RICHARD OWEN, District Judge.
Pro se Plaintiff Kenneth F. Phillips ("Plaintiff or "Phillips") brings claims for breach of contract, negligent misrepresentation, quantum meruit and unjust enrichment, promissory estoppel, and breach of fiduciary duties against Reed Group, LTD ("the LTD"), Reed Group, LLC ("the LLC"), Stacey Grace ("Grace"), Presley Reed ("Reed"), and Peter B. Nagel ("Nagel") as Trustee of the Presley Reed 1999 Family Trust (collectively "Defendants.") This Court has jurisdiction in this diversity action under 28 U.S.C. § 1332.
All five Defendants move to dismiss the Complaint under Federal Rules of Civil Procedure 12(b)(3) and (6) on the basis that venue is improper and that Plaintiff fails to state a claim upon which relief can be granted. Four Defendants move to dismiss the action under Federal Rule of Civil Procedure 12(b)(2) on the basis that this Court lacks personal jurisdiction over them. All Defendants also request that if this case is not dismissed, it be transferred to the District of Colorado.
Magistrate Judge Debra Freeman issued a Report and Recommendation recommending that Defendants' motion be granted in part in denied in part. For the reasons set forth below, this Court concurs with the Report and Recommendation and adopts it as the Order of this Court.
The factual background of this action is provided in the Report and Recommendation and will not be repeated here in full. According to the allegations provided in the Amended Complaint, Plaintiff Kenneth Phillips was a member of the Board of Directors of corporate defendants the LTD and LLC from approximately 2002 to 2006. Plaintiff asserts that the LTD, a "business process outsourcer" providing publications, software, and other materials aimed at "streamlin[ing] employee absence operations for employers" maintains an office and mailing address in New York state and that 40 percent of its revenue is generated in the state. (Amended Complaint ¶ 2.)
Defendants Reed and Grace are the sole members of the LLC. Plaintiff claims that at the request of Defendants and allegedly in reliance on promises of an equitable share of ownership in the LTD, he expended thousands of hours of work and contributed tens of thousands of dollars in capital and expenses, for which he was not compensated. Amongst Plaintiff's claims, he alleges to have either created or enhanced the value of the two products sold or distributed by the LTD, the "Utilization Management Knowledgebase" ("ACOEM UMK") as a "joint venture" with Defendants in which Plaintiff would bear initial costs in exchange for being compensated later based on the value of the product and revenue it created, and the Medical Disability Advisor, (the "MDA") Plaintiff alleges that Defendants Reed and Grace abused the corporate form by creating a shell corporation by which Plaintiff was induced him to provide such uncompensated work. Plaintiff alleges that Defendants Reed and Grace traveled to New York repeatedly on LTD-related business, that Reed met with Plaintiff in New York City on numerous occasions, and that Reed conducted
This action was originally filed in Supreme Court of New York, County of New York, and was thereafter removed to this Court under 28 U.S.C. § 1441. [dkt. no. 1.] Because of the complete diversity of citizenship of the parties and the matter in controversy exceeding $75,000, removal was proper. Plaintiff filed his Amended Complaint on August 28, 2007. [dkt. no. 22.] Defendants then moved to dismiss or in the alternative to transfer this action to the United States District Court for the District of Colorado pursuant to 28 U.S.C. § 1404(a). [dkt. no. 28.] Magistrate Judge Freeman issued a Report and Recommendation (the "Report") in which she recommended that Defendants' motion to dismiss be granted in part and denied in part. [dkt. no. 43.] Defendants filed objections to the Report [dkt. no. 45], which Plaintiff opposed, [dkt. no. 46.] Plaintiff thereafter filed a motion in limine to exclude the Declarations of Peter Nagel [dkt. no. 49], to which Defendants responded by letter on December 20, 2012.
United States Magistrate Judges hear dispositive motions and make proposed findings of fact and recommendations, generally in the form of a Report and Recommendation. In reviewing a Report and Recommendation, a district court "may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." 28 U.S.C. § 636(b)(1)(C).
A party may file "specific written objections," Fed R. Civ. P. 72(b), to a Magistrate Judge's proposed findings and recommendations, and in that case, the district court has an obligation to make a de novo determination as to those portions of the Report and Recommendation to which objections were made. 28 U.S.C. § 636(b)(1); First Union Mortgage Corp. v. Smith, 229 F.3d 992, 995 (10th Cir.2000). A district court judge, in making such determination, has discretion in the weight placed on proposed findings and recommendations and may afford a degree of deference to the Report and Recommendation. See United States v. Raddatz, 447 U.S. 667, 676, 100 S.Ct. 2406, 65 L.Ed.2d 424 (1980). Objections to a Report and Recommendation are to be "specific and are to address only those portions of the proposed findings to which the party objects." Camardo v. General Motors Hourly-Rate Employees Pension Plan, 806 F.Supp. 380, 381-82 (W.D.N.Y.1992). Objections that are "merely perfunctory responses argued in an attempt to engage the district court in a rehashing of the same arguments set forth in the original [papers] will not suffice to invoke de novo review." See Vega v. Artuz, 2002 WL 31174466, at *1 (S.D.N.Y. Sept. 30, 2002).
Where no timely objection has been made by either party, a district court need only find that "there is no clear error on the face of the record" in order to accept the Report and Recommendation. Nelson v. Smith, 618 F.Supp. 1186, 1189 (S.D.N.Y. 1985). In the event a party's objections are conclusory or general, or simply reiterate original arguments, the district court also reviews the Report and Recommendation for clear error.
The Report and Recommendation recommended as follows: that Defendants' motion to dismiss be granted as to portions
Defendants object to the Report and Recommendation on the following grounds: that Plaintiff has not alleged, and the evidence does not support, a connection between the LLC and New York at the time the complaint was served; that the Report improperly recommended piercing of the corporate veil; that the Report improperly analyzed the factors governing motions to transfer in recommending the action not be transferred to the District of Colorado; that the Report improperly provided Plaintiff leave to amend his negligent misrepresentation claim; and that the Report improperly denied Defendants' motion to dismiss Plaintiffs breach of contract, promissory estoppel, quantum merit and unjust enrichment, and breach of fiduciary duty claims in their entirety.
Four of the five Defendants move to dismiss under Federal Rule of Civil Procedure 12(b)(2) on the basis that this Court lacks personal jurisdiction over them. Plaintiff claims this Court can exercise personal jurisdiction over Defendants Reed and Grace on the basis of general jurisdiction, specific jurisdiction based on acts in New York giving rise to Plaintiff's claims, and piercing of the corporate veil.
Courts considering whether to pierce the corporate veil to impose liability on individual shareholders assess 1) the extent to which the corporation is merely the "alter ego" of the shareholder, 2) whether justice requires piercing the corporate veil based on the fact that the corporate fiction was a means of perpetuating a fraud or defeating a rightful claim, and 3) whether an equitable result will be achieved by piercing the corporate veil. Connolly v. Englewood Post No. 322 Veterans of Foreign Wars of the United States, Inc., 139 P.3d 639, 643-44 (Colo.2006). An "alter ego relationship exists when the corporation is a `mere instrumentality' for the transaction of the shareholders' own affairs, and there is such unity of interest in ownership that the separate personalities of the corporation and the owners no longer exist." Id. at 644. This unity of interest consideration requires courts to consider several factors, including whether: "(1) the corporation is operated as a distinct business entity, (2) funds and assets are commingled, (3) adequate corporate records are maintained, (4) the nature and form of the entity's ownership and control facilitate misuse by an insider, (5) the business is thinly capitalized, (6) the corporation is used as a `mere shell,' (7) shareholders disregard legal formalities, and (8) corporate funds or assets are used for noncorporate purposes." Id.
Magistrate Judge Freeman found that Plaintiff failed to adequately plead facts indicating a basis to exercise personal jurisdiction over Nagel and that, because Plaintiff had already filed an amended complaint addressing Nagel's arguments on this issue, there was no indication that Plaintiff could plead facts demonstrating that this Court has jurisdiction over Nagel. The Report also concluded that Plaintiff sufficiently alleged that the Court has personal jurisdiction over the LLC because the LLC was designed to operate as the LTD's successor in interest and that the LLC did operate as Reed Group for a period of time. The Report found that the exercise of jurisdiction over Defendants under principles of general jurisdiction
Defendants claim that the Report improperly evaluated the facts in light of the veil piercing factors, improperly finding thereby that Plaintiffs allegation that Defendants had personally benefited from Plaintiffs uncompensated work and commingled personal assets with the assets of the LTD was insufficient to support a finding that the LTD was an alter ego or "mere instrumentality" of individual Defendants. (Def. Obj. at 11-13.)
Defendants' objections either generally repeat arguments previously made in support of dismissal or make factual arguments that are improper at this phase. This Court finds that Plaintiffs plausible allegations are sufficient to support a finding, at this stage of the litigation, that piercing the corporate veil is appropriate. Accordingly, this Court concurs with the Report's conclusion in this regard. This Court also concurs with the Report's recommendation that Defendants' motion to dismiss be granted on Plaintiffs claims against Defendant Nagel because there is no basis to exercise personal jurisdiction over him. Accordingly, he is dismissed as a Defendant.
The Report recommended that Defendants' motion to dismiss for lack of venue under 28 U.S.C. § 1391 be denied because that section, which governs venue in diversity of citizenship cases, is inapplicable in cases that have been removed from state court. Under 28 U.S.C. § 1441(a), which governs venue in cases that have been removed to federal court, venue is proper in this district.
Defendants moved to transfer this action to district court in the District of Colorado under 28 U.S.C. § 1406 and 28 U.S.C. § 1404. Having found that venue is proper in this district under 28 U.S.C. § 1441, the Report recommended denial of Defendants' motion to transfer this action to the District of Colorado under 28 U.S.C.
"Motions to transfer lie within the district court's broad discretion" and as such are reviewed only for clear abuse of discretion. AIG Financial Products Corp. v. Public Utility Dist. No. 1 of Snohomish County, Wash., 675 F.Supp.2d 354, 367 (S.D.N.Y.2009); Marvel Entertainment, LLC v. Kimble, 2010 WL 5174398, at *2 (S.D.N.Y.2010) (quoting D.H. Blair & Co., Inc. v. Gottdiener, 462 F.3d 95, 106 (2d Cir.2006)). Once the court determines that venue would be proper in the proposed transferee district, motions to transfer are determined based on "the convenience of the parties and witnesses, in the interests of justice" on a case-by-case basis. See 28 U.S.C. § 1404(a); see New York Marine and Gen. Ins. Co. v. Lafarge North America, Inc., 599 F.3d 102, 112-13 (2d Cir.2010).
Plaintiff's choice of forum "is entitled to significant consideration and will not be disturbed unless other factors weigh strongly in favor of transfer." Royal & Sunalliance v. British Airways, 167 F.Supp.2d 573, 577 (S.D.N.Y.2001) (citing Warrick v. General Elec. Co., 70 F.3d 736, 741 (2d Cir.1995). As such, the moving party "bears the burden of making a `clear-cut showing that [transfer] is warranted,' and that `the balance of convenience weighs clearly in [its] favor.'" AIG Financial Products Corp., 675 F.Supp.2d at 367 (citing Elbex Video Ltd. v. Tecton, Ltd., 2000 WL 1708189, at *4 (S.D.N.Y. 2000)). Courts assess several factors, including 1) how much weight to accord to Plaintiffs choice of forum, which is "presumptively entitled to substantial deference," 2) the convenience of the witnesses, which is "typically regarded by courts as the most important factor in considering a motion to transfer pursuant to § 1404(a)"; 3) the location of relevant documents and the relative ease of access to sources of proof; 4) the relative convenience of the parties; 5) the locus of operative facts, which looks to the "site of the events from which the claim arises"; 6) the availability of process to compel the attendance of unwilling witnesses; 7) the relative means of the parties and whether either party's "financial situation would meaningfully impede its ability to litigate [the] case in either forum"; 8) the familiarity of the forum with the law governing the case; and 9) trial efficiency and the interests of justice AIG Financial Products Corp., 675 F.Supp.2d at 367-72; see also New York Marine & Gen. Ins. Co., 599 F.3d at 112-13.
Defendants argue that the governing law factor, the locus of operative facts, and concepts of judicial efficiency favor Defendants whereas only the choice of forum factor supports Plaintiff, claiming that "only through selective use of the alleged facts and failure to credit Defendants' evidence" did the Report "narrowly recommend[] against transfer." (Def. Obj. at 15.) The Report thoroughly evaluated the factors, finding that many of them were neutral. Two of the factors favored the granting of Defendants' transfer motion — the convenience of witnesses and the law governing the action. Three of the factors favored Plaintiff — the respective convenience of the forum to each party, each party's relative means, and the Plaintiffs choice of forum.
Based on the totality of the circumstances, the Report found transfer would be inappropriate, especially in light of the ability for Defendants to travel to New
To survive a Rule 12(b)(6) motion to dismiss, a plaintiff must plead sufficient factual allegations in the complaint that, accepted as true, "state a claim for relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929, 949 (2007)).
Plaintiff is not required to provide "detailed factual allegations" in the complaint, but must assert "more than labels and conclusions" and more than "a formulaic recitation of the elements of a cause of action." Bell Atlantic Corp. v. Twombly, 550 U.S at 555, 127 S.Ct. 1955. In addition, the facts pled in the complaint "must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true." Id. A district court considering a Rule 12(b)(6) motion must accept all factual allegations in the complaint as true, while also drawing all reasonable inferences in favor of the nonmoving party. ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir.2007); Burnette v. Carothers, 192 F.3d 52, 56 (2d Cir.1999).
As stated above, the Report recommended that Defendants' motion to dismiss be granted as to portions of Plaintiff's promissory estoppel claim and breach of fiduciary duty claim but otherwise be denied, and that Plaintiff be permitted to amend his claim for negligent misrepresentation.
The Report found that to the extent Plaintiffs claims against the LTD are not dismissed, his claims against Defendants the LLC, Reed, and Grace should also survive. Defendants' objections to the Report's recommendation that many of Plaintiff's claims survive dismissal at this stage tend to generally repeat arguments previously made in Defendants' motion papers.
The Report found that Plaintiff had sufficiently pled a claim for breach of contract. Specifically, the Report found that Plaintiff had plausibly alleged that the parties had a "meeting of the minds" sufficient to find they established a contractual relationship. The Report rejected Defendants' argument related to the significance of the draft operating agreement's silence as to various financial components as to other individuals involved in the agreement, because the written agreement provided terms related to Plaintiffs equity interest and capital contribution amount. Defendants argue that "there was no meeting of the minds as to the most fundamental aspect of the parties' alleged `agreement'" and that evidence Plaintiffs amended complaint relies on indicates that the entire equity interest is held by a category of individuals exclusive of Plaintiff. (Def. Obj. at 20.) Defendants argue that Plaintiff offers the draft contract as a legally operative document rather than as evidence that the parties had a meeting of
With regard to Plaintiffs negligent misrepresentation claim, the Report recommended Plaintiff be granted leave to amend his Amended Complaint to comply with the requirement of Federal Rule of Civil Procedure 9(b) that allegations of fraud or mistake be pled with specificity because unlike Plaintiffs other claims, Plaintiff had not been given an opportunity to cure any defects in his negligent representation claim. Federal Rule of Civil Procedure 9(b) provides that "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Defendants object to Plaintiff being allowed to re-plead the negligent misrepresentation claim because, according to Defendants, he is a sophisticated businessperson and had the opportunity to review Defendants' motion to dismiss before it was denied as moot and that as a result, he would be impermissibly be given another bite at the apple if allowed to re-plead this claim. Given that Plaintiff commenced the action pro se, this Court concludes the Report properly found that Plaintiff should be allowed to amend his negligent misrepresentation claim.
The Report recommended that Defendants' motion to dismiss Plaintiffs quantum meruit and unjust enrichment claim be denied. The Report concluded that these claims are not barred by Plaintiffs contract claim, as Defendants argue, because the parties dispute the existence of a contract and Plaintiff is entitled to pursue these claims in the alternative to his contract claim. The Report also found that Defendants' disagreement with the alleged value of the services Plaintiff provided was improper at this stage. Defendants claim the Report erred because there are inconsistencies with the number and substance of the hours Plaintiff claims to have worked and that Plaintiff did not demonstrate that his hourly wage was a reasonable value for his services. Defendants' objections, which partially repeat those made in their moving papers, is without merit because at this stage, Plaintiffs allegations are sufficient to survival dismissal.
The Report recommended that Defendants' motion to dismiss Plaintiffs promissory estoppel claim be granted on Plaintiffs claims that he was promised an interest an ownership interest in the ACOEM UMK joint venture and was promised additional compensation related to the sale of the LTD, but that the promissory estoppel claim survive to the extent that Plaintiff alleged he was promised an equity interest in the LLC. Defendants object on the basis that the parties had not settled on the percentage of equity interest in the LLC that Plaintiff was promised and that Plaintiff conceded as such. The amended complaint alleges that Plaintiff and Reed engaged in discussions in which Plaintiff expressed his expectation of a three percent equity interest, and sufficiently pleads facts indicating the existence of an LLC operating agreement reflecting the parties' understanding that Plaintiff would receive a
As for Plaintiff's claim that Defendants are liable for breach of their fiduciary duty, the Report recommended that Defendants' motion to dismiss be granted as to Plaintiffs status as a Director of the LTD and LLC and similarly should be granted to the extent such relationship is based upon an alleged special relationship of trust between the parties. The Report also recommended that Plaintiffs claim related to the alleged joint venture and Plaintiffs alleged equity interest in the LLC survive dismissal because the issue of Plaintiff's equity interest in the LLC cannot be decided at this stage, and if in fact Plaintiff did have an equity interest then Defendants Reed and Grace owed him a fiduciary duty as directors of the LLC. Defendants argue that Plaintiff has not established that he had an equity interest in the LLC and that on this basis the fiduciary duty claim must be dismissed. Defendants also argue that Plaintiff did not sufficiently allege a joint venture in the ACOEM UMK, therefore undermining any claim that they owe a related fiduciary duty to Plaintiff. As discussed above, Plaintiffs claim related to the joint venture survived dismissal. Defendants' objection generally repeats arguments previously made in support of dismissal, and are without merit.
As discussed above, having found that Plaintiff sufficiently stated claims against the LTD, the Report found that those claims should also survive dismissal as against Defendants LLC, Reed, and Grace. This Court concurs with that recommendation.
For the reasons set forth above, this Court concurs with Magistrate Judge Freeman's Report and Recommendation and hereby adopts it, in its entirety, as the Order of this Court. Accordingly, Defendants' motion to dismiss is GRANTED in part and DENIED in part, as follows:
This Court declines to rule on Plaintiffs motion in limine [dkt. 49] at this time.
SO ORDERED.
DEBRA FREEMAN, United States Magistrate Judge.
In this diversity action, Kenneth F. Phillips ("Plaintiff") brings claims for breach of contract, negligent misrepresentation, breach of fiduciary duties, quantum meruit, promissory estoppel, and unjust enrichment. All five defendants in this matter
As explained below, I recommend that Defendants' motion (Dkt. 28) be granted to the extent it seek to dismiss Plaintiffs claims against defendant Peter B. Nagel ("Nagel") for lack of personal jurisdiction. As to Plaintiff's claims against the other named defendants, I recommend that portions of Plaintiffs promissory estoppel claim, as well as portions of his breach of fiduciary duty claim, be dismissed, and that he be afforded an opportunity to replead his negligent misrepresentation claim so as to satisfy the pleading requirements of Rule 9(b) of the Federal Rules of Federal Procedure. I recommend that Defendants' motion be denied in all other respects.
Plaintiff, proceeding pro se, commenced this suit in the Supreme Court of the State of New York, County of New York, on April 11, 2007.
Except where otherwise noted, the following facts are alleged in Plaintiffs Amended Complaint, dated August 27, 2007 ("Am. Compl.") (Dkt. 22), and are accepted as true for the purposes of this motion.
Plaintiff is a Massachusetts resident and was a member of the Boards of Directors of corporate defendants Reed Group, Ltd. (the "LTD") and Reed Group, LLC (the "LLC") during relevant time periods from 2002 to 2006. (Am. Compl. at ¶ 1; see also Declaration of Peter Nagel, dated Sept. 26, 2007 ("9/26/07 Nagel. Decl.") (Dkt. 28), at ¶ 12.
The LTD and the LLC (together, the "Reed Companies") are, respectively, a Colorado corporation and a Colorado limited liability company. (See id. at ¶¶ 2-3.) Each maintains its principal place of business in Westminster, Colorado. (Id.) The LTD also maintains an office and mailing address in Albany, New York, where it employs approximately 80 people. (Id. at ¶ 11(a).) According to Plaintiff, 40 percent of the LTD's revenue is generated in New York State. (Id. at ¶ 11(b).) Plaintiff alleges that the LLC, which was formed in 2004, was "designed to be the successor to [the LTD]." (Declaration of Kenneth Phillips, dated Oct. 26, 2007 ("Phillips Decl.") (Dkt. 31), at ¶ 4). Indeed, he alleges that the "only company that exist[ed] in all [of] 2005 as Reed Group [was] the LLC." (Am. Compl. at ¶ 63.)
According to Plaintiff, the LTD was — and is, to the extent it remains in business as an operating company — "a business process outsourcer providing publications as hardcopy and by subscription over the internet, [as well as] software and services that streamline employee absence operations for employers." (Am. Compl. at ¶ 2.) The LTD has marketed, sold and distributed two relevant products: (1) the Medical Disability Advisor (the "MDA" or "MDA 5.0"), and (2) a database called the Utilization Management Knowledgebase (the "UMK" or the "ACOEM UMK"), which is, according to Defendants, owned by the American College of Occupational and Employment Medicine (the "ACOEM"). (See Am. Compl. at ¶ 11(d), (e)(iv); 9/26/07 Nagel Decl. at ¶ 26; 11/8/07 Nagel Decl. at ¶ 6.) Plaintiff describes these products as "guideline product[s]" or "guideline software." (Am. Compl. at ¶ 11(d).)
Plaintiff alleges that he created the ACOEM UMK at his own expense. (Id. at ¶ 33.) He further alleges that the MDA has become "much more valuable and relevant to the market" as a result of being sold in combination with the ACOEM UMK. (Id.) By combining the ACOEM UMK and the MDA, Defendants purportedly "minimize[d] the position of the only competitor to the [MDA]." (Id. at ¶ 33 n. 14.)
Individual defendants Reed, his wife Stacey Grace ("Grace"), and Nagel are all Colorado residents. (Am. Compl. at ¶¶ 4-7.)
Nagel, an attorney who practices in Colorado, is Trustee of the Presley Reed 1999 Family Trust, a trust which owns approximately 30 percent of the LTD. (Id. at ¶ 7; 9/26/07 Nagel Decl. at ¶ 1.) Nagel also serves as outside counsel to the Reed Companies. (Am. Compl. at ¶ 7.) Before this Court, Nagel has stated that he neither owns any property nor conducts business in New York. (9/26/07 Nagel Decl. at ¶ 11.)
Reed and Grace are the sole members of the LLC. (Am. Compl. at ¶ 5.) Reed is also Chairman and Chief Executive Officer of the LTD, and Grace is President of the LTD. (Id. at ¶¶ 4-5.) Plaintiff alleges that Reed and Grace "exhibit dominant control
Plaintiff also alleges that Reed has himself conducted a significant amount of business in New York City, including the following:
Plaintiff does not specifically allege whether Reed performed these activities on Reed's own behalf, or on behalf of either of the Reed Companies.
Plaintiff alleges that, at Defendants' request, he worked more than 5000 hours for the LTD,
Plaintiff claims to have created the ACOEM UMK product in the course of his so-called "Joint Venture" work for Defendants. (See Am. Compl. at ¶¶ 33, 38, 40(a).) Plaintiff alleges that he spent at least 1500 hours working on this project.
Plaintiff also claims to have engaged in "investment banking" work for Defendants, allegedly helping Defendants to develop a favorable investment strategy and to obtain favorable results for the LTD within the private equity investment community. (See id. at ¶¶ 34, 38, 40(b).) According to Plaintiff, he "prepared all of the materials that were used, arranged the meetings, presented the information and secured the offers" from investors. (Id. at ¶ 34.) Plaintiff alleges that he worked 2000 hours on this project. (Id. at ¶ 40(b).)
Defendants, for their part, contend that the "vast majority of services upon which Plaintiff bases his claims were performed in Colorado or Massachusetts and allegedly accepted by Defendants in Colorado." (Defendants' Memorandum of Law in Support of Motion to Dismiss or in the Alternative Transfer to the District of Colorado, dated Sept. 27, 2007 ("Def. Mem.") (Dkt. 29), at 20 (citing 9/26/07 Nagel Decl. at ¶ 12).) Plaintiff largely disputes this assertion, stating that he was in New York more often than he was in Colorado during the relevant time period. (See Phillips Decl. at ¶ 2(c) (iii).)
As described further below, Plaintiff alleges that he worked for Defendants in "reliance on Defendants' promise of an equitable share of the growth he created," which was apparently to be comprised of (a) a percentage of ownership of the LLC (the supposed successor company to the LTD), (b) a share of the business's revenue, and (c) a share in the proceeds of the sale of the LTD, if such a sale could be accomplished. (Am. Compl. at ¶ 18, 46.) Plaintiff alleges that Reed and Grace agreed to provide him with equity in order to obtain his services "without paying any current compensation." (Id. at ¶¶ 23, 45; see also id. at ¶ 20 (alleging that this promise was made "in lieu of direct current payment for these services").)
Plaintiff specifically alleges that, during a February 2004 discussion in New York, he and Reed discussed a plan to have Plaintiff work in exchange for equity. (Id. at ¶ 12(i).) This discussion allegedly occurred after Reed had traveled to New York to meet with a job candidate for the position of Chief Executive Officer. (Id.) During his discussion with Reed, Plaintiff "shared his over[]all expectation that under normal circumstances [Plaintiff] expected 1% of the enterprise for Board service (which was uncompensated); 1% for providing direction in Outsourcing ... which would include some Information Technology leadership and strategy; and 1% of the enterprise for product development." (Id.) In response to Plaintiffs expressed "expectation" of a three percent total equity interest, Reed allegedly "agreed that these amounts were reasonable and suggested [that he and Plaintiff] proceed." (Id.)
Later that year, Reed allegedly gave Plaintiff an unsigned LLC operating agreement which, according to Plaintiff, reflected Reed's understanding of his promise to Plaintiff that Plaintiff would receive an equity interest in the business. (See Am. Compl. at ¶ 69.) According to this unsigned agreement, Plaintiff would receive a two percent (rather than a three percent) ownership interest in the LLC. (Id.; id. at 48, ¶ 4; Pl. Mem. at 5.) This unsigned agreement was subsequently presented to the Board of Directors and
Plaintiff further alleges that, at various meetings he had with Reed (including a May 2005 meeting in New York City), Plaintiff presented a joint venture plan regarding the creation, marketing and distribution of the ACOEM UMK product. (See Am. Compl. at ¶ 12(j)(k); Pl. Mem. at 22.) Under this purported joint venture plan, Plaintiff would bear the initial costs and thereafter would receive "15% of the value of the product as a joint [v]enture owner and ... an appropriate portion of the revenue." (Am. Compl. at ¶ 12(j)(k).) Reed allegedly stated that this plan "`seemed fair'" and told Plaintiff to continue working on the product. (Id.) In June 2005, Reed asked Plaintiff for clarification of their business arrangement and Plaintiff responded that, on the ACOEM UMK project, "I am a[j]oint venture[r] with you and Stacey [Grace]." (Id. at ¶ 110.) Plaintiff generally alleges that the conduct and representations of Reed and Grace caused him to believe that he was in a joint venture with them. (See id. at ¶ 110.) Plaintiff states, however, that "no call or meeting with [the LTD] has ever taken place concerning the [joint venture] profit sharing arrangement." (Id. at ¶ 113.)
Defendants contend that there was never a joint venture agreement or any agreement that Plaintiff would have an ownership interest in the ACOEM UMK — a product that, in any event, Defendants claim they do not own. (9/26/07 Nagel Decl. at ¶ 29; see id. at ¶ 26 (stating that the ACOEM UMK is owned by the ACOEM trade association).) According to Defendants, while Plaintiff took an active role in negotiating the contract between the LTD and ACOEM, this contract did not include an ownership interest or profit share for Plaintiff. Id. at ¶ 29.
According to Plaintiff, Reed promised Plaintiff additional compensation, if Plaintiff were able to structure a favorable sale of the LTD. (See Am. Compl. at ¶¶ 132-138.) Reed allegedly told Plaintiff that "the `more he (REED) could get (as an offer) the more he ([Plaintiff]) would receive.'" (Id. at ¶ 132.) Plaintiff allegedly helped secure an offer to purchase the LTD in September 2006, although he does not allege that the transaction was ever completed. (See id. at ¶ 137.)
Plaintiff alleges that Reed and Grace "created, dissolved, reinstated, renamed and maintained" the Reed Companies in a manner that "often ma[de] it difficult to see just what activities ha[d] occurred, done by what entity and to what purpose." (Id. at ¶ 163.) For example, according to Plaintiff, in 2005, the Reed Group, Ltd. (i.e., the LTD) "did not exist by that name but [that name] was used on TENS of thousands of pieces of correspondence, advertising, checks and even in legal and regulatory contexts such as filings and copyright notice[s]." (Id. at ¶ 164 (emphasis in original).)
Plaintiff claims that, even while making confusing or misleading use of the "Reed Group" name, Reed and Grace held out the
Defendants, however, have maintained in this litigation that they "decided not to go forward" with the LLC (see 9/26/07 Nagel Decl. at ¶ 46; see also Declaration of Peter Nagel, dated July 25, 2007 (Dkt. 13), at ¶ 15 (cited by Plaintiff in the Am. Compl. at ¶ 28)) and that the LLC "`never operated as a business'" (id. at ¶ 7 (cited by Plaintiff in the Am. Compl. at ¶ 28); see also 9/26/07 Nagel Decl. at ¶ 6 (stating that, although the LLC was formed in 2004, it never operated as a business and did not have employees, assets, an operating agreement, or members).) Defendants also assert that use of the LLC name was limited to press releases and board meeting minutes, that the use of the name ceased six months after the LLC was formed and that, at the time the Complaint was filed, the LLC had been inactive for more than two years. (9/26/07 Nagel Decl. at ¶ 6.)
Plaintiff, as set out above, does not concede that this is true, but he pleads in the alternative that, if the LLC did not actually operate, then Reed and Grace created it as a "shell company," and "proceeded to use this shell, [the] LLC[,] as if it were becoming the primary company used by [them] to announce the launch of the firm's premier and most profitable product, [the] MDA." (Am. Compl. at ¶ 176-77.) Plaintiff alleges that Reed and Grace certainly caused him to believe that he had an equity interest in the LLC and that the LLC was "operating as ... intended." (Id. at ¶ 178.) Plaintiff claims that he was never informed of any decision to abandon the LLC, and that, based on his belief that the LLC was going forward, he performed services for Defendants for 18 additional months, accepting the purported equity interest in lieu of additional compensation. (Id. at ¶¶ 29-30, 56(a), 178.)
To the extent that Reed and Grace created an "LLC shell" in order to induce Plaintiff to create the ACOEM UMK product, Plaintiff appears to alleges that Reed and Grace abused the corporate form. (See Am. Compl. at ¶¶ 39, 176-79.) In
Plaintiff also alleges that Reed and Grace not only personally own the MDA product, but that they hid this ownership from Plaintiff, other board members, partners, and clients. (See Am. Compl. at ¶ 92.) To support his allegations regarding the ownership of the MDA, Plaintiff submits an August 27, 2004 memorandum from consultant Jim Casart ("Casart") to the LTD, Reed, and Grace, which discusses the possibility of forming an LLC. (See Pl. Mem., Ex. A.) In this memorandum, Casart explains that "[i]n the summer of 2003, the Reeds [i.e., Reed and Grace] were given ... the intellectual property associated with the disability guidelines business," and further notes that, as of the date of the memorandum, "the intellectual property rights to the guidelines remain the property of the Reeds, personally." (Id.) Defendants do not directly address the portion of Casart's memorandum regarding Reed and Grace's ownership of this intellectual property. Defendants contend, however, that documents from the United States Copyright Office demonstrate that the LTD owns the MDA. (9/26/07 Nagel Decl. at ¶ 45; id. at Ex. G.)
Plaintiff also alleges that the LTD has failed to comply with certain corporate administration requirements. He alleges that the LTD never formally elected directors and never published or approved formal board minutes. (Am. Compl. at ¶ 172-73.) He further alleges that the LTD never registered to do business in New York State (and does not maintain an agent for service of process there), even though it does business in New York State and employs over 50 people there (id. at ¶ 170). Defendants generally maintain that the LTD does not abuse the corporate form because it is a "small closely held corporation[]" that "holds boarding meetings, has outside board members and does not intermingle personal and corporate assets." (9/26/07 Nagel Decl. at ¶ 46.)
Where the grounds for a motion to dismiss include lack of personal jurisdiction, improper venue, and failure to state a claim upon which relief can be granted, the Court must first consider the jurisdictional claims before considering the merits of the case. See Arrowsmith v. United Press Int'l, 320 F.2d 219, 221 (2d Cir.1963) ("A court without such jurisdiction [over the defendant] lacks power to dismiss a complaint for failure to state a claim.").
Rule 12(b)(2) of the Federal Rules of Civil Procedure provides that an action may be dismissed for lack of personal jurisdiction. To overcome such a motion, the "plaintiff need only make a prima facie showing of [personal] jurisdiction" over the defendants. Marine Midland Bank N.A. v. Miller, 664 F.2d 899, 904 (2d Cir.1981). The plaintiff bears the burden of establishing that the Court has jurisdiction over the defendant, but, at this stage, his burden can be satisfied by good-faith, legally sufficient allegations of jurisdiction. Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 171 F.3d 779, 784 (2d Cir.1999); Jazini v. Nissan Motor Co., 148 F.3d 181, 184 (2d Cir.1998). In ruling on a
Nonetheless, a decision on a motion to dismiss under Rule 12(b)(2), for lack of personal jurisdiction, need not be based solely on the "four corners of the complaint." Rather, on such a motion, the Court may also rely on submitted affidavits and other supporting materials submitted in relation to the motion. Andy Stroud, Inc. v. Brown, 08 Civ. 8246(HB), 2009 WL 539863, at *1, n. 2, 2009 U.S. Dist. LEXIS 18725, at *2, n. 2 (S.D.N.Y. Mar. 4, 2009). The court need not hold an evidentiary hearing to decide the motion. See Credit Lyonnais Securities (USA), Inc., 183 F.3d at 153; see also CutCo Industries, Inc. v. Naughton, 806 F.2d 361, 364 (2d Cir.1986) (the district court is "free to decide the best way to deal with [the] question" of determining personal jurisdiction on a motion to dismiss, and may decide the motion on the basis of affidavits alone or it may permit discovery and/or an evidentiary hearing in aid of the motion). In the absence of an evidentiary hearing or a trial on the merits, all pleadings and affidavits are "construed in the light most favorable to the plaintiff and doubts are resolved in the plaintiffs favor, notwithstanding a controverting presentation by the moving party." A.I. Trade Finance, Inc. v. Petra Bank, 989 F.2d 76, 79-80 (2d Cir.1993); see also CutCo Industries, 806 F.2d at 365; Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 57 (2d Cir. 1985).
Personal jurisdiction over a defendant in a "diversity action is determined by the law of the forum in which the court sits." Arrowsmith, 320 F.2d at 223; see also Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 305 F.3d 120, 124 (2d Cir.2002). Thus, this Court's determination in this case must be based on New York's law of personal jurisdiction. Under New York law, this Court is required to engage in a two-step analysis to determine if it has personal jurisdiction over the defendants. Bank Brussels Lambert, 305 F.3d at 124. First, the court must determine whether New York law confers jurisdiction over Defendants to New York State courts of general jurisdiction. Id. If there is a state statutory basis for jurisdiction, the court must then determine whether New York may permissibly exercise personal jurisdiction over Defendants pursuant to the Due Process Clause of the 14th Amendment. Id.
Pursuant to Section 301 of the C.P.L.R., New York has general jurisdiction
The New York Court of Appeals has set forth several factors to determine if a foreign corporation is present in New York and therefore subject to general jurisdiction in New York. These factors include the presence of an office, employees, and bank account within New York, and the solicitation of business in New York. Bryant v. Finnish Nat'l Airline, 15 N.Y.2d 426, 432, 260 N.Y.S.2d 625, 208 N.E.2d 439 (1965) (finding that New York had general jurisdiction over a foreign corporation that, in New York, directly maintained an office where it employed several people, had a bank account, and engaged in public relations and publicity work for the defendant); Hoffritz, 763 F.2d at 58.
In addition to the "doing business" standard under Section 301, general jurisdiction can also be found where a defendant's solicitation of business in New York is "substantial and continuous, and defendant engages in other activities of substance in the state." Landoil Resources Corp. v. Alexander & Alexander Services, Inc., 918 F.2d 1039, 1043-44 (2d Cir.1990). Under this so-called "solicitation-plus" standard for personal jurisdiction, "once solicitation is found in any substantial degree very little more is necessary to a conclusion of `doing business.'" Id.
In general, an employee or agent who acts on behalf of a corporation "does not subject himself, individually," to jurisdiction under Section 301. Laufer v. Ostrow, 55 N.Y.2d 305, 449 N.Y.S.2d 456, 460, 434 N.E.2d 692 (1982). Nevertheless, under New York law, a corporation's owner whose activities "`show a disregard for the separate corporate existence of the [corporation]'" may be subject to personal jurisdiction based upon piercing of the corporate veil. M. Prusman, Ltd. v. Ariel Maritime Group, Inc., 719 F.Supp. 214, 221 (S.D.N.Y.1989) (quoting Volkswagenwerk Aktiengesellschaft v. Beech Aircraft, 751 F.2d 117, 120 (2d Cir.1984)). The question of whether a Colorado corporation's veil should be pierced, however, is a question of Colorado law. (See Discussion infra, at Point 1(B).)
Where a defendant does not fall under the "doing business" requirement of Section 301, the plaintiff may look to New York's long-arm statute, Section 302, which requires a lesser showing than that required under Section 301. Hoffritz, 763 F.2d at 58. Section 302(a)(1) confers specific jurisdiction over a non-domiciliary defendant if the defendant "transacts any business within the state or contracts anywhere to supply goods or services in the state" and the cause of action arises out of these contacts. N.Y.C.P.L.R. § 302(a)(1). Thus, a plaintiff must demonstrate "the
As New York courts have explained, Section 302(a) is a "single act statute," and "proof of one transaction in New York is sufficient to invoke jurisdiction, even though the defendant never enters New York, so long as the defendant's activities here were purposeful and there is a substantial relationship between the transaction and the claim asserted." Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 527 N.Y.S.2d 195, 198-99, 522 N.E.2d 40 (1988); see also Bank Brussels Lambert, 171 F.3d at 787.
To the extent that jurisdiction over Defendants is proper under New York's jurisdictional statutes, constitutional due process considerations must be considered separately. A court may exercise jurisdiction over only those defendants that have "minimum contacts" with the forum state "such that the maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'" Int'l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S.Ct. 339, 85 L.Ed. 278 (1940)). "In judging minimum contacts, a court properly focuses on `the relationship among the defendant, the forum, and the litigation.'" Calder v. Jones, 465 U.S. 783, 788, 104 S.Ct. 1482, 79 L.Ed.2d 804 (1984) (quoting Shaffer v. Heitner, 433 U.S. 186, 204, 97 S.Ct. 2569, 53 L.Ed.2d 683 (1977)). "To establish the minimum contacts necessary to justify `specific' jurisdiction, the [plaintiff] first must show that [the plaintiff's] claim arises out of or relates to [the defendant's] contacts with [New York]." Chaiken v. VV Publ'g Corp., 119 F.3d 1018, 1027 (2d Cir.1997) (citation omitted). In addition, the plaintiff must show that the defendant "purposefully avails itself of the privilege of conducting activities" in New York such that it "should reasonably anticipate being haled into Court [here]." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 474, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985) (citation omitted).
Under New York choice-of-law rules,
To pierce the corporate veil under Colorado law, the claimant must show that (1) "the corporate entity is the alter ego of the shareholder," (2) "justice requires" the veil to be pierced because "the corporate fiction was used to perpetrate a fraud or defeat a rightful claim ... [and] to shield a dominant shareholder's improprieties," and (3) "an equitable result will be achieved by... holding the shareholder personally liable for the acts of the business entity." Connolly v. Englewood Post No. 322 Veterans of Foreign Wars of the United States, Inc., 139 P.3d 639, 644 (Colo.2006) (internal quotation marks omitted) (citing Contractors Heating & Supply Co. v. Scherb, 163 Colo. 584, 432 P.2d 237, 239 (1967) and Water, Waste & Land, Inc. v. Lanham, 955 P.2d 997, 1004 (Colo.1998)); see also Gude v. Lakewood, 636 P.2d 691, 697 (Colo.1981); Pereira v. Grecogas Ltd., 421 B.R. 626, 651 (Bankr.S.D.N.Y.2009) ("The preponderance of Colorado state case law indicates that all three prongs of the foregoing analysis must be satisfied in order to establish a veil piercing claim." (citing cases)).
In determining whether a corporate entity is the alter ego of the shareholder under Colorado law, courts consider "a variety of factors, including whether (1) the corporation is operated as a distinct business entity, (2) funds and assets are commingled, (3) adequate corporate records are maintained, (4) the nature and form of the entity's ownership and control facilitate misuse by an insider, (5) the business is thinly capitalized, (6) the corporation is used as a `mere shell,' (7) shareholders disregard legal formalities, and (8) corporate funds or assets are used for noncorporate purposes." Phillips v. Englewood Post, 139 P.3d at 644 (citing Leonard v. McMorris, 63 P.3d 323, 330 (Colo.2003)).
Upon timely objection, the Court shall dismiss "a case laying venue in the wrong division or district," or transfer such case to a district where it could have been brought. 28 U.S.C. § 1406(a, b). For cases removed from state court, venue is proper in the federal district which embraces the state court from which the action was removed. See AIG Fin. Prods. Corp. v. Public Util. Dist. No. 1, 675 F.Supp.2d 354, 366 (S.D.N.Y.2009); 28 U.S.C. § 1441(a). Even if venue if proper on that ground, however, a district court may transfer a removed action to another district where it might have been brought, if such a transfer is "in the interest of justice" and if the convenience of the witnesses and parties warrants transfer. 28 U.S.C. § 1404(a).
In deciding a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, for failure to state a claim upon which relied can be granted, the Court "accept[s] as true all factual statements alleged in the complaint and draw[s] all reasonable inferences in favor of the non-moving party." McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir.2007) (citation omitted); accord Jaghory v. New York State Dep't of Educ., 131 F.3d 326, 329 (2d Cir. 1997). Further, "`[a]lthough a court should generally refrain from considering matters outside the pleadings when reviewing a 12(b)(6) motion to dismiss, the mandate to liberally construe pro se pleadings makes it appropriate to consider the facts set forth in plaintiff's opposition papers.'" Falso v. Gates Chili Cent. Sch. Dist., 680 F.Supp.2d 465, 466 (W.D.N.Y.2010) (citing Acheampong v. United States, Nos. 99 Civ. 2169(SWK), 99 Civ. 3491(SWK), 2000 WL 1262908, at *4, 2000 U.S. Dist. LEXIS 12775, at *11 (S.D.N.Y. Sept. 5, 2000)); see also Haines v. Kerner, 404 U.S. 519, 520, 92 S.Ct. 594, 30 L.Ed.2d 652 (1972) (a pro se complaint is to be read liberally and held to "less stringent standards" than formal pleadings drafted by lawyers); Triestman v. Fed. Bureau of Prisons, 470 F.3d 471, 474 (2d Cir.2006). "The court should not dismiss [a pro se pleading] without granting leave to amend at least once when a liberal reading of the complaint gives any indication that a valid claim might be stated." Gomez v. USAA Federal Savings Bank, 171 F.3d 794, 795-96 (2d Cir.1999) (district court must afford a pro se plaintiff the opportunity to amend the complaint before dismissal where that amendment could result in successful pleading of claim (quotation omitted)).
Nonetheless, "conclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to defeat a motion to dismiss." Achtman v. Kirby, McInerney & Squire, LLP, 464 F.3d 328, 337 (2d Cir.2006) (citation omitted); Smith v. Local 819 I.B.T. Pension Plan, 291 F.3d 236, 240 (2d Cir.2002). In addition, even plaintiffs who are proceeding pro se must comply with any relevant procedural and substantive rules, and, to survive a motion to dismiss, a pro se complaint, like any other complaint, must plead enough facts "`to state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)); Bisson v. Martin Luther King Jr.
All Defendants except the LTD move to dismiss for lack of personal jurisdiction under Fed.R.Civ.P. 12(b)(2). (Reply Memorandum of Law In Further Support of Motion to Dismiss Or In the Alternative Transfer to the District of Colorado, dated Nov. 9, 2007 ("Pl. Reply Mem.") (Dkt. 33), at 2 ("this Court lacks jurisdiction over all Defendants except for Reed Group").) Defendants' motion should be granted with respect to Nagel, and denied with respect to all other defendants.
As noted above, it is undisputed that the Court has jurisdiction over the LTD in this matter. Plaintiff appears to argue that the Court has jurisdiction over the LLC because the LLC was, for at least a time, the LTD's successor in interest. In particular, Plaintiff contends that the LLC conducted business nationally and in New York State during 2005 under the name Reed Group, during which time the LTD did not exist or operate. (Am. Compl. at ¶¶ 62-63.)
Under New York law, a successor in interest is subject to jurisdiction based on the activities of its predecessor if "the predecessor and successor [were] one and the same and ... the predecessor continue[d] to exist as part of the successor." Linzer v. EMI Blackwood Music, 904 F.Supp. 207, 213 (S.D.N.Y.1995). Here, Plaintiff alleges that the LLC was "designed to be the successor to Reed Group, LTD" (Phillips Decl. at ¶ 4; Am. Compl. at ¶ 3), and that the LLC was the only company that existed as the "Reed Group" in all of 2005 (Am. Compl. at ¶ 63). Essentially, Plaintiff alleges that the LTD was dissolved and its operations were continued, at least temporarily, under the name Reed Group LLC. (Am. Compl. at ¶¶ 62-63.) Plaintiff's Amended Complaint further describes the formation of the LLC, its press releases, and its board meetings. (See Am. Compl. at ¶¶ 56-68.) In addition, Plaintiff has submitted the following evidence in opposition to the pending motion:
Plaintiff's allegations and the above evidence are sufficient to establish, at this stage in the proceedings, that the LLC
It is undisputed that Nagel resides in Colorado, is licensed to practice law there, and is outside counsel to both the LTD and the LLC. Plaintiff does not allege that Nagel conducts business on a regular basis in New York, either on an individual basis or as an agent of the defendant companies. Therefore, Plaintiff does not allege that Nagel has a presence in New York sufficient to confer general jurisdiction.
Plaintiff's sole argument as to why this Court may exercise personal jurisdiction over Nagel is that defendants LTD, Reed, and Grace "have acted as agents of Nagel in New York and therefore have subjected him to jurisdiction in this case since he is a Trustee of the Trust that owns [30% of the LTD]." (Am. Compl. at ¶ 13 n. 3 (emphasis added); see id. at ¶ 7.) Plaintiff, however, fails to allege facts sufficient to support his legal conclusion that other defendants have acted as agents of Nagel in New York. Certainly, Nagel's mere status as an alleged "trustee" of an entity that owns a stake in the LTD is insufficient to suggest that the LTD or others acted in New York at Nagel's direction and control. See National Petrochemical Co. v. The M/T Stolt Sheaf, 930 F.2d 240, 244 (2d Cir.1991) ("[t]he crucial element of an agency relationship ... is that the agent acts subject to the principal's direction and control" (internal quotation marks and citation omitted)). As Plaintiff has failed to plead facts or introduce evidence sufficient to support his bare allegations regarding the role of other defendants as Nagel's "agents," he has failed to demonstrate a basis for this Court's exercise of personal jurisdiction over this defendant. See Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009); Jazini, 148 F.3d at 185 (the court is "not bound to accept as true a legal conclusion couched as a factual allegation").
Accordingly, Plaintiff's Amended Complaint, as currently pleaded, is insufficient to support this Court's exercise of personal jurisdiction over Nagel. Further, while, as noted above, the Court should not dismiss a pro se complaint "without granting leave to amend at least once when a liberal reading of the complaint gives any indication that a valid claim might be stated." Gomez, 171 F.3d at 795-96 (2d Cir. 1999), in this instance, Plaintiff has already amended his original Complaint once, after being faced with an initial motion to dismiss in which, inter alia, Nagel raised the same arguments regarding lack of personal jurisdiction as he raises here. (See untitled memorandum of law, dated July 25, 2007 ("Def. Init. Mem.") (Dkt. 11), at 12.) For this reason, and as Plaintiff's Amended Complaint does not give "any indication" that the Court might have jurisdiction over Nagel, I recommend that Plaintiff's claims against this defendant be dismissed.
Plaintiff contends that this Court has personal jurisdiction over Reed and Grace on three alternative grounds: (1) general jurisdiction based on the fact that they "do business" in New York; (2) specific jurisdiction based on their alleged performance,
It appears that, absent any piercing of the corporate veil, defendants Reed and Grace would not have sufficient "presence" in New York State to give rise to general jurisdiction under Section 301 of the New York Civil Practice Law and Rules. Plaintiff asserts that these defendants reside in Colorado and are not New York domiciliaries (Am. Compl. at ¶¶ 4, 5; see also 9/26/07 Nagel Decl. At ¶ 7), and does not allege that they own any property in New York. To the extent Plaintiff's allegations suggest that Reed and Grace have performed services for the LTD in New York, this would not be the equivalent of their having engaged in their own "continuous and systematic course of doing business" in the state, sufficient to warrant a finding of their personal "presence" in the state. McGowan v. Smith, 52 N.Y.2d 268, 272, 437 N.Y.S.2d 643, 419 N.E.2d 321 (1981). Similarly, to the extent Plaintiff alleges that these defendants solicited business in New York for the LTD (see, e.g., Am. Compl. ¶ 11(e)(iii)), this could not satisfy the "solicitation-plus" standard for the Court's exercise of jurisdiction over them, personally. As Defendants correctly point out, individuals cannot be subject to general jurisdiction under Section 301 unless they are doing business in New York on their own behalf, rather than on behalf of a corporation. (See Def. Mem. at 14 (citing Brinkmann v. Adrian Carriers, Inc., 29 A.D.3d 615, 815 N.Y.S.2d 196, 199 (2d Dep't 2006)).)
Section 302(a) establishes "personal jurisdiction over any non-domiciliary ... who in person or through an agent ... transacts any business within [New York] state." N.Y.C.P.L.R. § 302(a). The New York Court of Appeals has made clear that Section 302 confers jurisdiction over "an individual who was a primary actor in [a] transaction ... in New York," even if that individual was acting as a corporation's agent. Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 470, 527 N.Y.S.2d 195, 522 N.E.2d 40 (1988). To establish jurisdiction under Section 302, the plaintiff must demonstrate "the existence of some articulable nexus between the business transacted and the cause of action sued upon." McGowan, 52 N.Y.2d at 272, 437 N.Y.S.2d 643, 419 N.E.2d 321. This Court has held that a meeting in New York must be "essential to the formation or continuance of a business relationship" in order to give rise to personal jurisdiction under Section 302. NCA Holding Corp. v. Ernestus, No. 97 Civ. 1372(LMM), 1998 WL 388562, at *5, 1998 U.S. Dist. LEXIS 10298, at *11-12 (S.D.N.Y. July 13, 1998) (cited at Def. Mem. at 16). A meeting in New York may be insufficient to establish jurisdiction if the meeting was merely "exploratory, unproductive, or insubstantial." Id.
Plaintiff has failed to allege any specific conduct by Grace that could give rise to jurisdiction over her, under Section 302. Plaintiff alleges that Grace has transacted business in New York, through extensive travel to present sales, attending trade shows, and conducting a seminar to reach a local New York market. (See Am. Compl. at ¶¶ 11(e)(iii), 11(e)(1).) These transactions, through, even assuming they occurred, are not sufficient to give rise to specific jurisdiction pursuant to Section 302(a) because Plaintiff has not alleged the existence of any "nexus" between Grace's alleged New York-based transactions and Plaintiff's causes of action. See McGowan,
As to Reed, Plaintiff contends that two alleged meetings that he had with Reed, in New York, give rise to specific jurisdiction over Reed. According to Plaintiff, he and Reed reached key agreements at these meetings, and those agreements underlie Plaintiffs claims. (Pl. Mem. at 17-18.) Plaintiff alleges that, in the first meeting, he told Reed about Plaintiffs "over[]all expectation that under normal circumstances [Plaintiff] expected" a three percent equity interest, and Reed "agreed these amounts were reasonable and suggested [they] proceed." (Am. Compl. at ¶ 11(I).) The Court notes, however, that this purported agreement appears to have been superceded by the ensuing writing allegedly given to Plaintiff by Reed and "accepted" by Plaintiff; that writing described a two percent equity interest for Plaintiff, not a three percent interest. (See Am. Compl. at ¶ 77.) With respect to the second meeting that allegedly gives rise to jurisdiction, Plaintiff merely alleges that he met with Reed in New York in May 2005 and the two "discussed the ACOEM UMK Joint Venture." (Am. Compl. at ¶ 12(j).) Plaintiff does not assert that any particular terms of the alleged joint venture were mentioned during that meeting (see id.), but rather alleges that in other discussions with Reed, Phillips set forth his proposal that Plaintiff receive 15 percent of the value of the product and an "appropriate" portion of the revenue (see id.).
It is a close question whether either of the two alleged meetings were sufficiently "essential" to the formation or continuation of the parties' business relationship to support jurisdiction over Reed, under Section 302. Cf. United States Theatre Corp. v. Gunwyn/Lansburgh Ltd. Partnership, 825 F.Supp. 594, 596 (S.D.N.Y.1993) (where a meeting in New York "is not for the purpose of initiating or forming a relationship, but is to alleviate problems under a pre-existing relationship, New York courts have declined to assert jurisdiction"). The Court need not decide this question, however, because the exercise of jurisdiction over both Reed and Grace would be proper at this stage in the litigation for the separate reasons set forth below.
Plaintiff also argues that the Court should pierce the corporate veil to exercise jurisdiction over both Reed and Grace. (See Am. Compl. at 44-46.) In addition to alleging generally that Reed and Grace, in their business dealings, acted "in their own personal interest rather than in the best interest of [the LTD] (Am. Compl. at ¶ 16(a) (emphasis omitted), Plaintiff has made specific, plausible allegations that Reed and Grace together created a "shell" LLC in order to induce numerous individuals to work for free for the LTD. Plaintiff further alleges that both of these defendants personally benefitted from this conduct because the value of the MDA — which, according to Plaintiff, they personally own, but commingle with the LTD's assets — was significantly strengthened by Plaintiff's uncompensated work for the LTD.
In this instance, Plaintiff has met has his burden of making a threshold showing of jurisdiction over Reed and Grace. See Marine Midland Bank, 664 F.2d at 904. Assuming the truth of Plaintiff's allegation that Reed and Grace created a shell LLC
With respect to Plaintiff's factual allegations, Defendants flatly deny that Reed and Grace personally owned the MDA during the relevant time period. (See Def. Mem. at 23.) Although Defendants may ultimately be able to prevail on this question of fact, it would be improvident for the Court to grant a Rule 12 motion where such questions of fact still exist. Plaintiff has submitted sufficient evidence to render plausible his allegations about Reed and Grace's purported ownership. In particular, Plaintiff has submitted an August 27, 2004 memorandum from Casart to the LTD, Reed, and Grace, which discusses the possibility of forming an LLC. In this memorandum, as noted above, Casart explains that "[i]n the summer of 2003, the Reeds [Reed and Grace] were given ... all of the intellectual property associated with the disability guidelines business," and further notes that, as of the date of the memorandum, "the intellectual property rights to the guidelines remain the property of the Reeds, personally." (Pl. Mem., Ex. A.) Defendants fail to address this evidence.
In sum, Plaintiff, proceeding pro se, has made plausible allegations that Reed and Grace created a shell LLC to induce him to work for an "equity" interest in that shell, and that Reed and Grace commingled their property with the LTD's in order to benefit themselves personally. Defendants have essentially failed to argue that such conduct is insufficient to warrant the piercing of the corporate veil, but rather have merely disputed Plaintiff's factual allegations. Defendants' motion to dismiss the claims against Reed and Grace on jurisdictional grounds should therefore be denied.
Defendants argue that this case should be dismissed for "lack of venue" because Plaintiff has failed to meet the venue requirements of 28 U.S.C. § 1391(a). (Def. Mem. at 2, 18-19.) Under Section 1391, a diversity case may be brought only in "(1) a judicial district where any defendant resides, if all defendants reside in the same State, (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a
Defendants' argument fails because Section 1391 does not apply to cases that have been removed from state court. PT United Can Co. v. Crown Cork & Seal Co., 138 F.3d 65, 72 (2d Cir.1998) ("the removal statute, and not the ordinary federal venue statute, 28 U.S.C.A. § 1391 ..., governs venue in removed cases") (citing Polizzi v. Cowles Magazines, Inc., 345 U.S. 663, 665-66, 73 S.Ct. 900, 97 L.Ed. 1331 (1953)); accord, AIG Fin. Prods., 675 F.Supp.2d at 367. Venue in cases that have been removed from state court are governed by 28 U.S.C. § 1441(a), which provides that "any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending." Since this Court's district embraces the state court where this action was originally filed (see Dkt. 1 (action removed from Supreme Court of the State of New York, New York County)), venue is proper in this district under Section 1441(a), see AIG Fin. Prods., 675 F.Supp.2d at 366.
Defendants have also moved to dismiss the action, or in the alternative to transfer the action to Colorado, under 28 U.S.C. § 1406. Section 1406 provides for dismissal or transfer of an action that is pending in "the wrong division or district." Because venue in the Southern District of New York is proper under Section 1441 for the reasons noted above, this action cannot be dismissed or transferred pursuant to Section 1406. See Licensed Practical Nurses, Technicians & Health Care Workers of N.Y., Inc. v. Ulysses Cruises, Inc., 131 F.Supp.2d 393, 405 (S.D.N.Y.2000).
Defendants have also asked the Court to transfer this matter to the District of Colorado pursuant to 28 U.S.C. § 1404(a). Section 1404(a) allows an action to be transferred to another district where that action might have been brought, "[f]or the convenience of parties and witnesses, in the interest of justice." It is clear that Plaintiff could have brought this suit in the District of Colorado: many of the actions giving rise to the suit occurred in Colorado, and all the Defendants are Colorado residents. See 28 U.S.C. § 1391(a)(1). Transfer is only appropriate, however, if the Defendants have shown by clear and convincing evidence that convenience and justice favors a transfer. New York Marine & Gen. Ins. Co., 599 F.3d at 114. In making this determination, the Court should consider a number of factors, including: (1) the convenience of witnesses; (2) the convenience of the parties; (3) the locus of operative facts; (4) the availability of process to compel the attendance of unwilling witnesses; (5) the location of relevant documents and the relative ease of
Some of these factors favor are neutral in this case. The locus of operative facts is so heavily disputed by the parties that it cannot be said to favor either party. (Compare 9/26/07 Nagel Decl. at ¶¶ 16-17 (stating that Plaintiff was in Colorado for 74 days and in New York for 12 days during the relevant time period) with Phillips Decl. at ¶ 2 (stating that Plaintiff was in New York for more days than he was in Colorado).) Likewise, the availability of compulsory process of witnesses is a neutral factor because neither party has identified any witnesses who would be unwilling to testify without compulsion. See AIG Fin. Prods., 675 F.Supp.2d at 371 (citing Citigroup Inc. v. City Holding Co., 97 F.Supp.2d 549, 562 (S.D.N.Y.2000)). Further, as Plaintiff correctly argues, the location of relevant documents and sources of proof is a minimal consideration in today's age of electronic communication, see Am. S.S. Owners Mut. Prot. & Indem. Ass'n v. Lafarge N. Am., Inc., 474 F.Supp.2d 474, 484 (S.D.N.Y. 2007) ("[t]he location of relevant documents is largely a neutral factor in today's world of faxing, scanning, and emailing documents") (cited in Pl. Mem. at 24), and Defendants have provided no persuasive reason to give that factor any weight here. On balance, neither trial efficiency nor the interests of justice particularly favor or disfavor a transfer. (See Def. Reply Mem. at 7 (conceding that civil litigations in this district are resolved, on average, a week or two faster than cases in the District of Colorado).)
Of the remaining factors, two favor Defendants: the convenience of anticipated witnesses, and the governing law. Plaintiff states that he plans to call seven witnesses, all New York residents (see Plaintiff's Memorandum of Law in Opposition to Defendants' Motion to Dismiss the Complaint, dated Oct. 26, 2007 ("Pl. Mem.") (Dkt. 32), at 21), while Defendants state that they would call 19 non-party witnesses, all of whom reside in Colorado (see 11/8/07 Nagel Decl. at ¶ 11). Because more witnesses reside in Colorado, this factor weighs in favor of transfer. To the extent that Colorado substantive law may govern this action (see infra at § E(1)), that consideration also favors a transfer, but only slightly. See Sills v. Ronald Reagan Presidential Found., No. 09 Civ. 1188(GEL), 2009 WL 1490852, at *11, 2009 U.S. Dist. LEXIS 44774, at *34 (S.D.N.Y. May 27, 2009) ("[t]he forum's familiarity with governing law is typically given little weight by federal courts" (citation omitted)).
Three factors, however, favor Plaintiff: the convenience of the forum to the parties, the relative means of the parties, and the Plaintiff's choice of forum. Although Plaintiff resides thousands of miles from Colorado and Defendants reside thousands of miles from New York, the LTD maintains a significant presence in New York State and it appears that Grace and Reed both travel to New York City on business.
Based on the totality of the circumstances, the motion to transfer should be denied. The Defendants have failed to meet their burden of "establishing the propriety of transfer by a clear and convincing showing." Excelsior Designs, Inc. v. Sheres, 291 F.Supp.2d 181, 185 (E.D.N.Y. 2003). As this Court has observed, "the convenience of the parties and witnesses is generally considered the `most significant factor'" in evaluating a motion to transfer. Deutsche Babcock Aktiengesellschaft v. Babcock & Wilcox Co., No. 97 Civ. 7544(DAB), 1998 WL 765175, at *2, 1998 U.S. Dist. LEXIS 17275, at *5-6 (S.D.N.Y. Nov. 3, 1998). Here, although some Colorado-based witnesses would be inconvenienced if the case were to remain in this district, it is undisputed that there are New York-based witnesses with relevant knowledge who would be inconvenienced if the litigation were transferred to Colorado. (See Def. Reply Mem. at 6 (contesting the residence, or relevance of the likely testimony, of only certain of Plaintiff's seven proposed witnesses).) In such a situation, this Court is persuaded that the significant disparity in the parties' apparent means, together with the inconvenience that Plaintiff would suffer if this case were transferred to Colorado, renders a transfer inappropriate.
Accordingly, I recommend that Defendants' motion to transfer be denied.
Plaintiff asserts claims for breach of contract, negligent misrepresentation, quantum meruit, promissory estoppel, breach of fiduciary duty, and unjust enrichment. The Amended Complaint is at times unclear as to which Defendants are the subject of particular factual allegations and legal claims. (See, e.g., Am. Compl. at ¶ 11(d)(2) (describing the website of ambiguous "Defendant"); id. at 48.) Construed liberally, however, Plaintiff's allegations suggest that all or nearly all of the alleged conduct was performed by the LTD, by its alleged successor the LLC, and/or by individual defendants acting as corporate officers of the LTD or LLC. Such a reading of the Amended Complaint is consistent with
Defendants argue that Colorado law governs Plaintiff's claims. (Def. Mem. at 22.) Plaintiff believes that New York law should apply. (See Pl. Mem. at 28-30 (citing only New York law to support the merits of Plaintiff's claims).) As Defendants correctly point out, there are actual conflicts between New York and Colorado law with respect to at least some of Plaintiff's substantive claims. (See, e.g., Def. Mem. at 25 n. 22 (noting different privity standards under New York and Colorado law for negligent representation claims seeking only monetary damages); id. at 27 n. 25 (noting different elements for promissory estoppel claims under New York and Colorado law).) The Court must therefore decide whether New York or Colorado law applies to Plaintiff's claims.
Under New York choice of law principles, which apply in this diversity action (see supra n. 9), the choice of law for contract and quasi-contract claims is determined by a "center of gravity" analysis. See GlobalNet Financial.com, Inc. v. Frank Crystal & Co., 449 F.3d 377, 383 (2d Cir.2006); Fieger v. Pitney Bowes Credit Corp., 251 F.3d 386, 394 (2d Cir.2001). This analysis determines the contract's "center of gravity" by examining "`the place of contracting, negotiation and performance; the location of the subject matter of the contract; and the domicile of the contracting parties.'" GlobalNet Financial.com, Inc., 449 F.3d at 383 (quoting Allstate Ins. Co. v. Stolarz, 81 N.Y.2d 219, 227, 597 N.Y.S.2d 904, 613 N.E.2d 936 (1993)). The only one of these factors that remotely favors the application of New York law is the location of the alleged contract negotiations, as Plaintiff alleges that at least some portions of those negotiations occurred in New York. The remaining factors are all either neutral or favor the application of Colorado law over New York law. Although Plaintiff states that he worked more in New York than in Colorado, he does not contest Defendants' assertion that, to the extent his work was related to the alleged contracts, he performed most of the work from his home, in Massachusetts. (See Phillips Decl., Ex. U; 9/26/07 Nagel Decl. at ¶¶ 2(c), 32; Def. Reply Mem. at 6.) The allegedly property at issue in the contracts — an equity interest in a Colorado corporation, and a stake in a joint venture between Colorado and Massachusetts residents — is certainly more firmly centered in Colorado than in New York. Finally, Colorado residents, but not New York residents, are allegedly parties to the contracts. As such, the "center of gravity" of the alleged contracts is in
The choice of law for Plaintiff's negligent misrepresentation claim is somewhat unclear because the Amended Complaint does not indicate where the relevant alleged misrepresentations occurred. Under New York choice of law principles, "`the law of the jurisdiction having the greatest interest in the litigation will be applied'" to tort claims, GlobalNet Financial.com, Inc., 449 F.3d at 383 (quoting Schultz, 65 N.Y.2d at 197, 491 N.Y.S.2d 90, 480 N.E.2d 679), and, under this inquiry, the significant factors are "almost exclusively[] the parties' domiciles and the locus of the tort," Schultz, 65 N.Y.2d at 197, 491 N.Y.S.2d 90, 480 N.E.2d 679 (citations and alterations omitted). Without sufficient details in the Amended Complaint to permit the Court to determine the "locus" of the alleged misrepresentations — that is, where those alleged misrepresentations were made — the Court cannot determine what law should apply. As explained below, however, the Amended Complaint's lack of specificity regarding the alleged misrepresentations renders his negligent misrepresentation claim defective, in any event, under Rule 9 of the Federal Rules of Civil Procedure. Accordingly, the choice of law question as to this claim should be deferred until such time as Plaintiff repleads to satisfy the Rule 9 requirements.
Plaintiff's breach of fiduciary duty claim is governed by Colorado law. Plaintiff contends, in essence, that Defendants breached their fiduciary duty to him by failing to disclose vital information such as the LLC's true operational status and Reed and Grace's ownership of the MDA. (Am. Compl. at 53, ¶¶ 1-7.) This claim implicates significant questions about the duties and obligations of the directors and officers of Colorado corporate entities and, under New York choice-of-law principles, "courts look to the law of the state of incorporation in adjudicating a corporation's internal affairs, including questions as to the relationship between the corporation's shareholders and its directors." Seidl v. Am. Century Cos., 713 F.Supp.2d 249, 255 (S.D.N.Y.2010) (quoting Galef v. Alexander, 615 F.2d 51, 58 (2d Cir.1980) (internal quotation marks omitted)).
In arguing for dismissal of Plaintiff's contract claim, Defendants argue that there was no enforceable contract because the parties' unsigned written agreement was not finalized, was marked "DRAFT," failed to address "two key financial components," and, by its own terms, required its execution and adoption in order for it to take effect. (Def. Mem. at 24-25.) Defendants essentially contend that (1) there
Plaintiff has adequately alleged a meeting of the minds regarding his equity share in the LLC. Plaintiff alleges that Reed and Plaintiff discussed a three percent equity interest, as "reasonable" compensation for Plaintiff's services. (Am. Compl. at ¶ 12(i).) Plaintiff further alleges that, sometime after that discussion, Reed sent Plaintiff a proposed LLC operating agreement under which Plaintiff would receive a two percent ownership interest, and that Plaintiff "accepted" that agreement. (See Am. Compl. at ¶ 25; id. at 48, ¶ 4; Pl. Mem. at 5.) Defendants argue that this cannot give rise to the requisite meeting of the minds because the draft operating agreement was silent regarding other "key financial components" of the LLC's operations — namely, the equity shares and capital contributions of other individuals involved. (Def. Mem. at 24.) Yet, to the extent that such information was missing from the agreement, those terms were not essential to any meeting of the minds between Plaintiff and Defendants about Plaintiff's equity interest and capital contribution amount, which were plainly set forth in the written agreement allegedly sent from Reed to Plaintiff. (See Am. Compl., Ex. A, at Schedule A (listing Plaintiff's "Capital Contribution" amount as $0.00 and his "Profits Interest" as 2.00 Percent).) Plaintiff has thus alleged sufficient facts to support a meeting of the minds regarding his purported equity interest.
Defendants also argue that there can be no contract because the written agreement was never signed. The sole Colorado decision relied upon by Defendants, however, makes clear that a signed agreement is not necessary as long as there is a meeting of the minds regarding the contract's terms. See In re Marriage of O'Brien, 759 P.2d 826, 828 (Ct.App.Colo. 1988) ("the minds of the parties must have met and the terms must be sufficiently definite in order for a contract to come into existence").
Defendants further argue that there was no contract because, "if the parties do not intend be bound by an agreement until it is in writing and signed, then there is no contract until that event occurs." (Def. Mem. at 25 (quoting R.G. Group v. Horn & Hardart Co., 751 F.2d 69, 74 (2d Cir. 1984)).) This argument fails because it requires the Court to assume that the Defendants never intended to enter into an agreement with Plaintiff about his equity interest before the formal LLC agreement was signed. Whether Defendants actually harbored such an intention is an issue of fact that cannot be resolved on a motion to dismiss.
Accordingly, Defendants' motion to dismiss the breach of contract claim should be denied.
In their initial brief, Defendants argue that Plaintiff's negligent representation claim should be dismissed because (1) it is barred by the so-called "economic loss" rule,
As a threshold matter, a state-law negligent misrepresentation claim is subject to the enhanced pleading requirements of Federal Rule of Civil Procedure 9(b). Gunningham v. Std. Fire Ins. Co., No. 07-cv-02538-REB-KLM, 2008 WL 4377451, at *1, 2008 U.S. Dist. LEXIS 82044, at *3 (D.Colo. Sept. 19, 2008); In re Marsh & Mclennan Cos. Sec. Litig., 501 F.Supp.2d 452, 495 (S.D.N.Y.2006) ("Negligent misrepresentation claims must be pleaded with particularity pursuant to Rule 9(b)"). Under this enhanced pleading standard (a matter of federal procedural law), the plaintiff must — at the very least — allege the particular time, place, and speaker. See Gunningham, 2008 WL 4377451, at *1, 2008 U.S. Dist. LEXIS 82044, at *3 (citing Schwartz v. Celestial Seasonings, Inc., 124 F.3d 1246, 1252 (10th Cir.1997)); General Ins. Co. of Am. v. K. Capolino Constr. Corp., 957 F.Supp. 457, 463-64 (S.D.N.Y.1997); Caputo v. Pfizer, Inc., 267 F.3d 181, 191 (2d Cir.2001). Furthermore, to be actionable, the alleged misrepresentation must be a false statement about a present fact, not a future expectation or promise. Branscum v. American Community Mutual Ins. Co., 984 P.2d 675, 680 (Ct.App.Colo.1999) ("A claim for negligent misrepresentation applies only if there has been a misrepresentation of an existing fact."); Hydro Investors, Inc. v. Trafalgar Power, Inc., 227 F.3d 8, 21 (2d Cir.2000). While the pleadings of a pro se plaintiff must be construed liberally, a pro se complaint must still meet the particularity requirements of Rule 9(b). See Hoffenberg v. Hoffman & Pollok, 248 F.Supp.2d 303, 310-11 (S.D.N.Y. 2003).
Here, Plaintiff has failed to allege any false statements of present fact with the requisite particularity. While Plaintiff alleges, for example, that, on March 31, 2005, Reed presented him with an unsigned LLC operating agreement and stated, "we may have already accomplished our goals" (Am. Compl. at ¶ 25), neither the unsigned agreement nor Reed's alleged statement on that date can be said to contain a specific misrepresentation. Likewise insufficient are Plaintiff's allegations that:
While each of these alleged "representations" arguably concerns present facts; none is alleged with the specificity required by Rule 9(b). In no instance does Plaintiff plead the time and place that the alleged statement was made, and certain of these allegations even fail to specify the speaker and the specific content of his or her statements.
As Plaintiff's negligent representation claim is deficient under Rule 9(b), the Court need not, at this time, reach the question of whether this claim would be barred under the economic loss rule. Nor could the Court reach that question at this point, as the place where the alleged misrepresentations were made (which has not been stated in Plaintiff's current pleading) would likely determine whether New York or Colorado law would apply to the claim, and that determination, in turn, would likely affect the outcome of the economic loss analysis. (See n. 18, supra.)
At this time, Plaintiff should be directed to amend his negligent misrepresentation claim, so as to provide the details required by Rule 9(b). While this Court does recommend that certain of Plaintiff's other claims simply be dismissed (see, e.g., Discussion supra regarding Plaintiff's claims against defendant Nagel), dismissing this claim without first affording Plaintiff the opportunity to cure his pleading defect would be inappropriate. Unlike Defendants' other arguments, which Defendants raised in their earlier motion to dismiss Plaintiff's original pleading and which already led Plaintiff to amend his Complaint once, Defendants' argument regarding Rule 9(b) was not raised until their reply submission on the instant motion. Thus, Plaintiff has not yet had a chance to respond to the argument by amending his pleading. Further, as Plaintiff, until very recently, was proceeding pro se, and as this pleading defect may well be curable, he should be permitted to amend this claim at least once, before the claim is dismissed. See Gomez, 171 F.3d at 795-96.
Defendants move to dismiss Plaintiff's quantum meruit and unjust enrichment claims on two alternative grounds: (1) that these claims are barred because Plaintiff has alleged the existence of an enforceable contract, and (2) that Plaintiff has failed to allege the "reasonable value" of the services he provided, which is, according to Defendants, an "essential element" of quantum meruit and unjust enrichment claims. (Def. Mem. at 26.) Neither of these arguments has merit.
Plaintiff's contract claim does not prohibit him from pursuing, in the alternative, claims for quantum meruit and unjust enrichment. On this point, Defendants rely on the general principle that "[t]he existence of an enforceable written contract covering the matter at issue precludes recovery for causes of action sounding in quasi contract." La Cruz v. Caddell Dry Dock & Repair Co., Inc., 22 A.D.3d 404, 804 N.Y.S.2d 58, 60 (1st Dep't 2005) (cited in Def. Mem. at 26); Bedard v. Martin, 100 P.3d 584, 592 (Colo.Ct.App. 2004) (stating same principle under Colorado law) (cited in Def. Mem. at 26).
Alternatively, Defendants argue that Plaintiff's quantum meruit and unjust enrichment claims should be dismissed because Plaintiff has failed to allege a "reasonable value" for the services provided. (See Def. Mem. at 26.) Although Plaintiff has alleged that he worked more than 5800 hours and his work is worth $200 per hour, Defendants maintain that this valuation is "patently unreasonable." (Def. Mem. at 26.) Defendants offer no legal authority for dismissing Plaintiff's claims on such grounds, however, and Defendants' mere disagreement with Plaintiff's allegations about the value of his services is not a sufficient basis for Rule 12(b)(6) dismissal. Defendants' motion to dismiss the quantum meruit and unjust enrichment claims should therefore be denied.
Defendants contend that Plaintiff's promissory estoppel claims should be dismissed because Defendants' three alleged "promises" were too vague to be actionable or were not actually "promises." (Def. Mem. at 26-28.) Alternatively, Defendants argue that the Plaintiff could not have reasonably relied on promises that were unwritten and "did not specify the amount of his compensation." (Def. Mem. at 28.)
The first alleged promise was an equity interest for Plaintiff in the LLC. Defendants argue that this promise was too vague to be enforceable because the percentage ownership was "never settled upon." (Def. Mem. at 27.) As already discussed, however, Plaintiff alleges that Reed sent him a written agreement stating that Plaintiff would receive a two percent equity interest in the LLC. To state a claim for promissory estoppel under Colorado law, the alleged promise need only be "`sufficiently specific so that the judiciary can understand the obligation assumed and enforce the promise according to its terms.'" Jones v. Denver Pub. Schs., 427 F.3d 1315, 1325 (10th Cir.2005) (quoting Soderlun v. Pub. Serv. Co. of Colo., 944 P.2d 616, 620 (Colo.Ct.App.1997)). Here, the alleged two percent interest was sufficiently specific. Defendants' motion to dismiss the promissory estoppel claim should therefore be denied with respect to the alleged promise of an equity interest in the LLC.
The second alleged promise was a joint venture interest in the ACOEM UMK. Defendants argue that, even taking Plaintiff's allegations as true, it is apparent that no named defendant ever made any actionable "promise" regarding the alleged joint venture. According to Defendants, if anyone suggested that Plaintiff be given an ownership interest in the joint venture, it was Plaintiff himself, not Defendants. Indeed, Plaintiff does allege that he, himself, suggested a joint venture plan that included a 15 percent ownership stake, and that Reed merely stated that this plan "seemed fair" and "urged [Plaintiff] to continue." (Am. Compl. at ¶ 12(j)(k).) Under Colorado law,
The third alleged promise was that Plaintiff would be given additional compensation if he helped arrange the sale of the LTD. According to the Amended Complaint, this alleged promise arose from Reed's statement that "the `more he ([Dr.] REED) could get (as an offer) the more he ([Plaintiff]) would receive.'" (Am. Compl. at ¶ 132.) This alleged promise is too vague to be enforceable, for it is impossible for the Court to "understand the obligation assumed and enforce the promise according to its terms." Jones v. Denver Pub. Schs., 427 F.3d at 1325 (internal quotation marks and citations omitted). Further, as Defendants argued in their first motion to dismiss that this alleged promise was too vague to be actionable, and as Plaintiff's amendment did not cure the deficiency, I recommend that this claim be dismissed, as well.
In sum, Defendants' motion to dismiss Plaintiff's promissory estoppel claim should be denied insofar as that claim arises from the alleged promise of an equity interest in the LLC, and granted in all other respects.
Defendants argue that no fiduciary duty was owed to Plaintiff as a matter of law, and that his breach of fiduciary claim must therefore be dismissed. (Def. Mem. at 28-29.) Plaintiff contends that he was owed a fiduciary duty (1) as Director of the LTD and LLC, (2) based on a special relationship of trust between Plaintiff and Defendants, (3) as a joint venturer with Defendants, and (4) as an the owner of equity in the LLC. (Am. Compl. at 53; Def. Mem. at 28-29.) Defendant's motion to dismiss this claim should be granted to the extent that the claim is based upon Plaintiff's status as a Director of the LTD and LLC or upon a special relationship of trust between Plaintiff and Defendants. Defendants' motion should be denied insofar as the claim is based upon the alleged joint venture and upon Plaintiff's alleged status as an owner of an equity interest in the LLC.
Plaintiff was owed no fiduciary duty as a member of the LTD's or LLC's boards of directors. Under Colorado law, a corporate director owes a fiduciary duty to the corporation and its shareholders. Security Nat'l Bank v. Peters, Writer & Christensen, Inc., 39 Colo.App. 344, 350, 569 P.2d 875 (Ct.App.Colo.1977). This duty runs one way; the director is not owed a duty by the corporation or shareholders. See MDM Group Assocs. v. CX Reinsurance Co. Ltd., 165 P.3d 882, 888 (Ct.App.Colo.2007). Thus, Plaintiff's breach of fiduciary duty claim should be dismissed, to the extent that it is based upon Plaintiff's status as a director of the LTD and LLC.
Plaintiff has also failed to allege sufficient facts to establish that he was owed a fiduciary duty based on a "special
As to Plaintiff's claim, however, that he was owed a fiduciary duty pursuant to his alleged "joint venture" with certain Defendants, Defendants have offered no meaningful challenge. (See Def. Mem. at 28-29.) Certainly, Defendants do not argue that Plaintiff's allegations, if taken as true, would be legally insufficient to establish a joint venture — in fact, Defendants do not cite a single case concerning the legal requirements for a joint venture.
Finally, Plaintiff has adequately alleged that he was owed a fiduciary duty by Reed and Grace because he was an equity owner in the LLC. Although Defendants dispute whether Plaintiff had an equity interest in the LLC, that issue cannot be resolved on this motion to dismiss. (See Discussion supra, at Point II(D)(2).) As noted above, corporate directors owe a fiduciary duty to the corporation's shareholders under Colorado law. See Security Nat'l Bank, 39 Colo.App. at 350, 569 P.2d 875. Accordingly, as Reed and Grace were directors of the LLC, they owed
As discussed supra at Point II(A)(3)(c), Plaintiff has alleged adequate facts to support piercing the corporate veil in order to assert personal jurisdiction over Reed and Grace. Beyond contesting the accuracy of Plaintiff's allegation that Reed and Grace personally own the MDA, Defendants have failed to offer any legitimate reason why the Court should not also accept Plaintiff's veil-piercing allegations for purposes of Defendant's Rule 12(b)(6) motion. Thus, to the extent Plaintiff adequately states claims against the LTD, his claims against Reed and Grace should also be permitted to stand at this juncture.
As for Plaintiff's claims against the LLC, Plaintiff, as already noted, has adequately alleged that the LLC was the LTD's successor in interest for at least a portion of the relevant time period. See CMCB Enters. v. Ferguson, 114 P.3d 90, 93 (Ct.App.Colo.2005) ("when there is a continuation of directors, management, and shareholder interest," the successor entity will be liable for the obligations of its predecessor). Defendants fail to explain why, if taken as true, the LLC's alleged status as the LTD's successor would not support Plaintiff's claims against the LLC; instead, Defendants merely dispute the facts concerning the LLC's operations and status. (See generally Def. Mem. at 21-29.) As Plaintiff has introduced plausible allegations that the LLC, not the LTD, operated as "Reed Group" throughout 2005, Defendants' efforts to dispute these facts are insufficient to support Rule 12(b)(6) dismissal.
In sum, insofar as Plaintiff has stated claims against the LTD for breach of contract, quantum meruit, promissory estoppel, breach of fiduciary duty, and unjust enrichment, he has also stated such claims as against Reed, Grace, and the LLC, and such claims against these defendants should not be dismissed.
For all of the foregoing reasons, I hereby recommend that Defendants' motion to dismiss the Amended Complaint or in the alternative transfer the case (Dkt. 28) be resolved as follows:
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties shall have fourteen
Dated: New York, New York, January 24, 2011.
