Kubin v. Miller, 92 Civ. 0756 (SWK).

• Decision Date: 31 July 1992
• Docket Number: No. 92 Civ. 0756 (SWK).,92 Civ. 0756 (SWK).
• Parties: Michael KUBIN, Plaintiff, v. Larry M. MILLER, Corinthian Media, Inc., Broadcast Buying Services, Inc. and Ari Trading, Inc., Defendants.
• Court: U.S. District Court — Southern District of New York

801 F. Supp. 1101

Michael KUBIN, Plaintiff, v. Larry M. MILLER, Corinthian Media, Inc., Broadcast Buying Services, Inc. and Ari Trading, Inc., Defendants.

No. 92 Civ. 0756 (SWK).

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

July 31, 1992.

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David G. Trachtenberg by David G. Trachtenberg, New York City, for plaintiff.

Parker Chapin Flattau & Klimpl by Joel A. Chernov, New York City, for defendants.

MEMORANDUM OPINION AND ORDER

KRAM, District Judge.

In this diversity action involving claims of fraud, conversion, breach of contract, and breach of fiduciary duty, defendants move, pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, for an order dismissing the complaint for lack of subject matter jurisdiction. In the alternative, defendants move, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, for an order dismissing the complaint for failure to state a claim upon which relief can be granted. Plaintiff Michael Kubin ("Kubin") opposes the motions and cross-moves for an order disqualifying defendants' counsel, Parker Chapin Flattau & Klimpl ("Parker Chapin"). Kubin also cross-moves, pursuant to Rule 11 of the Federal Rules of Civil Procedure, for sanctions against defendant Larry Miller ("Miller") for filing a false affidavit. Defendants oppose the motions. For the reasons set forth below, defendants' motion, pursuant to Rule 12(b)(1), is denied. Kubin's cross-motion, pursuant to Rule 11, for sanctions against Miller, is denied. Kubin's cross-motion for the disqualification of Parker Chapin is denied. Defendants' motion, pursuant to Rule 12(b)(6), is granted in part and denied in part.

BACKGROUND¹

Plaintiff Kubin, a Connecticut domiciliary, entered into an oral agreement with defendant Miller and Robert Ingram ("Ingram") in late 1987 ("late 1987 oral agreement")² in which the parties agreed to merge their media businesses, Corinthian Media Buying, Inc. ("CMBI"), Corinthian Advertising, Inc. ("CAI"), defendant Corinthian Media, Inc. ("CMI"), and defendant Broadcast Buying Services, Inc. ("BBS"), into a single entity. Complaint, at ¶ 12. Prior to this agreement, the ownership of the above companies was as follows: Kubin, CMI's executive vice-president, owned 24.5 percent of the stock of CMI, Complaint, at ¶ 1, Ingram owned 24.5 percent of CMI, and Miller owned fifty-one percent of CMI's stock, Complaint, at ¶¶ 2, 3; Miller and Kubin co-owned CMBI with Miller controlling fifty-one percent of CMBI's equity and Kubin controlling forty-nine percent, Complaint, at ¶ 9; Miller and Ingram owned the equity of CAI with Miller owning fifty-one percent and Ingram owning forty-nine percent, Complaint, at ¶ 10; CAI's profits were divided among Miller (fifty percent), Ingram (thirty-five percent), and Kubin (fifteen percent). Id. Additionally, at all relevant times, Miller has controlled and operated BBS and another media company, Ari Trading, Inc. ("Ari"). Complaint, at ¶ 2.

According to the complaint, the late 1987 oral agreement among Kubin, Miller, and Ingram provided, inter alia, that Kubin would forfeit his interest in CMBI and CAI, thus facilitating the merger of CMBI, CAI, CMI, and BBS, in exchange for the performance of the following promises by Miller:

(1) Miller would distribute twenty-five percent of the operating income of the surviving company and Ari to Kubin on an annual basis,

(2) Kubin would receive 24.5 percent of the stock of the surviving company,

(3) a shareholders agreement for the surviving company would be created which would include a buy-out clause in case any shareholder should decide to leave the company, and

(4) Miller would merge BBS, CMBI, and CAI into one surviving company.

Complaint, at ¶ 13.

On January 1, 1988, CMBI and CAI were merged with CMI to create a single entity under the name CMI. Complaint, at ¶ 15. According to the complaint, however, Miller refused to merge BBS into CMI. Miller repeatedly explained to Kubin that he was unwilling to complete the merger and finalize the shareholders agreement because his divorce settlement was incomplete.³ Complaint, at ¶¶ 18, 19. Instead, he continued to operate BBS and Ari in direct competition with CMI and diverted CMI's assets to BBS, Ari, and his own personal use, thereby violating the late 1987 oral agreement. Complaint, at ¶¶ 16, 28. Specifically, Kubin alleges that Miller "engaged in a deliberate scheme to divert assets from CMI to other companies he owned or controlled, including BBS and Ari." Complaint, at ¶ 26.

On October 25, 1989, however, Miller's attorney drafted a buy-sell agreement (the "buy-sell agreement") containing details of the contemplated merger. Thereafter, on December 12, 1989, Kubin and Miller signed an interim letter agreement (the "letter agreement") which acknowledged Kubin's ownership of 24.5 percent of the newly formed CMI and contained Miller's promise to fulfill his original promise to create a shareholders agreement. See Plaintiff's Exhibit "A", attached to Kubin Affidavit, sworn to April 2, 1992 ("Kubin Aff."). Despite the letter agreement, in January 1990, Miller informed Kubin that he would not sign a shareholders agreement. Complaint, at ¶ 24. Miller also refused to furnish any CMI shares or income to Kubin and balked at merging BBS into CMI. Id.

In early April 1991, Kubin and Miller entered into another oral agreement. Specifically, Miller, as the controlling partner in CMI, orally promised Kubin a finder's fee (the "finder's fee agreement") if Kubin would introduce the DeMoss Foundation ("DeMoss") to CMI as DeMoss was considering a television campaign. Complaint, at ¶¶ 30, 31. Although Kubin fulfilled his promise by introducing DeMoss to CMI (DeMoss became a client of CMI thereafter), Miller has refused to pay the promised finder's fee to Kubin. Complaint, at ¶¶ 32, 33.

As a result, Kubin seeks damages for fraud, conversion, breach of contract, and breach of fiduciary duty. He also seeks mandatory injunctions requiring Miller to issue CMI and BBS stock to Kubin, and declaratory judgments proclaiming Kubin's entitlement to future CMI commissions from the DeMoss account, declaring Kubin's entitlement to 24.5 percent of CMI stock, voiding the December 12, 1989 interim letter agreement, proclaiming Kubin to be a 24.5 percent shareholder of BBS, and declaring Kubin's entitlement to twenty-five percent of the net income of CMI, BBS, and Ari.

Defendants now move for an order dismissing the complaint for lack of diversity on the grounds that Kubin and Miller are Connecticut domiciliaries and Ari's principal place of business is located in Connecticut. Kubin opposes the motion and cross-moves for the disqualification of Parker Chapin on the grounds that its continued representation of defendants constitutes a violation of Canons 4, 5, and 9 of the American Bar Association's Code of Professional Responsibility ("Model Code"). Kubin also moves for sanctions against Miller for filing a false affidavit. Defendants oppose the motions, and move, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, for an order dismissing all but Kubin's breach of written contract claim (Fourth Claim for Relief).

I. Subject Matter Jurisdiction

District courts have original jurisdiction over civil actions where "the matter in controversy exceeds the sum or value of $50,000, exclusive of interest and costs, and is between ... citizens of different states." 28 U.S.C. § 1332. It is well-settled that the diversity of citizenship requirement is not met when any opposing parties are citizens of the same state. Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806). The citizenship of the parties is to be determined by the court as of the time the action is commenced. See, e.g., Dullard v. Berkeley Associates Co., 606 F.2d 890, 893 (2d Cir.1979); Caldararo v. Au, 570 F.Supp. 39, 40 (S.D.N.Y.1983). The party seeking to invoke diversity jurisdiction must sustain the burden of proving that complete diversity existed at the time the action was commenced. See, e.g., Boyd, Weir & Sewell Inc. v. Fritzen-Halcyon LIJN, Inc., 709 F.Supp. 77, 78 (S.D.N.Y.1989) (citing Willis v. Westin Hotel Co., 651 F.Supp. 598, 601 (S.D.N.Y.1986)).

A. Citizenship of Larry Miller

Defendants contend that this action should be dismissed for lack of subject matter jurisdiction as both Kubin and Miller are citizens of Connecticut. Specifically, defendants contend that Miller's numerous contacts with Connecticut support the assertion that Connecticut is his domicile, thus destroying diversity jurisdiction. The Court disagrees.

For diversity purposes, an individual's citizenship is defined as his domicile. See Hawes v. Club Ecuestre El Comandante, 598 F.2d 698, 701 (1st Cir.1979). Justice Holmes explained that every individual may have only one domicile because the law must assign to each person a "technically pre-eminent headquarters ... in order that certain rights and duties that have been attached to it by the law may be determined." Hawes, 598 F.2d at 701 (citing Williamson v. Osenton, 232 U.S. 619, 625, 34 S.Ct. 442, 443, 58 L.Ed. 758 (1914)). An individual's domicile is determined by physical presence in the place combined with intent to remain there. Mississippi Band of Choctaw Indians v. Holyfield, 490 U.S. 30, 48, 109 S.Ct. 1597, 1608, 104 L.Ed.2d 29 (1989) (citing Texas v. Florida, 306 U.S. 398, 59 S.Ct. 563, 83 L.Ed. 817 (1939)). When the plaintiff has shown that the defendant had a former domicile, the burden shifts to the defendant to prove that his domicile has changed. Kaiser v. Loomis, 391 F.2d 1007, 1009-10 (6th Cir. 1968) (citing Stine v. Moore, 213 F.2d 446, 448 (5th Cir.1954)). To sustain this burden, the defendant must show that he has acquired a new residence and intends to remain there. Kaiser, 391 F.2d at 1009 (citing ...