IN RE MARINE RISKS, INC. (Bankr.E.D.N.Y. 8-24-2010)

A judgment pursuant to Rule 52(c) "operates as a decision on the merits in favor of the moving party . . ." and "should be granted where plaintiff fails to make out a prima facie case, or despite the prima facie case, the court determines that the preponderance of the evidence goes against the plaintiff's claim." Matis v. United States, 236 B.R. 562, 569 (E.D.N.Y. 1999) (citing In re Regency Holdings (Cayman), Inc., 216 B.R. 371, 375 (Bankr. S.D.N.Y. 1998); Stokes v. Perry, No. 94 Civ. 0573, 1997 WL 782131, at *9 (S.D.N.Y. Dec. 19, 1997)).

A judgment granted pursuant to Rule 52(c) operates as a decision on the merits. See, e.g., Matis v. United States, 236 B.R. at 569 (citing In re Regency Holdings (Cayman), Inc., 216 B.R. at 375). Judgment should be granted in favor of the moving party if (1) the nonmoving party fails to make out a prima facie case, or (2) despite the existence of a prima facie case, the court determines by a preponderance of the evidence that judgment should be entered against the plaintiff. Matis v. United States, 236 B.R. at 562 (citing Stokes v. Perry, 1997 WL 782131 at *9). The rule "authorizes the court to enter judgment at any time that it can appropriately make a dispositive finding of fact on the evidence." Fed.R.Civ.P. 52 Advisory Committee note. The judge "must weigh and evaluate the evidence in the same manner as if he were making findings of fact at the conclusion of the entire case," as provided for in Rule 52(a). Benton v. Blair, 228 F.2d 55, 58 (5th Cir. 1955).

Unlike a motion for summary judgment or directed verdict, the court is not required under Fed.R.Civ.P. 52(c) to "draw any special inferences in the nonmovant's favor, or consider the evidence in the light most favorable to the nonmoving party." Matis v. United States, 236 B.R. at 569 (citing In re Regency Holdings (Cayman), Inc., 216 B.R. at 371); 9A Charles Alan Wright Arthur R. Miller, Federal Practice and Procedure § 2573.1 (2d ed. 1995))

In general, "[i]t is doubtful if federal judges would enter judgment on the merits against a plaintiff at the conclusion of its case if the evidence making out a prima facie case is unimpeached. It is only when the evidence has been impeached that there is any real occasion for the judge to weigh the evidence before the moving party presents its case." 9C Charles Alan Wright Arthur R. Miller, Federal Practice and Procedure § 2573.1 (3d ed. 2008). See also LaMarca v. United States, 31 F. Supp. 2d 110, 123 (E.D.N.Y. 1998) (stating "[u]sually, Rule 52(c) motions are made by the defendant at the close of plaintiff's case and are granted when plaintiff has failed to carry its burden of establishing a prima facie case").

Based on the record at trial, it is clear that the three Directors of the Debtor had decided after Keyes' indictment that the Debtor could no longer operate with Keyes at the helm. At that point, Keyes and Marcigliano pursued a course of conduct which would have caused the transfer of all of the Debtor's assets to NHM for no consideration to the Debtor, and would have benefitted the shareholders of the Debtor. The Defendant pursued a course of conduct which resulted in keeping him employed and servicing the Debtor's clients. Under either scenario, the Debtor never stood to benefit. This was in fact an internecine struggle between the shareholders of a solvent corporation. Shifting the focus of the complaint from the aborted NHM transaction to an alleged diversion of a corporate opportunity between the Debtor and Cosmos does not alter the fact that the Debtor was never the intended beneficiary of either transaction. The Trustee's arguments in the first cause of action and one prong of the second cause of action are based on the false premise that but for the Defendant's actions, the Debtor would have retained most of its clients and would have continued to thrive into 1999 and beyond. In order to accept this, one would have to ignore that the Debtor had already determined to transfer its assets, leaving the

Debtor with little to no clients and no employees. This is disingenuous at best and completely unsupported by the record. With this in mind, the Court will examine each cause of action.

1. First claim

In the Trustee's first claim as amended, the Trustee alleges that Pilipiak breached his fiduciary duties as director and officer of the Debtor by soliciting and diverting the Debtor's clients and key employees away from the Debtor to Cosmos for his own benefit, while he was employed by the Debtor. In order to establish a prima facie case against the Defendant on the first claim the Trustee must prove 1) the Defendant owed a fiduciary duty to the Debtor, 2) the Defendant breached this duty, and 3) the Defendant's breach of his fiduciary duties caused damages to the Debtor which are ascertainable and are proximately caused by the breach. See Am. Fed. Grp., Ltd. v. Rothenberg (American Federal Group 1), 136 F.3d 897, 905-08 (2d Cir. 1998) (other citations omitted), RSL Commc'ns PLC v. Bildirici, 649 F. Supp. 2d 184, 198-99, 208-10 (S.D.N.Y. 2009) (other citations omitted). Generally, the laws of the state of incorporation govern issues concerning the conduct of the directors and officers of a corporation. Burg v. Horn, 380 F.2d 897, 899 (2d Cir. 1967) (citing Hausman v. Buckley, 299 F.2d 696, 702-05 (2d Cir.), cert. denied, 269 U.S. 885 (1962)). The Debtor was incorporated in New York, therefore New York law applies. The Court is charged with analyzing each element of the Trustee's claims to determine whether Trustee established a prima facie case.

a. Fiduciary Duty

It is undisputed that the Defendant, as an officer and director of the Debtor, owed a fiduciary duty to the Debtor. A director owes the corporation a duty of care and a duty of loyalty. Norlin Corp. v. Rooney, Pace, Inc., 744 F.2d 255, 264 (2d Cir. 1984). The duty of care, as set forth in Section 717(a) of New York Business Corporation Law, requires that a director perform his duties "in good faith and with that degree of care which an ordinarily prudent person in a like position would use under similar circumstances." N.Y. Bus. Corp. Law § 717(a). The duty of loyalty "derives from the prohibition against self-dealing that inheres in the fiduciary relationship." Norlin Corp. v. Rooney, Pace, Inc., 744 F.2d at 264 (citing Pepper v. Litton, 308 U.S. 295, 306-07 (1939)). Under New York law, the duty of loyalty requires a director to subordinate his own personal interests to the interests of the corporation. Patrick v. Allen, 355 F. Supp. 2d 704, 710 (S.D.N.Y. 2005). "The scope of this fundamental duty is . . . determined by the circumstances of each case, and does not run to every act having every semblance of employee self-interest." American Federal Group 1, at 906.

The Second Circuit in Burg v. Horn cites examples illustrative of what a corporate directors may not do: a director may not draw away existing customers of the corporation, Burg v. Horn, 380 F.2d at 899 (citing as example Sialkot Importing Corp. v. Berlin, 295 N.Y. 482, 68 N.E.2d 501 (N.Y. 1946)), nor "purchase property which the corporation needs or has resolved to acquire, . . . or which it is contemplating acquiring," Id. (citing Blake v. Buffalo Creek R.R., 56 N.Y. 485 (N.Y. 1874); New York Trust Co. v. American Realty Co., 244 N.Y. 209, 219, 155 N.E. 102, 105 (N.Y. 1926)), nor "take advantage of an offer made to the corporation, . . . or of knowledge which came to him as a director." Id. at 900 (citing as examples Kelly v. 74 76 West Tremont Ave. Corp., 4 Misc.2d 533, 151 N.Y.S.2d 900 (N.Y. Sup.Ct. 1956), modified on other grounds sub nom. Procario v. 74 76 West Tremont Ave. Corp., 3 A.D.2d 821, 160 N.Y.S.2d 932 (N.Y. App. Div. 1957), aff'd mem., 3 N.Y.2d 973, 169 N.Y.S.2d 39, 146 N.E.2d 795 (N.Y. 1957); In re McCrory Stores Corp., 12 F. Supp. 267 (S.D.N.Y. 1935)).

Although the Defendant's fiduciary duty to the Debtor extended beyond the date the Defendant ceased working for the Debtor because the Defendant remained an officer and a Director after such date, the Trustee limited his allegations in the complaint to the Defendant's conduct while he was employed by the Debtor. Therefore, the Court can only consider the Defendants actions during the time period he was employed by the Debtor. The Trustee asserts that the Defendant was employed by the Debtor until he submitted his letter of resignation effective December 21, 1998. The Defendant asserts that he was "effectively" terminated on December 2, 1998, based on the statements made by Keyes at the meeting regarding the contemplated transfer of clients and employees of the Debtor to NHM. Regardless of the Defendant's belief that he would no longer be employed by the Debtor as of December 31, 1998, there is no evidence that the Defendant was ever terminated by the Debtor. The record is clear that the Defendant remained employed by the Debtor until December 21, 1998, when he tendered his resignation. After December 2, 1998, the Defendant continued to draw a salary from the Debtor and continued to act as an employer of the Debtor by performing work for the Debtor and meeting with clients of the Debtor. The Defendant's belief that he would no longer have a position with the Debtor after December 31, 1998, does not affect the Defendant's employment status with the Debtor through December 21, 1998, the date he actually resigned as an employee, officer and director of the Debtor

b. Breach of Fiduciary Duty

Once the Defendant is determined to owe the Debtor a fiduciary duty to act in good faith and with that degree of care which an ordinarily prudent person in a like position would use under similar circumstances, any breach of this fiduciary duty may be actionable if the remaining elements of causation and damages are established. The Trustee must establish that the Defendant's actions, while he was employed by the Debtor, constituted a breach of his fiduciary duty. While the Defendant is not accused of soliciting clients to terminate their ongoing contracts with the Debtor, the Defendant is charged with soliciting the Debtor's current clients to enter into new contracts with a third party after their contracts with the Debtor expired. According to the Trustee, the Defendant's conduct constitutes usurpation of a corporate opportunity of the Debtor. The corporate opportunity doctrine prohibits "a corporate employee from utilizing information obtained in a fiduciary capacity to appropriate a business opportunity belonging to the corporation." American Federal Group 1, at 906 (citing Alexander Alexander, Inc. v. Fritzen, 147 A.D.2d 241, 542 N.Y.S.2d 530, 533 (N.Y. App. Div. 1989).

It is clear that any solicitation by the Defendant of the Debtor's clients during the time that the Defendant was employed by the Debtor, would constitute a breach of the Defendant's fiduciary duty to the Debtor. Am. Fed. Grp., Ltd. v. Rothenberg (American Federal Group 2), No. 91 Civ. 7860, 1998 WL 273034, at *1 (S.D.N.Y. May 28, 1998). This is true whether the Defendant solicited clients of the Debtor to obtain their current business, or whether the Defendant solicited clients of the Debtor to obtain their business after their contracts with the Debtor expired. See id. (finding that former officer, shareholder and employee of plaintiff company breached his fiduciary duty by soliciting clients to transfer their current insurance broker accounts and by soliciting clients to transfer their insurance accounts upon expiration of the current accounts with the plaintiff) (citing American Federal Group 1, at 906; Keehan v. Keehan, No. 97 Civ. 6580, 2000 WL 502852, at *5 (S.D.N.Y. April 26, 2000)). The Defendant, as an officer and director, breached his duty to the Debtor if he "`had been intrusted with the duty of re-engaging [an employee] for [the Debtor's benefit] and had then engaged him for his own.'" Keehan v. Keehan, 2000 WL 502854 at *5 (citing New York Auto. Co. v. Franklin, 49 Misc. 8, 97 N.Y.S. 781, 785 (N.Y. 1905)).

The Defendant cites to American Federal Group 2 for the proposition that an insurance broker such as the Debtor could not have a continuing "tangible expectancy" in retaining its ongoing business if the contracts were up for renewal. However, the court in American Federal Group 2 was addressing whether an officer and shareholder breached his duty to a corporation when he solicited clients of that corporation for prospective business after he no longer had a relationship with that corporation. The court correctly distinguished between competing with a former employer in the highly competitive insurance broker business, which is permitted, and soliciting business in which a former employer had an existing "tangible expectancy," which is not. American Federal Group 2, at *15.

The Court must now determine whether the Trustee made a prima facie case that the Defendant solicited clients of the Debtor to enter into new contracts with Cosmos. The Trustee relies on the following to make his case: (1) a series of e-mails to or from employees of ACL, one of the clients of the Debtor which signed with Cosmos shortly after the Defendant resigned from the Debtor (Plaintiff's Ex. 87), (2) Plaintiff's Ex. 109, which was not admitted into evidence, (3) Plaintiff's Ex. 61, which was also not admitted into evidence, and (4) the Trustee's conclusion that because the Defendant solicited ACL and Evergreen prior to his resignation, the Defendant must have been soliciting other customers of the Debtor as well.

The evidence admitted at trial, coupled with the letter from the Defendant to Cosmos dated December 6, 1998 that he would bring with him a "block" of the Debtor's clients, and the timing of the broker of record letters supports a finding that it was possible that the Defendant solicited the Debtor's clients to enter into new contracts for his own benefit and for the benefit of Cosmos. However, all of the evidence is circumstantial and is not sufficiently probative to establish that the Defendant actually solicited the clients to leave the Debtor for Cosmos.

The only direct evidence regarding the Defendant's contact with the clients during this time period are e-mails reflecting that the Defendant furnished renewal contracts to ACL on behalf of the Debtor, and the Defendant advised ACL that he would either be starting his own business or joining another insurance agency. (Plaintiff's Ex. 87) This evidence does not support a finding that the Defendant sought to retain ACL's business at his new employment, wherever that may be. Advising a client that you are leaving a company does not constitute a breach of a director's fiduciary duty. American Federal Group 2, at *8. The only other representations contained in the e-mail from ACL are the reference to Keyes "selling Walter down the river" and the reference that ACL's policies currently with the Debtor are under the Defendant's control as the broker of record. While the Defendant was not the broker of record, there is no indication that it was the Defendant who gave ACL this false impression in order to convince ACL to follow the Defendant to his new employer. The ACL e-mail actually supports a finding that ACL had already decided not to renew its contract with the Debtor, because ACL discusses scheduling an interview with another insurance broker to take the Debtor's place. The Trustee did not call any former clients of the Debtor to testify regarding representations the Defendant may have made.

In sum, the evidence the Trustee relies on to support a finding that the Defendant solicited clients of the Debtor to leave the Debtor upon the expiration of their current contracts and join the Defendant is based largely on the clients' failure to renew with the Debtor. Unlike the American Federal Group 2, where the court determined after a lengthy trial with testimony from over twelve former clients of the plaintiff corporation that the defendant had solicited some of the clients to follow him to his new firm, there is no testimony by any former clients of the Debtor that the Defendant solicited their business and sought their assurance that they would follow the Defendant. The only testimony in the record supports a finding that the Defendant presented renewal contracts to the Debtor's clients, and he advised the Debtor's clients that he was leaving the Debtor.

c. Causation

Even if the Court were to find that the Defendant breached his fiduciary duty to the Debtor, in a claim based on breach of fiduciary duty, where the remedy sought is damages to compensate for losses incurred by the claimant, the claimant must show causation as a necessary element of its claim. American Federal Group 1 at 907, n. 7; RSL Commc'ns PLC, 649 F. Supp. 2d at 208 (other citations omitted). If the remedy sought is restitution against the party breaching his or her fiduciary duty, then it is sufficient to show that the breach was a "substantial factor" in contributing to the injury. American Federal Group 1 at 907 n. 7. Because the Trustee seeks damages based on losses suffered by the Debtor, the more stringent test for causation must be satisfied. As set forth in RSL Commc'ns PLC the usual causation rule under this test requires "but for" and proximate causation:

These are not novel concepts. "[C]ausation has been `a well-recognized and essential element of the [tort] plaintiff's case in chief' since at least the early 17th century, and probably much, much before." Williams v. KFC Nat'l Mgmt. Co., 391 F.3d 411, 426 (2d Cir. 2004) (Calabresi, J., concurring) (quoting Zuchowicz v. United States, 140 F.3d 381, 384 n. 2 (2d Cir. 1998)). Nor, contrary to Plaintiff's argument, is the application of these causation principles limited to instances in which the plaintiff "is . . . seeking damages to compensate it for lost profits or lost earnings." . . . The only distinction drawn in the Second Circuit authority on this issue focuses on the difference between restitutionary remedies and compensatory damages. See American Federal Group 1, at 907 n. 7. Lost profits, as relevant in [ American Federal Group 1], are simply a subset of compensatory damages. See 1 Dan B. Dobbs, Handbook on the Law of Remedies § 3.3(4), at 302. . . . [Because the plaintiff seeks restitution] Plaintiff must establish both "but for" and proximate causation.

"But for" causation, which the Court refers to as "factual causation," presents a "threshold question" of whether the alleged breach of fiduciary duty was a "cause in fact" of the loss complained of by the plaintiff. Semi-Tech Litig., LLC v. Bankers Trust Co., 353 F. Supp. 2d 460,484 (S.D.N.Y. 2005); see also Petitt v. Celebrity Cruises, Inc., 153 F. Supp. 2d 240, 252 n. 10 (S.D.N.Y. 2001); Barnes v. Andrews, 298 F. 614, 616 (S.D.N.Y. 1924) (Hand, J.) ("The plaintiff must accept the burden of showing that the performance of the defendant's duties would have avoided loss, and what loss it would have avoided.").

In this case, the Trustee must establish that the Defendant's solicitation of clients and employees was a cause in fact of the losses suffered by the Debtor. To hold otherwise would permit the Defendant to be liable for an injury the Defendant did not actually cause. See Ryder Energy Distribution Corp. v. Merrill Lynch Commodities, Inc., 684 F. Supp. 27, 35 (S.D.N.Y. 1988) (stating "fault unrelated by causal connection to injury is without legal significance"). Where there are multiple possible causes of a single harm, which the Trustee readily concedes is the case, the Court my still find cause based on one single factor where each of the potential causes are sufficient, standing alone, to have caused the injuries sustained by the claimant. RSL Commc'ns PLC, 649 F. Supp. 2d at 209 (citing Point Prods. A.G. v. Sony Music Entm't, Inc., 215 F. Supp. 2d 336, 342 (S.D.N.Y. 2002)).

The record does not support a finding that if the Defendant did solicit the Debtor's clients, this solicitation in fact caused the clients not to renew their contracts with the Debtor. At the time the Defendant was advising clients of the Debtor that he was departing from the Debtor, the clients were also aware that 1) Keyes had been indicted for committing fraud with respect to funds belonging to clients of the Debtor, and 2) the Debtor was negotiating a transfer of its clients and employees to a third party, NHM. These two factors, standing alone, had a much greater negative effect on the Debtor's chances of renewing the contracts than the Defendant's actions alone. Keyes admitted that his indictment placed the Debtor's business in serious jeopardy. Keyes also admitted that the departure of Nippon Express, its largest client, was due to Keyes' indictment, and other Japanese clients would be influenced by the departure of Nippon Express. The belief that the clients would not renew their contracts with the Debtor due to Keyes' indictment was echoed in the Debtor's own financial statements for the relevant time period, and by Keyes' actions post-indictment. Keyes testified that he sought a suitor to run the Debtor's business in his place so the business would not be tainted by his indictment because he knew that if he stayed on, the Debtor would lose the bulk of its clients. At this point, all of the Debtor's clients were aware that the Debtor was attempting to transfer most of its business to NHM and therefore, the Debtor would not be in a position to service these clients after January 1, 1999 in any event. This fact seemed to have played a significant role in ACL's decision to decline to renew its contract with the Debtor in December 1998. (Plaintiff's Ex. 87).

The argument that Defendant's conduct caused the Debtor's losses is unsupported by the record. The Trustee failed to call any witnesses to establish that the clients left the Debtor because of the Defendant's solicitation, unlike the plaintiff in American Federal Group 2. There, the record reflected that clients of the plaintiff left the plaintiff because of the defendant's solicitation, coupled with the fact that the defendant alone had access to a certain type of insurance. We have no such record in this case. The court in American Federal Group 2 had the benefit of testimony from these clients to review when determining the relative weight the differing factors had in the client's decisions to leave the plaintiff. In our case, the record indicates that more likely cause of the clients' failure to renew their contracts with the Debtor was the indictment of Keyes.

d. Damages

Even if the Trustee had established that the Defendant solicited the Debtor's clients, and his conduct was the proximate cause of injury to the Debtor, the Trustee has failed to prove with any degree of certainty what if any damages are the result of the Defendants actions. In the original complaint, the plaintiff (the Debtor) asserted that the Defendant's conduct caused damages in an amount of not less than $1 million. In its post-trial memorandum, the Trustee argues that the Defendant's conduct caused the Debtor to suffer significant harm which can be measured by the reduction in revenues from the years prior to 1998 to the levels during the years 1999 and thereafter. The only evidence introduced by the Trustee to support the claim for damages as set forth in the complaint are copies of tax returns and financial reports of the Debtor for 1997, 1998, and 1999. Although the complaint calculated damages based on the value of the NHM proposal to the shareholders, at trial, the Trustee appears to have abandoned that theory and is now seeking to calculate the damages based on lost earnings suffered by the Debtor for the time after the Defendant resigned from the Debtor and after many of the Debtors' clients failed to renew their policies with the Debtor.

In order to recover damages for lost earnings based on breach of fiduciary duty, the plaintiff must "prove with certainty that any losses sustained were caused by the breaches alleged." American Federal Group 1, at 911 (citing Stoekel v. Block, 170 A.D.2d 417, 417-18, 566 N.Y.S.2d 625, 626 (N.Y. App. Div. 1991)). Loss of profits can be determined by evidence of earnings history, or by examining the commission revenue lost when the Debtor's clients transferred their business to Cosmos.

The Trustee has failed to meet his burden to quantify the damages allegedly caused by the Defendant's conduct. The record is barren regarding the extent to which the Debtor's loss in income for 1999 and thereafter can be specifically attributed to the migration of the Debtors clients to Cosmos. The Trustee has also introduced into the record no evidence regarding the Debtor's profit margin on these contracts. See American Federal Group 2 at *23 (earnings margin of 60% was applied to quantify value of lost commissions caused by defendants improper solicitation and subsequent departure of clients). The Trustee also failed to introduce any evidence regarding whether the loss of clients was ameliorated in any way by the corresponding loss in overhead due to the departure of a substantial number of employees. Finally, the Trustee failed to recognize that in calculating any claim for damages the Debtor may have had with regard to the contract renewals such calculation could not extend beyond one year. The Debtor had no "tangible expectancy" in these contracts for subsequent years once the clients did not renew with the Debtor. See Abbott Redmont Thinlite Corp. v. Redmont ( Abbott), 475 F.2d 85, 88 (2d Cir. 1973) (citing S.W. Scott Co. v. Scott, 186 App. Div. 518, 174 N.Y.S. 583 (N.Y. App. Div. 1919)). Even if the Debtor did suffer ascertainable damages based on the clients' failure to renew the contracts, the Debtor would not have a continuing right for

compensation for the years thereafter. American Federal Group 2 at *18. Because the record is barren of any quantifiable basis to fix damages with any degree of certainty, the Trustee has failed to satisfy his burden of proof.

2. Second Claim

In order to establish a prima facie case on the second claim, the Trustee must prove that 1) Defendant, as an officer and director, owed a fiduciary duty to the Debtor, the 2) Defendant breached that duty by appropriating the business opportunity presented by the NHM deal for his own benefit, by diverting the clients and employees of Debtor to Cosmos, or the Defendant breached that duty by assuming the business opportunity presented by Cosmos for his own benefit, and 4) damages flowing from the breach. The Court has already concluded that Trustee has introduced sufficient evidence for the Court to find that the Defendant owed a fiduciary duty to the Debtor during the time period in question.

a. Breach of Fiduciary Duty

The Trustee has failed to introduce evidence that the NHM proposal and the opportunity presented by Cosmos were in fact corporate opportunities belonging to the Debtor. According to the Trustee, the NHM venture and the Cosmos proposal regarding the transfer of a block of clients and employees of the Debtor created a valuable potential interest that rightfully belonged to the Debtor. The alleged property interest is an interest in the payment stream from the sale of the Debtor's assets. However, these income streams were only to go to the shareholders of the Debtor and not the debtor itself. Neither the NHM nor the Cosmos venture satisfies the "tangible expectancy" test set forth above, and therefore neither venture qualifies as a corporate opportunity. Because neither venture constituted a corporate opportunity, the Plaintiff has failed to establish a prima facie case that the Defendant breached his fiduciary duties by usurping a corporate opportunity of the Debtor.

(1) The NHM and Cosmos Ventures Did Not Constitute Corporate Opportunities

Under relevant case law, the property interest attributable to the NHM proposal did not rise to the level of a "tangible expectancy" as a matter of law. In Abbott the Court of Appeals held that pre-contractual relationships between the plaintiff corporation and certain architects for the supply and installation of glass blocks and roof lights, constituted a tangible expectancy of the plaintiff corporation. Abbott, at 88-89. The contracts in question in Abbott would almost certainly have been finalized with the plaintiff corporation if the defendant director had not taken the opportunity for himself. Id. The Court of Appeals in Abbott reasoned that "but for" the defendant's entry into direct competition with the corporation, the business would have been the corporation's. Id. Furthermore, once the corporation's specifications were written into the architectural plans for the five contracts, "it was almost a certainty" that the contract with the plaintiff corporation would be entered. Id. at 88. Unlike Abbott, in the instant case, the NHM pre-contract relationship was far less certain. The Letter of Intent stated that the transaction was subject to NHM's due diligence, and the closing was contingent upon successful completion of this due diligence.

In addition, the NHM transaction was not in fact a corporate opportunity — rather it was a scheme which allowed the shareholders to transfer the assets of the Debtor for their personal benefit. Burg v. Horn provides a list of proscriptions, one of which condemns a fiduciary's "purchase of property which the corporation needs or has resolved to acquire . . . or which it is contemplating acquiring." See Burg v. Horn, 380 F.2d at 899 (emphasis added). The NHM deal did not represent a property interest that the Debtor was seeking to acquire. In fact, it was the direct opposite. If the NHM deal had been consummated, the Debtor would have been divested of its clients and employees for no consideration. The NHM deal provided that only shareholders would benefit and the Debtor would receive nothing. Shareholders and the corporate entity are not one and the same, see Manley v. Ambase Corp., 121 F. Supp. 2d 758, 769-70 (S.D.N.Y. 2000) (citing cases), and there is no evidence in the record that the Debtor and the shareholders are one and the same. See OM Intercontinental v. Geminex Intern., Inc., No. 03 Civ. 6471 (RCC), 2006 WL 2707327, at *7 (S.D.N.Y. Sept. 18, 2006) (stating that New York courts are reluctant to disregard the corporate form, unless the "`form has been used to achieve fraud or when the corporation has been so dominated by an individual or another corporation . . . and its separate identity so disregarded, that it primarily transacted the dominator's business rather than its own and can be called the other's alter ego . . .'") (citing cases). Therefore, the venture with NHM could not be deemed an asset of the corporation and fails to constitute a corporate opportunity of the Debtor.

The Cosmos venture also did not rise to the level of a corporate opportunity. The Cosmos venture consisted of a phone call on November 13, 1998 from Mr. Nonomura, an officer of Cosmos, to the Defendant inquiring whether Keyes was considering selling the Debtor. In that conversation the Defendant responded that any inquiries should be directed to Keyes. On December 2, 1998 the Defendant advised Keyes about the phone call from Mr. Nonomura. Keyes responded that he was not interested in any transaction with Cosmos, and Mr. Marcigliano, who also learned of this opportunity on that date, agreed that the venture was not a "reasonable possibility." The Debtor had no "tangible expectancy" of any deal to sell assets to Cosmos.

In addition, the Trustee has not demonstrated that the agreement between the Defendant and Cosmos constituted the diversion of a corporate opportunity of the Debtor. Because the Debtor had already determined to transfer its clients to a third party for no consideration the Trustee cannot argue that these clients had real value to the Debtor and that the Debtor's future depended upon the continued retention of these clients. A corporate opportunity cannot exist where the "opportunity" has no value to the corporation, and the Trustee cannot now complain that the Debtor lost out on realizing the value of the transfer of its clients. Whether NHM, Cosmos, or some other third party could find value in the contracts is not before the Court. The question is whether the property in question, in this case the contracts with the clients, represented tangible expectancies of the Debtor. They clearly did not and the Trustee has failed to establish a prima facie cause of action set forth in the second count, as amended.

(2) The Defendant Did Not Usurp Any Corporate Benefit Represented by Either the NHM Venture or the Cosmos Venture

Even if the Trustee could establish that the NHM or Cosmos deal was a corporate opportunity, the Trustee has not established that the Defendant usurped the opportunity. Usurpation requires that the Defendant take the opportunity for himself. The fiduciary must "divert that expectancy to his own profit." Abbott, at 88. The Defendant did not divert the proceeds from the sale of assets to himself. With respect to NHM, the Defendant did not "step into the shoes" of the Debtor, as occurred in the Abbott case. With respect to the Cosmos transaction, there was never a corporate benefit for the Defendant to usurp. 3. Third Claim

In the third cause of action, the Trustee alleges that the Defendant tortiously interfered with the NHM transaction. In order to establish a prima facie case of tortious interference, the Trustee must prove the following: "(1) the existence of a valid contract between plaintiff and a third party; (2) the defendant's intentional procurement of a breach of contract by the third party; and (3) damages caused by the breach." Innovative Networks, Inc. v. Young, 978 F.Supp. 167, 178 (S.D.N.Y. 1997) (citing Nordic Bank PLC v. Trend Group, Ltd., 619 F.Supp. 542, 560-61 (S.D.N.Y. 1985). See also Premium Mortg. Corp. v. Equifax, Inc., 583 F.3d 103, 107 (2d Cir. 2009). If the plaintiff cannot prove there was a valid and enforceable contract, the claim must fail. Mayo, Lynch Assocs. v. Fine, 538 N.Y.S.2d 579, 579 (N.Y. App. Div. 1989) (citing Guard-Life Corp. v. Parker Hardware Mfg. Corp., 406 N.E.2d 445 (N.Y. 1980); Taub v. Amana Imports, 528 N.Y.S.2d 884 (N.Y. App. Div. 1988)). In addition, if the plaintiff cannot prove that there would not have been a breach but for the activities of the defendant, the claim also fails. Sharma v. Skaarup Ship Mgm't Corp., 916 F.2d 820, 828 (2d Cir. 1990).

New York law determines whether a valid contract exists between the parties, Gorodensky v. Mitsubishi Pulp Inc., 92 F.Supp.2d 249, 254 (S.D.N.Y. 2000), and courts must be careful not to bind parties to contractual obligations that they never intended. Id. (citing Teachers Ins. Anuity Ass'n v. Tribune Co. 670 F.Supp. 491, 497 (S.D.N.Y. 1987). There are two types of preliminary agreements. Id. The first type is a fully binding preliminary agreement, where the parties have agreed on all the points requiring negotiation (including whether to be bound) but agree to subsequently memorialize the agreement in a more formal document. Id. (citing Adjustrite Sys., Inc. v. GAB Business Servs., Inc. (Adjustrite), 145 F.3d 543, 548 (2d Cir. 1998)). This type of contract is binding as if it were a formalized agreement because the signing of a more elaborate document is just a formality. Id. (citing Teachers Ins. Anuity Ass'n v. Tribune Co., 670 F.Supp. at 498). The second type of preliminary agreement is created when the parties "agree on certain major terms, but leave other terms open for further negotiation." Id. (citing Adjustrite, 145 F.3d at 548). The parties have a mutual commitment to negotiate in good faith to reach a final agreement. Gorodensky, 92 F. Supp.2d at 254 (citing Teachers Ins. Anuity Ass'n v. Tribune Co., 670 F.Supp. at 498). Thus, a party to this second type of agreement is not bound, and "has no right to demand performance of the transaction." Id. (citing Adjustrite, 145 F.3d at 548).

The test for determining whether the first type of preliminary agreement exists examines "(1) the language of the agreement; (2) the existence of open terms; (3) whether there has been partial performance; and (4) the necessity of putting the agreement in final form, as indicated by the customary form of such transactions." Id. at 254-55 (citing Adjustrite, 145 F.3d at 549). The test for determining the presence of the second type of preliminary agreement requires an examination of these same four factors, along with a fifth factor, which is "the context of the negotiations resulting in the preliminary agreement." Id. at 255 (citing Adjustrite, 145 F.3d at 549 n. 6).

The first factor, the language of the agreement itself, is recognized as the most important factor. Id. at 255 (citing Arcadian Phosphates, Inc. v. Arcadian Corp., 884 F.2d 69, 72 (2d Cir. 1989)). The Letter of Intent contains language which clearly indicates that the parties did not intend the letter to be a binding agreement. First, the subject of the letter is "Letter of Intent." Second, while the first paragraph states that NHM "shall" acquire certain ongoing business of the Debtor, the third paragraph gives NHM the "sole right" to determine in writing whether there is adequate "merit" to purchase these assets after conducting due diligence. This indicates that NHM needed to take further steps before making a firm commitment to purchase any assets of the Debtor. Third, the Debtor's signature includes the language "subject to shareholders approval." Fourth, the Letter of Intent refers to "papers" including schedules of accounts to be provided at the closing of the transaction. When viewed in total, the language is clear that neither party wished to be bound at the time of execution of the Letter of Intent. See id. (finding that where neither party negotiated for language stating a clear commitment, neither party evidenced an intent to be bound by its terms). Rather, the Letter of Intent represented an agreement by NHM to conduct due diligence to determine whether it wished to purchase any assets of the Debtor under the terms set forth. This alone supports a finding that the Letter of Intent was not a binding agreement for the sale of the Debtor's assets to NHM.

The second factor, the existence of open terms, also demonstrates that the Letter of Intent was not a binding agreement. The terms regarding the actual business to be sold is vague as it is described as the book of business classified as insurance brokerage, reinsurance brokerage and consulting services to the Debtor's clients, without naming any specific client. There is a reference in the Letter of Intent to a schedule of the Debtor's accounts "to be attached to the papers at Closing" but again no clients are listed in the Letter of Intent. The proposed employment of all key employees of the Debtor is equally unspecific, and does not identify who the key employees are, the proposed terms of employment, salaries or positions. The Letter of Intent states that the Debtor's shareholders were to receive a fixed percentage of the commissions generated from the business of the former clients of the Debtor, this is the only

term which supports a finding that the terms of the Letter of Intent were specific. So many terms of the transaction remained open and subject to due diligence, especially with respect to which clients were to be acquired and which employees were to receive offers from NHM, that the Court concludes that this factor supports the Defendant's contention.

The third factor, partial performance, requires that some part of the actual contract be performed, and that such performance provide a benefit to the other party. Id. at 256 (citing P.A. Bergner Co. v. Martinez, 823 F. Supp. 151, 157 (S.D.N.Y. 1993)). In this case, the only part of the contract which was performed was preliminary due diligence by NHM. Upon performing the due diligence NHM concluded that it no longer wished to pursue the transaction outlined in the Letter of Intent. NHM had the specific right under the terms of the Letter of Intent to determine whether the proposed transaction had merit and to decline to pursue the transaction. (Plaintiff's Ex. 67) This right was absolute and subject only to NHM's sole discretion. Certainly no transfer of clients took place and no payments were made to the Debtor's shareholders.

The remaining factors, the context of the negotiations between the parties and the requirement of a formal agreement, favor a finding that the Letter of Intent was not a binding agreement. NHM still had to conduct due diligence before determining whether to purchase any assets of the Debtor, and the Letter of Intent contemplated entry into formal documents at closing. Neither the specific accounts to be sold nor the employees to be offered positions were fixed in the Letter of Intent and NHM and the Debtor had conditions precedent to the closing which had yet to be satisfied. As the Second Circuit held in Teachers Ins. Anuity Ass'n v. Tribune Co., 670 F. Supp. at 499, `[t]here is a strong presumption against finding a binding obligation in an agreements which include open terms, call for future approvals and expressly anticipate future preparation and execution of contract documents." The Trustee has failed to overcome this presumption, and the Court concludes that the Letter of Intent was not a binding agreement between the parties.

Even if the Letter of Intent did constitute such a binding agreement, there is insufficient evidence to support a finding that the Defendant's actions constituted tortious interference with the proposed NHM transaction. To make a prima facie case, the Trustee must show that there was a breach of the contract, and "`there would have not been a breach but for the activities of [the Defendant].'" Sharma v. Skaarup Ship Mgm't Corp., 916 F.2d at 828 (other citations omitted). The record before the Court does not support a finding of breach of contract by NHM, which would be a prerequisite to a finding of tortious interference. NHM did not breach the Letter of Intent because the Letter of Intent gave NHM the right to determine that the value of the proposed transaction was insufficient, and to terminate the transaction. The Letter of Intent did obligate NHM to make an offer of employment to all key employees after conducting due diligence, which included interviewing the Debtor's staff. The term "key employee" is not defined in the Letter of Intent. However, it is not clear that NHM had completed its due diligence, had determined to continue negotiations, and had stopped only after getting the impression that the Defendant would not consider employment by NHM. It is not clear from the record that the Defendant's actions caused NHM to end its negotiations with the Debtor. It could have been just as likely that the departure of so many clients caused NHM to cease negotiations, and there is no evidence that but for the Defendant's actions, the majority or even a substantial number of clients would have renewed their insurance contracts with the Debtor. It is

also just as likely that Keyes' indictment precipitated the departure of the clients, not the Defendant's refusal to accept employment by NHM. For these reasons, the Motion is granted as to the third cause of action.

1) The Trustee's motion to amend the complaint is granted except to the extent the Trustee seeks to include the Defendant's conduct after he resigned from the Debtor on December 21, 1998.

2) The Motion is granted as to the first, second and third causes of action. The Trustee has failed to establish a prima facie case as to any of these causes of action because essential elements of each claim have not been proven.

An order and judgment memorializing the Court's decision shall be entered forthwith.