Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_05-cv-01330/USCOURTS-cand-4_05-cv-01330-1/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441 Petition For Removal--Other Contract

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

DONALD H. PUTNAM,

Plaintiff,

v.

PUTNAM LOVELL GROUP NBF SECURITIES,

INC., a Delaware corporation;

NATIONAL BANK OF CANADA, a Canadian

chartered bank; NATIONAL BANK

FINANCIAL, INC., a Quebec

corporation; and DOES 1-20,

inclusive,

Defendants.

 /

No. C 05-1330 CW

ORDER GRANTING IN

PART AND DENYING

IN PART

DEFENDANTS'

MOTION TO DISMISS

Defendants Putnam Lovell Group NBF Securities, Inc., (PLNBF),

National Bank of Canada (NBC) and National Bank Financial, Inc.,

(NBF) (collectively, Defendants) move pursuant to Federal Rules of

Civil Procedure 12(b)(6) and 9(b) to dismiss Plaintiff Donald

Putnam's complaint. Plaintiff opposes this motion. 

The matter was heard on August 12, 2005. Having considered

all of the papers filed by the parties and oral argument on the

motion, the Court GRANTS Defendants' motion in part and DENIES it

in part, as explained below.

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1Defendants request that the Court take judicial notice of

excerpts of the Merger Agreement; Plaintiff objects to Defendants'

identification of the relevant excerpts, and instead requests that

the Court take judicial notice of the entire document. Because the

authenticity of the Merger Agreement is not subject to dispute, and

the complaint refers to it repeatedly, the Court grants both

requests and takes judicial notice of the entire document. 

2

BACKGROUND

Unless otherwise noted, the facts are drawn from Plaintiff's

complaint and the July 23, 2003 memo attached as an exhibit to the

complaint, and are taken as true. 

Plaintiff is a founder and ex-CEO of the former Putnam Lovell

Group (Putnam Lovell), a boutique investment banking firm. In

April, 2002, Putnam Lovell was acquired by NBF, a Canadian brokerdealer and subsidiary of NBC, a large chartered Canadian bank. The

surviving entity was named PLNBF. Plaintiff retained managerial

control of certain businesses, known collectively as the Global FIG

Business. The April 13, 2002 Agreement and Plan of Merger1

provides that decisions regarding "hiring or termination of senior

professional staff of the Global FIG Business . . . will, in each

case, be subject to prior review and approval by the Chief

Executive Officer of NBF." Merger Agreement (MA) § 8.4.4.2.3. 

Plaintiff was to be "subject to the supervision and direction" of

NBF, but retained "day to day responsibility for the management of

the Global FIG Business on a basis consistent with that division's

business plan and NBF's general operating procedures." MA

§ 8.4.4.2.1. Plaintiff contends that his management

responsibilities were such that "he and only he could hire or fire

personnel within [the FIG Business] so long as he was employed by

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PLNBF." Complaint ¶ 9. 

The Merger Agreement's choice-of-law section provides that it

shall be construed in accordance with New York law. MA § 11.8. 

The Merger Agreement divided the Putnam Lovell shareholders

into two groups, one to receive cash at closing and a second,

termed the FIG Shareholders, to receive shares in NBC, which were

deposited into escrow for release in installments. Plaintiff was a

FIG Shareholder holding the majority of the escrow and the Managing

Member of the limited liability corporation governing the interests

of the FIG Shareholders. The last installment (the Global FIG

Installment) constituted a substantial portion of the consideration

for the merger and was scheduled to be released from escrow on

December 31, 2004. The release and size of the Global Release

Installment depended in part upon the amount of revenue generated

by the FIG Business during this "Earn Out" period. 

After the merger transaction was completed, NBF executives

negotiated with Plaintiff to terminate twelve PLNBF employees. 

Because the proposed personnel reduction would affect the ability

of the FIG Business to meet the agreed-upon revenue targets, NBF

and NBC agreed, as set forth in the July 23, 2003 memo, to revise

the Earn Out formula. The memo, authored by NBF executive Kym

Anthony and sent to FIG Shareholders, is short enough to be quoted

in its entirety,

I understand that Don [Plaintiff] and Ian [Brimecome, another

PLNBF manager] have had discussions with you regarding

contemplated changes to the arrangements regarding the

contingent Earn Out arrangements, i.e., Global FIG

Installment, agreed to in the context of the purchase by NBF

of Putnam Lovell. I understand that your discussions have

taken place in the context of focusing on the role of the FIG

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leadership team relative to profitability, expense control and

retention issues regarding Global FIG as opposed to just

revenues. 

I wish to confirm that these Earn Out arrangements

regarding each of you, other than Don and Ian, will be

modified so that the test for your being able to earn your

share of the Global FIG Installment will change from a revenue

and time contingency test to a time contingency test only,

(i.e., NB will waive the revenue hurdle test, and the

condition for you being entitled to your share of the

Installment will only be a function of your continued

employment through to the end of the Earn Out Period, i.e.

September 30, 2004). For Don's and Ian's share, the same time

test will apply, but will also include certain other tests

relating to the performance of the Global FIG business. All

other terms and conditions regarding the Earn Out will remain

the same, and will continue to apply. The details of these

arrangements and the related paperwork will follow in the next

few weeks. 

I thank you for your efforts to date, and know that you

will all continue to contribute to the success of Global FIG

and to the firm. 

In or around March, 2004, Putnam and Brimecome reached an oral

agreement with NBC and NBF regarding the other tests relating to

the performance of the Global FIG business. Complaint ¶ 15. 

According to this alleged oral agreement, forty percent of the

Global FIG Installment would be earned by Plaintiff and Brimecome

if they remained as PLNBF employees through September 30, 2004;

twenty-five percent of the Global FIG Installment would be earned

based on successful cost cutting measures (i.e., termination of

PLNBF employees); and the remaining thirty-five percent of

Plaintiff and Brimecome's Global FIG Installment would be

"dependent upon the FIG Business revenues achieving revised

targets, the details of which the parties agreed to negotiate in

good faith." Id. (Emphasis in original.) 

Documents memorializing this oral agreement were drafted, but

were "not formally executed" because of a recommendation by counsel

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for NBF that doing so would increase tax risks for employee

shareholders. Id. ¶ 16. Plaintiff was urged to rely on the July

23, 2003 memo and related promises "instead of pressing for formal

documentation." Id. Acting in reliance on the alleged oral

agreement, Plaintiff terminated the twelve PLNBF employees

originally targeted, as well as other revenue-producing personnel. 

In December, 2004, Plaintiff also terminated Brimecome, likewise in

reliance on promises made regarding adjustments to the Earn Out

formula. 

In November and December, 2004, NBC and NBF told Plaintiff

that they never agreed to modify the Earn Out formula associated

with the Global FIG Installment. NBC and NBF failed to release any

part of the Global FIG Installment to Plaintiff or other FIG

Shareholders. When Plaintiff accused NBC and NBF of reneging on

their promises, Defendants terminated Plaintiff without cause and

with no prior notice. 

Plaintiff was denied severance payments upon termination,

thereby depriving him of "compensation rights under his implied

contract with PLNBF, NBC and NBF," in that those entities had

assumed Putnam Lovell's long-standing policy and practice of

providing "substantial severance and benefit payments to executives

and employees upon their retirement." Complaint ¶ 24. NBC and NBF

had similar long-standing policies regarding severance payments,

and NBF's Chief Human Resources Executive informed Plaintiff in

January, 2005, that he would be entitled to a benefits package

worth approximately $2.2 million if he were terminated. Plaintiff

was then told that he could obtain these benefits only if he agreed

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to forego payment of the Global FIG Installment. 

Plaintiff brings seven claims. The first five are based on

NBC and NBF's alleged failure to release the Global FIG

Installment, as follows: (1) breach of express oral contract,

against NBC and NBF; (2) breach of implied contract, against NBC

and NBF; (3) promissory estoppel, against NBC and NBF; (4) fraud

and deceit, against NBC and NBF; and (5) breach of fiduciary duty,

against NBC only. The last two claims for (6) breach of implied

contract and (7) breach of the implied covenant of good faith and

fair dealing are brought against NBC, NBF and PLNBF, and relate to

their alleged failure to provide Plaintiff with a severance and

benefits package. 

LEGAL STANDARDS

I. Failure to State a Claim

A motion to dismiss for failure to state a claim will be

denied unless it is “clear that no relief could be granted under

any set of facts that could be proved consistent with the

allegations.” Falkowski v. Imation Corp., 309 F.3d 1123, 1132 (9th

Cir. 2002), citing Swierkiewicz v. Sorema N.A., 534 U.S. 506

(2002). All material allegations in the complaint will be taken as

true and construed in the light most favorable to the plaintiff. 

See NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). 

A complaint must contain a “short and plain statement of the claim

showing that the pleader is entitled to relief.” Fed. R. Civ. P.

8(a). “Each averment of a pleading shall be simple, concise, and

direct. No technical forms of pleading or motions are required.” 

Fed. R. Civ. P. 8(e). These rules “do not require a claimant to

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set out in detail the facts upon which he bases his claim. To the

contrary, all the Rules require is ‘a short and plain statement of

the claim’ that will give the defendant fair notice of what the

plaintiff’s claim is and the grounds on which it rests.” Conley v.

Gibson, 355 U.S. 41, 47 (1957).

When granting a motion to dismiss, a court is generally

required to grant a plaintiff leave to amend, even if no request to

amend the pleading was made, unless amendment would be futile. 

Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911

F.2d 242, 246-47 (9th Cir. 1990). In determining whether amendment

would be futile, a court examines whether the complaint could be

amended to cure the defect requiring dismissal “without

contradicting any of the allegations of [the] original complaint.” 

Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th Cir. 1990). 

Leave to amend should be liberally granted, but an amended

complaint cannot allege facts inconsistent with the challenged

pleading. Id. at 296-97. 

II. Rule 9(b)

“In all averments of fraud or mistake, the circumstances

constituting fraud or mistake shall be stated with particularity.” 

Fed. R. Civ. P. 9(b). The allegations must be “specific enough to

give defendants notice of the particular misconduct which is

alleged to constitute the fraud charged so that they can defend

against the charge and not just deny that they have done anything

wrong.” Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985). 

Statements of the time, place and nature of the alleged fraudulent

activities are sufficient, Wool v. Tandem Computers, Inc., 818 F.2d

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1433, 1439 (9th Cir. 1987), provided the plaintiff sets forth “what

is false or misleading about a statement, and why it is false.” In

re GlenFed, Inc., Sec. Litig., 42 F.3d 1541, 1548 (9th Cir. 1994). 

Scienter may be averred generally, simply by saying that it

existed. See id. at 1547; see Fed. R. Civ. P. 9(b) (“Malice,

intent, knowledge, and other condition of mind of a person may be

averred generally”). As to matters peculiarly within the opposing

party’s knowledge, pleadings based on information and belief may

satisfy Rule 9(b) if they also state the facts on which the belief

is founded. Wool, 818 F.2d at 1439 (9th Cir. 1987).

DISCUSSION

I. Choice of Law

In diversity actions such as this, federal courts must apply

the conflict of law principles of the forum State, here California. 

S.A. Empresa De Viacao Aerea Rio Grandense v. Boeing Co., 641 F.2d

746, 749 (9th Cir. 1981). California law applies the principles of

Restatement § 187, which "reflect a strong policy favoring

enforcement" of contractual choice-of-law provisions. Nedlloyd

Lines B.V. v. Superior Court, 3 Cal. 4th 459, 465 (1992). 

The parties agree, pursuant to California conflict of law

principles, that Plaintiff's sixth and seventh employment-related

claims are governed by California law. However, they dispute the

applicable law relating to Plaintiff's five Global FIG Installment

claims. 

Defendants argue that the Global FIG Installment claims are

governed by the Merger Agreement's choice-of-law clause, which

specifies that the Agreement is to be governed by New York State

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law. Plaintiff argues that these claims arise out of a later

contract that "superseded all portions of the Merger Agreement

bearing on Putnam's current claim to a share of the Global FIG

Installment," including the choice-of-law provision. Pl.'s Opp. at

8. 

Plaintiff's position is somewhat inconsistent. In the

complaint, Plaintiff alleges that he relied on the July 23, 2003

memo to support an alleged later oral contract. In his brief,

Plaintiff states that the oral contract was in fact "created by the

July 23, 2003 memorandum" as well as other representations and

conduct. The memo itself, in turn, provides, "All other terms and

conditions regarding the Earn Out will remain the same, and will

continue to apply." None of Plaintiff's allegations suggest that

the later oral contract modified or rescinded the Merger

Agreement's choice-of-law clause. If the new agreement modified

some but not all of the terms of the original agreement, California

choice-of-law principles would "provide[] that the unmodified terms

of the original agreement are to be applied together with the terms

of the new, modifying agreement." Gen. Signal Corp. v. MCI

Telecommunications Corp., 66 F.3d 1500, 1506 (9th Cir. 1995). In

that case, the choice-of-law provision selecting New York State law

would apply to the oral agreement. 

It might be possible for Plaintiff to show, consistent with

the complaint, that the later oral contract did indeed entirely

supercede all portions of the Merger Agreement which pertain to

Plaintiff's share of the Global FIG Installment, including its

choice-of-law provision. Therefore, the Court addresses both

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California and New York law in its order. 

II. Breach of Oral Contract

Defendants move to dismiss Plaintiff's first Global FIG

Installment cause of action for breach of oral contract on the

grounds that this claim fails to allege the elements of an

enforceable contract and is barred by the statute of frauds. In

his opposition, Plaintiff characterizes the alleged oral contract

as a three-stage, divisible contract which could be performed in

less than one year. Defendants, on the other hand, describe the

alleged oral contract as a modification of the Merger Agreement,

and as such required by the statute of frauds to be in writing. 

A. Pleading of Valid Oral Contract

1. Mutual Assent

Defendants contend that the fact that the parties failed to

reach an agreement regarding revised revenue targets for the FIG

Business shows that any alleged oral contract was not enforceable. 

The complaint states that thirty-five percent of the Global FIG

Installment would be dependent upon the FIG Business revenues

achieving revised targets, the details of which the parties were to

negotiate in good faith. A "mere agreement to agree, in which a

material term is left for future negotiations, is unenforceable." 

Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher, 417 N.E. 2d

541, 543 (N.Y. 1981) (holding unenforceable a lease provision with

rental amount "to be agreed upon"). 

Plaintiff argues that, even if the oral contract is not

binding with respect to the thirty-five percent of the Global FIG

Installment being dependent on revised revenue targets, the oral

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contract was divisible into three stages, and therefore any defect

caused by the "agreement to agree" did not affect the parties'

obligations with respect to the remaining sixty-five percent of the

Global FIG Installment. Plaintiff maintains that even a partially

valid contract is sufficient to overcome Defendants' Rule 12(b)(6)

motion. 

Defendants argue that this position is inconsistent with that

taken in the complaint because the complaint never describes a

"three-stage" divisible oral contract. However, Plaintiff's

current characterization of a three-stage, divisible contract is

not necessarily inconsistent with the complaint's references to a

single oral contract resulting in a single share of the Global FIG

Installment. Plaintiff could be entitled to relief on the basis of

a single oral contract divisible into three severable parts. 

Defendants correctly note that there is a "presumption against

finding a contract divisible, unless expressly stated in the

contract itself, or the intent of the parties to treat the contract

as divisible is otherwise clearly manifested." Williston on

Contracts § 45:4. However, Plaintiff contends that he clearly

meant to treat the contract as divisible, based on his performance

of a portion of the alleged oral contract, and that the complaint

is not otherwise inconsistent with an allegation of a divisible

oral contract. While the complaint does not allege that the oral

contract contained an express provision of divisibility, such a

provision could have superceded either or both of the Merger

Agreement and the July 23 memo. 

For these reasons, the Court finds that mutual assent to at

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least a portion of a three-stage, divisible contract would not be

inconsistent with the allegations in the complaint. 

2. Intent to Be Bound

Defendants contend that the July 23, 2003 memo attached to the

complaint suggests that the parties did not intend to be bound by

any modification to the Merger Agreement until the parties had

executed a formal written amendment. Yet Plaintiff's allegations

in the complaint suggest that the later oral contract superceded

this portion of the July 23, 2003 memo. According to the

complaint, Defendants refused to sign the later draft written

agreement in order to avoid increased tax risks, yet encouraged

Plaintiff to rely on the new agreement, based on the July 23, 2003

memo as well as "related promises." Complaint ¶ 16. While

Plaintiff cannot prove an intent to be bound by a later oral

contract based on the terms of the July 23, 2003 memo, which

suggests a writing requirement, it would be possible for Plaintiff

to prove facts to support NBC and NBF's intent to be bound to a

later oral contract based on "related promises." 

3. Valid Consideration

Defendants contend that Plaintiff's alleged consideration was

insufficient because Plaintiff did not retain the authority to fire

PLNBF staff. Plaintiff explains that allegations in his Complaint

and the terms of the Merger Agreement are not inconsistent because

the latter provides Mr. Anthony with a veto over Plaintiff's

decisions to hire and fire PLNBF staff, but does not allow NBF to

hire and fire staff independently. This explanation is consistent

with the language of the Merger Agreement, which specifies that

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Plaintiff retains day-to-day responsibility for the management of

the Global FIG Business but that any termination of employees is

"subject to prior review" of NBF. MA § 8.4.4.2.3. Therefore,

Plaintiff may be able to prove, consistently with the complaint,

that the oral contract is supported, at least in part, by valid

consideration. 

B. Statute of Frauds

New York's statute of frauds applies to an agreement which by

"its terms is not to be performed within one year from the making

thereof." N.Y. Gen. Oblig. § 5-701(a). The statute of frauds

therefore applies to the April, 2002 Merger Agreement, which

depended upon calculation of cumulative revenues over a three-year

period ending September 30, 2004. MA § 2.6.2.1. 

Defendants argue that because the statute of frauds applies to

the Merger Agreement, it must also apply to the alleged oral

contract, which modified or rescinded portions of the Merger

Agreement. However, the authority Defendants cite in support of

this position involves only modifications which in themselves

cannot be performed within one year. See Nikora v. Mayer, 257 F.2d

246, 249 (2nd Cir. 1958) (involving modification of long-term

mortgage contract); New York Yankees P'ship v. Sportschannel

Assoc., 510 N.Y.S. 2d 870, 872 (App. Div. 1987) (involving alleged

modification of contract in which performance spanned two years

from point of modification). In contrast, a contract originally

required by the statute of frauds to be in writing "may be modified

without a writing at a time when performance within the year is

possible." Lieberman v. Templar Motor Co., 140 N.E. 222, 224 (N.Y.

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1923). 

In this case, the alleged oral contract could be performed in

less than one year. Therefore, Plaintiff's Global FIG Installment

claims arising out of the alleged oral contract are not barred by

the statute of frauds. 

III. Breach of Implied Contract and Promissory Estoppel Claims

Defendants move to dismiss Plaintiff's claims for breach of an

implied contract and for promissory estoppel on the grounds that

these claims are precluded by the express Merger Agreement. 

A contract "cannot be implied . . . where there is an express

contract covering the same subject-matter." Missigman v. USI

Northeast, Inc., 131 F. Supp. 2d 495, 512 (S.D.N.Y. 2001) (quoting

Miller v. Schloss, 218 N.Y. 400, 406 (1916)); see also Eisenberg v.

Alameda Newspaper, Inc., 74 Cal. App. 4th 1359, 1387 (1999) ("There

cannot be a valid express contract and an implied contract, each

embracing the same subject, but compelling different results."). 

Similarly, a "valid and enforceable written contract governing a

particular subject matter ordinarily precludes recovery in quasi

contract for events arising out of the same subject matter." 

Telecom Int'l Am., Ltd., v. AT&T Corp., 67 F. Supp. 2d 189, 206

(S.D.N.Y. 1999) (quoting Clark-Fitzpatrick, Inc., v. Long Island

R.R. Co., 70 N.Y. 2d 382, 388 (1987)). 

Plaintiff does not contest this authority. Instead, Plaintiff

argues, as the Court above finds, that he has sufficiently alleged

an alternative oral contract which modified or superceded the

relevant portions of the Merger Agreement. To the extent that this

oral contract is express, however, it would render the implied

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contract and promissory estoppel claims superfluous, unless

Plaintiff were also to allege that the portions of the Merger

Agreement embracing the same subject matter were rescinded. To the

extent that the alleged contract can only be inferred from the

parties' actions, or that there is no oral contract but only a

promise on which Plaintiff detrimentally relied, the claim would

indeed be barred by the Merger Agreement, which also covers the

same subject matter but would compel a contrary result. 

Because the Court finds that Plaintiff has failed to state a

claim for breach of an implied contract with respect to the Global

FIG Installment or for promissory estoppel, the Court grants

Defendants' motion to dismiss these two claims. This dismissal is

with leave to amend if Plaintiff can truthfully allege, consistent

with his original complaint, that the portions of the Merger

Agreement embracing the same subject matter as the alleged implied

contract or alleged promise were rescinded. 

IV. Fraud and Deceit

Defendants move to dismiss Plaintiff's claim for fraud and

deceit on the grounds that it is barred under New York and

California law because it merely duplicates his breach of contract

claims. 

Under New York law, a misrepresentation which is a statement

of intent to perform under a contract cannot constitute a fraud

claim. Manning v. Utils. Mut. Ins. Co., 254 F.3d 387, 401 (2nd

Cir. 2001) (citing Bridgestone/Firestone, Inc., v. Recovery Credit

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A contract induced by fraud may be subject to an action for

rescission or for restitution under the contract. 22(A) N.Y. Jur.

2d Contracts § 539 (citing Vitale v. Coyne Realty, Inc., 414 N.Y.S.

2d 388 (4th Dept. 1979)). However, § 539 does not support

Plaintiff's tort claim for fraud. 

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Servs., Inc., 98 F.3d 13, 19-20 (2nd Cir. 1996)).2 In order to

maintain a tort claim for fraud based on an alleged breach of

contract, a plaintiff must "either (i) demonstrate a legal duty

separate from the duty to perform under the contract; or

(ii) demonstrate a fraudulent misrepresentation collateral or

extraneous to the contract; or (iii) seek special damages that are

caused by the misrepresentation and unrecoverable as contract

damages." Bridgestone/Firestone at 20 (internal citations

omitted). 

Plaintiff argues that the conduct alleged constitutes more

than failure to perform the alleged contract, but fails to explain

how the conduct went beyond intentional failure to perform. The

list of allegedly fraudulent acts committed by Defendants includes

acquiring Putnam Lovell, forcing Plaintiff to terminate his

employees and failing to release the Global FIG Installment. See

Pl.'s Opp. at 23. All of these acts involve either Plaintiff's

performance in reliance upon, or Defendants' non-performance of,

the alleged oral contract. Plaintiff therefore has not

sufficiently alleged the type of misrepresentations that would

allow him to recover in tort under Bridgestone/Firestone. Nor has

Plaintiff alleged that Defendants' alleged misrepresentations

exposed him to liability for special damages. 

Under California law, on the other hand, a "promise made

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without any intention of performing it" does constitute "actual

fraud." Cal. Civ. Code § 1572(4). A tortious breach of contract

may be found "when the breach is accompanied by a traditional

common law tort, such as fraud . . . ." Robinson Helicopter Co.,

Inc., v. Dana Corp., 34 Cal. 4th 979, 990 (2004) (quoting Erlich v.

Menezes, 21 Cal. 4th 543, 553 (1999)). In this case, Plaintiff

alleges that Defendants entered into the contract with the

fraudulent intent not to perform it. These allegations do, as

noted above, incorporate the facts of Plaintiff's contract claims,

and are sufficiently detailed to give Defendants notice of the

particular misconduct which is alleged to constitute fraud. 

For these reasons, the Court denies Defendants' motion to

dismiss Plaintiff's fraud claim. However, if it is later decided

that New York law applies to this claim, it will be dismissed. In

light of that, Plaintiff may amend it, in an abundance of caution,

if he can allege, truthfully and without contradicting the original

complaint, conduct that constitutes breach of a duty independent of

the contract or special damages. 

V. Breach of Fiduciary Duty

Plaintiff alleges that NBC breached a fiduciary duty to him as

a minority shareholder in NBC. Defendants move to dismiss this

claim on the grounds that such a duty is not legally cognizable. 

Under New York law, a corporation does not have a fiduciary

relationship with its minority shareholders. State Teachers Ret.

Bd. v. Fluor Corp., 566 F. Supp. 939, 941 (S.D.N.Y. 1982). 

However, the applicability of New York law need not be decided in

this motion to dismiss. 

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Plaintiff asserts that NBC's transactions with him are "most

likely governed by Canadian or California law." Pl.'s Opp. at 24. 

However, Plaintiff does not show that the law of those

jurisdictions would avail him. Cf. Jones v. H.F. Ahmonson & Co., 1

Cal. 3d 93, 110 (1969) (noting fiduciary duty is owed under

California law to minority shareholders by officers, directors and

controlling shareholders); Weiss v. Schad, [1999] O.J. No. 4356

¶ 89 (Ont. S.C.J.) (noting general rule that "directors and

controlling shareholders do not owe fiduciary duties to minority

shareholders," first set forth in Percival v. Wright, [1902] 2 Ch.

421 (Eng. Ch. Div.)). Plaintiff's fiduciary duty claim against NBC

is dismissed with leave to amend to identify a legally cognizable

basis for this claim. 

VI. Breach of Implied Contract

Defendants move to dismiss Plaintiff's claim for breach of an

implied contract to pay severance benefits on the grounds that such

an implied contract runs contrary to PLNBF's express policy. In

any event, Defendants argue, Plaintiff's claim should be dismissed

against NBC and NBF because they did not employ Plaintiff. 

To support this portion of their motion, Defendants request

that the Court take judicial notice of an excerpt from Putnam

Lovell's 2001 Employee Handbook, authored by Plaintiff, which

states in relevant part that "Putnam Lovell does not, as a matter

of policy, provide severance pay to employees whose employment is

terminated for any reason." Defendants' Request for Judicial

Notice, Ex. 2, Putnam Lovell Employee Handbook. Defendants argue

that this is an "express written agreement, signed by the employee,

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[which] cannot be overcome by proof of an implied contrary

understanding." Guz v. Bechtel Nat'l, Inc., 24 Cal. 4th 317, 320

n.10 (2000). 

The Court cannot take judicial notice of this portion of the

Putnam Lovell Employee Handbook because it is not integral to

Plaintiff's breach of implied contract allegations. Cf. Parrino v.

FHP, Inc., 146 F.3d 699, 706 (9th Cir. 1998) (holding district

court did not err in considering written health plan on motion to

dismiss ERISA claims). Evaluation of the effect of the Putnam

Lovell Employee Handbook on Plaintiff's implied contract claim

would involve factual issues that are not appropriately addressed

in a motion to dismiss, such as whether the terms of the handbook

extended to its founder and CEO. 

Defendants contend that, even if the implied contract claim

against PLNBF is allowed to proceed, it should be dismissed against

NBC and NBF because neither entity employed Plaintiff and thus

neither can be held responsible for failure to pay severance. 

Neither party introduces any authority on the question of whether

an entity that is not an employer, but has promised a severance

package, may be held liable for failure to pay those benefits. 

For these reasons, the Court denies Defendants' motion to dismiss

Plaintiff's claim for breach of implied contract based on failure

to pay severance and other benefits. 

VII. Breach of Implied Covenant of Good Faith and Fair Dealing

Defendants move to dismiss Plaintiff's companion claim for

breach of the implied covenant of good faith and fair dealing on

the grounds that such a claim is invalid or superfluous. 

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As Defendants note, under California law an implied covenant

theory in the employment context does not provide an basis for

relief independent of an express or implied contract. Guz, 24 Cal.

4th at 352. However, the covenant does "prevent[] a party from

acting in bad faith to frustrate the contract's actual benefits." 

Id. at n.18 (emphasis omitted). For the reasons explained above,

Plaintiff may proceed with his implied contract claim, and

therefore Plaintiff may also proceed with his allegations that

Defendants' actions frustrated benefits owed under that implied

contract. 

Therefore, the Court denies Defendants' motion to dismiss

Plaintiff's claim for breach of the implied covenant of good faith

and fair dealing. 

CONCLUSION

For the foregoing reasons, the Court GRANTS in part

Defendants' motion to dismiss (Docket No. 11) and DENIES it in part

as follows. The Court denies Defendants' motion to dismiss

Plaintiff's first Global FIG Installment claim for breach of oral

contract as well as his sixth and seventh employment-related claims

for breach of implied contract and breach of the implied covenant

of good faith and fair dealing. The Court grants Defendants'

motion to dismiss Plaintiff's second and third Global FIG

Installment claims for breach of implied contract and promissory

estoppel, with leave to amend if Plaintiff can truthfully allege,

without contradicting his original complaint, that portions of the

Merger Agreement embracing the same subject matter as the alleged

implied contract or alleged promise were rescinded. The Court

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denies Defendants' motion to dismiss Plaintiff's fraud claim. 

However, Plaintiff may, in an abundance of caution, amend it if he

can allege, truthfully and without contradicting the original

complaint, conduct that constitutes breach of a duty independent of

the contract or special damages. Plaintiff's fifth Global FIG

Installment claim for breach of fiduciary duty is dismissed with

leave to amend to state a legally cognizable claim. 

Plaintiff may file a first amended complaint within twenty

days of the date of this order. 

The Court GRANTS Defendants' request for judicial notice of

excerpts of the Merger Agreement, but otherwise DENIES Defendants'

request (Docket No. 13). The Court GRANTS Plaintiff's Request for

Judicial Notice of the entire Merger Agreement (Docket No. 25). 

The Court DENIES Defendants' Supplemental Request for Judicial

Notice of additional portions of the Putnam Lovell employee

handbook (Docket No. 30). 

IT IS SO ORDERED.

Dated: 10/5/05

______________________________

CLAUDIA WILKEN

United States District Judge

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