Wong v. Aragona

• Decision Date: 04 March 1993
• Docket Number: Civ. No. L-90-2547.
• Citation: 815 F. Supp. 889
• Parties: Yves WONG, et al. v. Xavier A. ARAGONA, et al.
• Court: U.S. District Court — District of Maryland

815 F. Supp. 889

Yves WONG, et al. v. Xavier A. ARAGONA, et al.

Civ. No. L-90-2547.

United States District Court, D. Maryland.

March 4, 1993.

Thomas A. Appel, Sykesville, MD, for plaintiffs.

Brian C. Parker, and Mark M. Dumler, Baltimore, MD, for defendants.

Xavier A. Aragona, John T. Szymkowicz, and Aragona & Szymkowicz, and Victor Curcio, defendants, pro se.

MEMORANDUM

LEGG, District Judge.

In this breach of contract and securities fraud action brought pursuant to 15 U.S.C. §§ 78a-kk (Securities Exchange Act of 1934)¹, the Court is called upon to decide the motion for summary judgment filed by defendants Xavier A. Aragona, John T. Szymkowicz, and the law firm of Aragona & Szymkowicz. For the reasons set forth below, the Court will, by separate order, GRANT the motion IN PART and DENY it IN PART.

I. FACTS

Plaintiff Yves Wong is a citizen of Mauritius and an employee of the World Bank. He resides in Virginia with his wife Phyllis Wong, a citizen of the United Kingdom. Plaintiff Avista International Inc. ("Avista") is a Virginia corporation incorporated by the Wong family in 1987.² Defendants Aragona and Szymkowicz are attorneys and former law partners who, in 1989, incorporated Melrose Commercial Enterprises, Inc. ("Melrose") with defendant Victor Curcio.³

In late 1987, the Wongs became concerned that their children, who were attending college in the United States, would be deported following graduation because they were not U.S. citizens.⁴ After consulting with a lawyer, the Wongs learned that their children could stay in the U.S. if they obtained a business visa.⁵ In order to qualify for a business visa, however, the Wongs were required to start a business with at least $100,000 of investments.⁶ In December 1987, the Wongs incorporated Avista and began looking for investment opportunities for the corporation.⁷

Throughout 1988 and early 1989, Mr. Wong and his son-in-law, Sean Kavanaugh, explored a number of potential business investments for Avista. In mid-1989, Mr. Wong, acting on Avista's behalf, negotiated an oral agreement with a company called Protech to import gloves from Thailand.⁸ The contract between Avista and Protech was scheduled to commence sometime in the fall of 1989.

During the summer of 1989, Sean Kavanaugh was employed as a law clerk at Aragona & Szymkowicz ("A & S"). Mr. Kavanaugh was a friend of Aragona's son, and Aragona attended Kavanaugh's wedding in 1988. In July 1989, Kavanaugh told Aragona that Avista was interested in investing in "rehab housing".⁹ Aragona allegedly informed Kavanaugh that rehab housing was a risky investment, but that Aragona "might have something better" to offer.¹⁰ A few days later, Aragona allegedly told Kavanaugh that he had a "deal" for Avista that was "too good to pass up."¹¹ The deal involved a loan to Melrose, which was involved at the time in the importation of oil from Nigeria. Kavanaugh relayed this information to Mr. Wong, who agreed to meet with Aragona, Curcio, and Szymkowicz on July 13, 1989.

Plaintiffs contend that, at the July 13 meeting, Mr. Wong told the defendants that any money Avista lent to Melrose had to be repaid by September 15, 1989. This was due to Avista's prior agreement with Protech, as well as the fact that the money to be lent was home equity money from the Wongs' home.¹² Plaintiffs allege that Szymkowicz and Aragona assured Mr. Wong that Melrose was in sound financial condition and that any loan Avista made to Melrose was "risk-free" because the money was going to be held in escrow or by a bond.¹³ Plaintiffs further contend that the Mr. Wong agreed to lend $180,000 to Melrose only because he was assured that the loan was risk-free and that he would have the principal back by September 15.¹⁴ Plaintiffs also allege that Curcio promised Mr. Wong that Melrose would assist Avista in distributing gloves in the U.S.¹⁵ Finally, the defendants allegedly informed Mr. Wong that Avista would be paid five cents per barrel on the first three oil shipments Melrose received, and that each shipment would include approximately 90,000 barrels.¹⁶ The defendants deny these allegations.

Plaintiffs contend that no one at the July 13 meeting advised Mr. Wong to consult an attorney before entering into an agreement with Melrose on behalf of Avista.¹⁷ Plaintiffs also contend that Mr. Wong told the defendants that he trusted them and believed that they would protect his interests because Avista and Melrose were becoming "partners in this venture."¹⁸ On July 14, Melrose and Avista signed a contract in which Avista loaned Melrose $180,000 at 11.5% interest, for a term of 60 days. The contract also stated that Melrose agreed to pay Avista five cents for each barrel of oil "on the first Three (3) oil contracts which Melrose consummates."¹⁹ The contract contained an integration clause which provided that "this Agreement contains the entire understanding between the parties and may not be modified except in writing signed by all parties hereto."²⁰

Plaintiffs contend that, shortly after the contract was signed, Mr. Wong decided to restructure the loan to reflect Mr. and Mrs. Wong, rather than Avista, as the payees.²¹ Mr. Kavanaugh allegedly spoke to Mr. Szymkowicz about the matter, and Szymkowicz allegedly agreed to restructure the loan.²² Plaintiffs contend that Szymkowicz failed to restructure the loan, and that Avista was not repaid on September 15.

On October 1, 1990, plaintiffs filed the instant action, which contains the following counts: (i) breach of contract against Melrose; (ii) breach of fiduciary duty against Aragona, Szymkowicz, and A & S; (iii) misrepresentation against all named defendants; (iv) violation of the securities laws against the individual defendants and Melrose; (v) individual liability of the individual defendants for Melrose's breach of contract; and (vi) professional negligence against Aragona, Szymkowicz, and A & S.

Defendants Aragona, Szymkowicz, and A & S have moved for summary judgment with respect to counts II through VI of the complaint, contending that: (i) the Wongs lack standing to sue; (ii) the defendants owed no fiduciary duty to the plaintiffs; (iii) they did not misrepresent any facts to the plaintiffs; (iv) the agreement signed by the parties is not a security governed by the Securities & Exchange Act; (v) they never had an attorney-client relationship with any of the plaintiffs; (vi) the individual defendants are not liable for the debts of the corporation; and (vii) the plaintiffs are not entitled to punitive damages. Plaintiffs oppose the motion in all respects.

II. DISCUSSION

A. Summary Judgment Standard

Under Fed.R.Civ.P. 56(c), summary judgment is appropriate if the moving parties can show that "there is no genuine issue of material fact" and that they are "entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986). The movants bear the initial burden of showing, through evidence which would be admissible at trial, that "a fair-minded jury could not return a verdict for the plaintiffs." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 2512, 91 L.Ed.2d 202 (1986). If the movants make this preliminary showing, the burden shifts to the opposing parties to delineate, with supporting admissible evidence, an issue of material fact. The Court is required to view that evidence in the light most favorable to the non-movants. A "mere scintilla of evidence in support of the plaintiffs' position," however, shall not suffice. Anderson, 477 U.S. at 252, 106 S.Ct. at 2512.

B. Standing

Plaintiffs assert that the Wongs have standing to sue in this action because they were third-party beneficiaries of the Avista/Melrose contract. Defendants respond that the Wongs intentionally structured the loan agreement to be between Avista and Melrose, and that the Wongs have no rights under the contract.

Under Maryland law,²³ "a person for whose benefit a contract is made can maintain an action upon it." Schrier v. Beltway Alarm Co., 73 Md.App. 281, 299, 533 A.2d 1316 (1987) (quoting Marlboro Shirt Co. v. American Dist. Tel. Co., 196 Md. 565, 569, 77 A.2d 776 (1951)). Although the name of an intended third-party beneficiary normally appears in the language of a contract, "there are cases where the name of the beneficiary is not stated, but where he can recover under the contract. In such cases, the facts and circumstances surrounding the transaction show clearly that a particular person (though not named) is the beneficiary." Marlboro at 570, 77 A.2d 776 (citing Williston on Contracts, Revised Ed., Vol. Two, § 378)). Thus, in order to qualify as third-party beneficiaries under Maryland law, the Wongs must show that "the parties to the contract intended to recognize them as the primary parties in interest and as privy to the promise." Id.

In Schrier, a case factually similar to the instant action, the Court of Special Appeals found that the Schriers, who were the principal shareholders of a privately owned company, were either parties to, or third-party beneficiaries of, a contract they negotiated between their company and another corporation. Id. 73 Md.App. at 299-300, 533 A.2d 1316. In this case, the Court finds that the Wongs have adduced sufficient evidence to establish a genuine issue of material fact with respect to their alleged status as third-party beneficiaries of the Avista-Melrose contract, including, but not limited to, the following: (i) Mr. Wong negotiated the contract on behalf of Avista; (ii) the Wongs were Avista's only shareholders; (iii) Mr. Wong told the defendants that the money for the loan derived from the Wong's home equity funds; and (iv) testimony indicating that the Wongs sought to have the loan restructured to reflect them as the payees, and that Szymkowicz agreed to do so²⁴. Accordingly, the Court will deny the defendants' request to dismiss the Wongs as parties to count I of the complaint....