Opinion
Nos. 04 Civ. 2487 (GBD), 04 Civ. 2488 (GBD).
January 20, 2005
MEMORANDUM DECISION and ORDER
Plaintiff filed two separate lawsuits against issuers, stock transfer company and the issuers' common director alleging violations of New York State and common law. Defendants in both cases moved to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), 12(b)(2) and 12(b)(5). For the reasons stated below, defendants' motions are granted.
Plaintiff Joseph Moscato filed two separate lawsuits alleging the same claims against the same principal actors. The sole substantive difference between the two cases, Moscato v. TIE Technologies, et al., 04 Civ. 2487 ("Moscato I") and Moscato v. MDM Group, Inc. et al., 04 Civ. 2488 ("Moscato II"), is the stock issuer plaintiff names as a defendant. In Moscato I, the issuer is TIE Technologies, Inc. while in Moscato II, the issuer is MDM Group, Inc. Although the cases have not been consolidated, all of plaintiff's claims and defendants' motions will be discussed in this decision.
BACKGROUND
In 2002, plaintiff was issued 500,000 shares of MDM Group, Inc. stock and 500,000 shares of TIE Technologies, Inc. pursuant to Rule 144 of the Securities Act of 1933. The stock was subject to certain restrictions barring their resale for one year. The shares contained a legend marking their resale restrictions. After one year, the stock could be resold by plaintiff subject to certain volume and timing restrictions. Plaintiff understood that he would then be issued replacement shares containing a less restrictive legend. After two years, plaintiff was free to sell his stock without any restrictions.In 2004, two years after he had fully purchased the stock, plaintiff requested that Signature Stock Transfer Incorporated, the transfer agent to both MDM Group and TIE Technologies, re-issue him shares without the restrictive legend. Signature Stock Transfer Incorporated refused to reissue him these shares. Plaintiff alleges that this refusal was due, in part, to a conspiracy between the corporate defendants, MDM Group and TIE Technologies, and defendant Peter Boonen, the director and principle shareholder of both companies, to prevent plaintiff from being able to sell his shares. Plaintiff claims that defendants' conspiracy was conducted in an attempt to artificially maintain the market price of both MDM Group and TIE Technologies in the open market.
There is no allegation of any business relationship between TIE Technologies and the MDM Group.
Although the market for shares of MDM and TIE fluctuated during the period he was unable to sell his shares, by the end of the period, plaintiff claims he suffered damages in excess of $12 million.
Plaintiff alleges eight causes of action: violation of Article 8 of the New York State Uniform Commercial Code; breach of the covenant of good faith and fair dealing; conversion; interference with prospective economic advantage; fraud; breach of fiduciary duty; negligence and slander of title. Defendants moved to dismiss plaintiffs claims in both lawsuits. Defendants argue that plaintiff's complaint fails to state a claim as to each count, challenges the Court's personal jurisdiction over both defendants MDM Group and Signature Stock Transfer Incorporated, and argues that service was improper as to defendant Peter Boonen. For the reasons stated below, defendants' motion to dismiss is granted.
DISCUSSION
Federal Rule of Civil Procedure 12(b)(6) allows a party to move to dismiss a complaint where the complaint "fail[s] . . . to state a claim upon which relief can be granted[.]" FED. R. CIV. P. 12(b)(6). In reviewing a motion to dismiss, this Court accepts the allegations in the complaint as true and draws all reasonable inferences in favor of the non-moving party. See Patel v. Searles, 305 F.3d 130, 134-35 (2d Cir. 2002). Here, a motion to dismiss will only be granted if the plaintiff can prove no set of facts in support of his claim that would entitle him to relief. See Citibank, N.A. v. K-H Corp., 968 F.2d 1489, 1494 (2d Cir. 1992). A court may look at the complaint and any documents attached to, or incorporated by reference in, the complaint. See Dangler v. New York City Off Track Betting Corp., 193 F.3d 130, 138 (2d Cir. 1999).
A. Signature Stock Transfer, Inc.
Defendant Signature Stock Transfer, Inc., a Texas corporation, moves to dismiss for lack of personal jurisdiction. In order for plaintiff to maintain his claims against Signature, Signature must be either "doing business" in New York under C.P.L.R. § 301 or personal jurisdiction must be present under New York state's long arm statute, C.P.L.R. § 302.
In New York, the requirements of general personal jurisdiction are codified in § 301 of the New York Civil Practice Law and Rules ("CPLR"). Traditionally, the requirements of general jurisdiction are satisfied where the defendant has substantial contact with the forum state. Landoil Resources Corp. v. Alexander Alexander Servs., Inc., 918 F.2d 1039, 1043 (2d Cir. 1990). When a defendant has substantial contact with the state, the claim for which jurisdiction is sought need not arise out of the defendant's contact with the state. See Helicopteros Nacionales de Colombia v. Hall, 466 U.S. 408, 414, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984).
Under CPLR § 302(a)(1), a court may exercise personal jurisdiction over a non-domiciliary when: (1) the defendant has transacted business in New York; and (2) the cause of action arises out of the subject matter of the transacted business. United States Theatre Corp. v. Gunwyn/Lansburgh Ltd. Partnership, 825 F.Supp. 594, 595 (S.D.N.Y. 1993) (citingMcGowan v. Smith, 52 N.Y.2d 268, 437 N.Y.S.2d 643, 645, 419 N.E.2d 321 (Ct.App. 1981)). A nondomiciliary transacts business under CPLR § 302(a)(1) when he purposely avails himself of the privilege of conducting activities within New York, thus invoking the benefits and protections of its laws. See CutCo Indus. v. Naughton, 806 F.2d 361, 365 (2d Cir. 1986). A court must look at the totality of circumstances to determine the existence of purposeful activity and may not subject the defendant to jurisdiction based on random, fortuitous, or attenuated contacts. Id. It is the nature and quality, and not the amount of New York contacts which determine the purposeful activity. Standard Enterprises, Inc. v. Bag-It, Inc., 673 F.Supp. 1216, 1220 (S.D.N.Y. 1987). The requisite minimum contacts must provide a fair warning to the defendant of a possibility of being subject to courts of the forum state. Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 527 N.Y.S.2d 195, 198, 522 N.E.2d 40 (Ct.App. 1988) (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985)).
Signature claims that it only transacts business in the State of Texas, and that its only office and employees are located in Texas. Indeed, it is undisputed that Signature is not incorporated, nor qualified to do business in, New York State. It is further undisputed that Signature does not maintain any offices or own or lease any real property in New York State. Plaintiff has not presented any arguments challenging defendant Signature's claim that it is neither "doing business" in New York nor transacted business in New York in satisfaction of either § 301 or § 302. As plaintiff has failed to allege any facts to support this Court's personal jurisdiction over Signature, defendant Signature's motion to dismiss for lack of personal jurisdiction is granted. All claims against Signature are dismissed.
B. MDM Group, Inc.
Defendant MDM Group, Inc. also moves to dismiss for lack of personal jurisdiction. MDM Group, Inc. is a Georgia corporation with its principal place of business in Georgia. There is no evidence or allegation that MDM either does business in New York or transacted business in New York in satisfaction of either § 301 or § 302. Indeed, plaintiff's Memorandum of Law in Opposition to Defendants Motion to Dismiss does not even address the issue of personal jurisdiction.
In his Memorandum of Law in Opposition to Defendants Motion to Quash Service of Process on MDM Group, Inc. ("Plaintiff's Process Brief"), however, plaintiff alleges that MDM "has had offices at the following address 45 John St., Suite 900, New York, NY 10038 . . . until they moved to 122 E 42. Ste 2900, New York, NY 10168." Plaintiff's Process Brief, ¶ 14. Plaintiff further argues that MDM receives billing correspondence at the 122 E. 42 St 2900 address. Lastly, plaintiff provides copies of two bank account statements allegedly belonging to MDM Group, Inc. that cite the 122 E 42. Ste 2900 address.
MDM acknowledges the existence of one account in New York, which it contends is used for ease of wiring funds from the United States to other countries. MDM argues that "[i]t is a special account maintained at CitiBank which may only be obtained by companies that are able to demonstrate that they do not transact business in the State of New York." MDM Brief at 2. MDM maintains that it had to "undergo an extensive CitiBank screening process designed to insure that MDM does not do business in New York before MDM was permitted to open the account." Id. at 2-3.
Despite plaintiff's allegations that MDM may have had correspondence sent to a New York address and had a New York bank account, plaintiff has not alleged that MDM currently has any offices, employees, agents, assets, telephone listing, or customers in New York. Plaintiff has not alleged that MDM transacts business in New York or that MDM supplies goods or services here. Absent more, plaintiff's claims in his opposition brief are insufficient to find that MDM is either carrying on systematic and regular activities sufficient to permit the exercise of jurisdiction under the "doing business" standard of § 301 or that MDM has transacted business in New York sufficient to permit personal jurisdiction under New York's long-arm statute. See Waste Distillation Technology, Inc. v. Pan American Resources, Inc., 1990 WL 127544, *1 (S.D.N.Y. Aug 28, 1990) (finding no personal jurisdiction over corporate defendant that once had an office and a bank account in New York when there are no allegations that defendant is currently "doing business" in or transacting business in New York).MDM's motion to dismiss for lack of personal jurisdiction is granted and plaintiff's claims against MDM are dismissed.
The mere existence of a New York bank account is insufficient contact to justify a finding of personal jurisdiction in New York. See Grove Value v. Regulator Co., Inc. v. Iranian Oil Services Ltd., 87 F.R.D. 93, 95 (S.D.N.Y. 1980); see also A.C.K. Sports, Inc. v. Doug Wilson Enterprise, Inc., 661 F.Supp. 386 (S.D.N.Y. 1987).
Regarding plaintiff's state tort claims, plaintiff has only alleged general commercial injury. Non-physical "commercial injuries" are insufficient for this Court to exercise personal jurisdiction over a non-resident defendant. See Associated Trade Development v. Condor Lines, 590 F.Supp. 525 (S.D.N.Y. 1984).
C. TIE Technologies, Inc.
Plaintiff's claims against defendant TIE Technologies, Inc. are also dismissed. Subject matter jurisdiction over plaintiff's claims against all defendants is based solely on the diversity of citizenship between the parties pursuant to 28 U.S.C. § 1332, which provides that "district courts shall have original jurisdiction of all civil actions where the matter in controversy . . . is between (1) citizens of different States;. . . ." 28 U.S.C. § 1332. Section 1332 further provides that "a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business." 28 U.S.C. § 1332(c)(1). Plaintiff, a citizen and resident of New York State, asserts in contravention of Section 1332, that defendant TIE maintains its principal offices and indeed its principal place of business in New York State. Diversity of citizenship between the parties therefore does not exist and the Court lacks subject matter jurisdiction to hear plaintiff's claims against TIE. Accordingly, defendant TIE's motion to dismiss plaintiff's complaint against it for lack of subject matter jurisdiction is granted and plaintiff's claims against TIE are dismissed.
D. Peter Boonen
There are eight state law causes of action against defendant Boonen: violation of Article 8 of the New York State Uniform Commercial Code; breach of the covenant of good faith and fair dealing; conversion; interference with prospective economic advantage; fraud; breach of fiduciary duty; negligence and slander of title. For the reasons stated below, these claims are dismissed.
1. Article 8 of the New York State UCC
In his first cause of action, plaintiff alleges that defendant Boonen and other co-defendants violated Article 8 of the New York State Uniform Commercial Code. Plaintiff claims that under Sections 8-202, 8-401, 8-403, 8-404 and 8-407 "defendants had a duty, which they owed to the Plaintiff, to promptly" issue his unrestricted shares. This claim against defendant Boonen, however, must be dismissed because Boonen very clearly is not the issuer. Article 8 defines the obligations of "issuers," and the issuers of these respective stock certificates are defendants MDM Group and TIE Technologies. "[T]he issuer is the person responsible for the performance of the obligations represented by a security. This is usually the enterprise that places its name on the security certificate as an indication that the security represents debt of that enterprise." Tepper v. Bendell, 2002 WL 31729601, *3 (S.D.N.Y. 2002) (internal citation omitted). As MDM and TIE, not Boonen, were the alleged issuers of the stock in these actions, plaintiff's claim for violations of U.C.C. Sections 8-202, 8-401, 8-403, 8-404 and 8-407 are dismissed against individual defendant Boonen.
2. Breach of the covenant of good faith and fair dealing
An implied covenant of good faith and fair dealing inheres in every New York contract. See Witherspoon v. Rappaport, 65 Fed.Appx. 356, 358 (2nd Cir. 2003) (citing Travellers Int'l., A.G. v. Trans World Airlines, Inc., 41 F.3d 1570, 1575 (2d Cir. 1994). The scope of potential liability for breach of the covenant is quite narrow: such a breach cannot give rise to additional liability if it merely replicates the liability for breach of the underlying contract, nor can it create new contractual rights or impose additional duties. See Witherspoon v. Rappaport, 65 Fed. Appx. at 358 (internal citations omitted). Breach of the covenant of good faith and fair dealing occurs instead where one party has acted to destroy or injure the right of the other party to receive the benefit of the contract. See Times Mirror Magazines, Inc. v. Field Stream Licenses Co., 103 F.Supp.2d 711, 735-36 (S.D.N.Y. 2000), aff'd, 294 F.3d 383 (2d Cir. 2002).
Plaintiff's good faith and fair dealing claims against defendant Boonen are premised on the existence of a contractual obligation owed to the plaintiff by defendant Boonen. Plaintiff, however, has not alleged the existence of any contract between him and defendant Boonen. Indeed, his vague and conclusory allegations fail to specify any actions taken by defendant Boonen that either destroyed or injured his right to receive the benefit of a contract. Plaintiff's claims against defendant Boonen under the covenant of good faith and fair dealing must be dismissed.
3. Conversion
Case law has recognized that a wrongful refusal to transfer shares may amount to a conversion. See Dewitt v. American Stock Transfer Company, 433 F.Supp. 994, 1000 (S.D.N.Y. 1977) (internal citations omitted). "The refusal is not wrongful, however, if the issuer and transfer agent can point to reasonable grounds for their failure to act." Id. at 1000(citing Travis Investment Co. v. Harwyn Pub. Corp., 288 F.Supp. 519 (S.D.N.Y. 1968). To state a claim for conversion, a plaintiff must allege that "(1) an actionable wrong, other than breach of contract, caused plaintiff's injury; (2) plaintiff had ownership of the [shares] at the time they were converted; (3) defendant[s] exercised unauthorized dominion over the [shares]; (4) the [shares] were specific and identifiable; and (5) defendant[s] were to have treated the [shares] in a particular manner, but they were not so treated." See Tepper v. Bendell, 2002 WL 31729601 at *4 (citing Roza v. May Group, Inc., 152 F.Supp.2d 526, 534 (S.D.N.Y. 2001)).
Defendant Boonen argues that plaintiff's complaint fails to allege that any defendant exercised control over plaintiff's shares. In his opposition brief, plaintiff did not respond to defendant's arguments. Plaintiff, however, does not allege that individual defendant Boonen was in possession of plaintiff's shares. Absent any other allegations of fact in support of his claim against defendant Boonen, plaintiff's common law claim against defendant Boonen for conversion is dismissed.
4. Interference with prospective economic advantage
In order to state a claim for tortious interference with prospective economic advantage, a plaintiff must show (1) business relations with a third party; (2) defendant's interference with those business relations; (3) defendant acted with the sole purpose of harming the plaintiff or used dishonest, unfair, or improper means; and (4) injury to the relationship. See Purgess, M.D. v. Sharrock, M.D. 33 F.3d 134, 141 (2d Cir. 1994) (citing Burba v. Rochester Gas Elec. Corp., 528 N.Y.S.2d 241, 528 N.Y.S.2d 241 (A.D. 4 Dept. 1988)).
In his brief, plaintiff argues that his inability to "complete the sale of his share to the third party purchaser" should be sufficient to support this claim. Plaintiff, however, does not identify any purchasers nor any relationships with any purchasers. Again, he does not allege any specific actions on the part of defendant Boonen. Indeed, his complaint fails to allege facts in support of the existence of any element. Plaintiff's claim for interference with prospective economic advantage is also dismissed against defendant Boonen.
5. Fraud
In order to prove common law fraud under New York law, a plaintiff must show that (1) the defendant made a material false representation, (2) the defendant intended to defraud the plaintiff thereby, (3) the plaintiff reasonably relied upon the representation, and (4) the plaintiff suffered damage as a result of such reliance. See Keywell Corp. v. Weinstein, 33 F.3d 159 (2d Cir. 1994). Under New York law, each element of a fraud claim must be shown by clear and convincing evidence. Leucadia, Inc. v. Reliance Ins. Co., 864 F.2d 964, 971 (2d Cir. 1988) (internal citations omitted).
Plaintiff claims that the restrictions on the certificates he received "were effectively a representation by [defendants] that Signature Stock Transfer Incorporated, once the lawful requirements for lifting the restrictions were met, would remove them." However, in order to plead fraud against defendant Boonen, plaintiff must allege that defendant Boonen made a material false representation to him. He fails to do so. He does not allege any representation by defendant Boonen, oral or written, upon which he relied that caused him damage. Plaintiff's fraud claim against defendant Boonen must be dismissed.
6. Breach of fiduciary duty
Plaintiff makes two allegations regarding his breach of fiduciary duty claim against defendant Boonen. First, he alleges that he "was owed the highest duty of care and loyalty by defendants. . . ." Complaint, ¶ 54. Plaintiff further alleges that "[a]s a result of the acts complained of herein Defendants MDM Group, Inc. and Peter Boonen breached their fiduciary duty to plaintiff." Id., ¶ 55. These allegations, however, are insufficient to support a breach of fiduciary duty claim against defendant Boonen.
Generally, in order to state a claim for breach of fiduciary duty, a plaintiff must allege: the existence of a fiduciary duty; breach of that duty; and that the breach of the fiduciary duty resulted in and was the proximate cause of a loss suffered by the plaintiff. See Conner v. Hart, 252 Ga.App. 92, 94(1)(a), 555 S.E.2d 783 (2001); see also USA Interactive v. Dow Lohnes Albertson, P.L.L.C., 328 F.Supp.2d 1294, 1308 (M.D.Fla., 2004) (citing Gracey v. Eaker, 837 So.2d 348, 353 (Fla. 2002)).
Claims for breach of fiduciary duty brought by a shareholder against an officer of a corporation are governed by the law of the state of incorporation. See Tepper, 2002 WL 31729601 at *5 (citing Carr v. Equistar Offshore, Ltd., 94 Civ. 5567, 1995 U.S. Dist. LEXIS 13703, *11-12 (S.D.N.Y. 1995). Plaintiff alleges that MDM Group is a Georgia Corporation and that TIE Technologies, which maintains offices in New York, is a Florida Corporation.
Plaintiff's complaint fails to identify what fiduciary duty was owed and breached by defendant Boonen. Moreover, there are no allegations as to how defendant Boonen breached such a duty. Indeed, in response to defendant Boonen's argument that this claim should be dismissed, plaintiff solely argues that the "language in plaintiff's pleadings is clear thought (sic) the Defendants response is lacking." Plaintiff's Memorandum of Law in Opposition to Defendant's Motion to Dismiss. Plaintiff has failed to factually allege how he was owed a fiduciary duty by defendant Boonen and in what way defendant Boonen breached that duty. This claim against defendant Boonen must therefore be dismissed.
7. Negligence
In order to state a cause of action for negligence, plaintiff must assert that defendant Boonen owed him a duty of care that he breached and that his breach caused him harm. See Pulka v. Edelman, 40 N.Y.2d 781, 390 N.Y.S.2d 393, 394-95, 358 N.E.2d 1019 (1976) (stating that in order to prevail on a claim of negligence, a plaintiff must prove: a duty owed by the defendant to the plaintiff to use reasonable care; breach of that duty by the defendant; and injury to the plaintiff caused by the breach of that duty). Plaintiff, however, has failed to plead any duty, separate from his attempt to assert a fiduciary duty, that was owed to him by defendant Boonen. His negligence claim is therefore dismissed.
8. Slander of Title
Finally, plaintiff bases a slander of title claim on allegations that defendant Boonen "singly and in concert engaged in an ongoing scheme involving individual and joint efforts to prevent Plaintiff from obtaining unrestricted [MDM and TIE] shares and from selling [these shares] on the open market." Complaint, ¶ 64. Plaintiff argues that by refusing to remove a restriction on stock, defendants slandered his title to such stock. Under New York law, in order to prove slander, a plaintiff must show: falsity of a defendant's statement; publication to a third person; malice or actual malice; and special damages. Again, plaintiff's complaint fails to allege any of these elements. There is no allegation that a false statement was made concerning plaintiff or his ownership of stock. There is no allegation that a false statement was published to a third person. There is no allegation of malice. There is no allegation of special damages. Under these circumstances, and because plaintiff does not address this claim in his opposition brief, his slander of title claim against defendant Boonen is also dismissed.
CONCLUSION
For the reasons stated above, plaintiff's claims are dismissed in their entirety. Accordingly, the Clerk of the Court is hereby directed to close Moscato v. TIE Technologies, et al., 04 Civ. 2487 and Moscato v. MDM Group, Inc. et al., 04 Civ. 2488.
Defendant Boonen seeks to quash plaintiff's service of process upon him as improper. Plaintiff alleges that Boonen is a citizen of Texas and that he is the director, principal shareholder, Chairman of the Board and Chief Executive Office of both defendant TIE and defendant MDM. Boonen argues that he is an Australian citizen and resident, and that his own personal office are located in Perth, Australia. He asserts that he "has never used [the office space in New York] as [his] office." Declaration of Peter Boonen ¶ 3. Since the Court dismisses all claims against defendant Boonen for failure to state a claim, this Court does not address the issue of service.
SO ORDERED.