UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
PATRICK EGAN, individually and on behalf of TRADINGSCREEN, INC., Plaintiff, v. TRADINGSCREEN, INC., TRADINGSCREEN BROKERAGE SERVICES, LLC, PHILIPPE BUHANNIC, SPREADZERO HOLDINGS INC., and SPREADZERO LLC, Defendants.
Plaintiff Patrick Egan brings this action against Defendants TradingScreen, Inc. and TradingScreen Brokerage Services, LLC (collectively "TradingScreen"), SpreadZero Holdings Inc. and SpreadZero LLC (collectively "SpreadZero"), and Philippe Buhannic. Plaintiff brings thirteen claims for relief. As an individual plaintiff, he alleges against Defendants Buhannic, TradingScreen, and TradingScreen Brokerage Services a promissory estoppel claim and violations of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 15 U.S.C. § 78u-6, the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), the Delaware Whistleblowers' Protection Act, 19 Del. C. §§ 1701--08, and Delaware's labor laws, including but not limited to 19 Del. C. §§ 1103, 1109. Against Defendants TradingScreen and TradingScreen Brokerage Services LLC he brings individual claims of breach of contract and breach of the covenant of good faith, and alleges violations of the Delaware Labor Law. He individually pleads an unjust enrichment claim against all Defendants, and a claim of tortious interference with contract against Defendant Buhannic. Plaintiff also brings three claims derivatively on behalf of TradingScreen: breach of fiduciary duty against Defendant Buhannic, and unfair competition and wrongful interference with prospective contractual relations against Defendants Buhannic and SpreadZero. All defendants move to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6).
For the reasons stated herein, Plaintiff is granted leave to amend his Complaint with respect to his Second and Fourth Causes of Action. Decision with respect to all state law claims is reserved.
The following facts are taken from Plaintiff's Verified Amended Complaint filed on November 19, 2010.
TradingScreen, Inc. is a financial software business that provides hedge funds, asset managers, private bankers, and high net-worth individuals with software that helps them conduct trades on the internet. Compl. ¶ 23. TradingScreen Brokerage Services, LLC ("TSBS") is a broker-dealer affiliated with TradingScreen, Inc. Compl. ¶ 94. Buhannic is Chief Executive Officer of both TradingScreen, Inc. and TSBS. Compl. ¶¶ 1, 95. TradingScreen extended an offer of employment to Plaintiff on August 6, 2003, through an Offer Letter, Non-Competition Agreement, and Nondisclosure and Development Agreement ("Nondisclosure Agreement"). Plaintiff signed these agreements on August 12, 2003. Compl. ¶ 54. These documents afforded Plaintiff the right to participate in company benefit plans, including its Executive Stock Incentive Plan. Compl. ¶ 57. Under the plan, Plaintiff received options to purchase 42,125 shares of TradingScreen stock (the "Stock Options") on April 1, 2005, April 1, 2006, and March 1, 2007. Compl. ¶¶ 25, 113. In 2007 Plaintiff was promoted to Head of Sales for the Americas. Compl. ¶ 24. On April 1, 2008, April 1, 2009, and March 2, 2010, Plaintiff was granted shares of restricted common stock in TradingScreen, totaling 67,280 shares (together, the "Stock Grants"). Compl. ¶ 59. Additionally, Plaintiff purchased 100 shares of TradingScreen common stock using his own funds in March 2010. Compl. ¶ 25.
In early 2009, Plaintiff learned that the CEO of TradingScreen, Defendant Buhannic, was diverting TradingScreen's corporate assets to another company which he solely owned, SpreadZero, which offered products and services similar to those of TradingScreen. Compl. ¶¶ 29--30. In particular, Plaintiff alleges that Buhannic was using TradingScreen employees to do unpaid work for SpreadZero, cannibalizing TradingScreen's customer lists, and invoicing SpreadZero at below-market rates for various services. Compl. ¶ 30. By late 2009, Plaintiff concluded that Buhannic's behavior was costing TradingScreen hundreds of thousands of dollars and posing a threat to the existence of TradingScreen's business. Compl. ¶ 32.
In January 2010, Plaintiff reported Buhannic's behavior to the President of TradingScreen, Michael Chin, who passed the information to those members of TradingScreen's Board of Directors who were not controlled by Buhannic (the "Independent Directors"). Compl. ¶ 36. The Independent Directors hired the law firm of Latham & Watkins LLP ("Latham") to conduct an internal investigation. Id. In March 2010, Latham issued a report confirming Plaintiff's allegations. Compl. ¶ 38. On March 12, 2010, the Independent Directors informed Buhannic that he would have to resign, but on March 15 Buhannic gained control of the Board and thereby prevented the Independent Directors from forcing his resignation. Compl. ¶¶ 40--41. On March 19, David Roscoe and Piero Grandi, two of the Independent Directors, sent Plaintiff an email assuring him that he would not be fired without the approval of the Board of Directors. Compl. ¶ 51. Buhannic fired Chin on June 2, 2010 and fired Plaintiff on August 2, 2010, without first informing the Board. Compl. ¶¶ 43, 46. Buhannic told Plaintiff that he would not receive TradingScreen's customary severance package of one month's pay for every year worked, here totaling $110,833, or the opportunity to cash out his stock options, which Plaintiff values at approximately $850,000. Compl. ¶¶ 47, 79--80.
Plaintiff filed his first Complaint in this action on October 29, 2010, and filed a Verified Amended Complaint on November 19, 2010. He claims compensatory damages of not less than $3 million, pre-judgment and post-judgment interest on these damages, equitable relief that will enable Plaintiff to realize the value of his interest in TradingScreen, costs, attorney's fees, and punitive damages. Defendants TradingScreen, SpreadZero, and Buhannic each filed motions to dismiss the Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) on December 22, 2010.
On a motion to dismiss, a court reviewing a complaint will consider all material factual allegations as true and draw all reasonable inferences in favor of the plaintiff. Lee v. Bankers Trust Co., 166 F.3d 540, 543 (2d Cir. 1999). "To survive dismissal, the plaintiff must provide the grounds upon which his claim rests through factual allegations sufficient to raise a right to relief above the speculative level." ATSI Commc'ns Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 93 (2d Cir. 2007) (internal quotation marks omitted). Ultimately, the plaintiff must allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 547 (2007). "[A] simple declaration that defendant's conduct violated the ultimate legal standard at issue . . . does not suffice." Gregory v. Daly, 243 F.3d 687, 692 (2d Cir. 2001). "The tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009).
Allegations of fraud must meet the heightened pleading standard of Federal Rule of Civil Procedure 9(b), which requires that the plaintiff "state with particularity the circumstances constituting fraud." Fed. R. Civ. P. 9(b). "[W]hile Rule 9(b) permits scienter to be demonstrated by inference, this must not be mistaken for license to base claims of fraud on speculation and conclusory allegations. An ample factual basis must be supplied to support the ...