The opinion of the court was delivered by: Scheindlin, District Judge.
Marvin Keith ("Keith" or "Plaintiff") brings this multi-count action
against defendants Black Diamond Advisors, Inc. ("Black Diamond"), Pace
Holdings, LLC ("Pace"), Steven Deckoff, and James Walker III
(collectively, "defendants"), claiming breach of contract, fraud,
tortious interference with economic prospects, conspiracy, breach of
fiduciary duty, intentional infliction of emotional distress, and
violations of federal securities laws under Sections 10(b) and 29(b) of
the Securities Exchange Act of 1934 (the "Exchange Act"),
15 U.S.C. § 78j(b) and 78cc(b), and Rule 10b-5 promulgated
thereunder, 17 C.F.R. § 240.10b-5. Keith asserts that this Court has
subject matter jurisdiction based on (a) complete diversity of
citizenship between the parties and an amount in controversy greater than
$75,000, pursuant to 28 U.S.C. § 1332; (b) a federal question arising
under §§ 10(b) and 29(b) of the Securities Exchange Act of 1934,
pursuant to 28 U.S.C. § 1331; and (c) supplemental jurisdiction for
the remaining pendent state law claims, pursuant to
28 U.S.C. § 1367(a).
Defendants now move to dismiss the Complaint for lack of subject matter
jurisdiction, on the grounds that (1) the citizenship of the parties is
not completely diverse; (2) the federal securities laws and regulations
do not apply to this dispute; and (3) in the absence of jurisdiction
pursuant to 28 U.S.C. § 1331 and 1332, the pendent state law claims
should be dismissed for lack of supplemental jurisdiction pursuant to 28
Plaintiff, together with a small group of investors, formed Eagle
Capital Mortgage, Ltd. ("Eagle, Ltd.") as a vehicle for doing business as
a sub-prime mortgage lender, and Eagle Capital Corp. ("Eagle Corp.") as
the general partner to run the business (collectively, "Eagle").
Complaint ("Cplt.") ¶ 12. As Eagle's promoter, Keith built the
company from its infancy to ultimate profitability through his efforts in
developing a marketing plan, managing the corporate affairs of the Board
of Directors, and obtaining financing. Id. at ¶ 14. Keith alleges
that Black Diamond, a venture capital firm, approached him in 1997,
offering its expertise and connections to assist Eagle in achieving even
greater success. Id. at ¶ 15. Black Diamond made numerous
statements, both written and oral, in offering its services. In reliance
upon these representations, Keith agreed to join in the formation of Pace
with Black Diamond and Philip Milton ("Milton"), one of the original
investors in Eagle. Keith (whose Eagle interests were held by Hanover
Trust, a Texas trust company) and Milton transferred their interests in
Eagle to Pace as their initial contributions to the venture; each
received a 25% interest in Pace. Id. at ¶ 18. To earn its 50% under
the Pace Holding Operating Agreement ("Agreement"), Black Diamond
contributed $150,000 in cash and made certain promises about obtaining
additional financing and helping to make Eagle profitable. Id. at ¶
Keith alleges that once the Agreement was signed, Black Diamond used
its majority interest in Pace and cash-rich position to "squeeze [him]
out of Eagle." Id. at ¶ 32. Keith asserts, inter alia, that
Defendants (1) manipulated him into releasing them for "all of their
prior misconduct," id. at ¶ 36; (2) planned to trigger a capital call
which would dilute Keith's interests, id. at ¶ 38; and (3)
wrongfully appointed three Black Diamond representatives as new Eagle
directors, which stripped Keith of control of the Board of Pace. Id. at
¶ 41. The newly enlarged board eliminated Keith's salary and health
insurance coverage. Id. at ¶ 44.
Keith further alleges that Pace manipulated him into assigning to Pace
his option to purchase co-venturer Dyson's interests in Eagle, when
Keith's purchase of those interests would have given him more leverage in
his negotiations with Pace. See Cplt. at ¶ 23. Additionally, Keith
claims that Defendants pressured him into settling litigation against
Weyand, another former coventurer in Eagle, instituted for breach of
fiduciary duty in connection with Eagle, rather then pursuing a likely
cash judgment. See Cplt. at ¶ 26. Keith alleges that Pace "plainly
was trying to entice [him] into contributing the . . . Eagle interests he
received from the Weyand settlement to Pace." Cplt. at ¶ 46.
Finally, according to Keith, Pace's unwillingness to negotiate
anti-dilution and pro-distribution amendments to the Agreement in Keith's
favor, despite numerous promises to the contrary, evidences Defendants'
bad faith and generally oppressive conduct. See Cplt. at ¶¶ 48-49.
A. Standard of Review under 12(b)(1)
In considering a motion to dismiss for lack of subject matter
jurisdiction, a court must accept as true all material factual
allegations in the complaint and refrain from drawing inferences in favor
of the party contesting jurisdiction. See Atlantic Mut. Ins. Co. v.
Balfour Maclaine International Ltd., 968 F.2d 196, 198 (2d Cir. 1992).
"On a motion under Rule 12(b)(1) challenging the district court's subject
matter jurisdiction, the court may resolve disputed jurisdictional fact
issues by reference to evidence outside the pleadings, such as
affidavits." Antares Aircraft v. Federal Republic of Nigeria, 948 F.2d 90,
96 (2d Cir. 1991), vacated on other grounds, 505 U.S. 1215, 112 S.Ct.
3020, 120 L.Ed.2d 892 (1992). Thus the standard used to evaluate a Rule
12(b)(1) claim is akin to that for summary judgment under
Fed.R.Civ.P. 56(e) ("Rule 56(e)"). See Kamen v. American Tel. & Tel.
Co., 791 F.2d 1006, 1011 (2d Cir. 1986).
B. Standard of Review under 12(b)(6)
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 quotation
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 nonmovant's favor. See Thomas
v. City of New York, 143 F.3d 31, 36 (2d Cir. 1998).
A. Complete Diversity of Citizenship ...