Vogel v. Boris

Background

Stephen A. Vogel sued David Boris and Marshall Kiev, asserting one claim for breach of contract and one claim seeking a constructive trust. The dispute involved Forum Capital Management, LLC, which Vogel, Boris, and Kiev formed to sponsor Forum Merger Corporation I, a special purpose acquisition company, or SPAC.

The parties’ operating agreement included Section 7.02(b). Except with approval from all managers, that provision barred managers and members from performing services for another SPAC or investing in another SPAC, subject to stated exceptions. Vogel alleged that the provision required Boris and Kiev to obtain his approval before forming Forum Merger Corporation II and its sponsor, Forum Investors II LLC.

Vogel alleged that Boris and Kiev formed those entities without his consent, later completed a $250 million initial public offering for Forum Merger II Corporation, and received economic value after its later transaction involving Ittella International, LLC. Vogel claimed that he was entitled to participate in the opportunity and suffered damages.

The motion and the parties’ arguments

The court treated the defendants’ premotion letter as a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), which asks whether the complaint states a legally sufficient claim. On such a motion, the court generally accepts the complaint’s factual allegations as true and draws reasonable inferences for the plaintiff, but it does not accept legal conclusions as facts.

The defendants argued that the operating agreement governed only the original SPAC transaction; that Vogel’s interpretation was unreasonable and unenforceable; that Vogel could not recover because he had also entered another SPAC transaction without their consent; and that Vogel had not adequately alleged damages.

Court’s analysis

The court applied Delaware law because the operating agreement selected Delaware law. It held that the agreement’s language supported Vogel’s allegation that Boris and Kiev could not enter another SPAC transaction without Vogel’s approval, apart from the agreement’s stated exceptions.

The court was not persuaded that the operating agreement had ended before Boris and Kiev allegedly formed Forum Merger Corporation II. The complaint did not allege that the agreement’s assets had been sold, disposed of, or distributed, and Vogel alleged that no agreed written dissolution had occurred. The court also noted that, even if the agreement had ended on May 25, 2018, Vogel alleged that the new SPAC was created on May 4, 2018. The court therefore concluded that Vogel had sufficiently pleaded that the agreement was in effect when the alleged breach occurred.

The court rejected the argument that Section 7.02(b) was plainly unenforceable as an unreasonable restrictive covenant. It found that the provision could serve a legitimate economic interest by protecting the parties’ planned exclusive business relationship. Whether the provision was reasonable in scope and duration depended on the transaction’s context and involved factual questions that could not be resolved on a motion to dismiss.

The court also rejected the defendants’ reliance on the election-of-remedies doctrine. That doctrine can prevent a party from pursuing inconsistent remedies, but the court concluded that Vogel’s alleged breach did not amount to rescinding or unwinding the agreement. The court likewise declined to treat Vogel’s alleged breach as automatically preventing him from seeking relief.

Finally, the court found that Vogel had adequately alleged expectation damages—the money intended to place him in the position he would have occupied if the contract had been performed. Although the court described the damages allegations as thin, it held that the complaint did not need to prove damages at that stage.

Disposition

Judge Victor Marrero ordered that the defendants’ motion to dismiss Vogel’s complaint was DENIED. The opinion allowed Vogel’s claims to proceed; it did not decide the ultimate merits of the claims or establish that the defendants were liable.