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Prader v. Science Dynamics Corporation

December 19, 2000

BRADLEY T. PRADER, PLAINTIFF,
v.
SCIENCE DYNAMICS CORPORATION, AND JONATHAN BEN LASSERS, DEFENDANTS.



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

HONORABLE JEROME B. SIMANDLE

OPINION

This matter comes before the Court on defendant Science Dynamics Corporation's motion pursuant to Fed. R. Civ. P. 12(b)(7) to dismiss plaintiff Bradley T. Prader's complaint for failure to join a necessary party under Rule 19 and/or to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief can be granted. This motion presents an important issue regarding a New Jersey Limited Liability Company ("LLC"), namely, whether this LLC is a necessary and indispensable party to an action brought by one of its members alleging that a defendant breached a contract to pay a finders fee to the LLC. Because the Court finds that Skye Capital Group, L.L.C. is a necessary and indispensable party to this action, and that this entity is a New Jersey LLC whose presence would defeat diversity jurisdiction, defendant's motion pursuant to Fed. R. Civ. P. 12(b)(7) will be granted and this action must be dismissed without prejudice.

I. BACKGROUND

Plaintiff Bradley T. Prader ("Prader"), at the time this action was filed, resided in Doylestown, Pennsylvania. Defendant Science Dynamics Corporation ("Science Dynamics") is a Delaware Corporation whose principal place of business is in Cherry Hill, New Jersey. (Pls.' Opposition at 1.) Defendant Cross-Claimant Jonathan Ben Lassers ("Lassers") is a resident of Edinburgh, Scotland. (Pls.' Opposition, Ex. B.) Plaintiff asserts that this Court has jurisdiction under 28 U.S.C. § 1332 because the parties are completely diverse and the amount in controversy is greater than $75,000.00.

Skye Capital is a New Jersey Limited Liability Company ("LLC") that was formed in April, 1998 (Prader Dep., Aug. 16, 2000, T 20-24 to 21-08), with four members, Prader, Lassers, Roberta Babitz ("Babitz"), and Peter Kearns ("Kearns"). Prader formed the LLC himself, without the assistance of counsel, directly through the Secretary of State of New Jersey, and he and Kearns signed the incorporation papers. (Prader Dep., Aug. 16, 2000, T 21-22 to 22-16.) Prader, Lassers, Babitz and Kearns agreed to be equal members of Skye Capital, although no written document was ever produced to confirm that agreement. (Id. at 32-3 to 32-12.)

The underlying dispute in this case involves a breach of contract pursuant to a June 10, 1998 agreement (the "Contract") between Science Dynamics and Skye Capital Group, L.L.C. ("Skye Capital"). That Contract provided for the payment of a $10,000.00 Finder's Fee payable in Science Dynamics Stock to Skye Capital upon consummation of a merger or acquisition between or by Science Dynamics and GORCA Memory Systems, Inc. ("GMS"). (Defs.' Br. in Support of Mot. to Dismiss, Ex. A; Compl., Ex. A.) On February 8, 1999, the transaction between Science Dynamics and GMS was completed, and the price per share of Science Dynamics stock was $0.53. *fn1 (Final Pretrial Order, Oct. 19, 2000 at 3.) To date, no stock has been issued by Science Dynamics to Skye Capital, although a partial cash payment, which is discussed in greater detail below, was made to Skye Capital in July, 1999. (Id.)

On April 30, 1999, Prader communicated with Alan Bashforth of Science Dynamics ("Bashforth") and advised that Science Dynamics was "delinquent in delivering an advisory fee to Skye Capital Group, L.L.C. as per [Science Dynamic's] obligations under the [Contract]." (Defs. Br., Ex. B.) Prader went on to write that the "$10,000.00 fee will be paid in freely trading [Science Dynamic] stock at the price as of the time of closing ($0.49). Therefore, [Science Dynamic] shall issue 20,408 shares . . . to Skye Capital Group, L.L.C." (Id.) On June 3, 1999, an attorney for Skye Capital advised Bashforth that Science Dynamics had breached its contract with Skye Capital and wrote that "[t]he fee due is to be paid in Science Dynamics stock issued at the stock price quoted on February 8 of $0.49." *fn2 (Defs.' Br., Ex. C.)

On July 9, 1999, after a meeting between Prader for Skye Capital and Bashforth for Science Dynamics, Science Dynamics issued a check in the amount of $2,000.00, payable to Skye Capital, L.L.C., representing a partial cash payment of the $10,000.00, which was originally to be delivered in stock pursuant to the Contract. (Id. at T 93-8 to 93-20.) Science Dynamics claims that Prader, on behalf of Skye, agreed to accept $10,000.00 in cash in lieu of $10,000.00 worth of stock. In his deposition, Prader admitted that he agreed with Bashforth on July 9, 1999 to take the cash value of the stock (id. at T 92-8 to 93-7), but later testified that he believed he and Skye were entitled to the full value of the stock owed on that date, or approximately $15,000.00. *fn3 (Id. at T 93-23 to 94-4.) Prader did not notify the other members of Skye Capital of the $2,000.00 cash payment and disbursed the entire payment to himself. (Id. at T 96-6 to 97-6.) No further payments have been made by Science Dynamics to Prader or Skye Capital to date. (Id. T 93-23 to 94-4.)

In the amended complaint, plaintiff Prader alleges that he is "the principal, sole employee, and sole member of Skye Capital," (Amended Compl., para. 7), and as such, he is entitled to 16,303 shares of stock, or its cash equivalent. (Id., paras. 8, 17, 18). In his answer to Prader's complaint, Lassers denied that Prader was the sole member of Skye or that he was authorized to deal independently with Science Dynamics. (Def's Answer, Counter-cl, and Cross-cl, para. 14.) Lassers also made claims for specific performance (id. at 4) and breach of contract (id. at 5), and asserted a cross-claim against Science Dynamics, and a counter-claim against Prader. (Id. at 8-11).

On September 26, 2000, Prader and Lassers entered into a written agreement (the "Agreement") stating: 1) That Skye Capital remained a New Jersey LLC, and that at its formation, Prader, Lassers, Kearns, and Babitz were equal co-owners, but that at a time prior to the agreement, Babitz abandoned her interest in Skye *fn4 and Kearns assigned his interest to Prader; *fn5 2) that Prader retains an interest in 60% of any recovery from this litigation and Lassers retains a 40% interest, *fn6 and that both immediately withdraw any and all claims that they have asserted against one another; and 3) that Alan L. Frank, Esquire, would be lead trial counsel in this action and prosecute the claims of both Prader and Lassers against Science Dynamics, and that Laurence Rosoff, Esquire would assist to the extent permitted by the Court. (Pls.' Opp. to Mot. to Dismiss, Ex. A.) An October 4, 2000 affidavit, written and signed by Lassers, confirms that he and Prader had settled their dispute and wished to proceed together as plaintiffs and the only remaining members of Skye Capital, against Science Dynamics. (Id., Ex. B.)

In response to a jurisdictional inquiry by this Court, *fn7 Prader and Lasser submitted a letter valuing their claim as of the date of the filing of the amended complaint at $261,866.93. *fn8 They asserted that they were entitled to compensatory damages reflective of the highest value of the stock during the period following the one-year restrictive registration period. The highest value of the stock was reported as $21.75 per share on March 1, 2000, which amounts to a total value of $410,357.25 for 16,303 shares. *fn9

Defendant Science Dynamics now moves under Fed. R. Civ. P. 12(b)(7) to dismiss Prader's claims for failure to name Skye Capital as a party pursuant to Rule 19 and/or to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief can be granted. For the following reasons, Defendant's motion to dismiss plaintiffs' claims based on failure ...


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