Alnwick v. European Micro Holdings, Inc.

• Decision Date: 15 September 2003
• Docket Number: No. 99-CV-7380 (ADS)(ARL).,99-CV-7380 (ADS)(ARL).
• Parties: Jeffrey ALNWICK, Marie Alnwick and Big Blue Products, Inc., Plaintiffs, v. EUROPEAN MICRO HOLDINGS, INC., European Micro Plc., American Micro Computer Center, Inc., John B. Gallagher and Harry D. Shields, Defendants.
• Court: U.S. District Court — Eastern District of New York

Page 629

281 F.Supp.2d 629

Jeffrey ALNWICK, Marie Alnwick and Big Blue Products, Inc., Plaintiffs, v. EUROPEAN MICRO HOLDINGS, INC., European Micro Plc., American Micro Computer Center, Inc., John B. Gallagher and Harry D. Shields, Defendants.

No. 99-CV-7380 (ADS)(ARL).

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

September 15, 2003.

COPYRIGHT MATERIAL OMITTED

Cohen Tauber Spievack & Wagner LLP, New York, NY (Jay B. Spievack, Stephen Wagner, Andrea J. Lawrence, Leo L. Esses, and Kayo Naruse, of Counsel), for Plaintiffs.

Phillips Nizer, LLP, New York, NY (Stuart A. Summit, and Michael Fischman, of Counsel), for Defendants.

SPATT, District Judge.

In this case, the plaintiffs Jeffrey Alnwick, Marie Alnwick (the "Alnwicks") and Big Blue Products, Inc. ("BBP") (collectively, the "plaintiffs") allege that the defendants European Micro Holdings, Inc. ("EM Holdings"), European Micro Plc. ("European Micro"), American Micro Computer Center ("AMCC"), John B. Gallagher ("Gallagher") and Harry B. Shields ("Shields") (collectively, the "defendants") engaged in a scheme to defraud the plaintiffs in a joint venture known as Big Blue Europe, B.V. ("BBE"). Presently before the Court are two motions, one by the defendants to dismiss the amended complaint pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure and on the basis of forum non conveniens, and another by the plaintiffs to file a second amended complaint pursuant to Rule 15(a) of the Federal Rules of Civil Procedure.

I. BACKGROUND

The facts in this case are detailed in the Court's decision of March 22, 2001, Alnwick v. European Micro Holdings, Inc., 137 F.Supp.2d 112, 114-118 (E.D.N.Y. 2001) and familiarity with that decision is presumed. Only the facts central to these motions are set forth here.

A. The Parties

BBP is a New York corporation with its principal place of business in Huntington Station, New York. BBP is engaged in the business of buying and selling computer parts in the United States, with limited operation in Europe. The Alnwicks are residents of Huntington, New York and are principals in BBP.

EM Holdings is a Nevada corporation with its principal place of business in Miami, Florida. Through its subsidiaries, EM Holdings was engaged in the business of distributing "microcomputer option products" to customers primarily in Western Europe and was engaged in the business of buying and selling computer parts. Presently, EM Holdings has virtually no monies or assets and is no longer in operation.

European Micro is a British corporation with its principal place of business in Chesire, England. Through its subsidiaries, European Micro was engaged in the business of distributing microcomputer option products to customers primarily in Western Europe and was in the business of buying and selling computer parts. Presently, European Micro has virtually no monies or assets and is no longer in operation. AMCC is a Florida corporation with its principal place of business in Miami, Florida. Upon information and belief, presently, AMCC operates all of EM Holdings' computer parts business.

Gallagher is a resident of Ft. Lauderdale, Florida. Upon information and belief he has been a controlling principal of EM Holdings, European Micro and AMCC. Shields is a resident of Nashville, Tennessee. Upon information and belief, he has been a controlling principal of EM Holdings, European Micro and Square 1 International Ltd. ("Square 1").

B. The Facts

The facts are taken from the amended complaint unless otherwise noted. In late November or early December 1996, the Alnwicks entered into an oral agreement with Shields and Gallagher to form a joint venture company to engage in the purchase and sale of computer parts in Europe. This oral agreement contained three parts: the European Joint Venture Agreement, the Shareholders' Capital Contribution Agreement and the Big Blue License Agreement.

In the European Joint Venture Agreement, the Alnwicks and BBP agreed with the EM Group to form BBE to purchase and sell computer parts in Europe. The EM Group consisted of European Micro, Technology Express, AMCC, Ameritech Argentina SA, Ameritech Exports, Inc., and any successors, assignees, affiliates, parents or subsidiaries or any companies owned, controlled or managed by Shields and Gallagher. In this agreement, the parties agreed to model the joint venture after BBP and to use their "best efforts" to assist BBE to meet its business and financial objectives. The amended complaint notes that the material terms of this agreement are contained in various writings. However, no writings are attached and neither party provides the Court with a copy of these alleged writings.

The European Joint Venture Agreement also contained an oral Non-Competition Agreement which was designed to preserve the demarcation between BBP (computer parts business in the United States), the defendants' computer options business in Europe, and BBE (computer parts business in Europe). The Non-Competition Agreement provided that, subject to certain unspecified limited exceptions, BBE could not solicit, buy or sell computer parts in the United States; BBE could not solicit, buy or sell computer options in Europe; Shields, Gallagher and the EM Group companies could not solicit, buy or sell computer parts in Europe or the United States; and neither the Alnwicks nor BBP could solicit, buy or sell computer parts in Europe.

The Shareholders' Capital Contribution Agreement appointed the Alnwicks, Shields and Gallagher the sole shareholders in BBE; issued 530,000 shares of BBE stock; allotted 132,500 shares of stock to each shareholder; appointed each shareholder to BBE's Board of Directors; required the Alnwicks to contribute $132,500 worth of computer parts products in exchange for 50% of BBE stock; and required Shields and Gallagher to contribute a combined contribution of $132,500 in cash in exchange for 50% ownership of BBE stock. The amended complaint notes that the material terms of the Shareholders' Capital Contribution Agreement are contained in a writing. However, no writings are attached and neither party provides the Court with a copy of this alleged writing. In the Big Blue License Agreement, the Alnwicks and BBP agreed to license the service mark "Big Blue" to BBE to be used in accordance with the terms of the European Joint Venture Agreement.

Shortly after the oral agreement to form a joint venture, the Alnwicks, Shields and Gallagher launched BBE. The Alnwicks allegedly accomplished their preliminary goals for BBE, including the creation of its infrastructure, the hiring and training of its sales force, the setting up of its headquarters, the crafting of its inventory management system, the implementing of its policies and procedures and the developing of its new and significant accounts. In developing BBE's infrastructure, the Alnwicks and BBP disclosed most of their trade secrets to BBE and the defendants, including, (i) customer contacts, lists and leads; (ii) supplier contacts, lists and leads; (iii) method of inventory acquisition; (iv) method of dismantling and testing computer equipment and computer parts inventory; (v) method of pricing computer parts inventory, inventory management and movement; and (vi) method of operating BBP's business.

In contrast to the Alnwicks' efforts, Shields and Gallagher allegedly attempted to weaken the joint venture through gross mismanagement of its affairs and encumbering it with unnecessary and exorbitant debt. Shields, Gallagher, European Micro and AMCC took steps to develop its "nascent" computer parts business in violation of the Non-Competition Agreement. In order to severely undermine BBE's chances of success, they along with other EM Group companies bought and sold computer parts in direct competition with BBP in the United States and BBE in Europe.

In May 1997, upon information and belief, Shields and Gallagher transferred their shares in BBE to European Micro without the Alnwicks' knowledge or consent. Upon information and belief, they did this to impress upon institutional and individual investors that the EM Group was committed to expanding its computer options business into the computer parts business. This was done with the hope to attract additional investors to their anticipated EM Group IPO. Because Shields and Gallagher required the Alnwicks' consent before transferring their shares, they "fraudulently represented" to them that the transfer to European Micro would assist in the success of BBE by providing it with access to additional capital sources, potential financial resources to expand its business through the acquisition of competitors, greater visibility, and a significantly stronger position to market and obtain major European accounts for BBE.

The amended complaint further alleges that in spite of these representations, Shields and Gallagher intended to use the monies from the EM Group IPO for their computer options business and their own independent computer parts business which would have an adverse financial impact on the Alnwicks, BBP and BBE. Based on these representations, the Alnwicks consented to the transfer of the BBE shares to Shields and Gallagher to European Micro. This was memorialized in a new agreement, the Shareholders' Cross-Purchase Agreement.

In September 1997, European Micro, Shields and Gallagher convinced the Alnwicks to permit BBE to secure a short-term loan to expand its operations. To induce the Alnwicks' consent, it is alleged that Shields and Gallagher "fraudulently represented" that the loan would accelerate BBE's growth by allowing it to: (i) purchase more computer equipment to dismantle and process into computer parts inventory that ultimately would be sold to new accounts; (ii) hire more employees to service these new accounts; and (iii) develop large deals for BBE involving the EM Group's Premier Dealer Business Program. Notwithstanding these representations, European...