Henneberry v. Sumitomo Corp. of America

• Citation: 415 F.Supp.2d 423
• Decision Date: 21 February 2006
• Docket Number: No. 04 Civ.2128(PKL).,04 Civ.2128(PKL).
• Parties: William HENNEBERRY, Plaintiff, v. SUMITOMO CORPORATION OF AMERICA, Robert Graustein, Sumitomo Corporation, and John Does nos. 1-50 (fictitiously named individuals), Defendants.
• Court: U.S. District Court — Southern District of New York

415 F.Supp.2d 423

William HENNEBERRY, Plaintiff, v. SUMITOMO CORPORATION OF AMERICA, Robert Graustein, Sumitomo Corporation, and John Does nos. 1-50 (fictitiously named individuals), Defendants.

No. 04 Civ.2128(PKL).

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

February 21, 2006.

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Mendes & Mount LLP, Newark, NJ, John M. Deitch, for Plaintiff.

Siller Wilk LLP, New York, NY, Stephen D. Hoffman, Stuart M. Riback, Pamela L. Kleinberg, for Defendants Sumitomo Corporation of America and Robert Graustein.

OPINION AND ORDER

LEISURE, District Judge.

This action arises out of a failed investment transaction between William Henneberry, the Chief Executive Officer and majority common stock shareholder of Smartix International Corp. ("Smartix"), and defendant-investor Sumitomo Corporation of America ("SCOA"), Robert Graustein, a Senior Vice president of SCOA, and Sumitomo Corporation ("Sumitomo"), SCOA's parent company. In a complaint dated March 17, 2004, plaintiff asserted causes of action against all defendants for (1) detrimental reliance, on the alternative bases of promissory estoppel and negligent misrepresentation; (2) breach of fiduciary duty; (3) slander per se; (4) tortious interference with prospective economic advantage; (5) injurious falsehood; and (6) breach of contract. Defendants SCOA and Robert Graustein then moved, in lieu of an answer, for dismissal of the action on all counts for failure to state a claim upon which relief could be granted pursuant to Federal Rule of Civil Procedure 12(b)(6).

In an Opinion and Order dated April 27, 2005, the Court granted the motion to dismiss all of the aforementioned claims save the slander per se claim. Henneberry v. Sumitomo Corp. of Am., No. 04 Civ 2128, 2005 WL 991772 (S.D.N.Y. Apr.27, 2005). In an Opinion and Order dated May 3, 2005, the Court granted Sumitomo's motion to dismiss all claims against it pursuant to Rule 12(b)(6). Henneberry v. Sumitomo Corp. of Am., No. 04 Civ. 2128, 2005 WL 1036260 (S.D.N.Y. May 3, 2005).

Plaintiff now brings this motion pursuant to Federal Rule of Civil Procedure 15(a), seeking leave to file an amended complaint re-asserting all of the aforementioned claims except for breach of contract. In the event the Court finds that plaintiffs claims for promissory estoppel and negligent misrepresentation have been pleaded adequately in plaintiffs proposed amended complaint, defendants cross-move for partial summary judgment as to those claims. For the reasons set forth herein, plaintiffs motion is granted in part and denied in part, and defendants' cross-motion is denied.

BACKGROUND

The following factual allegations are drawn from plaintiffs original complaint.

I. Plaintiffs Original Complaint

A. The Parties

Plaintiff William Henneberry is a Connecticut resident and a creative marketing entrepreneur specializing in developing new marketing strategies for credit cards. (Compl. ¶¶ 10-11.) He has worked frequently with athletic teams and credit card companies. (Compl. ¶¶ 15-19.) Prior to the venture giving rise to this action, plaintiff worked as a consultant for Major League Baseball and MasterCard between December 1995 and January 2000, earning between $10,000 and $25,000 per month. (Compl. ¶ 139.) At all times relevant to this action, Henneberry was the Chairman and majority common stock shareholder of Smartix, a non-publicly traded New York corporation. (Compl. ¶¶ 12-13, 21.) As Chairman, Henneberry was entitled to an annual salary of $150,000. (Compl. 1120.) As of September 9, 2003, Henneberry owned 1,740,666 shares of Smartix stock. (Compl. ¶ 22.) Defendant SCOA is a New York corporation and a wholly owned subsidiary of former defendant Sumitomo. (Compl. ¶¶ 13, 34.) Defendant Robert Graustein is a New York resident who was a Senior Vice President of defendant SCOA at all times relevant to this lawsuit. (Compl. ¶¶ 15, 38.)

B. SCOA's Investment Activities

Smartix was created to develop with MasterCard an electronic ticketing promotion program for Major League Baseball which would, inter alia, allow season ticket holders to sell unused tickets op the internet and at designated kiosks located at baseball stadiums (the "Smartfan program"). (Compl. ¶¶ 23, 24.) The Smartfan program was tested with the Boston Red Sox and the St. Louis Cardinals baseball teams. (Compl. ¶ 25.) In order to finance the Smartfan program, Smartix sought and obtained various investors, including SCOA. (Compl. ¶ 31.)

1. Spring of 2002 Investment Agreement

As a part of SCOA's due diligence performed in anticipation of a future investment agreement, SCOA conducted an economic valuation of Smartix which valued the company at $10,000,000, or $1.50 per share. (Compl. ¶¶ 50-51.) In the Spring of 2002, SCOA agreed to invest between $3,000,000 and $5,000,000 in Smartix ("$3-5MM Investment") and share in Smartix's profits and losses. (Compl. ¶¶ 48-49.) In reliance on SCOA's agreement, Smartix changed its position by, inter alia, performing the following actions: (1) filing a restated certificate of incorporation with the Secretary of State of New York as directed by SCOA; (2) convincing its original investors to subordinate their class of shares to those to be issued to SCOA; (3) convincing its original investors to reduce their dividend percentages, forego dividends, and invest more cash into Smartix; (4) advising other potential investors of SCOA's that Smartix had accepted SCOA's offer and that future investment would be at a later round and, presumably, at a higher valuation; (5) agreeing to allow Hank Aaron to serve as a member of Smartix's Board of Directors; and (6) ordering special stock certificates with legends specifically requested by SCOA. (Compl. ¶ 53.) In reliance on the same agreement, plaintiff also made a bridge loan to Smartix for $100,000. (Compl. ¶ 54.) However, on June 4, 2002, after documents memorializing this agreement were sent by SCOA to Smartix's shareholders for execution, SCOA advised Henneberry that SCOA would not make the investment. (Compl. ¶ 57.)

2. SCOA's Subsequent Investment Agreement

SCOA ultimately invested $1,000,000 in Smartix pursuant to a Stock Purchase Agreement, dated July 2, 2002 ("July 2002 Agreement"), which provided for, inter alia, the sharing of profits and losses among the different classes of Smartix stock. (Compl. ¶ 60; Riback Reply Aff. Ex. 2.) Thereafter, SCOA communicated to Smartix that it was Smartix's lead investor and that it would actively seek out new investments for Smartix. (Compl. ¶ 61.) Accordingly, between July 2002 and October 2003, SCOA continually represented to Smartix that it had found additional investors. (Compl. ¶ 62.) In June 2003, after Smartix advised SCOA that it could not continue operations without additional investment (Compl. ¶ 63), defendant Mr. Graustein told plaintiff and others at a meeting that SCOA "would not let you [Smartix] fail." (Compl. ¶ 64 (bracket in original).) At this same meeting, SCOA orally agreed to provide matching investments and promised a letter to Smartix confirming the same. (Compl. ¶ 65.) No such letter was ever received. At SCOA's request, Smartix prepared a plan for future investments by SCOA, which called for an additional $1,000,000 investment by SCOA and the implementation of the Smartfan program with ten sports teams. (Compl. ¶¶ 67-68.) Based on SCOA's indication that it was amenable to this plan (Compl. ¶ 68), plaintiff continued to make personal loans to Smartix through October 2003 in the following amounts, which are in addition to the initial loan of $100,000 made in the Spring of 2002:(1) $47,500; (2) $52,500; (3) $50,000; (4) $150,000; (5) $27,500; (6) $30,000; (7) $190,000; (8) $12,754.83; and (9) $2,170.54 (Compl. ¶¶ 55, 69). Smartix continually warned SCOA of its declining financial outlook, noting that, if the decline continued, Smartix would eventually be unable to perform those obligations it owed to the Red Sox and Cardinals (Compl. ¶¶ 70, 74), yet SCOA never objected. When, on June 16, 2003, plaintiff told Mr. Graustein that Smartix would have to consider ceasing operations, Mr. Graustein responded by telling plaintiff that such an action was not within plaintiff's legal rights. (Compl. ¶¶ 71-72.)

On September 8, 2003, SCOA presented Smartix with a new investment proposal (Compl. ¶ 76) requiring plaintiff to convert his personal loans into company stock prior to any additional SCOA investment, which would be limited to matching investments up to the amount of $500,000 (Compl. ¶ 77). Plaintiff rejected this offer because it did not provide sufficient capital (Compl. ¶ 78) and because it attributed a lower valuation to Smartix, which would have allowed SCOA to trigger its right to obtain additional Smartix equity and thus increase its holdings (Compl. ¶ 79).

The next day, plaintiff was called into a meeting with Michael Dee, Executive Vice President of Business Affairs for the Boston Red Sox, regarding the continuation of the Smartfan program for the next year. (Compl. ¶¶ 45, 80.) Plaintiff was forced to concede Smartix's financial difficulties and its potential instability in the coming baseball season (Compl. ¶ 82), causing Dee to express concern about the future of the business relationship (Compl. ¶ 83).

C. SCOA's Meetings with the Red Sox and MasterCard; Final Dealings with Smartix

On September 22 or 23, 2003, Mr. Graustein and other SCOA employees met with Mr. Dee and informed him, in sum and substance, that Henneberry "lacked the necessary skill and ability to manage Smartix ... [,] otherwise disparaged his business acumen," and blamed Smartix's financial troubles and failure to pay monies owed to the Red Sox on Henneberry's mismanagement of the company. (Compl. ¶ 90.) SCOA went on to say that it would be taking over Smartix and removing plaintiff from his post. (Compl. ¶ 96.)...