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OGDON v. HOYT

July 16, 2004.

DAVID E. OGDON, Plaintiff,
v.
BARRY G. HOYT, Defendant.



The opinion of the court was delivered by: ROBERT GETTLEMAN, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff David E. Ogdon seeks damages against defendant Barry G. Hoyt for his alleged refusal to fulfill the duties of his contract with plaintiff to purchase $833,000 worth of plaintiff's shares of Newco stock.*fn1 Specifically, plaintiff asserts the following claims: (1) breach of contract (Count I); (2) estoppel (Count II); (3) quantum meruit (Count III); and (4) breach of fiduciary duty (Count IV). Defendant has moved to dismiss all counts pursuant to Fed.R.Civ.P. 12(b)(6). For the reasons stated below, defendant's motion to dismiss is denied with respect to Counts I through III, and granted with respect to Count IV.

FACTS*fn2

  Defendant Barry G. Hoyt ("Hoyt") was CEO and director of Asset Allocation Company ("AAM"), a registered investment advisor that services small and medium insurance companies. Plaintiff David E. Ogdon ("Ogdon") was a senior portfolio manager for AAM until he left on January 1, 2000. A group of investors offered to buy up to 33% of the existing business for $23,100,000. The lead investor was an entity known as Cenco. In the first quarter of 2001, Cenco signed a written Stock Purchase Agreement to purchase up to 33% of an entity that would be created to own the companies and/or revenue streams of AAM and its affiliated companies. Six of eight AAM-related entities were consolidated to form the entity called Newco. The two other existing entities, AAM Advisors, Inc. and AAM Convertibles, Inc., were S corporations, which could not be purchased by Cenco, a C corporation, without "adverse consequences." Therefore, all of the contracts of AAM Advisors, Inc. and AAM Convertibles, Inc., were transferred to Newco. In return, AAM Advisors, Inc. and AAM Convertibles, Inc., received stock in Newco, and that stock became the sole asset of the two S corporation entities.

  Plaintiff and defendant owned 4.6% and 23% of Newco stock, respectively. Under the Purchase Agreement, Cenco was to purchase 25% of Newco by June 2001 and had a six-month option to purchase an additional 8.33% of Newco. The purchase price was $700,000 for each 1% purchased, a 70% premium over "internal valuations." Each owner of Newco shares could sell an equal percent of his shares to Cenco.

  In April 2001, one month prior to the closing of Cenco's purchase of 25% of Newco, defendant approached plaintiff about a "side deal." If plaintiff sold his pro-rata shares to Cenco, he would be selling some of his S corporation holdings. Defendant wanted to avoid this because as a shareholder of the S corporation entities, a sale by plaintiff to Cenco would create a capital gain for all shareholders of AAM Advisors or AAM Convertibles and subject defendant to capital gains taxes. Further, the sale of more than 2.2% of Newco stock from AAM Advisors by plaintiff to Cenco would present difficulties for defendant to maintain control of the Board of Directors of Newco. Defendant met with plaintiff on or about April 26, 2001, to discuss defendant's request. The complaint alleges that plaintiff and defendant "agreed" that plaintiff would not tender as many shares as plaintiff was entitled to tender. Defendant promised to purchase from plaintiff the amount of shares plaintiff would not be selling to Cenco at the same price promised by Cenco, so that plaintiff would receive the same deal as if he were selling directly to Cenco. Based on defendant's assurances at this meeting, plaintiff did not insist on having an attorney put the agreement in a formal writing. Following this meeting, plaintiff sent emails to Mr. Marvogenes and defendant regarding the specific numbers discussed at the meeting and going through ownership numbers.

  On May 31, 2001, Cenco proceeded with its purchase of 25% of Newco stock. Plaintiff, in reliance on defendant's promise, tendered fewer shares of Newco to Cenco than he might have. Plaintiff sent an email to defendant, Mr. Marvogenes, and Ms. Richards on June 1, 2001, confirming figures for the side deal and suggesting June 30th as the date to complete the transaction. On July 7, 2001, plaintiff sent defendant an email regarding defendant's failure to purchase plaintiff's shares. Because Cenco decided to exercise its option to buy an additional 8.33% of Newco, defendant suggested delaying payment until Cenco's second purchase was complete, along with a second side deal between plaintiff and defendant. Again, in reliance on defendant's promise, plaintiff did not tender to Cenco as many shares as he could have when Cenco purchased the additional 8.33% of Newco. Defendant has not purchased any of plaintiff's Newco stock, and has received $833,000 "that should have been paid to [plaintiff]." DISCUSSION

  The purpose of a motion to dismiss under Fed.R.Civ.P. 12(b)(6) is to test the sufficiency of the complaint, not to rule on its merits. Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). When considering the motion, the court accepts the factual allegations as true and draws all reasonable inferences favorable to the plaintiff. Travel All Over the World, Inc. v. Kingdom of Saudi Arabia, 73 F.3d 1423, 1428 (7th Cir. 1996).

  The consideration of a Rule 12(b)(6) motion is generally restricted to the pleadings, which include the complaint, any exhibits attached thereto, and supporting briefs. Thompson v. Illinois Department of Professional Regulation, 300 F.3d 750, 753 (7th Cir. 2002). Nonetheless, "documents that a defendant attaches to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to [the] claim." Venture Associates Corp. v. Zenith Data Systems Corp., 987 F.2d 429, 431 (7th Cir. 1993).

  The pleading requirements under Fed.R.Civ.P. 8(a)(2) necessitate only "a short and plain statement showing the plaintiff is entitled to relief, the purpose of which is to give the defendant notice of the claims and the grounds they rest upon." Thompson, 300 F.3d at 753.

  1. Breach of Contract

  The elements of breach of contract under Illinois law are, "(1) an offer and acceptance, (2) consideration, (3) definite and certain contractual terms, (4) the plaintiff's performance of his contractual obligations, (5) the defendant's breach of the contract, and (6) damages resulting from the breach." Green v. Trinity Int'l Univ., 344 Ill. App.3d 1079, 1085 (Ill.App.2d Dist. 2003). According to defendant, although negotiations took place with plaintiff, the parties did not enter into a contract because no definite and certain contractual terms were agreed upon. The complaint, however, specifically alleges the acceptance of terms and figures, as well as assurances that the agreement would be honored by defendant. Additionally, plaintiff points to specific details of the financial loss caused by defendant's breach. The complaint clearly states, "the side-deal was that [defendant] would purchase from [plaintiff] — at the Cenco price — 8323%(1.6633%-.831%) of [plaintiff's] Newco stock out of AAM Advisors or AAM Convertibles immediately after the completion of Cenco's initial purchase."

  Defendant further argues that the existence of an oral contract must be proved by "clear, convincing and satisfactory evidence." In re Marriage of Parr, 103 Ill. App.3d 199, 204 (Ill.App.2d Dist. 1981). While this may be the case, this motion merely tests the sufficiency of the complaint and not the merits. ...


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