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Circle Group Holdings, Inc. v. Akhamzadeh

September 1, 2006

CIRCLE GROUP HOLDINGS, INC., PLAINTIFF,
v.
NURIEEL AKHAMZADEH AND FARHAD ZAGHI, INDIVIDUALS, DEFENDANTS.
NURIEEL AKHAMZADEH, COUNTER-PLAINTIFF,
v.
CIRCLE GROUP HOLDINGS, INC., DANA L. DABNEY, GREGORY J. HALPERN, EDWARD L. HALPERN, STANFORD J. LEVIN, ALAN G. ORLOWSKY, STEVE H. SALGAN AND MIKE J. THERIAULT, COUNTER-DEFENDANTS.



The opinion of the court was delivered by: Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER

Plaintiff Circle Group Holdings, Inc. ("Plaintiff" or "Circle Group") brought this action against Nurieel Akhamzadeh ("Akhamzadeh") and Farhad Zaghi ("Zaghi") (collectively, "Defendants") to enforce claims related to a promissory note signed by Akhamzadeh ("the Note"). Akhamzadeh signed the Note in exchange for shares of Circle Group stock. Plaintiff alleges that Akhamzadeh breached his contract with Plaintiff by failing to pay the Note and that Zaghi intentionally interfered with Akhamzadeh's performance under the Note. Plaintiff also complains that Defendants conspired regarding Zaghi's interference with the Note and to create a sham consulting agreement whereby Defendants could get access to an additional 2.25 million shares to enable them to pay the Note. A set of facts may exist under which Zaghi would not have been considered Akhamzadeh's agent and Zaghi would not satisfy the conditions to invoke an agent's privilege against a claim of tortious interference. Thus, Defendants' Motion to Dismiss Count II for tortious interference with contract is denied. Additionally, because Plaintiff has alleged a conspiracy between Zaghi and Akhamzadeh and damages that it suffered as a result of the conspiracy, Defendants' Motion to Dismiss Count III for civil conspiracy is denied.

Plaintiff's Allegations

Circle Group, Holdings, Inc. is an Illinois corporation with its principal place of business in Mundelein, Illinois. (Complaint ("Compl.") ¶ 1.) Circle Group is a publicly traded company. (Id.) Zaghi trades stocks on behalf of himself as well as other individuals and entities. (Compl. ¶¶ 5-6.) When Zaghi purchases stock in other names, he maintains control of all the stock. (Compl. ¶ 8.) Zaghi engages in various illegal practices to manipulate the prices of the stock that he owns and controls. (Compl. ¶¶ 11-15.)

By May 1999, Zaghi purchased 50,000 shares of Circle Group's stock for $1,000,000. (Compl. ¶ 17.) Between May 1999 and July 2003, Zaghi, through himself and others, acquired control of additional shares of Circle Group's stock. (Compl. ¶ 22.) During this time, Akhamzadeh opened an account at Wells Fargo Bank and granted Zaghi a power of attorney to sign checks, make withdrawals and transfers, receive bank statements, open other accounts and change ownership of the account. (Compl. ¶ 23.) In July 2003, Circle Group entered into a Consultant Services Agreement with Bay Financial, one of Zaghi's business entities. (Compl. ¶ 24.) Under the Agreement, Bay Financial received warrants for 150,000 shares of Circle Group stock and Zaghi made himself available, on behalf of Bay Financial, to Circle Group to advice on finance matters. (Compl. ¶ 25.)

During late 2003 and early 2004, Zaghi gathered information on Circle Group's business plan and the products it was developing. (Compl. ¶¶ 26-27.) Circle Group's business plan included a contract with Nestle for Circle Group's product, Z-Trim. (Compl. ¶ 28.) Zaghi anticipated that the value of Circle Group stock would soar after the introduction of Z-Trim. (Compl. ¶ 30.) In March 10, 2004, Circle Group issued Zaghi 125,000 shares of Circle Group stock. (Compl. ¶ 32.) Pursuant to a March 16, 2004 agreement, Zaghi committed to purchasing $3,000,000 more worth of stock. (Compl. ¶ 34.) As of May 2004, Zaghi had paid $500,000 to Circle Group. (Compl. ¶ 35.) Zaghi then devised a plan whereby he would purchase 453,333 shares of Circle Group stock in exchange for a Full Recourse Promissory Note ("the Note") that Akhamzadeh would sign. (Compl. ¶ 37.) Although Akhamzadeh signed the Note and the shares were issued in Akhamzadeh's name, Zaghi controlled both the stock and the payment of the Note. (Compl. ¶¶ 38, 43.) Zaghi was speculating that Circle Group's stock price would rise by virtue of Z-Trim or other products. (Compl. ¶¶ 39, 44.)

As Circle Group's stock price began to decline in June 2004, Zaghi started calling Circle Group's CEO, Greg Halpern, and threatening not to pay the Note. (Compl. ¶¶ 45-46.) When Circle Group did not register the 453,333 shares in June 2004 as planned, Zaghi again threatened to default on the Note. (Compl. ¶ 47.) Without the planned registration, Zaghi could not sell the stock. (Id.) In August 2004, when Circle Group registered the 453,333 shares of stock, the stock price was too low to sell at a profit. (Compl. ¶¶ 50-51.) Zaghi, anticipating Z-Trim's success, decided to retain the stock. (Compl. ¶ 53.) On October 1, 2004, Circle Group reached an agreement with Akhamzadeh to extend the due date on the Note until December 31, 2004. (Compl. ¶ 54.)

On October 11, 2004, Zaghi purchased an additional 1,000,000 shares of Circle Group stock. (Compl. ¶ 55.) Shortly after this purchase and the extension of the due date on the Note, Nestle ceased using Z-Trim, causing Circle Group's stock price to drop again. (Compl. ¶¶ 56-57.) In December 2004, Zaghi refused to pay on the Note and instead, with the cooperation of Akhamzadeh, devised a scheme to defraud Circle Group. (Compl. ¶ 58.) Zaghi proposed that Circle Group enter into a consulting agreement (similar to the Bay Financial Consulting Agreement) whereby certain Israeli consultants would do promotional work for Circle Group in Israel in exchange for 2.25 million additional restricted shares. (Compl. ¶ 59.) Akhamzadeh selected the phony consultants. (Compl. ¶ 60.) Both Zaghi and Akhamzadeh knew that the consultants were a sham and the consulting agreement was merely a scheme to get access to an additional 2.25 million shares to enable them to pay the Note. (Compl. ¶ 61.) The sham consulting agreement also permitted Akhamzadeh to avoid making the December payment that was due on the Note. (Compl. ¶ 90.)

Throughout late 2004 and early 2005, Zaghi repeatedly transferred large amounts of Circle Group stock through Terra Nova Trading, LLC, to Akhamzadeh and to others. (Compl. ¶ 62.) By January 21, 2005, Zaghi had sold the entire 453,333 shares that were purchased pursuant to the Note. (Compl. ¶ 67.) Zaghi, however, continually denied to Halpern and others at Circle Group that he was selling the stock. (Compl. ¶ 66.) On December 30, 2004 and January 26, 2005, Zaghi tendered checks to Circle Group in the total amount of $900,000 as payment toward the amount due on the Note. (Compl. ¶ 68.) On March 1, 2005, Zaghi signed two more checks drawn on Akhamzadeh's account at Wells Fargo Bank in the amounts of $175,000 and $325,000, as further payment on the Note. (Compl. ¶ 70.) Circle Group deposited the $175,000 check, but Zaghi instructed Circle Group not to cash the $325,000 until he gave them further notice. (Compl. ¶¶ 71-72.) On April 19, Circle sent a letter to Akhamzadeh requesting clearance to cash the $325,000 check. (Compl. ¶ 73.) Receiving no response from Akhamzadeh or Zaghi, Circle Group deposited the check. (Compl. ¶ 75.) The check was returned as insufficient funds. (Compl. ¶ 76.) On April 29, 2005, Circle Group sent Zaghi a letter demanding payment of the balance due on the Note. (Compl. ¶ 77.) An outstanding balance of $965,000 remains due on the Note. (Compl. ¶ 79.)

Procedural History

Plaintiff Circle Group filed this case in the Circuit Court of Lake County on May 11, 2005. On July 7, 2005, Zaghi removed the case to federal court based upon the diversity of the parties and the amount in controversy. On September 9, 2005, Plaintiff filed a First Amended Complaint, Count I of which alleged that Akhamzadeh executed a promissory note in exchange for Circle Group stock and that he breach his contract to pay on the Note; Count II alleged that Zaghi committed federal securities fraud by manipulating Circle Group's stock. On November 3, 2005, Akhamzadeh answered Count I and raised several affirmative defenses. Akhamzadeh also asserted counterclaims against Circle Group for common law fraud, statutory fraud and breach of contract and against its directors and officers for fraud. On December 16, 2005, Circle Group filed a Second Amended Count II alleging that Zaghi tortiously interfered with the contract between Circle Group and Akhamzadeh and adding Count III against both Defendants for civil conspiracy.

On December 27, 2005, Farshad Zaghi, Zaghi Trading Partnership and Pac Bay, Inc. filed a case in this district against Circle Group and its officers and directors, 05 C 7214. In the amended complaint filed March 3, 2006, Farshad Zaghi, Zaghi Trading Partnership and Pac Bay, Inc. allege common law fraud and statutory fraud; and on May 1, 2006, they sought leave to add an additional count for breach of contract. Because case no. 05 C 7214 is related to this case, the two cases have been consolidated pursuant to Rule 42(a) and Local Rule 40.4.

DISCUSSION

When considering a motion under Rule 12(b)(6), a court must take as true all facts alleged in the complaint and construe all reasonable inferences in favor of the plaintiff. See Murphy v. Walker, 51 F.3d 714, 717 (7th Cir. 1995). The plaintiff need not allege all of the facts involved in the claim and can plead conclusions. Higgs v. Carter, 286 F.3d 437, 439 (7th Cir. 2002); see Sanjuan v. American Bd. of Psychiatry and Neurology, Inc., 40 F.3d 247, 251 (7th Cir. 1994) (stating that "[m]atching facts against legal elements comes later"). Any conclusions pleaded, however, must "provide the defendant with at least minimal notice of the claim," Kyle v. Morton High School, 144 F.3d 448, 455 (7th Cir. 1998), "includ[ing] the operative facts upon which plaintiff bases his claim." Lucien v. Preiner, 967 F.2d 1166, 1168 (7th Cir. 1992); see Sanjuan, 40 F.3d at 251 ("One pleads a 'claim for relief' by briefly describing the ...


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