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