The opinion of the court was delivered by: ROBERT J. WARD
Defendants Asland, S.A. ("Asland"), Joaquin Bertran, Miguel del Campo, Alberto Vinolas and Joaquin Targhetta have moved to dismiss plaintiffs' Amended Complaint, pursuant to Rule 12(b), Fed. R. Civ. P., and/or, in the alternative, for summary judgment pursuant to Rule 56, Fed. R. Civ. P. For the reasons that follow, defendants' motion is granted in part and denied in part.
At the heart of this litigation is the Sugarloaf Mine, which is located in Arkansas and operated by the Sugarloaf Mining Corporation ("SMC"). In 1982, plaintiff Southern States Corporation ("SSC") acquired SMC, financing the acquisition, in part, through loans from Banco Portugues Do Atlantico ("BPA").
By late spring of 1985, SSC and SMC were in financial trouble and defaulted on their loans from BPA, resulting in judgments in excess of $ 5 million in favor of BPA against SSC and SMC. Plaintiffs allege that it was around this time that defendant Bertran, who was chairman of Asland during the entire period relevant to this case, was experiencing serious personal financial difficulties and initiated a fraudulent scheme, designed to funnel funds to himself so that he could pay off his personal debts. Amended Complaint P 27. Asland already had a relationship with SMC as it had been buying coal from SMC and Koal Industrial Corporation ("KIC"), SMC's mining contractor, since October 1984.
Plaintiffs allege that Bertran met with representatives of SSC, SMC and BPA in Dallas, Texas on June 6, 1985 and falsely represented Asland's interest in the Sugarloaf Mine, its enormous need for coal, and its long-term plans in the United States in order to induce SSC, SMC and BPA to enter into transactions with Asland which would personally benefit Bertran. Amended Complaint PP 28, 29. To this end, Asland's earlier contract with SMC was replaced in August 1985 by a new five-year agreement between Asland and KIC, wherein Asland agreed to purchase 300,000 metric tons of coal annually from KIC. Amended Complaint P 30.
Plaintiffs allege that Bertran, whose personal financial situation had reached a "desperate" stage by December 1985, caused Asland to replace the August 1985 contract with a new and more substantial contract. This contract ("the December 1985 Coal Contract") committed Asland to purchase 300,000 metric tons of coal annually for seven years or the life of the mine, whichever was longer. The contract also provided that its object was to establish a long-term relationship between Asland and KIC whereby Asland would purchase the total production of the Sugarloaf Mine. The purpose of the new contract, it is alleged, was to underscore Asland's commitment to the Sugarloaf Mine and thereby convince BPA, SSC, SMC, KIC, Earl H. Powers (the sole shareholder and president of KIC) and others to enter into transactions from which Bertran would personally benefit. Amended Complaint PP 31, 32 and 34.
Also during December 1985, meetings took place in the United States between Bertran, del Campo and Vinolas, officers of Asland, and Joaquin de Navasques, a principal shareholder of SSC. Bertran, del Campo and Vinolas proposed to de Navasques that Asland, SMC and KIC become partners in three new corporations: Koal Industries International, Inc. ("KII"), European Energy Corporation ("EEC") and Daylight Holdings, Inc. ("DLH") (collectively "the Coal Group"), to be formed for the purpose of mining and marketing Sugarloaf Mine coal and owning the reserves of the mine. Bertran also recommended that control of the Sugarloaf Mine be vested in the Coal Group as SSC and SMC were financially unsuitable to serve as operating companies. Plaintiffs allege that Asland falsely represented that formation of the Coal Group would help SMC and SSC in repaying their loans from BPA and also would generate funds for the Coal Group to acquire equipment and to increase production. Plaintiffs allege that the underlying, principal object of these transactions was to obtain money for Bertran's personal use and to protect Asland with respect to the December 1985 Coal Contract by providing Asland with control over the operations of the mine through Asland's ownership and control of the Coal Group. Further, plaintiffs allege that Asland, through its position of control, could sabotage the production of coal when the price of coal under the December 1985 Coal Contract was unfavorable and benefit when the price of coal from the mine was favorable. Amended Complaint PP 34-37.
Plaintiffs allege that Bertran directed de Navasques to organize two new companies, Obanos Minerals, N.V. ("Obanos") and Logostable, N.V. ("Logostable"), to join Asland and KIC as owners of the Coal Group, and that de Navasques would own Obanos, and Bertran, through a fiduciary, would own Logostable. Bertran, plaintiffs claim, planned to induce plaintiff Powers or Walter Hediger, president of plaintiff Tele Concert Promotions, Inc. ("TCP"), to invest in Obanos and Logostable and to misappropriate those proceeds for his personal use. Amended Complaint P 38.
Throughout December 1985 and January 1986 numerous negotiations and meetings took place in New York relating to Bertran's proposals. At those meetings, plaintiffs allege that Bertran, Vinolas and del Campo (for Asland) falsely represented to de Navasques (for SSC and SMC) and Powers (for KIC) that:
(a) Powers would be in charge of mining operations and would be chief executive officer of EEC with full authority to enforce a new coal supply agreement which was anticipated to be entered into between Asland and EEC;
(b) Asland possessed the technical skills and expertise to solve the Sugarloaf Mine's problems and make it highly profitable:
(c) Asland would perform in good faith all of its obligations under the anticipated coal supply agreement and would ensure that the Coal Group did the same;
(d) KIC would earn $ 4.00 - $ 4.75 per ton on coal produced and sold to Asland under the proposed coal supply agreement.
On December 30, 1985, Bertran met with BPA in New York and, according to plaintiffs, represented to BPA that the Coal Group, through purchases of new coal leases, would increase the value of the reserves that SMC had pledged to BPA. He also allegedly falsely represented that Asland viewed this project as the beginning of an investment program in the United States. Asland's senior management also had discussions with BPA in early January 1986, wherein Asland (1) reiterated its commitment to purchase all of the Sugarloaf Mine's coal; (2) stated that this commitment would be a sufficient guarantee of the timely payment of all the BPA loans; and (3) indicated that the Coal Group would be profitable. At the same time, Asland, through telephone conversations and exchange of telexes, sought and obtained BPA's agreement that Asland employees would at all times hold 50% of the seats on the board of directors of each company in the Coal Group. The Coal Group was formed in February 1986. Each company in the group was capitalized at $ 1,000 and was owned 40% by Asland, 25% by KIC, 25% by Obanos and 10% by Logostable. In addition, Asland had the option to purchase Logostable's 10% interest for $ 1 million and thus increase its holding to 50%. Amended Complaint P 47.
It was on the strength of Asland's commitment to the Sugarloaf Mine, reflected by the December 1985 Coal Contract with KIC and its newly acquired interest in the Coal Group, that BPA decided to lend millions of dollars to the Coal Group. Amended Complaint PP 40-45.
Plaintiffs further allege that at the same time Asland spoke of its long-term commitment to the Sugarloaf Mine, it was purchasing coal and other fuel for its cement business at cheaper prices from other sources and thus had no intention of complying with the proposed coal supply agreement with EEC. Amended Complaint P 46.
KIC was induced by defendants, plaintiffs allege, to surrender its rights under the December 1985 Coal Contract and to operate the Sugarloaf Mine in return for a 25% ownership interest in the Coal Group and Asland's assurances that Powers (of KIC) would manage the mine and direct its sales and marketing operations under the proposed coal supply agreement between Asland and EEC. Amended Complaint P 48.
On February 12 and March 14, 1986, SSC, SMC, the Coal Group, Obanos, Logostable, Powers, de Navasques, BPA and Asland entered into a series of interconnected transactions (collectively "the March 1986 Agreements") through which the existing BPA loans were restructured and new BPA loans were made. These transactions, all negotiated in New York, included:
(a) a new five-year coal supply agreement between EEC and Asland, dated February 12, 1986 and amended as of March 14, 1986 (the "Coal Supply Agreement"), whereby Asland agreed to purchase 300,000 metric tons of coal per year from EEC at prices which would cover the operating expenses of the mine and enable the Coal Group to timely repay all obligations to BPA. Bertran and Asland represented to all that the Coal Supply Agreement was superior and paramount to all other guarantees executed by any party to the transactions then being entered into;
(b) a Security and Loan Agreement, dated February 12, 1986, wherein BPA agreed to: (i) lend KII and DLH $ 4.3 million and $ 1.6 million respectively for the payment of SSC's and SCM's existing obligations and the purchase and repair of equipment; and (ii) enter into a Revolving Credit Agreement with EEC for loans up to $ 1.9 million for working capital for the Sugarloaf Mine;
(c) Guarantees given to BPA regarding the above loan facilities: (i) Guarantees by SMC, KII, DLH and EEC of each other's obligations and the obligations of any other obligor under any other provision of the Security and Loan Agreement; (ii) Guarantees by Powers and de Navasques, not to exceed $ 2 million each, for the obligations of each member of the Coal Group and SMC under the Security and Loan Agreement; (iii) a Revolving Credit Guarantee by Asland, Obanos, Logostable and KIC whereby each guaranteed a percentage of EEC's obligations under the Revolving Credit Agreement and the $ 1.9 Promissory Note equivalent to the percentage held by each of them in the Coal Group;
(d) agreements by which SSC would transfer: (i) 66% of SMC's stock to DLH after certain conditions were met;
(ii) SMC's mining and processing equipment, having value in excess of $ 3 million, to KII, in return for KII's assumption of over $ 5 million in judgment debts owed by SMC and SSC to BPA and DLH's commitment to pay SMC an overriding royalty of $ 1.00 - $ 1.33 per ton on coal produced;
(e) a Coal Mining Agreement between DLH and SMC granting DLH the right to mine coal from the SMC leases, which rights DLH assigned to KII; and
(f) an Intercompany Agreement, wherein KII granted to EEC the exclusive right to market and sell all coal mined by KII.
At meetings during approximately the same time as the closing of the March 1986 Agreements, plaintiffs allege that del Campo again declared to de Navasques, Powers, BPA and others that the Coal Supply Agreement was the primary guarantee for all parties' obligations to BPA. Amended Complaint P 50.
Simultaneous with the negotiations of the March 1986 Agreements, Bertran allegedly put into effect a key component of his fraudulent scheme, i.e. the sale of Obanos and Logostable in return for $ 1 million, to be used, inter alia, for his personal benefit. During meetings in late 1985 and early 1986 (and prior to the closing of the March 1986 Agreements), Bertran told Hediger, who was acting for TCP, that the Coal Group would need working capital because the $ 1.9 million Revolving Credit Line to EEC could not be drawn upon until coal was actually shipped from the mine. Bertran proposed that TCP provide "bridge financing" to the Coal Group in the form of an investment in Obanos and Logostable, and that Bertran would arrange for 80% of the stock of Obanos and 100% of the stock of Logostable to be sold to TCP for $ 2 million.
It is alleged that Bertran, as Asland's chairman, falsely represented that: (i) Asland would, within one year, exercise its option to purchase Logostable for $ 1 million, thereby repaying $ 1 million to TCP; (ii) the Sugarloaf Mine would be highly profitable and that Obanos' 25% interest in the Coal Group would be very valuable, i.e., if 10% was worth $ 1 million, then 25% would be worth $ 2.5 million; (iii) each member of the Coal Group was a viable, highly profitable operating corporation; (iv) the Coal Supply Agreement guaranteed the operations of the Coal Group would be highly profitable for many years; and (v) over a five-year period, the Coal Group would produce, sell and deliver to Asland quantities of coal aggregating over 3 million metric tons. Bertran never disclosed his ownership interest in Obanos and Logostable to Hediger. Amended Complaint PP 55-58.
At subsequent meetings during March 1986, in Switzerland, Bertran allegedly repeated his fraudulent representations. He presented a prospectus to Hediger, which plaintiffs allege de Navasques prepared at the direction of Bertran, regarding the proposed sale of Obanos and Logostable. In that prospectus, Bertran represented, inter alia, that Asland's performance of the Coal Supply Agreement would result in full payment of all debts owed to BPA and cover all costs involved in selling coal, and that this "'captive market provides practically nil risk factor to this venture.'" Amended Complaint P 59, quoting from the prospectus.
In reliance upon the representations made by Bertran and those contained in the prospectus, Hediger, on behalf of TCP, agreed in a written document dated March 25, 1986, with the owner/seller of Logostable and Obanos ("the TCP Agreement") to provide "bridge financing" of $ 2 million by acquiring 80% of the stock of Obanos and 100% of the stock of Logostable. The TCP Agreement specifically referenced the Coal Supply Agreement and Security and Loan Agreement and stated Asland held a one-year option to purchase 100% of the stock of Logostable for $ 1 million. In conjunction with the TCP Agreement, TCP paid Bertran $ 500,000 on or after March 25, 1986. Plaintiffs allege that, in October 1986, Bertran telephoned de Navasques in the United States and asked him to request another $ 500,000 from TCP. That additional $ 500,000 was paid in October 1986. The latter payment resulted in several meetings between Hediger and Bertran, between October 31 and November 3, 1986 in Zurich, wherein Bertran allegedly caused Asland to extend its time to exercise the option until June 16, 1987, in order to convince Hediger of Asland's commitment. Amended Complaint P 69. It is alleged that none of the monies paid by TCP were used for the benefit of the Coal Group and that at least $ 400,000 of the proceeds were diverted to Promociones Immobiliarias Golf de Ibiza, 5A (PIGISA), which owned a golf course in Ibiza, Spain, and in which Bertran had a substantial ownership interest. This payment allegedly allowed PIGISA to meet obligations which Bertran had personally guaranteed. Other monies from the TCP Agreement, plaintiffs allege, were used by Bertran to pay additional personal debts. Also, Asland did not exercise its option to purchase Logostable. Thus, the $ 1 million that TCP had paid in 1986 was never returned. Amended Complaint PP 60-62.
At a KII board of directors meeting on April 30, 1986, and in a telex from Vinolas to Powers on May 8, 1986, Asland insisted that all efforts were to be made to place amounts of coal on the domestic and international markets so that Asland would be obligated to purchase only a minimum amount from the Sugarloaf Mine under the Coal Supply Agreement and that it wanted to be only a subsidiary resource for the purchase of coal. As Asland was only obligated to purchase what EEC could deliver, it could reduce its obligation by reducing production. Moreover, Asland had caused a provision to be included in the Coal Supply Agreement whereby any coal sold to third parties at prices equal to or greater than those under the Agreement would reduce the 300,000 metric tons which Asland was obligated to purchase. Amended Complaint P 52. However, according to plaintiffs, the May 8, 1986 telex also contained statements in which Vinolas falsely and fraudulently represented that Asland still deemed the Coal Supply Agreement to be in effect and would comply with its terms. Amended Complaint PP 63-64.
It is alleged by plaintiffs that although Powers remained the nominal head of operations at the Sugarloaf Mine, Asland insisted its managers, technicians and other employees who were sent to the mine from Spain have authority over operations at the mine. Few of these employees had any coal mining experience and most spoke little or no English. Plaintiffs claim that in June 1986, Bertran telephoned de Navasques and directed him to telephone Powers and tell him that mining operations would be conducted by Asland personnel and that Powers should restrict his activities to marketing. Amended Complaint PP 65-66.
Plaintiffs claim that contrary to its representations, Asland did not use the Sugarloaf Mine to satisfy its coal needs, nor did it use its involvement in the mine to expand its United States operations. From the outset, it is alleged, Asland managed the mine in such a manner as to make performance of the Coal Supply Agreement impossible. Amended Complaint P 67.
They further allege that due to Asland's mismanagement of the Sugarloaf Mine and Bertran's failure to turn over the $ 1 million in "bridge financing" from TCP, the mine ran out of funds and ceased activity in May 1987. Thus, the Coal Group was unable to make payments on the BPA loans, thereby causing BPA to declare the default of those loans and to commence proceedings to enforce the various guarantees executed in conjunction with the BPA loans. Amended Complaint P 71.
BPA instituted suit in this Court on the Security and loan Agreement and the loans made thereunder against the Coal Group, Powers, SMC and KIC (89 Civ. 0945) (Case I) and against Asland, Logostable, Obanos, de Navasques, Bertran, del Campo, Vinolas and Targhetta (89 Civ. 4970) (Case II). The present suit, 89 Civ. 6033, is referred to by the parties as Case III. Regarding Case II, which was dismissed with prejudice in November, 1990, defendants Asland, Bertran, del Campo, Vinolas and Targhetta agreed to a settlement with BPA, dated November 7, 1990. As a result of this agreement, Asland, Bertran, del Campo, Vinolas and Targhetta have submitted a motion to this Court to substitute themselves as plaintiffs for BPA in Case I. That motion was granted on October 27, 1992.
They argue that the Court has no subject matter jurisdiction over TCP's federal securities and RICO claims or, alternatively, that Switzerland is a more convenient forum to resolve TCP's claims. In conjunction with the dismissal of TCP's federal claims, defendants assert that it is also proper to dismiss TCP's non-federal claims. Defendants also argue that plaintiffs' claims against the Asland officers, alleging violations of RICO, federal and Arkansas securities laws, common law fraud, tort and breach of fiduciary duty are time-barred as they do not relate back to the date of the original complaint and the limitations periods for the subsequent claims have expired and must therefore be dismissed.
In addition, defendants contend that plaintiffs' RICO claims do not allege a "pattern of racketeering activity", which is required in order to plead a violation under 18 U.S.C. § 1962, and must therefore be dismissed for failure to state a claim. Finally, defendants assert that the following common law claims by plaintiffs must be dismissed for failure to state a claim: TCP's contract claim; TCP's claims for tortious interference with contracts; and the non-Coal Group's (KIC, SSC, TCP and Powers) claims for breach of fiduciary duty.
A. Standards for Dismissal Pursuant to Rule 12(b)(6) and Summary Judgment Pursuant to Rule 56
In considering a motion to dismiss for failure to state a claim upon which relief may be granted, a court is required to accept the facts alleged in the complaint as true. Frasier v. General Electric Co., 930 F.2d 1004, 1007 (2d Cir. 1991) (citing Cooper v. Pate, 378 U.S. 546, 12 L. Ed. 2d 1030, 84 S. Ct. 1733 (1964)). The complaint includes any written instrument attached to it as an exhibit and any statements or documents incorporated into it by reference. Cortec Industries, Inc. v. Sum Holding L.P., 949 F.2d 42, 47 (2d Cir. 1991), cert. denied, 112 S. Ct. 1561 (1992); Goldman v. Belden, 754 F.2d 1059, 1065-66 (2d Cir. 1985).
The court must read the complaint generously, and draw all reasonable inferences in favor of plaintiffs. Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989) (citing Yoder v. Orthomolecular Nutrition Inst., Inc., 751 F.2d 555, 562 (2d Cir. 1985)); Pross v. Katz, 784 F.2d 455, 457 (2d Cir. 1986). The complaint may be dismissed only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957); Branum v. Clark, 927 F.2d 698, 705 (2d Cir. 1991) Thus, "the function of a [Rule 12(b)(6)] motion to dismiss 'is merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof.'" Ryder Energy Distribution Corp. v. Merrill Lynch Commodities Inc., 748 F.2d 774, 779 (2d Cir. 1984) (quoting Geisler v. Petrocelli, 616 F.2d 636, 639 (2d Cir. 1980)).
Summary judgment may be granted when the moving party establishes "that there is no genuine issue as to any material fact and that the moving party is entitled to relief as a matter of law." Fed. R. Civ. P. 56(c); Rosen v. Thornburgh, 928 F.2d 528, 532 (2d Cir. 1991). If no rational fact finder could find in the nonmovant's favor, there is no genuine issue of material fact and summary judgment is appropriate. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). In making this determination, the court is not to resolve disputed issues of fact, but rather, while resolving ambiguities and drawing reasonable inferences against the moving party, to assess whether material factual issues remain for the trier of fact. Western World Ins. Co. v. Stack Oil, Inc., 922 F.2d 118, 121 (2d Cir. 1990) (quoting Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 11 (2d Cir. 1986), cert. denied, 480 U.S. 932, 94 L. Ed. 2d 762, 107 S. Ct. 1570 (1987)).
As an initial matter, the moving party must show that there is no genuine issue of material fact by relying on "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits." Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). In asserting that there is a genuine issue for trial, the nonmoving party may not rest upon the mere allegations or denials in the nonmoving party's pleading. Rather, the nonmoving party's response must set forth, by affidavit or other form as indicated in Rule 56, specific facts showing that there is a material issue for trial. Fed. R. Civ. P. 56(e); Law Firm of Daniel P. Foster, P.C. ...