Phillips v. Reed Grp., Ltd.

• Decision Date: 01 July 2013
• Docket Number: No. 07 Civ. 3417(RO)(DF).,07 Civ. 3417(RO)(DF).
• Citation: 955 F.Supp.2d 201
• Parties: Kenneth F. PHILLIPS, Plaintiff, v. REED GROUP, LTD., Reed Group, LLC, Stacey Grace, Presley Reed, and Peter B. Nagel, as Trustee of the Presley Reed 1999 Family Trust, Defendants.
• Court: U.S. District Court — Southern District of New York

955 F.Supp.2d 201

Kenneth F. PHILLIPS, Plaintiff,
v.
REED GROUP, LTD., Reed Group, LLC, Stacey Grace, Presley Reed, and Peter B. Nagel, as Trustee of the Presley Reed 1999 Family Trust, Defendants.

No. 07 Civ. 3417(RO)(DF).

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

July 1, 2013.

[955 F.Supp.2d 210]

Kenneth Barrett Phillips, Natick, MA, for Plaintiff.

Louis P. DiLorenzo, Michael Patrick Collins, Bond, Schoeneck & King, PLLC, Leah Edmunds, Leslie David Corwin, Rachel Lois Izower–Fadde, Greenberg Traurig, LLP, New York, NY, for Defendants.

MEMORANDUM & ORDER
RICHARD OWEN, District Judge.

Pro se Plaintiff Kenneth F. Phillips (“Plaintiff” or “Phillips”) brings claims for breach of contract, negligent misrepresentation, quantum meruit and unjust enrichment, promissory estoppel, and breach of fiduciary duties against Reed Group, LTD (“the LTD”), Reed Group, LLC (“the LLC”), Stacey Grace (“Grace”), Presley Reed (“Reed”), and Peter B. Nagel (“Nagel”) as Trustee of the Presley Reed 1999 Family Trust (collectively “Defendants.”) This Court has jurisdiction in this diversity action under 28 U.S.C. § 1332.

All five Defendants move to dismiss the Complaint under Federal Rules of Civil Procedure 12(b)(3) and (6) on the basis that venue is improper and that Plaintiff fails to state a claim upon which relief can be granted. Four Defendants move to dismiss the action under Federal Rule of Civil Procedure 12(b)(2) on the basis that this Court lacks personal jurisdiction over them. All Defendants also request that if this case is not dismissed, it be transferred to the District of Colorado.

Magistrate Judge Debra Freeman issued a Report and Recommendation recommending that Defendants' motion be granted in part in denied in part. For the reasons set forth below, this Court concurs with the Report and Recommendation and adopts it as the Order of this Court.

BACKGROUND

The factual background of this action is provided in the Report and Recommendation and will not be repeated here in full. According to the allegations provided in the Amended Complaint, Plaintiff Kenneth Phillips was a member of the Board of Directors of corporate defendants the LTD and LLC from approximately 2002 to 2006. Plaintiff asserts that the LTD, a “business process outsourcer” providing publications, software, and other materials aimed at “streamlin[ing] employee absence operations for employers” maintains an office and mailing address in New York state and that 40 percent of its revenue is generated in the state. (Amended Complaint ¶ 2.)

Defendants Reed and Grace are the sole members of the LLC. Plaintiff claims that at the request of Defendants and allegedly in reliance on promises of an equitable share of ownership in the LTD, he expended thousands of hours of work and contributed tens of thousands of dollars in capital and expenses, for which he was not compensated. Amongst Plaintiff's claims, he alleges to have either created or enhanced the value of the two products sold or distributed by the LTD, the “Utilization Management Knowledgebase” (“ACOEM UMK”) as a “joint venture” with Defendants in which Plaintiff would bear initial costs in exchange for being compensated later based on the value of the product and revenue it created, and the Medical Disability Advisor. (the “MDA”) Plaintiff alleges that Defendants Reed and Grace abused the corporate form by creating a shell corporation by which Plaintiff was induced him to provide such uncompensated work. Plaintiff alleges that Defendants Reed and Grace traveled to New York repeatedly on LTD-related business, that Reed met with Plaintiff in New York City on numerous occasions, and that Reed conducted

[955 F.Supp.2d 211]

business extensively in New York at various points from 2002 to 2006. Plaintiff claims that, based on discussions with Defendant Reed in New York, he expected to receive equity in return for his work, and Plaintiff claims that Reed gave him an unsigned LLC operating agreement reflecting this understanding.

This action was originally filed in Supreme Court of New York, County of New York, and was thereafter removed to this Court under 28 U.S.C. § 1441. [dkt. no. 1.] Because of the complete diversity of citizenship of the parties and the matter in controversy exceeding $75,000, removal was proper. Plaintiff filed his Amended Complaint on August 28, 2007. [dkt. no. 22.] Defendants then moved to dismiss or in the alternative to transfer this action to the United States District Court for the District of Colorado pursuant to 28 U.S.C. § 1404(a). [dkt. no. 28.] Magistrate Judge Freeman issued a Report and Recommendation (the “Report”) in which she recommended that Defendants' motion to dismiss be granted in part and denied in part. [dkt. no. 43.] Defendants filed objections to the Report [dkt. no. 45], which Plaintiff opposed. [dkt. no. 46.] Plaintiff thereafter filed a motion in limine to exclude the Declarations of Peter Nagel [dkt. no. 49], to which Defendants responded by letter on December 20, 2012.

DISCUSSION A. Standard of Review

United States Magistrate Judges hear dispositive motions and make proposed findings of fact and recommendations, generally in the form of a Report and Recommendation. In reviewing a Report and Recommendation, a district court “may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge.” 28 U.S.C. § 636(b)(1)(C).

A party may file “specific written objections,” Fed R. Civ. P. 72(b), to a Magistrate Judge's proposed findings and recommendations, and in that case, the district court has an obligation to make a de novo determination as to those portions of the Report and Recommendation to which objections were made. 28 U.S.C. § 636(b)(1); First Union Mortgage Corp. v. Smith, 229 F.3d 992, 995 (10th Cir.2000). A district court judge, in making such determination, has discretion in the weight placed on proposed findings and recommendations and may afford a degree of deference to the Report and Recommendation. See United States v. Raddatz, 447 U.S. 667, 676, 100 S.Ct. 2406, 65 L.Ed.2d 424 (1980). Objections to a Report and Recommendation are to be “specific and are to address only those portions of the proposed findings to which the party objects.” Camardo v. General Motors Hourly–Rate Employees Pension Plan, 806 F.Supp. 380, 381–82 (W.D.N.Y.1992). Objections that are “merely perfunctory responses argued in an attempt to engage the district court in a rehashing of the same arguments set forth in the original [papers] will not suffice to invoke de novo review.” See Vega v. Artuz, 2002 WL 31174466, at *1 (S.D.N.Y. Sept. 30, 2002).

Where no timely objection has been made by either party, a district court need only find that “there is no clear error on the face of the record” in order to accept the Report and Recommendation. Nelson v. Smith, 618 F.Supp. 1186, 1189 (S.D.N.Y.1985). In the event a party's objections are conclusory or general, or simply reiterate original arguments, the district court also reviews the Report and Recommendation for clear error.

The Report and Recommendation recommended as follows: that Defendants' motion to dismiss be granted as to portions

[955 F.Supp.2d 212]

of Plaintiff's breach of fiduciary and promissory estoppel claims; that Plaintiff be granted leave to replead his claim for negligent representation; that Defendants' motion to dismiss be granted as to Defendant Nagel for lack of personal jurisdiction; and that Defendants' motion be otherwise denied.

Defendants object to the Report and Recommendation on the following grounds: that Plaintiff has not alleged, and the evidence does not support, a connection between the LLC and New York at the time the complaint was served; that the Report improperly recommended piercing of the corporate veil; that the Report improperly analyzed the factors governing motions to transfer in recommending the action not be transferred to the District of Colorado; that the Report improperly provided Plaintiff leave to amend his negligent misrepresentation claim; and that the Report improperly denied Defendants' motion to dismiss Plaintiff's breach of contract, promissory estoppel, quantum merit and unjust enrichment, and breach of fiduciary duty claims in their entirety.

B. Personal Jurisdiction

Four of the five Defendants move to dismiss under Federal Rule of Civil Procedure 12(b)(2) on the basis that this Court lacks personal jurisdiction over them. Plaintiff claims this Court can exercise personal jurisdiction over Defendants Reed and Grace on the basis of general jurisdiction, specific jurisdiction based on acts in New York giving rise to Plaintiff's claims, and piercing of the corporate veil.

Courts considering whether to pierce the corporate veil to impose liability on individual shareholders assess 1) the extent to which the corporation is merely the “alter ego” of the shareholder, 2) whether justice requires piercing the corporate veil based on the fact that the corporate fiction was a means of perpetuating a fraud or defeating a rightful claim, and 3) whether an equitable result will be achieved by piercing the corporate veil. Connolly v. Englewood Post No. 322 Veterans of Foreign Wars of the United States, Inc., 139 P.3d 639, 643–44 (Colo.2006). An “alter ego relationship exists when the corporation is a ‘mere instrumentality’ for the transaction of the shareholders' own affairs, and there is such unity of interest in ownership that the separate personalities of the corporation and the owners no longer exist.” Id. at 644. This unity of interest consideration requires courts to consider several factors, including whether: “(1) the corporation is operated as a distinct business entity, (2) funds and assets are commingled, (3) adequate corporate records are maintained, (4) the nature and form of the entity's ownership and control facilitate misuse by an insider, (5) the business is thinly capitalized, (6) the corporation is used as a ‘mere shell,’ (7)...