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Feldman v. Concord Equity Partners

May 20, 2010


The opinion of the court was delivered by: Seibel, J.


Before this Court is Defendants' Motion for Summary Judgment on Plaintiffs' securities law claims and on Defendants' breach of contract counterclaim.

I. Background

Plaintiffs Jeffrey Feldman and Primary Succession Capital ("PSC") bring claims against Defendants Concord Equity Partners, Pouya Toobian, Scott Schulte, and John Malindretos for: (1) violation of Section 12(a)(1) of the Securities Act of 1933 ("1933 Act"), 15 U.S.C. § 77l(a)(1); (2) violation of Section 15 of the 1933 Act, 15 U.S.C. § 77o; and (3) breach of contract. Defendants assert counterclaims for breach of contract and breach of fiduciary duty. Plaintiffs allege that Defendants sold unregistered securities in violation of the 1933 Act and violated an employment contract. Defendants argue that the securities were not offered publicly and were therefore exempt from the registration requirement, and that Plaintiff Feldman breached the employment contract and his duties as a manager.

In December 2006 Defendant Schulte approached Plaintiff Feldman with the idea of starting an investment firm. (Defendants' Rule 56.1 Statement ("Defs.' 56.1") ¶ 6; Declaration of Matthew F. Didora in Support of Defendants' Motion for Summary Judgment ("Didora Decl.") Ex. 11 ("Feldman Dep.") at 21.) Schulte thought Feldman could "help him structure [the] firm." (Feldman Dep. at 22.) Feldman thought that "[i]t was something [they could] start from the ground up." (Id. at 24.) Schulte wanted Feldman "to come in and really head up the operations," serving as Chief Operating Officer and Chief Financial Officer-roles that collapsed into the title of President. (Id. at 30-31; Defs.' 56.1 ¶ 7.) By April 2007 Plaintiff Feldman had decided to become involved in this capacity. (Feldman Dep. at 30-31.)

In June or July of 2007, Plaintiff Feldman and Defendants began creating an Operating Agreement for the new firm, Concord Equity Partners ("CEP").*fn1 (Defs.' 56.1 ¶ 15; Feldman Dep. 46.) The Parties exchanged drafts of the Operating Agreement and Feldman had an opportunity to review and comment on these drafts. (Defs.' 56.1 ¶ 15; Feldman Dep. at 58-59.) The final version was signed on September 15, 2007. (Defs.' 56.1 ¶ 16.) The Operating Agreement listed eleven Members who were supposed to make initial capital contributions to CEP.*fn2 (Didora Decl. Ex. 3 ("Op. Agreement") at § 5.1, Schedule A.) In exchange for their capital contributions, the Members would receive units of interest in the company. Of the eleven Members, seven were designated as members of the CEP's Board of Directors.*fn3 (Id. at Schedule B.) Scott Schulte was designated as the CEO, Jeffery Feldman as President, and Daniel Kerrigan as Executive Vice President ("Managing Members"). (Id. at § 7.1.) The Managing Members were responsible "for the day-to-day management of the business," while the "overall strategy and direction of the Company [would] be determined by the Board of Directors." (Id. § 7.1.1-7.1.2.)

Each Member, by signing the Operating Agreement, represented that it was an "accredited investor," (id. § 11.1.1(m)), and had been given the opportunity to ask questions of, and receive answers from, the Company concerning the terms and conditions of, and other matters pertaining to, this investment, and has had access to such financial and other information concerning the Company as it has considered necessary to make a decision to invest in the Company and has availed itself of this opportunity to the full extent desired.

(Id. § 11.1.1(q).)

The signing Members represented that they "underst[ood] that the offering and sale of the Units are intended to be exempt from registration under the Securities Act and applicable U.S. state securities laws in reliance on the private placement exemption from registration provided in Section 4(2) of the Securities Act and Regulation D . . . ." (Id. at 11.1.1(l).)

Also, on September 17, 2007, Plaintiff Feldman signed a Management Services Agreement "pursuant to which [he] agreed to serve as President and head of Private Equity" of CEP. (Didora Decl. Ex. 5; Defs.' 56.1 at ¶ 27.) Feldman, as part of his role as President, was in charge of compliance. (Feldman Dep. at 69.)

Pursuant to Schedule A of the Operating Agreement, Feldman was given a 10% equity stake in CEP for his services. He also committed to purchase $100,000 worth of units in the company. (Op. Agreement Schedule A.) This commitment was made as a result of conversations between Feldman and Schulte from which Feldman understood that management personnel were expected to put money into the business. (Feldman Dep. at 33-34.) Schulte suggested that Feldman invest $50,000, but Feldman volunteered to invest $100,000. (Id. at 34-35.)

II. Analysis

A. Summary Judgment Standard

Summary judgment is appropriate when "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c)(2). An issue of fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is material if it "might affect the outcome of the suit under the governing law." Id. On a motion for summary judgment, courts must "resolve all ambiguities, and credit all factual inferences that could rationally be drawn, in favor of the party opposing summary judgment." Brown v. Henderson, 257 F.3d 246, 251 (2d Cir. 2001) (internal quotation marks omitted). The party moving for summary judgment bears the burden of demonstrating the absence of a genuine issue of material ...

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