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Barbara Robertshaw v. Gary Pudles

March 20, 2012

BARBARA ROBERTSHAW
v.
GARY PUDLES, ET AL.



The opinion of the court was delivered by: O'neill, J.

MEMORANDUM

Now before me are three fully briefed motions. First, there is defendant Gary Pudles's motion to dismiss the amended complaint (Dkt. No. 95), plaintiff Barbara Robertshaw's response thereto (Dkt. No. 98) and Pudles's reply to the response (Dkt. No. 103). Second, there is defendant AnswerNet's motion to dismiss the amended complaint (Dkt. No. 94), Robertshaw's response thereto (Dkt. No. 99), and AnswerNet's reply to the response (Dkt. No. 102). Third, there is defendant Betty Babjak's motion to dismiss the amended complaint (Dkt. No. 104) and Robertshaw's response thereto (Dkt. No. 105). For the following reasons I will deny Pudles's motion, grant Babjak's motion in part and deny Babjak's motion in part, and deny AnswerNet's motion.

BACKGROUND

Plaintiff Robertshaw, an AnswerNet shareholder and former member of the board of directors, filed the instant action because she disputes a distribution of funds to defendant Pudles, who is also an AnswerNet shareholder and board member. Her amended complaint contains nine claims: three against Pudles (one for breach of contract, one for breach of fiduciary duty and one for common law fraud); three against Babjak, AnswerNet's corporate secretary (one for breach of fiduciary duty, one for common law fraud, and one for negligence) and three others: a claim for declaratory judgment under 28 U.S.C. § 2201, a shareholder derivative claim brought on behalf of AnswerNet pursuant to Federal Rule of Civil Procedure 23.1, and a claim seeking declaratory relief for alleged violations of § 219 of the Delaware General Corporation Law.

In support of her claims Robertshaw avers the following facts. AnswerNet is a Delaware corporation, see Am. Compl. ¶¶ 4, 7-8, with a shareholder's agreement that she alleges required that "any distribution of funds made by the Corporation be distributed equally and simultaneously to [Robertshaw and Pudles]." Am. Compl. ¶ 9. This agreement, which Robertshaw attaches to her amended complaint, provides that "Pudles and Robertshaw each currently earn $350,000 per year in salary . . . and take matching distributions as necessary to fund their personal and estimated tax payments . . . from AnswerNet. . . . Pudles and Robertshaw also have an agreement that Tax Distributions and other distributions from AnswerNet are made equally to Robertshaw and Pudles." Am. Compl. Ex. A p. 1. The agreement then outlines certain "special distributions" available at the request of either Pudles or Robertshaw and denotes that both Pudles and Robertshaw were entitled to them on specific dates.*fn1 See Am. Compl. Ex. A p. 1-3. It also stipulates that "nothing in this Agreement should be construed to change the Agreement between Pudles and Robertshaw regarding Salary payments or other distributions from AnswerNet to the Shareholders being equal between Robertshaw and Pudles." Id. at 2. The agreement also requires that either shareholder must inform the other of their intention to make the special distribution at least 90 days prior to the date of the special distribution, id. at 3, and specifies that "nothing in this Agreement should be construed to change the Agreement between Pudles and Robertshaw regarding Salary payments or other distributions from AnswerNet to the Shareholders being equal between Robertshaw and Pudles." Id. at 2. Further the agreement states that "neither party shall be required to personally guaranty any indebtedness to support the special distributions and nothing herein shall be construed as a guaranty by either party of payments to be made hereunder." Id. at 4.*fn2

Robertshaw also attaches to her amended complaint an email dated October 28, 2008 from Pudles to her that she argues confirms her interpretation of the Agreement as mandating equal and simultaneous distributions. In this email-which partially details the terms of Pudles's divorce and the payments from AnswerNet to Pudles with which he intends to fund his divorce settlement-Pudles wrote: "To fund these payments I will probably need to take distributions from the company which likely will be funded by debt. As per our agreement, every dollar I take I'll distribute an equal amount to you. So when I get the funding I'll plan to take double." See Am. Compl. Ex. B.*fn3 Robertshaw alleges that on or about September 3, 2011 Pudles "caused the Corporation to issue a Special Distribution in the amount of $980,000.00, without making an equal and simultaneous distribution to [Robertshaw]." Am. Compl. ¶ 10. In support of this allegation Robertshaw attaches an email from Pudles to her dated September 3, 2011 in which he wrote: "Per our agreement I distributed money to make my required personal payment and created a distribution payable from the company to you so we can pay your matching as cash becomes available. . . . I took about 980K [sic] from the company." Am. Compl. Ex. C p. 1. Pudles also wrote that "we had three goals in our approach to the payment to me & [sic] the matching for you" and under the heading "Robertshaw Matching" wrote "we added an additional loan amount of about 646K to bring the total amount owed to the Robertshaws to 980K. . . . My goal is to pay 100K-150K per month in principal repayments . . . until the Robertshaw loans are paid. This would mean that all loans to everyone would be paid off within 18 months." Id. at 2.

Robertshaw contends that this distribution left the corporation with "insufficient funds to make an equal and simultaneous distribution to" her, was made without approval of the Board of Directors and was made improperly for Pudles's own personal use. Am. Compl. ¶¶ 11-13. Robertshaw then alleges that upon learning of the distribution she demanded that Pudles either "cause the Corporation to issue an equal special distribution to her, or that he return the funds he unilaterally took" but Pudles refused and instead demanded that Robertshaw "sign a personal guaranty so that he could cause the Corporation to borrow $1,000,000.00 that he represented it would need in order to make an equivalent special distribution to" her. Id. at ¶¶ 15-16.

Robertshaw then alleges that she made a demand that AnswerNet's board of directors meet and formally review the propriety of the Pudles distribution, but that the meeting, which took place on October 31, 2011, only resulted in deadlock and no action being taken.*fn4 Id. at ¶¶ 17-18.

I. The Waterside Warrants

Robertshaw alleges that defendants falsely claimed that Cerida Investment Corporation owned 62,579 common shares of AnswerNet and that these shares in combination with those owned outright by Pudles constituted more than 51% of the issued and outstanding shares of Answernet Id. at ¶¶ 17, 34. She further asserts that on November 22, 2011, in response to her demand to inspect AnswerNet's corporate records, "AnswerNet's counsel provided a document purporting to show warrant transactions ("the Waterside Warrants") which allegedly resulted in Cerida's obtaining its shares. Id. at ¶ 40; see also Am. Comp. Ex. J. Robertshaw alleges that the Waterside Warrants "were never assigned, transferred, sold, or given to Cerida"*fn5 but rather that they were assigned to Executel, a company wholly-owned by Robertshaw and were exercised by Executel in February 2006. Id. at ¶¶ 41-43; see also Am. Compl. Ex. K. Robertshaw alleges that the shares of AnswerNet owned by Robertshaw and Executel thus constituted a majority of the company's issued and outstanding shares. Id. at ¶ 48.

II. The November 28, 2011 Special Shareholder Meeting

Robertshaw alleges that following her demand to inspect AnswerNet's records, Pudles noticed a Special Meeting of the shareholders "claiming that his shares, together with [shares he was entitled to vote owned by Cerida Investment Corporation] constituted 51%" of the AnswerNet shares, the minimum required to call a special meeting. Id. at ¶ 19. She contends that Pudles's ownership claim of the Cerida shares was false. Id. at ¶ 20. Moreover, Robertshaw asserts that Pudles and Babjak knew or should have known that Pudles's ownership claim was false, and that Babjak personally delivered the Special Meeting notice which contained the false information. Id. at ¶¶ 21-22; see also Am. Compl. Ex. E.

At the November 28, 2011 special meeting, Robertshaw demanded that the corporation provide a list of shareholders pursuant to Delaware General Corporations Law § 219 and in response received a partially-handwritten document titled the "AnswerNet Capitalization Table" which she claims "falsely asserts that Cerida owned 52,759 common shares of AnswerNet" and inaccurately reported the number of issued and outstanding shares. Id. at ¶¶ 23-24. Robertshaw further claims that Pudles and Babjak "knew that AnswerNet had never issued shares at all to Cerida." Id. at ¶ 25. At the special meeting Robertshaw alleges that "Pudles used the false Share Ownership Claim" to vote William Robertshaw off of the AnswerNet board of directors. Id. at ¶ 29; Am. Compl. Ex. G.

III. The December 15, 2011 Annual Shareholder Meeting

Robertshaw contends that following the November meeting Babjak noticed an annual meeting of the shareholders. Id. at ¶ 30. At the annual meeting, held on December 15, 2011, she claims that Babjak "falsely asserted that shares held by [Pudles and Cerida] constituted a quorum." Id. at ¶¶ 31-32. Robertshaw also contends that at this meeting Pudles and Babjak submitted a document entitled "'List of Shareholders of AnswerNet, Inc.' which falsely asserted that Cerida owned 52,759 common shares of AnswerNet" and inaccurately reported the number of issued and outstanding shares; Robertshaw asserts that Pudles and Babjak knew this information to be false and that no shares had actually been issued to Cerida. Id. at ¶¶ 34-36. At this meeting, Robertshaw avers that "Pudles used the false Share Ownership Claim and false List of Shareholders of AnswerNet, Inc." to vote Robertshaw off of the AnswerNet board of directors. Id. at ¶ 38.*fn6

STANDARD OF REVIEW

Federal Rule of Civil Procedure 12(b)(6) permits a court to dismiss all or part of an action for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). Typically, "a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations," though plaintiff's obligation to state the grounds of entitlement to relief "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). "Factual allegations must be enough to raise a right to relief above the speculative level . . . on the assumption that all of the allegations in the complaint are true (even if doubtful in fact)." Id. (citations omitted). The complaint must state "'enough facts to raise a reasonable expectation that discovery will reveal evidence of' the necessary element." Wilkerson v. New Media Tech. Charter Sch. Inc., 522 F.3d 315, 321 (3d Cir. 2008), quoting Twombly, 550 U.S. at 556. The Court of Appeals has made clear that after Ashcroft v. Iqbal, 556 U.S. 662 (2009), "conclusory or 'bare-bones' allegations will no longer survive a motion to dismiss: 'threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.' To prevent dismissal, all civil complaints must now set out 'sufficient factual matter' to show that the claim is facially plausible." Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009), quoting Iqbal, 556 U.S. at 678. The Court also set forth a two part-analysis for reviewing motions to dismiss in light of Twombly and Iqbal:

First, the factual and legal elements of a claim should be separated. The District Court must accept all of the complaint's well-pleaded facts as true, but may disregard any legal conclusions. Second, a District Court must then determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a "plausible claim for relief."

Id. at 210-11, quoting Iqbal, 556 U.S. at 679. The Court explained, "a complaint must do more than allege the plaintiff's entitlement to relief. A complaint has to 'show' such an entitlement with its facts." Id., citing Phillips v. Cnty. of Allegheny, 515 F.3d 224, 234-35 (3d Cir. 2008). "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged--but it has not 'show[n]'--'that the pleader is entitled to relief.'" Iqbal, 556 U.S. at 679.

DISCUSSION

I. Claims Against Pudles

Robertshaw asserts three claims against Pudles individually: one for breach of contract, one for breach of fiduciary duty and one for common law fraud. ...


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