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LUNDING v. BIOCATALYST RESOURCES

February 9, 2004.

FRANKLIN LUNDING, JR., Plaintiff,
v.
BIOCATALYST RESOURCES, INC., et al., Defendants



The opinion of the court was delivered by: PAUL PLUNKETT, Senior District Judge

MEMORANDUM OPINION AND ORDER

Franklin Funding, Jr. has sued defendants under a variety of theories for their alleged failure to tender certain stock, dividends and other payments to him. Defendants have filed a joint combined motion pursuant to Federal Rules of Civil Procedure ("Rule") 12(b)(1) and 12(b)(6) to dismiss the amended complaint. For the reasons set forth below, the motion is denied.

Facts

  In the early 1980s, Funding, defendant Silverman and others formed The Prozyme Company. (Am. Compl. ¶ 16.) Funding was the president and CFO of Prozyme. (Id.) Sometime later, Silverman left Prozyme and formed PPF, a company that acted as a distributor for Prozyme. (Id. ¶ 17.)

  In the early 1990s, Funding formed a new company, Biocatalyst, to purchase all of the outstanding stock of both Prozyme and PPL. (Id. ¶¶ 19-20.) In early 1993, pursuant to an Page 2 exchange/purchase agreement, Biocatalyst common stock was used lo purchase the stock of both Prozyme and PPL. (Id. ¶ 19; Id., Ex. A, Exchange/Purchase Agreement Ex. B, Common Stock Subscription Agreement.) In addition, Biocatalyst created a series of convertible preferred stock, which was exchanged for the Prozyme and PPL shareholders' agreement to release any claims they had against those companies. (Id. ¶¶ 21, 22; Id., Ex. A, Exchange/Purchase Agreement, Ex. B, Preferred Stock Subscription Agreement.) As a result of the exchange/purchase, Lunding received 325 shares of Biocatalyst convertible preferred stock. (Id., Ex. A. Exchange/Purchase Agreement, Ex. D.)

  Lunding became chairman, president and a director of Biocaalyst and entered into an employment agreement with the company that entitled him to a certain salary, bonus and other benefits throughout the life of the agreement. (Id. ¶ 20; Id., Ex A. Exchange/Purchase Agreement. Ex. F. Employment Agreement.)

  In June 1999, Biocatalyst's shareholders removed Landing as a director and CEO and replaced him with Ron lories. (Id. ¶ 25.)

  In May 2001. Lunding tried to convert 275 of his shares of Biocatalyst preferred stock lo common stock. (Id. ¶ 27.) The conversion rate in the preferred stock certificate of designations ("certificate") was four shares of common stock for each share of preferred. (Id. ¶ 28.) In addition, upon conversion, Lunding was entitled to the unpaid accumulated dividends on his preferred stock, which totaled SI 1,550.00. (Id. ¶ 29.)

  Iorio, who was then the CEO of Biocatalyst, acknowledged receipt of Lunding's preferred stock, directed that it be converted and had the corporate stock ledger changed to reflect the Page 3 conversion, (Id. ¶ 30.) However, the common stock was not issued and no accrued dividends were paid lo Lunding. (Id.)

  On May 14, 2002, Biocatalyst announced that the majority of convertible preferred shareholders had consented to rescind the 1993 issuance of the convertible preferred stock. (Id. ¶ 34.) Despite Landing's demands, Biocatalyst refused to reinstate the convertible preferred stock, issue common stock lo him for the preferred stock he tendered or pay him for the accrued dividends on the preferred stock. (Id. ¶ 40.) Biocatalyst also Sailed lo pay Lunding his annual salary and bonus in accordance with the employment agreement. (Id. ¶ 98.)

  Sometime before June 25, 2003, Lunding initialed an arbitration proceeding over the employment agreement dispute, (Defs.' It. Combined Mot. Dismiss, Ex. A.) Ultimately, the arbitrator upheld Lunding's claim, though not in the amount he had requested. (Id.) Subsequently, the arbitration award was confirmed by the Circuit Court of Cook County. (Id., Ex. C.)

  Discussion

 Subject Matter Jurisdiction

  There are two kinds of Rule 12(h)(1) motions', those that attack the sufficiency of the jurisdictional allegations and those that attack the factual basis for jurisdiction. Facial attacks arc subject to the same standard as motions pursuant to Rule 1 2(b)(d); that is, the Court accepts as true all well-pleaded factual allegations of the complaint, drawing all reasonable inferences in plaintiffs favor. United Phosphorus. Ltd, v. Angus Chem. Co., 322 L.3d 942, 946 (7th Cir. 2002). cert denied, 124 S.Ct. 533 (2003). However, in factual attacks, like this one, the Court may consider ...


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