Conru v. Buckheit
- Beth Freeman
- 5:23-cv-04056
- U.S. District Court · Northern District of California
- 7
In Conru v. Buckheit, Judge Freeman denied Buckheit’s motion to dismiss, allowing Conru’s contract-related claims to proceed.
Andrew Conru and Jonathan B. Buckheit; the order leaves Conru’s four claims pending after denying Buckheit’s motion to dismiss.
What happened
In Conru v. Buckheit, Andrew Conru alleged that Jonathan B. Buckheit breached a 2021 Call Option Agreement by refusing Conru’s attempt to exercise an option to buy some of Buckheit’s FriendFinder Networks, Inc. shares nearly two years later.
Buckheit argued that the option had lapsed because Conru did not timely pay the required $1,000 fee. Conru argued that other agreements and consideration made the option irrevocable, and that whether the option lapsed could not be decided from the complaint alone. The case included claims for a declaration of rights, breach of contract, breach of the duty of good faith and fair dealing, and specific performance.
Judge Beth Labson Freeman denied the motion to dismiss. She found that Conru plausibly alleged that the $1,000 fee was not the only consideration and that, even if it was, the reasonableness of the delay was not suitable for decision at the pleading stage. The court also denied the motion as to the good-faith claim and did not address Buckheit’s separate arguments about the agreement’s exercise period or waiver provision.
The detailed version
- Conru v. Buckheit · No. 5:23-cv-04056
- Beth Freeman
- Mar. 21, 2024
Background
Andrew Conru sued Jonathan B. Buckheit over a Call Option Agreement that the parties signed on February 18, 2021. The agreement gave Conru a right, but not an obligation, to require Buckheit to sell some of Buckheit’s shares in FriendFinder Networks, Inc. during a 12-year exercise period, subject to a vesting schedule. The agreement stated that Conru would pay a $1,000 Call Option Fee to secure the right.
The complaint alleged that the Call Option Agreement was part of a broader transaction involving several agreements. Among other things, Buckheit purchased 51% of FriendFinder Networks, Inc., Conru consented to that purchase through an amendment to a stockholders’ agreement, and Conru, acting through his trust, agreed to purchase debt instruments held by other entities for more than $60 million. The Call Option Agreement also required an amendment to the stockholders’ agreement.
Nearly two years after the agreement was signed, Conru sent Buckheit a certified letter enclosing a $1,000 check and referring to the option. Buckheit responded that Conru could no longer complete the option because Conru had not tendered payment within a reasonable time and stated that he had revoked the option. Conru then asserted four claims: declaratory judgment, breach of contract, breach of the covenant of good faith and fair dealing, and specific performance.
Motion and arguments
Buckheit moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint adequately states a legally recognized claim. He argued that the option had lapsed because Conru did not pay the $1,000 fee when the agreement was signed or within a reasonable time afterward. He also argued that the option’s exercise period was not 12 years and that the agreement’s waiver provision did not prevent the option from lapsing.
Conru argued that the Call Option Agreement was supported by consideration beyond the $1,000 fee and was therefore irrevocable. Alternatively, he argued that whether the option lapsed after a reasonable time was a factual question that could not be resolved at the pleading stage. For the good-faith claim, Conru relied on the same allegations supporting the other claims.
Court’s analysis
The court explained that an option supported by consideration is a binding and irrevocable contract. At the motion-to-dismiss stage, the court accepted the complaint’s well-pleaded factual allegations as true and viewed reasonable inferences in Conru’s favor.
The court held that Conru plausibly alleged that the $1,000 fee was not the Call Option Agreement’s only consideration. The complaint identified several contemporaneous agreements and alleged that the Call Option Agreement was part of a larger transaction. Because of those allegations, the court could not determine as a matter of law that the agreement was not an irrevocable option.
The court separately held that Buckheit had not shown at the pleading stage that the option lapsed because Conru waited nearly two years to pay the fee. Under California law, when an agreement does not specify an acceptance period, whether a proposal was accepted within a reasonable time depends on the facts and circumstances. The court found no fixed rule requiring an option to lapse after a particular period and no indisputable fact on the face of the complaint or agreement that allowed the court to decide the issue then.
The court therefore concluded that Conru plausibly alleged both that the $1,000 fee was not the only consideration and that factual issues prevented a determination that the option had lapsed. Because the court denied the motion on those grounds, it did not address Buckheit’s arguments concerning the exercise period or waiver provision.
As to the third claim, the court held that Conru plausibly alleged a breach of the covenant of good faith and fair dealing because he plausibly alleged that Buckheit was not acting within the express rights granted by the Call Option Agreement.
Disposition
The court denied Buckheit’s motion to dismiss. The ruling was made at the pleading stage and did not finally decide whether Buckheit breached the agreement, whether the option ultimately remained effective, or whether Conru was entitled to the requested relief.
Read the full 7-page opinion on CourtListener, the free public archive maintained by the Free Law Project.