The opinion of the court was delivered by: Kenneth M. Karas, District Judge
This action arises out of a business transaction gone bad. The Second Amended Complaint alleges four common law causes of action, namely: (1) fraud, (2) negligent misrepresentation, (3) aiding and abetting breach of fiduciary duty, and (4) unjust enrichment. The related arbitration has run its course, and Defendant has moved to dismiss all counts. For the reasons stated herein, Defendant's motion is DENIED.
The facts described here are taken from the allegations in the Second Amended Complaint, which the Court, as it must on a motion to dismiss, assumes to be true.
A. Relevant Persons and Entities
Defendant Spherion Corporation ("Defendant") is a United States corporation which is engaged worldwide in providing outsourcing services and related support services. (Second Am. Compl. ¶ 4.) Spherion Technology (UK) Limited ("Spherion UK") is a wholly-owned subsidiary of Defendant, and is also alleged to be the alter ego of Defendant. (Id. ¶¶ 5,8, 10-16.) Plaintiff Glidepath Holding B.V. ("Plaintiff" or "Glidepath") is a Netherlands corporation which provided technology services and data management to its clients. (Id. ¶ 2.) Plaintiff Jeimon Holdings N.V. ("Plaintiff" or "Jeimon") is a Netherlands Antilles corporation which provides investment and venture capital to Glidepath. (Id. ¶ 3.) Reginald "John" Thompson was, during the time frame at issue here, a Managing Director of Spherion UK and later, the Chief Executive Officer of Plaintiff Glidepath. (Id. ¶ 5.) Salford Capital Partners Incorporated ("Salford"), was a business project advisor and agent of Plaintiff Jeimon. (Id. ¶ 7.)
B. The European CyberCenter Business*fn1
In the fall of 2001, Spherion UK was developing a business named the "European CyberCenter Business."*fn2 At this time, Spherion UK itself was suffering extensive losses, and it allegedly was seeking to avoid additional losses by selling off the European CyberCenter Business. (Id. ¶¶ 23-25.)
In December 2001, Defendant began to assess whether it was viable to divest itself of the European CyberCenter Business. (Id. ¶ 43.) Plaintiffs allege that Defendant was interested in divesting itself of the European CyberCenter Business for five reasons: (1) increased pressure on information technology ("IT") companies due to a declining client base for IT providers; (2) a deteriorating market for managed computer services, coupled with an overcapacity of providers; (3) an increasing financial drain on Spherion UK due to a large amount of contractual commitments; (4) a poor competitive position vis-a-vis other, more established providers already in the market; and (5) the European CyberCenter Business had a serious cashflow problem. (Id.)
C. The Alleged Fraudulent Scheme
Plaintiffs allege that, because no buyer would purchase the European CyberCenter Business if they possessed the same information as Defendant, Defendant embarked on an elaborate fraudulent scheme (the Second Amended Complaint alleges fourteen distinct components) to dupe an investor into purchasing the European CyberCenter Business. The basis of this scheme was as follows: (1) Thompson was directed by Defendant to seek buyers for the European CyberCenter Business, and authorized to induce them into the purchase through fraudulent means; (2) as part of the scheme, Thompson, an employee of Defendant's wholly-owned subsidiary Spherion UK, would agree to become the CEO of a new company which would receive funds from an investment company but run the European CyberCenter Business; (3) Defendant and Thompson agreed to thwart any potential purchaser's due diligence; and (4) Defendant agreed to maintain Thompson on its payroll throughout the course of the transaction to ensure investor confidence, but arranged, through a transaction outside his normal course of employment at Spherion UK, to pay him an additional fee for the successful transfer of the European CyberCenter Business.
The first part of this alleged scheme began in December 2001. At that time, Thompson met with a group of investors that would later become Plaintiff Jeimon. (Id. ¶ 76.) He gave a presentation regarding a proposed investment similar to the European CyberCenter Business, in which he proposed that he and the investors create a network of business centers to provide office management services to European clients. (Id. ¶ 78.) Thompson proposed that he would be the CEO of this new business (and take a stake in it), while the investors would provide the necessary capital to launch the business. (Id. ¶ 77.) In the December 2001 proposal, Thompson represented that the market for cyberservices in Europe was promising, and he supported this representation with both factual assertions and numerous charts. (Id. ¶ 80, Ex. 14.) Thompson also proposed a business plan for the new business, similar to that of the European CyberCenter Business. Thompson's proposal was aggressive and contemplated a full-service, comprehensive business with major infrastructure and over 5000 sales employees. (Id. ¶¶ 80-82, Ex. 14.) Plaintiffs allege that these claims were fraudulent when Thompson made them because "Thompson, [Defendant], and Spherion UK well knew that the reason [Defendant] was anxiously seeking to divest itself of the CyberCenter Business was that accurate financial information, forecasts, and projections, reflecting actual market conditions, showed that the prospects for the European CyberCenter Business were bleak and did not warrant further investment." (Id. ¶ 82.)
In addition, Plaintiffs allege that the business plan that Thompson marketed to them in the December 2001 presentation was fraudulent because it was geared to a market, and future market projections, that Defendant knew were fraudulent. (Id. ¶¶ 52(f)-(g), 52(i)-(j), 78-80, 81(c), 81(e), 85(c), 100(e), 130(c), 136(b)-(d), 145(e), 145(h), 159, 167(b)-(c).)
After the presentation, Plaintiff Jeimon brought in Salford to perform due diligence on Thompson's proposal. (Id. ¶ 83.) Thompson met with the due diligence team in January 2002, and gave another presentation in which he allegedly made false statements similar to those in the December 2001 presentation. (Id. ¶¶ 84-85; Ex. 15.) After these presentations, a representative of Salford sent a "Letter of Interest" to Thompson, expressing interest in Thompson's proposal, subject to "complete financial and legal assessment and due diligence." (Id. ¶ 89.)
In February 2002, Salford began to perform due diligence on the sale of the European CyberCenter Business. During the course of due diligence, Salford demanded and received financial and legal due diligence materials. (Id. ¶ 92.) Salford also retained a respected international law firm to aid its efforts. (Id.) On April 3, 2002, after the performance of this due diligence, Salford signed a term sheet, in which it agreed to create a business entity to pursue the European CyberCenter Business and to procure US $34,000,000 in investor funding. (Id. ¶ 93.) The term sheet called for Thompson to be CEO of this newly created company and for his personal service company to have a stake in the new venture. (Id.) The term sheet specified that all investment obligations were subject to Salford's review of and satisfaction with the results of continuing due diligence. (Id. ¶ 94.) On April 9, 2002, Plaintiff Jeimon advanced $800,000 to the newly formed enterprise (which became Plaintiff Glidepath) for the purchase of assets that were in liquidation (the "Exodus assets"). (Id. ¶ 95.)
Also in April 2002, employees at Spherion UK were forecasting problems with the market for Spherion UK's services. An internal presentation, attached to the Second Amended Complaint and dated April 3, 2002, titled "Technology Group: 4/03/02 Europe Update," stated, on a slide entitled "KPN status," that the market conditions for Spherion UK "continue to deteriorate." (Id. ¶ 44, Ex. 3.)
As part of Salford's due diligence, Salford was required to determine Thompson's status at Spherion UK and needed to ensure that he was in fact authorized by Spherion UK, his employer, to seek prospective buyers for the European CyberCenter Business. (Id. ¶ 95.) Thompson allegedly made the following representations to Salford during due diligence: (1) Thompson was leaving Defendant on good terms; (2) Spherion UK supported Thompson's participation in the new venture; (3) Spherion UK consented to the new venture's acquisition of the Exodus assets; (4) Spherion UK would waive certain potential confidentiality and intellectual property rights that related to the new venture; (5) Spherion UK was exiting the European CyberCenter Business for reasons unrelated to its prospects for success; and (6) Thompson could work with Salford on projects related to the new venture without violating any fiduciary duty or confidentiality obligation to Spherion UK. (Id. ¶ 97.) Salford asked Spherion UK for confirmation of these representations. (Id.)
On April 12, 2002, Robert Browning, a Director at Spherion UK, sent a letter to Salford, which stated:
As per your discussions with Mr. John Thompson, we are happy to confirm to you the following:
1. Spherion UK is no longer interested in the acquisition of the Exodus assets in Europe . . . . Spherion interest in Exodus assets in Europe was initiated in the first quarter of 2001 and formed part the strategy to build up at critical mass of IDC facilities and managed services capability to partner and offer in Europe. This strategy however could not be supported following the change in the economic climate in the USA in the last quarter of 2001. Mr. John Thompson . . . [was] therefore instructed to seek other interested parties to replace Spherion interests and commitments related to the acquisition and or operation of [Internet Data Center] assets and the provision of Spherions [sic] managed services in Europe.
In line with the change in strategy and to meet Spherion Inc[.] objective [sic] as outlined above, Mr. Thompson . . . [has] provided Salford Continental Inc. with documents related to Exodus assets in Europe together with reference due diligence papers issued to or by Spherion and it specifically authorizes the use by Salford Continental Inc. of said documents . . . .
2. To achieve Spherion Inc[.] objective [sic] to replace its commitment to provide managed services in Europe and to operate [Internet Data Center] facilities, John Thompson . . . [was] authorised to assist third party organisations, including but not limited to Salford Continental Inc., in the acquisition of Exodus assets in various sites in Europe. It is also understood that the above mentioned Spherion employees have agreed on an individual basis to become the management and direct or indirect shareholders of the new entity which is likely to operate these assets under conditions agreed with Salford Continental Inc.
The active participation of these individuals in this process, either in their own name or in the name of Spherion to achieve the above set out objective to replace Spherion Inc[.] obligations and commitments related to offering managed services or operating [Internet Data Center's] in Europe . . . has been done with the full knowledge and approval of Spherion and does and shall not give rise to any rights for Spherion Inc. in this regard. (Id. Ex. 17.)
Plaintiffs allege that this information was false on the basis of numerous communications between Thompson and other Spherion employees. On April 18, 2002, Roy Krause, Executive Vice President and Chief Financial Officer of Defendant, wrote to Thompson and confirmed much of the information in the initial disclosure to Salford, notably that Thompson was authorized by Spherion to seek buyers for the European CyberCenter business:
I confirm that John Thompson . . . [is] authorized to share plans, data and information concerning Spherion's ongoing plans for the future of the Europeans CyberCentre business, Exodus and matters related thereto and also to negotiate with any potential third party who expresses an interest in taking over Spherion's European CyberCentre business and associated interest. As we agreed, you will ensure that all third parties enter into appropriate confidentiality agreements with Spherion prior to disclosure of such information. Any proposed transaction must be presented to Spherion's Executive Management in the United States for their authorization and approval prior to entering into a binding agreement.
In so much as, the above named individuals are authorized by Spherion Corporation to provide plans, information, documentation and assistance to third parties to achieve Spherion's exit from the European CyberCentre market, I also confirm that the management team, in carrying out the above, will not be regarded as being in breach of the confidentiality provisions of their contracts of employment with Spherion.
This is also to confirm that Spherion Corporation has no further interest in the European assets or operations of Exodus. (Id. Ex. 18.)
On May 10, 2002, a letter was sent to Thompson,*fn3 by Roy Krause (who is not identified on the letter), which Plaintiffs allege was sent on behalf of Spherion UK. That letter confirmed that Thompson was authorized to seek buyers for the European CyberCenter Business, and also discussed a compensation package for Thompson if he succeeded. That letter states, in relevant part:
I believe over the past few days we have made good progress in working with you to find a solution to the CyberCentre project. Reflecting this progress, I thought it would be useful for me to set out the current position.
As we stated in our letter of May 2, 2002, you are authorised to share information on the CyberCentre business with third parties and to negotiate with any third party expressing an interest in the business. This is subject to you obtaining appropriate confidentiality undertakings in favour of Spherion and any disposal will, ultimately, need to be approved by Spherion's Executive Management.
You have explained to me that you are in discussions with potential backers but that you are not able to disclose to us their identity. For us, this is less than satisfactory. However, on the basis that you have received at least an appropriate confidentiality undertaking in favour of Spherion Technology (UK) Limited, we are prepared, for the time being, to accept this. You must appreciate though that we are reserving our position and may, down the line, require you to disclose to us the identity of any potential backer before allowing you to proceed further.
We have had some discussions on the terms of your incentive package. Again, I think we have made some good progress here but there are some outstanding issues we need to resolve before formalising the arrangements. In particular, we need to be satisfied we have fully understood all commitments and liabilities in relation to the CyberCentre business. I am confident though that we will be able to reach agreement on this.
The next few weeks are likely to be difficult for us both. In particular, you will inevitably find yourself in a position of conflict given the duties you continue to owe to Spherion and your interests in a potential third party acquisition.
In view of this, and having taken advice from our attorneys, we think it is in both your and our interests to formalise the basis on which, from now on, you can commit Spherion to further obligations.
We are committed to working with you to put together a transfer of the CyberCentre business by June 1 under which the acquiror will agree to take on the liabilities ...