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BORS v. DUBERSTEIN

July 14, 2004.

KIMBERLY BORS, Plaintiff,
v.
GARY K. DUBERSTEIN, ALFRED D. KINGSLEY, DAVID D. JONES, JR., and ANDREW P. HINES, Defendants.



The opinion of the court was delivered by: JOAN H. LEFKOW, District Judge

MEMORANDUM OPINION AND ORDER

On May 2, 2003, plaintiff, Kimberly Bors ("Bors"), filed suit against defendants, Gary K. Duberstein ("Duberstein"), Alfred D. Kingsley ("Kingsley"), David D. Jones, Jr. ("Jones"), and Andrew P. Hines ("Hines") (collectively "defendants"), in the Circuit Court of Cook County, Illinois, alleging state law claims of fraudulent misrepresentation and tortious interference with a contract. On July 3, 2003, and with the consent of all other defendants, Hines removed the case to this court on diversity of citizenship grounds. The notice of removal represents that Bors is a citizen of Illinois, Duberstein and Kingsley are citizens of New York, Jones is a citizen of Wisconsin and Hines is a citizen of either New Jersey or South Carolina. The notice of removal also alleges an amount in controversy exceeding $75,000 in that Bors claims damages in the amount of $180,000. Thus, this court's jurisdiction is invoked pursuant to 28 U.S.C. § 1332 (a)(1).

On February 5, 2003, this court granted the defendants' motion to dismiss Bors' Complaint pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b) without prejudice. Bors then filed an Amended Complaint on March 16, 2004, alleging only a state law claim of fraudulent misrepresentation. Before the court is the defendants' motion to dismiss Bors' Amended Complaint pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b). For the reasons stated below, the motion is granted.

  MOTION TO DISMISS STANDARDS

  A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) challenges the sufficiency of the complaint for failure to state a claim upon which relief may be granted. General Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1080 (7th Cir. 1997). Dismissal is appropriate only if it appears beyond a doubt that the plaintiff can prove no set of facts in support of its claim that would entitle it to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 2 L.Ed.2d 80, 78 S.Ct. 99 (1957); Kennedy v. Nat'l Juvenile Det. Ass'n, 187 F.3d 690, 695 (7th Cir. 1999). In ruling on the motion, the court accepts as true all well pleaded facts alleged in the complaint, and it draws all reasonable inferences from those facts in favor of the plaintiff. Jackson v. E.J. Brach Corp., 176 F.3d 971, 977 (7th Cir. 1999); Zemke v. City of Chicago, 100 F.3d 511, 513 (7th Cir. 1996).

  In addition to the mandates of Rule 12(b)(6), Federal Rule of Civil Procedure 9(b) requires "all averments of fraud" to be "stated with particularity," although "malice, intent, knowledge, and other condition of mind of a person may be averred generally." "The rule requires the plaintiff to state the identity of the person who made the misrepresentation, the time, place, and content of the misrepresentation, and the method by which the misrepresentation was communicated to the plaintiff." Vicom, Inc. v. Harbridge Merch. Servs., Inc., 20 F.3d 771, 777 (7th Cir. 1994); see also DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990) ("Although states of mind may be pleaded generally [under Rule 9(b)], the `circumstances' must be pleaded in detail. This means the who, what, when, where, and how: the first paragraph of any newspaper story.").

  BACKGROUND

  According to Bors' Amended Complaint, which is taken as true for purposes of this motion, Bors was an employee of Outboard Marine Corporation ("OMC") from October 1995 through December 2000. (Am. Compl. ¶ 2.) She held several successively higher positions with OMC, including Vice-President of Human Resources and President of OMC's Chris-Craft boat operation. (Id.) On January 17, 1996, Bors was granted 10,000 "phantom" shares of OMC stock based on an Executive Retention Incentive Plan ("ERIP") adopted in late 1995. (Am. Compl. ¶¶ 8-9.) The shares were to vest over five years unless there was a change of control in OMC, at which point the shares would vest immediately. (Am. Compl. ¶ 9.) If such a change occurred, OMC was required to purchase Bors' phantom shares, plus any dividend credits, at the price per share paid for the controlling interest in OMC. (Id.)

  On September 12, 1997, Greenmarine Acquisition Corporation ("Greenmarine") gained control through a tender offer of OMC's common stock. (Am. Compl. ¶ 10.) Greenmarine then merged with OMC, leaving OMC as the surviving company. (Id.) On September 30, 1997, all OMC common stock that was outstanding prior to the merger was cancelled and 20.4 million shares of new common stock were issued to Greenmarine Holdings LLC, Greenmarine's parent company. (Am. Compl. ¶ 12.) Subsequently, OMC's directors and officers resigned. (Am. Compl. ¶ 11.) Duberstein and Kingsley, who had indirect control of OMC through their interests in Greenmarine Holdings, replaced OMC's directors and senior officers and hired Jones as President and CEO and Hines as Executive Vice President and Chief Financial Officer. (Id.)

  When this change in control occurred, Bors became fully vested in the 10,000 phantom shares of OMC stock, in addition to 314.873 additional phantom shares that constituted dividend credits. (Am. Compl. ¶ 13.) At this time OMC became obligated, under the terms of the ERIP, to repurchase Bors' shares at $18 per share. (Id.)

  The Amended Complaint alleges that the defendants sought to prevent OMC from repurchasing any phantom shares that it was now obligated to repurchase under the terms of the ERIP. (Am. Compl. ¶¶ 14, 15, 17.) Specifically, Duberstein called Bors on September 18, 1997 and again on October 1, 1997 and directed her not to process any payments for the phantom shares until further notice. (Am. Compl. ¶ 14.) This message was reiterated to Bors on October 7, 1997 by OMC's newly-appointed General Counsel, Robert Romano. (Am. Compl. ¶ 15.) Furthermore, on October 13, 1997, when Bors told Duberstein that other executives had been asking her when payments for the phantom shares would be made, Duberstein simply asked her which executives had inquired and asked Bors if they were committed to the company. (Am. Compl. ¶ 17.)

  On December 16, 1997, Duberstein announced to Bors that the defendants had a plan to roll the phantom shares of the ERIP participants into restricted shares of the new OMC stock on a tax-free basis. (Am. Compl. ¶ 20.) In January of 1998, Jones told Bors multiple times that he expected her to get all the ERIP participants to roll over their phantom shares into the new restricted shares. (Am. Compl. ¶ 21.) When Bors responded that the OMC executives viewed the new management as not acting in good faith because they had not made a cash payment for the phantom shares, Jones told her that "[the executives] needed to get on the train or get run over by it." (Id.) Bors viewed Jones' statement to be a threat that if she did not agree to roll over her phantom shares her career would be in jeopardy. (Id.) When Bors asked Duberstein on February 17, 1998, if there was any alternative to the plan to roll over the phantom shares, Duberstein's only response was that he wanted to know if anyone showed reluctance to roll over their phantom shares. (Am. Compl. ¶ 25.) Furthermore, on or about March 31, 1998, Jones and Hines told Bors that any failure to agree to roll over her phantom shares would indicate a lack of commitment to the new OMC management. (Am. Compl. ¶ 27.)

  The Amended Complaint further alleges that the defendants made several statements to induce Bors to execute a Unit Grant Agreement ("UGA"), rolling over her phantom shares. On December 16, 1997, Duberstein told Bors over the phone that the rollover would be a "big win" for all participants because they would receive future appreciation of OMC stock on a tax-advantaged basis. (Am. Compl. ¶ 20.) On October 17, 1997, Hines told Bors that all OMC executives could make a lot of money in OMC's turnaround and that OMC had the stable financial support for such a turnaround due to Greenmarine Holdings' strong backing. (Am. Compl. ¶ 18.) On February 3, 1998, Jones and Hines, at an executive staff meeting, described the developing turnaround plan for OMC. (Am. Comp. ¶ 22-23.) They told Bors and others that, as a private corporation, OMC would be free of the financial pressures that it had as a publicly traded one. (Id.) At the meeting, Jones and Hines further stated that OMC would be given enough cash and time to become more efficient, reduce boat engine emissions to meet new government requirements and to develop new boat engine products. (Id.) They told Bors the turnaround would occur over five years and culminate in an initial public stock offering at $50 or more per share. (Id.) Bors alleges that Jones and Hines made the statements at the February 3 meeting at the direction of Duberstein and Kingsley in order to induce the ERIP participants to accept restricted shares of the new OMC stock rather than cash. (Am. Compl. ¶ 24.)

  Bors alleges that in making the above statements, the defendants, jointly and severally, omitted facts that were material to Bors' decision to give up her right to payment for the phantom shares and instead roll them into restricted shares of the new OMC stock. These omissions included that:
a. OMC was severely strapped for cash because, among other reasons, Duberstein and Kingsley had caused it to assume a $150 million loan that had been used to finance the tender offer, which was then replaced by the obligation to repay senior promissory notes.
b. Additional cash was not readily available due to the restrictiveness of the bank covenants on OMC's revolving working capital credit line.
c. OMC would be insolvent unless it could raise several hundred million dollars in new financing.
d. Duberstein and Kingsley were primarily relying on OMC's assets, rather than investor-provided capital contributions, to pay for technological improvements and other ...

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