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OGDON v. HOYT

January 7, 2005.

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 ("Ogdon") has filed a four-count amended complaint seeking damages against defendant Barry G. Hoyt ("Hoyt") for allegedly refusing to fulfill the duties of Hoyt's contract with Ogdon to purchase $833,000 worth of Ogdon's shares in a privately-held business of which both parties were owners. This court previously granted in part and denied in part defendant's motion to dismiss plaintiff's initial complaint. See Ogdon v. Hoyt, 2004 WL 1610973 (N.D. Ill. July 19, 2004) (granting defendant's motion to dismiss the fiduciary duty claim, and denying defendant's motion to dismiss the breach of contract, estoppel and quantum meruit claims). Plaintiff filed an amended complaint on September 21, 2004, re-asserting his original 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 again 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 defendant's motion to dismiss is granted with respect to Count IV. FACTS*fn1

Defendant Hoyt was CEO and director of Asset Allocation Company ("AAM"), a registered investment advisor that serviced small and medium insurance companies. Plaintiff Ogdon was a senior portfolio manager for AAM. Ogdon stopped working for AAM as a full-time employee as of January 1, 2000, and ended his employment with AAM as of January 1, 2001. Ogdon owned a small portion of AAM's stock. Hoyt owned a large percentage of the business.

  In early 2001 a group of investors were interested in buying AAM, and the lead prospective 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 ("Purchase Agreement"). Six of eight AAM-related entities were consolidated to form the entity called Newco. The two other existing entities, AAM Advisors, Inc. ("AAM Advisors") and AAM Convertibles, Inc. ("AAM Convertibles"), were S corporations that could not be purchased by Cenco, a C corporation, without "adverse consequences." Therefore, all of the contracts of AAM Advisors and AAM Convertibles were transferred to Newco. In return, AAM Advisors and AAM Convertibles 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. Cenco expressed no preference as to how the purchase price was distributed among the multiple owners of Newco. For the owners of Newco, however, the amount distributed to each was significant.

  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, plaintiff would be selling some of his S corporation holdings. As a shareholder of the S corporation entities defendant wanted to avoid this because 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 make it difficult 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 for a side deal. Peter Mavrogenes ("Mavrogenes"), an AAM shareholder with a large ownership stake, was also present. Plaintiff's amended complaint alleges that at defendant's suggestion 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. At the April 26 meeting Mavrogenes, plaintiff and defendant discussed and quantified the amounts that plaintiff should realize through the sale of his shares and his assets, and reviewed the details of the transaction. Plaintiff and defendant agreed that they would perform their side deal immediately after the completion of the closing of Cenco's purchase of 25% of AAM, and that they would repeat the side deal if Cenco exercised its option to purchase an additional 8.33% of Newco.

  According to plaintiff, based on defendant's assurances at the April 26, 2001, meeting, and Mavrogenes's presence as a witness, plaintiff did not insist on having an attorney put the agreement in writing. The side deal did not provide any additional monetary benefit for plaintiff. Plaintiff alleges that at the time of the side deal plaintiff was aware that defendant had "power, superiority and influence" over plaintiff because of "special circumstances" including: (1) defendant's power over more than $1 million of unsecured promissory notes owed to plaintiff by AAM entities; (2) defendant's power over health insurance benefits owed to plaintiff's family; (3) defendant's power with respect to plaintiff's ability to sell other AAM stock; and (4) defendant's ability to "act vindictively" against plaintiff if plaintiff refused the side deal.

  On April 27, 2001, plaintiff sent an e-mail to defendant, Mavrogenes, and Darlene Richards*fn2 ("Richards"), an accountant at AAM, which noted the side deal requested by defendant. The next day, plaintiff sent a follow-up e-mail to defendant and Mavrogenes with two pages detailing the calculations for Cenco's purchase of 25% of Newco. Subsequently, defendant, plaintiff and Mavrogenes reviewed the calculations again. Plaintiff then sent three follow-up e-mails to defendant, including an e-mail on May 22, 2001, which indicated defendant's preference to purchase AAM Advisors stock in the buyout.

  On May 31, 2001, Cenco proceeded with its purchase of 25% of Newco stock. Plaintiff, in reliance on defendant's promise to execute the side deal, tendered fewer shares of Newco to Cenco than he could have. Plaintiff sent an e-mail to defendant, Mavrogenes and Richards on June 1, 2001, confirming figures for the side deal and suggesting June 30, 2001, as the date to complete the transaction. Plaintiff alleges that defendant told him that defendant's accountants were looking at the details of the capitals gains treatment and should be ready "any day." More than a week later, the side deal had not closed. On July 7, 2001, plaintiff sent defendant an e-mail regarding defendant's failure to purchase plaintiff's shares. By that time Cenco had decided to exercise its option to buy an additional 8.33% of Newco, and defendant suggested delaying payment to plaintiff until Cenco's second purchase was complete. Defendant also suggested delaying the 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.

  I. Breach of Contract

  Count I of plaintiff's first amended complaint re-pleads his breach of contract claim, which alleges that defendant breached the oral contract between plaintiff and defendant to execute a side deal for purchase of plaintiff's Newco shares. This court previously ruled that plaintiff sufficiently alleged the elements of breach of contract, and denied defendant's motion to dismiss the claim under Rule 12(b)(6). Ogdon, 2004 WL 1610973, at *3. In the instant motion, defendant raises for the first time the argument that plaintiff's breach of contract claim is barred by the statute of frauds.*fn3 For the reasons discussed herein, the court finds that the statute of frauds is not applicable to the alleged oral contract and denies defendant's motion to dismiss Count I. The statute of frauds has been held by Illinois courts to be a proper basis for dismissal under Rule 12(b)(6). See Perminas v. Novartis Seeds, Inc., 2000 WL 1780249, at *2 (N.D. Ill. Dec. 4, 2000). Illinois's statute of frauds for the sale of goods states, "Except as otherwise provided in this Section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for ...


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