for all statutory remedies, as well as damages for breach of contract, fiduciary duty, negligence, fraud, prejudgment interest, counsel fees and costs of suit.
Count nine is a claim for "economic duress." It is alleged "Coyer repeatedly used Hemmer's circumstances of economic distress to compel Hemmer to work without payment of his salary or at partial payment of his salary." Count nine, P145. It is alleged that plaintiff has brought suit against defendant "for the obvious purpose of coercing Hemmer into compromising Hemmer's valid claims for a fraction of the true value thereof." Count nine, P152. Defendants demand damages against "all defendants" for compensatory and punitive damages.
Finally, count ten of defendants' counterclaim and third-party complaint alleges a claim for "Federal and New Jersey 'RICO' Violations." The claim alleges a common scheme and conspiracy among all named plaintiffs and third-party defendants to operate AD and AEI for the purpose of "stealing and/or misappropriating the assets, property, merchandise, business opportunities and funds of IDP, MedTech, AEI and of the stockholders of each and all of them" in violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. A. § 1961 (West 1984), and N. J. Stat. Ann. § 2C:41-2 (West 1982). Defendants seek compensatory and punitive damages pursuant to 18 U.S.C. A. § 1964 (West 1984) and N.J. Stat. Ann. § 2C:41-4 (West 1982).
The case now comes before the court on the motion of plaintiffs, Coyer, Barus and AEI, and third-party defendant Mrs. William F. Coyer, Sr., to dismiss the counterclaim and third-party complaint pursuant to Rule 12(b)(6). No appearance has been entered on the record by third-party defendants IDP, AD (Hong Kong), MedTech or Wilcore. For purposes of this motion, references to plaintiffs shall include, unless otherwise noted, third-party defendant Mrs. William F. Coyer, Sr.
Plaintiffs' motion seeks to dismiss defendants' counterclaim in its entirety as to plaintiffs Coyer and Barus. Plaintiffs' motion also seeks to dismiss the first through fifth and seventh through tenth counts of defendants' counterclaim as to plaintiff AEI. Finally, plaintiffs' motion seeks to dismiss defendants' third-party complaint in its entirety against Mrs. William F. Coyer, Sr.
A motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) tests the sufficiency of the allegations contained in the complaint. Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993). The critical inquiry involved in testing the sufficiency of the complaint is whether, taking the well-pleaded allegations of the complaint as true, and viewing them liberally, it appears beyond doubt that plaintiff can prove no set of facts in support of the claim that would entitle him to relief. Bogosian v. Gulf Oil Corp., 561 F.2d 434, 444 (3d Cir. 1977), cert. denied, 434 U.S. 1086, 55 L. Ed. 2d 791, 98 S. Ct. 1280 (1978). A decision to dismiss the case must be based on the ground that the facts alleged in the complaint, even if true, fail to support the plaintiff's complaint. See, Ransom v. Marrazzo, 848 F.2d 398 (3d Cir. 1988). For ease of discussion the court shall address defendants' claims for breach of employment contracts and defendants' shareholder derivative claims together when appropriate. The court's review is limited to examining the allegations contained in defendants' counterclaim and third-party complaint. Fed. R. Civ.. P. 12(b)(6).
Choice Of Law
As an initial matter, this court must determine whether Delaware or New Jersey law is applicable to the questions at issue. A federal district court sitting in diversity must apply the choice-of-law rules of the forum state. Klaxon Co. v Stentor Elec. Mfg. Co., 313 U.S. 487, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941). New Jersey conflicts-of-law questions are resolved under the "interest analysis" standard, which weighs the interests and contacts of the states involved. In Re Orfa Securities Litigation, 654 F. Supp. 1449 (D.N.J. 1987). The New Jersey rules require the application of the law of the state with the most significant contacts to the dispute. Id.
In this case, it is not disputed that IDP, MedTech and AEI are Delaware corporations with their principal place of business located presently or formerly in New Jersey. Additionally, it is not disputed that Mr. and Mrs. Coyer and Barus are residents of New Jersey. Additionally it is alleged by both parties that many of the transactions at issue occurred in New Jersey. Finally, the only reference to Delaware is the stipulation that IDP, MedTech and AEI are all incorporated under the laws of Delaware. Under the above noted conflict rules, it is clear that New Jersey law applies to defendants' claims alleging breach of employment contract contained in counts one, three and six. Additionally, it is clear New Jersey law governs counts five and nine, which allege "tortious interference with a business opportunity" and "economic duress." Finally, to the extent counts eight and ten allege violation of New Jersey securities laws and RICO violations, New Jersey law will be applied.
The court declines to follow New Jersey rules, however, as to counts two, four and seven to the extent that the court is asked to determine the adequacy of compliance with the demand requirement of Rule 23.1 of the Federal Rules of Civil Procedure. The rule provides:
The complaint shall also allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the directors or comparable authority and, if necessary, from the shareholders or members, and the reasons for the plaintiff's failure to obtain the action or for not making the effort. . . .
Fed. R. Civ. P. 23.1.
Rule 23.1 does not create any federal substantive demand requirements on its own. "On its face, Rule 23.1 speaks only to the adequacy of the shareholder representative's pleadings." Kamen v. Kemper Financial Services, Inc., 500 U.S. 90, 96, 114 L. Ed. 2d 152, 111 S. Ct. 1711 (1990). The substantive requirements of demand are a matter of state law. Id. at 97-99. Those matters require an examination of the internal affairs of a corporation and are governed by the law of the state of incorporation. Draper v. Paul N. Gardner Defined Plan Trust, 625 A.2d 859, 865 (Del. 1993); Starrels v First Nat'l Bank of Chicago, 870 F.2d 1168, 1170 (7th Cir. 1989) (holding law of state of incorporation governed demand futility analysis); Abrams v. Koether, 766 F. Supp. 237, 249 (D. N. J. 1991) ("In diversity cases, the relevant substantive law is the law of the state of incorporation."). This court will therefore analyze defendants' derivative shareholder claims to determine whether demand on the board is excused pursuant to Delaware law.
Breach of Employment Contract
Counts one, three and six allege breach of employment contract, as discussed above. According to the allegations, Hemmer had oral and written employment contracts with IDP, MedTech and AEI for the 1989 to 1994 time period. According to the allegations, Hemmer is owed significant amounts of accrued salary and interest for his services. Accepting these allegations as true, the court finds Hemmer has set forth with sufficient facts a cause of action for breach of contract against IDP in count one, MedTech in count three and AEI in count six to survive a Rule 12(b)(6) motion. The court makes no judgment on the merits of these claims.
The more difficult question presented to the court is whether Hemmer has set forth sufficient facts in each count to state a cause of action for piercing the corporate veil against the moving parties. This issue at this time is not whether the corporate veil may be pierced, but, rather, whether defendants have pled facts which, if true, set forth a cause of action for piercing the corporate veil. Plaintiffs argue that the allegations against the moving parties should be dismissed because defendant has failed to plead with relative factual specificity fraud or injustice. Jack LaLanne Fitness Centers, Inc. v. Jimlar, Inc., 884 F. Supp. 162, 165 (D. N. J. 1995).
As noted in Jack LaLanne, the leading case in New Jersey on piercing the corporate veil is State of New Jersey, Dept. of Environ. Protection v. Ventron, where the New Jersey Supreme Court held:
Except in cases of fraud, injustice, or the like, courts will not pierce a corporate veil. The purpose of the doctrine of piercing the corporate veil is to prevent an independent corporation from being used to defeat the ends of justice, to perpetrate a fraud, to accomplish a crime, or otherwise to evade the law.