Walters v. Gill Industries, Inc.
MEMORANDUM OPINION & ORDER: (1) GRANTING IN PART & DENYING IN PART dfts' 86 MOTION to Dismiss for Lack of Jurisdiction; (1) all claims against David DeGraaf, Gordon Schreur, Alicia Masse are DISMISSED; (3) pla Walters' claim asserted under KRS 337.385 is DISMISSED with respect to all dfts. Signed by Judge Danny C. Reeves on 1/10/22.(KJR)cc: COR
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UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
LORI WALTERS, in her individual
capacity and on behalf of all others
GILL INDUSTRIES, INC., et al.,
Civil Action No. 5: 21-069-DCR
Plaintiff Lori Walters claims that her former employer, Defendant Gill Industries, Inc.,
promised to pay her and other employees bonuses for work they performed while the company
tried to find a buyer for its facility in Richmond, Kentucky. But Walters asserts that, after the
company located a buyer and sold the facility, it failed to pay Walters and her co-workers
pursuant to the agreement. Walters sued, alleging various claims including breach of contract,
fraud, and Kentucky wage and hour violations. Walters subsequently amended her Complaint
to add as defendants various subsidiaries, parent, and sister companies of Gill Industries, as
well as Gill officers David DeGraaf, Gordon Schreur, and Alicia Masse.
The defendants have filed a motion to dismiss several of Walters’ claims. The motion
to dismiss the claims against Gill Corporation, GRM Automation Inc., Gill Real Estate
Holdings Co., Gill Holding Company, Inc., Gill Acquisition Company, Gill Mexico Holdings,
Inc., Gill Industries Disc, Inc., and Heron Industries, Inc. will be denied because Walters has
sufficiently established that the Court has personal jurisdiction over the corporate defendants.
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However, Walters has failed to state a claim upon which relief can be granted with respect to
the individual defendants. As a result, the motion to dismiss will be granted with respect to
the claims asserted against DeGraaf, Schreur, and Masse. Finally, the defendants’ motion to
dismiss Walter’s Kentucky wage-and-hour claim will be granted because Walters failed to
plead that she is an employee as defined in Chapter 337 of the Kentucky Revised Statutes.
Gill Industries, Inc. (“Gill Industries”) operated a business in Richmond, Kentucky (the
“Richmond Facility”) that supplied component parts to automobile manufacturers. Facing
financial difficulties in November 2019, the Gill umbrella of companies (“Gill”) sought to
either sell or wind down Gill Industries. As part of an effort to sell the Richmond Facility as
a going concern, Gill Industries presented employees with an agreement (“Retention
Agreement”) under which it would provide incentive payments for employees’ continued
employment while Gill sought to sell the Richmond Facility.
Walters entered into a Retention Agreement on March 10, 2020. [Record No. 169-2]
It provides, in relevant part:
Retention Bonus. The Recipient will be eligible to receive a bonus in
the amount of $16,346 (sixteen thousand and three hundred and forty-six
dollars), less applicable withholdings and deductions and subject to the payment
conditions of Section 2 below (the “Retention Bonus”), if the Recipient remains
continuously and actively employed until the earlier of the following (“Payment
The Recipient’s involuntary termination of employment for any
reason other than for Cause (as defined below); or
December 31, 2020.
Unpaid PTO. During the normal course of employment, the Recipient
is entitled to receive Paid Time Off (“PTO”). To the extent the Recipient has
not taken PTO because of job responsibilities, the unused PTO will be added to
the Final Retention Bonus Payment. . . .
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Payment of the Retention Bonus. If the Recipient is entitled to receive
the Retention Bonus, it will be paid as follows:
fifteen percent (15%) of the Retention Bonus shall be paid on the
next scheduled payroll after May 31, 2020;
fifteen percent (15%) of the Retention Bonus shall be paid on the
next scheduled payroll after August 31, 2020;
the remainder of the Retention Bonus (“the Final Retention
Bonus Payment”) plus any unused PTO shall be paid upon a Payment Event on
the next scheduled payroll after expiration of the waiver period of the Waiver
and Release Agreement.
Gill ultimately sold the Richmond Facility to Challenge in early 2020 but did not make any
payments to employees under the Retention Agreement.
Walters filed a Complaint in Madison Circuit Court on January 22, 2021, on behalf of
herself and a proposed class of plaintiffs defined as “any and all current and former employees
of the Defendant who entered in a Retention Agreement with Gill Industries, Inc., and who
were and are citizens of the Commonwealth of Kentucky.” Walters alleged claims of fraud
and fraud in the inducement, breach of contract, violation of K.R.S. § 337.385, unjust
enrichment, and negligent misrepresentation. [Record No. 1-1]
Gill Industries removed the matter to this Court on March 10, 2021, alleging diversity
jurisdiction pursuant to 28 U.S.C. § 1332(a). Walters was permitted to file an Amended
Complaint on August 30, 2021. [Record No. 64] Through that amendment, she added several
defendants within the Gill corporate structure, including: Gill Corporation, GRM Automation
Inc., Gill Real Estate Holdings Co., Gill Holding Company, Inc., Gill Acquisition Company,
Gill Mexico Holdings, Inc., Gill Industries Disc, Inc., and Heron Industries, Inc. She also
added as defendants Alicia Masse, in her capacity as president of all corporate defendants;
David DeGraaf, in his capacity as president of all corporate defendants; and Gordon Schreur,
in his capacity as treasurer of Gill Corporation GRM Automation, Inc., Gill Holding Company,
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Inc., Gill Acquisition Company, Gill Mexico Holdings, Inc., Gill Industries Disc, Inc., and
Heron Industries, Inc. Walters also included claims for civil conspiracy and joint enterprise.
The defendants filed a motion to dismiss on October 14, 2021, arguing that: the Court
does not have personal jurisdiction over Defendants GRM Automation, Inc., Gill Real Estate
Holdings Co., Gill Holding Company, Inc., Gill Acquisition Company, Gill Mexico Holdings
Inc., Gill Industries Disc, Inc. and Heron Industries, Inc. (“the Corporate Defendants”);
Walters has failed to state a claim upon which relief can be granted with respect to Defendants
Schreur, Masse, and DeGraaf (“the Individual Defendants”); and the Court lacks subject matter
jurisdiction with respect to Walters’ K.R.S. § 337.385 claims against all defendants. Each
argument is considered below.
Personal Jurisdiction Over Corporate Defendants
The plaintiff has the burden to establish that the Court has personal jurisdiction over
the defendants. Theunissen v. Matthews, 935 F.2d 1454, 1458 (6th Cir. 1991). The issue
sometimes may be resolved solely on the basis of written materials, in which case the plaintiff
is only required to make a prima facie case of jurisdiction. Am. Greetings Corp. v. Cohn, 839
F.2d 1164, 1168-69 (6th Cir. 1988). Notably, “the pleadings and affidavits submitted on a
12(b)(2) motion are received in a light most favorable to the plaintiff.” Theunissen, 935 F.2d
at 1459. If the Court concludes that the parties’ written submissions have raised “issues of
credibility or disputed issues of fact which require resolution, it may conduct a preliminary
evidentiary hearing.” Am. Greetings Corp., 839 F.2d at 1169.
A federal court sitting in diversity may exercise jurisdiction over a defendant only if a
court in the forum state could do so. Accordingly, the Court may exercise jurisdiction over
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the defendants only if jurisdiction is proper under the Due Process Clause of the United States
Constitution and Kentucky’s long-arm statute. See Conn v. Zakharov, 667 F.3d 705, 711 (6th
Cir. 2012). However, the plaintiff does not contend that this Court has personal jurisdiction
over GRM Automation, Inc., Gill Real Estate Holdings Co., Gill Holding Company, Inc., Gill
Acquisition Company, Gill Mexico Holdings Inc., Gill Industries Disc, Inc. and Heron
Industries, Inc. based on those entities’ contacts with Kentucky. Instead, she asserts that the
contacts of Gill Industries and Gill Corporation (which do not contest personal jurisdiction)
should be imputed to the remaining Corporate Defendants based on an alter ego theory.
The Sixth Circuit has endorsed the use of such a theory to exercise personal jurisdiction.
Estate of Thomson v. Toyota Motor Corp., 545 F.3d 357, 362 (6th Cir. 2008). But under
Kentucky law, Walters must demonstrate two elements to establish applicability of this
doctrine: “(1) domination of the corporation resulting in a loss of corporate separateness and
(2) circumstances under which continued recognition of the corporation would sanction fraud
or promote injustice.” Pro Tanks Leasing v. Midwest Propane & Refined Fuels, LLC, 988 F.
Supp. 2d 772, 784-85 (W.D. Ky. Dec. 18, 2013) (quoting Inter-Tel Techs., Inc. v. Linn Station
Props., LLC, 360 S.W.3d 152, 165 (Ky. 2012)).
The Supreme Court of Kentucky has identified a number of factors to examine in
determining whether there is a loss of corporate separateness such that the court should pierce
the corporate veil. See Inter-Tel Techs, 360 S.W.3d at 155. They include:
(1) inadequate capitalization; (2) failure to issue stock; (3) failure to observe
corporate formalities; (4) nonpayment of dividends; (5) insolvency of the debtor
corporation; (6) nonfunctioning of the other officers or directors; (7) absence of
corporate records; (8) commingling of funds; (9) diversion of assets from the
corporation by or to a stockholder or other person or entity to the detriment of
creditors; (10) failure to maintain arm’s-length relationships among related
entities; and (11) whether, in fact, the corporation is a mere façade for the
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operation of the dominant stockholders. a) Does the parent own all or most of
the stock of the subsidiary? b) Do the parent and subsidiary corporations have
common directors or officers? c) Does the parent corporation finance the
subsidiary? d) Did the parent corporation subscribe to all of the capital stock of
the subsidiary or otherwise cause its incorporation? e) Does the subsidiary have
grossly inadequate capital? f) Does the parent pay the salaries and other
expenses or losses of the subsidiary? g) Does the subsidiary do no business
except with the parent or does the subsidiary have no assets except those
conveyed to it by the parent? h) Is the subsidiary described by the parent (in
papers or statements) as a department or division of the parent or is the business
or financial responsibility of the subsidiary referred to as the parent
corporation’s own? i) Does the parent use the property of the subsidiary as its
own? j) Do the directors or executives fail to act independently in the interest
of the subsidiary, and do they instead take orders from the parent, and act in the
parent’s interest? k) Are the formal legal requirements of the subsidiary not
The most important factors are “grossly inadequate capitalization, egregious failure to observe
legal formalities and disregarding of distinctions between parent and subsidiary, and a high
degree of control by the parent over the subsidiary’s operations and decisions, especially those
of a day-to-day nature.” Id.
Many of these factors weigh in favor of disregarding the corporate form with respect
to all Corporate Defendants. Gill Holding Company, Inc. is the 100 percent owner of all other
Corporate Defendants, including Gill Industries, Inc. [Record No. 118, p. 8] Gill Holding
Company, Inc. sits at the top of Gill’s corporate hierarchy, with sister companies Gill
Industries, Inc., GRM Automation, Inc., Gill Acquisition Co., Gill Real Estate Holdings Co.,
and Heron Industries, Inc. sitting “one step below.” Defendants Gill Mexico Holdings, Inc.,
Gill Corporation, and Gill Industries Disc, Inc. are 100-percent-owned subsidiaries of
Defendant Gill Industries, Inc. Gill Industries and the other Corporate Defendants shared the
same president, treasurer, and secretary in 2019, 2020, and 2021.
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David DeGraaf was president of the Gill entities. When asked which corporate entity
employed him, he “assumed that would be Gill Corporation.” [Record No. 118-3, p. 32] He
received paychecks on a bi-weekly basis, but did not know which entity issued his paychecks.
The voting members of the Board of Gill Corporation were Rita Woodruff, Mary Gill
Thornton, and Joe Gill—all family members affiliated with the company. When asked who
made up the board of directors of Gill Holding Company, Inc., DeGraaf stated, “there’s only
one board, to my knowledge, and those were the people that I just mentioned to cover all the
entities of Gill. . . . We were managing all of the entities within that tree.” Id. p. 36.
Gordon Schreur was the chief financial officer of Gill Holding Company and its
subsidiaries from February 2018 to October 2020. [Record No. 118-4, p. 25] Schreur
identified his employer as Gill Holding Company, Inc. and all of its subsidiaries—he believed
DeGraaf’s employer was the same. He reported that, prior to Gill’s financial troubles in
November 2019, none of the entities had a main operating account. Instead, Gill had an
account at Huntington National Bank and receipts from Gill’s various facilities swept against
Gill’s revolving line of credit. The terms of the agreement identified Gill Holding Company,
Inc., Gill Industries, Inc., Gill Corporation, GRM Automation, Inc., and Gill Real Estate
Holdings, Co. as the “Borrowers” and Gill Acquisition Company and Heron Industries, Inc.,
among others, as “Loan Parties.”
In November 2019, Gill began to “ring fence” Richmond and other facilities so that
their debts would not be paid out of the central revolving line of credit. Schreur explained that,
by that point, customers sometimes had to fund the operations of the plant. Id. at 17.
According to Schreur, the ring fencing was in contemplation of either a sale or wind-down and
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was done to make sure that customers were only funding the plants with which they did
business. Id. at 22.
Alicia Masse was appointed chief restructuring officer after Huntington National Bank
reached out to her in February 2019, saying they had a company that needed a viability
analysis. [Record No. 118-5] When asked whether the viability analysis was limited to Gill
Industries, Masse stated: “[T]hat’s always a hard question to answer because Gill had a lot of
different subsidiaries. . . . [T]he only one that really stuck out as separate would have been the
Ireland subsidiary. Everything else really rolled up into Gill Industries and was part of . . . the
Huntington loan documents.” Id. 27. Masse was paid hourly but was not sure which entity
paid her. She did not separate the hours worked per facility.
The Corporate Defendants’ responses to interrogatories lend additional support to the
plaintiff’s allegation that they lack corporate separateness, for purposes of personal
jurisdiction. Gill Acquisition Company was used to purchase a group of businesses in 2014
which included the Richmond Facility.
The production assets were transferred to Gill
Corporation and GRM Automation sometime in 2015 or 2016. [Record No. 157-1, p. 6] The
real estate was transferred to Gill Real Estate Holdings Co. [Record No. 157-7] While it
charged rent for the use of this real estate, the “[c]harges were recorded intercompany and on
a consolidated basis [and] netted to zero.” Gill Holding Company, Inc. has no day-to-day
business activities. Instead, it is simply a holding company that owns other Gill entities.
[Record No. 157-11] The remaining Corporate Defendants, with the exception of GRM
Automation, also had no day-to-day operations.
With respect to finances, the Corporate Defendants mainly relied upon the central Gill
Holding Company account and revolving line of credit at Huntington National Bank. Only
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Gill Holding Company and GRM Automation had accounts separate from the central account.
And GRM Automation was the only corporate entity that generated revenue and had any
employees other than Schreur and DeGraaf.
DeGraaf testified at his deposition that Gill Corporation operated as if Gill Holding Co.
and Gill Corporation were the same business. With respect to Gill Acquisition Company,
DeGraaf stated, “[w]e never had any specific meetings. . . .
We didn’t conduct any
acquisitions.” DeGraaf additionally testified that Gill Mexico Holdings, Inc. was conducted
as if it was the same corporation as “the Gill entity.” [Record No. 118-3, p. 39] According to
DeGraaf, Gill Industries Disc, Inc. also was conducted as the same business entity as Gill
Corporation and had no separate business functions. DeGraaf testified that Heron Industries
also was conducted as the same business as the other Gill entities.
GRM Automation built and performed maintenance on tools used by Gill Industries
and Gill Corporation, as well as outside customers. [Record No. 157-4] It had employees in
Comstock Park, Michigan, and generated revenue during 2019-2020. GRM Automation
maintained three accounts at Huntington National Bank in addition to being a party to the
overall Gill Holding Company loans and revolving line of credit. GRM Automation drew
from the revolving line of credit and shared payroll and accounts payable staff with Gill
Industries. DeGraaf testified that GRM Automation, Inc. was operated as if it was part of Gill
Corporation and did not have any separate existence. [Record No. 118-3, p. 38]
None of the entities held meetings separate from any other Gill entity. All Gill entities
shared one website, Gill-industries.com, and all employees had the same domain name for
their email addresses, ending in “gill-industries.com.” Schreur stated that “corporate” did
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payroll for all of the employees at all of the plants. Additionally, approval for vendors would
have to go through the corporate office. [Record No. 118-4, p. 27]
Construing the undisputed facts in the light most favorable to Walters, the Court
concludes that the Corporate Defendants (including Gill Industries, Inc.) are one and the same
for purposes of assessing personal jurisdiction. All Corporate Defendants shared the same
officers and owners during the relevant time period. Prior to the end of 2019, all Corporate
Defendants shared an account at Huntington National Bank from which salaries and wages for
all employees were drawn. President DeGraaf “assumed” his employer was Gill Corporation
and believed that the companies under the Gill umbrella operated as if they were the same
business. Masse, who became DeGraaf’s superior after her appointment, only recognized
Gill’s Ireland subsidiary as separate, stating that everything else “rolled up into Gill Industries”
and was part of the Huntington Bank loan.
While GRM Automation bears some attributes of a separate corporate entity (e.g.,
outside customers, its own bank accounts, revenue), countervailing considerations outweigh
them. Notably, GRM Automation operated out of the Gill central account and its president
believed that it had no separate existence from Gill Corporation.
Piercing the corporate veil is appropriate when the Court looks at the Inter-Tel Techs
factors. While “grossly inadequate capitalization” is not necessarily at issue, it is clear that the
corporate defendants’ funds were commingled and that the various entities relied on funding
from Gill’s central account. Further, there is no indication that any legal formalities were
observed, as all entities shared common officers and did not have meetings or any other
formalities that would distinguish one entity from another. Even the president of the company
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expressed doubt regarding the identity of his employer and, for the most part, stated that all of
the companies were one in the same.
Walters also has made a sufficient showing that continued recognition of the individual
corporations would sanction fraud or promote injustice. Defendant Schreur’s deposition
testimony indicates that Gill “ring fenced” Gill Industries’ finances around the same time that
the Richmond employees signed the Agreements. While the defendants contend there is an
innocent explanation for this, Walters asserts the defendants did so to divert money away from
Gill Industries and deny her and the putative class members a recovery.
The Supreme Court of Kentucky has adopted the following test to determine whether
recognizing corporations separately would lead to fraud or promote injustice:
[C]ourts that properly have pierced corporate veils to avoid promoting injustice
have found that, unless it did so, some wrong beyond a creditor’s inability to
collect would result: the common sense rules of adverse possession would be
undermined; former partners would be permitted to skirt the legal rules
concerning monetary obligations; a party would be unjustly enriched; a parent
corporation that caused a sub’s liabilities and its inability to pay for them would
escape those liabilities; or an intentional scheme to squirrel assets into a
liability-free corporation while heaping liabilities upon an asset-free corporation
would be successful.
Inter-Tel, 360 S.W.3d at 164-65 (quoting Sea-Land Servs., Inc. v. Pepper Source, 941 F.2d
519, 522-24 (7th Cir. 1991)). Injustice must be something more than the mere inability to
collect a debt from the corporation. Inter-Tel, 360 S.W.3d at 164. Here, Walters contends that
the defendants intentionally restructured their bank accounts so that Gill Industries, Inc. would
not have funds to pay its employees under the Retention Agreement. Construing the record
in the light most favorable to Walters, the continued recognition of separate entities would
promote injustice. Accordingly, the portion of the defendants’ motion to dismiss based on lack
of personal jurisdiction will be denied.
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Claims Against Individual Defendants
The defendants move to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure. A Rule 12(b)(6) motion tests the sufficiency of the complaint. “To survive a
motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state
a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In reviewing a motion under
Rule 12(b)(6), the Court “construe[s] the complaint in the light most favorable to the plaintiff,
accept[s] its allegations as true, and draw[s] all reasonable inferences in favor of the plaintiff.”
The Court primarily considers the allegations in the complaint, but also may consider matters
of public record, orders, items appearing in the record, and exhibits attached to the complaint.
Amini v. Oberlin Coll., 259 F.3d 493, 502 (6th Cir. 2001)).
Breach of Contract
The defendants contend that the breach of contract claims against DeGraaf and Masse
should be dismissed because they were not parties to the Retention Agreement.
Agreement was “made by and between Gill Industries, Inc.” and “the undersigned individual.”
[Record No. 150-2] “David W. DeGraaf, President” and “Alicia Masse, CRO” signed on
behalf of “COMPANY-GILL” and it appears that Walters signed on her own behalf. Id. The
defendants assert that DeGraaf and Masse signed the Agreement in their capacities as agents
and therefore are not liable for any alleged breach of the Agreement. They further contend
that the breach of contract claim against Schreur should be dismissed because he was not a
party or an agent with respect to the Retention Agreement.
An agent acting within the scope of his or her employment in entering a contract is not
liable for a subsequent breach of that contract. Smith v. Isaacs, 777 S.W.2d 912, 913 (Ky.
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1989). Walters does not dispute that DeGraaf, Masse, and Schreur were not parties to the
Retention Agreement. Instead, she argues that the individual defendants can be held liable for
breach of contract “under the alter ego theory of ‘piercing the corporate veil.’” [Record No.
118, p. 18] While Walters alleged in her Amended Complaint that the corporate entities were
alter egos of one another, she did not assert that the individual defendants were alter egos of
the entities. 1
Further, she has not pointed to any facts suggesting that DeGraaf, Masse, or Schreur
were alter egos of any of the corporate entities. DeGraaf, Masse, and Schreur were high
ranking employees, but Walters did not plead or otherwise explain how they controlled
corporate decisions such that they were one and the same as the corporations that employed
them. See e.g., Johnson v. Diamond Shine, Inc., 890 F. Supp.2d 763, 773-74 (W.D. Ky. 2012)
(quoting Poyner v. Lear Siegler, Inc., 542 F.2d 955, 958 (6th Cir. 1976) (“Ownership and
control of a corporate entity by the persons sought to be held liable is . . . not sufficient by
itself for denial of entity treatment.”)). Accordingly, the breach of contract claims against
DeGraaf, Schreur, and Masse will be dismissed.
Fraudulent Misrepresentation or Fraud in the Inducement
Walters asserts that the Retention Agreement contains material representations which
were false and known to be false by the defendants, or recklessly made by the defendants, and
made with the inducement to be acted upon and in reliance by the proposed class of plaintiffs,
Walters described each Corporate Defendant in detail and specifically alleged that it was
an alter ego of Gill Industries, Inc. Walters’ specific allegations concerning the Individual
Defendants did not include allegations that they were alter egos of Gill Industries, Inc. or any other
corporate entity. Later in the Amended Complaint, she made a generic allegation that the
“Defendants” were alter egos of one another, but there are no facts suggesting that she intended
this reference to include the Individual Defendants. [See Record No. 64, ¶ 19a.]
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thereby causing them injury. Specifically, Walters alleges that the defendants represented that,
if the proposed plaintiffs remained continuously and actively employed until the earlier of their
involuntary termination of employment for any reason other than cause or December 31, 2020,
then the proposed class plaintiffs would be paid the Retention Bonus and PTO as outlined in
the Retention Agreement.
A party seeking to recover for fraudulent misrepresentation or fraud in the inducement
must allege six elements: “1) material representation 2) which is false 3) known to be false or
made recklessly 4) made with inducement to be acted upon 5) acted in reliance thereon and 6)
causing injury.” PCR Contractors, Inc. v. Danial, 354 S.W.3d 610, 613 (Ky. Ct. App. 2011);
Flegles, Inc. v. TruServ Corp., 289 S.W.3d 544, 549 (Ky. 2009). Additionally, the plaintiff’s
reliance on the material representation must be reasonable. Flegles, 289 S.W.3d at 549.
The defendants contend that Walters’ fraud and fraud in the inducement claims against
the individual defendants should be dismissed because they are based on representations made
within the Retention Agreement. As explained above (and as Walters apparently concedes),
the individual defendants were not parties to the Retention Agreement. Walters responds that
the claims are based on the individual defendants’ duty not to supply false information or make
material misrepresentations, which is independent of any contractual duties.
Claims of negligent and fraudulent misrepresentation must meet the heightened
pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure. Morris Aviation,
LLC v. Diamond Aircraft Indus., Inc., 536 F. App’x 558, 562 (6th Cir. 2013) (citing Republic
Bank & Trust Co. v. Bear Stearns & Co., Inc., 683 F.3d 239, 247-48 (6th Cir. 2012)). This
standard requires the plaintiff to specify the allegedly fraudulent statements, identify the
speaker, plead when and where the statements were made; and to explain what made the
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statements fraudulent. Id. Walters has not identified the fraudulent statements that any of the
individual defendants allegedly made. Instead, the Amended Complaint relies solely upon the
alleged “fraudulent misrepresentations made by the Defendant Gill Industries, Inc.” that were
included in the Retention Agreement. Accordingly, the fraudulent inducement and fraudulent
misrepresentation claims against the DeGraaf, Schreur, and Masse will be dismissed.
Walters claims that the Defendants “supplied false information to the Proposed Class
Plaintiffs that they would receive the amounts proposed by the Retention Agreement.”
[Record No. 64, ¶ 65] The individual defendants contend that the negligent misrepresentation
claims asserted against them should be dismissed because Walters has not alleged any
Kentucky has adopted the Restatement (Second) of Torts definition of negligent
One who, in the course of his business, profession or employment, or in any
other transaction in which he has a pecuniary interest, supplies false information
for the guidance of others in their business transactions, is subject to liability for
pecuniary loss caused to them by their justified reliance upon the information,
if he fails to exercise reasonable care or competence in obtaining or
communicating the information.
Generally, § 522 involves negligent supply of commercial information to others for guidance
in their business transactions. Plaintiffs must identify the false or misleading information
provided by the specific defendant. Estate of DeMoss by and through DeMoss v. Eli Lilly &
Co., 234 F. Supp.3d 873, 883 (W.D. Ky. 2017) (citing Gaunce v. CL Med. Inc., 2015 WL
893569 (E.D. Ky. Mar. 2, 2015) and Giddings & Lewis, Inc. v. Industrial Risk Ins., 348 S.W.3d
729 (Ky. 2011)).
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As explained previously, plaintiffs alleging negligent misrepresentation under
Kentucky law must meet the heightened pleading requirements of Federal Rule of Civil
Procedure 9(b). Id. (citing Republic Bank & Trust Co. v. Bear Stearns & Co., Inc., 683 F.3d
239, 247-48 (6th Cir. 2012)). Walters asserts that the defendants falsely represented to the
plaintiffs that “they would receive the amounts proposed by the Retention Agreements.”
[Record No. 118, p. 20] While Walters reports that this misrepresentation is included in the
terms of the Retention Agreement, she does not seriously contend that DeGraaf, Masse, or
Schreur are parties to that agreement.
And she has not identified any other specific
misrepresentations that that the individual defendants allegedly made to her or any other
proposed class member.
Accordingly, the negligent misrepresentation claims against
DeGraaf, Schreur, and Masse will be dismissed.
Walters asserts an unadorned claim for unjust enrichment. To recover on a claim of
unjust enrichment, the plaintiff must establish that there was (1) a benefit conferred upon the
defendant at the plaintiff’s expense; (2) a resulting appreciation of benefit by the defendant;
and (3) inequitable retention of that benefit without payment for its value. Superior Steel, Inc.
v. Ascent at Roebling’s Bridge, LLC, 540 S.W.3d 770, 777-78 (Ky. 2017). The individual
defendants contend that this claim should be dismissed with respect to them because Walters
has failed to allege that they received a benefit from her continued employment.
While the individual defendants were high-level corporate employees, Walters does not
allege that they were her employers and she does not point to any facts indicating that they
benefited from her continued employment.
Walters apparently has no answer to this
persuasive argument, which was raised in the defendants’ motion to dismiss, as she failed to
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acknowledge it in her response. 2 [See Record No. 118, pp. 19-20.] Accordingly, the motion
to dismiss the unjust enrichment claims against the DeGraaf, Schreur, and Masse will be
Civil conspiracy is “a corrupt or unlawful combination or agreement between two or
more persons to do by concert of action an unlawful act, or to do a lawful act by unlawful
means.” Peoples Bank of N. Ky., Inc. v. Crowe Chizek & Co. LLC, 277 S.W.3d 255, 261 (Ky.
Ct. App. 2008) (quoting Smith v. Bd. of Educ. Of Ludlow, 94 S.W.2d 321, 325 (Ky. 1936)).
The defendants correctly observe that civil conspiracy is not a free-standing claim and merely
provides a theory under which a plaintiff may recover from multiple defendants for an
underlying tort. Dickson v. Shook, 2019 WL 1412497, at *18 (Ky. Ct. App. Mar. 29, 2019)
(citing Davenport’s Adm’x v. Crummies Creek Coal Co., 184 S.W.2d 887, 888 (Ky. 1945)).
Because all of the underlying tort claims against the individual defendants are being dismissed,
so shall the claim of civil conspiracy.
Claims Under K.R.S. § 337.385
Walters alleges that Gill Industries, Inc. violated K.R.S. § 377.385 by failing to pay
wages to which she and the proposed class members were entitled under Kentucky Wage and
Hour laws, including bonuses and paid time off as promised in the Retention Agreement.
Walters instead focuses on the defendants’ less compelling argument that unjust
enrichment is not available when the terms of an express contract control. See Furlong Dev. Co.,
LLC v. Georgetown-Scott Cnty. Planning & Zoning Comm., 504 S.W.3d 34, 40 (Ky. 2016).
However, whether “the terms of an express contract control” is not before the Court at the motion
to dismiss stage. Further, the Court already determined that the individual defendants are not
parties to the Retention Agreement and, therefore, an express contract does not control—at least
with respect to those defendants.
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However, an action under § 377.385 may only be sustained by an “employee” as defined in
K.R.S. § 337.010(2)(a). Notably, an employee does not include “any individual employed in
a bona fide executive, administrative, supervisory, or professional capacity.” Id.
The defendants contend that, as Controller of the Richmond Facility, Walters was a
professional employee and, therefore, the claim under § 337.385 should be dismissed.3
[Record No. 86-2, p. 19] In response to the motion to dismiss, Walters disputes this assertion,
arguing that she mostly aggregated information at the request of others and made no decisions
on her own regarding the running of the plant or its finances. [Record No. 118, p. 23] Walters’
Complaint and Amended Complaint indicate that she is a former employee of Gill Industries,
but provide no details concerning the type of business Gill performed, her position, or the
nature of her employment. The plaintiff has the burden of establishing that she is a non-exempt
employee. Jacobs v. Floorco Enters., LLC, 2018 WL 6028709, at *3 (W.D. Ky. Nov. 16,
2018) (citing City of Louisville, Div. of Fire v. Fire Serv. Managers Ass’n ex rel. Kaelin, 212
S.W.3d 89, 94 (Ky. 2006)).
On a motion to dismiss, the Court examines the sufficiency of the pleadings. While
Walters is not required to conclusively establish her employee status in the complaint, she must
at least provide some facts from which the Court could conclude that she is a non-exempt
employee. See id. at *4 (citing Burton v. Appriss, Inc., 2013 WL 6097107 (W.D. Ky. Nov. 19,
The defendants frame this as a motion to dismiss based on lack of subject matter
jurisdiction in the introductory paragraph of the memorandum in support of their motion to
dismiss. [Record No. 86-2] When a statutory right is being pursued and the defense raised is that
the plaintiff does not come within the purview of the statute, “it makes little difference whether
Rule 12(b)(1) or Rule 12(b)(6) is the vehicle used to raise the issue as long as the non-moving
party is not taken by surprise and has an adequate opportunity to respond.” Rogers v. Stratton
Indus., Inc., 798 F.2d 913, 917 (6th Cir. 1986).
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2013) (court denied motion defendant’s 12(b)(6) motion because plaintiff had alleged
sufficient facts such that it was unclear whether he was a non-exempt employee). See also
Goodwin v. Novartis Pharm. Corp., 2012 WL 1079086, at *6 (W.D. Ky. Mar. 30, 2012).
Walters encourages the Court to conflate the defendants’ motion to dismiss this claim
with the question of class certification, but whether Walters has pled sufficient facts to make
out her individual claim for a violation of K.R.S. § 377.385 is a separate inquiry. Despite
having the opportunity to do so through the filing of an Amended Complaint, Walters did not
provide any details concerning her employment with Gill that would allow the Court to infer
that she was an “employee” as defined under § 337.010(2)(a). Accordingly, this claim will be
dismissed with respect to all defendants.
Based on the foregoing analysis and discussion, it is hereby
ORDERED as follows:
The Defendants’ motion to dismiss [Record No. 86] is GRANTED, in part, and
DENIED, in part.
All claims asserted against David DeGraaf, Gordon Schreur, and Alicia Masse
Plaintiff Walters’ claim asserted under K.R.S. § 337.385 is DISMISSED with
respect to all defendants.
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Dated: January 10, 2022.
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