The opinion of the court was delivered by: CHARLES S. HAIGHT, JR.
In this commercial action where the parties' citizenship is not diverse, the Court's subject matter jurisdiction depends upon whether plaintiff owns an interest in what may be characterized as a "security" under the Securities Exchange Act of 1934, 15 U.S.C. § 78c(a)(10). Contending that plaintiff does not, defendants move to dismiss the amended complaint under Rule 12(b)(1), Fed.R.Civ.P., for lack of subject matter jurisdiction.
Plaintiff GBJ Corporation ("GBJ") is a Delaware corporation with its principal place of business in East Northport, New York. It provides consulting services in connection with leveraged leases of equipment.
Defendant Sequa Corporation ("Sequa") is a Delaware corporation with its principal place of business in New York City. Defendant Sequa Capital Corporation ("SCC"), formerly known as Forsun Leasing Corporation ("Forsun"), is a New York corporation with its principal place of business in New York City. SCC is a wholly-owned subsidiary of Sequa. During the pertinent times Forsun acquired a leveraged lease portfolio of equipment which it leased to third parties. More recently SCC (the successor to Forsun) has sold some of those leveraged leases and intends to sell more.
Defendant BT Securities Corporation New York ("BTSC") is a New York corporation with its principal place of business in New York. BTSC is assisting SCC in the offering of the latter's leveraged leases to the public for sale.
On July 15, 1985 Forsun and GBJ entered into a consulting agreement whereby GBJ agreed to act as a consultant to Forsun and to furnish services with respect to the arranging of financing for the acquisition of equipment, arranging for third party leases of that equipment, and related activities. The consulting agreement describes the business of Forsun as "acquiring capital equipment and leasing same to third parties on either financing leases or operating leases." Page 1, Recital 1.
GBJ's compensation for these services is covered by P 2 of the agreement, which provides in pertinent part:
Forsun shall pay to consultant for the services which it shall perform as provided for herein a fee equal to 1/2 of 1% of the cost of any and all equipment which Forsun acquires and leases to third parties during the term of this Agreement plus an amount equal to 10% of the residual value of all such equipment; provided that the amount of the residual value payable to Consultant for each equipment purchase shall not exceed 10% of the original cost of such equipment. Residual value for this purpose shall mean all proceeds from the sale of equipment after payment for and deduction of the balance of all costs and debts related to the acquisition of the equipment and the sale thereof, and any other revenues which Forsun shall receive with respect to any such equipment after expiration of the primary term of the leases thereof and after payment in full of any debt incurred in the acquisition of any such equipment, less any direct costs associate [sic] with producing such other revenues. Payment of the 1/2 of 1% fee upon acquisition of equipment shall be made at the closing for the acquisition of the equipment. Payment for same may be made directly by Forsun, by the lending institution providing debt financing to acquire the equipment, by the leasee [sic] of the equipment, or by any other party to the transaction; provided, however, consultant shall only be entitled to receive one payment for each transaction. Payments with regard to residual values shall be made when received by Forsun.
Evidently the business prospered at first. In its amended complaint GBJ alleges at P 10 that, as the result of GBJ's performance of its obligations under the consulting agreement, "SCC secured a leveraged lease portfolio of approximately one billion ($ 1,000,000,000) Dollars."
The amended complaint further alleges that GBJ's standard fee for its services in connection with leveraged leases was from 1.5% to 3% of the cost of the leased equipment, plus reimbursement of direct expenses, payable in its entirety "upfront" at the closing of the leveraged leases, with no participation with GBJ in the residual value of the leased equipment. In this transaction, however, GBJ agreed "not to receive a normal commission, but instead agreed to receive a fee upfront of at least 1% less than the standard fee in return for a 10% residual interest in the equipment of the leveraged leases in the portfolio," Id. at 13-14. GBJ likens that compensation arrangement to an investment by it of "an aggregate of at least $ 10 million on the closing of the various leveraged leased transactions through the acquisition of its 10% residual interest," and a receipt by SCC and Sequa of "an immediate cash benefit of at least $ 10 million in acquiring SCC's leveraged lease portfolio." Id. at PP 14-15.
It appears from the motion papers that as certain leases expired, a gifted SCC executive negotiated favorable sales of the leased equipment, and GBJ received significant and profitable payments based upon the agreed-upon 10% of the residual value. But GBJ is now aggrieved because, as alleged in the amended complaint, Sequa has announced it is discontinuing six of its business units, including SCC, and in furtherance of that decision SCC is preparing to sell the remaining leveraged leases and the equipment which is the subject of them. BTSC, retained by SCC as its exclusive agent in connection with such sales, has offered eight leveraged leases and the equipment covered by them for sale through a private placement offering memorandum dated October 1991. Those eight leveraged leases cover equipment with a total cost of about $ 288 million. Three of the eight leveraged leases covered by the offering memorandum were sold in December 1991 "without disclosing plaintiff's interest therein," Amended Complaint at P 24. Defendants are charged with planning to sell the remaining five "to one or more persons without disclosing plaintiff's equity interest therein." Id. GBJ further alleges that SCC intends to offer for sale numerous other leveraged leases subject to the terms of the consulting agreement "without disclosing plaintiff's interest in said leases." Id. at P 25.
In these circumstances, GBJ asserts as a first cause of action a claim against SCC and BTSC that they violated section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78(j)(b), and SEC Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. GBJ alleges six additional state and common ...