Koury v. Xcellence, Inc.
| Decision Date | 13 January 2009 |
| Docket Number | No. 08 Civ. 5409 (SAS).,08 Civ. 5409 (SAS). |
| Citation | 649 F.Supp.2d 127 |
| Parties | Joseph KOURY, Plaintiff, v. XCELLENCE, INC., d/b/a/ Xact, Robert Polus, and Barbara Amos, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Seth T. Taube, Esq., Maureen P. Reid, Esq., Baker Botts L.L.P., New York, NY, for Plaintiff.
Michael A. Kalish, Esq., Epstein Becker & Green, P.C., New York, NY, for Defendants.
I. INTRODUCTION
Joseph Koury brings this action against Xcellence, Inc., d/b/a Xact ("Xact") and two of its officers for events arising out of the sale of Koury's reproduction services business to Xact in May 2006. Specifically, Koury asserts that Xact breached the sale contract and that all defendants breached their fiduciary duties. Defendants now move to dismiss this action pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons discussed below, defendants' motion is granted in part and denied in part.
II. BACKGROUND
On May 3, 2006, Koury sold his membership interest in Accurate Repro, LLC to Xact for $1,350,000.1 Koury resides in New Jersey.2 Xact is a Missouri corporation with its principal place of business in Kansas.3 Accurate Repro's principal place of business was in New York City.4 According to the Purchase Agreement executed by Koury and Xact, the purchase price was to be paid to Koury in monthly installments of $28,023.78, with the first payment to be made on May 3, 2006 and the last payment to be made on April 3, 2011.5 Under the Purchase Agreement, Koury agreed not to compete with Xact for three years in markets served by Xact or Accurate Repro.6 Koury further agreed that his rights to monthly payments were subordinate to the rights of "all holders of indebtedness of borrowed money of [Accurate Repro] and/or of Xact" and that he "agree[d] to enter into any further subordination agreement that may be required by any lender of [Accurate Repro] and/or Xact."7
In June 2006, Koury executed a Subordination Agreement with one of Xact's lenders, Commerce Bank ("Commerce Bank Subordination Agreement"), pursuant to which Koury agreed to allow Commerce Bank to subordinate his monthly payments from Xact in the event that Xact defaulted on its loan from Commerce Bank.8 The Subordination Agreement contained the following provision:
[Xact] will not make and [Koury] will not accept, at any time while any Superior Indebtedness is owing to [Commerce Bank] . . . any payment upon any subordinated indebtedness . . . [except] regularly scheduled payments of $28,023.78 each month to [Koury] . . . so long as [Xact] is not in default under any agreement between Lender and [Xact]. [Koury] may not accelerate any amounts owed to [him] without [Commerce Bank's] prior written consent.9
"Superior Indebtedness" was defined to mean "all present and future indebtedness . . . now or hereafter owing from Borrower or Lender."10 In a shaded area at the top of the Subordination Agreement, marked "for Lender's use only," the document stated that the loan was to begin on June 14, 2006 and would reach maturity on June 14, 2007. The Subordination Agreement provided that it was "executed at [Xact's] request and not at the request of the lender [Commerce Bank]."11 The Subordination Agreement also provided that "[Koury] ha[d] established adequate means of obtaining from [Xact] on a continuing basis information regarding [Xact's] financial condition."12
On September 29, 2007, after Xact withheld two monthly payments in response to Koury's alleged breach of the non-compete agreement, the parties entered into an Amended Purchase Agreement, pursuant to which: (1) Koury agreed to reduce the Purchase Price by $190,193.40; (2) Koury waived his right to assert claims relating to the missed monthly payments; and (3) Xact waived its right to claim that Koury breached the non-compete agreement.13 The Amended Purchase Agreement also informed Koury that Commerce Bank had indicated that it "may take certain actions" to subordinate Koury's payments, pursuant to the Commerce Bank Subordination Agreement.14 On the date Koury signed the Amended Purchase Agreement, however, Xact's counsel advised Koury that Xact was not-aware, as of that date, of any decision by Commerce Bank to subordinate Koury's payments.15
On October 3, 2007—a few days after executing the Amended Purchase Agreement—Koury received notice from Commerce Bank in a letter dated before the Amended Purchase Agreement was signed that Xact was in default on its loan agreement with Commerce Bank and, therefore, Commerce Bank was subordinating Koury's monthly payments from Xact.16 As a result, Koury received no payments from Xact for the next several months.17
In December 2007, Xact informed Koury that he would not receive any further payments from Xact unless and until he signed a new subordination agreement with Marshall & Ilsley Bank ("M & I Bank"), through which Xact sought to refinance its loan with Commerce Bank.18 The first draft of the M & I Bank Subordination Agreement contained a clause, like the clause in the Commerce Bank Subordination Agreement, providing that Koury would have continual access to Xact's financial records.19 Prior to signing the new subordination agreement, Koury requested permission to review Xact's financial condition.20 Xact refused and drafted a new subordination agreement that removed the clause guaranteeing Koury's access to Xact's financial records.21
In order to resume his receipt of monthly payments, Koury signed the redrafted M & I Bank Subordination Agreement in late December 2007, which was made retroactive to December 10, 2007.22 Xact then resumed payments to Koury, making one payment in December 2007 and one payment in January 2008.23
On January 24, 2008, Xact defaulted on its loan agreement with M & I Bank. M & I Bank then exercised its right to subordinate Koury's payments that same day.24 Xact has remained in default to this day and has not made a single payment to Koury since that time.25 In a letter to the Court, Xact indicated that its Superior Indebtedness to M & I Bank is scheduled to last through at least 2012, with the result that Koury may not receive any payments until that time.26
In May 2008, Koury filed suit against Xact in New York state court.27 Xact removed the case to federal court based on diversity of citizenship.28 In his complaint, Koury makes three claims. First, Koury asserts that Xact breached the original and amended Purchase Agreements by Xact's "continued failure to pay [Koury] the proceeds of the business [Koury] sold Defendants, including those payments missed during the first subordination period."29 Specifically, Koury claims that Xact's refusal to disclose its financial records to Koury prior to the M & I Subordination Agreement coupled with Xact's default on the M & I loan less than six weeks after it was issued indicates that Xact foresaw the likelihood of its default on the M & I Bank loan.30 Further, based partly on these suspicious circumstances, Koury alleges on information and belief that Xact manipulated its financial reporting to M & I Bank either to fraudulently obtain the loan in the first instance or to feign default on the loan in order to induce the subordination of Koury's monthly payments.31 Koury requests discovery "to evaluate Xact's financial position with M & I Bank and determine whether the subordination, in fact, is justified."32 Koury also alleges that Xact knew, but denied and failed to disclose, that Commerce Bank had determined to subordinate Koury's payments prior to the time when Koury signed the amended Purchase Agreement with Xact.33 Finally, Koury argues that Xact fraudulently induced Koury to sign the Amended Purchase Agreement by falsely representing that Commerce Bank had not yet decided to subordinate Koury's payments.
Second, Koury seeks a declaration that because Xact has made no payments to Koury for a year, Koury is no longer restrained from competing with Xact or Accurate Repro under the Amended Purchase Agreement.34 Third, Koury claims that Xact and two of its officers, Robert Polus and Barbara Amos,35 breached their fiduciary duties.36 He claims that "Xact was apparently insolvent beginning at least December 2007."37 This insolvency, Koury asserts, triggered certain fiduciary duties to him as one of Xact's creditors— namely, a duty "to take whatever steps are necessary to pay him by liquidating its assets or selling its business."38
III. APPLICABLE LAW
In reviewing a motion to dismiss pursuant to Rule 12(b)(6), a court "`must accept as true all of the factual allegations contained in the complaint'"39 and "draw all reasonable inferences in the plaintiffs favor."40 In light of the Supreme Court's decision in Twombly, a complaint must provide "the grounds upon which [the plaintiffs] claim rests through factual allegations sufficient `to raise a right to relief above the speculative level'" in order to survive a motion to dismiss.41 In short, a pleader must "amplify a claim with some factual allegations in those contexts where such amplification is needed to render the claim plausible."42
In deciding a motion to dismiss, the court is not limited to the face of the complaint. The court "may [also] consider any written instrument attached to the complaint, statements or documents incorporated into the complaint by reference ... and documents possessed by or known to the plaintiff and upon which it relied in bringing the suit."43
"One of the most important objectives of the federal rules is that lawsuits should be determined on their merits and according to the dictates of justice, rather than in terms of whether or not the averments in the paper pleadings have been artfully drawn."44 "`So long as [the plaintiff has] alleged facts sufficient to support a meritorious legal...
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