of these circumstances, the Special Master was

right to be concerned, in 2007 and 2008, both about the staleness of any proxy and also about

fraud. Requiring proxies to be dated is just one of the many things a reasonable person conducting

a shareholders’ meeting in these circumstances would require.

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 I also reject the distinction Plaintiff makes between stale proxies for purposes of voting and

stale proxies for purposes of a quorum. The whole idea of a quorum is that there must be sufficient

votes present. Shares that cannot be voted cannot be counted toward the quorum. See § 7-107-

206(1) (“[s]hares entitled to vote . . . may take action on a matter only if a quorum exists [and]

unless otherwise provided . . . in the article of incorporation, a majority of the votes entitled to be

cast . . . constitutes a quorum”) (emphases added).

C. Knight Equity’s Late Revocation

The Special Master initially rejected the proxy by Knight Equity Markets, LP, owner of

186,719 of the Company’s shares, because the proxy was not an original. Rather than curing by

sending the original (or an adequate substitute), Knight instead submitted a revocation of the proxy.

The Special Master accepted the revocation, and thus did not count Knight’s shares toward the

quorum requirement.

Plaintiff first argues that the Special Master could not have accepted the revocation (signed

by the same man who signed the proxy) without having ipso facto accepted the genuineness of the

proxy itself. Apparently, Plaintiff’s theory is that valid proxies are irrevocable, though it cites no

law for that proposition. The cases Plaintiff does cite are about shareholders trying to destroy a

quorum by purporting to revoke proxies after the quorum determination had already been made.

Here, as discussed above, the Special Master adjourned the meeting for the sole purpose of making

a quorum determination, and I am unaware of any impediment to valid proxy revocations

submitted before the quorum determination is made.

More to the point, the Special Master initially rejected the Knight proxy. I fail to see any

real difference between Knight sending in a “revocation” and sending a letter that simply said “we

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don’t intend to cure,” or indeed simply failing to cure. In each case, the Special Master would have

been right in disallowing the proxy and not counting the shares.

There is no small amount of irony in Plaintiff’s complaint about Knight’s “late” revocation,

when of course Plaintiff does not complain about the numerous cures that the Special Master

allowed, cures that were just as “late.” In fact, if I were to rule that the Special Master was wrong

to allow any shareholder either to cure a proxy or withdraw it, that ruling would actually result in

fewer votes being counted toward the quorum,2 and indeed this was the position argued to the

Special Master by a shareholder (Kobayashi) trying to defeat the quorum.

V. CONCLUSION

Plaintiff’s request that I order the Special Master to reconvene the meeting is DENIED.

The Special Master’s Report is HEREBY ACCEPTED IN FULL AND ADOPTED AS THE

ORDER OF THIS COURT.

DONE THIS 17TH DAY OF MARCH, 2009.

BY THE COURT:

2
Knight’s 186,719 shares would get added back in, but the 242,440 shares the Special Master initially rejected but then
allowed to be cured would get taken out, for a net reduction in the votes counted toward the quorum of 55,721.

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 Morris B. Hoffman
District Court Judge

cc: All counsel

C. Krendl, Special Master

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