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R.H. DAMON & CO. v. SOFTKEY SOFTWARE PRODS.

February 4, 1993

R.H. DAMON & CO., INC., DAMON D. TESTAVERDE, RONALD I. HELLER and DONALD M. KLEBAN, Plaintiffs,
v.
SOFTKEY SOFTWARE PRODUCTS, INC., JAMES ANTHONY and MICHAEL PERIK, Defendants.


Duffy


The opinion of the court was delivered by: KEVIN THOMAS DUFFY

MEMORANDUM & ORDER

KEVIN THOMAS DUFFY, D.J.:

 Plaintiffs R.H. Damon & Co. ("Damon"), Damon D. Testaverde, Ronald I. Heller, and Donald Kleban commenced this action on March 18, 1992, against defendants Softkey Software Products, Inc. ("Softkey"), Michael Perik and James Anthony. On May 7, 1992, defendants moved to dismiss the complaint pursuant to Fed. R. Civ. P. 9(b), 12(b)(1) and 12(b)(6). Defendants also moved pursuant to Fed R. Civ. P. 12(f) for an order striking the plaintiffs' demand for punitive damages.

 I. BACKGROUND

 A. Scope of Review

 When reviewing a motion to dismiss I am required to take the allegations contained in the complaint as true. As a preliminary matter, however, it should be noted that when, on a 12(b)(6) motion, "matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment." Fed. R. Civ. Proc. 12(b). Generally, when deciding a 12(b)(6) motion, courts may not consider documents that the plaintiffs have neither attached to nor incorporated by reference in the complaint. An exception to this aspect of Rule 12(b) has developed, however, for documents submitted by defendants in connection with a 12(b)(6) motion where: (1) plaintiffs have undisputed notice of the contents of such documents; and (2) such documents are integral to the plaintiffs' claim. See Cortec Industries, Inc. v. Sum Holding L.P., 949 F.2d 42, 48 (2d Cir. 1991), cert. denied, 118 L. Ed. 2d 208, 112 S. Ct. 1561 (1992).

 In support of the instant motion to dismiss, defendants have attached, as exhibits to their notice of motion, copies of two documents (the "Warrant Agreement" and the "Option Agreement"). While these documents were neither attached to the complaint nor expressly incorporated therein by reference, *fn1" defendants urge that I consider the Warrant Agreement and the Option Agreement under the aforementioned exception to Rule 12(b) in reviewing the validity of the complaint.

 It appears that the documents at issue fit squarely within the exception to Rule 12(b). Plaintiffs' complaint contains repeated references to both documents. In fact, it is from these two documents that this entire controversy springs. Thus, I must conclude that the documents were integral to the plaintiffs' claims. Additionally, it is incontrovertible that the plaintiff's had notice of the contents of the documents, as they were signatories to both. Thus, I shall, under the exception announced in Cortec, consider the Warrant Agreement and the Option Agreement in conjunction with my review of the complaint's sufficiency. Nevertheless, I am still required to take the allegations contained in the complaint as true.

 B. Alleged Facts

 On or about May 20, 1992, Damon, a New York corporation, and Softkey, a Canadian corporation, allegedly executed the Warrant Agreement whereby Softkey engaged Damon to act as their financial advisor. Compl. P 12. The plaintiffs assert that the Warrant Agreement entitled Damon, or its designees, to 5-year warrants to purchase 150,000 restricted common shares of Softkey stock, at $ 2.35 (Canadian) per share, as compensation for services rendered. Id. at P 13; Warrant Agreement at P 3. The Warrant Agreement further provided that warrants to purchase an additional 150,000 shares, under the same terms and conditions, would issue if the Warrant Agreement remained in full force and effect on December 1, 1990. Compl. P 13. Damon allegedly designated 111,000 warrants to Heller, 51,000 to Testaverde and 36,000 to Kleban, while retaining 102,000. Id. at P 16.

 In or about July of 1990, the parties executed the Option Agreement, dated for reference May 4, 1990, whereby Softkey granted Damon options to purchase 150,000 shares of Softkey's capital stock at $ 2.35 (Canadian) per share in consideration for Damon's services. Id. at P 27; Option Agreement at P 1. During negotiation of the Option Agreement defendants Anthony and Perik, acting on behalf of Softkey, supposedly represented to plaintiff, Kleban, acting on behalf of Damon, that the Option Agreement would provide options to Damon on the same terms as the warrants granted pursuant to the Warrant Agreement. Compl. at P 47. Damon assertedly believed the options would remain exercisable for five years and that they would become entitled to options to purchase an additional 150,000 shares of Softkey's capital stock on December 1, 1990 should the Option Agreement remain in effect until that date. Damon allegedly designated 111,000 optioned shares to Heller, 51,000 to Testaverde and 36,000 to Kleban, while retaining 102,000. Id. at P 30. Plaintiffs further assert that, by letter dated July 31, 1990, Softkey agreed that, upon plaintiffs' exercise of 75,000 options, Softkey would grant plaintiffs an additional 75,000 options at the then market value. Id. at P 31.

 By letter dated January 2, 1991, Softkey allegedly terminated Damon effective retroactively to November 30, 1990. Id. at P 53. Plaintiffs further allege that by letter dated August 13, 1991 Softkey refused to honor plaintiffs' options to purchase stock claiming that the exercise thereof violated both the terms of the Option Agreement and the rules of the Toronto Stock Exchange ("TSE"). Id. at P 54. Fifteen months after notification of termination by Softkey, on or about March 18, 1992, plaintiffs filed the instant action alleging that Softkey acted improperly when it rescinded the warrants and/or options granted to Damon under the Warrant Agreement and Option Agreement.

 C. Plaintiffs' Claims

 Plaintiffs' complaint sets forth eleven claims: (1) for a declaratory judgement determining the rights and obligations of the parties under the Warrant Agreement; (2) for breach of the Warrant Agreement and money damages against Softkey; (3) for specific performance of the Warrant Agreement by Softkey; (4) for a declaratory judgement determining the rights and obligations of the parties under the Option Agreement; (5) for breach of the Option Agreement and money damages against Softkey; (6) for specific performance of the option Agreement by Softkey; (7) against all defendants for violation of § 10(b) of the Securities and Exchange Act of 1934 (the "'34 Act") and Rule 10b-5 promulgated thereunder; (8) against Perik and Anthony for ...


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