The opinion of the court was delivered by: Spatt, District Judge.
AMENDED MEMORANDUM OF DECISION AND ORDER
This lawsuit arises out of business disputes. Over the years, Alan
V.H. Fairy-Jones ("Jones" or the plaintiff), Richard G. Buckingham
("Buckingham" or a defendant), Douglas H. Wolf ("Wolf" or a defendant),
and Frederick Forster ("Forster" or a defendant) (collectively, the
"individual defendants") have had a series of business relationships and
have conducted numerous business transactions. Some of those transactions
involved ICA Services ("Services" or a defendant) and Signal Capital
Holding Corporation ("SCHC" or a defendant) (collectively "the corporate
defendants"). Eventually, Jones, Wolf, and Buckingham disagreed about
virtually every aspect of their business dealings and relationships. As a
result, they executed an Agreement in which each of them resolved to take
certain actions, pay certain moneys, and release all claims against one
another. Disputes then arose regarding the Agreement, and on June 29,
1999, Wolf and Buckingham filed an action in the Supreme Court of the
State of New York, Westchester County, seeking a declaration of the Court
to establish the parties' rights and obligations under the Agreement. On
July 26, 1999, Jones filed the complaint in this action, and on March
23, 2000, Jones filed the amended complaint. Presently before the Court
are Buckingham and Wolf's motion to dismiss pursuant to Rule 12(b)(1),
and Forster's motion to dismiss pursuant to Rule 12(b)(6).
During and prior to 1994, Buckingham, Wolf, and John van Merkensteijn
("van Merkensteijn") were working under the trade name and style ICA
International ("ICA"). They bought, sold, transferred, and otherwise
dealt in the stock and assets of various businesses.
In May 1994, Buckingham, Wolf, and van Merkensteijn invited Jones and
Howard B. Teig ("Teig") to work with ICA to acquire all of the issued and
outstanding shares of stock in SCHC, a Delaware corporation with a
principal place of business in Jericho, New York. It was understood that
after its acquisition, SCHC would sell equipment trust interests that it
owned. In connection with the acquisition of SCHC, the following business
entities were formed: (1) Acorn Leasing Partners, L.P. ("Acorn"). a
Delaware limited partnership; (2) Signal Capital Associates, Inc.
("SCAI"), a Delaware corporation; and (3) Signal Capital Associates,
L.P. ("SCALP"), a Delaware limited partnership. In 1994, the stock of
SCHC was acquired, and SCHC sold its equipment trust interests.
As of October 1, 1996, Jones and Buckingham were the only partners in
Acorn. Jones was the general partner, and Buckingham was the limited
partner. Acorn was a shareholder in SCAI; SCAI was one of several partners
in SCALP; and SCALP was a shareholder in SCHC. In addition, SCHC was the
nominal title holder to rights in contingent profits from rail car leases
("Additional Rent"). Pursuant to an oral agreement, Buckingham, Wolf, van
Merkensteijn, Teig, and Jones ("Rent Owners") became the beneficial
owners of the Additional Rent.
In October 1996, Buckingham and Jones had a series of conversations
both in person and over the telephone. During those conversations,
Buckingham told Jones that "he did not believe that Acorn's interest in
SCAI could be exploited to any great advantage, but that he would like to
`draw a line' under the SCHC transaction and have Acorn and the other
shareholders of SCAI dispose of their shares" (Amended Complaint ¶
18). Buckingham also told Jones that he thought SCAI, SCALP, and SCHC
should be restructured to create an advantageous federal tax basis in (1)
the SCHC stock and (2) a foreign currency deposit that would be held by
some of the partners in SCALP but not including SCAI. Buckingham also
said that the values of the SCHC stock and the currency deposit as tax
planning tools could then be marketed to other people. Buckingham
indicated that Forster would market the SCHC stock, and Joseph Campagna
("Campagna") would market the currency deposit.
Buckingham proposed that Acorn sell its stock in SCAI to Forster for a
sum of $1,000,000. Forster would pay Acorn a sum of $100,000 in cash and
would pay the balance by a nonrecourse note, payable only out of the
proceeds of the SCAI stock. According to Buckingham, "$500,000 would be
payable on the completion of a transaction with the SCHC stock and
$500,000 on completion of a transaction with the currency deposit." The
amended complaint contends that Acorn therefore remained at risk for the
success of Forster and Campagna's efforts.
On or about October 30, 1996, prior to accepting Buckingham's offer,
Jones asked Buckingham whether he or Wolf was planning to retain control
of the high basis SCHC stock or the currency deposit to use in future
acquisitions, sales, or other business transactions. If Wolf and
Buckingham used the stock or currency deposit in such a fashion, they
would earn profits in addition to the money they made from the sale of
their stock. Buckingham told Jones "(i) that [he] and Wolf would not make
profits other than from the sale of their SCAI stock on the same terms as
Acorn; (ii) that all of the other shareholders of SCAI would receive the
same price per share for their stock in SCAI as would Acorn; and (iii) as
part of the said restructuring of SCAI and SCALP, the rights to the
Additional Rent would be separated from SCHC for the benefit of the Rent
Owners" (Amended Complaint ¶ 21).
Jones accepted Buckingham's proposal and agreed that Acorn would sell
its stock in SCAI to Forster for $1,000,000. Jones received a sum of
$112,000.50 in cash. However, the note he received with the documents
that gave effect to the sale was only in the amount of $637,500, rather
than the expected amount of $887,500. Buckingham told Jones that he was
receiving less money than he had anticipated because "`the numbers had
not worked out'" (Amended Complaint ¶ 22). Buckingham further
assured Jones that he would receive the full balance of the sale price of
$1,000,000 "if and when the transaction with the currency deposit was
completed" (Amended Complaint ¶ 22). Thereafter, the above-described
restructuring occurred, thus eliminating SCAI and SCALP.
The amended complaint alleges that the transaction between Forster and
TransTexas was "only a preliminary transaction in a business
reorganization enabling Wolf, Buckingham, and Forster to realize a
substantial profit" (Amended Complaint ¶ 25). According to the
amended complaint, Forster knew that the consideration TransTexas had
paid for the SCHC stock was "inappropriately low" low conducted the
transaction to realize a substantial profit.
In addition, Campagna purportedly used the currency deposit in a
subsequent transaction with the Marriott Corporation that enabled Wolf
and Buckingham to realize profits as well. Moreover, contrary to
Buckingham's statement that the Additional Rent would remain separate
from SCHC for the benefit of the Rent Owners, SCHC transferred the rights
in the Additional Rent to TransTexas as part of the original transaction
between SCHC and TransTexas.
The amended complaint contends that Buckinghan's statements to, Jones
were false when he made them and were made to induce Jones, as the
general partner of Acorn, to sell Acorn's stock in SCAI to Forster.
According to the amended complaint, Buckingham's would therefore be able
to use SCAI's assets in a series of transactions that occurred in the
months immediate following the transfer of Acorn's stock. Jones allegedly
relied upon Buckingham's false statements.
It is alleged that Buckingham, Wolf, and Forster gained control of SCHC
by first gaining control of SCAI and, then, by gaining control of SCALP.
The three men used the high basis stock of SCHC and the high basis
foreign currency deposit in highly profitable transactions without
including Jones or Acorn. In May 1999, Teig received a memorandum
indicating that the high basis stock had been used in fourteen additional
As of June 1, 1997, Buckingham assigned his partnership interest in
Acorn to Linda L. McDonald ("McDonald"). As of December 29, 1997,
McDonald sold that interest to Jones. in March 1998, Acorn assigned its
claims against the defendants to Jones.
Count I of the amended complaint alleges that Buckingham, Wolf, and
Forster violated Section 10(b) of the Securities Exchange Act of 1934 and
SEC Rule 10(b)-5, thereby causing damage to Jones. In Count II, Jones
contends that, based on the above-described factual allegations,
Buckingham, Wolf, and Forster are liable to him under a common law fraud
theory. Count III contends that Buckingham is liable to Jones for breach
of fiduciary duty, because as a partner in Acorn, Buckingham owed Jones
and Acorn a fiduciary duty but (1) failed to disclose his plans to use
the SCHC stock and the foreign currency deposit in a high profit business
restructuring; and (2) acquired Acorn's business opportunity for his own
The amended complaint alleges that GATX Capital Corporation ("GATX")
agreed to transfer assets to SCHC to induce TransTexas to enter into the
above-describe transaction with SCHC. In return, SCHC assigned GATX
rights in the Additional Rent. After SCHC and TransTexas completed their
transaction, GATX transferred its rights in the Additional Rent to a
corporation controlled by Buckingham, Wolf, van Merkensteijn, and Teig.
According to the Amended Complaint, the transfers of the rights in the
Additional Rent were made by SCHC and GATX without the know-ledge or
consent of Jones, who was a Rent Owner.
Count V contends that Buckingham and Wolf have breached a fiduciary
duty to Jones by failing to disclose their plans to use the SCHC stock
and the currency deposit in high profit business restructuring. According
to Jones, Buckingham and Wolf owed him a fiduciary duty because they were
partners with him in the business they ...