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McCagg v. Schulte Roth & Zabel LLP

Supreme Court of New York, Appellate Division, First Department

June 22, 2010

Brin McCagg, Plaintiff-Respondent,
v.
Schulte Roth & Zabel LLP, et al., Defendants-Appellants, Alan Clingman, Defendant. Brin McCagg, etc., et al., Plaintiffs-Appellants, Schulte Roth & Zabel LLP, et al., Defendants-Respondents.

Dewey & LeBoeuf LLP, New York (Jonathan D. Siegfried of counsel), for Schulte Roth & Zabel LLP and Marc Weingarten appellants/respondents.

McLaughlin & Stern, LLP, New York (Steven J. Hyman of counsel), for Brin McCagg respondent/appellant.

Farber Pappalardo & Carbonari, White Plains (Eugene I. Farber of counsel), for Alan Clingman respondent.

Gonzalez, P.J., Friedman, McGuire, DeGrasse, Manzanet-Daniels, JJ.

Order, Supreme Court, New York County (Bernard J. Fried, J.), entered August 4, 2008, which, insofar as appealed from as limited by the briefs, granted plaintiff's cross motion to add a dissolved Delaware corporation as an additional party plaintiff on his seventh cause of action against defendants Schulte Roth & Zabel LLP and Marc Weingarten (the SRZ defendants) for aiding and abetting an alleged breach of fiduciary duty, and denied the SRZ defendants' motion to dismiss the seventh cause of action to the extent that cause of action was brought on behalf of the dissolved corporation, unanimously reversed, on the law, with costs, plaintiff's cross motion denied, and the SRZ defendants' motion to dismiss the seventh cause of action granted. Order, same court and Justice, entered January 26, 2009, which granted motions by defendant Alan Clingman and the SRZ defendants to dismiss the amended complaint with prejudice, unanimously modified, on the law and the facts, and in the exercise of discretion (1) to dismiss the action with prejudice unless, within 30 days after service of a copy of this order with notice of entry, plaintiff serves a new amended complaint that comports with the court's prior orders entered September 26, 2005 and August 4, 2008 but asserts only the claims remaining against defendant Clingman, and (2) to direct that plaintiff pay defendants the reasonable attorneys' fees and other reasonable expenses they incurred in connection with the filing of the amended complaint, and otherwise affirmed, without costs. The Clerk is directed to enter judgment dismissing the action as against the defendants Schulte Roth & Zabel LLP and Marc Weingarten.

In 2000 and 2001, defendant Clingman and others formed a company called Marquis Jet Partners, Inc. Marquis is one of a handful of fractional jet ownership companies that maintain fleets of aircraft and sell the rights to travel on those planes for fixed periods of time to frequent users of jet travel. In August 2002, Marquis terminated Clingman. Clingman retained 12% of Marquis common stock, and refused an offer to sell back his shares and sign a non-compete agreement.

In November of the same year, Clingman invited plaintiff McCagg to attend a meeting in Florida with the senior management of Flexjet/Bombardier, a Canadian jet manufacturer. The purpose of the meeting was to discuss creating a company to compete with Marquis. Clingman allegedly thought the new company could have a competitive advantage over Marquis by offering the sale of airplane usage in smaller blocks of time.

McCagg and Clingman decided to pursue the venture. On December 17, 2002, the law firm of Schulte Roth & Zabel (SRZ), handled the incorporation of the corporation, which was called Clearjets, in the State of Delaware. SRZ had done legal work for Clingman, and he recommended it to McCagg to handle the incorporation.

Two days later, on December 19, 2002, Marquis's counsel demanded that Clingman abandon any plans to engage in any venture that would compete with his former firm. The letter threatened that if Clingman did not accede, Marquis would take necessary legal action to protect its rights. SRZ responded by letter dated December 24, 2002. The correspondence stated, among other things, that Clingman had been terminated by Marquis, that he was not given any severance when he was terminated, that he had not executed a non-competition agreement, and that he was not otherwise bound to suspend involvement in any competing venture in the industry.

Next, on January 1, 2003, McCagg and Clingman both signed a one page "Letter of Agreement" outlining their mutual duties as "Partners" in the venture. The letter states:

"1. The Partners agree to contribute the fractional private jet business into a mutually owned LLC (the LLC).
"2. Both Partners will work full time for the LLC and use their best efforts to develop the contributed business.
"3. Clingman will assume the title and role of Chairman and CEO, and McCagg will assume the title and role of President. The Partners agree to confer on all major decision[s] regarding the operation of the businesses.
"4. LLC equity will be split 60% for Clingman and 40% for McCagg. Any shares issued for any purpose (e.g. raising capital, ESOPS, etc.) ...

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