Glidepath Holding B.V. v. Spherion Corp.
| Decision Date | 26 July 2007 |
| Docket Number | Case No. 04 Civ. 9758(KMK). |
| Citation | 590 F.Supp.2d 435 |
| Parties | GLIDEPATH HOLDING B.V., et al., Plaintiffs, v. SPHERION CORPORATION, Defendant. |
| Court | U.S. District Court — Southern District of New York |
John Lang, Esq., Martin R. Pollner, Esq., Brian R. Socolow, Esq., Loeb & Loeb LLP, New York, NY, for Plaintiffs.
Bruce E. Fader, Esq., Mara Lainie Taylor, Esq., Proskauer Rose, LLP, New York, NY, for Defendant.
This action arises out of a business transaction gone bad. The Second Amended Complaint alleges four common law causes of action, namely: (1) fraud, (2) negligent misrepresentation, (3) aiding and abetting breach of fiduciary duty, and (4) unjust enrichment. The related arbitration has run its course, and Defendant has moved to dismiss all counts. For the reasons stated herein, Defendant's motion is DENIED.
The facts described here are taken from the allegations in the Second Amended Complaint, which the Court, as it must on a motion to dismiss, assumes to be true.
Defendant Spherion Corporation ("Defendant") is a United States corporation which is engaged worldwide in providing outsourcing services and related support services. (Second Am. Compl. ¶ 4.) Spherion Technology (UK) Limited ("Spherion UK") is a wholly-owned subsidiary of Defendant, and is also alleged to be the alter ego of Defendant. (Id. ¶¶ 5,8, 10-16.) Plaintiff Glidepath Holding B.V. ("Plaintiff' or "Glidepath") is a Netherlands corporation which provided technology services and data management to its clients. (Id. ¶ 2.) Plaintiff Jeimon Holdings N.V. ("Plaintiff' or "Jeimon") is a Netherlands Antilles corporation which provides investment and venture capital to Glidepath. (Id. ¶ 3.) Reginald "John" Thompson was, during the time frame at issue here, a Managing Director of Spherion UK and later, the Chief Executive Officer of Plaintiff Glidepath. (Id. ¶ 5.) Salford Capital Partners Incorporated ("Salford"), was a business project advisor and agent of Plaintiff Jeimon. (Id. ¶ 7.)
In the fall of 2001, Spherion UK was developing a business named the "European CyberCenter Business."2 At this time, Spherion UK itself was suffering extensive losses, and it allegedly was seeking to avoid additional losses by selling off the European CyberCenter Business. (Id. ¶¶ 23-25.)
In December 2001, Defendant began to assess whether it was viable to divest itself of the European CyberCenter Business. (Id. ¶ 43.) Plaintiffs allege that Defendant was interested in divesting itself of the European CyberCenter Business for five reasons: (1) increased pressure on information technology ("IT") companies due to a declining client base for IT providers; (2) a deteriorating market for managed computer services, coupled with an overcapacity of providers; (3) an increasing financial drain on Spherion UK due to a large amount of contractual commitments; (4) a poor competitive position vis-a-vis other, more established providers already in the market; and (5) the European CyberCenter Business had a serious cashflow problem. (Id.)
Plaintiffs allege that, because no buyer would purchase the European CyberCenter Business if they possessed the same information as Defendant, Defendant embarked on an elaborate fraudulent scheme (the Second Amended Complaint alleges fourteen distinct components) to dupe an investor into purchasing the European CyberCenter Business. The basis of this scheme was as follows: (1) Thompson was directed by Defendant to seek buyers for the European CyberCenter Business, and authorized to induce them into the purchase through fraudulent means; (2) as part of the scheme, Thompson, an employee of Defendant's wholly-owned subsidiary Spherion UK, would agree to become the CEO of a new company which would receive funds from an investment company but run the European CyberCenter Business; (3) Defendant and Thompson agreed to thwart any potential purchaser's due diligence; and (4) Defendant agreed to maintain Thompson on its payroll throughout the course of the transaction to ensure investor confidence, but arranged, through a transaction outside his normal course of employment at Spherion UK, to pay him an additional fee for the successful transfer of the European CyberCenter Business.
The first part of this alleged scheme began in December 2001. At that time, Thompson met with a group of investors that would later become Plaintiff Jeimon. (Id. ¶ 76.) He gave a presentation regarding a proposed investment similar to the European CyberCenter Business, in which he proposed that he and the investors create a network of business centers to provide office management services to European clients. (Id. ¶ 78.) Thompson proposed that he would be the CEO of this new business (and take a stake in it), while the investors would provide the necessary capital to launch the business. (Id. ¶ 77.) In the December 2001 proposal, Thompson represented that the market for cyberservices in Europe was promising, and he supported this representation with both factual assertions and numerous charts. (Id. ¶ 80, Ex. 14.) Thompson also proposed a business plan for the new business, similar to that of the European CyberCenter Business. Thompson's proposal was aggressive and contemplated a fullservice, comprehensive business with major infrastructure and over 5000 sales employees. (Id. ¶¶ 80-82, Ex. 14.) Plaintiffs allege that these claims were fraudulent when Thompson made them because "Thompson, [Defendant], and Spherion UK well knew that the reason [Defendant] was anxiously seeking to divest itself of the CyberCenter Business was that accurate financial information, forecasts, and projections, reflecting actual market conditions, showed that the prospects for the European CyberCenter Business were bleak and did not warrant further investment." (Id. ¶ 82.) In addition, Plaintiffs allege that the business plan that Thompson marketed to them in the December 2001 presentation was fraudulent because it was geared to a market, and future market projections, that Defendant knew were fraudulent. (Id. ¶¶ 52(f)-(g), 52(i)-(j), 78-80, 81(c), 81(e), 85(c), 100(e), 130(c), 136(b)-(d), 145(e), 145(h), 159, 167(b)-(c).)
After the presentation, Plaintiff Jeimon brought in Salford to perform due diligence on Thompson's proposal. (Id. ¶ 83.) Thompson met with the due diligence team in January 2002, and gave another presentation in which he allegedly made false statements similar to those in the December 2001 presentation. (Id. ¶¶ 84-85; Ex. 15.) After these presentations, a representative of Salford sent a "Letter of Interest" to Thompson, expressing interest in Thompson's proposal, subject to "complete financial and legal assessment and due diligence." (Id. ¶ 89.)
In February 2002, Salford began to perform due diligence on the sale of the European CyberCenter Business. During the course of due diligence, Salford demanded and received financial and legal due diligence materials. (Id. ¶ 92.) Salford also retained a respected international law firm to aid its efforts. (Id.) On April 3, 2002, after the performance of this due diligence, Salford signed a term sheet, in which it agreed to create a business entity to pursue the European CyberCenter Business and to procure U.S. $34,000,000 in investor funding. (Id. ¶ 93.) The term sheet called for Thompson to be CEO of this newly created company and for his personal service company to have a stake in the new venture. (Id.) The term sheet specified that all investment obligations were subject to Salford's review of and satisfaction with the results of continuing due diligence. (Id. ¶ 94.) On April 9, 2002, Plaintiff Jeimon advanced $800,000 to the newly formed enterprise (which became Plaintiff Glidepath) for the purchase of assets that were in liquidation (the "Exodus assets"). (Id. ¶ 95.)
Also in April 2002, employees at Spherion UK were forecasting problems with the market for Spherion UK's services. An internal presentation, attached to the Second Amended Complaint and dated April 3, 2002, titled "Technology Group: 4/03/02 Europe Update," stated, on a slide entitled "KPN status," that the market conditions for Spherion UK "continue to deteriorate." (Id. ¶ 44, Ex. 3.)
As part of Salford's due diligence, Salford was required to determine Thompson's status at Spherion UK and needed to ensure that he was in fact authorized by Spherion UK, his employer, to seek prospective buyers for the European Cyber-Center Business. (Id. ¶ 95.) Thompson allegedly made the following representations to Salford during due diligence: (1) Thompson was leaving Defendant on good terms; (2) Spherion UK supported Thompson's participation in the new venture; (3) Spherion UK consented to the new venture's acquisition of the Exodus assets; (4) Spherion UK would waive certain potential confidentiality and intellectual property rights that related to the new venture; (5) Spherion UK was exiting the European CyberCenter Business for reasons unrelated to its prospects for success; and (6) Thompson could work with Salford on projects related to the new venture without violating any fiduciary duty or confidentiality obligation to Spherion UK. (Id. ¶ 97.) Salford asked Spherion UK for confirmation of these representations. (Id.)
On April 12, 2002, Robert Browning, a Director at Spherion UK, sent a letter to Salford, which stated:
As per your discussions with Mr. John Thompson, we are happy to confirm to you the following:
1. Spherion UK is no longer interested in the acquisition of the Exodus assets in Europe .... Spherion interest in Exodus assets in Europe was initiated in the first quarter of 2001 and formed part the strategy to build up at critical mass of IDC facilities and...
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