Jack v. Grose

Filing 163

ORDER denying (135) Motion for Summary Judgment; granting in part and denying in part (137) Motion for Summary Judgment; granting (138) Motion for Summary Judgment; granting in part and denying in part (139) Motion for Summary Judgment in case 2: 16-cv-00633-ALM-KAJ; denying (96) Motion for Summary Judgment; granting in part and denying in part (98) Motion for Summary Judgment; granting (99) Motion for Summary Judgment; granting in part and denying in part (100) Motion for Summary Judgment in case 2:17-cv-00808-ALM-KAJ. Signed by Judge Algenon L. Marbley on 3/25/2019. Associated Cases: 2:16-cv-00633-ALM-KAJ, 2:17-cv-00808-ALM-KAJ (cw)

IN THE UNITED STATES DISCTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION

JOHN JACK and
TRI-STATE DISPOSAL, LLC,
Plaintiffs,
v.
DEAN GROSE and
SOUTH PARK VENTURES, LLC,
Defendants.

SOUTH PARK VENTURES, LLC
Plaintiff,
v.
JOHN JACK, et al.,
Defendants.

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Case No. 2:16-cv-633
JUDGE ALGENON L. MARBLEY
Magistrate Judge Jolson

Case No. 2:17-cv-808
JUDGE ALGENON L. MARBLEY
Magistrate Judge Jolson

OPINION & ORDER
This matter is before the Court on the parties’ Motions for Summary Judgment in the
consolidated cases of Jack v. Grose, et al., 2:16-cv-633, and South Park Ventures, LLC v. Jack, et
al., 2:17-cv-808. These motions are fully briefed and ripe for review. For the reasons set forth
below, the parties’ Motions are GRANTED IN PART and DENIED IN PART.

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I.

BACKGROUND

A. Factual Background
This case is a tale of corporate intrigue fit for the casebooks. This Court has already set
out a detailed statement of facts in its second Order on SPV’s and Grose’s Motion to Dismiss
(ECF No. 82), which are reproduced below, with minor variations.
Water Energy Services, LLC (“WES”) is a limited liability company that was created to
operate Class II injection wells for disposal of wastewater generated by the oil and gas industry
in the Appalachian Basin. (ECF No. 27 at ¶¶ 15-16). Fifty-percent (50%) of WES’ membership
interest is owned by Defendant South Park Ventures, LLC (“SPV”), which is owned in part and
controlled by Defendant Dean Grose. (Id. at ¶¶ 5, 7). The remaining fifty-percent (50%) of
WES’ membership interest is owned by Plaintiff Tri-State Disposal, LLC (“Tri-State”). (Id. at ¶
7). Plaintiff John Jack is the manager and a member of Tri-State. (Id. at ¶ 1). Horizon Partners,
LLC (“Horizon”) is also a member of Tri-State. (Id. at ¶ 4). Jack is a member of Horizon and
holds 50% of its membership interest. (Id. at ¶¶ 1, 4). Heinrich Production, LLC (“Heinrich”)
holds the remaining 50% membership interest in Horizon. (Id. at ¶ 4).
WES is a manager-managed limited liability company and has a board with two
members—Grose, appointed by SPV, and Jack, appointed by Tri-State. (Id. at ¶ 15). Jack also
served as the CEO of WES and operated WES day-to-day, along with Noble Zikefoose, the
Senior Vice President of Operations, and Terry Clark, the Vice President of Business
Development. (Id. at ¶ 18). Grose was involved with the management of WES through his
position on the board. (Id.).
Between 2015 and 2016, WES constructed its facilities and established a customer base,
becoming fully operational by early 2016. (Id. at ¶¶ 22-24). WES soon experienced cost

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overruns in the construction of its wells, however. In 2015, while WES was still completing
construction of its injection wells, Cequel Energy Capital Partners, LLC (“Cequel”) became
interested in purchasing WES. (Id. at ¶ 25, Ex. E). Cequel presented WES with a letter of intent,
offering to buy the company for an amount in excess of all debts that WES had incurred. (Id. at
¶¶ 25, 26, Ex. E). Despite this lucrative offer, SPV and Heinrich declined to pursue it, and
instead allowed the letter of intent to expire in early 2016. (Id. at ¶ 27).
Jack and Tri-State allege that, following SPV’s refusal to pursue the offer, Grose, SPV,
and Heinrich engaged in a concerted effort to remove Jack from the board of WES, to remove
him as CEO to gain control of WES, and to deprive him of financial compensation to which he is
otherwise entitled. (Id. at ¶ 28). Jack and Tri-State allege that Heinrich attempted to gain control
of Tri-State and Horizon and remove him from those companies as well.1 (Id.).
As a result, management of WES became deadlocked by disagreement and lack of
cooperation. (Id. at 30). Jack made several efforts to resolve the issues with Heinrich, SPV, and
Grose, including offering to sell his interest in Tri-State and Horizon to Heinrich, or offering to
buy Heinrich’s interest in Horizon, and offering to sell Tri-State’s interest in WES to SPV, or
offering to buyout SPV. (Id. at ¶¶ 32-35, 38). These efforts did not come to fruition, and
deadlock continued. Jack alleges that SPV and Grose made false statements about him,
including that he misappropriated money from WES, in order to damage his business reputation
and force him to leave WES and forgo financial benefits. (Id. at ¶¶ 41, 43).

Plaintiffs have claims pending against Heinrich in the Washing County Common Pleas Court,
Case No. 16 OT 142, which is currently stayed pending arbitration. The arbitration is currently
pending before the American Arbitration Association in Case No. 01-16-0003-7711. See ECF
No. 27 at ¶ 3.
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Jack and Tri-State further allege that Grose and SPV engaged in a private negotiation with
Dolphin Capital Group, LLC to sell WES in excess of $21 million, and stated that the profits
would not be shared with Tri-State or Jack. (Id. at ¶¶ 49-51, Ex. K). On May 26, 2016, SPV
made a formal demand on Jack and Grose, as the board of managers of WES, to remove Jack for
breach of fiduciary duties, personal dishonesty, gross mismanagement, and incompetence. (Id. at
¶ 44, Ex. J). Then, on June 9, 2016, SPV sent a notice of expulsion to Tri-State, which purported
to expel Tri-State from WES altogether. (Id. at ¶ 53, Ex. L).
In December of 2016, after the above-captioned lawsuit was filed, the assets of WES were
sold to Funds Protection Investments (“FPI”), which is an entity formed and controlled by
Heinrich and Grose. (Id. at ¶¶ 58-59). FPI then sold the WES assets to Deeprock Disposal
Solutions, LLC (“Deeprock”), which is controlled by Heinrich, Grose, and SPV. (Id. at ¶ 60).
Deeprock terminated Jack’s employment with WES, and currently operates the disposal facility
that was formerly owned by WES. (Id. at ¶ 61).
B. Procedural Background
Plaintiffs, John Jack and Tri-State Disposal, LLC, sued Defendants, Dean Grose and South
Park Ventures, LLC, in the Washington County (Ohio) Court of Common Pleas on June 3, 2016.
Jack and Tri-State alleged five claims: (1) breach of contract (WES Operating Agreement); (2)
request for injunctive relief regarding the alleged breach of contract and attempts to expel Jack
and/or Tri-State from WES; (3) request for declaratory judgment regarding the efforts to remove
Jack as manager and CEO and to expel Tri-State from WES; (4) breach of fiduciary duty for
alleged improper conduct and self-dealing; and (5) defamation for allegedly false and defamatory
statements about Jack and Tri-State. Grose and SPV removed the case to federal court, invoking
this Court’s diversity jurisdiction. This Court then dismissed Jack’s and Tri-State’s claim against

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Grose for breach of contract and injunctive relief for the alleged breach and efforts to expel Jack
and Tri-State and dismissed Count Three in its entirety. This Court allowed Jack and Tri-State’s
claim for breach of contract and request for injunctive relief to proceed against SPV and allowed
the breach of fiduciary duty claim to proceed. (ECF No. 25).
Plaintiffs then filed a Second Amended Complaint. (ECF No. 27). The Amended
Complaint alleged three claims: (1) breach of contract against SPV, (2) breach of fiduciary duties
against Grose and SPV, and (3) defamation resulting in libel and slander. Defendants again filed
a Motion to Dismiss. This Court ruled on the Motion to Dismiss on March 5, 2018. (ECF No.
82). In that Order, this Court denied Defendants’ Motion to Dismiss the fiduciary duty claim.
SPV had also sued Jack and Tri-State in Washington County on June 9, 2016. (2:17-cv808, ECF No. 1 at 2). SPV’s Complaint purported to bring a derivative action on behalf of WES
against Jack and WES. On March 3, 2017, SPV amended its complaint and instead sued John
Jack, Noble Zickefoose, and Terry Clark in a direct action. Defendants Jack, Clark, and Zickefoose
then removed the case to federal court where it was consolidated with Jack’s and Tri-State’s suit.
SPV alleged two claims in their suit against Jack, Zickefoose, and Clark: (1) breach of fiduciary
duty; and (2) misrepresentation and fraud. (2:17-cv-808, ECF No. 1-3).
On March 19, 2018, Defendants Grose and SPV answered Jack’s and Tri-State’s Amended
Complaint and counterclaimed for: (1) breach of fiduciary duties by Tri-State and Jack; and (2)
breach of contract against Tri-State for breaching the terms of the WES Operating Agreement.2
(2:16-cv-633, ECF No. 87).

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Grose and SPV labeled this claim “breach of fiduciary duties,” but the claim proceeds to allege
that “[t]he WES Operating Agreement is a valid, binding contract” and that Tri-State breached
the Agreement. Grose and SPV clarified in their Response to Tri-State’s Motion for Summary
Judgment that this count should read “breach of contract.” (ECF No. 152 at 6). Therefore, this
Court will construe this claim as one for breach of contract.

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SPV and Zickefoose moved to dismiss the complaint against Zickefoose in case 2:17-cv808 under Federal Rule of Civil Procedure 41. (2:16-cv-633, ECF No. 161). That Motion was
granted on March 20, 2019.
Each remaining party filed a Motion for Summary Judgment in the consolidated cases.
These motions are ripe for review.
II.

STANDARD OF REVIEW

A motion for summary judgment is governed by the requirements of Federal Rule of
Civil Procedure 56. Summary judgment is appropriate “if the movant shows that there is no
genuine issue as to any material fact and the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56. A fact is material only if it “might affect the outcome of the lawsuit under the
governing substantive law.” Wiley v. United States, 20 F.3d 222, 224 (6th Cir. 1994) (citing
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). In evaluating a motion for summary
judgment, the evidence must be viewed in the light most favorable to the nonmoving party.
S.E.C. v. Sierra Brokerage Servs., Inc., 712 F.3d 321, 327 (6th Cir. 2013).
The party seeking summary judgment bears the initial burden of presenting law and
argument in support of its motion as well as identifying the relevant portions of “‘the pleadings,
depositions, answers to interrogatories, and admissions on file, together with the affidavits, if
any,’ which it believes demonstrate the absence of a genuine issue of material fact.” Celotex
Corp. v. Catrett, 477 U.S. 317, 323 (1986) (quoting Fed. R. Civ. P. 56). The moving party may
also satisfy its burden “by ‘showing’—that is, pointing out to the district court—that there is an
absence of evidence to support the nonmoving party’s case.” Celotex, 477 U.S. at 325. If the
moving party satisfies this initial burden, then the nonmoving party must present “significant
probative evidence” to show that “there is [more than] some metaphysical doubt as to the

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material facts.” Moore v. Philip Morris Cos., Inc., 8 F.3d 335, 340 (6th Cir. 1993). The mere
possibility of a factual dispute is insufficient to defeat a motion for summary judgment. See
Mitchell v. Toledo Hospital, 964 F.2d 577, 582 (6th Cir. 1992).
Summary judgment is inappropriate, however, “if the dispute about a material fact is
‘genuine,’ that is, if the evidence is such that a reasonable jury could return a verdict for the
nonmoving party.” Anderson, 477 U.S. at 248. The necessary inquiry for this Court is “whether
‘the evidence presents a sufficient disagreement to require submission to a jury or whether it is
so one-sided that one party must prevail as a matter of law.’” Patton v. Bearden, 8 F.3d 343, 346
(6th Cir. 1993) (quoting Anderson, 477 U.S. at 251-52). The mere existence of a scintilla of
evidence in support of the opposing party’s position is not enough to survive summary judgment;
there must be evidence on which the jury could reasonably find for the opposing party. See
Anderson, 477 U.S. at 251; Copeland v. Machulis, 57 F.3d 476, 479 (6th Cir. 1995). It is proper
to enter summary judgment against a party “who fails to make a showing sufficient to establish
the existence of an element essential to that party’s case, and on which that party will bear the
burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Where the
nonmoving party has “failed to make a sufficient showing on an essential element of her case
with respect to which she has the burden of proof,” the moving party is entitled to judgment as a
matter of law. Celotex, 477 U.S. at 322 (quoting Anderson, 477 U.S. at 250).
III.

LAW AND ANALYSIS

A. Requirements for a Derivative Claim
SPV and Grose (“the Grose Defendants”) and Jack and Tri-State (“the Jack Defendants”)
have both alleged that the other party cannot bring their claims because both parties are seeking
to bring derivative, rather than direct, actions. Any derivative action would have to be brought

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by WES, not the Grose or Jack Defendants. Therefore, this Court will first examine the
requirements for a direct action.
As this Court has stated before, generally, “an action for breach of fiduciary duty may
only be brought by the corporation directly, or in the alternative, indirectly by a shareholder
through a derivative action brought on behalf of the corporation.” In re Bruno, 553 B.R. 280,
286 (Bankr. W.D. Pa. 2016) (citing Pa. Cons. Stat. § 1717); Hill v. Ofalt, 85 A.3d 540 (Pa Super
2014) (describing derivate suits). Shareholders, creditors, and others are generally “prohibited
from bringing a direct action against the directors for a breach of their fiduciary duties.” In re
Bruno, 553 B.R. at 286. But “ample authority permits a direct cause of action by one 50% LLC
member against another for breach of the company’s operating agreement.” (ECF No. 25 at 10).
To bring a direct claim, a plaintiff must “allege a direct, personal injury—that is
independent of any injury to the corporation” and be entitled to the benefit of any recovery. Hill,
85 A.3d at 548. If the allegations in the complaint allege “injury to the corporation, or to the
whole body of its stock,” then an action is derivative. Id. at 549. A direct action may include
allegations that a shareholder who was also an officer or employee “was terminated, restricted
from access to records, and prevented from selling shares at their true value.” Simms v. Exeter
Architectural Products, Inc., 868 F.Supp. 677, 682 (M.D. Pa. 1994). When a party asserts
damages that resulted from harm to the corporation, such as a tax lien filed against the party
because of the corporation’s failure to pay its taxes, or attempts to collect on the personal
guarantee of a loan on which the corporation defaulted, the harm is derivative. Id. at 551–52.
Under the Pennsylvania Uniform Limited Liability Company Act of 2016
[A] member may maintain a direct action against another member, a manager or
the limited liability company to enforce the member’s rights and protect the
member’s interests, . . . [so long as the member] plead[s] and prove[s] an actual or

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threatened injury that is not solely the result of an injury suffered or threatened to
be suffered by the limited liability company.
15 P.A.C.S.A. § 8881.
This Court previously held that Tri-State and Jack properly alleged a direct action for the
Grose Defendants’ attempt to squeeze out Tri-State and Jack.
On the parties’ motions for summary judgment, this Court is now presented with the new
claims from the Grose Defendants that Jack and Tri-State breached the WES Operating
Agreement and breached their fiduciary duties. The Jack Defendants, and Clark, have defended
these allegations in part by arguing that the Grose Plaintiffs are attempting to bring a derivative
claim through their request for damages in the amount of slightly more than $2.4 million.
The First Amended Complaint that SPV filed in state court requested $2.4 million
in damages. The last numbered paragraph of the First Amended Complaint in that case is
telling. SPV concludes its allegations with the claim that “[b]y continuing to manage and
operate WES through the receivership, the Jack Defendants were able to effectively
diminish and destroy the value of WES as an ongoing concern.” (2:17-cv-808, ECF No.
1-3 at 89).
SPV bases its damages on the $2 million loan that SPV made to WES. WES could not
pay SPV once WES was put into receivership. As Grose testified in his deposition, the $2.4
million in claimed damages, he believed, was “the note and the interest that was due, plus costs.”
(2:16-cv-633, ECF No. 110, Exh. 1 at 148: 15–25). When asked just a little later in his
deposition, Grose again testified as follows:
Q. Right. But just by your testimony that $2 million serves the basis of the
damages you’re seeking, which you said was the $2,484,781; correct?
A. Correct.
Q. Including costs and expenses/
A. Correct.

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(Id. at 150: 17–20). What SPV seeks is repayment of its promissory note. Like the claims in
Hill, a claim for repayment of a loan given to the corporation states a derivative, not a direct
action.
Moreover, any such claim based on the promissory note is barred by the express terms of
the WES Operating Agreement, at least as to Tri-State. Article 6.4 of the Operating Agreement
states as follows:
No Member shall be liable for any debts or losses of capital or profits of the
company or be required to guarantee the liabilities of the Company, unless agreed
upon in writing by such Member.
WES Operating Agreement Art. 6.4.
The Operating Agreement thus prohibits SPV’s claims against Tri-State based on the loss
of the $2 million loan.
Therefore, SPV cannot bring claims that allege as damages only the $2.4 million for
repayment of the loan. Because SPV’s First Amended Complaint in state court allege only $2.4
million in damages, the claims in that complaint fail for lack of standing. The First Amended
Complaint brings claims against Jack and Clark for breach of fiduciary duty and for fraud and
misrepresentation. Clark’s, Jack’s, and Tri-State’s Motions for Summary Judgment on the fraud
and breach of fiduciary duty claims in SPV’s First Amended Complaint are therefore
GRANTED.
Grose’s and SPV’s counterclaims remain, however. Grose and SPV counterclaimed
against Jack and Tri-State Disposal, LLC for breach of fiduciary duty and against Tri-State
Disposal, LLC for breach of contract. The counterclaims that SPV and Grose allege claim $2.4
million in damages but also contains a request for “compensating [sic] damages, incidental
damages and consequential damages in an amount in excess of $75,000.00.” (2:16-cv-633, ECF

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No. 8 at 19). Grose and SPV argued in their Response to Jack’s Summary Judgment Motion that
the $2.4 million “is just one measure of SPV’s damages which also include loss of business
opportunity, damage to its membership interest in WES, eliminating it from realizing gains from
its ownership interest, and preventing SPV from engaging in any type of corporate governance of
WES as originally contemplated when WES was formed.” (2:16-cv-633, ECF No. 151 at 2).
Counsel for SPV and Grose argued at the Summary Judgment hearing that SPV’s and Grose’s
harm was that SPV could not value its shares and therefore could not determine an appropriate
value for which to sell its interest. Whether SPV could appropriately determine the value of its
shares and whether Jack and Tri-State attempted to freeze out Grose and SPV are direct, not
derivative, claims. Thus, those claims will be examined substantively below.
B. Breach of the WES Operating Agreement
Jack and Tri-State allege that SPV breached the WES Operating Agreement. (ECF No.
27 at 12). As this Court characterized this claim when ruling on Grose’s and SPV’s Motion to
Dismiss the First Amended Complaint, Jack and Tri-State “allege[] that Grose and SPV breached
the WES Operating Agreement by, among other acts, seeking Tri-State’s expulsion from WES,
seeking Jack’s removal as Tri-State’s appointed manager of WES, and seeking Jack’s removal as
WES’s CEO.” (ECF No. 25 at 9). SPV has moved for summary judgment on the breach of
contract claim. SPV argues that neither Jack nor Tri-State has put forth any evidence of direct
injury. SPV argues that Jack was never forced out of WES, and, in fact, is still a member and the
CEO of WES. SPV has also renewed its argument that Jack was not a third-party beneficiary of
the Operating Agreement, and, therefore, does not have standing to sue for its breach.
SPV’s argument that Jack does not have standing as a third-party beneficiary must fail.
As this Court stated in its ruling on SPV’s first Motion to Dismiss, Jack was a third-party

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beneficiary of the WES Operating Agreement. (ECF No. 25 at 10–13). The next inquiry is
whether Jack and Tri-State can meet the elements of breach of contract based on the facts in the
record thus far. Breach of contract under Pennsylvania law requires: “(1) the existence of a
contract, including its essential terms, (2) a breach of a duty imposed by the contract, and (3)
resultant damages.” Gorski v. Smith, 812 A.2d 683, 692 (Pa. Super. 2002); see also Omnicron
Sys., Inc. v. Weiner, 860 A.2d 554, 564 (Pa. Super. 2004).
SPV alleges that “Jack remains the CEO and a manager of WES and Tri-State has never
relinquished its membership interest in WES.” (ECF No. 140 at 12). SPV relies mostly on
Jack’s own deposition testimony for these assertions. Jack has argued in his Response to Grose
and SPV’s Motion for Summary Judgment, however, that, through Funds Protection
Investments, LLC (“FPI”), Dean Grose “purchase[d] the WES assets out of receivership for the
cheapest price possible, formed successor entity DeepRock, transferred the assets to his
DeepRock entity which now operates the formerly WES assets and business via DeepRock, all to
the exclusion of Tri-State and Jack.” (ECF No. 149 at 30–31). Jack further alleges that he was
in fact “terminated from his employment position with WES/DeepRock.” (ECF No. 149 at 31).
Jack’s and Tri-State’s argument requires accepting the conclusion that SPV accomplished
indirectly what SPV attempted to do directly; that is, to remove Jack and Tri-State from having
an interest in the business of WES. While such allegations may present an issue of breach of
fiduciary duty, however, they do not present a breach of contract. Jack and Tri-State argue that
they cannot show damages yet because experts are needed to conduct valuations and the Court
has yet to set expert deadlines. (ECF No. 149 at 29–30). The actual calculation of damages,
however, is not required at the summary judgment stage. Jack and Tri-State face the much larger
hurdle, however, of showing that SPV’s breach caused them harm.

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This Court does not doubt that SPV violated the WES Operating Agreement when it
served a demand letter on John Jack and Dean Grose asking Jack and Grose to remove Jack as
CEO. Article 14.1 of the Operating Agreement states that “[t]he Tri State Manager may only be
removed by Tri State, and any vacancy shall be filled by Tri State.” (ECF No. 137 Exh. G at 9).
And the process for expulsion under Section 24 of the Operating Agreement required a majority
of membership, which SPV, by virtue of its 50% holding in WES, did not have. But Jack, and
Tri-State were never officially expelled from WES. True, DeepRock now owns WES’s assets,
but the WES Operating Agreement applies to an interest in WES, not the injection wells that
WES once owned. In ruling that Jack and Tri-State have not shown a breach of contract for
Grose’s and SPV’s attempts to remove Jack, this Court passes no judgment on other ways that
Jack and Tri-State could have attempted to show breach of contract. For example, the Operating
Agreement states that the managers and officers of WES owed WES and its members the
fiduciary duties that all corporate officers owe to their companies. But neither Jack nor Tri-State
appears to have alleged such a direct connection between a breach of fiduciary duty and a breach
of contract. Therefore, Grose’s and SPV’s Motion for Summary Judgment on Jack’s and TriState’s breach of contract claim is GRANTED.
Grose and SPV have also alleged that Tri-State breached the WES Operating Agreement.
(ECF No. 87 at ¶¶102–06). Grose and SPV have not alleged any specific facts in their
counterclaim showing how Tri-State itself breached the Operating Agreement. Tri-State has
defended against these general allegations by arguing that Grose and SPV do not have standing
to bring this breach of contract claim against Tri-State because they have not been injured
independently of WES so as to maintain a direct action. Grose and SPV clarified in their
Response to Tri-State that their claim for breach of contract relies on four Articles of the

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Operating Agreement. First, Article 9 requires that WES’s books and records were to be kept at
SPV’s address (and the address of WES’s principal office). But, SPV and Grose allege that “TriState took control of the WES books and records in violation of the Operating Agreement.”
(ECF No. 152 at 7). Second, Article 12 of the Operating Agreement requires that WES’s
accounts be kept in the bank account that the Board designated. SPV and Grose allege that TriState violated this provision “when it opened the WesBanco Bank account without the
authorization or knowledge of SPV and its Board member, Grose.” (Id.). Third, Article 14 of
the Operating Agreement provides that the WES Board will manage WES. SPV and Grose
allege that “Tri-State breached this provision when Tri-State usurped all of SPV’s and Grose’s
management duties and Jack directed Grose to refrain from telling anyone that he was on the
WES Board or part of WES.” (Id.). Lastly, SPV and Grose allege that Tri-State violated Article
23 of the Operating Agreement by not instituting deadlock procedures and instead suing SPV.
Neither party has shown the absence of a genuine dispute of material fact on Tri-State’s
alleged breach of the Operating Agreement. This is partially due to the conclusory manner in
which SPV and Grose pleaded their counterclaims. Their counterclaim for breach of contract
against Tri-State did not specify which particular allegations they believed supported the breach
of contract claim. Therefore, Tri-State was unable properly to respond with any facts in its
favor. But Tri-State has not moved to dismiss the counterclaims and “sua sponte dismissals on
the merits are disfavored in this circuit” and “are permitted in cases where the parties have had
ample notice of the court’s intent to dismiss, or have had opportunity to address the issues raised
by the dismissal.” Tri-Med Finance Co. v. National Century Financial Enterprises, Inc., 2000
WL 282445 (6th Cir. 2000). Therefore, this Court is bound to adjudicate the matter on a motion
for summary judgment. Under Federal Rule of Civil Procedure 56(c)(3), this “[C]ourt need

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consider only the cited materials, but it may consider other materials in the record.” Fed. R. Civ.
P. 56(c)(3). Tri-State argues that SPV and Grose have not alleged any action distinct to Tri-State
as opposed to Jack, but as SPV and Grose point out, Tri-State could only act through Jack. SPV
and Grose have cited some deposition testimony, albeit the record evidence they have pointed
this Court to is thin. In addition to Grose’s deposition testimony, Albrecht appears to have
testified in his deposition that John Jack told him not to pay some invoices, to delete some
financial information from WES’s accounting system, and that Comtech was not involved in
WES’s accounting around the time that WES changed accounting systems. (ECF No. 156,
Albrecht Dep., 26:1–32:5, 34:1–35:25). This is not enough to show no genuine issue of material
fact in either direction. Therefore, Tri-State’s Motion for Summary Judgment on SPV’s and
Grose’s breach of contract counterclaim is DENIED.
C. Breach of Fiduciary Duty Claims
Jack and Tri-State allege that Grose and SPV breached their fiduciary duties. Grose and
SPV have also alleged that Tri-State and Jack breached their fiduciary duties to Grose and SPV.
Both parties now move for summary judgment. The facts on these claims are highly disputed.
Both Jack/Tri-State and Grose/SPV allege that the other party attempted to freeze them out of
management and usurp control of WES for their own benefit. This Court finds that there is a
genuine dispute of material fact on both claims. Therefore, Jack’s and Tri-State’s Motions for
Summary Judgment as to the fiduciary duty claims and Grose’s and SPV’s Motion for Summary
Judgment as to the fiduciary duty claims are DENIED.
The WES Operating Agreement spells out the parties’ fiduciary duties in Article 14.1,
which provides as follows:
“the Mangers and the officers of the Company, in the performance of their duties
as such, shall owe to the Company and its Members the fiduciary duties

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(including the duties of loyalty and due care) of the type owed under law by
directors and officers of a business corporation incorporated under the laws of the
Commonwealth of Pennsylvania.”
To state a claim for breach of fiduciary duty, “a plaintiff must first establish that a
fiduciary or confidential relationship existed between [plaintiff] and the defendants.” Fox Int’l
Relations v. Fiserv Secs., Inc., 490 F. Supp. 2d 590, 615 (E.D. Pa. 2007) (quotation omitted). In
addition to alleging a fiduciary relationship, a plaintiff must also plead: “(1) that the defendant
negligently or intentionally failed to act in good faith and solely for the benefit of the plaintiff in
all [relevant] matters . . . ; (2) that the plaintiff suffered injury; and (3) that the [defendant’s]
failure to act solely for the plaintiff’s benefit . . . was a real factor bringing about plaintiff’s
injuries.” See Dinger v. Allfirst Fin., Inc., 82 F. App’x 261, 265 (3d Cir. 2003); Baker v. Family
Credit Counseling Corp., 440 F. Supp. 2d 392, 414-15 (E.D. Pa. 2006). Several state and federal
courts applying Pennsylvania law have found that an allegation that one shareholder tried to
freeze out another can support a claim for breach of fiduciary duty. See, e.g., Cooper v. Rucci,
No. 07-00036, 2008 WL 942710, at *1-7 (W.D. Pa. 2008) (collecting cases) (holding that
Pennsylvania Supreme Court likely would adopt a rule permitting direct actions for breach of
fiduciary duty from 50% shareholders who were frozen out or denied corporate opportunities);
Liss v. Liss, No. 2063, 2002 WL 576510, at *5 (Pa. Com. Pls. Mar. 22, 2002) (finding that a
claim that one 50% shareholder “oppressed” and “excluded” other 50% shareholder could
proceed as a direct claim).
There is a genuine dispute of material fact on both sides here. Grose and SPV have
pointed to evidence that Jack was negotiating with investors to purchase WES and continue the
business without Grose and SPV. Jack and Tri-State have put forward evidence of Grose and
SPV attempting to cut Jack and Tri-State out of the business. This kind of dispute is

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fundamentally ill-suited for summary judgment. Whether either party breached a fiduciary duty
to the other and what damages resulted, if any, is a question best evaluated by a jury upon
hearing the testimony, seeing the documents, and evaluating the credibility of the witnesses.
Therefore, the parties’ cross motions for summary judgment on the breach of fiduciary duty
claims are DENIED.
D. Jack’s and Tri-State’s Defamation Claim
Grose and SPV have moved for summary judgment on Jack’s and Tri-State’s Defamation
claim. At argument, counsel for the Jack and Tri-State represented that they no longer wished to
pursue their defamation claim. Therefore, Grose’s and SPV’s Motion for Summary Judgment as
to the defamation claim is GRANTED.
IV.

CONCLUSION

For the foregoing reasons, the parties’ motions are GRANTED IN PART and DENIED IN
PART. The parties’ claims may go forward as follows.






Tri-State’s Motion for Summary Judgment (ECF No. 135) is DENIED.
John Jack’s Motion for Summary Judgment (ECF No. 137) is GRANTED IN PART and
DENIED IN PART.
o John Jack’s Motion for Summary Judgment as to SPV’s and Grose’s breach of
fiduciary counterclaim is DENIED. There is a genuine dispute of material fact as
to whether John Jack breached his fiduciary duty.
o Summary Judgment is GRANTED in favor of John Jack on SPV’s and Grose’s
breach of fiduciary duty claim against John Jack as asserted in SPV’s and Grose’s
First Amended Complaint in case 2:17-cv-808.
Terry Clark’s Motion for Summary Judgment (ECF No. 138) is GRANTED.
Dean Grose’s and SPV’s Motion for Summary Judgment (ECF No. 139) is GRANTED
IN PART and DENIED IN PART.
o Grose’s and SPV’s Motion for Summary Judgment on Jack’s and SPV’s breach of
contract claim is GRANTED.
o Grose’s and SPV’s Motion for Summary Judgment on Jack’s claim for defamation
is GRANTED as Jack and Tri-State have represented that they do not wish to
pursue the claim.
o Grose’s and SPV’s Motion for Summary Judgment on Jack’s and SPV’s breach of
fiduciary duty claim is DENIED as there remains a genuine dispute of material
fact.

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IT IS SO ORDERED.

s/Algenon L. Marbley_______________
ALGENON L. MARBLEY
UNITED STATES DISTRICT JUDGE

DATED: March 25, 2019 

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