Vertrue Inc. v. Meshkin

• Citation: 429 F.Supp.2d 479
• Decision Date: 27 April 2006
• Docket Number: No. 3:05CV1809(PCD).,3:05CV1809(PCD).
• Court: U.S. District Court — District of Connecticut
• Parties: VERTRUE INCORPORATED, Plaintiff, v. Alexander B. MESHKIN, Defendant.

429 F.Supp.2d 479

VERTRUE INCORPORATED, Plaintiff, v. Alexander B. MESHKIN, Defendant.

No. 3:05CV1809(PCD).

United States District Court, D. Connecticut.

April 27, 2006.

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John Gerard Stretton, Edwards & Angell, Stamford, CT, Steven M. Cowley, Edwards Angell Palmer & Dodge LLP, Boston, MA, William E. Murray, Edwards & Angell, Hartford, CT, for Plaintiff.

David A. Felice, Sean J. Bellew, Cozen O'Connor-De, Wilmington, DE, Michael P. Foley, Jr., Cheshire, CT, for Defendant.

RULING ON MOTION TO DISMISS

DORSEY, District Judge.

Defendant moves, pursuant to Rules 12(b)(2), 12(b)(6) and 19 of the Federal Rules of Civil Procedure, to dismiss Plaintiff s Complaint in its entirety or to stay the action in favor of ongoing arbitration. Hearing on the motion was held March 13, 2006. For the reasons stated herein, Defendant's Motion to Dismiss or Stay [Doc. Nos. 39, 43] is denied.

I. BACKGROUND¹

Plaintiff initiated the instant action by filing a complaint in the Superior Court of Connecticut on October 25, 2005. On November 28, 2005, Defendant removed the action to this Court pursuant to 28 U.S.C. §§ 1332 and 1441(b). The instant Motion to Dismiss was filed in this Court on February 27, 2006.

Plaintiff is the successor in interest to MemberWorks Incorporated, a corporation organized and existing under the laws of the State of Delaware, with its principal place of business in Stamford, Connecticut. Compl. ¶ 2. Defendant is an individual residing in North Carolina.² Id. ¶ 3; Def's Mem. at 3. According to Plaintiff, Defendant is the Chief Executive Officer, principal owner, principal shareholder and director of Nutzz.com, LLC ("Nutzz") and its parent company, Bang Racing, LLC ("Bang Racing"), both Delaware limited liability companies with their principal place of business in Mooresville, North Carolina (hereinafter referred to collectively as the "Companies"). Compl. ¶ 3. Plaintiff also alleges that Defendant entirely controls Nutzz and that Nutzz serves as his "alter ego." Id.; see also Pl's Opp. at 5-6 (asserting that Defendant admits, in his Declaration, that he is the President and manager of Nutzz, a limited liability company with only one member, Bang Racing).

Plaintiff generally alleges that Defendant, acting as the "alter ego" of the Companies, "engaged in a scheme to defraud [Plaintiff] by misrepresenting and concealing Nutzz.com's and Bang Racing's marketing capabilities (or lack thereof) and Meshkin's, Nutzz.com's and Bang Racing's dire financial status in order to induce [Plaintiff] to enter into an agreement with Nutzz.com and provide it with an advance of $1.25 million to fund its advertising and promotional obligations under that agreement." Compl. ¶ 1. Plaintiff contends that Defendant "intentionally misrepresented his personal background and his two companies' ability to perform such obligations when, in fact, neither company would be able [to] do so." Id. Plaintiff asserts that Defendant made false representations designed to conceal his companies'"dire" financial condition in an effort to induce Plaintiff to enter into an agreement with Nutzz. Id. Plaintiff maintains that had it known the truth about Defendant's and the Companies' financial conditions and their inability to carry on operations, it would never have entered into the agreement with Nutzz, advanced Nutzz $1.25 million, accepted Bang Racing as Nutzz's guarantor or expended significant additional sums of money in the good faith, albeit erroneous, belief that the Agreement would be performed. Id.

Defendant explains that the genesis of the "Nutzz entity" came about as a result of Defendant's desire to create a membership club for NASCAR® racing fans. See Def's Mem. at 4. Defendant contemplated establishing two levels of membership: (1) a free, general membership open to "anyone" and (2) an "elite" membership granting certain benefits and for which an annual fee would be charged. See id. In early 2004, Defendant created the Nuttz.com website in an effort to attract NASCAR® racing fans and to encourage them to become members of the general membership program. See id. Defendant, looking for a company to promote and market its elite membership program, came to the conclusion that Plaintiff would be the "ideal corporate partner." Id. at 5.

Defendant first spoke with Carl Peru, Vice-President of Product and Partner Marketing at Vertrue, to discuss his idea of a NASCAR®-affiliated membership club. See Def's Mem. at 3-4. Following that initial contact, Defendant presented his ideas to and discussed creating and marketing the elite membership program with other Vertrue representatives. See id. Plaintiff supplements its jurisdictional allegations with the Declaration of Doug Weiss ("Weiss Declaration"), which states that Defendant "met with representatives of Vertrue, including Doug Weiss, in Stamford, Connecticut" and made various representations. Pl's Opp. at 4-5 (citing Weiss Decl. ¶¶ 5, 6, 9 and Compl. ¶ 7). Weiss asserts that Defendant first met with Vertrue representatives at Vertrue's Connecticut office on May 20, 2004. Weiss Decl. ¶ 6. Weiss claims that the meeting "lasted more than one hour," during which Defendant "represented that he was the Chief Executive Officer of Bang! Racing, LLC" and the "Chief Executive Officer, principal owner, principal shareholder and director of Nutzz.com, LLC." Id. ¶¶ 7-8. According to Weiss, Defendant also represented that "he was a successful entrepreneur who built an Internet-based company known as Surfbuzz.com and sold it to another Internet-based company called My-Points for millions of dollars" and that "Bang Racing and/or Nutzz.com had an agreement with Larry McReynolds, a well-known figure in NASCAR® and Fox Television Announcer, which agreement Meshkin represented would provide credibility and additional revenue opportunities for the membership programs." Id. ¶¶ 9-10; see also Def's Powerpoint Presentation, attached as Pl's Exh. 2. Plaintiff alleges that Defendant failed to disclose at that meeting that McReynolds was no longer affiliated with Defendant's Companies. Compl. ¶¶ 6, 7. Weiss also claims that Defendant provided detailed proposals regarding the parameters and operations of the proposed membership programs, "represented that Nutzz.com had a significant Network Operations Center in Herndon, Virginia, as well as two off-shore software development centers capable of providing significant Internet development and marketing services" and "made detailed representations about Nutzz.com's ability to market the proposed programs via eBay," specifically "representing that Nutzz.com could deliver one billion (1,000,000,000) eBay advertising impressions by the end of 2004." Weiss Decl. ¶¶ 12-14.

Following the May 20, 2004 meeting, Weiss asserts that Defendant continued to communicate with Plaintiff about the parameters of the proposal "on a regular basis" via telephone calls, mail, email and facsimile transmissions. Id. ¶ 15. Plaintiff alleges that as a result of the misrepresentations made by Meshkin in Connecticut and the communications that followed, the parties entered into an agreement on July 16, 2004 to develop the Nutzz Elite membership program (the "Agreement"). Def's Mem. at 5; Compl. ¶ 9; Weiss Decl. ¶ 16. The Agreement contemplated that the parties, working together, "would support and promote a fee-generating membership program that allowed members to obtain benefits provided by both [Nutzz and Plaintiff]." Compl. ¶¶ 9, 10. Bang Racing guaranteed performance of Nutzz's obligations under the Agreement. Id. ¶ 12. Plaintiff paid Nutzz an advance of $1.25 million (the "Advance") in an effort to fund advertising and promotional activities; an amount that Nutzz agreed to pay back from the money it earned under the Agreement. Id.

After the parties formally entered into the Agreement, Weiss asserts that Defendant "participated in regular weekly telephone conferences in Vertrue's Stamford, Connecticut headquarters to discuss the Agreement." Weiss Decl. ¶ 17. Moreover, Weiss represents that Defendant again traveled to Connecticut and met with Vertrue representatives at Vertrue's Stamford, Connecticut office in or about November of 2004, in order to "discuss the parties' continuing relationship, and the status of the parties' fulfillment of their obligations under the Agreement." Id. ¶ 18. Plaintiff contends that Defendant's communications by telephone and mail directed to Plaintiff in Connecticut contained "material misrepresentations and failures to disclose regarding the Companies' financial condition and business relationships after entering into the Agreement." Def's Mem. at 5 (citing Compl. ¶ 26).

Defendant asserts that he, on behalf of Nutzz, made only two one-day visits to Plaintiff's Connecticut offices on or about April or May 2004 and May 20, 2004, both prior to signing any agreement reflecting a "definitive business relationship" between Plaintiff and Defendant's companies. See Def's Mem. at 3 (citing Meshkin Decl. ¶ 12). Defendant emphasizes that the rest of the parties' negotiations took place via telephone conversations which Defendant neither placed nor received in Connecticut and via written correspondence mailed or received from offices in North Carolina and from a speedway in St. Louis, Missouri. Id. at 3-4 (citing Meshkin Decl. ¶ 14).

Plaintiff asserts that the Companies "failed in numerous ways to perform their contractual obligations under the Agreement," listing nine specific ways that Defendant is alleged to have failed to perform. See Compl. ¶ 16(a)-(i).³ Plaintiff alleges that it repeatedly demanded that Nutzz and Bang Racing perform their obligations and that Defendant send Plaintiff the "Trackside Marketing Plan" it was entitled to receive under the Agreement. Id. ¶ 17. Plaintiff maintains, however, that Defendant never sent the Trackside Marketing Plan and that Nutzz and Bang...