Alnwick v. European Micro Holdings, Inc.

• Decision Date: 22 March 2001
• Docket Number: No. 99-CV-7380 (ADS).,99-CV-7380 (ADS).
• Citation: 137 F.Supp.2d 112
• Parties: Jeffrey ALNWICK and Marie Alnwick, Individually and as Big Blue Products, Inc., and alternatively, Jeffrey Alnwick and Marie Alnwick, individually and derivatively as Big Blue Europe, B.V., Plaintiffs, v. EUROPEAN MICRO HOLDINGS, INC., European Micro PLC, John B. Gallagher, and Harry D. Shields, Defendants, and Big Blue Europe, B.V., Nominal Defendant.
• Court: U.S. District Court — Eastern District of New York

137 F.Supp.2d 112

Jeffrey ALNWICK and Marie Alnwick, Individually and as Big Blue Products, Inc., and alternatively, Jeffrey Alnwick and Marie Alnwick, individually and derivatively as Big Blue Europe, B.V., Plaintiffs, v. EUROPEAN MICRO HOLDINGS, INC., European Micro PLC, John B. Gallagher, and Harry D. Shields, Defendants and Big Blue Europe, B.V., Nominal Defendant.

No. 99-CV-7380 (ADS).

United States District Court, E.D. New York.

March 22, 2001.

Cohen, Tauber, Spievack & Wagner, LLP, New York City by Jay B. Spievack, Mitchell Reiter, of counsel, for Plaintiffs.

Phillips, Nizer, Benjamin, Krim & Ballon, LLP, New York City by Stuart A. Summit, Michael Fischman, of counsel, for Defendants.

Houthoff, Buruma, The Netherlands by Peter Hustinx, of counsel, for Nominal Defendants.

MEMORANDUM OF DECISION AND ORDER

SPATT, District Judge.

This case concerns numerous allegations of fraud, breach of contract, and breach of fiduciary duty alleged by the Plaintiffs, who were participants in a joint venture. Presently before the Court is the Defendants' motion to dismiss based on the doctrine of forum non conveniens, or, in the alternative, for dismissal of the complaint for violation of Fed.R.Civ.P. 8(c).

BACKGROUND

The Plaintiffs, Jeffrey and Marie Alnwick, ("Alnwicks") are owners of a New York corporation, Plaintiff Big Blue Products, Inc. engaged in the salvage and resale of computer components in the United States, and, to a lesser extent, in Europe. In 1996, Defendants Shields and Gallagher, owners of Defendant European Micro Holdings, an American corporation engaged, through a subsidiary corporation in England, in the sale of computer option products throughout Europe, approached the Alnwicks about creating a joint venture to expand Big Blue Products' business into the European market.

Following extended discussions and negotiations, the parties entered into three agreements in November or December 1996 to create the joint venture known as "Big Blue Europe." First, the Alnwicks, Shields, and Gallagher agreed to create a joint venture to be known as "Big Blue Europe" to engage in the sale of computer parts in Europe. The joint venture agreement included a non-competition provision, which prohibited Big Blue Europe from transacting business in the United States, and prohibited both Big Blue Products and Shields, Gallagher, and their European Micro Group companies from engaging in sales of computer parts in Europe, although Big Blue Products was permitted to maintain accounts with its few European clients. Second, the Alnwicks and the Shields/Gallagher team each agreed to contribute $132,500 in capital to the new venture, the Alnwicks' contribution to be made as inventory of computer parts, and the Shields/Gallagher contribution to be made in cash. In exchange, each pair received 50% of Big Blue Europe's stock. Third, the Alnwicks agreed to license the service mark "Big Blue" to Big Blue Europe. According to the complaint, all three of these agreements were oral.

On December 3, 1996, Big Blue Europe hired Bas Leeuwerke to manage its business affairs. By March 1997, Big Blue Europe, in part through the efforts of the Alnwicks, had secured several large clients. At the same time, efforts by Shields and Gallagher to obtain a $ 1.5 million line of credit with ABN Amro Bank fell through. According to the Alnwicks, during preliminary negotiations over the formation of Big Blue Europe, Shields and Gallagher touted their working relationship between European Micro Group and a bank known as Nat West, and promised that Nat West would "push ABN Amro Bank to provide a credit line without any guarantee." Shields and Gallagher refused, however, to permit European Micro Group to guarantee a loan to Big Blue Europe. According to the Alnwicks, European Micro Group did not assist Big Blue Europe in securing the line of credit because Shields and Gallagher were contemplating a stock offering in European Micro Group, and did not want to lessen the possible share price by assuming additional liabilities. However, Shields and Gallagher did not disclose to the Alnwicks their intentions involving European Micro Group.

In May 1997, a European bank called Rabobank Beverwijk ("Rabobank") agreed to extend a credit line to Big Blue Europe in the amount of $ 500,000 if Big Blue Europe increased its capital holdings to that amount. The Alnwicks and Shields/Gallagher entered into a second oral agreement to contribute additional capital to the venture, with each team contributing $ 133,000 in the same manner as the original capital agreement.

At approximately the same time, Shields and Gallagher allegedly transferred their shares in Big Blue Europe to European Micro Group. Also, instead of contributing the additional $ 133,000 in cash, Shields and Gallagher instead arranged for European Micro Group to loan that sum to Big Blue Europe. In addition, the Defendants allegedly caused Big Blue Europe to record the Alnwicks' second contribution as a $ 133,000 "no interest loan that Big Blue Europe never was required to repay." All of these actions were allegedly done by the Defendants without the Alnwicks' knowledge.

In the summer of 1997, Shields and Gallagher approached the Alnwicks concerning the sale of their Big Blue Europe stock to European Micro Group. Shields and Gallagher allegedly told the Alnwicks that a publicly traded partner in the joint venture would allow Big Blue Europe access to additional capital sources, greater visibility, and other benefits, and denied that the arrangement would have any negative effect on the value of Big Blue Europe or the Alnwicks. However, according to the Alnwicks, however, Shields and Gallagher had already harmed Big Blue Europe by failing to diligently pursue the line of credit out of concern for European Micro Group's stock price; transferring their shares to European Micro Group without informing the Alnwicks; and by mischaracterizing Shields and Gallagher's second capital contribution as a loan by European Micro Group so as to enhance its balance sheet, all without the Alnwicks' knowledge.

In August 1997, based on the Defendants' representations, the Alnwicks agreed to permit the Defendants to transfer their 50% ownership of Big Blue Europe to European Micro Group. The Alnwicks allege that this "cross-purchase agreement" somehow "placed personal debt obligations on the Alnwicks simply because they held fifty percent or greater of the shares of Big Blue Europe." The complaint is not specific as to what these obligations were, or to how the agreement "obligate[d] the Alnwicks personally for the debts of Big Blue Europe arising from undisclosed insider transactions."

In September 1997, Shields and Gallagher attempted to convince the Alnwicks to agree to take out a short-term $ 350,000 loan to expand Big Blue Europe's operations. Despite their reluctance, the Alnwicks agreed to incur the loan, based on European Micro Group's promise that the loan would allow it to introduce its own customers to Big Blue Europe. The Alnwicks allege that they would not have agreed to this loan had they known about other, unspecified "pre-existing debt obligations" the Defendants had already placed on Big Blue Europe.

In late 1997, in violation of the cross-purchase agreement and without the Alwicks' knowledge, European Micro Group caused Big Blue Europe to pledge its capital to Rabobank in exchange for an additional line of credit. In April 1998, the Defendants allegedly fabricated a shareholders meeting to approve of the pledge of capital, even though the Alnwicks were never informed of any such meeting and did not participate.

On January 31, 1998, Shields and Gallagher sold European Micro Group to a new Nevada corporation they had formed, European Micro Holdings.

In March 1998, the Defendants demanded that Big Blue Europe change its inventory accounting methods, alleging that it violated generally accepted accounting principles. The Alnwicks contend that these allegations were false, that the Defendants had misrepresented the accounting methods to their auditors, and that the demand violated the original joint venture agreement, which provided that Big Blue Europe would use the same operational methods and practices as Big Blue Products in the United States. According to the Alnwicks, this change in accounting methods was intended to devalue Big Blue Europe to allow the Defendants to purchase it at a reduced price.

Also in March 1998, the Defendants met with the Alnwicks in Nashville, Tennessee. At that meeting, the Defendants criticized the operations and progress of the company, requested permission for Big Blue Europe to engage in operations in the United States, and offered to purchase the Alnwicks' shares. In response, the Alnwicks criticized the Defendants' ongoing failure to vigorously seek out additional clients. The Alnwicks rejected most of the Defendants' requests at the Nashville meeting, but did agree that the Defendants would take over the daily management of Big Blue Europe.

Upon assuming the daily management of Big Blue Europe, the Defendants allegedly implemented new policies and practices to devalue the company without consulting the Alnwicks, such as a large write-down of inventory in June 1998 to which the Alnwicks did not consent and a change in Big Blue Europe's fiscal reporting year.

In the fall of 1998, the Defendants allegedly caused Big Blue Europe to begin soliciting business in the United States, in violation of the joint venture agreement. The Defendants also instructed Leeuwerke to conceal this fact from the Alnwicks.

In January 1999, the Alnwicks and European Micro Holdings agreed to modify the non-competition provisions of the joint venture agreement to permit European Micro Holdings to sell certain new computer parts in Europe; in exchange, Big Blue Europe would be permitted to sell computer option products there. However, when Big Blue Europe attempted to sell the...