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Sadek v. Horovitz

United States District Court, Third Circuit

March 28, 2013

DAVID SADEK, Plaintiff,


KATHARINE S. HAYDEN, District Judge.

I. Introduction

David Sadek ("Sadek") brought this action against Abba Horovitz ("Horovitz") alleging that Horovitz breached the parties' stockholders' agreement by failing to properly disburse profits; failing to provide documentation as to the performance of the investment fund; and refusing to disclose the company's books. [D.E. 1.] Horovitz moves to dismiss on five independent bases: (a) Sadek is barred by the doctrine of judicial estoppel because he failed to inform the Bankruptcy Court of this action; (b) Sadek lacks standing in light of his pending bankruptcy proceeding; (c) this Court lacks personal jurisdiction over Horovitz; (d) this venue is inappropriate under the doctrine of forum non conveniens; and (e) Sadek's claims fail as a matter of law. [D.E. 38]

II. Factual Background

A. Facts as Pleaded

Sadek entered into a stockholders' agreement dated December 2, 1998, with Horovitz and a third individual, Yakov Kruger ("Kruger"), to create AK Capital Ltd. (now known as "AK Management Ltd."), a British Virgin Islands corporation formed expressly to serve as the investment manager to YAHK Capital Ltd. (now known as "Old School Partners"), a private investment fund. [Compl. § 18.][1] Sadek paid AK Management's initial startup costs of approximately $150, 000 in return for a 20% stake in the company. [ Id. §§ 2, 19.] Horovitz received 55% of the shares and Kruger the remaining 25%. [ Id. § 19.] The startup funds Sadek contributed were a loan due to be repaid prior to any distribution of profits. [ Id. § 16.] Only $120, 000 was repaid to Sadek. [ Id. § 66.]

AK Management generates income by receiving a management fee of.25% of Old School Partners' net asset value per quarter and through an incentive distribution of 20% of the gains obtained by Old School Partners in a particular quarter under AK Management's guidance. [ Id. §§ 2, 21.] AK Management is operated and managed exclusively by Horovitz, acting as president. [ Id. § 22.] In this role, Horovitz is required under Section 4(h) of the stockholders' agreement to keep full and faithful books of account and to permit inspection and examination of AK Management's finances by all stockholders. [ Id. § 23 (quoting Exh. A at Section 4).]

From 2000 through 2006, Sadek received quarterly profit distributions from AK Management based on his 20% ownership, in amounts ranging up to, and at times, in excess of, $100, 000 per quarter. [ Id. § 26.][2] Financial statements did not accompany these checks but general audited financials, which were given to all investors, were provided once a year to Sadek during this period. [ Id. ] Sadek never received his share of the management fee (.25% of the investment fund's net asset value per quarter). [ Id. ]

In late 2006, Horovitz told Sadek that because he was not involved in the day-to-day management he would no longer get a 20% share in the profits of AK Management. [ Id. § 30.] Horovitz traveled from his home in Israel to meet with Sadek in New Jersey to persuade him to relinquish his 20% ownership in AK Management, but Sadek refused. [ Id. § 31.] In 2007 and 2008, quarterly disbursements and financial statements from Horovitz and AK Management ceased without explanation despite news reports that Horovitz and Old School Partners were successful. [ Id. §§ 32, 35, 37-39.] Sadek contacted Horovitz to ask whether there would be any disbursement for 2009. [ Id. § 41; 8/01/09 and 8/11/09 e-mails, attached as Exh. H to Compl.] Horovitz responded that there were no disbursements and ignored a follow-up email Sadek sent him. [ Id. §§ 42-43; 8/12/09 e-mail, attached as Exh. I to Compl.] On September 15, 2009, Sadek emailed Horovitz that he had hired counsel to pursue the matter. The next day, Horovitz emailed back, stating: "I have been very busy in getting to breakevn [sic] after a horrible 2008. I have no idea what you are talking about and have no idea why you hired counsel." [ Id. §§ 44-45; 9/15/09 and 9/16/09 e-mails, attached as Exhs. K and L to Compl.] On October 13, 2009 and November 9, 2009, Sadek's lawyer wrote Horovitz invoking Sadek's right as a shareholder to inspect AK Management's books. [ Id. §§ 46-47; 10/13/09 and 11/09/09 e-mails, attached as Exhs. M & N to Compl.] On November 10, 2009, Horovitz emailed back, "David Sadek and I have no relationship and I have no idea what he is talking about." [ Id. § 48; 11/10/09 e-mail, attached as Exh. O to Compl.]

Sadek's first count demands an accounting of AK Management's financial records, books of account, minute books, stock transfer books, and all other books of record. [ Id. §§ 50-56.] Sadek's second and third counts (breach of fiduciary duty and breach of contract) seek money damages for Horovitz's failure to disburse profits and refusal to permit inspection and examination of AK Management's books. [ Id. §§ 57-68.]

B. Facts Relating to Jurisdiction

These facts are derived from the complaint and Horovitz's sworn affidavit submitted in support of his motion. Sadek did not file an affidavit.

Sadek is a citizen of New Jersey and Horovitz is a citizen of Israel. [Compl. §§ 8-9.] Sadek alleges that jurisdiction is founded upon diversity of citizenship and venue in this action is proper in the District of New Jersey because "the claim arose in this district and defendants[3] are aliens." [ Id. §§ 12-13.]

Sadek and Horovitz negotiated the stockholders' agreement in Bergen County New Jersey in 1998. [ Id. §§ 15, 17.] Shortly after - in September 1998 - Horovitz left the United States and, after a short visit to Australia, he established residence in Israel in November 1998. [Horovitz Aff. at § 2.]

The stockholders' agreement and a subscription agreement for future investors in the investment fund, Old School Partners Fund (f/k/a YAHK Capital Ltd.), were drafted by a lawyer in Israel and executed in March, 1999.[4] [Horovitz Aff. at § 6.] Horovitz and Kruger signed the stockholders' agreement in Israel, where they both lived at the time and still live today. [ Id. § 8.]

Sadek alleges that Horovitz has many business connections with New Jersey and has solicited investments from residents of both New Jersey and New York through the investment fund. [Compl. § 14.] In his affidavit, Horovitz states that he has had practically no contact with Sadek and New Jersey since he moved to Israel approximately 15 years ago. [Horovitz Aff. § 21.] To the best of Horovitz's recollection, he met with Sadek once in New Jersey, once in New York, and once in Israel. [ Id. ] Horovitz states that with the exception of Sadek, there were never ...

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