The opinion of the court was delivered by: SCHEINDLIN
SHIRA A. SCHEINDLIN, U.S.D.J.
This case involves claims arising out of plaintiffs' relinquishment of stock conversion rights. Defendants have moved to dismiss plaintiffs' claims for violations of sections 10(b)and 20(a) of the Securities and Exchange Act, breach of contract, common law fraud and breach of duty. For the following reasons, plaintiffs' federal claims are dismissed. Because I decline to exercise jurisdiction over the remaining state law claims, this case is also dismissed.
Dismissal of a complaint pursuant to Fed.R.Civ.P. 12(b)(6) is proper "only where it appears beyond doubt that the plaintiff can prove no set of facts in support of the claim which would entitle him to relief." Scotto v. Almenas, 143 F.3d 105, 109-10 (2d Cir. 1998) (quoting Branham v. Meachum, 77 F.3d 626, 628 (2d Cir. 1996)) (internal quotations omitted). "The task of the court in ruling on a Rule 12(b)(6) motion '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.'" Cooper v. Parsky, 140 F.3d 433, 440 (2d Cir. 1998) (quoting Ryder Energy Distribution Corp. v. Merrill Lynch Commodities, Inc., 748 F.2d 774, 779 (2d Cir. 1984)). Thus, in deciding such a motion, the court must accept as true all material facts alleged in the complaint and draw all reasonable inferences in the nonmovant's favor. See Thomas v. City of New York, 143 F.3d 31, 36 (2d Cir. 1998).
Plaintiff Chalam Advertising, Inc. ("Chalam") is a New York corporation specializing in real estate advertising. Plaintiffs Nathan A. Chavin ("Chavin") and Lanny Lambert ("Lambert") were, prior to January 14, 1994, the sole officers, directors and shareholders of Chalam. See First Amended Complaint ("Cmplt."), at P 1. Defendant TMP Worldwide, Inc. ("TMP") is a Delaware corporation with its primary place of business in New York. Defendant Andrew J. McKelvey ("McKelvey") is TMP's president.
For purposes of this motion, the following facts are assumed to be true. On January 14, 1994, TMP, Chalam, Chavin and Lambert entered into a series of contracts creating a joint venture between Chalam and TMP, including a stock purchase agreement pursuant to which TMP purchased fifty percent of Chalam's stock and an operating agreement between Chalam and TMP. See id. at P 6, Ex. 1. In addition, Chalam entered into employment agreements (the "Prior Employment Agreements") and consulting agreements with both Chavin and Lambert. See id. at P 6; Affidavit of Nathan A. Chalam, at Ex. 3.
Each Prior Employment Agreement provided that it would terminate on January 13, 1997, unless terminated pursuant to the terms of the agreement, and that the agreement "shall be deemed automatically extended for additional one year periods ("Renewal Terms") unless either party notifies the other to the contrary, in writing, at least 30 days prior to the end of [the term]." The termination provision of each Prior Employment Agreement provided that the agreement would terminate automatically upon the termination of the operating agreement, that the employee could terminate upon prior written notice, and that Chalam could terminate only upon the executive's death or "for cause," which was defined as "conviction of a felony," or the executive's incapacity.
As part of this transaction, on January 14, 1994, the parties also entered into an agreement (the "Conversion Agreement") pursuant to which Chavin and Lambert were given the option to convert all of their Chalam stock into TMP stock after TMP effected an initial public offering. See Cmplt. at Ex. 1. This agreement, unlike all of the other agreements executed on that day, did not specify that it terminated on January 14, 1997.
In the later half of 1996, as the expiration date of the agreements approached, McKelvey, Chavin and Lambert began to negotiate successor agreements. See id. at P 11. During this time, employees of TMP advised Chavin and Lambert that McKelvey, believing that the stock conversion formula in the Conversion Agreement was too favorable to Chavin and Lambert and too unfavorable to TMP, wanted to change the formula to reduce the number of shares that Chavin and Lambert would get upon conversion. See id. at P 12. McKelvey then allegedly undertook a series of negotiations with Chavin and Lambert with the objective of causing Chavin and Lambert to part with half of their conversion rights for no or grossly inadequate consideration. See id. at 13.
On or about September 10, 1996, McKelvey drafted a term sheet for interim employment agreements with Chavin and Lambert that would redefine Lambert's and Chavin's job responsibilities with Chalam and would run from September 15, 1996 until December 31, 1996. See id. at P 14, Ex. 2. McKelvey led Chavin and Lambert to believe that he not only wanted them to continue working with TMP, but that he wanted them to target other real estate advertising agencies for TMP to acquire. See id. at P 15. The term sheet provided that if Chavin and Lambert did not wish to continue with the agreement after December 31, 1996, "TMP agrees to return all of the stock to Chavin & Lambert at no cost"; it also provided that if Chavin and Lambert "do not perform their responsibilities as agreed during this trial period, then TMP has the right to also terminate the agreement." The term sheet was not signed by the parties.
During a meeting late in the evening of September 16, 1997, McKelvey told Chavin and Lambert that he wanted them to sign an agreement to "clean-up" their conversion rights because the underwriters for TMP's initial public offering wanted to make the offering more attractive. See id. at P 17. Under the agreement signed by the parties on that date (the "September 16 Agreement"), Chavin and Lambert agreed that instead of converting all of their Chalam stock into TMP stock, they would have the right to convert only half of their stock. See id. at Ex. 3. According to the Complaint, Chavin and Lambert relied upon McKelvey's promise that TMP and Chalam would enter into new employment agreements with them to be effective starting in January 1997, and that these agreements would grant them additional salary compensating them fully for the relinquishment of half of their conversion rights. See id. at P 22.
The September 16 Agreement also specified that Chavin and Lambert retained their conversion rights even if they chose to terminate their employment with Chalam at the end of 1996. McKelvey either misrepresented to Chavin and Lambert, or expressed his mistaken belief, that under the Conversion Agreement, Chavin and Lambert's conversion rights would have otherwise expired on January 15, 1997. See id. at P 19.
After several weeks of negotiations among McKelvey, Chavin, Lambert and their respective legal counsel, the parties entered into a new agreement (the "Letter Agreement"), covering the period from October 7, 1996 until January 13, 1997, which was designated as the "Trial Period." See id. at P 24, Ex. 4. This agreement grants Chavin and Lambert new job responsibilities. See id. at PP 25-27. The Letter Agreement provides that "in the event that at the expiration of the Trial Period, Chavin, Lambert and TMP are satisfied with the results of this trial, Chavin and Lambert shall each enter into new employment agreements with Chalam (collectively, the "New Employment Agreements") in substantially the form of the [Prior Employment Agreements]." See Letter Agreement, at P 2. The Letter Agreement then specifies specific terms that will be included in the New ...