Opinion
Civil Action No. DKC 2003-0848
January 23, 2004
MEMORANDUM OPINION
Presently pending and ready for resolution in this breach of contract case is the motion of Defendants Advanced Broadband Solutions, Inc. and Rajeev Sharma to dismiss counts five through eleven of Plaintiff's complaint. The issues have been fully briefed and no hearing is deemed necessary. Local Rule 105.6. For the reasons that follow, Defendants' motion to dismiss will be granted as to all counts.
I. Background
Plaintiff Daniel J. Ives has alleged the following facts: In December 1995, Plaintiff incorporated Advanced Broadband Solutions, Inc. (ABSI) as a Virginia corporation. The company began active operations in April 1996 and currently supplies systems integration, networking and software solutions to corporate and governmental clients. As sole shareholder, Ives was elected as the company's President and sole Director. In this capacity, Plaintiff spoke with Defendant Rajeev Sharma, in 1995 and again in late 1996, about joining ABSI. To assist with the hiring of Sharma, Ives loaned ABSI at least $38,000 — an amount that currently remains unpaid. By early 1997, Sharma was hired to elevate the company's marketing efforts and to generate new business. Also at this time, Ives agreed to sell fifty percent of the company's stock to Sharma in return for $15,000. As a fifty percent shareholder, Sharma joined the Board of Directors and was elected President. Ives remained on the Board and was elected Vice President.
In July 1997, ABSI moved its headquarters and operations to Rockville, Maryland and, on November 21, 1997, ABSI qualified to do business in Maryland as a foreign corporation. Ives contends that currently ABSI is a Virginia corporation in name only, with substantially all of its assets, offices and operations within the State of Maryland.
In the spring of 1998, ABSI recruited Kevin Donohue as Vice President of Technology to develop the engineering and technology organization. ABSI also recruited Tarun Juneja as Director of Operations to manage operations and finance; Juneja was later promoted to Vice President. Throughout 1998, Ives and Sharma shared ultimate responsibility for running the company and together negotiated employment agreements on behalf of themselves and Donohue and Juneja. Under the terms of the employment agreement, Ives was to receive his salary and all bonus money for a period of one year if he was terminated without cause. Ives and Sharma also established an executive profit sharing bonus plan and agreed that their respective shares would be thirty-eight percent each. Under the plan, the President had the sole discretion to set the cash value of the bonus pool annually.
In 1997, Ives and Sharma decided to secure an 8(a) certification from the Small Business Administration and, to improve the company's chances of a successful application, Ives agreed to sell ten percent of his shares to Sharma. This transfer of shares resulted in Sharma becoming the majority shareholder with sixty percent of outstanding shares. Ives and Sharma agreed that the price of the ten percent interest was to be negotiated at a later date based on the value the company received from its anticipated 8(a) status. Also to aid the qualification process, Ives agreed to resign from the Board of Directors on or about December 31, 1997, although he continued to serve as Vice President. In late 1998, ABSI eventually applied for 8(a) status. Although ABSI received 8(a) status in March 1999, Ives alleges that he has never received any compensation for his transfer of shares to Sharma.
By 1999, Ives and Sharma's share of the executive profit sharing pool had been diluted to a thirty-five percent interest each in order to allow profit sharing for Donohue and Juneja. Despite the dilution of shares, Ives and Sharma, as key executives, were receiving a monthly salary of $9,000 and, by the end of the year, ABSI's annual revenues had increased to approximately $3 million. At some point in 1999, however, Ives discovered that Sharma, Juneja, and possibly Donohue were diverting corporate funds to their own personal use. Ives alleges to be aware of at least $30,000 to $40,000 that was diverted in 1999 alone, with some of these diversions disguised as cash advances to Sharma and Juneja. In other instances, ABSI paid Sharma's personal credit line and credit bills. When Ives voiced his belief that funds were being diverted, his access to the company's books and records was impeded. Thereafter, disputes between Sharma and Ives grew to encompass disagreements over business development issues and methods of raising capital for the company. Over the course of 1999 and into 2000, Ives alleges that he was excluded from the corporate decision-making process by the other members. Additionally, Sharma, Donohue and Juneja frequently met to discuss critical corporate matters when Ives was out of the office on travel.
On or about May 12, 2000, Ives was summoned to a meeting with Sharma, Donohue and Juneja in which his resignation was demanded. Ives refused to resign unless an equitable settlement agreement could be negotiated, which accounted for, among other things, the value of his forty percent interest in the company along with payment for the additional ten percent interest that he had previously transferred to Sharma. After the meeting, Ives attempted to return to his office but discovered that his access card no longer worked. Ives never regained access to the office. Plaintiff also alleges that all attempts to negotiate with Sharma and ABSI were unsuccessful. Throughout the summer of 2000, Ives demanded to be removed as a personal guarantor for all of ABSI's financial instruments, including an SBA loan and a line of credit with the Sandy Springs National Bank. Ives alleges that his requests were not honored. Ives also contends that he received no distributions, salary continuation, dividends, or pay-outs from the executive bonus plan despite the fact that ABSI was generating approximately $4.9 million in revenues by the end of 2001. Despite repeated efforts, including a written request on February 4, 2003, Plaintiff has been denied access to ABSI's corporate books and records. It is Ives' continued belief that Sharma and others continue to divert corporate funds for personal use.
On March 24, 2003, Plaintiff filed a complaint against Defendants ABSI and Sharma, in his official capacity and individually, alleging the following: (1) Derivative Claim for Breach of Fiduciary Duty (against Sharma); (2) Derivative Claim for Conversion (against Sharma); (3) Derivative Claim for Unjust Enrichment (against Sharma); (4) Breach of Fiduciary Duty (against Sharma); (5) Claim for an Accounting; (6) Conversion (against ABSI); (7) Unjust enrichment (against ABSI); (8) Breach of Contract (against ABSI); (9) Breach of Stock Purchase Agreement (against Sharma); (10) Oppression and Freeze Out of a Minority Shareholder (against Sharma); and (11) Direct Claim for Dissolution of ABSI. On May 16, 2003, Defendants filed a motion to dismiss counts five through eleven, arguing that counts five and eleven involve issues appropriately reserved for the state courts, that counts six through nine are barred by the statute of limitations or the statute of frauds, and that count ten is improperly pled.
II. Analysis
A. Abstention
Defendant moves to dismiss counts 5 and 11, those seeking equitable relief of an accounting and dissolution, asserting that the court either lacks jurisdiction or should abstain from exercising jurisdiction under Burford v. Sun Oil Co., 319 U.S. 315 (1943). Defendant contends that each of these claims involves matters of corporate governance and regulation traditionally reserved to the state courts. The court agrees.
As pointed out in Feiwus v. Genpar, Inc., 43 F. Supp.2d 289, 296 n. 6 (E.D.N.Y. 1999), federal courts differ about whether they do not have jurisdiction over claims for corporate dissolution or whether they do, but should abstain.
The standard for declining to exercise jurisdiction under Burford was well stated in Johnson v. Collins Entertainment Co., Inc., 199 F.3d 710, 719 (4th Cir. 1999):
The Supreme Court has admonished the federal courts to respect the efforts of state governments to ensure uniform treatment of essentially local problems. See Quackenbush [v. Allstate Ins. Co.] 517 U.S. [706 (1996)] at 728, 116 S.Ct. 1712. Principles of federalism and comity require no less. See id. Basic abstention doctrine requires federal courts to avoid interference with a state's administration of its own affairs. See Meredith v. Talbot County, 828 F.2d 228, 231 (4th Cir. 1987). Though " [a]bstention from the exercise of federal jurisdiction is the exception, not the rule," Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 813, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), its importance in our system of dual sovereignty cannot be underestimated. It safeguards our federal system from the " [d]elay, misunderstanding of local law, and needless conflict with [a] state policy" that inevitably result from federal judicial intrusions into areas of core state prerogative. Burford, 319 U.S. at 327, 63 S.Ct. 1098.
In light of those guiding principles:
a federal court's exercise of discretion in deciding whether to invoke Burford abstention "must reflect principles of federalism and comity." Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 728, 116 S.Ct. 1712, 135 L.Ed.2d 1 (1996) (internal quotation omitted). These constitutional commitments require federal courts to "exercise their discretionary power with proper regard for the rightful independence of state governments in carrying out their domestic policy." Burford, 319 U.S. at 318, 63 S.Ct. 1098 (internal quotation omitted). Courts should abstain from deciding cases presenting "difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case then at bar, " or whose adjudication in a federal forum "would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern." New Orleans Pub. Serv., Inc. v. Council of New Orleans, 491 U.S. 350, 361, 109 S.Ct. 2506, 105 L.Ed.2d 298 (1989) (" NOPSI") (quoting Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 814, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976)). Abstention is also "the exception, not the rule." Colorado River, 424 U.S. at 813, 96 S.Ct. 1236.First Penn-Pacific Life Ins. Co. v. Evans, 304 F.3d 345, 34: (4th Cir. 2002). Furthermore:
The Supreme Court's decisions "do not provide a formulaic test for determining when dismissal under Burford is appropriate." Quackenbush, 517 U.S. at 727, 116 S.Ct. 1712. Nevertheless, the general concern that should inform a federal court's discretion is clear enough:
Ultimately, what is at stake is a federal court's decision, based on a careful consideration of the federal interests in retaining jurisdiction over the dispute and the competing concern for the "independence of state action," Burford, 319 U.S., at 334, 63 S.Ct. 1098, that the State's interests are paramount and that a dispute would best be adjudicated in a state forum.Id. at 728, 116 S.Ct. 1712.
Id.
Abstention on Burford grounds in cases seeking equitable relief affecting corporations is a well recognized application of the doctrine. See, e.g., Caudill v. Eubanks, 301 F.3d 658 (6th Cir. 2002); Friedman v. Revenue Management of New York, Inc., 38 F.3d 668 (2d Cir. 1994). Plaintiff argues that the Fourth Circuit typically rejects abstention in favor of hearing equitable corporate claims. Plaintiff's contention, and the cases cited in support, do not apply under the facts as alleged in this case.
Plaintiff cites to a number of cases that he claims support his argument that this court should not abstain from deciding the equitable corporate claims of another state. Most of these cases, though, are unpublished. All of them lack any holding, or even discussion, of whether a federal court should abstain from resolving equitable claims raising questions of state corporate law. For example, Everett v. I-Net, 1990 WL 41953 (4th Cir. 1990), involved an appeal from a Maryland district court's refusal to dissolve a Maryland corporation based on a lack of evidence of fraud or wrongdoing. There is no indication that abstention was an issue. Everett does not suggest that this court should ignore the common practice of avoiding interference with another state's interest in managing the affairs of its corporate entities.
The Virginia Code sets forth a comprehensive scheme governing corporate matters, with detailed provisions pertaining to the dissolution of a state corporation. See Va. Code Ann., § 13.1-747 (2003). Section 13.1-747 of the Code provides that venue for a proceeding seeking dissolution of a corporation "lies in the city or county where the corporation's principal office is or was located, or, if none in this Commonwealth, where its registered office is or was last located." See § 13.1-747(C). The Code also grants the state's circuit courts subject matter jurisdiction over the dissolution of nonstock corporations, effective immediately upon termination of the corporate existence. See § 13.1-909. Under § 13.1-915, the power involuntarily to terminate a nonstock corporation is vested in the State Corporation Commission.
Here, ABSI is a corporation organized under the laws of Virginia and certified to do business in Maryland as a foreign corporation. Plaintiff requests this court to interfere with the internal management of ABSI by ordering its dissolution and regulating access to its books and records. However, the right to control such matters, especially the dissolution of a corporation without its consent, belongs to the state which created the corporation and the courts generally will not interfere with the management of the internal affairs of a foreign corporation. See 19 Am. Jur.2d, Corporations § 2734 ("The existence of a corporation cannot be terminated except by some act of the sovereign power by which it was created.).
The internal affairs doctrine will be discussed, infra, in connection with general choice of law principles.
ABSI has not been subject to termination proceedings before the State Corporation Commission nor has any action been taken in Virginia to begin the dissolution process. As its comprehensive legislative scheme demonstrates, Virginia has a strong interest in retaining the power to govern the internal affairs of its corporations. Decisions regarding the existence of a corporation and its central books and records are certainly related to the internal affairs of a corporation. Moreover, such state interest is not outweighed by any federal interest in retaining jurisdiction over this dispute. See First Penn. Pacific Life Ins. Co., 304 F.3d at 348 (citing Quackenbush, 517 U.S. at 728). Given the potential for interference with Virginia's efforts to establish a coherent policy of enforcement, as well as Plaintiff's opportunity to obtain full relief in the circuit court, Plaintiff's claims for an accounting and a dissolution are appropriately reserved for review by the state court.
B. Failure to State a Claim
A motion to dismiss pursuant to Eto. R. CIV. P. 12(b)(6) ought not be granted unless "it appears beyond doubt that the Plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). All that the Federal Rules of Civil Procedure require of a complaint is that it contain "`a short and plain statement of the claim' that will give the Defendant fair notice of what the Plaintiff's claim is and the grounds upon which it rests." Id. at 47; Comet Enters. Ltd. v. Air-A-Plane Corp., 128 F.3d 855, 860 (4th Cir. 1997). "Given the Federal Rules' simplified standard for pleading, `[a] court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.'" Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514, 122 S.Ct. 992, 998 (2002), quoting Hishon v. King Spalding, 467 U.S. 69, 73 (1984).
In reviewing the complaint, the court accepts all well-pled allegations of the complaint as true and construes the facts and reasonable inferences derived therefrom in the light most favorable to the Plaintiff. Ibarra v. United States, 120 F.3d 472, 473 (4th Cir. 1997). The court must disregard the contrary allegations of the opposing party. A.S. Abell Co. v. Chell, 412 F.2d 712, 715 (4th Cir. 1969). The court need not, however, accept unsupported legal conclusions, Revene v. Charles County Comm'rs, 882 F.2d 870, 873 (4th Cir. 1989), legal conclusions couched as factual allegations, Papasan v. Allain, 478 U.S. 265, 286 (1986), or conclusory factual allegations devoid of any reference to actual events, United Black Fire fighters v. Hirst, 604 F.2d 844, 847 (4th Cir. 1979).
Furthermore, Defendants have asserted affirmative defenses based on the statutes of frauds and limitations. These defenses may be raised in a Rule 12(b)(6) motion when the face of the complaint reveals the defect or that the cause of action has not been brought within the applicable limitations period. See Blackstone Realty LLC v. Federal Deposit Ins. Corp., 244 F.3d 193, 197 (1st Cir. 2001) (statute of frauds); Brooks v. City of Winston-Salem, 85 F.3d 178, 181 (4th Cir. 1996) (statute of limitations); 5A Charles Alan Wright Arthur R. Miller, Federal Practice and Procedure §§ 1357, at 352, 356 (2d ed.1990). In deciding the motion, the court will consider the facts stated in the complaint and the documents referred to in the complaint and relied upon by plaintiff in bringing the action. See Maryland Minority Contractor's Ass'n, Inc. v. Maryland Stadium Auth., 70 F. Supp.2d 580, 592 n. 5 (D.Md. 1998) ("When a plaintiff's complaint relies on documents not provided with that complaint, the defendant may on a motion to dismiss provide them for the court's consideration."), aff'd, 198 F.3d 237 (4th Cir. 1999); see also Biospherics, Inc. v. Forbes, Inc., 989 F. Supp. 748, 749 (D.Md. 1997). Thus, in addressing Defendants' arguments based on affirmative defenses, it is appropriate for the court to consider any documents between the parties referenced and relied upon by Plaintiff without converting the motion to dismiss into a motion for summary judgment.
With regard to each claim, the court must determine whether Maryland or Virginia law governs. A federal court applies the choice-of-law rules of the state in which it sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). In contract cases, Maryland applies the rule of lex loci contractus. Kramer v. Bally's Park Place, Inc., 311 Md. 387, 390, 535 A.2d 466, 467 (Md. 1988). Under this rule, the law of the state where the contract was made controls its validity and construction. Id.
Maryland courts also adhere to the "internal affairs doctrine" when dealing with foreign corporations. See N.A.A.C.P. v. Golding, 342 Md. 663, 674, 679 A.2d 554, 559 (Md. 1996); see also Berger v. Bata Shoe Co., 197 Md. 8, 78 A.2d 186 (Md. 1951); O'Hara v. Frenkil, 155 Md. 189, 141 A. 528 (Md. 1928). As the Supreme Court has explained:
The internal affairs doctrine is a conflict of laws principle which recognizes that only one state should have the authority to regulate a corporation's internal affairs-matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders-because otherwise a corporation could be faced with conflicting demands. See Restatement (Second) of Conflict of Laws, § 302, Comment b, at 307-308 (1971).Edgar v. MITE Corp., 457 U.S. 624, 645 (1982); see also Bendix Corp. v. Martin Marietta Corp., 547 F. Supp. 522, 526-527 (D.Md. 1982). Although it is not always immediately clear what constitutes an "internal affair," this court has classified the distinction as:
That where the act complained of affects the complainant solely in his capacity as a member of the corporation, whether it be as stockholder, director, president or other officer, and is the act of the corporation, whether acting in stockholders' meeting, or through its agents, the board of directors, that then such action is the management of the internal affairs of the corporation, and in case of a foreign corporation, our courts will not take jurisdiction. Where, however, the act of the foreign corporation complained of affects the complainant's individual rights only, then our courts will take jurisdiction, whenever the cause of action arises here.Poe v. Marguette Cement Mfg. Co. 376 F. Supp. 1054, 1057 (D.Md. 1974) (quoting North State Copper Gold Mining Co. v. Field, 64 Md. 151, 20 A. 1039 (Md. 1885)). Thus, as a general rule, Maryland courts refrain from intervening in internal affairs, or the management disputes, of a foreign corporation. See N.A.A.C.P., 342 Md. at 674, 679 A.2d at 559.
Maryland generally applies the rule of lex loci delicti to tort claims, including conversion. See Philip Morris Inc. v. Angeletti, 358 Md. 689, 746, 752 A.2d 200, 231 (2000); see also First Union Nat. Bank v. New York Life Ins. and Annuity, 152 F. Supp.2d 850, 854 (D.Md. 2001) (applying Maryland law to conversion claim when last act of wrong occurred in Maryland). As to Plaintiff's unjust enrichment claim, the situation is not entirely clear. Sensormatic Sec. Corp. v. Sensormatic Electronics Corp., 249 F. Supp.2d 703, 707-08 (D.Md. 2003) (unclear whether Maryland would use the test set forth in Restatement (Second) of Conflict of Laws §§ 221 (1971) or lex loci contractus). It will not be necessary to resolve the issue because the parties agree that Virginia law applies to these claims.
1. Counts VI (conversion) and VII (unjust enrichment) (against ABSI)
Count six alleges that ABSI wrongfully exercised dominion and control over Plaintiff's money by failing to repay the loan he made to ABSI of at least $38,000. Count seven seeks recovery for the unjust enrichment that resulted from ABSI's failure to repay. Defendants move to dismiss both counts, arguing that Plaintiff's claims are barred by the applicable statute of frauds and/or the statute of limitations. a. Statute of Frauds
Based on the facts alleged by Plaintiff, the loan to ABSI was intended to facilitate Sharma's hire and took place in Virginia, before the company moved to Maryland. See paper no. 1, at ¶ 9. Plaintiff does not dispute that Virginia law governs the claims arising from the loan to ABSI.
Under the Virginia Statute of Frauds, a promise or agreement "not to be performed within a year" or "to lend money or extend credit in an aggregate amount of $25,000 or more" must be in writing and signed by the party to be charged. See Va. Code Ann., § 11-2(8) (9). Additionally, "[t]o satisfy the statute of frauds, an oral contract must be evidenced by a sufficient written memorandum that states the essential terms of the agreement." See Fizer v. Line Power Mfg. Corp., 1992 WL 486945, *1 (W.D.Va. 1992); (citing Drake v. Livesay, 231 Va. 117, 120, 341 S.E.2d 186, 188 (Va. 1986)).
It is clear from Plaintiff's complaint that the loan amount was above $25,000 and, thus, the loan falls under the statute of frauds. Plaintiff does not dispute that the loan was made by an oral agreement, but instead argues in his opposition that the writing requirement of the statute of frauds is satisfied because the loan was accomplished by written checks that were endorsed by the corporations. See Paper no. 11, at 6. Plaintiff's allegations, however, simply do not support this last minute contention. Even assuming a signed check constitutes a written agreement, Plaintiff fails to allege that the checks set forth any of the essential terms of the agreement, either on their own or by reference to any outside written memorandum, as required under Virginia law. See Reynolds v. Dixon, 46 S.E.2d 6, 9 (Va. 1948) (satisfaction of statute of frauds required written description of the property, parties and terms of agreement). Thus, even construing all inferences in favor of Plaintiff, counts six and seven are barred by the statute of frauds.
Moreover, because § 11-2(8) is satisfied, the court need not examine whether the loan was an agreement that is not capable of being performed within a year.
b. Statute of Limitations
Plaintiff's claims for conversion and unjust enrichment are also barred by the statute of limitations. Plaintiff alleges that the $38,000 loan was to be repaid once ABSI had sufficient revenue. See paper no. 1, at 12. In his opposition, Plaintiff contends that ABSI did not have sufficient revenue to repay the loan until posting a profit in late 2000 and, therefore, ABSI's conversion of funds did not occur until late 2000, "well within the three year statute of limitations applicable to oral contracts." Paper no. 11, at 6. Plaintiff's argument, however, is unsupported by the facts alleged in his complaint.
Under Virginia law, an unwritten contract, express or implied, has a statute of limitations of three years. See Va. Code Ann., § 8.01-246(4). When money is loaned without a written contract or note, and there is no agreed upon repayment date, it is deemed to be payable on demand. McComb v. McComb, 226 Va. 271, 282, 307 S.E.2d 877, 883 (1983). The right of action accrues and the statute of limitations begins to run on a demand obligation at the time the money is loaned. Id.; see also Investor Assoc. v. Copeland, 262 Va. 244, 252, 546 S.E.2d 431, 436-437 (Va. 2001) (finding that "demand loans made by checks premised on an oral contract" had right of action accruing and statute of limitations commencing to run on date of checks without any formal demand); accord Bell v. Alexander, 62 Va. (21 Gratt.) 1, 6 (1871) (check is obligation payable on demand). Accordingly, the statute of limitations did not begin, as Plaintiff argues, when the loan was able to be repaid, whenever that may have been. Rather, it began on the date the loan was made.
Plaintiff alleges that he lent ABSI at least $38,000, sometime in 1997. Although the exact date is not specified, the court will assume the latest date possible of the year alleged by Plaintiff. Thus, the statute of limitations began, at the latest, on December 31, 1997 and expired three years later, on December 31, 2000. Counts six and seven are therefore barred by the statute of limitations.
Plaintiff's argument that ABSI was not able to repay the debt until late in 2000 is also unsupported by the allegations in his complaint. In ¶ 23 of his complaint, Plaintiff alleges that, in 1999, ABSI was generating approximately $3 million in revenue annually and that each executive had a $3,000 increase in salary per month. Plaintiff makes no mention of ABSI's earnings or profitability in 2000 at all. Indeed, the record is completely void of any support to the assertion that ABSI was unable to repay the loan until 2000. Nonetheless, Plaintiff's claims remain otherwise barred.
2. Breach of Contract (count eight) (against ABSI)
Count eight alleges a breach by ABSI of the employment agreement entered into between Ives and ABSI sometime during 1998. Plaintiff alleges that the terms of the employment agreement entitled him to receive his salary and all bonus money for a period of one year if terminated without cause. Plaintiff claims that he was therefore entitled to receive his salary for the period of May 2000 through May 2001 and his 35 percent interest of the Executive Bonus Plan for the year ending 2000. Defendants seek to dismiss count eight, arguing that the employment agreement does not comply with the Virginia statute of frauds.
The court must accept the facts alleged as true and construe all reasonable inferences in the light most favorable to Plaintiff. Because the employment agreement was entered into in 1998, after the company moved its operations to Maryland, the court will apply Maryland law, the state in which the contract was formed. Kramer, 311 Md. at 390, 535 A.2d at 467 (Maryland applies the rule of lex loci contractus).
Ultimately, the debate over which state law to apply is irrelevant because the facts of this case, as alleged by Plaintiff, do not support an action for breach of contract under either Maryland or Virginia law. Like Maryland, Virginia's statute of frauds encompasses any agreement "not to be performed within a year." See Va. Code Ann., § 11-2(8). Thus, for the same reasons that Plaintiff's claim fails under Maryland law, it fails under Virginia law.
Furthermore, under Virginia law, there exists a presumption that an employment contract is at-will. To overcome this presumption, an employment contract terminable for cause must be in writing to satisfy the statute of frauds. See Progress Printing Co., Inc. v. Nichols, 244 Va. 337, 341, 421 S.E.2d 428, 430 (Va. 1992) (stating that "termination for cause provision used to overcome presumption of employment at will must be in an employee manual or other document which complies with the statute of frauds"). Plaintiff does not allege that a written agreement exists nor does Plaintiff challenge Defendants' assertion that the agreement was oral. Therefore, because Plaintiff's employment agreement, with its for-cause provision, was not in writing, it fails to satisfy the statute of frauds.
The Maryland Statute of Frauds states, in relevant part:
Unless a contract or agreement upon which an action is brought, or some memorandum or note of it, is in writing and signed by the party to be charged or another person lawfully authorized by that party, an action may not be brought:
* * *
(3) On any agreement that is not to be performed within 1 year from the making of the agreement.
Md. Code Ann., Cts. Jud. Proc § 5-901 (2002 Repl. Vol.).
The statute of frauds applies to any contract that could, "by any possibility, be completed within a year, although the parties may have intended that its operation should extend through a much longer period." Home News, Inc. v. Goodman, 182 Md. 585, 594-595, 35 A.2d 442, 446 (Md. 1944). Thus, unless there exists any possibility that Plaintiff's employment agreement could have been completed within one year, it must be in writing or is barred by the statute of frauds. As Plaintiff concedes, although he could have been terminated at anytime, he was to receive his salary and executive bonus plan share for one year after his termination. By its own terms, the agreement created an obligation that could not be satisfied within one year. Plaintiff, however, does not allege that the employment agreement and executive bonus plan were in writing. Nor does he challenge Defendants' argument that the agreements were in fact oral. Therefore, Plaintiff's breach of contract claim is barred by the statute of frauds.
3. Breach of Stock Purchase Agreement (count IX) (against Sharma)
Defendants move to dismiss count nine, arguing that Plaintiff's claim for breach of stock purchase agreement is barred by a three-year statute of limitations. Plaintiff claims that the statute of limitations has not yet expired, as the limitations period did not commence until ABSI made a profit in late 2000. Plaintiff's assertion, however, is inconsistent with and unsupported by the allegations in his complaint.
It is unclear exactly when, and therefore where, the loan took place as Plaintiff merely alleges that the agreement occurred late in 1997. Nonetheless, the statute of limitations for breach of an oral contract, under both Maryland and Virginia law, is three years. See Va. Code, § 8.01-246; Md. Code Ann., Cts. Jud. Pro. § 5-101. In late 1997, Plaintiff agreed to sell ten percent of his shares in ABSI to Sharma at a price to be determined at a later date. Plaintiff further alleges that the parties agreed to postpone payment for the shares until the company received its 8(a) certification so that the value of the company, and Plaintiff's ten percent interest, could be properly determined. ABSI received its 8(a) certification in March 1999.
Despite Plaintiff's present contention, the allegations say nothing establishing a link between Sharma's ability to repay the loan and the profitability of ABSI. By Plaintiff's own admission, Sharma's obligation did not turn on ABSI's profitability but on the ability to determine the value of the shares. Thus, upon receiving its 8(a) certification in March, 1999, the value of ABSI and Plaintiff's ten percent interest was determinable and the statute of limitations began to run. As such, the three year limitations period, under either Maryland or Virginia law, expired in March, 2002. Plaintiff's breach of contract claim, filed on March 24, 2003, is therefore barred by the statute of limitations.
4. Oppression and Freeze-Out (Count X)
Count ten alleges that Defendant Sharma acted fraudulently and illegally, and abused his authority by excluding Plaintiff from the corporate decision-making process, locking him out of the company's building, wasting corporate assets, and denying him access to corporate books and records. He seeks damages for economic harm in an amount to be determined at trial. The claims of count ten are identical to those asserted in count four.
Defendant begins by arguing that Plaintiff has failed to state a cognizable claim under Virginia law. Plaintiff does not dispute Defendant's assertion, but instead asserts that Maryland law governs these claims. According to Plaintiff, Maryland law, unlike Virginia law, permits a minority shareholder to bring a direct, non-derivative claim against officers and directors of a close corporation in addition to a derivative claim as that contained in count four. What Plaintiff overlooks, however, is that even if he were permitted to assert a claim separate from a shareholder's derivation claim, Maryland courts refrain from intervening in internal affairs, or the management disputes, of a foreign corporation. See N.A.A.C.P., 342 Md. at 674, 679 A.2d at 559. Count ten, as alleged, is based on harm Plaintiff allegedly suffered not in his personal capacity, but in his capacity as a minority shareholder of ABSI. Likewise, Plaintiff's claims of wrongdoing are brought against Defendant Sharma in his professional capacity while acting on behalf of the corporation. Each of the allegations contained in count ten involve "matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders." Edgar, 457 U.S. at 645. In adherence with the internal affairs doctrine, and in the interest of avoiding a conflict of laws, this court refrains from taking jurisdiction over the oppression and freeze-out claim asserted in count ten, assuming is differs in any significant respect from count four.
III. Conclusion
For the foregoing reasons, Defendants' motion to dismiss will be granted. A separate order will follow.