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Reza Jalili v. Xanboo Inc.

September 15, 2011

REZA JALILI, PLAINTIFF,
v.
XANBOO INC., AT&T TELEHOLDINGS, INC., AND ROBERT L. DIAMOND, DEFENDANTS.



The opinion of the court was delivered by: Denise Cote, District Judge:

OPINION & ORDER

Plaintiff Reza Jalili ("Jalili"), a software developer, brings this action for breach of his employment contract against his former employer Xanboo Inc. ("Xanboo"), Xanboo's founder and chairman Robert L. Diamond ("Diamond"), and Xanboo's parent company AT&T Teleholdings, Inc. ("AT&T"). AT&T has moved to dismiss the claims for breach of contract and successor liability against it. For the following reasons, the motion is granted.

BACKGROUND

Jalili's complaint asserts six causes of action against Xanboo: two claims for breach of contract and one claim each of fraudulent inducement, actual fraud, constructive fraud, and promissory estoppel. Jalili asserts one claim for actual fraud against Diamond. Finally, Jalili asserts claims for breach of contract and successor liability against AT&T. Jalili primarily contends that Xanboo and AT&T have breached his employment contract by failing to pay him 1% of the company's stock that became due upon the sale of Xanboo to AT&T.

The following facts are taken from the complaint. On June 26, 1998, Core Technologies, Inc. ("Core"), a software company, was incorporated in New York. Plaintiff Jalili, a resident of Utah, was recruited by Core in August of 1999 to develop the company's security software. By letter of August 2, 1999 (the "Cover Letter"), Jalili was offered a position in the engineering department of Core by Diamond, Core's founder and president. The Cover Letter stated that Jalili's annual salary would be $90,000. It further stated that Upon your acceptance of employment and commencement of work at Core, you will be awarded equity equivalent to 1% of the company's stock. You will receive an additional 1% of the company's stock at the occurrence of either of the following two events:

 Core Technology becomes a public company  Core Technology is sold to another entity Your total equity potential at this time, therefore, is 2% of the stock of Core Technology Inc.

The Cover Letter noted that "[a] copy of the current stockholder's agreement, which you would sign as a stockholder, is attached." The stockholder's agreement was not attached as an exhibit to Jalili's complaint.

Attached to the Cover Letter was a document dated August 2, 1999 and titled "Employment Agreement." The Employment Agreement stated that "[t]he Company agrees, or has agreed, to employ you commencing on August 2, 1999 for the annual salary of $90,000, plus other consideration as may be mutually agreed upon from time to time." The Employment Agreement contained an integration clause which provided that the Employment Agreement "represents the entire Agreement between us and supersedes any prior Agreement or understanding with respect to the subject matter." Jalili signed the employment agreement on August 2, 1999.

Jalili alleges that he contributed substantially to Core's success and that the company was valued at $100 million immediately prior to his departure. Jalili alleges that at a meeting with Core's lawyers in September of 1999, he was fraudulently induced to relinquish his 1% ownership stake in Core. According to Jalili, Core's lawyers represented to him that it would be difficult for Core to go public or to sell to another company if Jalili maintained his 1% ownership stake.

Jalili entered into a stock option agreement with Core on October 1, 1999. On January 31, 2000, Jalili resigned his position at Core. Core changed its name to Xanboo on September 27, 2000.

AT&T and Xanboo entered into an "Agreement and Plan of Exchange" on November 2, 2010 whereby AT&T purchased all of Xanboo's stock (hereinafter the "Sale Agreement"). By the terms of the Sale Agreement, Xanboo was to become a "wholly-owned subsidiary" of AT&T. Jalili alleges that in March of 2011, AT&T wrote to "all of the retailers with contracts to sell Xanboo products and unilaterally cancelled all such contracts." The form letter sent by AT&T stated that "AT&T is currently in the process of integrating Xanboo into AT&T's portfolio of services and affiliated companies" and was signed by in-house counsel for AT&T.

Jalili does not allege that he ever received a letter from AT&T purporting to alter the terms of his employment contract with Xanboo. He states, however, that "AT&T is in the process of integrating Xanboo's assets into AT&T, leading to an actual or de facto merger of Xanboo into AT&T." Jalili further alleges that "AT&T has assumed complete control over Xanboo to the point that Xanboo has no separate will of its own."

Jalili filed his original complaint on February 22, 2011. AT&T, Xanboo, and Diamond moved to dismiss the original complaint on June 13. Jalili amended his complaint on July 14. The amended complaint seeks damages of $550,000 for the defendants' alleged breach of Jalili's Employment Agreement. Jalili asserts that $550,000 is equivalent to 1% of the equity of Xanboo at the time of its sale to AT&T. The amended complaint further seeks ...


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