Scaturro v. Seminole Cas. Ins. Co.

• Decision Date: 03 January 2008
• Docket Number: No. 07-61072-CIV.,07-61072-CIV.
• Citation: 542 F.Supp.2d 1290
• Court: U.S. District Court — Southern District of Florida
• Parties: Joseph J. SCATURRO, Plaintiff, v. SEMINOLE CASUALTY INSURANCE COMPANY, Carl N. Seaman, Carl & Associates, LLC, Metlin Marketing Company, LLC, and Metlin Holding Company, LLC, Defendants.

542 F.Supp.2d 1290

Joseph J. SCATURRO, Plaintiff, v. SEMINOLE CASUALTY INSURANCE COMPANY, Carl N. Seaman, Carl & Associates, LLC, Metlin Marketing Company, LLC, and Metlin Holding Company, LLC, Defendants.

No. 07-61072-CIV.

United States District Court, S.D. Florida.

January 3, 2008.

COPYRIGHT MATERIAL OMITTED

Jonathan H. Rosenthal, Malman Malman & Rosenthal, Fort Lauderdale, FL, Brian Rosner, Tiffany E. Cale, Rosner & Napierala LLP, New York, NY, for Plaintiff.

Robert Michael Klein, Stephens Lynn Klein & McNicholas, Miami, FL, Arthur William Fleishman, Gordon A. Dieterle, McClosky, D'Anna & Dieterle, LLP, Boca Raton, FL, for Defendants.

ORDER GRANTING MOTIONS TO DISMISS COUNT ONE OF THE AMENDED COMPLAINT ALLEGING SECTION 10(B) SECURITIES FRAUD

PAUL C. HUCK, District Judge.

THIS CAUSE is before the Court upon Defendant Carl Seaman's Motion to Dismiss the Amended Complaint, filed October 1, 2007 [D.E. # 10], and the remaining Defendants' Motion to Dismiss the Amended Complaint, filed October 12, 2007 [D.E. # 15]. This Order will address those Motions only insofar as they seek to dismiss Count One of the Amended Complaint, which alleges a securities fraud claim under section 10(b) of the Securities Exchange Act of 1934 ("SEA"). The remainder of the Motions, which seek to dismiss Plaintiffs state law claims, will be addressed at a later date if Plaintiffs federal claim survives and the Court retains jurisdiction over the rest of the Amended Complaint.

In their Motions to Dismiss, Defendants argue that Plaintiffs securities fraud claim is deficient because it fails to satisfy several pleading requirements, namely: pleading facts sufficient for the transaction at issue to come within the scope of the SEA, pleading a material misrepresentation or omission in connection with the sale of a security, pleading scienter, and pleading loss causation. The Court has reviewed the Motions, Plaintiffs' Responses, Defendants' Replies, the Amended Complaint, and all pertinent parts of the record.

I. FACTUAL ALLEGATIONS

Accepting all well-pled facts in the Amended Complaint as true, the Court assumes the following facts.¹ Plaintiff Joseph Scaturro resides in Broward County, Florida and is one of two shareholders of Seminole Casualty Insurance Company's ("Seminole") outstanding stock, owning 20%. Between May 7, 2002 and about May 14, 2007 Plaintiff was employed by Seminole, a corporation in the business of writing insurance policies with its principal place of business in Florida. Plaintiff most recently served as Seminole's President, and also as a member of the company's Board of Directors. Carl Seaman ("Seaman") resides in Fairfield County, Connecticut and serves as the Chairman of Seminole's Board of Directors. Seaman is also the majority shareholder of Seminole's outstanding stock, owning 80%.

During his tenure at Seminole Plaintiff suffered from a visual impairment making it difficult for him to read, and often requiring him to seek the assistance of others to read and explain written materials. Seaman and other Seminole directors, officers, and employees were aware of Plaintiffs visual impairment and routinely assisted him in reading written materials.

Prior to May 2002 Seminole was unprofitable and under-reserved. In May 2002 Seaman, as Chairman of Seminole's Board and the company's sole shareholder at the time, recruited Plaintiff to manage Seminole's Florida operations and to increase the company's profitability and share value. Seaman orally offered Plaintiff an annual base salary of $160,000, an annual bonus calculated at 30% of the amount by which Plaintiff reduced Seminole's expenses, and continuous employment until Plaintiff (then 58 years old) either retired or Seminole was sold, provided that Plaintiff was successful in turning the company around. Plaintiff accepted employment on these terms.

By 2003 Plaintiff had significantly reduced Seminole's expenses and was thus entitled to a bonus of approximately $600,000. When Plaintiff asked Seaman for payment, Seaman refused. In lieu of a bonus, Seaman urged Plaintiff to purchase stock in Seminole. Plaintiff was reluctant to do this, as Seminole was unprofitable at that time. Seaman told Plaintiff that instead of paying cash, he could apply his $600,000 bonus to the purchase of the stock. Plaintiff could also, Seaman said, receive bonuses for the years 2002, 2003, 2004, 2005 and 2006 and apply them to the stock purchase. Seaman promised Plaintiff that he would receive a substantial return on his investment once Seminole's financial health improved and the company was sold.

Although the chronology is unclear from the Amended Complaint (see footnote 2), it appears that Plaintiff relied on Seaman's representations and agreed to forego his $600,000 bonus, and applied portions of bonuses from 2002, 2003, 2004, 2005 and 2006 to pay for shares in Seminole. Seaman retained his cousin Melvyn H. Halper (a real estate attorney practicing in New York) to draft a shareholders' agreement (the "Agreement") and presented this Agreement to Plaintiff at some point in 2004. See Am. Compl. Ex. D. Plaintiff requested that Seaman, as both the Chairman of Seminole and its majority shareholder, explain the material terms of the Agreement to him. In response, Seaman stated, "It's what we've talked about. It's the stock that you'll cash out when we sell the company. Trust me, Joe. I love you and your wife, and I'm going to take care of you." On the basis of this representation, Plaintiff executed the Agreement and paid a total of $260,000 for 400,000 shares of Seminole stock, priced at $0.65 per share. Specifically, Plaintiff paid $104,000 in cash and executed a promissory note to Seaman for $156,000, which he repaid through annual payments of $52,000 made in 2005, 2006 and 2007.²

Plaintiff alleges he was not aware that there was a conflict of interest between Plaintiff and Seminole and Seaman in the context of the Agreement, that Mr. Halper only represented Seminole and Seaman, and that Plaintiff should have retained separate counsel.³

Between May 2002 and early 2007 Plaintiff succeeded in leading Seminole from the verge of insolvency and receivership to profitability, and Seminole is currently expanding into multiple states. Seminole almost tripled its total assets and its total surplus between 2002 and early 2007. Between May 2002 and early 2007 Seaman regularly called Plaintiff in Florida and traveled to Florida every four to six weeks to discuss Seminole's status. During these conversations they also discussed selling Seminole, agreeing that the sale proceeds would be split between them 80/20, according to their respective ownership interests in the company.

On or about May 11, 2007, Seminole terminated Plaintiffs employment without notice or explanation. Plaintiff received a letter from Seaman dated June 20, 2007 in which Seaman sought to exercise his call rights under the Agreement. Seaman enclosed a copy of the Agreement with his letter. This copy of the Agreement contained a separate page labeled "Schedule B," which stated Seaman had the right to call Plaintiffs shares at the price of $0.65 per share if, before January 1, 2008, Plaintiff voluntarily terminated his employment or was involuntarily terminated for any reason. Plaintiff alleges that Seaman never discussed Schedule B with him when he asked Seaman to read him the Agreement. Plaintiff further alleges that when he signed the Agreement he did not know it contained the provisions set forth in Schedule B, and did not become aware of the existence of Schedule B until Seaman's June 20, 2007 letter. Schedule B does not contain a signature or initials to indicate that it was included with the Agreement when the Agreement was originally presented to Plaintiff.⁴ If Plaintiff had known he could be forced to sell his shares at the purchase price, he would not have purchased the shares or executed the Agreement.

II. PROCEDURAL HISTORY

Plaintiff filed suit in this Court on August 1, 2007 (see D.E. # 1). Seaman filed suit in Broward County state court on August 10, 2007 seeking payment from Plaintiff on certain promissory notes, at least one of which Plaintiff used to pay for part of the 400,000 shares of Seminole stock he purchased. When Plaintiff submitted his answer in that state case, he also brought a counterclaim seeking the same relief he seeks in this case, except without the federal securities fraud claim (see D.E. # 11).

On August 17, 2007 Plaintiff filed an Amended Complaint (see D.E. # 7) bringing the following claims: Count 1, securities fraud under section 10(b) of the SEA against Seminole and Seaman; Count 2, breach of oral employment contract against Seminole; Count 3, breach of implied covenant of good faith and fair dealing against Seminole; Count 4, breach of fiduciary duty against Seaman; Count 5, fraudulent inducement against Seminole and Seaman; Count 6, dissolution against Seminole; Count 7, attorneys fees against Seminole; Count 8, dissolution against Metlin Marketing Company and Metlin Holding Company; Count 9, breach of fiduciary duty against Carl & Associates; and Count 10 (mistakenly labeled as a duplicate Count 9), tortious interference with advantageous business relationships against Seaman. Plaintiff bases federal jurisdiction on Count 1, the securities fraud claim. Plaintiff alleges his securities fraud claim provides supplemental jurisdiction over the state claims in the remainder of his Amended Complaint under 28 U.S.C. § 1367(a). See Am. Compl. at ¶ 7.

On October 1, 2007 Seaman filed a motion to dismiss the counts against him in the Amended Complaint, which is now fully briefed and ripe for resolution. On October 12, 2007 the remaining Defendants moved to dismiss the counts against them in the Amended Complaint, which is also fully briefed and ripe for resolution. However, as explained above, in this Order the Court will only address those portions of the Motions pertaining to the...