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FINKELSTEIN v. WACHTEL

April 21, 2003

EDWARD FINKELSTEIN, PLAINTIFF,
v.
WILLIAM WACHTEL AND WACHTEL & MASYR, DEFENDANTS.



The opinion of the court was delivered by: John S. Martin, Jr., United States District Judge

OPINION & ORDER

Plaintiff Edward Finkelstein asserts claims of tortious interference with prospective economic advantage and slander against defendants. After a trial of these claims on May 28-31, 2002, the jury was unable to reach a verdict and the Court declared a mistrial. Defendants then moved to dismiss for lack of subject matter jurisdiction pursuant to Fed.R.Civ.P. Rule 12(b)(1), and for judgment as a matter of law pursuant to Fed.R.Civ.P. Rule 50(b)(2)(B).

Facts

Plaintiff was Chairman of the Board and Chief Executive Officer of CWT Specialty Stores from February 24, 1997 to March 17, 1999. In February 1999, it came to light that CWT's financial statements had been overstated with respect to inventory on hand and receivables, and that a false borrowing base certificate had been submitted to CWT's primary lender, Foothill Capital. This precipitated a crisis with Foothill, which, upon finding itself over advanced, threatened to stop extending funds to CWT. CWT, which was in precarious financial condition and would have been unable to continue its operations for any period of time without such credit, seriously contemplated filing for bankruptcy protection. When Leonard Tessler, the "lead" or "activist" outside director of CWT, was informed of this situation, he retained Defendant William Wachtel and his firm to investigate the situation and advise and guide the outside directors as they dealt with the crisis. In addition, the company looked to its own counsel, Goodwin Procter, to the accounting firm of Deloitte & Touche, and to Kahn Consulting, a crisis management firm designated by Foothill, both to determine what exactly had happened, and for advice on how to deal with the situation.

In this context, the Board decided to attempt to find a buyer for CWT that would provide adequate capital to satisfy Foothill and enable CWT to continue in business. In late February or early March 1999, Mr. Wachtel heard that the Gindi brothers might have an interest in acquiring CWT, and arranged for them to attend a presentation given by Mr. Finkelstein and to visit a number of CWT's retail stores. He also agreed that if the Gindis acquired CWT, he would personally invest $1.5 million in return for a 25% interest in the restructured company and a seat on the Board.

Subsequently, the Gindis made an offer to acquire CWT in exchange for a $6.3 million credit guarantee. Mr. Wachtel disclosed his personal interest in this offer to Mr. Tessler, but did not himself inform the other outside directors of his personal involvement in the transaction. Shortly thereafter, on March 8, while CWT and the Gindis were actively negotiating and preparing the documents necessary to effect the proposed transaction, Mr. Finkelstein informed the Board and its advisors that Schottenstein Stores Corporation ("SSC") was interested in the possibility of acquiring CWT for $7.5 million, and would also consider giving shareholders warrants at a strike price to be negotiated. That same day, Jay Schottenstein delivered a letter to Mr. Finkelstein confirming this interest and stating that "[a] formal offer for the CWT shares will be made if SSC is satisfied after completing its standard due diligence review." In that letter, Mr. Schottenstein stated that SSC would need until March 12 to complete its due diligence. Mr. Finkelstein delivered copies of this letter to the outside directors on March 9. It was understood that if SSC acquired CWT, Mr. Finkelstein would invest $.5 million into this deal, and would continue his employment with CWT. Nevertheless, on March 9, the CWT Board voted to enter into the deal offered by the Gindis, rather than waiting several days for SSC to complete its due diligence.

Mr. Finkelstein charges that during the telephonic Board meeting at which the Board reached this decision, Mr. Wachtel stated that a delay might result in losing the Gindi offer, and did not disclose to the outside directors (other than Mr. Tessler), his own interest in that offer. Mr. Finkelstein's tortious interference claim against Mr. Wachtel arises out of this event.

The deal with the Gindis was closed on March 17, 1999. Mr. Finkelstein resigned as Chairman of the Board and CEO of CWT on that date, and Mr. Wachtel joined the Board of the new company, Cherry Holdings, Inc., which began to run the business under the name of Cherry & Webb. Mr. Wachtel also was retained as counsel for the new company.

Mr. Finkelstein's slander claim against Mr. Wachtel is based on a subsequent incident. At some time after the Gindis took over the management of Cherry & Webb, Mr. Wachtel, who was then a member of the Board of Cherry Holdings, Inc. and counsel for Cherry & Webb, met with Elisa Schindler, an employee of Cherry & Webb, and stated to her that Mr. Finkelstein was a "crook", who should be "taken away in shackles", and that the "Attorney General of Massachusetts was going to be involved." Ms. Schindler was shocked and upset by these statements, but did not agree with them and did not repeat them to anyone until she revealed them in her deposition, taken later in Wisetex Trading Ltd v. Irwin Gindi and William B. Wachtel, 00 Civ. 2671 (JSM).

The 12(b)(1) motion

Plaintiff invoked the jurisdiction of this Court on the basis of diversity, alleging that Defendants were citizens of New York and that he was a citizen of the state of Connecticut on the date he filed the Complaint, April 6, 2000. Defendants first challenged Plaintiff's claim of Connecticut citizenship, and hence this Court's subject matter jurisdiction, on the eve of trial. Consequently, the Court allowed testimony and evidence to be introduced at trial with respect to Plaintiff's citizenship, and, when the jury failed to reach a verdict, permitted additional informal discovery related to the issue. Defendants now move to dismiss for lack of subject matter jurisdiction, arguing that Plaintiff's Connecticut home was merely a weekend residence, and that his contacts with Connecticut were insufficient to establish domicile.

For purposes of determining whether diversity jurisdiction exists, citizenship is determined as of the time the action is commenced. Linardos v. Fortuna, 157 F.3d 945, 947 (2d Cir. 1998). A party's citizenship depends on his domicile. Id., 157 F.3d at 948. Domicile is defined as "the place where a person has `his true fixed home and prinicpal establishment, and to which, whenever he is absent, he has the intention of returning.'" Id. In order to change one's domicile, a person must have "residence in a new domicil; and, second, the intention to remain there." Id. Therefore, a party's intention is key to a finding of domicile, and therefore of citizenship for purposes of establishing diversity jurisdiction. Furthermore, "[a] party alleging that there has been a change of domicile has the burden of proving the `required intent to give up the old and take up the new domicile, coupled with an actual acquisition of a residence in the new locality,' and must prove those facts `by clear and convincing evidence.'" Palazzo v. Corio, 232 F.3d 38, 42 (2d Cir. 2000).

Plaintiff proferred evidence that he owned a home in Litchfield, Connecticut from April 1982 to March 31, 2000. At that time, he sold that home and rented a house in Cornwall Bridge, Connecticut for the following 14 months. In April 2000, he was registered to vote in Connecticut, and had a Connecticut driver's license. He filed his 1999 and 2000 tax returns as a Connecticut resident. He also received bills related to his Connecticut homes at his Connecticut address. Plaintiff has submitted a Declaration stating that on April 6, 2000, it was his intention that his primary residence was his Connecticut home and that he viewed his New York apartment as a secondary residence.

Defendants contend that even if Mr. Finkelstein was domiciled in Connecticut prior to April 2000, his sale of his home in Litchfield, Connecticut on March 30, 2000, evidences his intent not to remain in Connecticut. They allege further that 6 both of his Connecticut residences were merely weekend homes, and that he lived primarily at the apartment that he leased at 985 Fifth Avenue in New York City from 1994 to April 2002. In support of this contention, Defendants point to the fact that Mr. Finkelstein continued to work in New York and spent 178 days in New York in 2000, and to his various contacts with New York: receipt of telephone and other bills relating to his New York apartment, using a New York garage and dry cleaner, relationships with various doctors, lawyers, a bank, a broker and a tax preparer in New York, donations to the New York Public Library, and maintenance of a box and attendance at performances at Carnegie Hall.

While Plaintiff had substantial New York contacts, these contacts do not outweigh the evidence that Plaintiff voted and paid taxes as a Connecticut resident, and maintained a residence there. Defendants have failed to make in a clear and convincing showing that Plaintiff changed his domicile to New York prior to the filing of his Complaint on April 6, 2000, especially given the importance that must be given to expressions of ...


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