4. Litigation

9 Months Ended

Sep. 30, 2011

Legal Matters and Contingencies [Text Block]

4.	Litigation

In February 2006, former employee filed an action against PSEI and Paul Feller in Los Angeles Superior Court (“LASC”), alleging breach of his 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 plaintiff filed a notice of appeal but failed to timely pay fees related to the transcript, then filed a motion to set aside the payment default, said motion was denied by the court of appeals.

In connection with a consulting contract related to the acquisition of an event, a former 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 two debtor’s examinations of Mr. Feller, the second was on October 19, 2011. The examination has been concluded without any further action required by PSEI or Mr. Feller.

In July 2010, we were served with a summons and complaint by a shareholder 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 and complaint sought a jury trial for declaratory relief of not less than $600,000 and injunctive relief. The case was settled subsequent to September 30, 2011 and is subject to a confidentiality agreement.

In July 2010 a shareholder of the Company served a demand for arbitration alleging 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, went into a default, and the petitioner obtained an award for $165,344. The Company filed a motion to vacate the arbitration award, and on October 3, 2011, the court vacated the award and held that there is no binding arbitration agreement between the parties.

In March 2011, four of our shareholders filed an action in Superior Court of California, in Santa Barbara County 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 the claims are without merit and are in the process of defending the action.