Global Mins. and Metals Corp. v. Holme

• Decision Date: 03 October 2006
• Docket Number: 8820.
• Citation: 2006 NY Slip Op 07131,35 A.D.3d 93,824 N.Y.S.2d 210
• Parties: GLOBAL MINERALS AND METALS CORP., Appellant, v. JAMES W. HOLME et al., Respondents.
• Court: New York Supreme Court — Appellate Division

35 A.D.3d 93

824 N.Y.S.2d 210

2006 NY Slip Op 07131

GLOBAL MINERALS AND METALS CORP., Appellant, v. JAMES W. HOLME et al., Respondents.

8820.

Appellate Division of the Supreme Court of the State of New York, First Department.

October 3, 2006.

Arnold & Porter LLP, New York City (H. Peter Haveles, J. of counsel), for appellant.

Seidman & Seidman, P.C., New York City (Irving P. Seidman of counsel), for James W. Holme and another, respondents.

Graubard Miller, New York City (Steven Mallis and Edward H. Pomeranz of counsel), for Ana Maria Holme, respondent.

OPINION OF THE COURT

CATTERSON, J.

In this action, plaintiff Global Minerals and Metals Corp., a closely held corporation, alleges it was fraudulently induced by one of its four shareholders into signing a general release and severance agreement worth $15 million. For the reasons set forth below, we affirm the order of the motion court granting the defendants' motion for summary judgment and dismissing the complaint on the grounds that the plaintiff's reliance on the alleged misrepresentations was unreasonable, and the plaintiff failed to fulfill its duty to investigate.

Codefendant James Holme was one of four equal shareholders investing $250,000 in Global Minerals and Metals Corp. (hereinafter referred to as Global), a corporation established in January 1994. Global engaged in commodities trading of nonferrous metals. Codefendant Ana Maria Holme is Holme's wife, and codefendant H & H Metals Corp. (hereinafter referred to as H & H) is a corporation established by the Holmes while James Holme was a director and officer of Global.

Pursuant to the provisions of Global's Master Shareholders Agreement (hereinafter referred to as the shareholder agreement), upon a shareholder's resignation, Global or any existing shareholder would buy the shares of the resigning shareholder based on the book value "less a haircut." However, if a shareholder was found to be working against the best interests of Global, his shares would be purchased at the original cost plus interest of 10%.

The bulk of Global's business involved copper cathode trading with Sumitomo Corporation. In the beginning of 1995 those dealings with Sumitomo became the focus of criminal and regulatory investigations. In the spring of 1995, Holme expressed an interest in leaving Global and starting a competing business.

After Holme made certain disclosures to a Sumitomo employee about their companies' trading, David Campbell, Global's president, authored a fax transmission wherein he stated that Holme "must leave Global ASAP ... in a manner that he becomes neutralized and unable to open his big/dangerous mouth." Furthermore, Campbell stated that the other shareholders had suggested "immediate dismissal/legal action/a bullet(!)" for Holme.

Thereafter, Holme and Campbell started on-again, off-again negotiations regarding his departure. Global stopped providing Holme with certain financial information regarding its operations, claiming that the reason was because Holme was about to start a competing business.

On October 9, 1995, when Global's office was closed for a holiday, Holme copied documents, financial statements and other materials belonging to Global. Campbell acknowledged that Global knew that Holme had removed documents Global considered confidential.

On October 16, 1995, Holme resigned as an officer and director of Global. Campbell accepted and sent Holme a replacement letter of resignation on the following day. On October 18, Holme withdrew his resignation and formed H & H, of which he is currently the president and sole shareholder.

At the beginning of January 1996, Global discharged Holme as a Global director and officer, respectively. Unaware of the discharge, on January 31, 1996, Holme submitted a letter of resignation as director and officer, effective that day. Severance negotiations continued while Holme remained a shareholder until January 17, 1997.

On December 12, 1996, Holme's attorney Thomas Mohen advised Global's attorney Robert Pelz that Holme had loaned approximately $1,500,000 to Gerald Locker, the principal and CEO of Wessex Minerals & Metals Ltd. (hereinafter referred to as Wessex). At the time, Wessex was primarily a competing London-based commodities merchant, but was joint-venturing with Global in a transaction known as the "Bulgarian contract." Global investigated public records in London, and at the end of December 1996 discovered that 40% of Wessex's shares had been registered in Mrs. Holme's maiden name.

On January 8, 1997, Global's attorney Pelz wrote that Global had no role in Mr. Holme's private transactions with Wessex and, indeed, was not aware of them, although they may well have occurred while he was an officer and director of Global.

By letter dated January 10, 1997, Holme's attorney assured Global that the 40% stockholding was given to Holme's wife as security for the arm's length loan made to Locker. Mohen also enclosed (1) a letter from Holme's attorney to Locker stating that Holme loaned Locker $1.5 million secured by 40% shares held by Mrs. Holme and demanding payment; (2) the response from Locker's attorney, Eversheds, indicating that while Locker did not admit that the transaction was a loan, he was willing to accept that interpretation for settlement purposes; and (3) a letter from Locker's attorney challenging the claim that the transaction was a loan and stating that Locker had documentation to fully substantiate Locker's position.

In the same letter, Holme's attorney also stated that Holme had formed a Wessex Minerals and Metals Corp. (hereinafter referred to as WMMC) solely for the purpose of holding the Bulgarian contract upon its anticipated assignment to him.

Thereafter, Global and Holme reached a settlement. On January 17, 1997, a series of settlement documents were signed between the parties terminating Holme's interest in Global and resolving all disputes between them.

The settlement documents included a "General Release" signed by Global in favor of Holme, which stated that Global "releases and discharges Holme" of all breaches of fiduciary duty he might have committed prior to its date, whether known or unknown.

The settlement documents also included a Confidentiality Agreement, which broadly defined the term "Confidential Information" to include "any information ... with respect to the business or affairs of the Company." The Confidentiality Agreement precluded Holme from disclosing confidential information to any person or entity, without Global's prior written consent, for two years. However, the Confidentiality Agreement expressly permitted Holme to compete with Global and to use confidential information to do so.

The settlement documents also included a Severance Agreement, which required Global to pay Holme $4.5 million in three equal installments of $1.5 million. The second and third installments were due on January 17, 1998 and January 17, 1999, respectively, and remain unpaid. The Severance Agreement also expressly permitted Holme to directly compete with Global.

The settlement documents further included a Stock Purchase Agreement, pursuant to which Global paid Holme $4 million for his stock interest in Global, a letter agreement for $2 million payable to Holme comprising Holme's claim to a share of Global's profits, and a bonus agreement entitling Holme to $4.5 million.

Thereafter, in a letter to Holme, dated January 14, 1998, Global alleged that he had breached his fiduciary duties to Global by "lending to, or investing in, its competitor, Wessex."

In November 2000, after the confidentiality period expired, Global commenced this action against Holme, Mrs. Holme and H & H, asserting six causes of action for: (1) breach of fiduciary duty against all defendants; (2) fraudulent inducement against Holme; (3) specific performance against Holme; (4) breach of contract against Holme; (5) reformation; and (6) rescission.

Global claims that it was fraudulently induced to enter the agreements including the release because Holme misrepresented and concealed his breaches of fiduciary duty while he was employed by Global. Global specifically pointed to his failure to disclose his Wessex stock purchase, as well as H & H's involvement in a contract, originally brokered by Global between Alusaf and GM (hereinafter referred to as the Alusaf contract), prior to Holme's resignation on January 31, 1996.

Global maintains that had it been aware of these breaches, rather than buying out Holme pursuant to the shareholder agreement provision that netted him $15 million, it would have bought out Holme for approximately $325,000; viz. the original investment plus 10% interest. Global claimed that Mrs. Holme and H & H aided and abetted Holme's breach of fiduciary duty.

The defendants moved for summary judgment, arguing that Global's causes of action were barred by the General Release executed on January 17, 1997. Holme also asserted a counterclaim for $3 million representing severance payments due January 17, 1998 and January 18, 1999, respectively, which remained unpaid.

The motion court granted summary judgment in favor of the defendants and dismissed the complaint, finding that Global did not show that it reasonably relied on a known false representation because it was on notice of many of the acts alleged in the complaints at the time Global issued the general release. The motion court further found that Global failed to fulfill its duty to investigate. It also rejected Global's CPLR 3212 (f) discovery request, stating that "plaintiff fails to identify an essential fact which is presently unavailable to Global." We agree.

It is well established that a valid release constitutes a complete bar to an action on a claim which is the subject of the release. (See Hack v United Capital Corp., 247 AD2d 300, 301 [1st Dept 1998].) However, a release may be set aside on the traditional bases of fraudulent inducement, fraudulent concealment,...