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Chrin v. Ibrix10/19/2005
MEMORANDUM OPINION AND ORDER
Submitted: October 4, 2005
The plaintiff executed a contract to purchase 1.5 million newly-issued shares of common stock of the defendant corporation for a total purchase price of $1,500. The opportunity to purchase shares at these bargain terms was offered to him since he was a founding employee of the corporation. Eighteen months later, the board of directors terminated the plaintiff's employment and asserted the right, under the stock purchase agreement, to repurchase a portion of his shares at a similarly discounted price. Under that contract, the company's right to repurchase those shares depended upon the board having made a good faith determination to terminate his employment for "good cause" as narrowly defined in that agreement.
The plaintiff brings this suit against the corporation and others alleging a wide variety of causes of action relating to both the execution of the stock purchase agreement and the events surrounding his termination and the purported share repurchase. First, the plaintiff alleges that the defendants duped him into signing the stock purchase agreement for a smaller percentage equity interest than he was entitled to receive. Second, the plaintiff claims that he was not terminated for "good cause." From this he argues both that none of his shares were validly repurchased and that his employment continued until the end of the three-year vesting period found in the stock purchase agreement.
The defendants now move to dismiss the complaint. The court finds that the well pleaded allegations of fact found in the complaint, if true, cannot support any claim for relief relating to the plaintiff's initial share purchase. Thus, the counts relating to those matters will be dismissed. Nevertheless, the court concludes that the complaint adequately alleges a claim that the board of directors did not make a good faith determination to terminate the plaintiff's employment for "good cause" within the meaning of the contract and, thus, the company was not entitled to repurchase his shares. The motion to dismiss as to those counts will be denied.
I.
A. The Parties
The plaintiff, David Chrin, is a resident of New Jersey. The defendant, Ibrix, Inc., is a Delaware corporation organized for the purpose of developing software for computer storage devices. Chrin is a stockholder and former employee of Ibrix. The defendant, Steven Orszag, a renowned university professor of mathematics, was a co-founder and chairman of the board of directors of Ibrix. At the time in question, Orszag was a senior faculty member at Princeton University in the Department of Applied Mathematics and director of that university's Computational Fluids Lab.
B. The Stock Purchase Agreement
In the fall of 1999, while working at Cambridge Hydrodynamics, Inc., a small consulting firm near Princeton, New Jersey owned by Orszag's wife, Chrin and Eric Jackson approached Orszag about forming a company to develop and sell a network storage device. The three are co-inventors in a patent (No. 7,782,389) (eventually assigned to Ibrix) that covered the original product idea. The parties reached an oral agreement in which Chrin and Jackson would develop the product while Orszag would incorporate the company, provide all the initial funding, and find outside investors. Orszag agreed to fund the company until outside investors could be found.
Initially, the parties decided that they would be equal partners in major decisions affecting the company and would each be given a one-third equity interest in the company. However, they agreed that "Mr. Orszag's equity in the Company would incre
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