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Powe v. Cambium Learning Co.

July 9, 2009


The opinion of the court was delivered by: John G. Koeltl, District Judge


The plaintiffs, Reginald Powe and Colleen Jones, have asserted breach of contract and fraud claims arising out of the grant of stock options in two substantially identical employment agreements entered into by the plaintiffs and the defendant, Cambium Learning Company ("Cambium"), when the defendant acquired the plaintiffs' company. The plaintiffs allege that the defendant prevented them from exercising the stock options and made various misrepresentations concerning the nature of the stock options. The defendant moves to dismiss the action in its entirety pursuant to Rule 12(b)(6) and Rule 9(b) of the Federal Rules of Civil Procedure.


On a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the allegations in the Complaint are accepted as true. Grandon v. Merrill Lynch & Co., 147 F.3d 184, 188 (2d Cir. 1998). In deciding a motion to dismiss, all reasonable inferences must be drawn in the plaintiff's favor. Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir. 1995); Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989). The Court's function on a motion to dismiss is "not to weigh the evidence that might be presented at a trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). The Court should not dismiss the Complaint if the plaintiff has stated "enough facts to state a claim to relief that is plausible on its face." Twombly v. Bell Atl. Corp., 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009).

In deciding the defendant's motion to dismiss, the Court may consider documents attached to the Amended Complaint or incorporated in it by reference, matters of which judicial notice may be taken, or documents that the plaintiffs relied upon in bringing suit and either are in his possession or of which he had knowledge. See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2000); see also Jofen v. Epoch Biosciences, Inc., No. 01 Civ. 4129, 2002 WL 1461351, at *1 (S.D.N.Y. July 8, 2002).

While the Court should construe the factual allegations in the light most favorable to the plaintiff, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions." Iqbal, 129 S.Ct. at 1949; see also Port Dock & Stone Corp. v. Oldcastle Ne., Inc., 507 F.3d 117, 121 (2d Cir. 2007); Smith v. Local 819 I.B.T. Pension Plan, 291 F.3d 236, 240 (2d Cir. 2002).

The plaintiffs' allegations of fraud are governed by the heightened pleading standard set forth in Federal Rule of Civil Procedure Rule 9(b). Rule 9(b) provides that "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed. R. Civ. P. 9(b). In order to meet the heightened pleading standard provided by Rule 9(b), a Complaint must "(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 99 (2d Cir. 2007).


The original Complaint in this action was filed on January 8, 2008. The defendant moved to dismiss that Complaint and the Court held oral argument on July 15, 2008. At oral argument the Court granted the plaintiffs leave to replead, and the plaintiffs filed an Amended Complaint on November 13, 2008. The Amended Complaint alleges the following facts.

The plaintiffs, New York residents, were formerly principals and controlling shareholders of the Metropolitan Teaching and Learning Company ("Metropolitan"). (Am. Compl. ¶¶ 2-3, 9.) On October 28, 2003, the defendant, a Massachusetts-based corporation, acquired the assets of Metropolitan. (Am. Compl. ¶¶ 26, 51.) In connection with that transaction, the plaintiffs entered into separate but substantially identical employment agreements with the defendant dated October 28, 2003 (the "Jones Agreement" and the "Powe Agreement," respectively; the "Employment Agreements," collectively), in which the plaintiffs accepted employment with the defendant as Senior Vice Presidents. (Am. Compl. ¶¶ 13, 22, 39, 50.) The Employment Agreements provided for various forms of compensation to the plaintiffs. (Jones Agreement ¶ 2; Powe Agreement ¶ 2.) One of those forms of compensation was a grant of stock options. (Am. Compl. ¶¶ 14, 39.) The Employment Agreements are repeatedly incorporated by reference into the Amended Complaint and may therefore by considered by the Court on this motion to dismiss.

The Jones Agreement provided for a grant of stock options to Ms. Jones as follows: "Initial grant equal to 0.5% of the common equivalent shares outstanding in Cambium Learning Company immediately after the first acquisition of the assets of Metropolitan Teaching and Learning Company but before any further capital contributions. The exercise price of the options shall be their fair market value at the time of issuance, and they shall be subject to vesting provisions consistent with those under the stock option plans adopted by the Company." (Am. Compl. ¶ 15.) The Powe Agreement provided for an almost identical grant of stock options to Mr. Powe, differing only in granting options equal to 1% of the common equivalent shares outstanding in Cambium rather than 0.5%. (Am. Compl. ¶ 40.)

Approximately six months after the plaintiffs entered into the Employment Agreements, the defendant introduced a stock compensation plan known as the 2004 Stock Compensation Plan (the "2004 Plan"). The 2004 Plan is incorporated by reference into the Amended Complaint and may therefore be considered by the Court on this motion to dismiss. (See Am. Compl. ¶ 29 n.1.) The 2004 Plan provided that each award of options "shall be evidenced by a written Award Agreement, which shall contain such provisions as the Committee [in charge of administering the 2004 Plan] in its discretion deems necessary or desirable. By accepting an Award pursuant to [the 2004] Plan, a Participant agrees that the Award shall be subject to all of the terms of [the 2004] Plan and the applicable Award Agreement." (Burns Decl. Ex. D ¶ 2.1.) The plaintiffs never received an Award Agreement evidencing the grant of options provided for in the Employment Agreements. (Am. Compl. ¶ 29 n.1.)

The 2004 Plan further provided that "[e]xcept as otherwise provided herein or in the applicable Award Agreement, an Option shall automatically expire if not exercised within 30 days after the termination by the Company (without Cause) of a Participant's Service for any reason . . . . [I]n the event of a Participant's voluntary resignation from and termination of Service with the Company, an Option shall automatically and immediately expire if not exercised prior to such Participant's final day of Service." (Burns Decl. Ex. D ¶ 2.11.2.)

The plaintiffs appear to have terminated their employment with the defendant on February 28, 2006. (Am. Compl. ΒΆΒΆ 29(f), 54(f).) The Amended Complaint fails to allege the nature of the termination, but at oral argument on the original Complaint defense counsel represented to the Court that the plaintiffs resigned voluntarily. (Burns Decl. Ex. E at 6.) At the time of their resignation the plaintiffs ...

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