Stratton Group, Ltd. v. Sprayregen, 76 Civ. 373 (KTD).

• Decision Date: 31 October 1978
• Docket Number: No. 76 Civ. 373 (KTD).,76 Civ. 373 (KTD).
• Citation: 458 F. Supp. 1216
• Parties: The STRATTON GROUP, LTD., Plaintiff, v. Gerald SPRAYREGEN, Herman Sprayregen, and Seymour Sprayregen, Defendants-Third-Party Plaintiffs, v. MARSHALL, BRATTER, GREENE, ALLISON & TUCKER, Third-Party Defendants.
• Court: U.S. District Court — Southern District of New York

458 F. Supp. 1216

The STRATTON GROUP, LTD., Plaintiff, v. Gerald SPRAYREGEN, Herman Sprayregen, and Seymour Sprayregen, Defendants-Third-Party Plaintiffs, v. MARSHALL, BRATTER, GREENE, ALLISON & TUCKER, Third-Party Defendants.

No. 76 Civ. 373 (KTD).

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

October 31, 1978.

Orans, Elsen, Polstein & Naftalis, New York City, for The Stratton Group, Ltd.; Jerome T. Orans, Gary H. Greenberg, New York City, of counsel.

Aaron, Aaron, Schimberg & Hess, Chicago, Ill., for defendants Sprayregen; Joel J. Sprayregen, Chicago, Ill., of counsel.

Schwenke & Devine, New York City, for defendants Sprayregen; Michael C. Devine, New York City, local counsel.

Donovan, Leisure, Newton & Irvine, New York City, for third-party defendants; James A. Magee, Robert J. Siverd, New York City, of counsel.

OPINION

KEVIN THOMAS DUFFY, District Judge.

This is an action brought by the Stratton Group, Ltd., hereinafter referred to as "Stratton", against three officers and/or directors thereof, alleging violations of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, as well as claims of common law fraud, breach of fiduciary duty and breach of contract.

The facts relevant to this opinion are as follows:

In April of 1970 an agreement was executed between John's Bargain Stores, as predecessor of the Stratton Group,¹ and N.L.P. Fredi, Inc., hereinafter referred to as "Fredi", a newly formed subsidiary of the Stratton Group. Pursuant to said agreement, Fredi agreed to issue all of its common stock to Stratton and all of its preferred shares to the Sprayregen & Co., Inc. shareholders, among which was the defendant Gerald Sprayregen. These preferred shareholders were given the option to put all their shares, staggered over a three-year period, to Stratton. The total agreed consideration of $15,000,000 for the put was to be paid, according to the agreement, only from Stratton's "excess cash",² to be determined by the Stratton management and thereafter to be verified by independent accountants chosen by Stratton's directors.

In Stratton's original complaint it alleged, inter alia, the breach of the April 1970 Agreement. It was alleged that upon the issuance of the preferred shares and exercise of the put option, the Stratton management paid for said shares out of funds other than "excess cash" as defined in the Agreement and absent the requisite accountant's approval thereof. More particularly, however, plaintiff alleged, without further elaboration, that Gerald Sprayregen was personally liable for this breach. Upon defendant's motion, I dismissed this claim in an opinion filed January 24, 1978. I found plaintiff's failure to allege the basis of Gerald Sprayregen's contractual liability under the Agreement, to ensure payment only out of "excess cash" and upon an accountant's verification thereof, was a fatal defect.

Plaintiff has now amended its sixth claim and defendants again move to dismiss on the ground that the allegations still fail to state a claim upon which relief can be granted.

The standard for testing the sufficiency of a claim is well settled. Before a claim will be dismissed under Rule 12(b)(6) it must be demonstrated with certainty that on the strength of the pleadings plaintiff is entitled to no relief under any state of facts which could be proved in support of the claim. 2A J. Moore, Federal Practice ¶ 12.08 at 2271-74 (3d ed. 1975). Accordingly, in determination of the instant motion under 12(b)(6), I am restricted to consideration of the lone pleading in this case—plaintiff's complaint.

The elements essential to pleading a breach of contract claim are:

(1) the making of an agreement;

(2) due performance by plaintiff;

(3) breach thereof by defendant; and

(4) causing damage to the plaintiff. See, e. g., Marquardt-Glenn Corp. v. Lumelite Corp., 11 F.R.D. 175 (S.D.N.Y.1951). It is not required, however, that plaintiff attach a copy of the contract to the complaint thereby making it part of the pleadings.³Id.

It appears that plaintiff, solely on the strength of its complaint, now alleges the requisite elements. Indeed, they allege that Gerald Sprayregen as President, Chairman of the Board and Chairman of the Executive Committee of the Stratton Group, controlled and dominated Stratton when the Agreement was signed and when the alleged breach occurred. Complaint ¶ 51. Moreover, they allege that Gerald Sprayregen was "a party" to the April, 1970 Agreement. Complaint ¶ 8.

Defendants, however, have annexed a copy of the contract in issue to their opposition papers. While precluded from consideration of this evidence outside of the pleadings in determining a 12(b)(6) motion, I have, pursuant to Rule 12(b), elected to treat the instant motion to dismiss as one for summary judgment. Accordingly, I now consider the contract in issue.⁴

The essence of the alleged "breach" arises from Gerald Sprayregen's failure to pay the put shares from "excess cash" and obtain verification of said excess by independent accountants.

The contract provides in pertinent part:

AGREEMENT dated April 2, 1970, between JOHN'S BARGAIN STORES CORP., a New York corporation, having its principal place of business at 114 New South Road, Hicksville, New York ("John's"), and N.L.P. FREDI CORPORATION, a Delaware corporation, having its principal place of business at 114 New South Road, Hicksville, New York ("Fredi") . . ..

. . . . .

3. (a) John's obligation to purchase Preferred Stock pursuant to paragraph 2 will be limited to monies available to John's and obtainable by it from its cash, notes, checks, drafts, treasury bills or any other cash item or current assets readily transferable and convertible into cash in excess of funds required by

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