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February 23, 2000


The opinion of the court was delivered by: William C. Conner, Senior District Judge.


Plaintiff Leroy Thayer brings this action alleging that defendants Dial Industrial Sales, Inc. ("Dial"), Charles A. McDonnell, Fergus Fitzgerald, and Jerrold B. Spiegel, breached two contracts and defrauded plaintiff. Defendants Dial, McDonnell and Spiegel ("defendants")*fn1 now move to dismiss plaintiff's Amended Complaint (the "Complaint") pursuant to Federal Rules of Civil Procedure 12(b)(6) and 12(f). For the reasons stated below, defendants' motion is granted in part and denied in part.


The Complaint alleges that in or about June 1992, defendant McDonnell approached plaintiff with the idea of forming a venture for the sale of telescoping ladders. (Complt. ¶ 8.) Originally, McDonnell offered plaintiff a fifty percent (50%) ownership interest in the venture. (Id.) McDonnell also offered plaintiff a monthly salary of $10,000, accruing from June 1992 until the first payment in February 1993. After February 1993, plaintiff was to be paid every month. (Id.) He was also to be paid a bonus of sixty to one hundred percent of his annual salary. Beginning in June 1992, plaintiff devoted his full time and effort to the venture, which was incorporated as Dial Industrial Sales, Inc. (Id. at ¶ 10.)

In or about July or August 1992, defendant McDonnell informed plaintiff that defendant Fitzgerald had a fifteen percent interest in Dial, and that McDonnell and plaintiff would each own one half of the remaining eighty-five percent interest. (Id. at ¶ 11.) In September 1992, McDonnell informed plaintiff of a further modification of the arrangement, specifically that McDonnell and Fitzgerald together would control the majority of shares in Dial, and plaintiff would be given a twenty-seven and one-half percent (27.5%) interest in Dial. (Id. at ¶ 12.)

In February 1993, plaintiff did not receive the accrued compensation originally proposed. (Id.) On or about April 2, 1993, plaintiff met with defendants McDonnell, Fitzgerald and Spiegel for the purpose of finalizing stock subscription and Employment Agreements. (Id. at ¶ 13.) At the meeting, defendants presented plaintiff with a proposed subscription agreement and a proposed Employment Agreement on a "take it or leave it" basis. (Id.) Plaintiff alleges that defendants told him that if he rejected the agreements he would be terminated immediately without compensation. Plaintiff signed both agreements on April 2, 1993.

The subscription agreement required plaintiff to pay $10,000 for 7,500 shares of Dial. Plaintiff also was listed as Vice President, Secretary and Director of the company. The share ownership of other Officers and Directors was disclosed in the subscription agreement: McDonnell owned 37,750 shares, Fitzgerald owned 29,250 shares and Leonard E. Silverman owned 7,500 shares. On or about April 2, 1993, plaintiff made the $10,000 payment and 7,500 shares were issued in the names of plaintiff and his wife as joint tenants. (Id. at ¶ 14.) Plaintiff's ownership of 7,500 shares represents less than a ten percent interest in Dial.

The Employment Agreement was for a three-year term beginning March 1, 1993 and fixed plaintiff's salary at one hundred and twenty thousand dollars ($120,000) per year, payable no sooner than August 1, 1993 and thereafter upon Dial's Board of Directors' determination that the corporation had adequate cash flow for that purpose. (Id. at ¶ 16.) The Employment Agreement also stated that plaintiff "shall report to and be under the direction of the Corporation's Chief Executive Officer and Board of Directors," (Employment Agreement ¶ 1(a)), and that plaintiff "may be entitled to a bonus in the discretion of the Corporation's Board of Directors." (Employment Agreement ¶ 3(b).)

In reference to termination, the Employment Agreement stated in relevant part:

After the first anniversary of the date hereof, the Corporation may at any time dismiss Employee on written notice to Employee and such notice shall be effective fifteen (15) days after the date of the notice. In addition to the amounts set forth in Paragraph 5(d) hereof, the Corporation shall be obligated to pay and the Employee shall be entitled to receive the following severance payments:
(a) In the event that such termination occurs prior to the second anniversary of this Agreement, the Corporation shall pay and Employee shall be entitled to receive three (3) months' salary as severance payment; and
(c) Severance shall be payable in accordance with the Corporation's normal payroll practices and shall be subject to accrual based upon the cash flow provisions of paragraph 3(a) of this Agreement.
(d) Except for the amounts set forth in this Paragraph 6, the Corporation shall have no further liability or obligation to Employee.

(Employment Agreement ¶¶ 6(a), (c), (d).)

The Employment Agreement also stated that:

This Agreement represents the entire agreement between the parties with respect to Employee's employment with the Corporation. This Agreement may not be modified or terminated unless in writing signed by both parties hereto.

(Employment Agreement ¶ 9(b).)

Plaintiff received no salary or bonus for 1993 and received approximately $45,000 in salary for 1994 and no bonus. (Complt. ¶¶ 17, 18.)

On or about January 25, 1995, defendant McDonnell notified plaintiff orally that his employment was being terminated. A week later, on February 1, 1995, plaintiff received written notice that his employment was terminated, effective February 16, 1995. (Id. at ¶ 29.) The notice was in the form of a letter from McDonnell to plaintiff written on Dial letterhead. Subsequent to termination, defendants have paid plaintiff $9,333.33, including salary and severance pay. (Id. at ¶ 30.)

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