C3 Media & Marketing Group v. Firstgate Internet
| Decision Date | 26 September 2005 |
| Docket Number | No. 04 Civ. 9508(WHP).,04 Civ. 9508(WHP). |
| Citation | 419 F.Supp.2d 419 |
| Parties | C3 MEDIA & MARKETING GROUP, LLC, Plaintiff, v. FIRSTGATE INTERNET, INC., Firstgate Internet AG, Webpay International AG, Webpay Inc., Norbert Stangl and Fabian Siegel, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Clyde Mitchell, Gilbert de Dios, Claugus & Mitchell, New York, NY, for Plaintiff.
Marcus A. Ernst, Stephen B. McNally, Wuersch & Gering LLP, New York, NY, for Defendants.
Plaintiff C3 Media & Marketing Group, LLC ("C3 Media" or "Plaintiff") brings this action against FirstGate Internet, Inc. ("FirstGate"), Webpay Inc. ("Webpay"), their foreign parent corporations and two of their officers and directors (collectively, "Defendants"). Plaintiff claims that Defendants failed to perform their obligations under three separate contracts and evaded their creditors. Defendants move to dismiss the Complaint pursuant to Rule 12(b)(6) arguing that C3 Media previously released Defendants from liability. Defendants also move to dismiss the claims against the foreign parent corporations and defendant Norbert Stangl ("Stangl") for improper service of process. For the reasons set forth below, Defendants' motion is granted in part and denied in part.
C3 Media is a marketing and sales consulting company that specializes in media and technology industries. 1 FirstGate and Webpay are United States corporations that provide billing and payment services to companies selling digital content over the Internet. (Compl. ¶¶ 6, 9.) FirstGate Internet AG ("FirstGate AG") is the German parent corporation of FirstGate. (Compl. ¶¶ 6-7.) Plaintiff alleges that, from its inception in 2002, FirstGate has been undercapitalized and closely controlled by its parent corporation, such that "[t]he operation and daily activities of [FirstGate] are in effect a mere department or office of [FirstGate AG], rather than an independent subsidiary company." (Compl. ¶ 13.) Webpay International AG ("Webpay AG") is the Swiss parent corporation of Webpay. (Compl. ¶¶ 8-9.) The Complaint alleges that Webpay AG operates Webpay in much the same way that FirstGate AG operates its United States subsidiary. (Compl. ¶¶ 93-97.) In early 2004, Webpay AG became the parent corporation of FirstGate AG as well. (Compl. ¶¶ 7, 20.) Defendants Fabian Siegel ("Siegel") and Stangl are directors and/or executive officers of each of the corporate defendants. (Compl. ¶¶ 10-11.)2
On December 12, 2002, C3 Media and FirstGate AG entered a contract pursuant to which C3 Media would provide consulting and marketing services and FirstGate AG would share the net revenue attributable to new FirstGate customers (the "Consulting Agreement"). (Compl. ¶ 14 & Ex. 3.) Plaintiff alleges that FirstGate AG failed to perform. (Compl. ¶ 14.)
Coincident with its consulting and marketing responsibilities, C3 Media began to play a management role in FirstGate. (Compl. ¶15.) This arrangement was formalized in a June 4, 2003 contract (the "Management Agreement"), which Siegel signed for FirstGate, FirstGate AG and on his own behalf. (Compl. ¶ 15 & Ex. 4.) Pursuant to the Management Agreement, C3 Media's George Cain ("Cain") and W. Edward Burrell ("Burrell") became executive officers of FirstGate. (Compl.Ex. 4.) The Management Agreement further provided that C3 Media would receive a monthly retainer and, if certain benchmarks were achieved, an equity interest in FirstGate. (Compl.Ex. 4.) Plaintiff alleges that FirstGate AG did not pay the full retainer, reimburse C3 Media's investments or provide the equity interest. (Compl. ¶¶ 16, 21.)
On August 28, 2003, Stangl sent Cain and Burrell an email stating that First-Gate AG was temporarily freezing its U.S. investments. (Compl. ¶ 18 & Ex. 6.) Nonetheless, Stangl promised that First-Gate would continue to operate until January 2004 and personally guaranteed that Cain's and Burrell's salaries would be paid until then. (Compl.Ex. 6.) Stangl confirmed those promises in a subsequent telephone conversation. (Compl. ¶ 19.)
Thereafter, the outstanding shares of FirstGate AG were transferred to Webpay AG. (Compl. ¶ 21.) In May and June 2004, in a telephone conversation and at a meeting of Webpay AG affiliates, "Stangl represented to C3 Media that [FirstGate AG] had $2.5 million in the bank, and that [FirstGate AG] and Webpay AG would continue their support of [FirstGate] and would advance an additional $50,000 per month." (Compl. ¶ 24; see Compl. ¶ 72.) Plaintiff alleges that, unbeknownst to C3 Media, at the time of his representation "Stangl had begun the process of forming [Webpay], which would in essence continue the business of [FirstGate], in order to cut C3 Media's claims." (Compl. ¶ 26.)
On July 22, 2004, in reliance on Stangl's representation, Plaintiff and Cain entered an agreement with FirstGate to terminate C3 Media's consulting and management services (the "Separation Agreement"). (Compl. ¶¶ 22, 72, 80 & Ex. 7.) The agreement contained a release of any claims C3 Media then had against FirstGate "and its officers, directors, executives, shareholders . . . and affiliates" (the "Release"). (Compl. Ex. 7 § 3.) In consideration thereof, FirstGate agreed to pay $135,000 in monthly installments of $11,250 plus interest, along with certain fees and commissions. (Compl. Ex. 7 § 2.) The Separation Agreement provides that C3 Media may accelerate the entire outstanding balance if any "payment is not made within 20 days of its due date." (Compl. Ex. 7 § 2.) The first payment was due on August 1, 2004 and the last on July 1, 2005. (Compl. Ex. 7 § 2.)
FirstGate failed to make the first payment. (Compl. ¶ 25.) On August 20, 2004, C3 Media accelerated the full $135,000 obligation. (Compl. ¶ 25.) Again, FirstGate did not pay. (Compl. ¶ 25, 28.) On August 26, 2004, counsel for FirstGate sent Cain a letter informing him that FirstGate failed to make the payments because it was no longer financially supported by FirstGate AG. (Compl. ¶ 26 & Ex. 8.) The letter invited Cain to "discuss the situation" with FirstGate's counsel. (Compl.Ex. 8.)
Webpay was incorporated in August 2004. (Compl. ¶ 29.) The company occupies FirstGate's offices, employs the same staff and provides the same services for the same clients. (Compl. ¶¶ 9, 29.) In September and October 2004, all of FirstGate's assets were transferred without consideration to Webpay and others. (Compl. ¶¶ 33-34.) Additionally, the Complaint alleges, FirstGate AG and Webpay AG diverted to Webpay revenue they received for work performed by FirstGate. (Compl. ¶ 32.)
C3 Media commenced this action on December 3, 2004. Plaintiff claims that the Release is not binding, asserts nine causes of action and seeks nearly $1 million in damages. Plaintiff alleges that FirstGate and FirstGate AG breached the Consulting, Management and Separation Agreements and that Siegel and Stangl breached the Management Agreement. (Compl. ¶¶ 38-61.) C3 Media further claims that all Defendants are liable under quantum meruit for the services it provided. (Compl. ¶¶ 62-68.) The Complaint also alleges that Stangl fraudulently induced C3 Media to enter the Separation Agreement and Defendants fraudulently attempted to avoid FirstGate's obligations under that contract. (Compl. ¶¶ 69-81.) In connection with this same conduct, C3 Media claims that Siegel and Stangl breached their fiduciary duties to FirstGate's creditors. (Compl. ¶¶ 102-18.) Finally, Plaintiff asserts claims against FirstGate AG to pierce the corporate veils between them and their subsidiaries. (Compl. ¶¶ 82-101.)
Defendants move to dismiss the claims against Stangl, FirstGate AG and Webpay AG on the ground that service of process was not properly effected on those defendants.3 Defendants also move pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure to dismiss the entire Complaint for failure to state a claim, contending that the Release remains valid and enforceable and precludes C3 Media's claims.
When confronted with a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(5) for insufficient service of process, the burden to show that service was adequate rests with the plaintiff. Logicom Inclusive, Inc. v. W.P. Stewart & Co., No. 04 Civ. 0604(CSH), 2004 WL 1781009, at *4 (S.D.N.Y. Aug.10, 2004); Int'l Cultural Prop. Soc'y v. Walter de Gruyter & Co., No. 99 Civ. 12329(BSJ), 2000 WL 943319, at *1 (S.D.N.Y. July 6, 2000). "Conclusory statements" that service was properly effected are insufficient to carry that burden. Howard v. Klynveld Peat Marwick Goerdeler, 977 F.Supp. 654, 658 (S.D.N.Y. 1997). A plaintiff may rely on specific allegations in the complaint to create a prima facie showing of facts that would dictate the appropriate means of service. See Jazini v. Nissan Motor Co., 148 F.3d 181, 184 (2d Cir.1998); Int'l Cultural Prop. Soc'y, 2000 WL 943319, at *1. But in resolving the motion, the court "must look to matters outside the complaint" to determine what steps, if any, the plaintiff took to effect service. Darden v. Daimler-Chrysler N. Am. Holding Corp., 191 F.Supp.2d 382, 387 (S.D.N.Y.2002).
FirstGate AG and Webpay AG are foreign corporations. Because service on a foreign corporation requires the transmittal of a judicial document abroad, see N.Y. Bus. Corp. Law § 307, the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters ("Hague Convention"), Nov. 15, 1965, 20 U.S.T. 361, 658 U.N.T.S. 163, applies and preempts contrary state law. Darden, 191 F.Supp.2d at 387; see Volkswagenwerk Aktiengesellschaft v. Schlunk, 486 U.S. 694, 700, 108 S.Ct. 2104, 100 L.Ed.2d 722 (1988). However, a plaintiff need not comply with the Hague Convention if the...
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