Opinion
229542/2010
10-20-2011
Michael T. Zentz, Plaintiff, v. International Foreign Exchange Concepts, L.P., ("IFEC") AND JOHN R. TAYLOR, Defendants.
Plaintiff (pro se): Michael Zentz Attorney for Defendants: Thomas Golden, Esq. Willkie Farr & Gallagher LLP
Plaintiff (pro se): Michael Zentz
Attorney for Defendants: Thomas Golden, Esq. Willkie Farr & Gallagher LLP
Carolyn E. Demarest, J.
The following papers numbered 1 to 6 read on this motion:Papers Numbered
Notice of Motion/Order to Show Cause/
Petition/Cross Motion and
Affidavits (Affirmations) Annexed1,2
Opposing Affidavits (Affirmations)5
Reply Affidavits (Affirmations)
Other Papers (Memoranda of Law)3,4,6
Defendants International Foreign Exchange Concepts, LP ("FX Concepts" or "IFEC") and John R. Taylor, FX Concepts' chief executive officer and chairman of its Board of Directors, move to dismiss the amended complaint brought by pro se plaintiff Michael Zentz, with prejudice and without leave to amend, pursuant to CPLR 3211 (a) (1) and (7).
BACKGROUND
In March of 1997, plaintiff began working as a market analyst for International Foreign Exchange Concepts, Inc. Plaintiff's compensation was originally calculated pursuant to an employment offer letter, dated February 26, 1997 (the "Employment Letter"). The Employment Letter provided for a base rate of compensation and a discretionary bonus to be "disbursed to individuals who remain actively employed by the company at the time of distribution." The letter, addressing Zentz, stated that it "should not be construed as a guarantee of employment for any specific duration. FX Concepts or you, of course, are free to terminate this employment relationship at any time if the company or you determine that such action is in its or your respective best interest. In addition, your employment is contingent upon the execution of the firm's standard confidentiality letter, pursuant to which you agree to keep all proprietary information and trade secrets of the firm confidential."
FX Concepts, registered as a limited partnership with the New York Department of State, was created in December of 2008 and appears to be the successor to a now defunct corporation named International Foreign Exchange Concepts, Inc., created in April 1981 and merged out of existence when FX Concepts was created. For the purposes of this decision, FX Concepts and IFEC will be used to refer interchangeably to both entities as plaintiff's allegations relate to when FX Concepts was still a corporation.
According to the complaint, in 2000, plaintiff became a "Portfolio Manager" and was entrusted to manage the "Interest Rate Futures investment fund" (Complaint ¶29). Plaintiff alleges that he and FX Concepts orally agreed to a new compensation package whereby he would receive a base salary and incentive compensation in the form of a non-discretionary "Trader Commission," to be paid out every six months, subject to minor changes negotiated during plaintiff's periodic review.
In a letter dated June 18, 2003, Taylor offered plaintiff the opportunity to purchase shares of FX Concepts (the "Share Offer Letter"). In response to the letter, plaintiff alleges that he purchased 100 shares of FX Concepts, and that, over the next four years, purchased an additional 250 shares, for a total of 350 shares. Defendants claim, and plaintiff does not dispute, that the purchased shares were subject to an Amended and Restated Shareholder Agreement, dated July 29, 2002 (the "Shareholder Agreement"), which grants to defendants the option to purchase any shares of stock held by an employee upon termination of employment. Plaintiff alleges that, in addition to the Trader Commission, a dividend, informally referred to as a "Keyman Bonus," was regularly distributed to him, as a shareholder, biannually.
On December 14, 2007, FX Concepts terminated plaintiff's employment, claiming that such termination was for cause. In his affidavit, Hugh Tilney, the chief operating officer of FX Concepts, notes that prior to plaintiff's termination, the company had reprimanded plaintiff for using foul or offensive language on several occasions, and had warned plaintiff in writing that such continued conduct would result in his termination. As an at-will employee, plaintiff has not disputed defendants' right to terminate him. However, defendants have refused to pay plaintiff his Trader Commission from July 1, 2007 to December 14, 2007, claiming that the commission is discretionary, and have also refused to pay plaintiff a Keyman Bonus, distributed to other employees in 2008, claiming that the bonus is similarly discretionary and reserved for current employees.
Plaintiff has, however, disputed his termination for cause. In his complaint, plaintiff alleges that defendants manufactured false evidence to justify his termination. Plaintiff further alleges that it was the practice of FX Concepts to terminate employees and then withhold payment of any earned bonus or commission until the terminated employee released it from any legal claims.
In an Amended Option Exercise Notice, dated March 7, 2008, FX Concepts formally notified plaintiff and his legal counsel of FX Concepts' exercise of its right to buy back plaintiff's 350 shares and set forth the conditions governing the share purchase. The notice scheduled the closing for April 8, 2008 and stated that the price would be the last traded price of $440 per share paid by plaintiff for a total purchase price of $154,000 and a net cash payment to plaintiff of $87,623.25 after his outstanding loan balance and accrued interest was deducted.
Defendants have submitted two versions of the Amended Option Exercise Notice (see Ex. 2 to Golden Aff. and Ex. 7 to Tilney Aff.) that appear to be identical but for the date on the second page. Both submitted versions are initially dated March 7, 2008 but Exhibit 2 to Golden's Affidavit is dated March 7, 2008 on the signature page, and Exhibit 7 to Tilney's Affidavit is dated March 31, 2008 on the signature page.
On March 25, 2008, Robert Herbst, Esq., plaintiff's counsel at that time, sent a letter to Phillipe Salomon, Esq. of Willkie Farr & Gallagher LLP, counsel to FX Concepts, stating that "[w]ith respect to the stock, your letter claims to have already exercised its rights to purchase the 350 shares at the price of $440 on December 26, 2007. Since we have at all times offered to sell those shares to you, and continue to stand ready to sell them to you immediately, please advise when we can expect payment of the net amount due Mr. Zentz ($87,623.25). In that regard, the Stock Agreement makes mention of dividends. Please advise whether such dividends have been issued and paid, and when Mr. Zentz is entitled to same"(Golden Aff., Ex. 3).
Plaintiff, a law student, is presently litigating this matter pro se.
On April 8, 2008, Mr. Salomon sent a letter, designated as confidential for settlement purposes only, to Mr. Herbst, enclosing a check, dated April 7, 2008, for $87,623.25 in payment for plaintiff's shares. On April 15, 2008, Mr. Salomon sent a letter, also designated as confidential for settlement purposes, to Mr. Herbst providing the "cost basis" for plaintiff's previously held shares. The letter stated that the first 100 shares were purchased by plaintiff on July 24, 2003 for $68 per share, the next 200 shares were purchased by plaintiff on July 28, 2005 for $270 per share, and the last 50 shares were purchased by plaintiff on August 23, 2007 for $440 per share.
On December 3, 2010, plaintiff commenced the instant action by filing a summons and complaint. Defendants then moved to dismiss the action, and on March 23, 2011, this court granted defendants' motion to dismiss without prejudice, granting leave to plaintiff to re-plead within thirty days. On April 21, 2011, plaintiff filed an amended complaint. Defendants again moved to dismiss the complaint, and, after hearing oral argument from both parties, this court reserved decision on the motion.
The amended complaint alleges eight causes of action. The first cause of action alleges breach of an oral and implied contract based upon FX Concepts' refusal to pay plaintiff his Trader Commission, allegedly owed for the second half of 2007. The second and third causes of action allege quantum meruit and unjust enrichment claims. The fourth cause of action alleges that FX Concepts' refusal to pay plaintiff the Trader Commission constitutes a violation of
Article 6 of the New York Labor Law. The fifth cause of action alleges breach of fiduciary duty against both defendants for the failure to pay plaintiff a dividend allegedly distributed in early 2008, while plaintiff was still a shareholder. The sixth cause of action alleges breach of fiduciary duty against both defendants, claiming that defendants miscalculated the worth of plaintiff's shares. The seventh cause of action alleges breach of fiduciary duty against Taylor and is derivative in nature, claiming, inter alia, that Taylor misappropriated corporate funds, relied upon insider trading and engaged in self-dealing. The eighth cause of action alleges conversion against both defendants, claiming that defendants refused to return personal computer files and plaintiff's copy of the employee handbook.
DISCUSSION
Defendants move to dismiss the complaint pursuant to CPLR 3211 (a) (1) and (7). CPLR 3211 (a) (1) provides for dismissal where "a defense is founded upon documentary evidence" if the documentary evidence "conclusively establishes a defense to the asserted claims as a matter of law" (see Leon v Martinez, 84 NY2d 83, 87 [1994]) and "resolves all factual issues as a matter of law, and conclusively disposes of the plaintiff's claim" (Fortis Fin. Serv., LLC v Fimat Futures USA, Inc., 290 AD2d 383, 383 [1st Dept 2002]). CPLR 3211 (a) (7), provides for dismissal if the pleading fails to state a cause of action. When determining this motion, the court must accept the facts alleged by the plaintiff as true and must liberally construe the complaint, according it the benefit of every possible favorable inference (Campaign for Fiscal Equity, Inc. v State of New York, 86 NY2d 307, 318 [1995]; see also Sokoloff v Harriman Estates Dev. Corp., 96 NY2d 409, 414 [2001]). Ultimately, the role of the court is to "determine only whether the facts as alleged fit within any cognizable legal theory" (Leon, 84 NY2d 83 at 87). However, conclusory allegations, which fail to adequately allege the material elements of a cause of action, will not withstand a motion to dismiss (Peterec-Tolino v Harap, 68 AD3d 1083, 1084 [2d Dept 2009]).
Defendants argue that the first three causes of action for breach of contract, quantum meruit and unjust enrichment stemming from FX Concepts' failure to pay the Trader Commission should be dismissed because the Trader Commission constituted a discretionary bonus under the terms of the Employee Handbook and the Employment Letter, which provided that plaintiff "may also receive periodic discretionary bonus payments (Tilney Aff., Ex. 1)." Plaintiff, however, is not claiming that the compensation for his job as Portfolio Manager was determined by the terms in the Employment Letter. Rather, plaintiff contends that the compensation was determined by an oral agreement between himself and FX Concepts, subject to periodic reviews.
"The rule with respect to the payment of bonuses is well settled. An employee's entitlement to a bonus is governed by the terms of the employer's bonus plan. It is also an accepted principle that an employment without specific termination date is terminable at will and that a sales representative paid on a commission basis is not entitled to commissions after termination of employment. To be considered along with the above rules, however, is the long standing policy against the forfeiture of earned wages which applies to earned, uncollected commissions as well" (Weiner v Diebold Group, Inc., 173 AD2d 166, 167 [1st Dept 1991] (internal quotations and citations omitted)).
Here, plaintiff has alleged that the oral agreement provided for the payment of a nondiscretionary Trader Commission as a component of his compensation. Whether a valid and enforceable oral agreement providing for the nondiscretionary payment of the Trader Commission existed between plaintiff and FX Concepts presents a question of fact which can not be determined at this time (see Mirchel v RMJ Securities Corp., 205 AD2d 388, 389-390 [1st Dept 1994]; Guggenheimer v Bernstein Litowitz Berger & Grossmann LLP, 11 Misc 3d 926, 934-935 [Sup Ct, New York 2006]). It is enough that plaintiff has alleged the existence of an oral contract and the material elements of its breach (see JP Morgan Chase v J.H. Elec. of New York, Inc., 69 AD3d 802, 803 [2d Dept 2010] (for a breach of contract claim, plaintiff must allege the existence of a contract, the plaintiff's performance under the contract, the defendant's breach, and resulting damages). Alternatively, plaintiff has also adequately pleaded the necessary elements of both quantum meruit and unjust enrichment claims (see Evans-Freke v Showcase Contracting Corp., 85 AD3d 961 [2d Dept 2011] (for a quantum meruit claim, the plaintiff must allege the plaintiff's performance of services in good faith, the acceptance of services by the defendant, the expectation of compensation, and the reasonable value of the services rendered);
Old Republic Nat. Title Ins. Co. v Luft, 52 AD3d 491, 491 [2d Dept 2008] (for an unjust enrichment claim, the plaintiff must allege that defendant was enriched at plaintiff's expense and that it is against equity and good conscience to permit defendant to retain what is sought to be recovered)). Although the existence of a valid and enforceable contract governing a particular subject matter generally precludes recovery in quasi contract (see Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382, 388 [1987]; Lum v New Century Mtge. Corp., 19 AD3d 558, 559-560 [2005]), where there is a bona fide dispute as to the existence of a contract or the application of a contract in the dispute in issue, a plaintiff may proceed upon a theory of quasi contract as well as breach of contract, and will not be required to elect his or her remedies" (Goldman v Simon Prop. Group, Inc., 58 AD3d 208, 220 [2d Dept 2008]. Defendants' motion to dismiss the first three causes of action is denied.
Defendants move to dismiss plaintiff's fourth cause of action, which claims that defendants violated Labor Law § 191 (2) and (3) and requests damages including attorneys' fees, costs and interest under Labor Law § 198 (1-a). Labor Law § 191 (1) provides for the frequency with which certain categories of workers, namely manual workers, railroad workers, commission salesperson, and clerical and other workers, must be paid. Labor Law § 191 (2) and (3) provide:
"2. No employee shall be required as a condition of employment to accept wages at periods other than as provided in this section.
3. If employment is terminated, the employer shall pay the wages not later than the regular pay day for the pay period during which the termination occurred, as established in accordance with the provisions of this section. If requested by the employee, such wages shall be paid by mail."
Defendants dispute plaintiff's characterization of himself as an "employee" for the purposes of this provision, contending that plaintiff, as a Portfolio Manager, did not fall within any of the categories set forth under Labor Law § 191 (1), but, rather, was employed in an executive capacity. Labor Law § 190 (7) defines "clerical and other worker" to include all employees not included in the previous subdivisions "except any person employed in a bona fide executive, administrative or professional capacity whose earnings are in excess of nine hundred dollars a week." Whether plaintiff was working in an executive, administrative or professional capacity raises a question of fact. At this stage in the litigation, discovery has not taken place and very little has been made known to the court regarding what plaintiff's job responsibilities were and what his weekly earnings were prior to his termination.
Defendants further claim that the Trader Commission was discretionary and thus should not be considered a form of "wages," as defined by the Labor Law. However, Labor Law § 190 (1) defines "wages" as "earnings of an employee for labor or services rendered, regardless of whether the amount of earnings is determined on a time, piece, commission or other basis." Thus, if it is determined that a valid and enforceable oral employment agreement provided for payment of a nondiscretionary Trader Commission, plaintiff's fourth cause of action may be viable and should not be dismissed at this time.
Lastly, defendants argue that because plaintiff is barred from recovering under § 191, plaintiff is also barred from recovering attorneys' fees and liquidated damages under § 198 (1-a). While defendants are correct that an employee barred from recovering under § 191 cannot recover costs under § 198 (1-a) (Pachter v Bernard Hodes Group, Inc., 10 NY3d 609, 616 [2008]), because it can not yet be determined whether plaintiff's Labor Law claim is viable, defendants' motion to dismiss the fourth cause of action is denied.
Defendants move to dismiss plaintiff's fifth cause of action as against both defendants for breach of fiduciary duty and for breach of contract in failing to pay a dividend upon his stock prior to the sale of his shares. Because plaintiff has improperly mixed breach of contract and breach of fiduciary duty claims, plaintiff's fifth cause of action is dismissed without prejudice with leave to re-plead the causes of action as two separate claims, in compliance with CPLR 3014 ("Separate causes of action or defenses shall be separately stated and numbered").
It is noted that plaintiff appears to have adequately pleaded both causes of action. Plaintiff alleges that, in early 2008, while he was still a shareholder, FX Concepts declared and distributed a dividend, referred to as a "Keyman Bonus," but purposefully withheld such dividend from plaintiff. According to the complaint, defendants were obligated to pay plaintiff the dividend pursuant to the terms of the Share Offer Letter and the Pledge Agreement and owed plaintiff a fiduciary duty to do so because he was a shareholder. Defendants contend that documentary evidence, particularly the Share Offer Letter, conclusively demonstrates that the Keyman Bonus was a discretionary bonus to be paid to current employees that FX Concepts designated to be "key employees." As the bonus was paid in 2008, after plaintiff had been terminated, defendants argue that plaintiff was not eligible for the Keyman Bonus. The letter, written by Taylor and addressed directly to plaintiff, offered plaintiff the opportunity to purchase shares of FX Concepts in accordance with the following process:
"[T]he company will loan you the money if you wish . . .You will be expected to repay this loan out of your bonuses, but your bonus will be higher as a key employee as you will be eligible for a Keyman bonus. At this point, I should mention how the bonus is calculated. First the employee's bonuses are paid. The amount left over is divided three ways: 40% is kept to fund the company's future growth. 20% is used as further discretionary bonuses for those not included in other bonus schemes, and 40% is paid to those designated as key employees' which includes all shareholders" (Tilney Aff., Ex. 3).
The letter does not conclusively demonstrate that the Keyman Bonus was discretionary and intended to be paid only to current employees. In fact, the letter explicitly states that the term "key employees" included all shareholders. However, there is no indication that all shareholders must be employees. In fact, there is evidence that a company known as Asset Management Investment Company was a shareholder during the period of plaintiff's employment. Provisions of the Shareholder Agreement relating to defendants' options to repurchase shares upon termination also suggest the possibility that a departing employee may continue to hold shares following separation from the company. While discovery may ultimately reveal that the Keyman Bonus was intended to be paid only to current employees, such a determination can not be made at this time.
Defendants contend that the fifth cause of action's breach of contract claim should be dismissed because the Share Offer Letter was not an enforceable contract and contained no definite promise to pay plaintiff the Keyman Bonus. However, the Share Offer Letter was clearly an offer to sell upon certain terms which was accepted by plaintiff who paid consideration for the shares and, as a shareholder, acquired certain contractual rights set forth in the Shareholder Agreement (cf. Willis v Ronan, 218 AD2d 794 [2d Dept 1995]). To withstand a motion to dismiss pursuant to CPLR 3211 (a) (7) or (a) (1), plaintiff need only allege, as he has done here, that a contract existed, that defendants breached the contract and that such breach resulted in damages. As noted, at this point in the litigation, discovery is incomplete and very little has been revealed to this court regarding the nature of the Keyman Bonus and plaintiff's rights thereto as a shareholder following his termination. In fact, it has not been established when such bonus was paid.
Defendants further contend that the breach of fiduciary duty claim should not survive as no fiduciary relationship arises between an employer and employee based upon the sharing of profits and not losses. However, plaintiff's fifth cause of action is based upon his claim that a fiduciary duty arose from plaintiff's status as a shareholder and not from plaintiff's status as an employee of FX Concepts. Thus, the fifth cause of action states a claim for breach of fiduciary duty (see Gallagher v Lambert, 74 NY2d 562, 566 [1989]).
Defendants move to dismiss plaintiff's sixth cause of action for breach of fiduciary duty against both defendants based upon their allegedly intentional miscalculation of the value of plaintiff's shares. To plead a cause of action for breach of fiduciary duty, plaintiff must allege the existence of a fiduciary relationship, defendant's misconduct, and damages directly resulting from such misconduct (Palmetto Partners, L.P. v AJW Qualified Partners, LLC, 83 AD3d 804, 807-808 [2d Dept 2011]) with sufficient particularity to satisfy the heightened pleading requirement of CPLR 3016 (Chiu v Chiu, 71 AD3d 621, 623 [2d Dept 2010]). Here, plaintiff has adequately alleged a claim for breach of fiduciary duty. Plaintiff has alleged that, as a shareholder, defendants owed him a fiduciary duty to repurchase the shares in accordance with the Shareholder Agreement. Moreover, Taylor, alleged here to be the majority shareholder of a closely held corporation, owed a fiduciary duty to Zentz and all other minority shareholders (Centro Empresarial Cempresa S.A. v America Movil, S.A.B. de C.V., 2011 WL 2183293 [2011]; Fender v Prescott, 64 NY2d 1077, 1079 [1985]). Plaintiff has further alleged that defendants intentionally miscalculated the value of the shares and, because defendants paid him the last traded price of the shares as opposed to the Current Value of the shares, as defined by the Shareholder Agreement, plaintiff was not adequately compensated for the shares.
Defendants contend that the sixth cause of action should be dismissed, because, by repurchasing plaintiff's shares at the last traded price of $440 per share, plaintiff actually received a windfall of over $70,000. Defendants claim that, while Section 4.3 of the Shareholder Agreement requires FX Concepts to repurchase shares of a terminated employee at the Current Value of the shares, because plaintiff was terminated for "Cause," FX Concepts was only required to repurchase his shares at "the lesser of (a) the Current Value of the Option Shares as of the date the termination of employment of the Terminated Holder and (b) the original purchase price of the Option Shares paid by the Terminated Holder" (Tilney Aff., Ex. 4).
Section 1.17 of the Shareholder Agreement sets forth a formula by which the Current Value could be calculated. Section 1.7 of the Shareholder Agreement defines "Cause" as "(a) conduct by such Employee Holder in connection with his or her employment by the Corporation amounting to fraud, dishonesty or gross negligence in the performance of such Employee Holder's employment responsibilities; (b) conviction of a felony; or (c) as defined in any written employment agreement between such Employee Holder and the Corporation" (id.). Although defendants assert that plaintiff was terminated for cause, the reasons given for such termination, making threats and the "use of foul language, and noisy behavior", do not appear to fall within the definition set forth in the Shareholder Agreement. Moreover, Herbst's letter, dated March 25, 2008, submitted by defendants themselves, disputes the characterization of plaintiff's termination as "for cause." The letter states that Mr. Lindo, an individual in defendants' counsel's office, advised Herbst that plaintiff was not terminated for cause and that plaintiff had not intended any of his allegedly offensive comments to be perceived negatively. Moreover, in the complaint, plaintiff alleges that defendants relied upon a false record as the basis for his termination. Thus, defendants have not conclusively established that such termination was for cause, entitling plaintiff to the lesser of the Current Value of the shares and the original purchase price, and that plaintiff received a "windfall" when paid the last traded price for his shares of stock.
Section 1.17 of the Shareholder Agreement defines "Current Value" of Stock, in part, as: "(a) an amount per share equal to the numerical average of: (i) 2.2 times the five year time-weighted average earnings per share of Stock of the Corporation, as calculated before deducting taxes and officers' compensation (ii) 1.6 times the five year time-weighted average revenue per share of Stock of the Corporation; and (iii) 2.5 times the current book value per share of Stock of the Corporation."
Correspondence was exchanged by the parties in March and April of 2008, specifically Mr. Herbst's March 25, 2008 letter, stating that plaintiff was willing to accept, and even requested, the purchase price of the shares as offered by defendants. The correspondence submitted demonstrates that plaintiff was sent a check for $87,623.25 on or about April 8, 2008. Defendants rely upon this correspondence, contending that plaintiff has no basis to now rescind the agreement after accepting the share repurchase price with full knowledge and the assistance of counsel. Plaintiff, however, does not seek rescission of the sale, but rather seeks to recover the allegedly correct value of the shares owed to him as a shareholder pursuant to the applicable formula contained in the Shareholder Agreement. The documentary evidence submitted does not conclusively disprove plaintiff's claim that the defendants' calculation was incorrect. Defendant's counsel sent plaintiff's counsel a letter, dated April 15, 2008, after the buyback had allegedly occurred, which contained the cost basis for the shares, suggesting that the transaction may have still been under negotiation. This letter also referenced correspondence that was not produced by either side. Defendants have acknowledged that the record is incomplete. As plaintiff has adequately alleged the material elements of a breach of fiduciary duty claim, defendants' motion to dismiss plaintiffs' sixth cause of action is denied.
Defendants move to dismiss the seventh cause of action for breach of fiduciary duty as against Taylor. The seventh cause of action is derivative in nature and alleges that Taylor, as the CEO and Chairman of the Board of Directors of FX Concepts, misappropriated corporate funds, engaged in self-dealing, diverted corporate assets, illegally relied upon insider trading and improperly ordered "overrides" of the trading system. Defendants argue that the cause of action should be dismissed as plaintiff lacks standing to bring this derivative claim as he was no longer a shareholder at the commencement of this action.
It is noted that plaintiff alleges defendants' election to purchase his shares was made in response to his efforts to present these allegations to the attention of the board of directors and other shareholders (Complaint ¶¶ 109-111).
BCL § 626 (b) states that in a derivative action, plaintiff must be a shareholder "at the time of bringing the action and . . . at the time of the transaction of which he complains" (see also Ciullo v Orange & Rockland Utils., 271 AD2d 369, 369 [1st Dept 2000] ("Plaintiffs lack standing to challenge the dismissal of their complaint since they are no longer shareholders in defendant corporation, having tendered their shares for cash in the merger of defendant corporation into another corporation.")). This rule has been strictly enforced by courts because only current shareholders have a continuing interest in the welfare of the company (Honzawa Holding Co. v Hiro Enter. USA, Inc., 291 AD2d 318, 318 [1st Dept 2002] citing Pessin v Chris-Craft Indus., 181 AD2d 66 [1st Dept 1992]; Independent Inv. Protective League v Time, Inc., 50 NY2d 259, 263-265 [1980]).
In reply, plaintiff argues that he should not be barred from bringing his claim because he was involuntarily stripped of his shares. Plaintiff's claim is without merit. Plaintiff does not dispute that his shares are governed by the terms of the Shareholder Agreement, which grants FX Concepts the right to buy back his shares upon termination. Such agreements have been upheld as advancing the interests of the remaining shareholders of a closely-held corporation (see Gallagher v Lambert, 74 NY2d at 567). Mr. Herbst's March 25, 2008 letter, indicating that plaintiff had consistently offered to sell his shares, has been submitted to demonstrate that plaintiff accepted FX Concept's offer to repurchase the shares at the proffered price. While plaintiff may be able to establish a miscalculation of the value of his shares as a breach of defendants' fiduciary duty to him or as a breach of the Shareholder Agreement, as alleged in the sixth cause of action, the documentary evidence clearly indicates that he was not improperly stripped of his shares in light of FX Concepts' right, under the Shareholder Agreement, to repurchase his shares upon his termination. There is no dispute that plaintiff was an at-will employee who could be terminated at any time. Because plaintiff was no longer a shareholder at the time this action was commenced, he is not entitled to bring any derivative claims against Taylor as he no longer has any abiding or invested interest in the well-being of the company.
In support of his derivative claim, plaintiff cites a number of cases, none of which are applicable to the situation at hand. In Independent Investor Protective League v Time, the Court of Appeals allowed plaintiffs to maintain a derivative action after the dissolution of the company and the distribution of its corporate assets had taken place because the court found that when a company is dissolved, a shareholder's interest does not abruptly end (50 NY2d at 264). The Appellate Division, First Department in Slade v Endervelt (174 AD2d 389 [1st Dept 1991]) held that a minority shareholder of a dissolving corporation had standing to bring a derivative action and the corporation could not elect to repurchase his shares in order to deprive the shareholder of the right to maintain both a derivative and a dissolution proceeding. In both cases a minority shareholder was determined to have a continuing interest in a dissolving corporation, distinguishing them from the instant action where a viable company has repurchased its shares from a terminated employee, thus ending his interest in the corporation.
In Stern v Bambu Sales, Inc. (237 BR 555, 560-561 [ED NY 1999]), the Eastern District Court held that a minority shareholder maintained certain rights and attributes of a shareholder after the corporation had elected to buy out his shares, but before it had compensated plaintiff for the shares, and the plaintiff was entitled to a post-election dividend. While Stern suggests that plaintiff may be entitled to the 2008 dividend, which was apparently paid out prior to FX Concept's purchase of plaintiff's shares, it does not provide plaintiff with standing to bring a derivative action as plaintiff was compensated for his shares prior to commencement of suit and no longer maintains an interest in the company. In Tenney v Rosenthal, 6 NY2d 204 [1959], also distinguishable from this action, but cited by plaintiff, the Court of Appeals permitted a former shareholder to maintain a derivative action, but only based upon the shareholder's status as a former director who failed to be re-elected. As plaintiff was not an officer or director of FX Concepts, plaintiff lacks standing to prosecute his derivative claim and defendants' motion to dismiss the seventh cause of action is granted.
Defendants move to dismiss the eighth cause of action for conversion. Plaintiff claims that defendants converted plaintiff's property upon plaintiff's termination by refusing to return personal computer files and plaintiff's copy of the employee handbook. "Conversion is the unauthorized assumption and exercise of the right of ownership over goods belonging to another to the exclusion of the owner's rights'" (State of New York v Seventh Regiment Fund, 98 NY2d 249, 259-260 [2002], quoting Vigilant Ins. Co. of Am. v Housing Auth. of City of El Paso, Tex., 87 NY2d 36, 44 [1995]). Defendants argue that neither the plaintiff's computer files, nor his copy of the employee handbook, actually belonged to him and have submitted an employee handbook, dated September 2004, entitled "General Employee Guidelines" in support of their argument. The handbook states:
"Any employee who either utilizes any of FX CONCEPTS' information system materials such as software, manuals and programming materials, or FX CONCEPTS' operational tools such as manuals and procedures, or assists in their development should treat those materials and their development with the same degree of care as FX CONCEPTS' files and other confidential and proprietary information. FX CONCEPTS considers all such materials to be highly confidential trade secrets and of a proprietary nature, whether already existing or developed during the term of your employ. None of these materials, therefore, may be used to compete with FX CONCEPTS nor may they be independently sold, distributed, demonstrated or otherwise used outside FX CONCEPTS, either during your employment with FX CONCEPTS or afterwards" (Tilney Aff., Ex. 2, p. 7).
Plaintiff also signed a confidentiality agreement, dated February 16, 1997, at the time his employment initially commenced. The letter states:
"All Proprietary Information and all physical embodiments thereof received and developed by you while employed by IFEC are confidential to and are and will remain the sole and exclusive property of IFEC . . . Upon request by IFEC, and in any event upon termination of your employment with IFEC for any reason, you will promptly deliver to IFEC all property belonging to IFEC, including without limitation all Proprietary Information (and all physical embodiments thereof) then in your custody, control, or possession" (Tilney Aff., Ex. 4).
An addendum to the letter broadly defined Proprietary Information as including: "technical and nontechnical data related to the formulas, patterns, designs, compilations, algorithms, models, programs, inventions, methods, techniques, drawings, processes, finances, actual or potential clients, existing and future products, and employees of IFEC or its Affiliates." The employee handbook, read in conjunction with the confidentiality letter, demonstrates that both the manual and plaintiff's work computer files constituted Proprietary Information of the defendants, and plaintiff did not possess an ownership in either of them upon his termination. Defendants' motion to dismiss plaintiff's eighth cause of action must therefore be granted.
Defendants have produced a 2004 copy of the handbook during the course of this litigation. Plaintiff questions the authenticity of this document, referring to a letter from defendants' counsel, dated April 28, 2009, stating that a copy of the employee handbook no longer exists and earlier versions are routinely discarded. This argument fails to resurrect his conversion claim as plaintiff still lacks an ownership interest in the employee handbook. However, plaintiff is entitled to receive an authentic copy of the employee handbook effective during his period of employment through the discovery process (see CPLR 3101). Plaintiff will also be entitled to verify the authenticity of the document through depositions.
CONCLUSION
Defendants' motion to dismiss is granted as to the seventh cause of action for breach of fiduciary duty against Taylor, and the eighth cause of action for conversion against both defendants. Defendants' motion to dismiss the fifth cause of action for breach of fiduciary duty and breach of contract is granted without prejudice and plaintiff is granted leave to re-plead only as to those claims within 20 days. Defendants' motion to dismiss the remaining causes of action is denied.
This constitutes the decision, order, and judgment of the court.
ENTER,
____________________________
Carolyn E. Demarest
J. S. C.