Phillips v. Reed Group, Ltd.
2013 U.S. Dist. LEXIS 92097
| S.D.N.Y. | 2013Background
- Kenneth F. Phillips (Mass.) was an outside director/advisor to Reed Group, Ltd. (LTD, Colorado) and alleges extensive unpaid work (hours and costs) in reliance on promises of equity and compensation; he claims to have created or enhanced two products (MDA and ACOEM UMK).
- Reed and Grace (Colorado) are alleged majority controllers; they formed Reed Group, LLC (LLC) and issued press materials using the "Reed Group" name; Plaintiff alleges the LLC was a shell/successor used to induce unpaid work and to commingle assets.
- Plaintiff sued in New York state court; Defendants removed to federal court based on diversity. Defendants moved to dismiss for lack of venue, lack of personal jurisdiction (over some defendants), failure to state claims, or alternatively to transfer to Colorado.
- Magistrate Judge Freeman recommended: dismiss for lack of personal jurisdiction as to Peter Nagel; allow veil‑piercing allegations to survive against Reed/Grace/LLC; dismiss parts of promissory estoppel and fiduciary duty claims; permit amendment for negligent misrepresentation; deny transfer to Colorado.
- District Judge Owen adopted the Report & Recommendation: granted in part and denied in part—Nagel dismissed for lack of jurisdiction; promissory estoppel and fiduciary duty claims narrowed; leave to amend negligent misrepresentation; venue transfer denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Personal jurisdiction over Reed/Grace/LLC | Reed/Grace transacted business and held meetings in NY; LLC operated as LTD's successor; veil piercing makes individuals amenable | Lack of sufficient NY contacts for general or specific jurisdiction; veil piercing unjustified | Jurisdiction over Nagel denied; jurisdiction over LLC, Reed, Grace allowed at this stage because veil‑piercing allegations were plausibly pleaded |
| Venue / transfer to Colorado | New York forum appropriate (case filed in NY); Plaintiff chose forum | Venue improper under §1391; move to transfer for convenience under §1404(a) | Venue in SDNY proper (removal statute); transfer to Colorado denied after balancing convenience factors |
| Sufficiency of contract, quasi‑contract claims | Phillips alleges meeting of minds, unsigned operating agreement, and unjust enrichment/quantum meruit in the alternative | No enforceable contract (draft unsigned, vague terms); quantum meruit barred if contract exists; value claims speculative | Breach of contract, quantum meruit, unjust enrichment survive plausibly at pleading stage; contract formation issue factual for later stages |
| Promissory estoppel, fiduciary duty, negligent misrepresentation | Promises of LLC equity, joint‑venture interest, and sale compensation; fiduciary duties from joint venture or alleged ownership; misrep by assurances | Promises too vague or non‑binding; no fiduciary duty as director or on special relationship theory; negligent misrep not pleaded with Rule 9(b) particularity | Promissory estoppel survives only as to alleged LLC equity promise; estoppel claims re: joint venture and sale compensation dismissed; fiduciary duty claims survive only as to joint venture and alleged LLC equity ownership (other bases dismissed); negligent misrepresentation dismissed without prejudice and plaintiff given leave to amend to meet Rule 9(b) |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility standard for federal pleading)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plaintiff must plead facts making relief plausible)
- Connolly v. Englewood Post No. 322 Veterans of Foreign Wars of the United States, Inc., 139 P.3d 639 (Colo. 2006) (Colorado veil‑piercing/alter‑ego factors)
- Int’l Shoe Co. v. Washington, 326 U.S. 310 (1945) (minimum contacts and due process for personal jurisdiction)
- Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 305 F.3d 120 (2d Cir. 2002) (two‑step personal jurisdiction analysis under New York law)