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GINTOWT v. TL VENTURES

December 31, 2002

KRISTOFF GINTOWT,
V.
TL VENTURES, ET AL.



The opinion of the court was delivered by: Baylson, District Judge.

MEMORANDUM

I. Introduction

On October 3, 2002, this Court issued a Memorandum and Order granting the Motion to Dismiss the original Complaint by a group of Defendants known as the "TL Ventures Defendants" and the individual Defendants Arthur Spector and James Dixon, with leave to Plaintiff to file an Amended Complaint. As directed by the Court, Plaintiffs Amended Complaint has been accompanied by a RICO case statement and a "blacklined" revision of the charging allegations of the Amended Complaint showing additional facts pleaded in the Amended Complaint that were not in the original Complaint. The RICO case statement contains additional factual allegations, which the Court will consider as part of the Amended Complaint.

After reviewing the Amended Complaint and the RICO case statement, the Court finds that the Plaintiff has remedied the defects in the original Complaint, and that the Motion of the moving Defendants to dismiss the Amended Complaint pursuant to Rule 12(b)(6) will be denied.

II. Allegations of the Amended Complaint

Defendant TL Ventures ("TL") "placed" on the Broadreach board Defendants Spector and Dixon, as well as two other individuals, Stephen Andriole and Gary Anderson. See Amended Complaint ¶ 5. Spector, who was formerly the Managing Director of TL, continued to act as an agent for the TL Defendants. Id. ¶ 7, 13. In August 1996, Spector represented to Plaintiff and the other Reohr partners that TL intended to invest in Reohr, merge it with a "similar," economically-viable company, and issue an initial public offering of stock in the new entity, Broadreach. Id. ¶ 13. Spector "led the Reohr partners to believe" that TL would use its own funds to pay the Reohr partners and that TL would provide capital funds to the new entity in the future. Id. Spector further represented that TL would employ highly qualified management personnel and avoid undue risks. Moreover, Spector led the partners to believe that Dixon was not interested in running the new entity and would only be an interim-CEO. Finally, he represented that the Reohr partners would have "equal control" of the new board. Id.

These representations, the Amended Complaint states, were false for several reasons. Firstly, the "similar" entity that TL planned to merge with Reohr was actually in weak financial condition. Second, TL intended to limit its own investment in the project by bringing in other investors and taking out bank loans through the new entity. Third, TL burdened Broadreach with debt from the start in order to finance its risky electronic-business strategy. Fourth, TL intended to, and eventually did, install Dixon as Broadreach's permanent CEO, in order to control the new company. Fifth, TL intended to control the Broadreach board. Finally, TL intended to "severely circumscribe" its capital investment in the new company. Id.

In furtherance of the TL Defendants' fraudulent scheme, on October 2, 1996 and November 18, 1996, Spector sent to the Reohr partners, via U.S. mail, "non-binding proposals" by which the TL Defendants proposed to acquire all of Reohr's assets and disclosed liabilities. Id. ¶ 14. The October 2, 1996 proposal indicated, specifically, that the purchase price for Reohr's assets would be $35 million (or stock in another entity, ITC, at the Reohr partner's option). Id.

Beginning on August 30, 1996, Spector and Dixon began to telephone the Reohr partners regarding the proposed purchase. Dixon made many telephone calls from Georgia and North Carolina. Id. In these interstate calls, Dixon repeated the misrepresentations which Spector made via mail. Dixon represented in these calls that Global Consulting Group, the company TL planned to merge with Reohr, was a strong staffing business. Id. ¶ 15. Dixon also led the Reohr partners to believe that TL's transaction with Global, prior to the merger, would be structured like TL's transaction with Reohr. In fact, the Global deal was intended to involve cash only. Id. ¶ 19.

In the spring of 1997, Spector and Dixon further represented to the Reohr partners that they were engaging in discussions with several other companies which prospectively could be merged with Reohr. Id. ¶ 21. These companies included RealTime Consulting, Inc. in Dallas, and another company in San Francisco. Id. Thereafter, TL never informed the Reohr partners that the RealTime deal was "dead," though TL did inform the Rice Sangalis investment firm of that fact when TL offered Rice the opportunity to invest in the Reohr deal. Id. ¶ 31.

In May or June 1997, Dixon phoned Robert English, one of the Reohr partners, from North Carolina. Dixon suggested the possibility that the Reohr partners would share one seat on the new board. Plaintiff joined the conversation and opposed the idea. Dixon then "promised" in that interstate call, that the Reohr partners would have three seats. Id. ¶ 27.

In September 1997, Dixon, by telephone, asked the Reohr partners to meet with the Rice firm in order to "pitch" Reohr. Id. ¶ 33. The Rice firm had never been mentioned by TL prior to September 11, 1997. According to the Amended Complaint, Rice was brought in to "dilute" TL's investment and risk in the merger. Id. TL succeeded in reducing its own investment in the Reohr deal to about $8 million. Id. ¶ 37. In September and October 1997, the Reohr purchase was nearing completion. Dixon, in a call from Georgia, again proposed that the Reohr partners should have only one board seat. Id. ¶ 34.

Following the merger, in February 1998, Dixon, in a call from North Carolina, told Plaintiff that his (Plaintiff's) employment in Broadreach's marketing department was not "working out." Id. ¶ 43. In that call, Dixon arranged a meeting with Plaintiff, at which he subsequently made it "apparent" that he wanted Plaintiff to resign, which Plaintiff then did. Id. In April or May 1998, Dixon phoned and visited Plaintiff, asking him not to come to future board meetings. Id. ¶ 44. From April 1998 through January 1999, Plaintiff was prohibited from attending board meetings, preventing him from monitoring financial events within Broadreach, including that fact that Broadreach had breached provisions of its loan with PNC Bank and was renegotiating that agreement. Id. ¶ 46, 49. Plaintiffs board resignation was not voluntary, as evidenced in November 1998 board minutes. Id. ¶ 48. Plaintiff was never provided audited financial statements or records of board meetings. Id. ¶ 51. Though Dixon had promised to keep Plaintiff updated on Broadreach's finances, he never provided Plaintiff ...


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