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KAPPEL v. COMFORT

February 15, 1996

JOSEPH J. KAPPEL and GAMMA INVESTMENT CORPORATION, Plaintiffs, against WILLIAM T. COMFORT, RICHARD E. MAYBERRY, JR., KILIN TO, DAVID F. THOMAS, PETER E. GERRY and JOHN R. WHITMAN, Defendants.


The opinion of the court was delivered by: MUKASEY

OPINION AND ORDER

 MICHAEL B. MUKASEY, U.S.D.J.

 Defendants have moved to stay this action pending resumption or conclusion of related litigation in Pennsylvania, and defendant John R. Whitman has moved pursuant to Fed. R. Civ. P. 12(b)(2) to dismiss for failure to serve process in accordance with Fed. R. Civ. P. 4(e) and N.Y. Civ. Prac. L. & R. 308(2). For the reasons and to the extent set forth below, both motions are granted.

 I.

 The complaint in this case alleges that the defendants, as employees of Citibank Venture Capital Ltd. ("CVC"), agreed in 1991 to sell to plaintiff Kappel, apparently acting on behalf of plaintiff Gamma Investment Corporation, certain stock, principally Class B common stock, in an entity called Vectura Group Inc. that operated as a holding company. Kappel alleges he is a resident of McKees Rocks Pennsylvania; Gamma is said to reside at the same address as Kappel. Jurisdiction is based on diversity of citizenship. 28 U.S.C. ยง 1332. The complaint asserts that Kappel, through another entity he controlled called NBL, offered in December 1990 to buy this stock from defendants and from CVC and David Wagstaff III for $ 24 million. Neither CVC nor Wagstaff is named as a defendant.

 The complaint alleges that Kappel then arranged financing from US West Financial Corporation in Kansas City and obtained from US West in December 1990 a commitment to finance the purchase of Vectura Class B common stock. Oddly, the complaint alleges that Kappel was acting in or before December 1990 "in reliance on defendants['] intent to sell their Vectura stock interests" (Cmplt. P 16), although it is not alleged that any defendant had made a commitment earlier than January 10, 1991 to sell the stock. On that date it is alleged that defendant Richard E. Mayberry, Jr., a CVC vice president, signed a letter of commitment to sell the stock.

 In any event, the complaint then alleges that Kappel, in reliance on the commitment to sell Vectura Class B common stock, arranged with certain unspecified persons to buy Vectura Class A and B preferred stock when NBL bought that stock from CVC and Wagstaff. The complaint alleges that NBL, which is not a party to this action, acting in reliance on the defendants' acceptance of Kappel's offer to purchase the Class B common stock, itself bought from defendants class A and B preferred stock and then sold that stock to various purchasers in March 1991 at a "discount" of $ 276,000. (Cmplt. P 21)

 The complaint alleges further that Kappel executed unspecified "documents" with US West Financial on April 8, 1991 (Cmplt. P 23), but that he was told on April 9 by defendant Mayberry and by Wagstaff, who is not a defendant, that defendant William T. Comfort had changed his mind. (Cmplt. P 24) In late April 1991, Kappel allegedly was told by Comfort in the presence of other defendants that the deal would not go through because the defendants' Vectura stock was worth more than they had agreed to sell it for. (Cmplt. P 27) Plaintiffs claim that as a result they suffered an unspecified "severe economic loss." (Cmplt. P 28)

 In its final paragraphs, the complaint alleges that Vectura management shareholders, presumably including some of the defendants, reaped benefits in 1992 based on a valuation of Vectura at up to $ 47 million, and that Vectura in October 1992 controlled assets worth upward of $ 62 million. (Cmplt. PP 29, 30)

 These factual allegations are said to give rise to a claim for breach of contract in the amount of $ 20 million, and a claim for fraud in the amount of $ 20 million. How plaintiffs suffered identical fraud and contract damages is not explained, nor is it explained how plaintiffs could have suffered any fraud damages at all beyond Kappel's carfare to and from US West in April 1991, which was the only act he took after receiving any alleged commitment to buy stock, or how NBL could have been acting in reliance on defendants' commitment to sell one class of stock by buying and then selling at a loss another class of stock, or why that is at all relevant when one considers that NBL is not a party to this litigation.

 This complaint sounds like the second reel of a movie; the first reel apparently was shown in Pennsylvania before the current complaint was filed here. According to the affidavits of Mayberry, sworn to July 30, 1993, and of defense counsel Peter A. Bellacosa, Esq., sworn to September 11, 1995, which plaintiffs have disputed only in irrelevant particulars, the plot in the first reel unfolds something like this: In January 1991 Kappel was president of Vectura. He then offered to buy the investment of defendants and of CVC and Wagstaff in Vectura. The deal was supposed to close by March 31, 1991, but failed to do so when Kappel failed to provide timely financing. (Mayberry Aff. PP 2-5)

 In December 1992 Vectura discovered that Kappel had allegedly defrauded the company of millions of dollars in cash and other assets. Kappel was forced to resign and the company in March 1993 filed a complaint against Kappel and others in the U.S. District Court for the Western District of Pennsylvania (the "Vectura case"). (Mayberry Aff. P 8, Ex. D)

 In June 1993, Kappel and Gamma, plaintiffs here, filed an action in the state courts of Pennsylvania against CVC, Wagstaff and the defendants named in the current complaint in this court, alleging, as they do here, breach of contract to sell Vectura stock, and fraud ("plaintiffs' Pennsylvania case"). The complaint in plaintiffs' Pennsylvania case and in the case at bar read virtually word for word in their factual allegations. Defendants in plaintiffs' Pennsylvania case removed that action to the U.S. District Court for the Western District of Pennsylvania. In October 1993 that Court dismissed for lack of jurisdiction both claims against the defendants now sued in this court, and dismissed the fraud claim as to all defendants. (Bellacosa Aff. PP 3-7)

 In December 1993, the government filed civil forfeiture complaints against Kappel and Gamma in the Western District of Pennsylvania (the "government cases"), based in part on the alleged Vectura fraud that was already the subject of the Vectura case. In addition, Kappel was informed by the United States Attorney for that ...


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