CIOLINO v. AMERIQUEST TRANSPORTATION SERVICES, INC

Filing 16

OPINION. Signed by Judge Joseph E. Irenas on 08/10/2009. (tf, )

UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY JOSEPH CIOLINO, Plaintiff, v. AMERIQUEST TRANSPORTATION SERVICES, INC., Defendant. APPEARANCES: HAINES & ASSOCIATES By: Danielle Myriah Weiss, Esq. 1835 Market Street, Suite 2420 Philadelphia, PA 19103 Counsel for Plaintiff DILWORTH PAXSON LLP By: Thomas Vecchio, Esq. 1500 Market Street, Suite 3500E Philadelphia, PA 19102 Counsel for Defendant IRENAS, Senior District Judge: In this case, Plaintiff Joseph Ciolino ("Ciolino") alleges that Defendant Ameriquest Transportation Services, Inc. ("Ameriquest") violated the terms of his employment contract by diluting his ownership interest in Ameriquest stock. Presently HONORABLE JOSEPH E. IRENAS CIVIL ACTION NO. 09-1324 (JEI/AMD) OPINION

before the Court is Ameriquest's Motion to Dismiss the Complaint for Failure to State a Claim. Motion will be denied.1 For the reasons that follow, the

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§ 1332.

The Court has subject matter jurisdiction pursuant to 28 U.S.C. Venue is proper in this Court under 28 U.S.C. § 1391(a).

I. A. The factual recitation that follows accepts as true the facts as alleged in the Complaint and provided in the exhibits thereto. In March, 1998, the parties entered into a Memorandum

of Understanding ("MOU") in connection with Ciolino's acceptance of an executive position with Ameriquest.2 Ex. A­- Memorandum of Understanding) (Compl. ¶ 5; Compl.

Pursuant to the MOU,

Ciolino's compensation package included a base salary, performance bonuses, commissions, and stock options. Ex. A ¶ 1) (See Compl.

In paragraph 1D, the MOU provided the following with

respect to Ciolino's stock options: Stock options amounting to 2% of the outstanding and issued shares as of the date of employment will be awarded to "employee" upon his first day of employment. The per share price of the options will be at the Initial Offering price (adjusted for stock splits) of $25 per share. The exercise date of the options will be five years at offering (I.P.O.) from the first day of employment. Anti dilution provisions will be incorporated with the options so that the options associated with the original 2% will not fall below that percentage of the outstanding stock prior to any Initial Public Offering of the company. Options will fully vest after five years or at initial public offering within I.P.O. Guidelines[] of employment and should the employee

The MOU identifies the parties thereto as Joseph Ciolino and " A m t r a l e a s e Truck Leasing Services Corp." ("Amtralease"); no mention is made o f Ameriquest. (See Compl. Ex. A­- Memorandum of Understanding) Ciolino does n o t expressly allege that Ameriquest was formerly known as Amtralease, or that A m e r i q u e s t succeeded to the assets and liabilities of Amtralease. However, A m e r i q u e s t ' s brief in support of its current motion does not contest that it w a s a party to the MOU. Although the Complaint does not specify the date that Ciolino began w o r k i n g for Ameriquest, the MOU indicates that he agreed to begin his " e m p l o y m e n t on or before April 6, 1998[.]" (Compl. Ex. A ¶ 5(2))

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leave the company prior to the five year vesting period or Initial Public Offering he will forfeit all interest in the aforementioned stock options. Additional stock options will be made available to employee as performance compensation. A pool of up to 8% of the outstanding and issued stock will be set aside for management stock options from which the performance compensation options will be issued. The 8% pool will be in addition to the aforementioned 2% stock option. Performance compensation will be awarded on [an] annual basis. Additional stock options will be made available of up to 3% of outstanding and issued stock over a 5 year period or prior to an initial public offering. Antidilution provisions will be incorporated as is stated in Item 1D regarding the original 2% stock optio[n] award . . . for a tota[l] of 5%.3 (Compl. Ex. A. ¶ 1D) Ciolino exercised his option to purchase five percent of Ameriquest's stock.4 (Compl. ¶ 7) Subsequently, Ameriquest

issued additional shares of its stock to other shareholders, but did not offer to issue additional shares to Ciolino. (Id.) As a

result, Ciolino currently owns less than five percent of the

3 The agreed-upon version of paragraph 1D of the MOU was the product of e x t e n s i v e , hand-written alterations to the original typed text of that p a r a g r a p h . The italicized text denotes those portions of the paragraph w r i t t e n by hand. The typed portions of paragraph 1D that were crossed out by h a n d are indicated by horizontal line through the text. Also, although the MOU makes repeated mention of an initial public o f f e r i n g ("IPO"), Ameriquest indicates that no such IPO has occurred, as yet. (See Def.'s Br. 4) 4

The Complaint does not specify when Ciolino exercised his stock o p t i o n s , other than to describe that exercise as "timely[.]" (Compl. ¶ 7) Stock certificates attached as exhibits to Ciolino's opposition brief indicate t h a t he acquired Ameriquest stock in the following increments: (1) 400 shares o n February 8, 2000; (2) 470 shares on May 15, 2002; (3) 886 shares on January 2 1 , 2003; and (4) 558 shares on May 14, 2003. (Pl.'s Br. Ex. B­- Stock Certificates)

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outstanding Ameriquest stock.5

(See id.)

By letter to Ameriquest dated December 22, 2008, Ciolino sought an accounting of the outstanding shares of Ameriquest stock, as well as tender of sufficient shares, the purchase of which would restore his ownership interest to five percent. (Compl. ¶ 8) ¶ 9) Thereafter, Ciolino sought access to a multitude of Ameriquest's books and records, pursuant to the New Jersey Business Corporation Act, N.J.S.A. § 14A:1-1 et seq.6 9) (Compl. ¶ Ameriquest rejected Ciolino's requests. (Compl.

His stated purpose in making that request was to "determine

the value of [his] interest in Ameriquest, to determine the extent and nature of the loss caused to [him] by Ameriquest's wrongful dilution of [his] shareholder interests . . ., and to determine whether the corporation is being properly managed."
5 The Complaint and exhibits thereto are silent as to whether and when C i o l i n o ' s employment with Ameriquest terminated. Ameriquest's moving brief s t a t e s that "[t]here is no dispute that Ciolino no longer works for A m e r i q u e s t [ . ] " (Def.'s Br. 7) That proposition is not contested by Ciolino in h i s opposition brief. (See Pl.'s Br. 11 ("[S]ince he no longer works for A m e r i q u e s t . . . ."))

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The requested records included:

a l l of its books and records of account, cash receipts and d i s b u r s e m e n t journals, accounts receivable and payable ledgers, f i n a n c i a l reports, tax returns, books of original entry, bank r e c o n c i l i a t i o n s , documents relating to the valuation and/or sale o f assets, minutes of the proceedings of the incorporators, s h a r e h o l d e r s and directors and a share register giving the names a n d addresses of all shareholders and the number and class of s h a r e s held by each. (Compl. ¶ 9)

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(Compl. ¶ 11)

Ameriquest offered only to comply in part with

Ciolino's request, by "mak[ing] only certain of the requested items, such as its share register and minutes, available for inspection." (Compl. ¶ 10) The company refused to comply with (Id.)

the remainder of Ciolino's inspection demand. B.

Ciolino initiated the current action by filing a two count Complaint. Count I alleges that Ameriquest breached the MOU by

diluting Ciolino's stock ownership interest, and seeks a declaration that Ciolino is "entitled to a current and continuing undiluted five percent (5%) interest in Ameriquest." ¶¶ 14, 15) (Compl.

Count II alleges that Ameriquest violated the New

Jersey Business Corporation Act by refusing Ciolino's demand to review its books and records, and asks the Court to direct Ameriquest to provide Ciolino with access to those documents. (Compl. ¶¶ 17-20) Ameriquest now moves to dismiss the Complaint in its entirety. II. Federal Rule of Civil Procedure 12(b)(6) provides that a court may dismiss a complaint "for failure to state a claim upon which relief can be granted." In order to survive a motion to

dismiss under Federal Rule of Civil Procedure 12(b)(6), a complaint must allege facts that raise a right to relief above

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the speculative level.

Bell Atlantic Corp. v. Twombly, 550 U.S.

544, 555 (2007); see also Fed. R. Civ. P. 8(a)(2). While a court must accept as true all allegations in the plaintiff's complaint, and view them in the light most favorable to the plaintiff, Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008), a court is not required to accept sweeping legal conclusions cast in the form of factual allegations, unwarranted inferences, or unsupported conclusions. Morse v. Lower Merion The complaint must

Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997).

state sufficient facts to show that the legal allegations are not simply possible, but plausible. Phillips, 515 F.3d at 234.

"A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). III. A. As to Count I, Ameriquest argues that the anti-dilution protection enjoyed by Ciolino pertained only to his stock options, not the shares of stock conveyed to him upon the exercise of those options. Put differently, Ameriquest contends

that Ciolino's anti-dilution rights extinguished upon the exercise of his stock options. According to Ameriquest, the

language of the MOU is clear and unambiguous on this point.

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To the extent that the plain language of a contract is ambiguous, extrinsic evidence is admissible to explain its provisions. 1996). In re New Valley Corp., 89 F.3d 143, 150 (3d Cir.

In addition, under New Jersey law, extrinsic evidence is

admissible to explain the meaning of contract provisions "even when the contract on its face is free from ambiguity."7 Conway

v. 287 Corporate Ctr. Assocs., 187 N.J. 259, 269, 901 A.2d 341 (2006). In light of the foregoing legal principles, the Court need not presently make a determination as to whether the MOU is ambiguous. Regardless of any holding the Court might make with

respect to that issue, extrinsic evidence would be admissible to illuminate the intentions of the parties upon entering into that agreement. Therefore, the parties must be afforded the

opportunity, through discovery, to marshal all available evidence relevant to their intentions in signing the MOU.8 As a result,

7 In Conway, Justice Wallace articulated the reasons underlying the " b r o a d use of extrinsic evidence" to interpret a contract under New Jersey l a w , as follows:

T h e polestar of construction is the intention of the parties to t h e contract as revealed by the language used, taken as an e n t i r e t y ; and, in the quest for the intention, the situation of t h e parties, the attendant circumstances, and the objects they w e r e thereby striving to attain are necessarily to be regarded. The admission of evidence of extrinsic facts is not for the p u r p o s e of changing the writing, but to secure light by which to m e a s u r e its actual significance. Conway v. 287 Corporate Ctr. Assocs., 187 N.J. 259, 269, 901 A.2d 341 (2006).
8 Notwithstanding the undeveloped state of the record, Ameriquest a t t e m p t s to discern the intent of the parties upon entering into the MOU. According to Ameriquest, the construction of the MOU advanced by Ciolino is

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Ameriquest's motion will be denied as to Count I.9 B. As to Count II, Ameriquest concedes that Ciolino is entitled to certain documents pursuant to § 14A:5-28 of the New Jersey Business Corporation Act (the "Act"). However, Ameriquest argues

that the Act entitles him to "a much more limited subset of documents" than he seeks in the present action. (Def.'s Br. 9)

Pursuant to § 14A:5-28(2), any shareholder is entitled to receive copies of a corporation's "balance sheet as at the end of the preceding fiscal year, and its profit and loss and surplus statement for such fiscal year." Under § 14A:5-28(3), "any

person who shall have been a shareholder of record of a corporation for at least six months immediately preceding his demand, or any person holding . . . at least 5% of the outstanding shares of any class or series, upon at least five days' written demand shall have the right for any proper purpose to examine . . . its minutes of the proceedings of its shareholders and record of shareholders and to make extracts therefrom . . . ."

"illogical" insofar as it would vest him with "the perpetual right to maintain a 5% interest in the company[]" and permit him to "forever be compensated by A m e r i q u e s t , without Ameriquest receiving a single benefit." (Def.'s Br. 6-7) S u c h arguments are better reserved for the summary judgment stage, when more c o m p l e t e information regarding the parties' intent is available. Even in a case where a stockholder concedes that he has no express a n t i - d i l u t i o n rights, dilution may nevertheless be improper. For example, it i s improper to issue stock in exchange for inadequate consideration to certain s h a r e h o l d e r s , without offering other shareholders a corresponding opportunity t o acquire additional shares.
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In addition, § 14A:5-28(4) permits "any court, upon proof by a shareholder of proper purpose, irrespective of the period of time during which the shareholder shall have been a shareholder of record, and irrespective of the number of shares held by him, to compel the production for examination by such shareholder of the books and records of account, minutes, and record of shareholders of a corporation." That paragraph also vests broad

discretion in any court to "prescribe any limitations or conditions with reference to the inspection, or award any other or further relief as the court may deem just and proper." N.J.S.A. § 14A:5-28(4). According to Ameriquest, Ciolino has already been provided access to all of the documents necessary to fulfill its obligations under § 14A:5-28(2) and (3). In support of that

proposition, Ameriquest offers a letter dated February 19, 2009, as an exhibit to its brief. The letter indicates that Ciolino

was provided with Ameriquest's most recent fiscal statements, and represents that he will be permitted to access the register of shareholders and the shareholder minutes. from Graham R. Laub, Feb. 19, 2009) (Def.'s Ex. 3­- Ltr.

The fundamental problem with

this putative "proof" of compliance with the Act is that the letter is not cognizable in the context of the current motion. When evaluating a motion to dismiss, the Court considers "only the allegations in the complaint, exhibits attached to the

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complaint, matters of public record, and documents that form the basis of a claim." (3d Cir. 2004). Lum v. Bank of America, 361 F.3d 217, 221 n.3

A document that forms the basis of a claim is

one that is "integral to or explicitly relied upon in the complaint." Id. (quoting In re Burlington Coat Factory Sec.

Litig., 114 F.3d 1410, 1426 (3d Cir. 1997)). The letter of February 19, provided by Ameriquest, does not fall within any of the foregoing categories, and hence cannot be considered at this juncture.10 Thus, Ameriquest has not

presently established its compliance with § 14A:5-28(2) and (3). Moreover, even if the Court were to accept the February 19 letter as proof of Ameriquest's compliance with § 14A:5-28(2) and (3), dismissal of Count II would still be inappropriate in light of the additional documents potentially available to Ciolino under § 14A:5-28(4). Ameriquest acknowledges the possible

significance of § 14A:5-28(4), but argues that the documents already provided to Ciolino "are adequate to accomplish his purpose." (Def.'s Br. 10) The Court is not persuaded that such Further development of the

a conclusion can be drawn at present.

record is necessary to discern whether Ciolino's purposes are proper, and whether those purposes entitle him to inspect additional Ameriquest corporate records.

10 At most, the Complaint refers to the January 19 letter in a nons p e c i f i c sense, insofar as Ciolino alleges that "Ameriquest responded to [his] r e q u e s t by offering to make only certain of the requested items, such as its s h a r e register and minutes, available for inspection." (Compl. ¶ 10)

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IV. For the reasons stated above, the Motion to Dismiss will be denied. The Court will issue an appropriate Order.

Dated: August

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th, 2009 s/ Joseph E. Irenas JOSEPH E. IRENAS, S.U.S.D.J.

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