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WOLFF v. RARE MEDIUM

July 23, 2002

JAY M. WOLFF, DAVID BLISS, TIM BARBER, AND STEVE O'BRIEN, PLAINTIFFS,
V.
RARE MEDIUM, INC., ICC TECHNOLOGIES INC. N/K/A RARE MEDIUM GROUP, AND RARE MEDIUM TEXAS I, INC., DEFENDANTS



The opinion of the court was delivered by: VICTOR Marrero, United States District Judge.

  DECISION AND AMENDED ORDER

Plaintiffs Jay M. Wolff, David Bliss, Tim Barber, and Steve O'Brien (collectively, the "Plaintiffs"? brought this action against defendants Rare Medium, Inc., ICC Technologies Inc. n/k/a Rare Medium Group, and Rare Medium Texas I, Inc. ("Rare Medium"), alleging breach of contract, tortious interference with contract, and tortious interference with prospective business advantage. Plaintiffs, who were former principal shareholders of Big Hand, Inc. ("Big Hand"), base their claims upon an Agreement and Plan of Merger (the "Merger Agreement") entered into in April 1999 by Big Hand and Rare Medium.

On June 27, 2002, the Court issued an Order granting Rare Medium's motion to dismiss Plaintiffs' Amended Complaint. The June 27, 2002 Order indicated that the Court's reasoning would be set forth in a subsequent decision. For the reasons discussed below, the Court grants Rare Medium's motion to dismiss Plaintiffs' Amended Complaint and amends the June 27, 2002 Order to incorporate the discussion herein.

I. FACTUAL BACKGROUND

In April 1999, Plaintiffs entered into a Merger Agreement with Rare Medium to sell Big Hand in exchange for shares of Rare Medium's stock. The Merger Agreement contained several time-sensitive restrictions on Plaintiffs' ownership rights in the exchanged stock. It provided that for twelve months after the merger, Plaintiffs were restricted from selling or entering into any transaction related to the Rare Medium stock. However, within the interim period of twelve months to eighteen months after the merger, Plaintiffs were permitted to enter a limited set of transactions as prescribed by section 4.4(a) of the Merger Agreement.*fn1

During the end of the twelve-month waiting period, Rare Medium's share price began to drop rapidly. Soon after the one year anniversary, Plaintiffs sought to enter into transactions ("Attempted Transactions") to "collar"*fn2 their stock with the brokerage firm of Morgan Stanley so that they could lock in a price range for the stock. (Am. Compl. ¶¶ 27-28.

Plaintiffs allege that they entered into a brokerage agreement (the "Brokerage Agreement") with Morgan Stanley to engage in the Attempted Transactions, whereby Plaintiffs agreed to pay fees in exchange for Morgan Stanley to undertake certain actions to collar the stock. Plaintiffs allege that the agreement provided for Morgan Stanley to collar certain amounts of the stock at certain times. (Am. Compl. ¶ 31.) Morgan Stanley was aware of the restrictions on the stock and requested that Rare Medium "authorize" the Attempted Transactions. (Am. Compl. ¶ 32.)

Plaintiffs assert that Rare Medium knew that the Attempted Transactions were permitted under the Merger Agreement but prevented such transactions from taking place by informing Morgan Stanley otherwise. (Am. Compl. ¶ 38.) In addition, Plaintiffs allege that Rare Medium prevented the Attempted Transactions from taking place by notifying Morgan Stanley that it would bring a legal action against Morgan Stanley if Morgan Stanley proceeded with the Attempted Transactions. (Id.)

Moreover, Plaintiffs allege that due to Rare Medium's fraudulent misrepresentation about the permissibility of the Attempted Transactions under the Merger Agreement the Attempted Transactions did not proceed and Plaintiffs were precluded from locking in a favorable price range for the Rare Medium stock. (Am. Compl. ¶ 41.)

On December 27, 2001, Rare Medium moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss Plaintiffs' original complaint dated May 18, 2001 (the "Original Complaint") for failure to state a claim upon which relief could be granted. In an Order dated October 31, 2001, amended by a Decision and Order dated November 13, 2001 (the "November 2001 Order"), the Court granted Rare Medium's motion with leave to re-plead.*fn3

Following the dismissal, Plaintiffs filed an amended complaint on December 7, 2001 (the "Amended Complaint") which purported to remedy the deficiencies the Court found in the Original Complaint. The Court presumes familiarity with the Original Complaint, which was discussed in the November 2001 Order. In the Amended Complaint, Plaintiffs essentially repeat the same allegations contained in the Original Complaint. In the Original Complaint, Plaintiffs asserted that Rare Medium breached the Merger Agreement by telling Morgan Stanley that the Attempted Transactions were not permitted. (Compl. ¶ 5.) Plaintiffs assert the same claim in the Amended Complaint. (Am. Compl. ¶¶ 38, 54, 62, 70, 72.) Furthermore, Plaintiffs reassert the same claim that Rare Medium knew that the Attempted Transactions were permissible under the Merger Agreement. (Compl. ¶¶ 34, 48, 41 and Am. Compl. ¶ 37.)

II. DISCUSSION

A. STANDARD OF REVIEW

When deciding a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a court must accept as true all well-pleaded factual allegations of the complaint, and draw all reasonable inferences in favor of the plaintiff. See City of Los Angeles v. Preferred Communications, Inc., 476 U.S. 488, 493 (1986); Jaghory v. New York Dep't of Educ., 131 F.3d 326, 329 (2d Cir. 1997). A court may properly dismiss a complaint when it appears beyond doubt that plaintiff cannot prove a set of facts in support of his claim which would entitle him to relief. See Conley v. Gibson, 355 U.S. 41, 45-46 (1957). In determining a Rule 12(b) (6) motion, a court's function "`is not to weigh the evidence that might be presented at trial but merely to determine if the complaint itself is legally ...


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