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ZEISING v. KELLY

March 30, 2001

REID M. ZEISING, PLAINTIFF,
v.
RICHARD A. KELLY, CHARLES S. WINSLOW, WILLIAM J. CHRYSTAL, JAMES B. CARLSON, AND THE WORLD FINANCIAL EXCHANGE, INC., DEFENDANTS.



The opinion of the court was delivered by: Casey, Judge

      Opinion and Order

Plaintiff Reid M. Zeising ("Plaintiff") brought this action before the Court, alleging breach of contract, breach of fiduciary duty, quantum meruit and fraud against Wofex (misidentified in the complaint as the World Financial Exchange, Inc.), Richard A. Kelly, Charles S. Winslow and William J. Chrystal (collectively referred to herein as the "Wofex Defendants"), and alleging tortious interference with contract against James B. Carlson, a member of the law firm Mayer, Brown & Platt (the Wofex Defendants and Carlson collectively referred to herein as "Defendants"). Defendant Carlson brought a motion to dismiss Plaintiff's complaint as against him, arguing that: legal advice to a client cannot be the basis for a tortious interference claim from a third party; the complaint fails properly to allege causation; and the purported agreement is unenforceable under the Statute of Frauds. The Wofex Defendants brought a motion to dismiss Plaintiff's complaint based on the Statute of Frauds and insufficient pleading of a joint venture.

For the reasons stated below, Defendants' motions are GRANTED.

Federal Jurisdiction

The case is properly in federal court pursuant to Title 28 of the United States Code, Section 1332, because this action involved citizens of different states and the amount in controversy exceeds $75,000. Venue is proper in the Southern District of New York pursuant to Title 28 of the United States Code, Section 1391.

Background

In accordance with the standard of review for a motion to dismiss, the Court assumes the following facts, set forth in Plaintiff's complaint, to be true. On August 15, 1999, Defendant Winslow informed Plaintiff of a business transaction he was contemplating with defendants Kelly and Chrystal. Plaintiff had a number of subsequent conversations with defendants Winslow and Kelly, about their idea for a financial exchange which would be made available in connection with electronic securities trading. They allegedly informed Plaintiff that they were looking for assistance in formulating a business plan, a financial model for such plan, and securing financing for the business plan. Plaintiff alleges that the Wofex Defendants requested that he assist them by formulating a financial and business plan for Wofex by calling upon his contacts in the financial industry to introduce them to Wofex, and by preparing and presenting the business plan to institutions in the financial community. Plaintiff alleges that the Wofex Defendants, through Defendant Kelly, represented to Plaintiff in September of 1999 that they would give him 12% of Wofex founder's stock, an opportunity to participate in the management of the company as an officer and director, and an opportunity to invest in the initial financing round to acquire an additional 5%-7.5% of the next issued equity, in return for his services. Plaintiff further alleges that he accepted this offer.

Plaintiff devoted time and effort to creating the financial aspects and assisting with the preparation of the sales, marketing and branding sections of the business plan. Plaintiff contacted his personal connections in the financial community and arranged meetings in an attempt to secure financial backing for Wofex. Plaintiff played a lead role in presenting the information to such potential investors. Plaintiff alleges that he fully performed his portion of the agreement by the end of September 1999 and helped the Wofex Defendants to secure the financial commitments they needed to establish the initial round of $10-15 million in valuation and to line up investors for the second round of financing, leading to a potential valuation in excess of $200 million. Plaintiff alleges that Defendant Kelly informed him in the beginning of October, 1999 that the Wofex Defendants would not give Plaintiff 12% of the founder's stock, that he would not be permitted to participate in Wofex as an officer or director, and that he would not be permitted to invest during the initial round of financing.

Plaintiff's first claim for relief is for breach of agreement, for which he seeks not less than $20 million. Plaintiff's second claim for relief is for breach of fiduciary duty, and for depriving Plaintiff of the opportunity to gain from the investment, thereby causing him damages not less than $20 million and causing him to be entitled to punitive damages in an amount no less than $20 million. Plaintiff also argues that he is entitled to a constructive trust, holding any Wofex stock to which he is entitled, and to an injunction, enjoining the Wofex Defendants from using the products of his efforts for their use. Plaintiff's third claim for relief alleges that he performed and rendered his services to the Wofex Defendants as part of a joint venture in good faith, specifically alleging that

plaintiff and the Defendants agreed that each would be compensated for their respective services on behalf of the joint venture i e that Plaintiff would receive 12% of the founder's stock of Wofex, that he would be given a position as an officer and director of the new entity from its inception, and that he would be given the opportunity to invest a minimum of $500,000-$750,000 in the initial round of financing to acquire up to an additional 5%-7.5% of the next issued equity.

(Compl. ¶ 47.) He further alleges that he "is entitled to be paid the reasonable value of his services, which should be measured as he and the Defendants had agreed . . . ." Id. ¶ 48. Plaintiff alleges in this claim that Defendants Kelly, Winslow and Chrystal each gave themselves a greater share of the founder's stock and have assumed a greater role in the management of the company, and that the Wofex Defendants' collectively agreed to deprive Plaintiff of that to which he was "contractually or otherwise entitled." Id. Plaintiff's fourth claim for relief alleges tortious interference with contract, pursuant to which Plaintiff alleges that Defendants Kelly, Winslow and Chrystal held themselves out as joint venturers to third parties, including Defendant Carlson, who was aware of the agreement among them to provide Plaintiff with stock, a position as an officer and director, and an opportunity to purchase additional stock in the company in exchange for his contribution to the joint venture. Id. ¶ 52. Plaintiff alleges that although Defendant Carlson knew of the other Wofex Defendants' commitments to Plaintiff, he took steps inconsistent with those obligations, including:

falsely advising Kelly; that he (Carlson) could help raise the financing and therefore Zeising was no longer needed, that Zeising should not be given any ownership interest or full-time position with the company because he would take advantage of the foregoing to disrupt the company, and that Defendants were under no legal duty to provide these benefits of the bargain to Plaintiff because they had not reduced that agreement to writing.

Id. ¶ 53. Plaintiff argues that this amounts to tortious interference with the parties contractual relationship because it induced the Wofex Defendants to breach the joint venture agreement, causing Plaintiff damages at least equaling $20 million. Plaintiff's fifth claim for relief alleges that as joint venturers, the Wofex Defendants owed Plaintiff the highest fiduciary duty and that they engaged in a scheme to breach that duty by enticing Plaintiff to provide his services with the intention of furthering their own interests and without the intention of honoring the representations they made to Plaintiff, causing him damages in the amount of $20 million and causing him to be entitled to punitive damages in the amount of $20 million. Plaintiff's sixth and last claim for relief alleges that the Wofex Defendants have been unjustly enriched because of their actions, and that they should be made to disgorge that potion of the profits that would have gone to Plaintiff but for their wrongdoing, and that they should make restitution to Plaintiff, in an amount not less than $20 million.

Standard

In order for a party to succeed on a motion to dismiss under Rule 12 (b)(6), it must be clear that the plaintiff can prove no set of facts that would establish his or her claim for relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Cohen v. Koenig, 25 F.3d 1168, 1171-72 (2d Cir. 1994). Upon a motion to dismiss where materials outside the pleadings are offered, a district court should adhere strictly to the language of Rule 12(b)(6). Fed. R. Civ. P. 12(b)(6) (Advisory Committee Notes). Rule 12(b)(6) gives district courts two options when matters outside the pleadings are presented in response to a 12(b)(6) motion: (1) the court may exclude the additional material and decide the motion on the complaint alone; or (2) it may convert the motion to dismiss to a motion for summary judgment under Federal Rule of Civil Procedure 56 ("Rule 56") and give the parties an opportunity to present supporting material for such motion for summary judgment. Kopec v. Coughlin, 922 F.2d 152, 154 (2d Cir. 1991) (citing 5 C. Wright & A. Miller, Federal Practice and Procedure § 1366 (1969 & Supp. 1986)); Amaker v. Weiner, 179 F.3d 48, 50 (2d Cir. 1999) (stating that "[a]ttachment of an affidavit or exhibit to a Rule 12(b)(6) motion . . . does not without more establish that conversion is required"). Exhibits mentioned in and attached to the pleadings, however, may be considered. See Fed. R. Civ. P. 10(c) ("A copy of any written instrument which is an exhibit to a pleading is a part thereof for all purposes.").

When making a determination of whether plaintiff can prove any set of facts which would entitle him or her to relief, a court must assume that the allegations in the complaint are true and draw all reasonable inferences in the plaintiffs favor. Cooper v. Pate, 378 U.S. 546, 546 (1964); Kaluczky v. City of White Plains, 57 F.3d 202, 206 (2d Cir. 1995). A complaint must "contain allegations concerning each of the material elements necessary to sustain recovery under a viable legal theory." American Council of Learned Societies v. MacMillan, Inc., 1996 WL 706911, at *3 (S.D.N.Y. Dec. 6, 1996). Vague and conclusory allegations are insufficient. Electronics Communications Corp. v. Toshiba American Consumer Products, Inc., 129 F.3d 240, 243 (2d Cir. 1997). Courts need not strain to find inferences that are favorable to the plaintiff, which are not apparent of the fact of the complaint, nor are courts required to accept legal conclusions alleged in the pleaded facts. Barrett v. Poag & McEwen Lifestyle Centers-Deer Park Town Center, LLC, 1999 WL 691850, at *2 (N.D. Ill. Aug. 26, 1999).

Here, Plaintiff refers to documents allegedly in his possession which, Plaintiff argues,

clearly demonstrate the parties' intent to form a joint venture and that [Plaintiff] possessed a significant degree of management and control over the business, at least until he was ousted from the joint venture by the defendants. These documents are more than sufficient to refute defendants' contention that ...

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